Earnings Call Transcript - SNOW Q4 2021

Jimmy Sexton, Head of Investor Relations

Good afternoon. And thank you for joining us on Snowflake’s Q4 fiscal 2021 earnings call. Joining me are Frank Slootman, our Chairman and Chief Executive Officer; and Mike Scarpelli, our Chief Financial Officer. During today’s call, we will review our financial results for fourth quarter fiscal 2021 and discuss our guidance for the first quarter and full year fiscal 2022. 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, and overall future prospects. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results. 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 and the Form 10-K for the fiscal year ended January 31, 2021, that we will file with the SEC. We caution 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. 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.

Frank Slootman, CEO

Thanks, Jimmy, and good afternoon, everybody. We finished our fiscal year with strong consumption across our customer base with 116% growth year-on-year to $178 million in fourth quarter product revenue. Remaining performance obligations of $1.3 billion grew 213% year-on-year, reflecting strengthened sales across the board. Coupled with this rapid growth, we saw improving operating efficiency, while onboarding over 800 new employees for the year. Our growth is driven by long-term secular trends in data science and analytics, and enabled by cloud-scale computing and Snowflake’s cloud-native software architecture. With the onslaught of digital transformation, data operations become the beating heart of the modern enterprise. Customers realize that to survive and thrive they need to step up their data game given what is now possible with technology. The Snowflake Data Cloud enables breakthrough data strategies. Capacity limitations are a thing of the past. There are virtually no constraints anymore on the number of workloads that can execute at the same time against the same data. The performance of individual workloads has increased by orders of magnitude while latency has been reduced at similar proportions. The only constraints left are budgets and our customer’s imagination and we believe those boundaries are shifting quickly as well. The Snowflake Data Cloud also breaks new ground in terms of data access, which is increasingly critical for data science, artificial intelligence, and machine learning workloads. The days of mostly siloed analytics are numbered. The promise of data science is to discover and mobilize data relationships that can be glimpsed across a broad diversity of data sources and data types. The physical boundaries between data sets dictated by technology legacies have no meaning or significance in data science. Science sees the world’s data as a single universe that is easily and seamlessly traversed as if it was one giant database. That is the essence of the Snowflake Data Cloud, world-class workload execution coupled with virtually unfettered data access across clouds, cloud regions, and geographies. BlackRock, the world’s largest asset manager has adopted the Snowflake Data Cloud to help make the best investment decisions for their clients. Last week we announced a strategic partnership to launch the Aladdin Data Cloud powered by Snowflake. Now Aladdin clients can combine Aladdin portfolio data with non-Aladdin data to analyze faster and create custom applications and dashboards. Clients will have a single control plane to make data-driven decisions around portfolio management, trade execution, investment operations, analysis, and risk management. With Aladdin becoming a strategic part of the Snowflake Data Cloud, our shared goal with BlackRock is to create a cutting-edge industry standard for accessing and governing and acting on data in a unified and governed data environment. The data cloud is inspiring more new conversations with customers and prospects, and it leads them to a different view of their data strategies going forward. Active data showcasing our relationships in the Snowflake Data Cloud are growing by leaps and bounds, increasing 51% quarter-on-quarter. We are seeing rapid adoption of the Snowflake marketplaces as well, with consumption attributable to data from marketplace providers up 48% quarter-over-quarter and new listings growing 10x year-on-year to a total of 380 as of the end of the fiscal year. Newly added to the marketplace in Q4 are data providers such as Zoominfo, Western Union, and Foursquare. A continued push to engage large enterprises in the world is proving to be successful. We added 19 Fortune 500 customers in Q4, including MasterCard, Genuine Parts, and Northern Trust. Our customers choose to partner with Snowflake because of the data cloud, but we still must meet customers wherever they are on their technology journey. Often engagements begin with a migration of legacy data warehouse platforms. We have engaged in over 75 legacy migrations last year and we have identified many more for this year. Our Global System Integration partners or GSIs have seen their backlogs multiply and are rushing to staff, train, and provision resources to meet the demand head-on. While we team up with our GSIs, our strategy is to rely on our implementation partners for much of this work. We are pleased to welcome Infosys to Snowflake Elite Partner Status during the quarter. A Fortune 100 technology company has deployed Snowflake across numerous lines of business since migrating their on-premise data warehouse platform to Snowflake, because Snowflake has enabled their marketing department to make more informed decisions with 20 times faster support for their customers. For fiscal 2022, our focus is to turbocharge our Snowflake Data Cloud with massive workload execution extensions and refinements, as well as extend our data federation with numerous new additions to the Snowflake marketplace. While our selling motions address some of the world’s smallest, as well as largest data states, we will maintain a continued emphasis on landing and expanding in the largest enterprises, not just in the Americas, but also in EMEA and Asia-Pacific. To that end, we have announced new leadership in the latter region to accelerate and scale this Snowflake campaign there. A new global initiative we began last year and are now accelerating is a vertical industry focus, which is permeating our sales, marketing, alliances, product, and service organizations. We have long sold almost exclusively on architectural distinction, which has served us well and we will continue to do so in situations that warrant. However, our large enterprise focus has informed an evolution to a go-to-market motion that is industry-specific and outcome-oriented. We view this as a maturation of Snowflake in a large enterprise. We also now have so much critical mass in our target verticals, coupled with industry-specific data marketplaces, that this strategy will further differentiate Snowflake. We are extremely excited about the New Year. We have the technology, the talent, and the organization to fully pursue our opportunity. With that, I will now turn the call over to Mike.

