Snowflake Inc. Q2 FY2025 Earnings Call

Good afternoon. Thank you for attending today's Snowflake Q2 and Fiscal Year 2025 Earnings Call. My name is Cole, and I will 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 would now like to pass the call over to Jimmy Sexton, Head of Investor Relations. Please go ahead.

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 are available in our earnings press release, our most recent Forms 10-K and 10-Q and our other SEC reports. 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, 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.

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 '25 product revenue expectations. I'm really proud of the team and how we accelerated our innovation pipeline. 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 application on all data. 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 that our customers are adopting the new capabilities at an incredible rate. I have three key areas I'm personally focused on: listening to and learning from our customers, fueling innovation and product delivery, and driving execution and alignment within our go-to-market team. 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. 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 they 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 that trusted 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 cybersecurity threats. As extensively reported, the issue wasn't on the Snowflake site. 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. 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 that are as strong as possible. Two things we at Snowflake have supported since 2016. There are a lot of bright spots in the quarter, none more than the time I spent with over 100 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. 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. So much of this came to light at Snowflake Summit. 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. If you were there, we experienced a lot of our innovation and product momentum that we brought to life, including 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. 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 Segments Reverse ETL integrates Snowflakes Cortex AI and enables Twilio customers to derive insights from their unstructured data to improve the customer journey. 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. 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. We are 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 that 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. Cortex Search and Cortex Analysts are expected to be generally available in Q3. We're 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 on 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.

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. 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 to pursue 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. In Q2, the 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 as we fulfill customer demand for our newer product features. The non-GAAP operating margin of 5% exceeded our guidance, benefiting from revenue outperformance as expected. The non-GAAP operating margin is down year-over-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. 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 repurchase. Now let's turn to our outlook. The forecast for product revenue is based on observed behavior; our FY 2025 guidance includes contribution from Snowpark as previously stated. Our guidance does not include material contribution from new 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 '25 product revenue guidance. We now expect full year product revenue of approximately $3.356 billion, representing 26% year-over-year growth. Turning to margins, for Q3, we expect a 3% non-GAAP operating margin. We are maintaining full year margin guidance. For FY '25, we expect approximately 75% non-GAAP product margin, a 3% non-GAAP operating margin, and a 26% non-GAAP adjusted free cash flow margin. With that, operator, you can now open up the line for questions.

Our first question is from Keith Weiss with Morgan Stanley. Your line is now open.

Excellent. Thank you, guys for taking the questions and congratulations on a solid quarter. Really good to hear about the optimization starting to normalize. You guys seem to be settling into just about a 30% product revenue growth rate over the past couple of quarters. There were a lot of concerns coming into this quarter about impacts from Iceberg tables, concerns that accrued during the quarter about data leakage, which wasn't your fault but definitely posed a marketing headwind. There was concern about the CrowdStrike cybersecurity incident possibly 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?

I would say the cybersecurity incident really had no impact on us at all from a consumption standpoint. 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. Our production does not rely on Microsoft for that.

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

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

That's super helpful. Thank you, Mike.

Thank you. I have two quick questions. Mike, the gross margin this quarter exceeded many expectations. Could you discuss the reasons behind that? And Sridhar, regarding the Iceberg ecosystem, there was significant change this quarter with the Tabular acquisition. How do you view this in terms of attracting talent to advance that roadmap? How is your positioning within the Iceberg ecosystem changing? Thank you.

On the margin side, the margins were slightly better than our internal forecast, but it does not alter our guidance of 75% for the year. We are still waiting on some GPU deployments worldwide that we expected to occur this quarter, which is noteworthy regarding the gross margin.

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. We also have members within Snowflake. 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 feel that the Tabular acquisition is in many ways a vindication of our strategy to bet on Iceberg because that was the format that was truly interoperable. Hopefully, this is the end of the Betamax wars and everybody centering around the one format that has broad support. 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.

Okay. Perfect. Thank you. Well done.

Okay. Thank you very much. I'll add my 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 new business where companies want to tap into 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.

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

Yes, I understand. Okay. And then as a follow-up, as we start to think 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, any potential for 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.

