Snowflake Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 21, 2024

Key Takeaways

  • Strong Q2 financial performance: Product revenue was $829 M (+30% YoY), remaining performance obligations reached $5.2 B (+48% YoY), and full-year product revenue guidance was raised to ~$3.36 B (+26% YoY).
  • AI and product innovation accelerating: Snowflake made Iceberg generally available, launched Cortex AI capabilities, and saw broad early adoption (400 Iceberg accounts, 2,500+ weekly AI users), with Cortex Search and Analyst expected in Q3.
  • Share repurchase program expanded: Q2 buybacks totaled $400 M for 3 M shares, leaving $492 M under the current plan and an additional $2.5 B authorized through March 2027.
  • Non-GAAP margins influenced by AI investments: Q2 product gross margin was 76% (slightly down YoY due to GPU costs) and non-GAAP operating margin was 5%, reflecting continued R&D and go-to-market spend.
  • Q3 outlook maintained: Snowflake expects Q3 product revenue of $850 M–$855 M and reiterated FY25 targets of ~75% non-GAAP product margin, 3% non-GAAP operating margin, and 26% non-GAAP free cash flow margin.
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Earnings Conference Call
Snowflake Q2 2025
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Operator

Good afternoon. Thank you for attending today's Snowflake Q2 and fiscal year 2025 earnings call. My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I'd now like to pass the call over to Jimmy Sexton, Head of Investor Relations. Please go ahead.

Jimmy Sexton
CFO at ClickHouse

Good afternoon, and thank you for joining us on Snowflake's Q2 fiscal 2025 earnings call. Joining me on the call today is Sridhar Ramaswamy, our Chief Executive Officer, Mike Scarpelli, our Chief Financial Officer, and Christian Kleinerman, our Executive Vice President of Product, who will participate in the Q&A session. During today's call, we will review our financial results for the second quarter fiscal 2025, and discuss our guidance for the third quarter and full year fiscal 2025. During today's call, we will make forward-looking statements, including statements related to our business operations and financial performance. These statements are subject to risks and uncertainties, which could cause them to differ materially from our actual results. Information concerning these risks and uncertainties is available in our earnings press release, our most recent Forms 10-K and 10-Q, and our other SEC reports.

Jimmy Sexton
CFO at ClickHouse

All our statements are made as of today, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During today's call, we will also discuss certain non-GAAP financial measures. See our investor presentation for a reconciliation of GAAP to non-GAAP measures and business metric definitions, including adoption. The earnings press release and investor presentation are available on our website 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 Sridhar.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Thanks, Jimmy, and hi, everyone. Thanks for joining us today. As you've seen by now, we had another strong quarter, beating guidance and increasing our FY 2025 product revenue expectations. I'm really proud of the team and how we accelerated our innovation pipeline, and our product delivery momentum continues to be really strong. In the first half of this year alone, we brought as much product to market as we did all of last year. We are making Snowflake the best cloud for computation, collaboration, and applications on all data, and we are leveraging the power of AI to make all of these easier to create, maintain, and use. This is what our team is aligned around, and I can tell you, our customers are adopting our new capabilities at an incredible pace.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

As I said last quarter, I have three key areas I'm personally focused on: listening to and learning from our customers, fueling innovation and product delivery, driving execution and alignment within our go-to-market teams, and in Q2, we delivered on all fronts, which you can see in our results. Product revenue for the quarter was $829 million, up 30% year-over-year. Remaining performance obligations totaled $5.2 billion, with year-over-year growth accelerating to 48%. Given the strong quarter, we are increasing our product revenue outlook for the year. Companies like Capital One, NBCU, Petco, Pfizer, Snapchat, and Western Union are all relying on Snowflake to help them fuel their businesses. I'm really encouraged by the strength of our core business and the rapid progress we have made on the AI front.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I'm very optimistic about where we are going and the opportunities we have in front of us to deliver for our customers. In fact, the more I'm with our customers, the more I appreciate just how critical we are to their business and how much they're counting on us to be their trusted advisor in their AI data journey. Nothing brings to life how strong and trusted a relationship is than when you go through challenges together. We obviously had some rough headlines in the quarter as some of our customers dealt with a cybersecurity threat. As extensively reported, the issue wasn't on the Snowflake side. After multiple investigations by internal and external cybersecurity experts, we found no evidence that our platform was breached or compromised. However, we understand that when it comes to cybersecurity, we are all in it together.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

My one ask of all businesses around the world, whether they are a Snowflake customer or not, is to enable and enforce multi-factor authentication in your organization and ensure that you have network policies are as strong as possible. Two things we at Snowflake have supported since 2016. There were a lot of bright spots in the quarter, none more than the time I spent with over a hundred customers, many of them on my travels to the U.K., Germany, Canada, and across the U.S., and of course, at Snowflake Summit in June. The affinity for our product is incredible, and the consistent theme I hear from the C-suite across industries and geographies is that Snowflake is delivering ease, efficiency, and reliability to their business. And so much of this came to light at Snowflake Summit.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

