Categories Earnings Call Transcripts, Technology

Snowflake Inc. (SNOW) Q2 2023 Earnings Call Transcript

SNOW Earnings Call - Final Transcript

Snowflake Inc.  (NYSE: SNOW) Q2 2023 earnings call dated Aug. 24, 2022

Corporate Participants:

Jimmy Sexton — Head of Investor Relations

Frank Slootman — Chairman and Chief Executive Officer

Mike Scarpelli — Chief Financial Officer

Analysts:

Mark Murphy — JPMorgan Chase & Co. — Analyst

Sanjit Singh — Morgan Stanley — Analyst

Simon Leopold — Raymond James — Analyst

Alex Zukin — Wolfe Research — Analyst

Raimo Lenschow — Barclays Investment Bank — Analyst

Kirk Materne — Evercore ISI — Analyst

Brad Reback — Stifel Nicolaus — Analyst

Brent Bracelin — Piper Sandler — Analyst

Gregg Moskowitz — Mizuho Securities — Analyst

Pat Walravens — JMP Securities — Analyst

Christian Kleinerman — Senior Vice President, Product

Kamil Mielczarek — William Blair — Analyst

Derrick Wood — Cowen — Analyst

Brad Zelnick — Deutsche Bank — Analyst

William Power — Robert W. Baird — Analyst

DJ Hynes — Canaccord Genuity — Analyst

Brent Thill — Jefferies — Analyst

Orion Enrique — SMBC Nikko — Analyst

Ittai Kidron — Oppenheimer — Analyst

Ari Terjanian — Cleveland Research — Analyst

Tyler Radke — Citi — Analyst

Presentation:

Operator

Good afternoon. Thank you for attending today’s Q2 FY’23 Snowflake Earnings Conference Call. My name is Tana, and I will be your moderator for today’s call. [Operator Instructions]

I would now like to pass the conference over to our host, Jimmy Sexton, Head of Investor Relations. Please go ahead.

Jimmy Sexton — Head of Investor Relations

Good afternoon, and thank you for joining us on Snowflake’s Q2 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 results for the second quarter of fiscal 2023 and discuss our guidance for the third 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, 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 for the first quarter ended April 30, 2022, and the Form 10-Q for the quarter ended July 31, 2022 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 — Chairman and Chief Executive Officer

Thanks, Jimmy, and good afternoon, everybody. Product revenue grew 83% year-on-year to $466 million, remaining performance obligations grew 78% year-on-year to $2.7 billion, and in the quarter, we had a 12 Global 2000 customers. Our net revenue retention rate exceeded 170% and Snowflake leads the industry with a net promoter score of 72. Snowflake is delivering high growth and operating leverage. Non-GAAP product gross margin exceeded 75%, and we continue to generate non-GAAP operating income and free cash flow.

Our success is fueled by broad-based workload enablement. The core idea behind the Snowflake Data Cloud is to enable work to come to the data and prevent data from having to be moved to the work. Previously data was copied, transferred and replicated to be used wherever it was processed. That led to massive operational complexity, cost and governance risks. The Snowflake Data Cloud promises to bring that regrettable legacy to an end.

Starting in 2014, Snowflake’s cloud native architecture were moved to scale performance and economic bottlenecks that held back data analytics at scale for generations. The impact was immediate and led to a major expansion of workloads, use cases. Initially organizations use Snowflake to drastically improve overnight analytical processes set up fresh up to date data about the business was reliably available first thing. Checking that box, customers move onto using data for predictive insights and prescriptive solutions. This is what has driven Snowflake’s massive platform expansion in terms of workload types, user types and data types.

Snowflake’s data sharing solves the challenge of data access and enrichment. In Q2, the number of Snowflake data sharing relationships measured with what we call stable edges grew 112% year-on-year. 21% of our growing customer base has at least one stable edge, up from 15% a year ago among customers over $1 million in product revenue, 65% have at least one stable edge.

Across sectors, we are meeting customers with solutions pertinent to their vertical industries. For example, supply chain management relies on Snowflake’s combination of execution and access. We fear how supply chain management is failing at many levels because of dislocations, such as the pandemic and spiking inflation. This is in large part data problem. The data originates in different places, which is why it has such a challenging time coming together and the world is stable and changing marginally day-to-day. This has been somewhat tolerable. Now with massive disruption the status quo must change.

Our next frontier of innovation is aimed at reinventing cloud application development. Our ambition is far-reaching. Our aim is to transform how cloud applications are built, deployed, sold and transacted. To help achieve this, we launched our Powered by Snowflake program. Today, we have 590 Powered by Snowflake registrants, representing 35% quarter-over-quarter growth.

We announced a number of significant product innovations at our summit, users conference in June, which saw an approximate five-fold increase in attendance from 2019. These announcements are foundational for that vision. Unistore allows developers to bridge transactional and analytical workloads in a single data set to save users time and effort associated with moving and transforming data across systems.

Snowpark for Python is now in public preview. This capability brings more optionality to a technical audience of application developers, data engineers and data scientists. Our integration with the recently acquired Streamlit is tracking well against plan. Streamlit bridges the gap between data scientists and business users, accelerating time to insight by enabling developers to build applications using their favorite tools.

Finally, we announced support for Apache Iceberg table formats in private preview. Iceberg is the emerging standard for daily architectures. With this offering, we bring the performance and governance benefits of Snowflake to externally stored data.