Mike Scarpelli, CFO

Thank you, Frank. Q4 was another quarter of exceptional execution and a strong finish to our first fiscal year as a publicly traded company. Our Q4 product revenues were $178 million, representing 116% year-over-year growth, and remaining performance obligations were $1.3 billion. The outperformance of consumption spanned all verticals as we continue to see our customers deploy Snowflake across their organizations. Our strong RPO results continue to be driven by more multi-million dollar deals, as well as our customers’ willingness to engage in multiyear contracts up to $1.3 billion in RPO. We expect approximately 55% to be recognized as revenue in the next 12 months. As a reminder, this number is an estimate and can fluctuate significantly due to our consumption business model. The strong performance reflects Snowflake's role as both a technology solution, offering superior execution across workloads, and as a strategic partner enabling digital transformation through the data cloud. We continue to invest in growth opportunities and we are now benefiting from our maturing enterprise sales efforts. In Q4, we saw the number of customers with greater than $1 million in trailing 12 months product revenue increase to 77%, up from 65% last quarter, with 12 customers now consuming over $5 million on a trailing 12 month basis. Internationally, we have expanded our sales force across relevant geographies. We are seeing promising traction in these markets, but remain in the early stages of this opportunity. Turning to margins, on a non-GAAP basis, our product gross margin was 70%, up 400 basis points from last year. Favorable cloud service agreements, growing scale across regions, our enterprise success, and ongoing pricing discipline all contribute to steady gross margin improvement. Our operating margin was negative 24%, benefiting from revenue outperformance and continued T&E savings. Our adjusted free cash flow margin was 9%, positively impacted by strong collections, with Q4 being our largest booking quarter, cash inflows relating to our employee stock purchase program, and operating margin outperformance. As a reminder, adjusted free cash flow excludes the impact of cash paid for employer payroll taxes on employee stock transactions. This quarter we saw a $10 million impact from those items. While we will continue to focus on long-term margin expansion and profitability, we do experience free cash flow seasonality in Q1, and Q4 will continue to be our strongest free cash flow quarters. We are very proud of our strong free cash flow. On a year-over-year basis, we cut our annual cash burn by 64% or $128 million, more than doubling the business. We have implemented operations that will help us show more profitability, and we are continuing to invest heavily in the business. We have ended the year in a strong cash position, with approximately $5.1 billion in cash, cash equivalents, and short-term and long-term investments. This enables us to explore a number of strategic initiatives, including Snowflake Ventures, which has made several investments in the quarter, including DataRobot, Hunters, NOMA, and Lacework. Our mission is to engage more organizations with the data cloud, and all investments aim to drive increased consumption of Snowflake. Now, let’s turn to our guidance and outlook. For the first quarter of fiscal 2022, we expect product revenues between $195 million and $200 million, representing year-over-year growth between 92% and 96%. Turning to margins, we expect on a non-GAAP negative 23% operating margin, and we expect 289 million weighted average shares outstanding. For the full year of fiscal 2022, we expect product revenues between $1 billion and $1.02 billion, representing year-over-year growth between 81% and 84%. Turning to profitability, we expect on a non-GAAP basis 71% product gross margins, negative 19% operating margins, and breakeven adjusted free cash flow, and we expect 295 million weighted average shares outstanding. Our outlook includes increased investments and FedRAMP initiatives and accelerating migrations off of legacy solutions, both of which will drive enterprise customer success. In order to support our growth initiatives, we plan on adding more than 1,200 net new employees during the year. Regarding COVID, our forecast assumes that we will continue to work remotely for the foreseeable future, with an increase in potential travel expenses in the back half of the year. We are benefiting from strong productivity in our current environment and we have successfully onboarded and ramped new employees since March 2020. While we anticipate an eventual return to the office, we do not have a specific timeline for that goal. Before closing, I’d like to note a few recent or upcoming events. Today, we announced that on March 1, 2021, our Class B shareholders, in accordance with their governing documents, converted all of our Class B common stock to Class A common stock, eliminating the dual class structure of our common stock and ensuring that each share has an equal vote. We view this as operationally beneficial to the company and its shareholders. In addition, the restrictions under our IPO lockup will expire on March 5th, and almost all remaining shares not purchased in the private placement or secondary transactions concurrent with their IPO will no longer be subject to a lockup agreement. Lastly, we will host a virtual Investor Day in conjunction with Snowflake Summit, our annual users’ conference, the week of June 7th. If you are interested in attending, please email ir@snowflake.com. With that, Operator, you can now open up the line for questions.

