Earnings Call Transcript - SNOW Q4 2023

Operator, Operator

Hello, and welcome to the Q4 FY '23 Snowflake Earnings Conference. My name is Elliot, and I will be coordinating your call today. I would now like to hand over to Jimmy Sexton, Head of Investor Relations. The floor is yours. Please go ahead.

Jimmy Sexton, Head of Investor Relations

Good afternoon and thank you for joining us on Snowflake's Q4 fiscal 2023 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 President of Product, who will join us for the Q&A session. During today's call, we will review our financial guidance for the fourth quarter and full year fiscal 2024 and our results of the first quarter and full year fiscal 2023. 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 those risks is available in our earnings press release distributed after market close today in our SEC filings, including our most recently filed Form 10-Q and the Form 10-K for the fiscal year ended January 31, 2023, 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 in 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, Chairman and CEO

Thanks Jimmy. Good afternoon, everybody on the call. Q4 product revenue grew 54% year-on-year and for the fiscal year grew 70%, totaling $1.9 billion. Q4 net revenue retention was 158%. We continue to be on track for our $10 billion product revenue goal in fiscal '29. Remaining performance obligations grew 38% totaling $3.7 billion. We saw a measure of bookings renaissance with certain customer segments in Q4 reflecting a lack of visibility in the business and preferring a cautious short-term stance versus larger, longer-term contract expansions. The contractual posture has focused on sufficiently enabling consumption growth in the near term. This was more pronounced among international SMB and commercial customers and much less so at the high end of our customer base. We made substantial progress on our efficiency metrics. Non-GAAP operating margin for the quarter reached 6%. Non-GAAP adjusted free cash flow margin for the quarter was 37%. For the full fiscal year '23, non-GAAP adjusted free cash flow margin was 25%, totaling $120 million. But our data networking growth as measured by stable edges grew 93% year-over-year. 23% of our customers now have at least one stable edge, up from 18% a year ago. Among $1 million consumption customers, 65% of them have, on average, six stable edges. Snowflake marketplace listings grew 8% quarter-over-quarter and now total over 1,500. During Q4, Snowpark for Python reached general availability status. Early traction is promising. 20% of customers have now tried Snowpark. Snowpark is initially focused on the adoption and migration of Spark workloads for data engineering and machine learning. Spark jobs typically are cheaper and faster on Snowpark with the added benefits of superior governance and operational simplicity. POC activity is ramping fast and benchmark results so far indicate superior comparative results. The Fortune 500 customer loads 1 billion transaction records into Snowflake every day. This organization saved $1 million after migrating work from Spark to Snowpark. The financial services customer is migrating workloads from Spark to Snowflake and Snowpark runs 8x faster at 30% of the cost. We entered private preview with what we call Streamlit and Snowflake. This is the replatforming of Streamlit inside of Snowflake. Streamlit is a popular application development framework for the Python developer community, especially those focused on machine learning applications. Streamlit enables the use of machine learning models and applications by a general business audience. In Q4, we announced our intent to acquire Mobileye and SnowConvert. SnowConvert's proprietary conversion tools enable migration from legacy platforms. SnowConvert also helps migrate Spark workloads to Snowpark, capabilities that accelerate migration to Snowflake and the strategic nature of this acquisition. We are operating in a vast and growing market, generating free cash flow and maintaining a strong balance sheet. We focus on the business at hand and the outcomes we can control. We are prioritizing positions that directly support the core mission of the enterprise. Resources will continue to be concentrated on the roles that sell, support, and build our products. With that, I'll turn the call over to Mike.