We are pleased to announce our intent to acquire Aplica [Phonetic]. Aplica mobilizes unstructured data for advanced analytics and machine learning. Aplica’s team and best-in-class technology would create opportunities for customers and partners to get more value from all data types. We believe our strategy and underlying market trends position us for success. We look forward to executing against this growing opportunity.

And with that, I will turn the call over to Mike.

Mike Scarpelli — Chief Financial Officer

Thank you, Frank. Q2 product revenues were $466 million, representing 83% year-over-year growth and remaining performance obligations grew 78% year-over-year, totaling $2.7 billion. Of the $2.7 billion in RPO, we expect approximately 57% to be recognized as revenue in the next 12 months. This represents a 79% increase compared to our estimate, as of the same quarter last year. Our net revenue retention rate of 171% includes 15 new customers with $1 million in trailing 12-month product revenue and reflects durable growth among our largest customers.

We continue to pursue a vertical sales strategy. Our core verticals are financial services, advertising media and entertainment, retail and CPG, technology, and healthcare and life sciences. All verticals are growing rapidly. Financial services drove the most product revenue growth sequentially. Advertising media and entertainment and technology verticals grew in-line with the overall company. Driving this growth is our continuing move up market. In the quarter, we added 12 new Global 2000 customers. Our average trailing 12-month product revenue from these customers grew 14% quarter-over-quarter to $1.2 million. We believe these accounts will grow to become our largest customers.

A Global 2000 technology company is now a top 10 product revenue customer, less than two years after signing their initial deal. Last quarter we called out customers that were negatively impacted by headwind specific to their businesses. The Q2 results from these customers were mixed. Some saw the weakness we expected while others outperformed. We are monitoring our key business metrics, which we believe are leading indicators of the macro economy impacting our business. We are not seeing these metrics soften across the customer base.

For example, our corporate sales team that address the small and medium-sized businesses, outperformed their net new bookings growth for the quarter. Our EMEA sales team contributed four of our top 10 new customer wins in the quarter. And as mentioned earlier, the largest organizations in the world continue to increase their use of Snowflake. These indicate that companies globally are prioritizing Snowflake right now.

Foreign currency exposure has been a relevant topic recently, however, less than 5% of our revenue is invoiced in currencies other than the US dollar. So at the moment, we do not evaluate our business on a constant currency basis, given the immateriality.

Now turning to margins on a non-GAAP basis. Our product gross margin was 75%. Scale in our public data cloud — public cloud data centers and enterprise customer success contribute to the year-over-year gross margin improvement. Operating margin was 4%, benefiting from revenue outperformance. Our adjusted free cash flow margin was 12%, positively impacted by strong collections. We collected a $33 million invoiced in Q2 from a customer who had paid its invoices in Q3 in prior years. We ended the quarter in a strong cash position with approximately $5 billion in cash, cash equivalents and short-term and long-term investments.

Now let’s turn to our guidance. For the third quarter, we expect product revenues between $500 million and $505 million, representing year-over-year growth between 60% and 62%. I would like to remind everyone that in Q3 last year, we saw unusual seasonality due to reaccelerated product revenue growth.

Turning to margins. We expect on a non-GAAP basis, 2% operating margin and we expect 358 million diluted weighted average shares outstanding. In Q3, we expect $4 million of expenses associated with our data cloud world tour. The 21 events will take place around the world and showcase our latest innovations. For the full-year fiscal 2023, we expect product revenues between $1.905 billion and $1.915 billion, representing year-over-year growth between 67% and 68%.

Turning to profitability for the full year fiscal 2023. We expect on a non-GAAP basis, approximately 75% product gross margin, 2% operating margin, and 17% adjusted free cash flow margin and we expect 358 million diluted weighted average shares outstanding. The full-year outlook includes operating expenses related to the acquisition of Aplica. We are adding headcount to support our growth initiatives. Year-to-date, we have added almost 1,000 net new employees. We view the current hiring market is favorable for Snowflake, and I’m not altered our hiring plans for the year. Our long-term opportunity is stronger than it has ever been, and we look forward to executing.

With that, operator, you can now open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Mark Murphy with JPMorgan. Please proceed.

Mark Murphy — JPMorgan Chase & Co. — Analyst

Yes, thank you very much. I’m looking at the sequential growth in the product revenue, which is very strong. It’s almost twice as strong as it was in Q1. So I’m curious first, if you think analytics and data-intensive projects might be insulated area of activity during an economic slowdown and just relatedly, are you seeing many customers consume at higher levels to try to analyze the changing macro, maybe looking at FX sensitivity or interest rate sensitivity, et cetera?

Frank Slootman — Chairman and Chief Executive Officer

Hey, Mark, it’s Frank. You know, in general, I would say that Snowflake gets prioritized fairly high inside the enterprise and the reason is, we’re sitting right on the intersection of cloud computing, artificial intelligence, machine learning, advanced analytics. Customers are — you know they picked up the sense of the opportunity as it is in front of them and they’re investing, they’re hiring, they’re buying, because these are things are going to be changed — big changes for their industry as a whole. Industries are going to get redefined in healthcare, in pharma, in financial services.

So this is not a business as usual. Let’s try to hit the brakes. There is a very, very high urgency around advancing towards cloud computing environments, and then having an opportunity to really pursue the promise that brings. We are looking at a very, very exciting times where things are becoming possible that we could — we couldn’t even dream off just a few short years ago. So this is why we feel that this is not one of those expenses that people are going to casually cut back on, because it’s strategically compelling and important.