Operator, Operator

Certainly. Your first question comes from the line of Raimo Lenschow with Barclays. Your line is open.

Raimo Lenschow, Analyst

Hey, congratulations on those impressive numbers. Frank, this quarter, we noticed a bit more activity in the market, which might be a result of your success. Could you explain the recent changes in the competitive landscape? I have a follow-up question for Mike after that.

Frank Slootman, CEO

Not really, Raimo, and things have been stable, and certainly from the public cloud standpoint, there’s not much change, in terms of the comparisons with the legacy providers. If I sort of take a global perspective on it, I would say, that I feel that our competitive position is gradually strengthening in anticipation of the types of interactions we have with customers. We are operating far more at the CEO level now than at the highest level of IT. So, there is definitely, I feel an inflection there that is reflecting the relative position of the company and the marketplace, which we feel is very good.

Raimo Lenschow, Analyst

Thank you, Mike. Regarding gross margins, we've seen progress this year and appreciate the guidance. Can you discuss the factors driving the expected improvement in gross margins for the coming year? Is it primarily due to contracts with cloud providers, and what contributed to your ability to reach long-term goals? Thank you.

Mike Scarpelli, CFO

Yeah. I would say, the contracts with the cloud provider started kicking in Q3 and we had the full benefit in Q4. I don’t anticipate renegotiating our cloud contracts next year. We may be in a situation at the end of the year, but I am not expecting that. It’s really driven by getting more scale within our existing deployments. We have a number of deployments where we are not at scale and we see those ramping right now. For example, Japan has been running at a negative gross margin because we just don’t have many customers, but we are starting to ramp there that will turn around, and that’s just one example. We are in 20 deployments worldwide, and think of a deployment as a data center outplace. As we move higher up into larger enterprises, they tend to buy our higher edition, our business critical SKU. Yes, those big customers require more discounting, but the contribution margin from those higher SKUs more than offsets that discounting to drive gross margin, which gives us the confidence that we will get to those mid-70s, but it’s not going to happen next year. We see that continued gradual improvement.

Raimo Lenschow, Analyst

Perfect. Thank you. Congrats.

Operator, Operator

Your next question comes from the line of Derrick Wood with Cowen. Your line is open.

Derrick Wood, Analyst

Yeah. Great. Thanks and congrats as well on a very strong quarter. I guess, first for Frank, how are you feeling about the ability to onboard salespeople at a good clip and keep up the demand trends out there, particularly kind of in this work-from-home environment? And then heading into the New Year, any go-to-market tweaks you are planning that you would call out?

Frank Slootman, CEO

Yeah. So, in terms of salespeople, I think we are doing incredibly well and we are making a lot of changes and adjustments that are strengthening our organization. I am sure you know that, a year and a half ago we separated our U.S. selling organization and enterprise, and what we call majors, which are the largest 200 or so accounts, and we really stepped up our staffing in that organization, hiring the absolute best people available in the marketplace for this role. So, I am really positive on that. In terms of what’s changing on our go-to-market, I referenced that in the prepared remarks. I mean, we are very aggressively verticalizing our selling motions and our general posture in accounts, and we find it’s very important that when we interact with customers, there’s always an industry context in the conversation. We are much more outcome-oriented. Customers are sometimes interested in architecture and things of that sort, and comparing workloads. But increasingly, when you get higher up in larger enterprises, they just want to know what it means to their business, what other people are doing. So, that is a significant change and we are investing literally at every level in the organization, so starting with products, moving into marketing and moving into alliances, as well as into sales. This is a very serious effort that started last year and will continue this year.

Derrick Wood, Analyst

Great. Thanks. And Mike maybe one for you, nice uptick in new customers in the quarter and then you called out what’s helping drive that acceleration. Is it better productivity, more capacity, or is it something you are starting to see from this viral networking effect from your data sharing? Is that something that can move the needle and starting to help lift the customer generation?