We had 15,000 on-site attendees, up 28% year-on-year, with customers and partners from around the world. We hosted our first-ever Developers Day with over 3,000 attendees. The energy was simply incredible, and if you were there, you experienced a lot of our innovation and product momentum, where we brought to life Cortex AI and announced Iceberg being generally available, both of which have gained a lot of traction already with customers. Penske Logistics, a leading provider of transportation and warehousing solutions, has developed a variety of innovative use cases involving Cortex AI.... In one example, Penske plans to use Cortex to consume various performance metrics related to its transportation business. Cortex analyses will help provide feedback to Penske's operations managers, with the goal of improving performance and enhancing truck driver retention.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Also, one of the largest financial services companies is using Cortex AI to analyze unstructured text data, running sentiment analysis on call center transcripts to improve their customer support experience. Twilio Segment's reverse ETL integrates with Snowflake's Cortex AI and enables Twilio customers to derive insights from their unstructured data to improve the customer journey, and Iceberg is providing one of the largest consumer services and hospitality companies with a more flexible and interoperable deployment model, enabling them to accelerate their migration to the cloud. Iceberg is enabling us to play offense and address a larger data footprint. Many of our largest customers have indicated they will now leverage Snowflake for more of their workloads as a result of this functionality. More than 400 accounts are using Iceberg as of the end of Q2.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I told you last quarter that product delivery is one of our highest priorities, and in Q2, we made nine net new product announcements and brought more than 15 product capabilities to general availability to the market. That's what we call progress. We're also seeing broad adoption of our products across our customer base. As of the end of Q2, more than 2,500 accounts were using Snowflake AI on a weekly basis. We expect this adoption to continue to increase and revenue contribution to follow. Our Notebooks offering is also seeing great traction in public preview, with more than 1,600 accounts using that feature. This is critical to engage with data scientists and will unlock new opportunities that we previously did not address. We are in the early innings of this opportunity, and we'll continue to bring new features to market.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Cortex Search and Cortex Analyst are expected to be generally available in Q3. We are continuing to responsibly invest in AI and machine learning to deliver enterprise AI that is easy, efficient, and most of all, trusted. It's great to have so much momentum on the product front. It's fueling our incredible go-to-market team, which, as you know, is one of our biggest advantages. To wrap things up, our innovation engine and product delivery are in overdrive. The combination of our platform and the network effect of collaboration, as well as the innovation we are working on in AI, is Snowflake's future, and creates a huge opportunity ahead. We have a lot of work to do, but it's in our hands to deliver and take advantage of it. Mike, I'll turn it over to you.

Mike Scarpelli
Board Member at Snyk

Thank you, Sridhar. Q2 product revenue grew 30% year-over-year, totaling $829 million. Financial services and technology verticals drove growth in the quarter. We continue to see signs of a stable optimization environment. Our largest customers are contributing sequential product revenue growth in line with historical patterns. We delivered strong bookings in the quarter. Our RPO grew 48% year-on-year to reach more than $5.2 billion. We signed two nine-figure deals in the quarter. Earlier this year, we announced FY 2025 sales incentives that would prioritize consumption and new customer acquisitions. In order to drive consumption, sales reps prosecute new use cases and sell new product features. We believe this focus will convert into meaningful revenue over time. Our new customer acquisition motion is ramping. We expect it to have a more material impact in FY 2026.

Mike Scarpelli
Board Member at Snyk

In Q2, non-GAAP product gross margin of 76% was down slightly year-over-year. As mentioned on our prior call, we are incurring GPU-related costs in order to fulfill customer demand for our newer product features. Non-GAAP operating margin of 5% exceeded our guidance, benefiting from revenue outperformance. As expected, non-GAAP operating margin is down year-on-year as a result of R&D and go-to-market investments. Our non-GAAP adjusted free cash flow margin was 8%. We continue to see approximately 80% of our customers paying annually in advance. We ended the quarter with $3.9 billion in cash, cash equivalents, short-term, and long-term investments. In Q2, we used $400 million to repurchase 3 million shares. From our original $2 billion repurchase plan, we have $492 million remaining through March 2025.

Mike Scarpelli
Board Member at Snyk

Our board of directors authorized the repurchase of an additional $2.5 billion under our stock repurchase program through March 2027. This allows us to use our cash balance and expected free cash flow to manage dilution over this period. Our share count guidance does not include the impact from the stock repurchases. Now, let's turn to our outlook. We forecast product revenue based on observed behavior. Our FY 2025 guidance includes contribution from Snowpark, as previously stated. Our guidance does not include material contribution from the newer product features. Our forecast does include revenue headwinds associated with performance improvements. For Q3, we expect product revenue between $850 million and $855 million. We are increasing our FY 2025 product revenue guidance. We now expect full-year product revenue of approximately $3.356 billion, representing 26% year-over-year growth.

Mike Scarpelli
Board Member at Snyk

Turning to margins, for Q3, we expect 3% non-GAAP operating margin. We are maintaining full-year margin guidance. For FY 2025, we expect approximately 75% non-GAAP product margin, 3% non-GAAP operating margin, and 26% non-GAAP adjusted free cash flow margins. With that, operator, you can now open up the line for questions.

Operator

Great. If you'd like to queue for a question, you can do so by pressing star one, and if for any reason you'd like to remove your question, you can press star two. Again, it is star one to join the question queue. Our first question is from Keith Weiss with Morgan Stanley. Your line is now open.

Keith Weiss
Keith Weiss
Managing Director at Morgan Stanley

Excellent. Thank you, guys, for taking the question, and congratulations on a solid quarter. It really good to hear about the optimization starting to normalize. You guys are seem to be settling into just about, like, a 30% product revenue growth rate over the past couple of quarters. There was a lot of concerns coming into this quarter about impacts from Iceberg Tables. There was concerns that accrued during the quarter about the data leakage. That wasn't your fault, but it definitely was a marketing headwind. There was concern about the CrowdStrike cybersecurity incident may be impacting consumption. Were any of these outsized impacts, were any of these additional impacts on the consumption in the quarter versus what you guys were expecting when you originally gave us the guide?

Mike Scarpelli
Board Member at Snyk

I would say the cybersecurity incident was still really had no impact on us at all from a consumption standpoint, and the CrowdStrike outage was minimal. It was a day with a few customers, but nothing of any substance, and it never really impacted us itself, and our production does not rely on Microsoft for that, so we didn't have-

Keith Weiss
Keith Weiss
Managing Director at Morgan Stanley

Got it. And then, was Iceberg Tables in line with your expectations?