Mike Scarpelli — Chief Financial Officer

Yeah. I’ll also add, Mark, just to remind, this is a consumption model, not a SaaS model. So if we sign up a customer, it takes some months before they go into production. As I mentioned, there was a Global 2000 technology company we signed in the last two years. It’s now one of our top 10 customers. That customer didn’t start really ramping, until the end of last year and they’re going to continue to ramp and there’s many more that started ramping this quarter that we would have signed last quarter. So you can just do a quarter-over-quarter and because it is a consumption model, we do see pattern. Some customers do go down consumption based upon specific projects, but by in-large most of our customers are still ramping, moving workloads to us and we think that is going to continue on average with our customers.

Mark Murphy — JPMorgan Chase & Co. — Analyst

Wonderful. Thank you very much.

Operator

Thank you. The next line is from — the next question is from the line of Keith Weiss with Morgan Stanley. Please proceed.

Sanjit Singh — Morgan Stanley — Analyst

Thank you for taking the questions. This is Sanjit Singh for Keith. Very impressive Q2. Mike, I wanted to talk to — wanted to ask a little bit about the Q3 guide. From a seasonal perspective, in the high-end, sort of implies 8% growth and understanding that last year, it was an abnormally strong seasonal quarter. If I look back historically, the guidance does seem more conservative than usual. I wonder if you could provide any context in terms of what you’re assuming going into Q3, just conservatism or extrapolating any trends that you may have seen in July?

Mike Scarpelli — Chief Financial Officer

Nothing has changed in our guidance philosophy since the time we went public. And what I would say is, Q3 of last year was unusually high. So, it’s not a good year-over-year comparison. And as I said, there is uncertainties in the macro environment right now, and I think the guidance is prudent that we put out.

Sanjit Singh — Morgan Stanley — Analyst

Understood. Thanks, Mike.

Operator

Thank you. The next question is from the line of Simon Leopold with Raymond James. Please proceed.

Simon Leopold — Raymond James — Analyst

Thanks for taking the question. I wanted to see what your take is on your suppliers of public cloud capacity and whether or not you’re seeing any changing in how they work with you and your pricing and really what is the criteria to pick one over another AWS versus Google versus Azure? Thank you.

Frank Slootman — Chairman and Chief Executive Officer

Hi, this is Frank. You know, I think that most enterprises typically decide first on their public cloud platform strategy and oftentimes, it’s a multi-club posture and over time that can also change. And then they sort of decide on, okay, where Snowflake going to run. And that can also change over time. We’ve seen customers also deploy Snowflake on one-on-one [Phonetic] cloud. So that’s sort of how it works. Obviously, our pricing does vary. I mean, Snowflake is more expensive on one cloud than another. And obviously, our — the most aggressive pricing we have, is on our top cloud providers, where we have the heaviest concentration of deployment. So obviously, it matters to our customers. It all translates to dollars and cents, but the reality is Snowflake is Snowflake is Snowflake. There is really no change in the experience, depending on what cloud you’re running on. So you would think that it is strictly an economic trade off, but it’s usually predicated by why they picked one public cloud platform over another.

Mike Scarpelli — Chief Financial Officer

With that said, the majority of our customers, 80-plus percent [Phonetic] run in AWS, and about 18% is Azure, and 2% is GCP.

Simon Leopold — Raymond James — Analyst

Thank you very much for that detail.

Operator

Thank you. The next question is from the line of Alex Zukin with Wolfe Research. Please proceed.

Alex Zukin — Wolfe Research — Analyst

Hey, guys. Thanks for taking the question. I guess maybe just a high-level mixed with a tactical financial question. If I look at the environment, right. A lot of investors, a lot of customers are wondering about optimizations and I think on the call, Mike, in your script, you mentioned that you actually have changed. You’ve increased the prediction of how much will be consumed in reference to your CRPO metric over the next 12-months. So it feels like there is some — there is a mass differential in terms of expectations versus what you’re seeing and delivering. And I just wanted to better understand what’s driving that increased conviction around consumption as — have you seen a meaningful wave of optimizations that have re-based and now you’re kind of off to the races in those workloads? Do you not anticipate that occurring? And I guess how is that a some like — what were the dynamics that made you change those assumptions that you saw in the quarter?

Mike Scarpelli — Chief Financial Officer

Well, I didn’t change any assumptions in the quarter. It’s the same that we’ve had for quite sometime. Optimizations are not something that’s new. We just started talking to both, I mean, showing the impact about them. We have always done optimizations. We will continue to do optimizations. They’re good for our customers, because when they see what we can help make them use Snowflake more efficiently, we become cheaper. They move more workloads to us and I showed you guys at our Financial Analyst Day real data with two customers around that.

With regards to the CRPO, that 57% of the total RPO, that is more of a function that we have a lot of our contracts that are starting to get burned down they were multi-year that we do expect in Q4, there will be a number of renewals in those contracts. So I do think the current CRPO as a percent of the total in Q4 will come down more in-line with that into the low 50s, where it historically has been. But that’s really a function of — think of our largest customer, they signed a three-year contract, and I think it was September of 2020. That — they’re going to burn through that contract in advance and there’ll be a big renewal with them whether they do a one-year or multi-year, that’s up to them. That will happen in our Q4. And then you’ll see that as well. We have a number of customers like that.

One of the things that we’re seeing more and more is customers because they’re consuming faster than their annual amount and their actual contract term. They’re doing what we’re calling co-term, where they’re bridging to their annual renewal and a lot of those annual renewals are really moving towards Q4 for us.

Alex Zukin — Wolfe Research — Analyst

Got it. That’s why the billings delta billings were CRPO deltas is a little bit higher?