Mike Scarpelli, CFO

Well, I would say, there was definitely an increase in average productivity per rep in terms of the number of cap one deals that they brought in. In terms of the data sharing, I don’t have any specific data on that, but that is clearly a discussion point with every customer and one of the reasons why they choose to go with Snowflake. It helps the decision to choose Snowflake. That’s also a factor that we are ramping, having added so many reps and ramping those people.

Derrick Wood, Analyst

Great. Well done. Thanks.

Mike Scarpelli, CFO

Thanks.

Operator, Operator

Your next question comes from the line of Patrick Colville with Deutsche Bank. Your line is open.

Patrick Colville, Analyst

Hey. Thank you so much for taking the question and congrats on an extremely impressive set of numbers. I just want to touch on the capacity environment. I mean the earlier question from Raimo was around competition with the cloud-native vendors. But one of the legacy, call it, on-prem vendors put up some pretty impressive cloud numbers a month ago. How are dynamics with the incumbents shaping out, and yeah, maybe a comment on that please?

Frank Slootman, CEO

Yeah. Patrick, this is Frank. I can honestly say that in my almost two years here, I have never seen the legacy provider being - they are running for a go-forward destination for the platform, if you will. The competition is always moving off of legacy platforms, and they have been very focused on the public cloud options. What I will say is that we are seeing the public cloud vendors having significant struggles in terms of migrating successfully off of these legacy platforms, which, of course, brings relative strength to these legacy providers. I think that Snowflake is really the only platform that is successfully and consistently and now at scale moving these workloads to the cloud. But to some degree, your legacy providers are hanging in there longer because, if you are not going to Snowflake, you are going to have a struggle on your hands. So, that’s sort of my commentary on that topic.

Patrick Colville, Analyst

Yeah. I mean that’s very helpful. And can I just ask a quick follow-on for Mike if possible? It seems that implicit in guidance is that Q1 up margins look like it will increase pretty materially year-on-year. Are you guys slowing the pace of hiring, or how should we think about that component?

Mike Scarpelli, CFO

No. We are absolutely not slowing hiring down. As we just mentioned, we are going to add 1,200 people next year. Actually, Q1 is a very, very big onboarding quarter. It will probably be the largest quarter of the year because we are onboarding a lot of people in the sales and marketing organization in advance of our sales kickoff that we just had. We are investing as quickly and efficiently in our business as we can.

Patrick Colville, Analyst

Fantastic. Thank you so much and congrats on very impressive results.

Mike Scarpelli, CFO

Thank you.

Operator, Operator

Your next question comes from the line of Brad Zelnick with Credit Suisse. Your line is open.

Brad Zelnick, Analyst

Excellent. And I echo the congrats as well. Well done, guys. I have got one for Frank and maybe one for Mike. Frank, can you share more about the BlackRock partnership with a leading cloud on the Snowflake Data Cloud? Specifically, can you talk about the economics of these types of relationships and the success criteria that you use for gauging the progress? And maybe as well, how many partnerships like this are out there to go after?

Frank Slootman, CEO

No. There are a lot of partnerships out there to go after. I think that announcement by itself triggered a whole rash of conversations both from the financial industry and other industries. This whole conversation around customers building their own data cloud is really the center of their universe. The way they interact with their partners, their customers, their stakeholders is a huge idea and people see the opportunity and the potential. For BlackRock, because they are the world’s largest asset manager with about $21 trillion to $22 trillion of assets under management, they realized that they needed to modernize and transform to continue to be in a very dominant position. From an economic standpoint, it’s really no different than what we are doing. In other words, this is not a different line of business for us, but the same product, same business practices, and so on. These relationships are highly strategic to us. They become cornerstones to the Snowflake Data Cloud and the data universe because there’s also the network effect for those people that need to have access to this data or provide access.

Mike Scarpelli, CFO

To say it in a simpler way, Brad, all of those Aladdin customers that want data through Aladdin, if they want to get their data the most efficient way, they are going to have to be Snowflake customers.

Brad Zelnick, Analyst

Excellent. That makes perfect sense. And Mike, maybe just to follow up with you, it’s great to see net retention continues to be really strong. I think that’s in class with anything else we look at. But as we think about the cohort of customers that you have added in the last 12 months, how are they tracking relative to prior years? And maybe just ask differently, like, how do we think about the size of your lands today and how that might be changing and informs your view on how we might think about that net retention rate going forward?