Mike Scarpelli
Board Member at Snyk

Yeah. You know, Iceberg Tables is rolling out. As we said, we have about 400 customers that are using it. We haven't seen customers move storage out of Snowflake, but we're seeing a lot of our customers. We mentioned 400 that we know of that are actually using Iceberg with new workloads. They're trying that out, and we're very pleased with the progress we're seeing there. Storage is still running about 11% of our revenue.

Keith Weiss
Keith Weiss
Managing Director at Morgan Stanley

Got it. That's super helpful. Thank you, Mike.

Operator

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

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Perfect. Thank you. Two quick questions. Mike, can you... The gross margins this quarter were better than what a lot of people had modeled. Can you speak to some of the factors for that? And then, Sridhar, for you, like, in around the Iceberg ecosystem, there's obviously a lot of change this quarter with the Tabular acquisition by someone else. What do you see in terms of attracting talent to drive the roadmap forward there? Like, you know, how is your positioning in that Iceberg ecosystem evolving? Thank you.

Mike Scarpelli
Board Member at Snyk

Yeah, on the margin side, the margins were slightly better than what we had forecast internally, but it doesn't change the guide that we've given: 75% for the year. Part of that is we're still waiting in some deployments for GPUs that, around the world, that we don't have yet, that we're anticipating would have come in this quarter. That's really the on the margin side, the gross margin side.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

And then on the Iceberg side, it's important to understand that the acquisition of Tabular, the company, has no impact on the Iceberg project, which is an Apache open source project. This has contributors and program committee members from a number of cloud companies. The hyperscalers, yes, but also other companies, and we also have members within Snowflake. So we very much intend for this to be an industry standard that we take a pretty significant role in shaping. And so from that perspective, we actually feel that the Tabular acquisition, in many ways, is a vindication of our strategy to bet on Iceberg, because that was the format that was truly interoperable.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

You know, hopefully, this is the end of the Betamax wars and everybody centering around the one format that has broad support, and as I said, we will continue to be a key player in this ecosystem to ensure that the format truly serves everybody and moves the industry forward.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Okay. Perfect. Thank you, and well done.

Operator

Our next question is from Mark Murphy with JPMorgan. Your line is now open.

Mark Murphy
Mark Murphy
Managing Director at JPMorgan

Thank you very much. Hello, Mike, congrats. Mike, you mentioned a couple of nine-figure deals in the quarter. I'm curious if those are renewals with expansion or, perhaps if they're related to anything else. For instance, Iceberg Tables unlocking, you know, new business where companies wanna tap into some larger data sources that are in an open format or. Just whether there's anything else to call out on the nine-figure deals, and I have a quick follow-up.

Mike Scarpelli
Board Member at Snyk

... Those were, existing customers, you're never gonna see. I never wanna say never, but it's unlikely you're gonna see a nine-figure deal from a net new customer. But, those are really as part of the renewal process, and but expansion in both of those customers as they're looking to do more. I can't specifically say that Iceberg on either of those that I'm seeing, but they both plan on doing more with Snowflake.

Mark Murphy
Mark Murphy
Managing Director at JPMorgan

Yeah, I understand. Okay. And then, as a follow-up, as we start to think, you know, forward into the next, fiscal year, I think we're trying to balance out the large slate of products that recently reached, GA, that you mentioned, Sridhar, and might start to contribute. Then on the other side of the ledger, you know, potential for any discrete headwinds from hardware and software improvements that you pass along, you know, storage compression. In the past, you had auto warehouse sizing. Any high-level thoughts on, Sridhar, on how to pencil that out in terms of new products, you know, ramping, and then on the other side, some of those improvements?

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I'll start to answer, and Christian should, and Mike should chime in. First of all, you know, we obviously can't say anything about next year. It is next year, but wherever possible, where we have, indication about how new products are going to perform, we certainly tell you about it. We have given guidance, for example, about what Snowpark is going to do, this year, and then similarly, with the AI products, as I said, we are seeing broad adoption, and we expect that, it will begin to contribute materially to revenue, next year. With respect to performance optimizations, I would say that's more of an ongoing thing. We have talked to you about the things that we have on tap for this year.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

It is important to understand that these optimizations turn into massive cost savings for our customers and make the core product strong, and that it's really important that our teams continue to do that because that's what protects our overall base. Christian?

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

I would just emphasize that our leadership position on price performance continues to be a priority for all of us. And at this point, you've seen several years of us continuing to innovate, but also deliver growth and additional usage from our customers.

Mark Murphy
Mark Murphy
Managing Director at JPMorgan

Thank you.

Operator

We have a question from Kirk Materne with Evercore. Your line is now open.

Kirk Materne
Kirk Materne
Senior Managing Director at Evercore

Yeah, thanks. Just two really quick ones. Sridhar, obviously, a lot of your partners and customers at the summit event talked about, you know, the excitement around some of these newer products like Cortex and Snowpark. But one of the refrains was, "We just need better roadmaps to understand how to use them." And I think from an industry perspective, that came up a lot, too. So I'm kind of curious, where do you think you are with your product roadmap, so that they can understand the ROI, that the-

Mike Scarpelli
Board Member at Snyk

Hey, Kirk. Kirk, your line is breaking up, and we can't really hear you.

Kirk Materne
Kirk Materne
Senior Managing Director at Evercore

Oh, sorry. Is that any better?

Mike Scarpelli
Board Member at Snyk

Getting a really bad echo, and it's hard to hear you.

Kirk Materne
Kirk Materne
Senior Managing Director at Evercore

I'm sorry. Here, thanks.

Mike Scarpelli
Board Member at Snyk

Okay, we'll go to the next question.

Operator

We have a question from-

Mike Scarpelli
Board Member at Snyk

Kirk, if you get a better line, call back in.