Mike Scarpelli — Chief Financial Officer

Well, I have to tell you, I don’t even look at billings because it’s a meaningless thing for our business, because we’re not a SaaS company, really focus more on cash flow and revenue consumption by our customers.

Alex Zukin — Wolfe Research — Analyst

Perfect. Thank you, guys.

Operator

Thank you. The next question is from the line of Raimo Lenschow with Barclays. Please proceed.

Raimo Lenschow — Barclays Investment Bank — Analyst

Thank you. And quick question, the — I’m sure Frank and Mike, you heard all the concern from investors this quarter about consumption models and you know, how in lower economic activities, there is less. But I’m also seeing like the 12 new global customers. What are you seeing in your customer conversations about consumption models in terms of like, it gives customers more flexibility to stay for what they’re using, et cetera. So that almost in tougher times should be an incentive to go that favor [Phonetic] and having this massive upfront commitment. Like, maybe talk a little bit of what you’re seeing in the field? Thank you.

Frank Slootman — Chairman and Chief Executive Officer

Hi, Raimo, it’s Frank. I mean, we should invert that whole way of thinking because it’s actually quite attractive for customers to have a consumption model because they sign — they can sign a contract with us. But then they can throttle up and down, how much they want to use. You can’t do that in a SaaS model. You’re going to pay no matter what were they using it or not. So this is — this gives customers actually more confidence to contract with us, knowing that they can throttle up and down. So we actually think it’s an advantage in the type of times that we’re living in as opposed to a negative, which is what it has been portrayed on the sell side and in the media.

Mike Scarpelli — Chief Financial Officer

Yeah. I’ll add to that too, Raimo, as a reminder. New customers, when we land them, they generally start very small and it takes some nine months to really start to consume. So it’s very low risk to come on. And once we have an existing customer that is looking to buy more. They’ve already have a path for what they want to do workloads and they want to do that on Snowflake, because we will save the money from what they’re doing.

And the other thing I want to remind you too is, we have many different models. You can sign a one-year commitment. You can sign a three-year commitment or you can go into on demand as a customer, if you’re not — if you’re not comfortable making a big commitment upfront. And we do see customers, I think last quarter about 7.2 [Phonetic] million of our revenue was actually on demand. These are new customers that are just trying us out before they sign a capacity deal and that’s most of our capacity deal start from being on demand to go to that.

Raimo Lenschow — Barclays Investment Bank — Analyst

Okay, perfect. Thank you. Well done.

Operator

Thank you. The next question is from the line of Kirk Materne with Evercore. Please proceed.

Kirk Materne — Evercore ISI — Analyst

Yeah. Thanks for taking the question. Frank, I was wondering if you could talk a little bit about some of the feedback you got from partners both GSIs and ICs coming away from your user conference. And kind of what are they asking you about in terms of making or telling you about rather, in terms of making bigger investments in Snowflake and maybe some of the takeaways you had in terms of, as you set up your own go to market not only for the remainder of the year, but in the next year? Thanks.

Frank Slootman — Chairman and Chief Executive Officer

Yeah. I think the conference was an extraordinary display of our ecosystem. We had a partner, and that was a size of multiple football fields. And I think we’re punching way above our weight in terms of how vibrant and how large and how active our ecosystem is. And it’s a very purposeful choice on our part to run the company in that way. We’re not trying to create a single vertically integrated stack where you have to buy all things Snowflake. We do quite the opposite. We try to create maximum choice and innovation on our platform.

So we really become market and channel, if you will for system integrators. The reality in the world of system integrators is, Snowflake’s presence in the marketplace is obviously forcing their hand because our customers are their customers and vice versa. We intersect in the marketplace and customers are — their customers are expecting them to be able to step up and then deliver highly — high value impactful capabilities on Snowflake shop. They’re growing leaps and bounds, but sometimes there are more following than leading, so that’s why Snowflake is always leading. And the other rest of the world is following.

Mike Scarpelli — Chief Financial Officer

Just to give you a little data around the GSI network. In the first half of this year, the GSIs have done north of $550 million in services around Snowflake. Our top five GSIs represented more than $320 million of that work. These are real practices within these GSIs now. And just on another thing, because I know there’s been some chatter about resellers and other things, I just want to make it very clear, 1% of our bookings in Q2 went through the resale channel, 2% of our product revenue goes through resellers. So resellers is not a significant amount of our direct business. But the GSIs are very helpful in doing the services work to get customers to consume on Snowflake.

Kirk Materne — Evercore ISI — Analyst

Super. Thank you, all.

Operator

Thank you. The next question is from the line of Brad Reback with Stifel. Please proceed.

Brad Reback — Stifel Nicolaus — Analyst

Great. Thanks very much. Mike, I know you mentioned the 3Q consumption comp. You also have a really, really difficult 4Q RPO comp. But given your commentary, should we expect a healthy end to the year, given that renewal pool? Thanks.

Mike Scarpelli — Chief Financial Officer

Yes. We expect Q4 will have the latest freak [Phonetic] in RPO, but I’m not guiding to it. You have to wait and see. I’m never going to guide to RPO.

Brad Reback — Stifel Nicolaus — Analyst

Understood. Thanks very much.

Operator

Thank you. The next question is from the line of Brent Bracelin with Piper Sandler. Please proceed.

Brent Bracelin — Piper Sandler — Analyst

Good afternoon. Wanted to drill down into Europe. That’s been an area where we saw large deal delays with other large software companies. It sounds like the opportunity for you, you closed several large deals. So maybe if you could just talk about the demand environment in Europe right now, and what’s driving some of the momentum for you that perhaps is a little different than some of the peers? Thanks.