Mike Scarpelli, CFO

Thank you, Frank. Q4 product revenues were $555 million, representing 54% year-over-year growth, and remaining performance obligations grew 38% year-over-year, totaling $3.7 billion. Of the $3.7 billion in RPO, we expect approximately 55% to be recognized as revenue in the next 12 months. This represents a 48% increase compared to our estimate as of the same quarter last year. Our net revenue retention rate of 158% includes 13 new customers with $1 million in trailing 12-month product revenue and reflects durable growth among our largest customers. The outperformance in Q4 was driven by our longest tenured customers. We continue to see the greatest contribution from the financial services and media and entertainment verticals. We continue to focus on growth and efficiency. We generated $215 million in non-GAAP adjusted free cash flow outperforming our Q4 target. Full year fiscal 2023 non-GAAP adjusted free cash flow margin was 25%. Q4 bookings underperformed versus our expectations; pipeline conversion in the final two weeks of the quarter diverged from historical norms. International territories drove the largest underperformance relative to plan, and multiyear bookings declined by 15% year-on-year. While we are not okay with this outcome, customer booking behavior does not dictate their consumption patterns. Customers have the contractual right to sign smaller deals to bridge them to their contract end date. We are confident that our customers are committed to Snowflake and are increasingly focused on better managing their business during more uncertain times. Q4 represented another quarter of continued progress on profitability. Our non-GAAP product gross margin was 75%. Scale in our public cloud data centers continues to grow in large customer accounts, and more favorable pricing with our cloud service providers will contribute to year-over-year gross margin improvements. Non-GAAP operating margin was 6%, benefiting from revenue outperformance and savings on T&E and lower bad debt expense. Our non-GAAP adjusted free cash flow margin was 37%, positively impacted by strong collections. We received some large customer payments in January that were expected in February. We ended the quarter in a strong cash position with $5.1 billion in cash, cash equivalents, and short-term and long-term investments with no debt. As noted in the press release that went out earlier today, we have expanded our partnership with AWS over the next five years, more than doubling our previous spend commitments to $2.5 billion. As part of the new AWS agreement, AWS is committing to support joint go-to-market efforts and more favorable pricing. This partnership is aimed at driving growth and innovation. Now let's turn to our guidance. As of today, we have completed the Graviton2 migration in all of our active commercial AWS deployments. We remain committed to driving towards greater profitability. We are focused on growing revenue while expanding operating and free cash flow margins. The change in existing customer purchasing behavior, lower-than-expected new logo bookings, and slower expected ramp from our youngest cohorts has led us to reevaluate our FY '24 outlook. For the first quarter, we expect product revenues between $568 million and $573 million, representing year-over-year growth between 44% and 45%. Turning to margins, we expect on a non-GAAP basis, a 0% operating margin, and we expect 361 million diluted weighted average shares outstanding. For the full year fiscal 2024, we expect product revenues of approximately $2.7 billion representing year-over-year growth of approximately 40%. Turning to profitability for the full year fiscal 2024, we expect on a non-GAAP basis, approximately 76% product gross margin, 6% operating margin, and 25% adjusted free cash flow margin, and we expect 363 million diluted weighted average shares outstanding. I would also like to announce that our Board of Directors has authorized a stock repurchase program of up to $2 billion over the next two years. This program reflects our conviction in the business and allows us to use our expected free cash flow to manage dilution over this period. Our share count guidance does not include the impact from the stock repurchase. During fiscal 2023, we added approximately 1,900 net new employees. We view the current hiring market as favorable for Snowflake and will continue to prioritize hiring in product, engineering, and sales. We expect to add more than 1,000 employees in fiscal 2024. We remain on track to achieve our fiscal 2029, $10 billion product revenue target. We look forward to executing against our growing opportunity. And lastly, we will host our Investor Day on June 27 in Las Vegas in conjunction with Snowflake Summit, our annual users' conference. If you're interested in attending, please email [email protected]. With that, operator, you can now open up the line for questions.

Operator, Operator

Our first question today comes from Mark Murphy from JPMorgan. Your line is open.

Mark Murphy, Analyst

Mike, I'm curious if you have any insights into the consumption patterns that you saw generally, including during the holiday periods, including MLK weekend and President's Day week. Is there anything noteworthy that changed?

Mike Scarpelli, CFO

There was nothing really noteworthy around the holidays. As we said, going into our Q4 guidance, we factored in the holidays. And clearly, we were 3% above our guidance, our actual results. I will say President's Day was slow, but February is off to a very good start. It's kind of where we were expecting it to be.