I'll start the answer and Christian should and Mike should chime in. First of all, we obviously can't say anything about next year. It is next year. But wherever possible, we have an indication about how new products are going to perform. We certainly told you about it. We have given guidance, for example, about Snowpark is going to do this year. Similarly, with the AI products, as I said, we are seeing broad adoption. We expect that it will begin to contribute materially to revenue next year. With respect to performance optimizations, that's more of an ongoing thing. We have talked to you about the things that we have on tap for this year. It is important to understand that these optimizations turn into massive cost savings for our customers and make the core product stronger. It’s really important that our teams continue to do that, because that's what protects our overall base. Christian?

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

Yes, thanks. Just two really quick ones, Sridhar, actually a lot of your partners and customers at the Summit event talked about the excitement around the newer products like Cortex and Snowpark. But one refrain was we just needed better roadmaps to understand how to use them. And from an industry perspective, that came up a lot too. So I'm curious, where do you think you are in your product so that they can understand the ROI that occurs?

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

Is that better now?

Getting a really bad echo. It's hard to hear you.

I'll stop here.

Hi. Thank you, guys. So one for you, Sridhar, and one for you, Mike. Sridhar, when you look at the product portfolio, clearly the initiative is to get these services out in quick cadence. As you pointed out, the net new Internet services, one of the conversations with customers like when they are discussing new service with you or does it take on, where are we going to be a year out with the consumption profile of an average Snowflake customer and kind of the business? I think on average? How do you see that mix changing between the cores, if you want to just bluntly call it, warehousing, storage revenues versus unstructured data, literally uncluttered Cortex AI and the other emerging buckets? 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 the sales force compensation drove towards consumption is still in early days, but you also intimated that in fiscal 2026, we could start to see the fruits of all this. So help us to understand what you mean by that and what are the KPIs that you'd be internally monitoring to inform you there for us that the tilt towards getting more consumption within your customers is actually working to your advantage? Thank you so much.

Thank you, Kash. On the product side, our customers typically embark on a journey that starts with the desire for a strong data platform that provides visibility. They ultimately adopt various architectures, but most enterprises prefer well-organized, clean data, and the ultimate goal is to integrate that into Snowflake. Many customers have standardized their operations on Snowflake as their primary data backbone. Next, there's a shift towards collaboration, as all companies operate within an ecosystem that includes partners and customers. Collaboration, especially in the form of data sharing, becomes a crucial next step. You've often heard Christian mention stable edges, which we track as a metric because it adds value and creates network effects. Our overarching strategy at Snowflake is to ensure that all data workloads for a company are managed by our platform. This is where data engineering, which has been vital for a while, comes into play as a significant investment for us. Technologies like Iceberg are important because they greatly expand the range of data that can be utilized by Snowflake, particularly since not all data needs to be ingested before action can occur. AI stands out here due to the current industry enthusiasm surrounding it. We focus on how to provide utility to our customers, discussing how AI can enhance insights or process unstructured information, such as sentiment analysis using LLM functions. Increased access to data—whether through chatbots, text documents, or analysts helping business users navigate structured data—are often the subsequent applications, and we feel confident investing in these areas in parallel to drive revenue growth. Currently, it's premature to discuss the percentage breakdown between our core offerings and new products. Our aim is to remain relevant, which means having thousands of customers actively using our products and generating significant revenue for us.

And on Kash's question for me on the sales compensation changes, what I was meaning by that is we really bifurcated our sales force into the acquisition reps. 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. The new muscle that we've been building in the sales organization where the reps are just being paid on consumption is driving them, and it's really the growth within customers' consumption. 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.

Okay, great. Hey, Mike, I’d like to ask you about the usage trends as you wrapped up the July quarter and what assumptions you’re including in the product revenue guidance for the second half. It seems that everyone has seen clear signs from companies like Microsoft about the challenging IT spending environment. So, I’m curious about the key factors or any adjustments in macro-related assumptions that you’ve considered in the Q3 and Q4 product revenue guidance. Thank you.

Orders showed from a bookings standpoint that it's a normal environment and we are 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. In terms of consumption trends, we just guided our revenue for the quarter. We've beaten, we've raised the full-year as well too, and that’s what we’re seeing in consumption trends up through this week. So we're pleased with that right now.

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 revenue. 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?

What I would say is, as I mentioned earlier, we really haven't seen any storage leave Snowflake yet, but that was always anticipated to occur in the second half of this year. We expect that some of that will happen, and it is incorporated into our guidance.

Sridhar, can you give us an update on the adoption of Cortex and how you're seeing that trend? And Mike, just on RPO, it was good to see really good sequential growth and the acceleration of RPO, but the gap between 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 consistent patterns you've seen in the past?

