Snowflake Inc. Q3 FY2023 earnings

Snowflake closed FY2023 Q3 on October 31, 2022 with total revenue of $557.03 million, up 66.6% from $334.44 million in the prior-year quarter. Gross profit rose 71.4% to $366.31 million from $213.66 million. Gross margin was 65.8%, up 1.9 percentage points from 63.9%. The operating loss widened to $206.02 million from $157.27 million. Net loss attributable to Snowflake Inc. widened to $200.94 million from $154.86 million, and diluted EPS was negative $0.63, compared with negative $0.51. Operating margin was negative 37.0%, compared with negative 47.0%, an improvement of 10.0 percentage points. The quarter showed strong top-line expansion and better gross and operating margins, but GAAP losses widened as operating expenses grew.

Year to date, revenue reached $1.48 billion, up 76.7% from $835.55 million. Gross profit was $964.76 million, up 88.7% from $511.30 million. Gross margin was 65.3%, up 4.1 percentage points from 61.2%. Operating loss widened 7.0% to $602.52 million from $563.01 million. Net loss attributable to Snowflake Inc. widened 7.6% to $589.54 million from $547.80 million. Diluted EPS was negative $1.86, compared with negative $1.84. Operating margin was negative 40.8%, compared with negative 67.4%, an improvement of 26.6 percentage points. Operating cash flow was $328.32 million year to date, up 949.6% from $31.28 million. Capital expenditures were $19.77 million, up 61.9% from $12.21 million. Deferred revenue was $1.20 billion, up 57.9% from $759.74 million. Remaining performance obligations were $3.00 billion, up 66.7% from $1.80 billion.

The operating picture included 7,292 total customers as of October 31, 2022, up from 5,966 as of January 31, 2022. Customers with trailing 12-month product revenue greater than $1 million totaled 287, up from 148 as of October 31, 2021. Net revenue retention rate was 165% as of October 31, 2022, down from 177% as of January 31, 2022. Snowflake also listed 543 Forbes Global 2000 customers, who contributed approximately 41% of revenue for the nine months ended October 31, 2022. Non-GAAP product gross margin was 75%. Non-GAAP operating income was $43.4 million, an 8% margin. Net cash provided by operating activities was $79.3 million in the quarter, and free cash flow was $65.0 million, a 12% margin. Adjusted free cash flow was also $65.0 million, a 12% margin. Management's remaining performance obligation disclosure noted that roughly 55% of RPO is expected to be recognized as revenue in the twelve months ending October 31, 2023, with a weighted-average remaining contract life of 2.0 years.

Guidance points to a slower growth rate at scale. For the fourth quarter of fiscal 2023, management guided product revenue to $535 million to $540 million, representing 49% to 50% growth, and a non-GAAP operating income margin of 1%. For the full fiscal year 2023, product revenue guidance was $1,919 million to $1,924 million, representing 68% to 69% growth, with a non-GAAP product gross margin of 75%, a non-GAAP operating income margin of 3%, and an adjusted free cash flow margin of 21%. The company also guided weighted-average diluted shares of 360 million for the fourth quarter and 359 million for the full year. Risks include adverse macroeconomic conditions, higher inflation, higher interest rates, and fluctuations or volatility in capital markets or foreign currency exchange rates, which are causing customers to optimize consumption, rationalize budgets, and prioritize cash flow management. The company also cited COVID-19 disruption and the need to attract and retain customers, develop new products, predict consumption, compete, and manage growth. In addition, Snowflake acquired Applica for $174.7 million in cash on September 23, 2022, and completed the Streamlit acquisition for $650.8 million, including $211.8 million in cash and 1.9 million shares valued at $438.9 million, plus $93.7 million in post-combination stock-based compensation for founder shares that vest over three years. On November 25, 2022, the company agreed to acquire another privately-held company for approximately $75 million in cash, expected to close within six months.