Snowflake Inc. Q1 FY2024 earnings

Snowflake closed the first quarter of fiscal 2024 with revenue of $623.6 million, up 47.6% from $422.4 million a year earlier. Product revenue, the consumption-based core of the model, grew 50% to $590.1 million. Gross profit rose 50.9% to $414.18 million, and gross margin widened to 66.4% from 65.0%, a gain of 1.4 percentage points. Product gross margin was 73%, and the mix stayed heavily product-weighted.

The bottom line moved the other way. Operating loss widened to $273.24 million from $188.77 million, although operating margin of negative 43.8% was an improvement of 0.9 percentage points from negative 44.7%. Net loss attributable to Snowflake Inc. widened to $225.63 million from $165.79 million, and diluted loss per share was $0.70 against a $0.53 loss a year earlier. Non-GAAP operating income was $32.6 million, a 5% margin, and the gap between the two measures reflects heavy stock-based compensation. Research and development expense climbed 84% to $277.4 million. The company also recorded $7.1 million of impairment charges on capitalized internal-use software that was no longer expected to be completed, and on May 26, 2023 it paid approximately $150 million in cash for Neeva.

Cash generation held up better than earnings. Operating cash flow was $299.44 million, up 62.2% from $184.61 million. Capital expenditures were $6.97 million, down 6.0% from $7.41 million. Non-GAAP free cash flow was $283.1 million, a 45% margin, and adjusted free cash flow reached $286.9 million, a 46% margin, which the press release described as up 58% year over year. Deferred revenue, current portion, was $1.56 billion, up 37.8%. Remaining performance obligations were $3.4 billion, up 30.8%. Management expects about 57% of that backlog to be recognized as revenue in the twelve months ending April 30, 2024, and puts the weighted-average remaining life of capacity contracts at 1.8 years.

Customer metrics show scale and slowing momentum at the same time. Net revenue retention was 151% as of April 30, 2023, down from 158% at January 31, 2023. The count of customers with trailing 12-month product revenue above $1 million rose to 373 from 207 a year earlier, and those accounts generated roughly 64% of product revenue. Forbes Global 2000 customers totaled 590 and contributed about 41% of revenue. Total customers reached 8,167, up from 7,850 at January 31, 2023. About 98% of revenue came from existing customers under capacity arrangements.

Guidance points to a slower second quarter. For the second quarter of fiscal 2024, product revenue is guided to $620 million to $625 million, with a non-GAAP operating margin of 2% and 361 million diluted shares. For the full fiscal year 2024, product revenue is guided to $2.6 billion, growth of 34%, with a product gross profit margin of 76%, a non-GAAP operating margin of 5%, and an adjusted free cash flow margin of 26%. Full-year diluted shares are guided to 362 million.

The risk discussion names the pressure points. Management cites adverse macroeconomic conditions that push customers to rationalize budgets, prioritize cash flow management, shorten contract durations, and optimize consumption, including by cutting storage through shorter data retention policies. The company also disclosed lower than expected consumption from April 2023 through the date of the report, a pattern that could weigh on revenue and retention. Capital allocation stayed busy. Snowflake repurchased about 1.4 million shares for roughly $191.7 million at a weighted-average price of $136.39, leaving $1.8 billion available under the $2.0 billion program that expires in March 2025. It paid $76.3 million for Mountain and $62.0 million for LeapYear in February 2023. Unrecognized stock-based compensation stood at $3.1 billion as of April 30, 2023, to be recognized over a weighted-average period of 3.1 years. On the board, Steve B. Burke joined and John McMahon steps down after the July 5 annual meeting.