Mark Murphy, Analyst

As a follow-up, Frank, I wanted to ask you about generative AI and large language models. Can you frame up the opportunity there for Snowflake? I would think with the Unistore, you could probably handle all these chat logs. You could be training some of these models on very large data sets. Do you see any customer activity around that vector or any tailwinds you think that could be developing over time?

Frank Slootman, Chairman and CEO

Well, it's still early in the cycle. Obviously, like everybody else, we're all over it in terms of evaluating where these technologies can make a difference. I mean, the things that we sort of hone in on short term are called completion code optimizations, things that have very clear business returns. One of the challenges with these new technologies is that people come up with a lot of interesting questions, but without a solid business model, they won't take off. We take a very pragmatic view. We do anticipate that Snowflake data will be a significant driver for large language models in conjunction with many other data sources. So we think that the gravity around data will drive a lot of this activity to our platform.

Operator, Operator

We now turn to Kirk Materne from Evercore ISI. Your line is open.

Kirk Materne, Analyst

Congrats on the quarter. Mike, can you just talk about the international sort of underperformance? It was actually a really good quarter. Is there something specific about the region in terms of how people are consuming over there versus the U.S.? Or is this just a maturation of your sales organization that needs to continue over in that region?

Mike Scarpelli, CFO

I think it's customers being a little more cautious in their business and just buying as they consume, which they can do under their contracts. We've always seen that in Japan, in particular. Customers tend to do that. But I would say part of it is also our own execution, which we're working on. Yes, I will say we did see in North America a number of larger customers who had consumed their full contract amount but still had a contract in place and just bridged themselves rather than do big deals right now. I think that's just a function of uncertainty in their business, but their consumption still continues to grow.

Kirk Materne, Analyst

Just one quick one for Frank. Frank, on the telecom cloud that you guys have announced, I'm curious about your thoughts there. How fast do you think that could ramp? Financial services and some of the other verticals that you've focused on have been really strong. Any thoughts on how that could ramp for you guys?

Frank Slootman, Chairman and CEO

Telco is a really important segment for us. I mean, our largest customers, some of them are in that segment. They're running massive amounts of data, very focused on managing the service experience and cross-selling across very large customer bases. This is our fifth industry cloud that we have announced, and it's really focused on bringing telco-specific data sets, data assets to it, data practices, applications, and then really bringing in that ecosystem of telcos, people that interact with each other. We have the opportunity to leverage a data network like Snowflake. We're very high on this; I mean, telcos are the cornerstone of every modern economy, especially in a lot of secondary markets, and they tend to be the biggest consumers for us.

Operator, Operator

Our next question comes from Brent Thill from Jefferies. Your line is open.

Brent Thill, Analyst

Just as it relates to the overall guide, can you give us a little more color on what you've baked in, Mike, ultimately, perhaps what's been the big change from your perspective?

Mike Scarpelli, CFO

The big change is really that we're seeing the younger cohorts that are coming into Snowflake are ramping at a slower pace than what some of the early adopters of Snowflake did. They're still consuming. These tend to be large organizations as we've been focused on those large Global 2000s, and they just move slowly, but they're still ramping their consumption, just at a lower rate. I think Snowflake is being deployed more efficiently for these customers. I also think as our base gets bigger, that growth naturally slows down in the business, but customers are still consuming.

Brent Thill, Analyst

From a rep productivity perspective, Mike, is there anything changing where you're seeing the reps' productivity slow? Or is that consistent with what you've seen historically?

Mike Scarpelli, CFO

I would say we have a rep productivity issue in some of the international markets, and we are slowing down some of our hiring where we don't see the productivity. But in other areas, productivity is doing well. The large enterprises are definitely doing well for us. North American enterprise continues to be strong, and we're going to deploy resources where we think we can get those reps productive over the next 12 months.

Operator, Operator

We now turn to Keith Weiss from Morgan Stanley. Your line is open.

Keith Weiss, Analyst

You put up 158% net retention this quarter, which is still impressive, but slowing sequentially. I would love to understand what you're seeing between the different customer cohorts in terms of expansion momentum and also maybe optimization and how that sort of changed over the last 90 days. Can you parse that out between $1 million plus customers and the rest?