Mike Scarpelli, CFO

Yeah. So, I do expect the net retention rate this year to remain very high. It should be north of 160 throughout the year is what we are seeing right now. In terms of average deal size landing, that is not changing that much. What’s happening is, as you know, when Frank came in here, he really started focusing more on enterprise customers. We are landing more Fortune 500 customers. We talked about we landed 19 in the quarter. But those 19 we landed, just to reiterate, we recognized virtually no revenue on those customers. That’s all in the RPO that will be recognized in the next 12 months.

Brad Zelnick, Analyst

Awesome. Thanks so much, gentlemen, and stay well.

Mike Scarpelli, CFO

Thank you.

Operator, Operator

Your next question comes from the line of Patrick Walravens with JMP. Your line is open.

Patrick Walravens, Analyst

Oh! Great. Thank you and congratulations. Frank or Mike, can you double-click on the migration? So why is it so hard to migrate legacy data warehouses? What steps do you have to take that are so time-consuming and then what is it about the Snowflake platform that makes it so much better suited to do it than the cloud providers?

Frank Slootman, CEO

So that’s a great question. First of all, database migrations have been hard since time immemorial. They have never been easy. They have been lengthy, expensive, and risky. Our customers are quite leery of them as well. One of the reasons is that while we can analyze the data structures, we analyze the code, we can automatically convert a lot of it—there’s usually no straightforward mapping of some of the data between these databases. For example, you take some of the legacy flavors out there; they have proprietary artifacts that simply do not have a counterpart in Snowflake because Snowflake is a completely standard SQL environment. That means that we have to reengineer, we have to reshape the structure, and we have to optimize workloads. The integrity of the data is absolutely everything. When you do a data migration, what makes customers fearful is that they want to ensure that when the systems land on the other side, they are getting exactly the same results that they were getting before. So, the integrity has to be maintained 100%. It’s not a matter of throwing on a big switch and hoping for the best. This gives you a bit of color and texture as to why these are viewed as high friction. We are good at it because we are experts in this. This is what we do. We have a ton of experience doing it, and that accumulated experience, as well as a lot of the tooling that we have to support these efforts, result in very good results with predictable outcomes in terms of time, cost, and results.

Patrick Walravens, Analyst

All right. That’s very helpful. Thank you.

Operator, Operator

Thank you. Your next question comes from the line of Brent Thill with Jefferies. Your line is open.

Brent Thill, Analyst

Thanks. Frank, a lot of the customers are excited about your journey to unstructured data. I am just curious if you could update us on that journey and how far out our customers going to have to wait. What are you starting to see in terms of the discussions around commitments beyond the structured stance you already have?

Frank Slootman, CEO

Well, we are 100% committed to that. From a strategy standpoint, it is something we absolutely have to do. When you think of data sciences, data relationships don’t just exist between like data; they exist between structured and unstructured data. That’s where a lot of the power is going to come from the type of signals that we can drive out of the data. I think I said last time that we are going to really substantially update the world on where we are with that, as well as demonstrate at our June user events. You should expect, in the second half, to see the real results of that strategy starting to become available in private previews and things of that sort.

Brent Thill, Analyst

And one of the other things that the customers keep talking about, Frank, relates to some of the partnerships with Tableau or Salesforce or ThoughtSpot, some of the other interfaces that are making your data more consumable by the mass market. We have heard some incredible stories of customers moving faster with you because of those partnerships. Can you just bring us up to speed on what you hear from customers and what some of the deployments look like that you are hearing common feedback on? Thanks.

Frank Slootman, CEO

We have relationships literally with every single business intelligence vendor. Tableau is definitely the largest one, but we also are going gangbusters with Power BI, which is the Microsoft product, and we expect to see a lot of growth in that area as well. Those relationships are really solid. We have a product of our own called Snowsight, which is not so much intended to be a competitor to the likes of Power BI and many others. That’s really our homegrown product for data analysts rather than for end user distribution. There’s no doubt that Snowflake makes these products sing—just the sheer scale of execution, performance, and provisioning. Without Snowflake, it’s very difficult for these products to provide the snappy dynamic performance that users are looking for. So the combination of this technology Snowflake with the entire family of BI products out there is very, very important to deliver a good end result to the customer.

Brent Thill, Analyst

Thanks, Frank.

Operator, Operator

Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is open.

Kash Rangan, Analyst

Hey, guys. Thank you very much. Congratulations on a superb quarter. Two questions. Frank, one for you. You talked about how decisions are increasingly being made at the C-level, not just the CIO but CEO level. Can you talk about how they are looking at Snowflake in relation to their digital transformation initiatives? Generally, here customer experience and employee experience is fairly digital. Could you help us connect the dots? What are your customers' CEOs thinking in regards to Snowflake and how it specifically drives their digital transformation? Maybe I will just leave it at that. Thanks.

