10-QPeriod: Q3 FY2021

Snowflake Inc. Quarterly Report for Q3 Ended Oct 31, 2020

Filed December 3, 2020For Securities:SNOW

Summary

Snowflake Inc. (SNOW) filed its quarterly report for the period ending October 30, 2020, shortly after its Initial Public Offering (IPO). As an "emerging growth company," Snowflake can utilize certain exemptions from reporting requirements, which may affect comparability with other public companies. Investors should note the company's ongoing efforts and associated costs in establishing robust internal controls required of a public entity, with a mandated management assessment of internal control over financial reporting due by January 31, 2022. The filing also details significant post-IPO equity transactions, including private placements of Class A common stock to Salesforce Ventures LLC and Berkshire Hathaway Inc. for $500 million immediately following the IPO. These transactions, along with other equity issuances under employee incentive plans, are noted as exempt from standard registration requirements. Additionally, the report outlines several anti-takeover provisions within the company's charter documents and under Delaware law, which could impact the likelihood of a change in control or premium for stockholders in an acquisition scenario.

Financial Highlights

50 data points
Beta

Revenue

$159.62M

58.2% Gross Margin

Net Income

-$168.89M

-105.8% Net Margin

EPS (Diluted)

$-1.01

Total Assets

$5.71B

Cash & Equivalents

$3.94B

Free Cash Flow

-$37.02M

Financial Statements
Beta
Revenue$159.62M
Cost of Revenue$66.68M
Gross Profit$92.94M
R&D Expenses$74.14M
Operating Expenses$262.40M
Operating Income-$169.45M
Net Income-$168.89M
EPS (Basic)$-1.01
EPS (Diluted)$-1.01
Shares Outstanding (Basic)166.87M
Shares Outstanding (Diluted)166.87M

Key Highlights

  • 1Snowflake is operating as an "emerging growth company" and is leveraging certain exemptions from reporting requirements, which could impact comparability with other public companies.
  • 2The company is incurring significant costs and management attention to establish and maintain adequate internal controls over financial reporting, a requirement for public companies.
  • 3A management assessment of internal control over financial reporting is due by January 31, 2022, with potential for material weaknesses to be disclosed.
  • 4Post-IPO, Snowflake completed private placements of Class A common stock to Salesforce Ventures LLC and Berkshire Hathaway Inc. for $500 million.
  • 5Various stock options and restricted stock units were granted to employees under the 2012 Equity Incentive Plan.
  • 6The company's charter documents and Delaware law contain anti-takeover provisions that could deter acquisition attempts or changes in management.
  • 7Exclusive forum selection provisions are in place for stockholder disputes, designating Delaware courts for internal affairs and federal district courts for Securities Act claims.

Frequently Asked Questions

As an 'emerging growth company,' Snowflake can take advantage of exemptions from certain reporting requirements, such as auditor attestation for internal controls (Section 404 of Sarbanes-Oxley) and reduced executive compensation disclosures. They can also use an extended transition period for new accounting standards, meaning their financial statements might not be directly comparable to companies that adopt these standards sooner. This could potentially make the stock less attractive to some investors.

Snowflake is actively working to develop and maintain proper internal controls over financial reporting, a significant undertaking and cost for a public company. They are in the process of compiling documentation and testing systems. Management is required to report on the effectiveness of these controls by January 31, 2022, and disclose any material weaknesses. Failure to maintain effective controls could impact investor confidence and stock value.

Following its IPO, Snowflake conducted private placements of Class A common stock to Salesforce Ventures LLC and Berkshire Hathaway Inc., raising $500 million. Additionally, prior to and around the IPO, the company granted stock options and restricted stock units to employees under its 2012 Equity Incentive Plan and issued shares upon the exercise of these options and warrants.

Snowflake's charter documents and Delaware law include provisions that could make a takeover more difficult. These include authorizing preferred stock, requiring stockholder actions at meetings (not by written consent), limiting who can call special meetings, implementing advance notice for proposals, having a staggered board of directors, prohibiting cumulative voting, allowing director removal only for cause, and restricting business combinations with interested stockholders for three years under Delaware General Corporation Law Section 203.