Mike Scarpelli, CFO

First of all, the 158% was the exact net revenue retention, just as a reminder when we went public, and I think there was a little bit of a reacceleration in our business in 2021 and 2022, where there were a lot of customers that had spending out of control. Now that costs are a much bigger focus within almost every company today, I think people are using Snowflake more efficiently. Customers are having very detailed, methodical deployment plans on Snowflake, which is slowing down that growth rate of customers' consumption as they're going through their implementations. But we're not seeing any customers decrease their spend in any material way. Yes, we still had those three we pointed out at the beginning of last year that a few of those have dropped out of our top 10, but those have stabilized. In general, most of our customers continue to grow, albeit at a lower pace, and I think that's more of a nature of controlling costs.

Keith Weiss, Analyst

Quickly on your verticalization. This is a big focus, and the AWS partnership expansion reiterates that effort. Can you explain what you're seeing in different verticals? Are any that have slowed that are stabilizing now? Any that might be accelerating, and how are you thinking about different verticals when it comes to your fiscal year '24 guide?

Mike Scarpelli, CFO

I would say, as I mentioned in my remarks, financial services is definitely our biggest vertical. That's where we have the most data sharing going on. Next is media and entertainment, and that’s a huge segment for us. Clearly, some of the newer technology companies, we’ve seen a slowdown in some of those, which we had highlighted last year. And I do think you are definitely going to see a slowdown in a lot of the venture-backed companies that may have been growing very quickly. We're definitely seeing cost controls in those companies as well, but large Global 2000 continue to grow.

Operator, Operator

Our next question comes from Raimo Lenschow from Barclays. Your line is open.

Sean McMahon, Analyst

You've recently discussed the top 15 GSIs have done around $1.4 billion in services spend around Snowflake and that was year-to-date as of Q3. I was wondering if we could get an update on that. How should we think about the attach to those services, the attach of future consumption onto those services? Is there a framework we can think about to help inform next year's revenue expectations?

Mike Scarpelli, CFO

Yes. I'll just say in the top 15 GSIs, the spend was over $1.6 billion last year based on the data that my alliances team is reporting. In terms of trying to get any concrete relationship between their spend and Snowflake revenue, I really don't have that data and I would be guessing anecdotally looking at specific customers. So I'm not going to guide towards that. But it's generally a number of times bigger than what the revenue is associated with it in Year 1.

Sean McMahon, Analyst

A quick follow-up. How should we think about the relationship between operating margin and free cash flow margin going forward? Particularly when considering the increasing S&M leverage you're getting on larger accounts and the greater role of expansion revenue versus net new that may affect commissions? You mentioned some lower bookings duration; did billings duration play into that as well?

Mike Scarpelli, CFO

First of all, I don't even look at billings because in our model, people are just buying capacity, and that capacity may be for three months, one month, or one year, and it varies by customer, and they have the right to do that. In terms of the relationship between operating margin and free cash flow, as your operating margin expands, I expect our free cash flow to expand. But the operating margin will expand at a more rapid pace given it's a much lower number, and we will update the longer-term model as part of our Investor Day in June. We clearly just guided to a 6% non-GAAP operating margin and 25% adjusted free cash flow for the full year this year.

Operator, Operator

We now turn to Gregg Moskowitz from Mizuho. Your line is open.

Gregg Moskowitz, Analyst

Mike, you mentioned that weaker net new bookings and the slower-than-expected ramp from your youngest cohort impacted the fiscal '24 guide. But thinking back to the Q3 call, you had spoken about some significant customers that you were expecting to ramp materially in fiscal '24. You also said today that the enterprise has generally held up well. So, I'm wondering, three months later, looking at it from a bottoms-up perspective, can you share how you're thinking about those particular customers that there was potential line of sight towards ramping in fiscal '24? Has that viewpoint changed?