Operator

... Kash Rangan with Goldman. Your line is now open.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Hey, thank you, guys. One for you, Sridhar, one for you, Mike. Sridhar, when you look at the product portfolio, clearly your initiative is to get these services out in quick cadence. I think you pointed out net new eight or nine services. But what are the conversations with customers like when they are discussing these services with you? What is your take on where we are going to be a year out with the consumption profile of an average Snowflake customer, and kind of if there's anything on average? How do you see that mix changing between the core, if you want to just bluntly call it, warehousing related revenues versus unstructured data, whatever you want to call it, Cortex, AI, and the other emerging buckets?

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

How does that mix change for customers as they start to appreciate the net new products you have coming out? And one for you, Mike. You said that the Salesforce compensation tilt towards consumption is still in its early days, but you also intimated that in fiscal 2026, we could start to see the fruit of all this. So help us understand what you mean by that, and what are the KPIs that you'd be internally monitoring to inform you, and therefore us, that that tilt towards getting more consumption within your customers is actually working to your advantage? Thank you so much.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Thank you, Kash. On the product side, I would say that our customers go through a journey, typically starting with a desire to have a really good data platform that gives visibility. They end up adopting different architectures, but often the enterprise's most like pristine, cleaned data, the gold layer, so to say, is the one that's put into Snowflake, and there are lots of customers that have standardized on Snowflake as that key data backplane. Next, usually there is a leaning towards collaboration because all companies exist in the context of an ecosystem. They have partners, they have customers, and collaboration of various kinds, certainly starting with data sharing, becomes the key next thing that they adopt broadly.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

You've often heard Christian talk about things like stable edges, which is a metric that we track, because it creates value, and it obviously also creates a network effect. Our overall strategy at Snowflake is to make sure that all of the sort of data workloads that a company has is satisfied by Snowflake. This is where things like data engineering, which you have played a pretty significant role in for a while, you know, has been an investment for us. This is where things like Iceberg become pretty key because all of a sudden, the universe of data that can be acted upon by Snowflake goes through a large expansion, because, precisely because not all data needs to be ingested into Snowflake before things happen.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I would say AI is a little unusual in this front because of obviously the industry excitement around it, but we approach it very much from a viewpoint that I think this was part of the previous question of how do we go about creating utility to our customers? We just don't go in and say, "Use AI." We talk about, you know, how it can be used to derive much better insights or unstructured information, for example, by using an LLM function for doing data transformations, like sentiment detection. An easier access to data, whether it is with a chatbot or text docs, or using something like Analyst to give a business user access to structured data, those tend to be the follow-on applications.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

And really, we feel comfortable enough to be able to be investing in these in parallel, and driving revenue growth. I would say it's too early to talk about X percent for this versus Y percent for that. Our goal is to be relevant, and for me, relevance is lots and lots of our customers, thousands of customers using our products, and driving meaningful, you know, nine, ten-digit revenue for us.

Mike Scarpelli
Board Member at Snyk

Yeah, and on, Kash, on your question for me on the, the sales comp changes, what I was meaning by that is, you know, we really bifurcated our sales force into the acquisition reps. And those customers that are landing today, we really have them focused on trying to land the right type of customer that can grow. We think they will have a meaningful impact on revenue next year with those new ones. And then also, the new muscle that we've been building in the sales organization, where the reps are just being paid on consumption, is what is driving them, and it's really the growth within customers' consumption.

Mike Scarpelli
Board Member at Snyk

It's a new muscle for them to learn how to go and find and help forecast new workloads coming online, and that muscle they're developing, we see is going to have a really positive impact in 2026 for us.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Excellent. Thank you so much.

Operator

We have a question from Karl Keirstead with UBS. Your line is now open.

Karl Keirstead
Karl Keirstead
Managing Director at UBS

Okay, great. Hey, Mike, I'd love to just ask you about usage trends as you closed the July quarter, and what assumptions you're embedding in the second half product revenue guide. I think everybody on the line has heard fairly ample evidence from Microsoft all the way down, that it's a tough IT spending environment. So I'm just curious, as you set the 3Q and 4Q product revs guide, what you would call out as the key variables or maybe changes in macro-related assumptions that you embedded in that guide. Thank you.

Mike Scarpelli
Board Member at Snyk

I'll just say, I think the quarter showed from a booking standpoint that it's a normal environment, and we're very pleased with the deals we closed in the quarter. I don't see it any worse. It's not euphoric or anything, but it's very stable customer buying pattern we're seeing. And in terms of consumption trends, obviously, we just guided our revenue right now for the quarter. We've beaten, we've raised the full year as well, too, and that's seeing the consumption trends up through this week. So we're pleased with that right now, is what we're seeing.

Karl Keirstead
Karl Keirstead
Managing Director at UBS

Okay, Mike, and then just maybe a follow-up. I know that you've embedded in your guidance the assumption of some degree of runoff of the storage revenues that you just repeated earlier, still represent 11% of revs. Is the expected pace of that storage runoff, in this new guidance tracking, similar to what you embedded, three months ago, or is it a little bit lighter or a little bit faster?

Mike Scarpelli
Board Member at Snyk

Yeah. As I said earlier, we really haven't seen any storage leave Snowflake yet, but that was always forecast to happen in the second half of this year, and we are expecting that some of that is going to happen, and that is factored into our guidance.

Karl Keirstead
Karl Keirstead
Managing Director at UBS

Mm-hmm. Okay. Thank you, Mike.

Mike Scarpelli
Board Member at Snyk

You're welcome.

Operator

Our next question is from Brent Thill, with Jefferies. Your line is now open.

Brent Thill
Brent Thill
Managing Director at Jefferies

Thanks. Sridhar, can you give us an update on the adoption of Cortex and how you're seeing that trend?