Frank Slootman — Chairman and Chief Executive Officer

Yeah. Brent, it’s Frank. You know, we were — we’ve really shifted gears in Europe in terms of moving of — not so much moving away but sort of really emphasizing the large iconic accounts in key verticals and obviously in the top regions and countries. And that’s really how you win markets over there. And that re-direction has taken us a little bit of time and we last — this last quarter that we just reported on, we’ve seen some significant impact, and we made one comment during the prepared remarks about how they contributed some very, very large customers to the overall portfolio, sorry [Phonetic], to the overall roster.

So we’re actually drilling good about the progress we’re making in Europe in the large names in the key verticals. So I think it’s going good. The macro commentary, it’s probably — we’re not really feeling a lot of sort of headwinds, if you will, in Europe, obviously their pockets that are waking in the farther East, you go, the more you feel it, but that’s nearly not what we were to begin with. So it’s not really a factor. So we’re not negative on Europe at all.

Brent Bracelin — Piper Sandler — Analyst

Great to see. Thank you.

Operator

Thank you. The next question is from the line of Gregg Moskowitz with Mizuho. Please proceed.

Gregg Moskowitz — Mizuho Securities — Analyst

Okay. Thank you for taking the question. Another software vendor that primarily has a consumption based model, recently made out the comments that their NRR for customer is below the 130% threshold, has been unchanged but those above 130% have been slowing their consumption growth since it deviates a lot from what had been budgeted or committed. Now, your overall NRR this quarter again was quite strong guys, but I’m curious if you’ve seen any of this dynamic with your bigger enterprise customers? Thank you.

Mike Scarpelli — Chief Financial Officer

No. You know, obviously, there are some of our top 10, and we talked about last quarter with some specific things their business where they have slowed down and that’s been in our guidance. But overall, our top customers continue to grow and I haven’t seen that slowing down the NRR.

Gregg Moskowitz — Mizuho Securities — Analyst

Got it. Thanks very much.

Operator

Thank you. The next question is from the line of Pat Walravens with JMP Securities. Please proceed.

Pat Walravens — JMP Securities — Analyst

Oh, great. Thank you. And let me offer my congratulations on this quarter. Frank, can you take a minute to differentiate Snowflake’s approach to the market from that of Databricks and their Lakehouse approach?

Frank Slootman — Chairman and Chief Executive Officer

You know, I mean, one of the ways we characterize it is sort of, historically Snowflake has been a Data Lake with its own. Its own platform. Its own proprietary file formats, and so on, whereas Databricks has taken the approach that are just another tool and they likely use many including them. So we were far more strategic choice customers commit to than in a much more tactical choice just being a tool in the lake.

Over the years, we have really converged, because for example we mentioned in the prepared remarks of our support of the Iceberg open table format, which allows Snowflake files to be used by non-Snowflake tools for example, right. So it really puts us completely on par or better, if you will, in terms of functionality and performance in a pure Data Lake configuration. But customers can also use this in the conventional traditional highly optimized Snowflake proprietary format that most people are using. So, I think that — so that’s one aspect of it.

The other aspect of it is, we come from different places. In our DNA, our culture as a company is a database platform, and obviously Databricks comes from a totally different type of background. We also have different user types. We have a very much high-level approach. We very much the market size access to the sophistication of a platform like Snowflake networks. Databricks coming from a world that’s much more really on and very, very deep technical, very skilled demand type of environment. And there is a market for that as well. So there’s different user types, different workloads, that where people will use different type of tools.

The last thing I will say about is that de-facto Databricks and Snowflake have lived side-by-side for many, many, many years, playing different roles in the set ups and in the type of workloads that they performed. So anything you want to say about that, Christian.

Christian Kleinerman — Senior Vice President, Product

Yes. One quick comment on what already Frank said. We hear very [Technical Issues] from customers that our approach to simplicity and ease of use is one of the reasons why — you see the result and you’re seeing today, and the net promoter score that, that Frank mentioned, because we help customers focus on solving their problems, getting value out of the data and not dealing with infrastructure.

Pat Walravens — JMP Securities — Analyst

Great. Thank you, both.

Operator

Thank you. The next question is from the line of Kamil Mielczarek with William Blair. Please proceed.

Kamil Mielczarek — William Blair — Analyst

Thank you. Congrats on the solid quarter. The headcount growth in your sales and marketing organization has exceeded 50% in the first half of this year, which is comfortably above the growth rates achieved in both fiscal ’21 and ’22. Can you provide more detail on where you’ve been focusing new investments and given the macro uncertainty, how do you think about the time to ramp? How long should you take the new hires to be fully reflected in revenue? Thank you.

Mike Scarpelli — Chief Financial Officer

Well, the first half of the year is always the biggest hiring and that tends to be, we want to get people on board for our sales kickoff. It’s also when we like to on-board a lot of our junior SDRs. So we can train them altogether in the year. But the people we’re adding are principally in direct sales and sales engineers. And we continue to open up new countries around the world, but there we’re going a lot deeper within North America as well too, because there still is a lot of accounts that are being covered today, and it takes depending on where they are in the corporate sales team, which is more of an inside sales. It’s about a six months period to ramp. It’s a little bit longer on the vertical — on the enterprise and the verticals, the real large verticals we go after those guys could take a year to ramp, because there’s a long sales cycles.

Kamil Mielczarek — William Blair — Analyst

That’s helpful. Thank you.

Operator

Thank you. The next question is from the line of Derrick Wood with Cowen. Please proceed.