Frank Slootman, CEO

The angle they are taking is one of digital transformation. IT organizations are typically focused on what we call modernization. They are taking existing workloads and moving them from on-premise environments to the cloud essentially to take advantage of the utility model and all of that, but fundamentally running the same workloads on the Snowflake platform. When you get to business people and CEOs, they are looking for new angles. They are looking for transformation, not just modernization. It’s often very easy to determine in these conversations whether people are after doing things differently and looking for advantage. Digital transformation plays a big role. What that means is that they are looking to drive signals out of their data. They are trying to define data relationships through data models that they can take advantage of. Once they can describe the data relationship, they can predict it and even make prescriptions out of that as well. Things are going to go end-to-end digital, lights out, light speed. Digital transformation is a big thing. You can think of things like really improving the efficiency and yield on marketing and sales outreach, improving service experiences, and achieving very high scale and very high precision with very high economy on these types of processes compared to what they historically have done. The data cloud is central to these conversations. One of the things we drive very hard is that future data operations will be very much dominated by data really moving in an orbit, where data is flowing between partners and stakeholders, allowing them to not just analyze data in silos, but to address data across a broad orbit that includes their own data as well as external data sources like social media, IoT, both structured and unstructured. That’s where people are looking for significant advantage compared to where they historically have been.

Kash Rangan, Analyst

Got it. Frank, and also your biggest customers, what problem areas are they pushing you into that could open up opportunities? That’s it from me. Thank you so much.

Frank Slootman, CEO

The opportunities that are central to conversations with our bigger customers are data cloud-oriented. That means establishing data networking relationships, not just internally but especially externally. We are well on our way in our journey. We disclosed some of the growth rates in our prepared remarks. But that conversation is front and center with every single customer. Everybody is trying to figure out. Historically, we have shared data through APIs and file transfer processes—copying and replicating. It’s been an enormous struggle. The opportunity with Snowflake is to make this zero latency, zero friction, completely seamless. It’s an enormous game changer compared to what people are used to.

Operator, Operator

Your next question comes from the line of Brad Reback with Stifel. Your line is open.

Brad Reback, Analyst

Great. Thanks very much. Frank, early in the call, you talked about the limitlessness of the product set and that it’s only limited by the customer’s imagination. How do you help clients manage budgeting issues, given the usage that they rack up on the system very quickly?

Frank Slootman, CEO

That’s a good question and certainly a topic that we discuss often. The big change in paradigm is that historically in on-premise data centers, people have to manage capacity. Now they don’t manage capacity anymore, but they need to manage consumption. That’s a new thing for not everyone, but for most. People that are in the public cloud have gotten used to the notion of consumption, as that applies equally to the infrastructure clouds. Now we do a lot—we have full-blown chargeback capability, so that the consumers of compute and our service are really accountable for what they do and don’t do. We have hard limits, we have soft limits, we have notifications, and dashboards. So there are a lot of ways to do this. But at the same time, we see organizations getting really motivated and inspired by the capabilities they have. Sometimes they get a little out of control in terms of the amount of processing they were planning to do, and it’s a very blunt situation. We have been bottled up literally for generations, and now we have a situation where there is no upper limit to how much you can do, and that’s intoxicating, quite honestly. We also see organizations getting used to managing consumption and determining how much we really want to allow, because often there are compelling reasons why they need to consume these services rather than simply looking at their spend. It’s manageable, but it’s a new discipline and a mindset that everybody needs to wrap their head around, and we provide the infrastructure and governance capabilities to do that.

Brad Reback, Analyst

Great. Thanks very much.

Operator, Operator

Your next question comes from the line of Brent Bracelin with Piper Sandler. Your line is open.

Brent Bracelin, Analyst

Good afternoon and thanks for taking the question. One quick for you, Mike, and then a follow-up for Frank. The dollar value of new contract signings in Q4 exceeded all of last year. My question is, is there some seasonality that drove that? Is this just improving sales productivity? Walk me through the drivers there of the RPO momentum in Q4, and then one quick follow-up.

Mike Scarpelli, CFO

A number of things. A, you are always going to get seasonality because that’s a bookings number, and salespeople in Q4 are going to try to maximize their acceleration due to comp plans. But it’s also a function of the number of reps that we now have who are ramped up. It’s also a function of the fact that we are getting into larger customers as well. It’s not just the larger new customers; it’s the existing large customers with big renewals because we are growing within those customers in the multiyear component of those customers. As I previously mentioned, most initial customers tend to be one-year contracts, and we are finding that the follow-on tends to be the multiyear once they have proven their use cases. That’s not always the case, but it’s what we have seen historically. I do expect that as we become a larger company, we will see more and more of those customers signing multiyear deals up front.