Brent Thill
Brent Thill
Managing Director at Jefferies

... And, for Mike, just on RPO, it was good to see really good sequential growth and the acceleration of RPO. But the gap between, you know, revenue and RPO continues to be one of the highest we've seen. Is there anything that's going on that we should consider there? Is this just similar, you know, consistent patterns you've seen in the past?

Mike Scarpelli
Board Member at Snyk

I'll actually answer that first, just while it's on my mind. You know, as we've said before, we have customers that sign long-term contracts. If they have consumed everything under their contract, they have the ability to buy monthly. We have two of our top 10 customers right now that can continue to buy through the end of the year, and we're seeing that. So they're in their top ten customers, and think top ten customers are roughly in the $50 million-$40 million range. Those aren't reflected in current RPO very much because they're just buying as they go.

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

Christian here. In the adoption of Cortex, I believe we have a number of product capabilities under that umbrella. Cortex LLMs, which represents the different language models that are available. That one, the adoption is quite strong. Lots of the use cases that Sridhar alluded to on text summarization, text sentiment analysis, that's very strong. But also, we introduced at Summit both Cortex Analyst and Cortex Search as a way to enable users across all types of organizations to be able to chat and interrogate the data, whether it's structured or unstructured. Those two are in public preview, but the adoption at this stage is quite strong. We have quite a bit of demand for going to general availability. And maybe the last one that I will call out is the Snowflake Copilot.

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

We see a lot of usage on customers getting assistance on how to write better SQL queries, which also drives consumption back into Snowflake. So all in all, a strong product suite and interest in adoption across all of them.

Brent Thill
Brent Thill
Managing Director at Jefferies

Thanks.

Operator

We have a question from Brad Zelnick with Deutsche Bank. Your line is now open.

Brad Zelnick
Brad Zelnick
Managing Director at Deutsche Bank

Great. Thanks so much for taking the question. It's really a bigger picture question for Sridhar or maybe Christian. You know, if the world increasingly interacts with data through generative AI and LLMs, how does the role of the data warehouse, as we've known it for decades, evolve from here? And why is Snowflake well-positioned to help enterprises bridge these worlds, leveraging mountains of enterprise data to build newer generation AI applications? Thanks.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I mean, first of all, Snowflake is often at the center of all of the interesting data in, in companies. Absolutely, we started out as a warehouse, but increasingly, we are the data backplane that provides the single unified view. Obviously, this comes from production systems, but also increasingly from multiple connectors we have to, you know, other systems, whether they are, you know, Salesforce or Segment or SAP or any of the other applications that, that you use. And, what we are doing with additional capabilities like machine learning, like AI, is to be able to act on that data, to then drive operational systems. Disney, for example, uses Snowflake to do a lot of in-park optimization.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

And we see a lot of people that bring supply chain data into Snowflake and then optimize within Snowflake. And obviously, there are also partners like Blue Yonder, which is a supply chain company, that platform on Snowflake, and then provide additional capability to their customers, so they can combine the supply chain data with other data that there is. Our bet is really that AI and machine learning are going to go where the data is. Data is going to have strong gravity, and this is the reason why we are seeing such broad adoption. And by providing easy-to-use products, with Cortex AI, for example, any analyst that knows SQL now is able to use language models.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

You don't need to go buy new systems, set up new things, and things like data transformation, text transformations, become as simple as writing, like, a two-line SQL. It is really this ease of use that makes Snowflake such an amazing platform to be able to do all these value-add applications, in addition to the core analytics applications and the data sharing that people have done on Snowflake.

Brad Zelnick
Brad Zelnick
Managing Director at Deutsche Bank

Thank you very much for that, Sridhar. Maybe just a quick one for you, Mike. Am I too optimistic to think that NRR can stabilize here, especially in light of all the new product that you guys are bringing online? Thank you.

Mike Scarpelli
Board Member at Snyk

You know, as we've said before, I'm not really going to guide NRR, and I've said it will, over time, converge with our revenue. And clearly, we'd like to see NRR stabilize at this level, but we'll see at the end of the quarter. I'm not disappointed with our NRR. Given our revenue growth, I'm happy with it.

Brad Zelnick
Brad Zelnick
Managing Director at Deutsche Bank

Makes sense. Thanks so much, guys.

Operator

Our next question is from Mike Cikos with Needham & Company. Your line is now open.

Mike Cikos
Mike Cikos
Senior Analyst at Needham & Company

Great, thanks for taking the questions here, guys. The first one for Sridhar, and I just wanted to come back to Keith's question at the top of the Q&A. I know we're saying that there wasn't an impact on consumption in the quarter, related to the muddled headlines around security. But has Snowflake noticed any change when thinking about the timeline for sales cycles or the demand gen, as it relates to some of those headlines that were out there? And then the follow-up for Mike would be, when we look at the reiterated margin guidance that we have today, is there anything to think about, or was there any delayed spend that's now expected in the back half of the year, just given Snowflake's outperformance on a year-to-date basis through the first half?

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

On the first one about the model security headlines, obviously, we make sure that we bring up the topic when we talk to an existing customer or to a new customer. We point to the security capabilities that we have had, honestly, for close to a decade, and try to ensure that all existing customers, for example, follow best practices. You know, they're simple, like MFA, like multi-factor authentication, like network policies, when it comes to security. And our sales team, as well as I, whenever we have conversations with potential new customers, bring this up front and center. And part of the reason why we are slightly muted about this is, like, these are our customers that got...

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

You know, the people that got breached, these are our customers, and we want to work closely with them to make sure that they get out of the difficult situation that they are in. And both existing customers and new customers appreciate that spirit of partnership in helping them get through a difficult situation. We have them talk to our CSOs, we have them talk to our security field CTOs, advise them on best practices. So, like, roughly, I would say that there's not really been any noticeable effect or delay in things like our ability to sign up customers or, I mean, sign up new customers or get existing customers to deploy new projects. We just need to be more proactive about having the security conversation, and we absolutely do that.