Derrick Wood — Cowen — Analyst

Great, thanks. Congrats on a great quarter. [Technical Issues]

Mike Scarpelli — Chief Financial Officer

Hey, Derrick, we can’t hear you very well. You’re cutting in and out. Could you repeat that, maybe —

Derrick Wood — Cowen — Analyst

Is this better? Hear me now?

Mike Scarpelli — Chief Financial Officer

Yes.

Derrick Wood — Cowen — Analyst

I wanted to ask about the, just the activity of migrating customers from legacy on-prem systems. I think you’ve shown stats that close to 60% of your new customers come from that environment and given the macro out there, some would argue, you’d see acceleration because of operational efficiencies. Some would argue, maybe there is a lot of change management and companies would want to hold off. But just curious, what you’re seeing out of your pipeline in terms of the prospects priority to migrate off the on-prem systems?

Frank Slootman — Chairman and Chief Executive Officer

Yeah. I’ll make one comment. I mean, I will tell you that just in the last two weeks, I’ve heard some — two very, very iconic names in two different industries that were staunch on premise people who would never ever go clouds, and that are now going. So I just feel that the resistance is completely breaking and people are going cloud. I’m sure they have their own reasons, but a lot of this is what you said as well, is that they are — they’re going to get left behind. You can take advantage of innovations that are only available on the cloud. So if anything, I get to agree with you that we’re going to see acceleration out of this as opposed to people holding back.

Derrick Wood — Cowen — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Brad Zelnick with Deutsche Bank. Please proceed.

Brad Zelnick — Deutsche Bank — Analyst

Thanks so much. Congrats guys on a really strong quarter and navigating crazy environment out there. My question for you guys maybe for Frank is, I mean, if we think about just data cloud is the holy grail and data sharing being a really important element to that, and I look to the metrics on stable edges, number of customers with at least one stable edge. I think it was 20% you said versus 15% a year ago, which I think is unchanged from what you also said in Q1. Can you just give us a sense of how you would expect to see that progress? And when we look back one day, maybe — where my fatigue based? Thanks.

Frank Slootman — Chairman and Chief Executive Officer

Yeah. I think there is a natural progression and these things as you said, lots of people are preoccupied with the migration. That takes a lot of time. There is a lot of risk. There is a lot of people want to get their core capabilities in place. They want to deal with their backlog, all the things that they need to do, you know, before they sort of move on to more aggressive, more ambitious projects where they’re really starting to execute on their strategies and the vision that they have for themselves.

So I think that the Data Cloud is an incredibly important positioning element for us, but also for our customers. Because if you don’t adopt that posture, you will end up re-silo in your environment in the cloud, and you will basically load up on the same set of problems that we historically have had. And it’s a much bigger problem now because data science and the promise of data science [Phonetic], the ability to generate predictive insights and prescriptive solutions really dispense on your ability to join and blend an overlaid data regardless of data types, data source of where it’s coming from. You can’t predict. So it’s really, really important that you don’t throw up new barriers between data sources, because you will not only frustrate your data science team, you will literally not be able to realize the potential that is now there.

So we draw a line in the sand on that. If you’re going to go silo by silo, then you will be on the cloud, which you will not have set yourself up for the promise that is now in front of us.

Brad Zelnick — Deutsche Bank — Analyst

Excellent. Thanks so much.

Operator

Thank you. The next question is from the line of Will Power with Baird. Please proceed.

William Power — Robert W. Baird — Analyst

Great. Thanks for taking the question. And again, yeah, congratulations on the strong numbers. Look like really strong upmarket success, I think record number of million [Phonetic] dollar or at least new million [Phonetic] dollar customers. I just wanted to get more color, if there are any common variables helping drive that up market success? It sounds like there’s a correlation with data sharing, the percentage of those customers that are deploying stable edges. So any further color on that front would be great too.

Frank Slootman — Chairman and Chief Executive Officer

It’s Frank, again. I think as what Mike said earlier, I mean a lot of these, these million dollar accounts can be years in the making. And a lot of the work that we’ve done in previous years is now culminating and it’s becoming visible in this particular manner. So it’s not an overnight success. These things take time.

The data sharing is incredibly important. Every industry and sub-industry has its own unique data networks and their own reasons and use cases where we know why they need to share data. And in financial services for example, which is of course an industry that you’re all very familiar with. Their need for sharing is extremely pronounced, and it’s a daily preoccupation between institutions need to share data. So Snowflake has really become a de facto platform for financial institutions on how to share data. So that becomes a very, very powerful thing. We feel the network effect from data sharing in certain verticals that are really more advanced, more mature in terms of the adoption of data sharing than some others that are taking more time to get into that.

Mike Scarpelli — Chief Financial Officer

Yeah. And what I will add too is, we have 510 Global 2000 customers. The average revenue from them today is $1.2 million. That’s up from $1.50 million last quarter and that will continue to grow those large customers and what is driving those million dollar plus customers for us and we don’t see that slowing down.

William Power — Robert W. Baird — Analyst

Great. Thank you.

Operator

Thank you. The next question is from the line of DJ Hynes with Canaccord. Please proceed.

DJ Hynes — Canaccord Genuity — Analyst

Hey, guys. Thanks for taking the question. Mike, I wanted to ask you about the margin trajectory of the business. I mean, continue to be impressed with the cash flow, operating leverage is showing, you raised the guidance to 17% this year. Given the trajectory we’re not miles off from that longer-term 25% target. What’s the philosophy from here? Like, do we reinvest the growth and the upside that we’re seeing into the business to drive sales productivity and accelerated investment there? Or to some of that flow through the bottom line and maybe that 25% margin target is achievable ahead of schedule?