Mike Scarpelli, CFO

Well, those customers are definitely still ramping. But I will say what is different in literally Week 10 of our quarter, we converted 90% of our weighted pipeline into bookings, where historically that's been 140% in Q4, and typically, that's because deals are understated and get pulled in. That did not happen this quarter. We also had a number of customers, big customers, who rather than consume everything and rather than do a big multiyear deal, literally bought enough capacity to get them through to the next quarter or two. I do have two of my biggest customers who I know will run out of capacity in the next six months that they will have to do something. But once again, they could do big deals or they could just buy sufficient capacity on a quarterly basis because their contracts still haven't expired. They just don't have any capacity left on them. So that's why I don't focus too much on bookings and focus more on revenue and why I think that's the leading indicator. But as I said, we definitely see a number of our newer customers in the cohort still ramping, but ramping at a slower pace than what historically they have, and I think that is a function of the cost controls that are going on within companies to make sure they're conserving as much money as they can from an expense standpoint.

Gregg Moskowitz, Analyst

Very helpful. And then, just for Mike and Frank, on Snowpark for Python. We've heard of a lot of customers kicking the tires, a lot of small tests, but you called out a couple of customers that are really ramping, and there’s robust POC activity. Can you provide insight into how you're thinking about how this plays out over fiscal '24 in terms of adoption?

Frank Slootman, Chairman and CEO

We definitely have unleashed a full court press. Our basic posture is that any Spark job that runs in the Snowflake orbit—either putting data into Snowflake or taking data out of Snowflake, Snowpark for consumption, analytics, and machine learning purposes is really ours. That's sort of the attitude we take towards it, and we will challenge existing Spark jobs and compete hard for any new ones. We are really taking ownership of the activity happening in our space. We can see very clearly from our own data which customers are doing what because they're touching Snowflake. We have mobilized ourselves as an organization to target that, and you clearly seem to have picked up on a lot of the activity. There’s a huge amount of stuff going on, and I feel it's really rolling out in ways, and there is a lot of POC activity. Customers want to see if we can verify some of the outcomes we're anticipating. So far, those results have been super encouraging, and our sales force is excited about the opportunities based on those outcomes. We're quite excited about this. This is the biggest expansion, if you will, of our scope as a company since we first came out in 2015 when we went after Hadoop workloads.

Operator, Operator

We now turn to Derrick Wood from Cowen. Your line is open.

Derrick Wood, Analyst

Frank, legacy migrations from on-premise have been a key growth driver for new customers for you guys. Is the macro causing any change in urgency for those kinds of migration projects? Given that you acquired SnowConvert, can you talk about how that may help simplify or accelerate migration projects?

Frank Slootman, Chairman and CEO

On SnowConvert, we've been working with that technology for years, and we're super familiar with it. We're really happy that we now have full control over that technology because it's not just about migrating customers; it's also getting them to consumption faster, which matters to our model. Not really seeing a slowdown on migrations. All of Mike's comments are really about all the customers who are continuing to do contract extensions. They just have a more reticent posture now. In the past, it was all about enabling growth as hard and as fast as they could because that's the dynamic of the time. Now we're sort of in the opposite dynamic where they're looking not to overextend themselves. They’re enabling the growth they foresee and taking a few steps at a time. But migrations are still coming in fast and furious.

Derrick Wood, Analyst

Mike, given all the headcount cuts happening in the tech sector, is that having any material impact on your assumptions around consumption activity? Can you give us a sense of your revenue exposure there?

Mike Scarpelli, CFO

Yes. First of all, when I make the comment about companies looking to save on their spend, when you're doing a RIF, you're generally not just looking at reducing costs and headcount; you're also looking at other areas of your business to reduce costs. So I do think in some customers, we’ve seen one that publicly announced RIFs. We've seen a real slowdown in the revenue. Yet others— I can't name the names—but there's another one that announced a RIF in one of our top 10 customers, and their consumption has actually gone up in Snowflake. So there's no direct correlation between RIFs and a customer's consumption in Snowflake. But CFOs and companies are looking for ways to cut costs through headcount or other means.

Operator, Operator

We now turn to Alex Zukin from Wolfe Research. Your line is open.

Allan Verkhovski, Analyst

For your 40% product growth guide in fiscal '24, how should we think about the seasonality through the year? How has that changed relative to your view last quarter after seeing slower ramp times with your more recent adopters of the platform?