Mike Scarpelli
Board Member at Snyk

Your question, Mike, on whether there's any delayed spend or not having an impact. That there's no delayed spend. I will tell you is, we are looking at accelerating, and it doesn't change our guidance. Our guidance is the same what it was. We are looking at potentially accelerating some of our hiring in the second half of the year, in particular for the sales force in some of the areas where we want, and that's factored into our full year guidance, which is the guidance we gave last quarter.

Mike Cikos
Mike Cikos
Senior Analyst at Needham & Company

That's great. Thank you. Appreciate the additional color.

Operator

Our next question is from Joel Fishbein with Truist. Your line is now open.

Joel Fishbein
Joel Fishbein
Senior Managing Director at Guggenheim Securities

Thanks, and congrats on the good execution. Sridhar, you spoke about this hospitality customer using Iceberg. Can you give us some more color about that use case and maybe ROI, and maybe if that use case may be used as an example to attract other customers? Thanks.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Can you repeat the first sentence in your question? What customer?

Joel Fishbein
Joel Fishbein
Senior Managing Director at Guggenheim Securities

You talked about a hospitality customer using Iceberg for a specific use case. I was just hoping to get a little bit more detail and color around that, and then maybe if that can be used as an example to attract other customers.

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

Yeah, I think the general pattern that we saw there and we see in other use case, you know, from other customers, is the desire to adopt an architecture that is based on open file formats. Usually, the adoption starts with a small use case. Here's some incremental spend, validating interoperability between engines, and then you can go and deploy at larger scale, and I think that's the pattern that we see.

Joel Fishbein
Joel Fishbein
Senior Managing Director at Guggenheim Securities

Okay, thank you.

Operator

We have a question from Patrick Colville with Scotiabank. Your line is now open.

Patrick Colville
Patrick Colville
Lead Equity Research Analyst at Scotiabank

All right, thank you so much for taking my question. So mine was for Sridhar. I mean, I want to ask about kind of classic data analytics and warehousing. Do you mind just commenting on the pace of migrations, new analytical workloads coming online, query pre-pricing, competition in, you know, in analytics now versus, you know, six months ago? Is there anything to call out there?

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Yeah. In the core analytics space, you know, we are the best in the world that there is, especially when people consider migrating from complex on-prem systems. We have a professional services team that is exceptionally skilled at it and a very large ecosystem of partners that have been battle-tested with massive migrations. And, you know, we have done migrations from on-prem workloads that end up saving something like 60% of the, you know, of the cost the customer has to, you know, has to bear, and their Snowflake implementations end up being very, very efficient and low maintenance. This is an area that continues to be important for us, and we see migrations from a wide variety of legacy systems.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

There is also increasing interest in having AI-aided tools. We have a tool called SnowConvert that is used both by our professional services teams, but sometimes also by our customers. Especially in the world of AI, we are investing more into tools like these so that migrations can be faster. I would say these kinds of data migrations from legacy systems remain an important part of both new customer acquisition, but also driving substantial consumption increases in existing customers. Christian, you have a lot of background in this? Any-

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

Yeah, maybe the additional color is that some of these systems run the most critical processes in organizations. Typically, they're closing the books on this.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

Sure.

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

Oftentimes, a big portion of the migration cycle is validation and ensuring that the results are correct. As Sridhar said, we are constantly looking at how to create technology and ways to accelerate the process, but there are some parts of it where the validation I think is very important to customers.

Mike Scarpelli
Board Member at Snyk

In your question, Patrick, you specifically were talking about the cost of queries and how that has gone. We don't price on a per query because every customer's queries are different. We do a per credit pricing. You get so much compute. That has remained stable quarter-over-quarter. Sequentially, it actually grew year-over-year, 1.3%. But what I can say is the price performance has gotten better quarter-over-quarter for customers, and that continues to be.

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

Yeah, and then we have been public about a Snowflake Performance Index, where we take not synthetic benchmarks, but actual customer workloads, and we measure the performance improvement over time, and that's how we give assurance to our customers that the economics are getting better on a regular basis.

Patrick Colville
Patrick Colville
Lead Equity Research Analyst at Scotiabank

Super helpful, and thank you, all three of you, answering that question. Can I—I guess I want to ask a quick follow-up. I'll leave it open to whoever wants to answer. It's about the prepared remarks saying you're not factoring in benefit from new products, and then only minimal benefit in fiscal 2025 from Cortex and Snowpark. You know, I think when could those hockey stick and more materially drive product revenue? Because, you know, your previous answer was that the core is rock solid and very healthy. So what about the new stuff and when that's going to really inflect? Thank you.

Mike Scarpelli
Board Member at Snyk

The only newer product that is in the 2025 guidance for the full year is Snowpark, as we said at the beginning of the year. We said that's going to be about 3% of our revenue, or $100 million, and it's tracking to that nicely. The newer products are not factored into our guidance until we see more history. I do expect they'll have an impact this year. I don't know yet, but 2026 will have an impact.

Patrick Colville
Patrick Colville
Lead Equity Research Analyst at Scotiabank

Crystal clear. Thank you so much.

Operator

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

Michael Turrin
Michael Turrin
Managing Director at Wells Fargo

Hey, great, thanks. I appreciate you taking the question. Sridhar, I want to go back to that last point and just ask your perspective. You mentioned innovation as a key focus area. So as we're thinking about those newer product efforts and you're having those initial customer conversations, particularly around Summit, what are the couple of product areas beyond Snowpark that you see the most early demand signals or just customer conversation around?