Mike Scarpelli — Chief Financial Officer

Well, we’re going to get to that number before we even think about changing it. And with regards to investing in the business, we are continuing to invest in the business. You can see the head count we’re adding. Principally head count is the main investment we are doing in the business, because that’s what drives R&D. That’s what drives sale. But we’re very thoughtful about where we invest those dollars and how quickly do. And we think we’re investing at the adequate pace and we will continue with that.

DJ Hynes — Canaccord Genuity — Analyst

Thank you.

Mike Scarpelli — Chief Financial Officer

And nothing has changed our philosophy. We will continue to show leverage year-after-year.

Operator

Thank you. Our next question is from the line of Brent Thill with Jefferies. Please proceed.

Brent Thill — Jefferies — Analyst

Thanks, Frank and Mike. Hope you’re well. On verticals, were there some standouts this quarter? We’ve heard energy has been a hot topic, just as an example. Any other big verticals you call out that you saw a particular strength that you were excited by?

Mike Scarpelli — Chief Financial Officer

You know, energy is not a very big vertical for us. Yes, we have some good customers, but they’re not huge consumers of Snowflake. Really financial services is the number one vertical. Although and it’s about, if you look at it from a revenue perspective, about 20%, 21% of our revenue is from the financial services vertical and then closely behind that is the media and entertainment and technology is right after that as well, about the same. Those are our three biggest and then healthcare is pretty big, but it can grow a lot bigger. Retail CPG is a meaningful segment as well. But, financial services is very large and those are very large stable edges, the data sharing that goes on in financial services. And when we talk about big accounts, we landed in Europe, a big telco, we landed a big bank, we landed a big insurance company, and we continue to land big accounts in these verticals.

Brent Thill — Jefferies — Analyst

Okay. And one quick follow-up, just on — you’ve seen salesforce.com take down guidance, just don’t [Phonetic] take down guide. Everyone is asking, it seems like the industry is taking the guide down but you’re seeing incredible strength and no stretch out deals or duration? What do you think is going on? Are you just taking share? Or is it just early on is, how would you characterize? What you’re seeing?

Mike Scarpelli — Chief Financial Officer

What I would say —

Brent Thill — Jefferies — Analyst

What [Speech Overlap]

Mike Scarpelli — Chief Financial Officer

Yeah. I would say most SaaS companies when they land an account, they typically license most of the users in an account. When we land, we land small and they go workload by workload and they just keep moving stuff over to Snowflake. That drives that and it’s a multi-year journey within our customers. And I don’t see any of our customers that are fully saturated. Well, I think some SaaS companies may be saturated.

Brent Thill — Jefferies — Analyst

Very clear. Thanks.

Operator

Thank you. The next question is from the line of Steve Koenig with SMBC. Please proceed.

Orion Enrique — SMBC Nikko — Analyst

Hey, guys. This is Orion Enrique [Phonetic] on for Steve. Thanks for taking the question. Two quick related questions from us. First, you described the near-term opportunity in analytics beyond your core data warehouse use case. And which are these other workloads would you expect to become most prevalent in the near-term? And then the second, I’m wondering if you can talk about the plans to break into the operational use cases? And how many times bigger is that market opportunity in the near-term compared to the heritage EDW market? Thank you.

Frank Slootman — Chairman and Chief Executive Officer

It’s Frank. I’ll make one comment, and then I’ll give Christian to talk about some additional comments. You know, we started out in this business with what I’ve referred to as a workload modernization, where we’re taking existing workloads from moving to the cloud. And we’re running it much faster because of all the architectural innovations that Snowflake has represented. And this really helps customers and I mentioned this in the prepared remarks, really helps customers, a 24-hour cycle to very reliably deliver data to their business users and that’s been a long time coming. The customers have struggled with that enormously and then we hear about every single day. But that’s just reporting yesterday’s news and these days I will tell you that, nine out of 10 conversations I had with customers are not about that, okay, they are about very specific industry challenges and industry opportunities.

For example, we have pharma customers, they are seeing opportunities to reduce their clinical trials. It takes on average 12-years to bring a drug to market. You get five-years left to monetize as they can take a whole year off that. You redefine the economics of an entire industry. Healthcare is trying to go to an internally predictive model. They are treating people for disease. They are trying to predict who is going to get sick what preventive protocols they can put in place to help people then steer clear that. So these are very different conversation than what we’re doing in advertising, for example, with cleanroom technologies. We’re doing totally different things now and we are enabling these industries to navigate all the issues around privacy and compliance and so on. So to characterize as a data warehouse companies have said this a million time. But that is probably five-years out of date by now. You can keep doing that, but it doesn’t make it — that doesn’t make it the reality of our business, because it’s not anymore.

Christian Kleinerman — Senior Vice President, Product

Sorry, I’ll add that we see broadening of the personas within the company that we speak through. It’s not just the traditional data analyst team. But data engineering team are engaged with us. Data scientist are engaged with us. Streamlit has a really strong relationship with many of the data science teams and we see that part of it. We announced that our user conference in June. Cybersecurity is a workload that is doing very well for us. And probably with the — the largest announcement was around Snowflake for data applications and an application platform, that’s where the opportunity for the operational database capabilities fit into and we see tremendous interest from both customers and partners.