Mike Scarpelli, CFO

The more recent adopters of the platform are definitely ramping slower. They're taking longer in terms of they're not growing euphorically like some of the earlier ones. I think that has to do with the macro environment. They want to conserve. It could also depend on the customer; they're being more efficient in how they roll Snowflake out as there's a bigger population of users. In terms of seasonality, we just guided for the quarter; you can see what we guided. We guided for 44% to 45% growth in Q1 and guided for 40% for the year. I'm not going to give you quarterly guidance for other quarters because we'll give you Q2 after Q1 is finished, as we've always done.

Operator, Operator

Now turning to Sterling Auty from SVB. Your line is open.

Sterling Auty, Analyst

Mike, you gave a few reasons for the slower growth in newer customers. Are new customers reducing the number of use cases initially? If so, what are the use cases that you see them ramping with first? And what things are they putting on hold?

Mike Scarpelli, CFO

There is no reduction in use cases. The use cases continue to expand. What are the most common use cases? It really depends. Migrations are a big one and on-prem, but it's an on-prem data warehouse, a lot of them. Some of them, though, are still replacing some of those first-generation cloud data warehouses, like Redshift and others. I really haven't seen any slowdown in use cases. The average deal sizes remain relatively the same, hasn't changed.

Operator, Operator

We now turn to Kamil Mielczarek from William Blair. Your line is open.

Kamil Mielczarek, Analyst

Your free cash flow margin reached your long-term target of 25%. Can you provide a little more insight into how you think about that shorter-term cash flow decision to balance margin and revenue growth? Assuming the macro environment improves later this year in fiscal '25, how do you think about bringing down margins to reaccelerate revenue?

Mike Scarpelli, CFO

Free cash flow margin is not directly related to our growth. Our growth is more on the expense side and looking at productivity, and will not grow our revenue faster unless we see productivity increase in the sales organization. When we see that increase in productivity, we’ll add more heads, and we think we’re adding at the appropriate pace based on what we see in the business today. As I said, where most companies are cutting, we added 1,900 people last year, net, and we will add over 1,000 people this year while still generating improvement in operating margin and having good free cash flow next year.

Kamil Mielczarek, Analyst

That's helpful. How about traction with the Unistore product and how you expect that to evolve over the next few years?

Christian Kleinerman, Senior Vice President of Product

Yes, this is Christian. It is still very early for us. We're selling in private preview with tens of customers validating it and giving us feedback. We’ve received positive feedback and encouragement, but it's early for us to have any meaningful rollout for adoption.

Operator, Operator

We now turn to Fred Lee from Credit Suisse. Your line is open.

Fred Lee, Analyst

You've both been very clear about managing the business for the long term and considering this operating philosophy. What's the thinking behind the $2 billion share buyback versus pouring more gas into the Company's R&D engine and doubling down on products?

Mike Scarpelli, CFO

Yes, Fred, it's Mike. We have $5.1 billion in cash on our balance sheet. We've had $5 billion since the time we went public. We've made a number of strategic acquisition and M&A deals. So we feel we have more than enough capital in the business to fuel our growth through both small tuck-in M&As as well as invest in headcount, but you can only add so many people at a time and get them productive in an engineering organization. I'm not hearing our engineering leaders claim they need more people. It's not growth at all costs at this company. Yes, we are a growth company, but it's efficient growth as well, and we expect to generate close to $2 billion over the next two years. Given the $5.1 billion we have, we think it'd be great to manage dilution through that. We still have the opportunity to hire faster if we so choose.

Operator, Operator

We now turn to Brad Reback from Stifel. Your line is open.

Brad Reback, Analyst

Mike, over the past three years, you've added 1,800 to 1,900 new customers each year. Should we expect that to continue in fiscal '24, or will it skew more towards revenue per customer?