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

So, you know, not only have we had customer conversations, but we've also, you know, developed specific cadences that teams are implementing in taking new things to market. So we place a special emphasis on what we call data engineering. Iceberg is definitely a part of it, where Snowflake can be used for different kinds of computation that is distinct from the analytic workloads that we've been running. You know, Christian talked about how a hospitality customer is running Snowflake on Iceberg tables that were not created by us. We very much focus on that. We focus on other things like streaming ingestion. So data engineering is one work stream. Definitely a big focus on AI.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

We have basically a war room, a top-to-bottom team, from engineering to sales, that is focused on how we take AI products to market. And we expect our notebooks, for example, to hit GA in a few weeks, and we will be making an effort around making sure that those get into the hands of data scientists, so that they can run the most complex machine learning algorithms that they want to run on top of Snowflake. And so we have a pretty methodical approach to how we are taking new products to market.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

But across the gamut, whether it is AI or machine learning, or more sophisticated data engineering operations, including with unstructured data or things like notebooks appealing to a very different persona, there is broad interest. It's a matter of organizing ourselves to put the right product offering in front of the right customer at the right time.

Michael Turrin
Michael Turrin
Managing Director at Wells Fargo

That's helpful. I also just, in summarizing a lot of the little comments on rest of your guidance, just go back to that point. We initially started the year with, I think it was around 625 basis points of potential impact contemplated from the mix of things you've talked about throughout the calls. Is that still the right zip code for us to think about? And is it fair to assume that you're leaving room for storage to come down from that 11% level in the second half, but you're not seeing that at this point? Is that the right takeaway for us?

Mike Scarpelli
Board Member at Snyk

The storage, we always planned with Iceberg, that was going to be the second half of the year, and we still think there will be an impact to that, and that's factored in. But every year, we look at potential headwinds associated with performance improvements and other things. We don't update that on a quarterly basis, and we're not gonna try to reconcile back to that. We never have, and never will.

Operator

That's fair. Thank you. Our next question is from Tyler Radke with Citi. Your line is now open.

Tyler Radke
Tyler Radke
Managing Director at Citi

Yes, thanks for taking the question. It's encouraging to hear that you didn't see any negative impacts from the cyber headlines that hit intra-quarter. I was wondering if you could just sort of talk about some of the offsets, though, to the strong consumption in tech and financial services customers that you saw. The magnitude of the beat was smaller than you saw in Q1, and I know there were some maybe positive trends in Q1 that didn't continue into Q2, but if you could just help us reconcile the magnitude of the smaller beat from Q1 to Q2, that would be great. Thank you.

Mike Scarpelli
Board Member at Snyk

You know, Tyler, we've always said that we try to manage this business such that a 3%-5% beat is a big, a good beat, and we were 2.4%. Just as I don't get excited if it comes in at five, I'm not excited if it's at two. I just really trying to manage this business for the long term. I think what's more important is the fact that the beat, that or the raise that we're putting through the full year, I think speaks more to what we see in the second half of the year happening now.

Tyler Radke
Tyler Radke
Managing Director at Citi

Yeah. No, helpful commentary. On cash flow, you know, I think collections were a bit lighter. I think that could be a function of, you know, the go-to-market changes you talked about. The full year cash flow outlook was maintained. Can you just talk about the moving pieces in cash flow? Is there any impact from, you know, lower CapEx, just given some of the GPU availability you talked? And are you seeing kind of the billings terms compress more than expected?

Mike Scarpelli
Board Member at Snyk

No, the billings terms are remaining consistent. As I said, 80% of our customers are annually advanced, and actually, Q2 collections were actually pretty much as we planned. Payables were a little bit higher, and the timing of payables. But our Q4. Our Q4, remember, we have a lot of seasonality in cash flow. Q1 and Q4 are always going to be our strongest free cash flow quarter. And so I'm comfortable keeping the 26% for the year right now.

Tyler Radke
Tyler Radke
Managing Director at Citi

Great. Thank you.

Operator

We have a question from Matt Hedberg with RBC. Your line is now open.

Matt Hedberg
Matt Hedberg
Managing Director and Software Research Analyst at RBC

Great. Thanks, guys. Mike, for you, there was an early question on gross margins. It sounds like you still have some GPUs to procure in the second half. But I'm curious, now that you're kind of, you know, thinking through the impact of AI on Snowflake, confidence in sort of the medium term that gross margins have in fact bottomed, and that we could see start to see an upward trajectory here at some point?

Mike Scarpelli
Board Member at Snyk

So first of all, when we talk about procuring GPUs, we don't actually buy GPUs, we rent them. So I just wanna clarify that. And, you know, we have a lot of demand from customers outside of our major regions in Asia and even certain areas in Europe that want us to have GPUs, so they can be using some of our newer products. And unfortunately, some of the cloud vendors are just not available yet. And when I say they want the H100, the bigger ones, you can get the smaller GPUs. And, you know, is this the bottom of margins? You know, a lot. I'm never gonna say it's the bottom because I don't know what's in the future with new products that could have an impact on the margin.

Mike Scarpelli
Board Member at Snyk

I'm not talking next year, but I feel good about the 75% for the year as we've guided.

Matt Hedberg
Matt Hedberg
Managing Director and Software Research Analyst at RBC

Got it. Thanks, Mike. And then, you know, with U.S. Fed being a big quarter for you guys next quarter, and sort of, I guess, some of the uncertainty on the U.S. election, have you discounted some of U.S. Fed expectations for 3Q? Just kinda curious on sort of how you should think about, how we should think about that vertical going into the next quarter.

Mike Scarpelli
Board Member at Snyk

I will say our federal business is our smallest vertical, and as I said before, it's only upside for us, so there's not a lot of expectations in our numbers at all for federal, and I do expect we'll close some deals this quarter. By the way, public sector is pretty good worldwide in what we do, but your question was on U.S. federal itself. I do expect some deals, but in terms of impact on revenue, it takes time. That won't be until the future once we close those deals. We do have FedRAMP High now. We're working on some other things as well, too, and so I do expect to close some deals this quarter in the U.S. federal space.