I'll actually answer that first just while it's on my mind. As we 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 among our top-10 customers, roughly in the $50 million to $40 million range. Those aren't reflected in current RPO very much because they're just buying as they go.

On the quick question here on the adoption of Cortex, we have a number of product capabilities under that umbrella. Cortex LLM, which references the different language models that are available, the adoption is quite strong. Lots of the use cases that I alluded to on text summarization, text sentiment analysis, that's very strong. We've also introduced Cortex Analyst and Cortex Search as a way to enable users across all types of organizations to be able to chat and interrogate their data, whether it's structured or unstructured. Adoption at this stage is quite strong. We have quite a bit of demand for going to general availability. The last one I would call out is Snowflake Copilot; we see a lot of usage from customers getting assistance on how to write better SQL queries, which also drives consumption back into Snowflake. So all up, a strong product suite and interest and adoption across all of them.

Great. Thanks so much for taking the question. It's really a bigger-picture question for Sridhar or maybe Christian. 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.

First of all, Snowflake is often at the center of all of the interesting data in companies. We started out as a warehouse, but increasingly, we are the data backplane that provides a single unified view. This comes from production systems but also increasingly from multiple connectors we have to other systems, whether they are Salesforce, Segment, SAP, or any of the other applications that you use. What we are doing with additional capabilities like machine learning and AI is to be able to act on the data to then drive operational systems. Disney, for example, uses Snowflake to do a lot of in-park optimization, and we see many companies bringing supply chain data into Snowflake and then optimizing within Snowflake. There are also partners like Blue Yonder, which is a supply chain company that builds on Snowflake and provides additional capability to their customers so they can combine supply chain data with other data. Our bet is that AI and machine learning are going to go where the data is; data has strong gravity, and this is the reason why we are seeing such broad adoption. By providing easy-to-use products with Cortex AI, for example, any analyst that knows SQL can now use language models. You don't need to go buy new systems, set up new things, and with data transformation, text transformations become as simple as writing two lines of 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.

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 products that you guys are bringing online? Thank you.

No, as we've said before, I'm not really going to guide NRR. 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.

Great. Thanks for taking the questions here, guys. The first one for Sridhar, 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 generation 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?

On the first one about the multitude of security headlines, obviously, we make sure that we bring up the topic whether we talk to an existing customer or to a new customer. We point to the security capabilities that we've had honestly for close to a decade and try to ensure that all existing customers, for example, follow best practices. They're simple, like multifactor authentication, and network policies when it comes to security. Our sales team, as well as I, whenever we have conversations with potential new customers, bring this up front and center. Part of the reason why we are slightly muted about this is like these are our customers that got breached, these are our customers, and we want to work closely with them to make sure they get out of the difficult situation that they are in. Both existing and new customers appreciate that spirit of partnership in helping them get through difficult situations. We had them talk to our CFOs; we had them talk to our security field CTOs, advising them on best practices. Roughly, I'd say that there's not really been any noticeable effect or delay in things like our ability to sign up 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.

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

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.

Can you repeat the first sentence in your question, what customer?

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 maybe if that can be used as an example to attract other customers.

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

Alright. Thank you so much for taking my question. One is for Sridhar, I mean, I want to ask about classic data analytics and warehousing. Could you mind just commenting on the pace of migrations, new analytical workloads coming online, query pricing, competition in analytics now versus six months ago? Is there anything to call out there?

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

Maybe the additional color is that some of the systems run the most critical processes in organizations. Typically, they're closing the books on this, so 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 parts of that where validation of testing is very important to customers.

And 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 at 1.3%. What I can say is the price performance has gotten better quarter-over-quarter for customers, and that continues to be relevant.

Super helpful. Thank you for answering that question. Can 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 '25 from Cortex and Snowpark. I think when could those hockey-stick and more materially drive product revenue because the previous answer was that the call is rock-solid and very healthy. So what about the new stuff and when that's going to really inflect? Thank you.

The only newer product that is in the '25 guide 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 it will have an impact this year. I don't know yet, but in 2026, it will have an impact.

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 is 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?

Not only have we had customer conversations, but we've also developed specific cadences that teams are implementing in taking new things to market. 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 are distinct from the analytic workloads that we've been running. 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 ingestions. Data engineering is one workstream; definitely a big focus on AI. 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. 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. We have a pretty methodical approach to how we are taking new products to market. 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.

That's helpful. I also just in summarizing a lot of the little comments on the 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? 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?