Mike Scarpelli, CFO

First of all, I don't focus on the total number of customers. I'd like to focus on quality customers. We tend to focus on large enterprises or those small customers that have the ability to be significant. The number of customers will grow. Whether we add 1,800, 2,000, or 1,500, I don't know next year. I focus more on what those right customers are. You will see the revenue per customer growing. Yes, our $1 million-plus customers have remained at 3.7 million, but we also added a number of new customers. Our Global 2000 now are up to 1.4 million in trailing 12 months, up from 1.3 million last quarter, yet we still added more Global 2000. I believe the revenue per million-plus customer and G2K will continue to grow over time, and you'll see more growth out of those Global 2000 numbers.

Operator, Operator

Our next question comes from Brent Bracelin from Piper Sandler. Your line is open.

Brent Bracelin, Analyst

Frank, 20% of customers have tried Snowpark Python. When do you think those use cases and workloads could actually move from testing and experimentation to driving acceleration in the business? Do you think this is a potential lever in the second half? Or do you think it takes a year for a lot of these customers to work out some of these new use cases?

Frank Slootman, Chairman and CEO

In terms of what we’re already seeing in the velocity of consumption that is coming from Snowpark, we think it will materialize during the second half, where we anticipate a material impact from that. But it's still early days. We are growing from a very small base, so yes, we are seeing high velocity that still needs to persist before it becomes material on our revenue scale.

Mike Scarpelli, CFO

Another way, Brent, our guidance for this year is not material in regards to Snowpark, but I think long term, it could be much more material. It could give us upside, but it's still too early. Well, you're just going to have to wait for June at Investor Day when we give an update on that model, but clearly, there's upside to what we said last Investor Day.

Operator, Operator

We are now turning to Tyler Radke from Citi. Your line is open.

Tyler Radke, Analyst

Mike, going back to your comments on the bookings slowdown at the end of the quarter, how much of that is driving the lower outlook for the full year versus an actual consumption slowdown? Are you incorporating lower close rate assumptions given that this was the first quarter that you converted below 100% of the weighted adjusted pipeline?

Mike Scarpelli, CFO

Most of that bookings were essentially just a duration; customers bought enough capacity to get them through. Yes, there were customers that we did not land some new ones that have deferred into this year to do deals, and that does have an impact in the second half of the year on revenue. But the biggest thing on the revenue guide is really we are seeing the newer customers take longer to ramp. These some of our big customers are large Global 2000s that are very methodical in the way they do things, unlike early adopters who were incentivized to do everything as quickly as possible.

Operator, Operator

We're now turning to Simon Leopold from Raymond James.

Victor Chiu, Analyst

Regarding the behavior of the new cohorts, do you anticipate consumption accelerating and returning to previous levels in a more normalized environment? Or is there a structural shift in how new cohorts are approaching their implementations, and should we view this status quo?

Mike Scarpelli, CFO

We’re in a consumption model where literally at the beginning of the day, we have zero revenue, and customers choose to use Snowflake. In a tight macro environment, people are watching their costs. Just as quickly as they can turn Snowflake off, they can ramp it up very quickly as well. We’re seeing customers using Snowflake more efficiently and being more methodical in their rollout to ensure they’re doing things correctly. But there's no big change. Customers are still consuming, just at a slower rate, but they are still growing. You see that in our net revenue retention.

Victor Chiu, Analyst

Just to follow up on your R&D priorities, can you help us understand where your preferences are between adding new features versus entering new markets?

Mike Scarpelli, CFO

I'll let Christian talk about that.

Christian Kleinerman, Senior Vice President of Product

Yes. We continue investing and innovating across the three broad vectors that we discussed in the past. One is continued progress on analytics. The second one is collaboration, where data sharing is key. The third one is broader computation enablement, where we've seen computation come closer to the data. That’s where Snowflake has a lot of initiatives. We're making progress on these three fronts.

Mike Scarpelli, CFO

On the product side or market side, we will have FedRAMP high very soon, which will allow us to go after the public sector. We expect the public sector will start to be more material for us this year in terms of new deals. We're also examining the China strategy for our global multinationals that operate there, and we will be entering there this year. We're going to invest more in larger international markets such as Japan, where we see huge opportunities, but we know they move slower.

Operator, Operator

Our next question comes from Will Power from Baird. Your line is open.