Brent Bracelin, Analyst

Got it. Helpful color there. And then, Frank, we have heard that internal use case for data sharing inside of a corporation has the potential to become the killer app here. You have some great stats on data marketplace, which is really around sharing data externally. But do you have any color on internal use cases for data sharing? Are you seeing any material changes in customer interests for internal data sharing use cases?

Mike Scarpelli, CFO

Yeah. The interesting thing is that most of the data sharing is actually external, not internal. One of the reasons is that if I look at some of our larger customers, they maintain a single copy of all their data and allow their operating functions and departments to execute clusters against that single copy of the data. So, they are sharing data effectively because they have a single copy of the data. So, they don’t have to take advantage of our data exchanges and data sharing because they are literally sitting on the same copy of the data. That’s likely the reason why we should have two modes of sharing: one is tightly coupled where everybody sits on the same data, and the other one is the more loosely coupled one through our data sharing architecture. Customers can mix and match depending on their culture and how much they want to have custody of their own data. That drives their approach, but architecturally, the tightest model we have is where there’s one copy of data for the entire enterprise. Anybody wanting to process against that data can fire up their own warehouses and clusters to run their own workloads, which has proven to be an extremely successful model for Snowflake and our customers.

Brent Bracelin, Analyst

Great. Thank you.

Operator, Operator

Your next question comes from the line of David Hynes with Canaccord Genuity. Your line is open.

David Hynes, Analyst

Hey. Thanks, guys. I will echo everyone's congratulations on really impressive numbers. Just one for me, Frank. Is there any way to think about a dollar spent with Teradata or when the legacy vendors turns into X amount of spend with Snowflake? I realize they are not the only share donator and I get that this is not only replacement, but it gets at the question of how big can Snowflake really get. Any thoughts to help us frame that?

Frank Slootman, CEO

The interesting thing is that a lot of the Teradata migrations we have done have led customers to tell us they are spending half the money while doing ten times the amount of work. That may not be what you want to hear, but that’s a great deal for them. What’s expanding the marketplace is that historically, there have been fixed capacity limits on how much work you could do, and those are gone under the Snowflake platform. You can run as many workloads concurrently, and you can provision those individual workloads as much as you need to. So all of a sudden it’s like, hey, I don’t have to wait in line for a 2 a.m. slot to run my job. Everything runs concurrently—as much as you can possibly imagine. Obviously, there’s a financial consequence to running extensive workloads, but there’s no operational limit on that. This situation inspires people to undertake tasks they never considered due to previous limitations. We're currently in a period of unleashing imagination as well as addressing the backlog of opportunities that people are rushing towards. Because data is the driver of digital transformation, it serves as the signals fueling digital processes. It’s a vital element in how enterprises are evolving. We have been informed by several customers that we are the second largest line item in their budget behind public cloud, and that might shock some, but it is not going to be extraordinary going forward based on what we are witnessing.

David Hynes, Analyst

Perfect. Thank you, guys.

Operator, Operator

Your next question comes from the line of Mark Murphy with JPMorgan. Your line is open.

Mark Murphy, Analyst

Thank you, Frank. At the Data Cloud Summit, Benoit mentioned a goal to try to reduce end-to-end data latency by 10 times from where it is today, a pretty amazing goal. I was wondering if you could walk us through how long you think that might take and what types of new opportunities it could open up, maybe for more complex analysis or larger AI models and so forth inside the Snowflake?

Frank Slootman, CEO

We should probably bring Benoit in here to answer that question. One area where we are investing is our event-driven architecture. Today, our event latency is sort of seconds and minutes. But you want to drive that down to sub-seconds and dramatically lower. You start to open up use cases that are just very different. They really require very specific optimizations. When you think about electronic trading and all that, the latency has to be approaching zero. That requires tremendous optimization on our part, and we are working on that because we see it as a critical part of the ongoing evolution of digital transformation. We are doing a lot of stuff that meets our capabilities today, but we foresee a world where we have to be much faster than what we have done so far. We know how to do it, and it will expand the marketplace into places where these technologies historically have not been.

Mark Murphy, Analyst

Thank you. And that’s a good follow-up, Mike. It sounds like you are moving upmarket in a big way with more large enterprises fairly rapidly. Are you seeing a higher mix of Snowflake usage on Microsoft Azure, or would we be penciling in AWS sticking around? I think it been 85% of the usage. Do you think it will hang in there for this fiscal year?