The storage, we always plan with Iceberg, though 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. Each year, we look at potential headwinds associated with performance improvements and other activities. We don't update that on a quarterly basis, and we're not going to try to reconcile back to that. We never have, and we never will.

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. I know there were some possibly 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.

Tyler, we've always said that we try to manage this business such that a 3% to 5% beat is a good beat, and we were 2.4% just as I don't get excited if it comes in at 5%, I'm not excited if it's at 2%. We're trying to manage this business for the long term. What's more important is the fact that the beat there and the raise that we're putting through for the full year speaks more to what we see in the second half of the year happening now.

Yes, no, helpful commentary. On cash flow, I think collections were a bit lighter. I think that could be a function of 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 lower CapEx just given some of the GPU availability you talked about, and are you seeing the billing terms compress more than expected?

No, the billing terms remain the same. As I mentioned, 80% of our customers pay annually in advance, and Q2 collections were largely in line with our expectations. Payables were slightly higher, and their timing was different. However, in Q4, we experience significant seasonality in cash flow. Q1 and Q4 are typically our strongest quarters for free cash flow. I'm confident maintaining the 26% forecast for the year at this time.

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 thinking through the impact of AI on Snowflake, confidence in sort of the medium term that gross margins have in fact bottomed and I think we could see and start to see an upward trajectory here at some point.

First of all, we talked about procuring GPUs. We don't actually buy GPUs; we rent them. I want to clarify that. 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. Unfortunately, some of the cloud vendors are just not available yet, and when I say they want the H100s, the bigger ones, you can get the smaller GPUs. Is this the bottom of margins? I'm never going to 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. I’m not talking next year, but I feel good about the 75% for the year as we've guided.

Got it. Thanks, Mike. And then 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 the U.S. Fed expectations for Q3? Just curious how we should think about that vertical going into next quarter?

Our federal business is our smallest vertical. As I've said before, it's only upside for us, so there's not a lot of expectations in our numbers at all for federal. 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 the impact on revenue, it takes time. That won't be until the future once we close those deals. We do have FedRAMP high now and we're working on some other things as well too, and I expect to close some deals this quarter in the U.S. Federal space.

Yes. Hi, everyone, thank you for the question. Mike, in relation to your earlier inquiry, I appreciate the insights on bookings growth and the robust increase in remaining performance obligations, particularly the significant raise in product revenue. However, it's somewhat unexpected to see technology emerging as a strong sector for your company. Could you elaborate on your observations in the financial services and technology sectors? What distinguishes these areas? Is it primarily driven by macroeconomic factors or specific use cases? Additionally, what has been a weaker aspect and what are your expectations moving forward?

In financial services, we have some banks currently undergoing migrations, with one experiencing a growth of about 400% year-over-year, and they are expected to keep growing. This significant growth is fueling much of our performance. Additionally, we have several other companies in the technology sector that are also experiencing strong growth for us.

A different consideration, which we actively work on, is 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. We are early pioneers of things like data sharing, where 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 in as much as one likes to think that it's the macroeconomic differences between sectors, what we can do often ends up influencing how robust the growth is.

Got it. And then maybe just one more. If you think about the competitive landscape, that's kind of been 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?

I'll start. Christian and Mike should add on. I think I've spent a lot of time on the road. Just this quarter, I've met with over 100 of our biggest customers one-on-one. The thing that clearly stands out from an analytic capability, core data capability, and data sharing is that we are, by far, 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; migration of a large complex system that's managing the books of a bank so that they can close it every month is no small task. It's a multi-quarter project that has to be done exceptionally carefully. So one thing that I wouldn't call a misconception, but the one thing that I would reinforce is the strength we have in our core capabilities. With newer things like AI, we've been open about the fact that we were a little behind early last year in terms of how much we were invested in it and the kind of products we could rapidly move in and deploy. But even before my coming, the management team recognized the opportunity, invested heavily in it, and things like the Neeva acquisition were an accelerant to things that were already in place at Snowflake. The change over the previous quarter is that we can tell our customers, we can tell you with confidence that our AI products are world-class. Honestly, 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 our products. It's that combination of reliability and ease-of-use that we are turning into a major strength for us in AI as well.

One quick comment on top of what Sridhar said, our product philosophy on ease-of-use and 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, data engineering, and AI. We'll continue to invest with that philosophy in mind.

We are out of time for questions. Thank you all for your participation. You may now disconnect your line.