Frank Slootman — Chairman and Chief Executive Officer

Yeah. And then just a quick follow-up. Snowflake has become de facto a cloud application development in the run time platform. People are building and deploying applications on Snowflake. I mean we have customers like Western Union who are starting whole businesses on top of Snowflake. Those are the conversations that we are having with customers. Workload modernization will be doing that till the end of times, but that’s no longer the reality that dominates our daily existence.

Orion Enrique — SMBC Nikko — Analyst

Super helpful. Thank you, guys.

Operator

Thank you. The next question is from the line of Ittai Kidron with Oppenheimer. Please proceed.

Ittai Kidron — Oppenheimer — Analyst

Thanks and nice quarter. Mike, I wanted to piggyback to a comment you made earlier that it takes months for customers to get into production, even after they sign up with you. I guess, would that have been the case in the current environment being what it is? What is the risk that six months to 12 months for now, we’ll see a little bit of a lull in your growth as whatever slowdown in activity that’s happening with them right now translates into a smaller number of workload transitions into the cloud. How much visibility do you have into the prep work customers are doing with respect to the workload transition?

Mike Scarpelli — Chief Financial Officer

We’ve leave a lot of that. You can see in the number of camp ones that we landed last quarter. It was North of 600. All of those customers, they signed up on Snowflake to move workloads to us and we know based upon discussions we have with many of our top customers, their plans, what they are planning on doing. As an example, we have a number of our customers that are just chomping at the bit for Snowpark to go into GA with pipeline, because they want to do more on Snowflake. So that’s what gives us the confidence and we spend a lot of time looking and engaging with our reps who were talking to our customers to get a feel for what is consumption going to be like over the next three months, six months with our customers.

Frank Slootman — Chairman and Chief Executive Officer

Just a quick follow-up. I actually think that the dynamic that you’re describing, I mean we’re going to see the exact opposite of that. We think people because of the nervousness that they may have about the macro, they’re going to accelerate into a cloud computing platform. And the reason is, these are elastic models. These are consumption models, right. So it’s much better to be in elastic model where you only pay for what you use and you can run on demand, then when you have to make large upfront commitments to vendors. So anything, I think people are going to get a move on instead of hold off.

Ittai Kidron — Oppenheimer — Analyst

Very good. Thank you.

Operator

Thank you. The next question is from the line of Ari Terjanian with Cleveland Research. Please proceed.

Ari Terjanian — Cleveland Research — Analyst

Thank you for taking the question and congrats on the great results. You alluded to earlier Frank on Snowpark and Python support. I was just hoping if you could provide a little bit more color on the feedback you’re getting from customers on Python for Snowpark, as well as the announcements you made around Apache at the user conference? Curious when you think those can start to drive consumption for the platform? When you’re expecting contribution and what types of projects that you’re currently not involved in? What kind of use cases that could open up for you? Thank you.

Frank Slootman — Chairman and Chief Executive Officer

Now, I’ll start, maybe Christian can finish. But Python is — Snowflake for Python is red hot and people are chomping at to that for us to declare its GA, which is something — and we have customers that are really wanting us to let them use it in production now, some of the largest customers that we have. So the pressure is on because the demand is there. The thing about the Iceberg Open Table format that really completely open Snowflake up to be — for Snowflake tables to be used by anybody and everybody that can support that format. We’re seeing incredible results in terms of performance. Snowflake executing against that file format. So these are all very, very, promising developments for us. And I think the pressure is on for us to declare these things generally available. People are trying to rip them out of our hands right now.

Mike Scarpelli — Chief Financial Officer

As we said at our summit conference, we expect those to be GA the end of this year. So meaningful contribution to consumption will happen next year.

Christian Kleinerman — Senior Vice President, Product

That’s right. And qualitatively the feedback is extremely positive which is why as Frank said, we get these many requests to grow production, go GA, as soon as we can.

Ari Terjanian — Cleveland Research — Analyst

Excellent. Thank you.

Operator

Thank you. Next question will come from the line of Tyler Radke with Citi. Please proceed.

Tyler Radke — Citi — Analyst

Thank you. So we made it almost a full hour without talking about Graviton. I actually just wanted to ask you, how you’re thinking about new projects or new workloads in response to some of the optimizations? And any change to your assumptions? I think you had talked about kind of $60 million of net new spend coming online. Just curious how that’s tracking in your expectations for the second half of the year? Thank you.

Mike Scarpelli — Chief Financial Officer

No changes to our assumptions and we always expected the biggest impact is in the second half of the year on those. And then, Christian?

Christian Kleinerman — Senior Vice President, Product

Yeah, we’re always continuously looking at how to deliver price performance advantage to our customers. Graviton happened to be one of the more significant changes, but any quarter we have tens of changes. They grow and improve performance for different workloads. And we’re also constantly evaluating hardware advancements and our commitment to our customers is to do that restriction that we haven’t delivered best price performance.

Tyler Radke — Citi — Analyst

And if I could sneak in a quick follow-up, I guess, just what type of workloads are you seeing customers bring on with the lower price point? Is it kind of new workloads that you weren’t able to handle in the past? Just any way to characterize that. Thank you.

Christian Kleinerman — Senior Vice President, Product

Yeah. We’re seeing a lot of lower latency, higher concurrency use cases like slicing and dicing. We did our migration from Druit [Phonetic], which is very related to use cases recently, in part because of the better economics, but in part because of the performance and they’re obviously highly correlated. We’re also seeing a lot of data engineering, data science information, Spark migrations coming on the Snowflake, all because of the price performance that we offer.

Tyler Radke — Citi — Analyst

Thank you.

Operator

[Operator Closing Remarks]

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