Mike Scarpelli, CFO

I think AWS will continue to be our largest cloud for quite some time, but we are definitely seeing a lot of large enterprise customers choosing to go with Microsoft. However, as I mentioned, revenue lags when we book deals. It’s going to be the second half of the year, and even in fiscal 2023, I think you will see Azure increase in percentage, but we still think AWS will remain our number one cloud partner.

Mark Murphy, Analyst

Thank you and congrats.

Operator, Operator

Your next question comes from the line of Tyler Radke with Citi. Your line is open.

Tyler Radke, Analyst

Hey. Thanks very much for taking my questions, and I appreciate the stats on data sharing. I wanted to ask you about the strength there; is that helping you accelerate the win of new logos? Are you able to land with that use case in a customer where you hadn’t been successful before? And then, as I think about that going forward, do you think data sharing could get to a point where you start breaking out that revenue over time?

Frank Slootman, CEO

I certainly hope we will break out that revenue over time, but we are not there yet. You will be the first to know once we do. What I will say is the data cloud conversation is so highly differentiated that even in accounts fully dominated by incumbents, it reopens the conversation that we have seen over and over. We love it, because it shifts the discussion from just modernizing existing workloads and moving to the cloud, doing POCs, and benchmarking. All of a sudden we are discussing complete innovation transformation, and that’s inspiring for the customer and great for Snowflake.

Mike Scarpelli, CFO

I wouldn’t anticipate breaking out data sharing revenue anytime soon, as it will be difficult. The reason I say that is because the whole data sharing will drive people to use Snowflake since they will have to consume their data, but that’s just one aspect of their data. Ultimately, they will also perform everything on Snowflake, pulling in their own data sources from other places. It’s all intertwined. At the end of the day, what data sharing does is drive stickiness and consumption.

Tyler Radke, Analyst

Got it. I think Frank got my hopes up around the disclosure there. Just a follow-up, as you are thinking about this year, curious how your assumptions are on close rates and what you are putting into the forecast relative to last year as you think about the macro environment?

Mike Scarpelli, CFO

I would say we provided guidance for next year and you will continue to see growth next year. We feel very good about what we see right now, and we are not really seeing any impact from macro conditions on our business at all.

Tyler Radke, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Mark Rende with Morgan Stanley. Your line is open.

Mark Rende, Analyst

Hi. Mark Rende on for Keith Weiss. Thanks for taking my question. Congrats on the strong quarter. I guess just one from me, with the evolution of the go-to-market towards vertical-specific solutions as you better penetrate large customers. Is there anything to call out in terms of potential impact on the pace of large deals or execution more broadly? And then, I guess, generally, which verticals are next after financial services?

Frank Slootman, CEO

In terms of verticals, media and tech are huge. Financial services, healthcare, life sciences, and public sector are key. Additionally, the replatforming going on in the software companies for data applications is very important. We have plenty of concurrent activity going on. Most of that relates to our customers understanding who else is on Snowflake within their vertical and how they are using it, along with the outcomes they are achieving. That’s what drives these conversations forward. We’re focused on the benefits and outcomes specific to their business, leading to a significant and constructive change. We’ve shifted fully from discussing workload comparisons and benchmarks to now being deeply engaged with the top levels of our client organizations.

Mark Rende, Analyst

Great. Thank you.

Operator, Operator

Your final question comes from the line of Andrew Nowinski with D.A. Davidson. Your line is open.

Andrew Nowinski, Analyst

Great. Thank you for squeezing me in. I just want to start with a question on the $1 million or more customers; really strong growth again this quarter, and I know it’s a trailing 12-month calculation. I assume some of that is coming from your existing customers versus new customers. I’m just wondering if you could provide any more color around what’s driving that.

Mike Scarpelli, CFO

Well, I would say 100% of that is coming from existing customers because, as I said, any new customers signed up in the last fiscal year take six months or more to ramp significant consumption. So, it’s really coming from our existing customer base and we have a number of other customers that are on the cusp of hitting that milestone. We think we will continue to see that growth in million-dollar-plus trailing 12-month revenue customers moving into next year.

Andrew Nowinski, Analyst

That’s great. Thanks, Mike. And then maybe just a quick follow-up on your guidance. Q1 certainly looks, I mean, coming off a great Q4, Q1 looked a little bit lower than expected, but then the annual outlook was fantastic across the board, across all metrics. It looks like you are expecting somewhat more of a stronger back half of the year? I am just wondering if you could provide any more color on kind of assumptions for Q1 near-term versus the back half of the year?

Mike Scarpelli, CFO

Yeah. I don’t think that’s accurate, Andrew. Q1 is actually a very strong guide relative to where consensus is, and we are seeing strength in our business going into Q1.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.