Matt Hedberg
Matt Hedberg
Managing Director and Software Research Analyst at RBC

Got it. Great call. Thanks, Mike.

Operator

Our next question is from Alex Zukin with Wolfe Research. Your line is now open.

Alex Zukin
Alex Zukin
Managing Director and Senior Analyst at Wolfe Research

Yeah. Hey, guys. Thanks for taking the question. And Sridhar, maybe to the question you got a little bit earlier. Obviously, really great commentary on bookings growth, RPO strength. The raise, you know, being more than double the beat, which is, I think, the strongest raise in a while for product revenue. But to the point, like, what it, it's a little bit surprising to hear kind of technology being a strong vertical for you guys. Can you maybe talk about what you're seeing from the financial services and technology verticals that is maybe different? Is it just the macro, you know, in those areas? Is it use cases?

Alex Zukin
Alex Zukin
Managing Director and Senior Analyst at Wolfe Research

And maybe where it was a little bit on the other side, a little bit weaker, and kind of what you expect there.

Mike Scarpelli
Board Member at Snyk

I would say on the financial services, we just have some banks that are in the mid early innings of migrations. Like, one of them has grown, I think, 400% year-over-year, and they are gonna continue to grow, and that really is driving a lot of that. On the technology side, we just have some a number of other companies that are growing nicely in the tech space for us as well.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

A different consideration, which we actively work on, is, like, the size and quality of the teams that we put to play in the different areas. We have among the best teams in financial services. That's where we were strong to begin with. And we are early pioneers of things like data sharing, where that, you know, the positive momentum fed on itself. There are other areas, like the federal business, for example, where we are still building out a crack team, and that's driving growth. You know, as much as one likes to think that, you know, it's the macroeconomic differences between sectors, what we can do often ends up influencing how robust the growth is.

Alex Zukin
Alex Zukin
Managing Director and Senior Analyst at Wolfe Research

Got it. And then maybe just one more. If you think about the competitive landscape, that's kind of been a you know like a little bit of a charged topic this year, particularly for investors, what are maybe some of the major misconceptions or misunderstandings that you would say are out there, and how or any changes you observed in the competitive landscape over the course of the quarter or even the first half of the year or from a pipeline perspective?

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I'll start, Christian and Mike should add on. I think, you know, I've spent a lot of time on the road, just this quarter. I've met with over a hundred of our biggest customers, one-on-one. The thing that clearly stands out from, like an analytic capability, core data capability, data sharing, is that we are bar none. We are the best platform that there is, and our customers absolutely recognize that. We see more and more of their data workloads move over to Snowflake. That doesn't make the process easy, a migration of a large, complex system that's managing the books of a bank so that they can close it every month, is nothing to sneeze at. It's a multi-quarter project that has to be done, exceptionally carefully.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

So one thing, you know, that I wouldn't call it a misconception, but the one thing that I would reinforce is the strength that we have in our core capabilities. When it comes to newer things like AI, we've been open about the fact that, you know, we were a little behind early last year in terms of how much we were invested in it. It's a rapidly moving field, and the kind of products that we could deploy. But even before my coming, the management team here recognized the opportunity, invested heavily in it, and things like the Neeva acquisition, through which I came, were an accelerant to things that were already in place at Snowflake.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

And I would say the change over the previous quarters is that we can tell our customers, we can tell you with confidence that our AI products are world-class, and honestly, that we are much more reliable than building products off of APIs that you can get elsewhere, because we pay a lot of meticulous attention to how we craft products. And it's that combination of reliability and ease of use that we are turning into a major strength for us in AI as well.

Christian Kleinerman
Christian Kleinerman
EVP of Product at Snowflake

Yeah, one quick last comment on top of what Sridhar said. Our product philosophy on ease of use, smart defaults, how do you make things work easily out of the box? We hear competitively, it's a strong advantage for us across areas, for analytics, for data engineering, and for AI, and we'll continue to invest with that philosophy in mind.

Sridhar Ramaswamy
Sridhar Ramaswamy
CEO at Snowflake

I promise, last comment on this side, to give, to talk about something very concrete that comes with the Snowflake platform, especially after, you know, the incidents of the summer, like CrowdStrike, one of the hot topics has been how we set up replications with Snowflake. This is now a battle-tested operation, and most customers are shocked to find out that you can run a full replica of an important deployment at something like 15% the cost of the original deployment, because the replica is just, you know, is basically keeping up. It's not running any of the workloads that are going on in the main one. It's features like that that continue to drive our strength in the core.

Alex Zukin
Alex Zukin
Managing Director and Senior Analyst at Wolfe Research

Super helpful. Thank you, guys.

Operator

We are out of time for questions, so thank you all for your participation. You may now disconnect your lines.

Executives
Analysts
    • Keith Weiss
      Managing Director at Morgan Stanley
    • Karl Keirstead
      Managing Director at UBS
    • Jimmy Sexton
      CFO at ClickHouse
    • Alex Zukin
      Managing Director and Senior Analyst at Wolfe Research
    • Mike Scarpelli
      Board Member at Snyk
    • Kirk Materne
      Senior Managing Director at Evercore
    • Brad Zelnick
      Managing Director at Deutsche Bank
    • Patrick Colville
      Lead Equity Research Analyst at Scotiabank
    • Mark Murphy
      Managing Director at JPMorgan
    • Michael Turrin
      Managing Director at Wells Fargo
    • Tyler Radke
      Managing Director at Citi
    • Joel Fishbein
      Senior Managing Director at Guggenheim Securities
    • Brent Thill
      Managing Director at Jefferies
    • Raimo Lenschow
      Managing Director at Barclays
    • Kash Rangan
      Managing Director at Goldman Sachs
    • Mike Cikos
      Senior Analyst at Needham & Company
    • Matt Hedberg
      Managing Director and Software Research Analyst at RBC
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