Will Power, Analyst

Great. It looks like a really nice comprehensive agreement with AWS. I guess I wonder, in that vein, if you could provide any update about the Azure relationship and the opportunity there, what the go-to-market currently looks like.

Mike Scarpelli, CFO

I'll start with the margins first. We started looking at our costs and slowed down some of our hiring. That's driving the margin outperformance along with efficiencies in our operations. We are committed to operating efficiently. Do expect more leverage in the model long term. In terms of the cloud vendors relationship, I would say the new AWS agreement is a great step forward in improving an already good relationship with AWS. We had a $1.2 billion commit; now we have a $2.5 billion commit over the next five years, with much better alignment in go-to-market between the two. AWS— we’re still 2.5 years into that five-year contract with Azure. We will start discussing with Azure to get better terms, looking not only at pricing but also at collaborative go-to-market efforts. There are no changes in GCP to date. I'm hopeful for something in GCP longer term. We will end our GCP contract in May 2024, and we’re tracking to consume what we committed to with GCP, but we're clearly ahead with Azure and AWS.

Operator, Operator

We now turn to Fred Havemeyer from Macquarie. Your line is open.

Fred Havemeyer, Analyst

Mike, I wanted to go back to your earlier comment about some of your newer customer cohorts being more methodical in their approach. Can you provide more detail about what you're seeing there in terms of what they're doing?

Mike Scarpelli, CFO

I'm just saying they're not growing as quickly as they did. What we observed in 2021 and 2022 were companies who didn’t have as much cost discipline. You're seeing more cost consciousness now across the board, not just with Snowflake, which is why you're seeing these companies doing RIFs. As a result, we see them growing, albeit at a more methodical pace. The dramatic spikes in consumption are gone. It's also a function of customers using Snowflake more efficiently and planning rollout better. Our professional services resources are actively involved with customers, and our partners are getting trained to handle Snowflake migrations better. This is really a maturing of our partner ecosystem and us.

Operator, Operator

Our next question comes from Michael Turrin from Wells Fargo. Your line is open.

Michael Turrin, Analyst

Even with some impacts you're mentioning, the NRR is still holding strong at 158%, but any change in how you're thinking about target levels? I realize there's variability, and you've indicated that you expect those to remain above 130% for a long time. Anything you're currently observing that could cause that metric to dip more significantly?

Mike Scarpelli, CFO

We're not forecasting it to dip to that level anytime soon. But clearly, as the numbers get bigger, it becomes harder. That number will still be very high. It depends on the customers we land today and the ones we landed over the last two years that will come into our cohort next year. If you recall back in 2020, we had an acceleration in our net revenue retention rate. I’m not saying that will happen, but it’s possible; that could happen as well too. You look through 2022, and our net revenue retention went up. The beauty of a consumption model is that as companies control their spending on Snowflake, they can ramp back up quickly when budgets allow. However, we're not seeing a significant drop in net revenue retention. It may come down longer term, but it will still stay very high.

Michael Turrin, Analyst

Are there things you're contemplating to change that dynamic at all from a product or go-to-market perspective?

Mike Scarpelli, CFO

That's the strategy behind the SnowConvert acquisition. It's to enable faster migrations, and we are investing time in certifying and training partners working with us. We're doing everything we can to ensure customers ramp quickly on Snowflake. They continue to ramp at a very good pace, albeit at a slower pace than before.

Operator, Operator

Our final question today comes from Mike Cikos from Needham & Company. Your line is open.

Mike Cikos, Analyst

I wanted to see if I could parse back the guidance construction. Mike, can you provide any detail around how you're thinking about additions from the Global 2000? And what about the net retention rates expected to trend over the year?

Mike Scarpelli, CFO

As I mentioned, we land large enterprises and Global 2000 as fast as we can. They have large sales cycles that’ll be lumpy in terms of when we land them, but that’s purely bookings. The ramping of those accounts takes time; it is all about getting them to revenue. We haven’t seen any change in the average deal size when we land them. I'm not going to guide the future on net revenue retention. As for venture-backed companies, I think it remains around 10% of our business. That's where our inside sales focus. Not all of that. There are some unicorns in there, but these large ones are still capitalized.

Operator, Operator

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.