Snowflake (SNOW) Q2 2025 Earnings Name Transcript

Snowflake (SNOW 2.38%)
Q2 2025 Earnings Name
Aug 21, 2024, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Good afternoon. Thanks for attending at the moment’s Snowflake Q2 and financial yr 2025 earnings name. My identify is Cole, and I will be the moderator for at the moment’s name. [Operator instructions].

I might now wish to move the decision over to Jimmy Sexton, head of investor relations. Please go forward.

Jimmy Sexton — Head of Investor Relations

Good afternoon, and thanks for becoming a member of us on Snowflake’s Q2 Fiscal 2025 Earnings Name. Becoming a member of me on the decision at the moment is Sridhar Ramaswamy, our chief government officer; Mike Scarpelli, our chief monetary officer; and Christian Kleinerman, our government vp of product, who will take part within the Q&A session.Throughout at the moment’s name, we’ll evaluate our monetary outcomes for the second quarter of fiscal 2025 and talk about our steerage for the third quarter and full yr fiscal 2025. Throughout at the moment’s name, we’ll make forward-looking statements, together with statements associated to our enterprise operations and monetary efficiency. These statements are topic to dangers and uncertainties, which might trigger them to vary materially from our precise outcomes.

Data regarding these dangers and uncertainties is accessible in our earnings press launch, our most up-to-date Types 10-Ok and 10-Q and our different SEC studies. All our statements are made as of at the moment primarily based on info at the moment accessible to us. Besides as required by legislation, we assume no obligation to replace any such statements.Throughout at the moment’s name, we can even talk about sure non-GAAP monetary measures, see our investor presentation for a reconciliation of GAAP to non-GAAP measures and enterprise metric definitions, together with adoption. The earnings press launch and investor presentation can be found on our web site at traders.snowflake.com.

A replay of at the moment’s name can even be posted on the web site.With that, I might now like to show the decision over to Sridhar.

Sridhar Ramaswamy — Chief Govt Officer

Thanks, Jimmy, and hello, everybody. Thanks for becoming a member of us at the moment. As you may have seen by now, we had one other robust quarter, beating steerage and rising our FY ’25 product income expectations. I am actually pleased with the workforce and the way we accelerated our innovation pipeline, and our product supply momentum continues to be actually robust.

Within the first half of this yr alone, we introduced as a lot product to market as we did all of final yr.We’re making Snowflake the very best cloud for computation, collaboration and functions on all knowledge, and we’re leveraging the a part of AI to make all of those simpler to create, preserve and use. That is what our workforce is aligned round, and I can let you know, our clients are adopting our new capabilities at an unbelievable tempo.As I mentioned final quarter, I’ve 3 key areas I am personally centered on: listening to and studying from our clients, fueling innovation and product supply, driving execution and alignment inside our go-to-market groups. And in Q2, we delivered on all fronts, which you’ll see in our outcomes. Product income for the quarter was $829 million, up 30% year-over-year.

Remaining efficiency obligations totaled $5.2 billion with year-over-year development accelerating to 48%. Given the robust quarter, we’re rising our product income outlook for the yr. Firms like Capital One, NBCU, Petco, Pfizer, Snapchat and Western Union are all counting on Snowflake to assist them gasoline their companies.I am actually inspired by the energy of our core enterprise, and the speedy progress we’ve made on the AI entrance. I am very optimistic about the place we’re going and the alternatives we’ve in entrance of us to ship for our clients.

In reality, the extra I am with our clients, the extra I admire simply how important we’re to their enterprise and the way a lot they’re relying on us to be their trusted advisor of their AI knowledge journey. Nothing brings to life how robust and trusted a relationship is than once you undergo challenges collectively. We clearly had some tough headlines within the quarter as a few of our clients handled the cybersecurity risk.As extensively reported, the difficulty wasn’t on the Snowflake facet. After a number of investigations by inner and exterior cybersecurity specialists, we discovered no proof that our platform was breached or compromised.

Nonetheless, we perceive that in relation to cybersecurity, we’re all in it collectively. My one ask of all companies around the globe, whether or not they’re a Snowflake buyer or not, is to allow and implement multifactor authentication in your group and guarantee that you’ve got community insurance policies are as robust as doable, 2 issues we at Snowflake have supported since 2016.There are lots of shiny spots within the quarter. None greater than the time I spent with over 100 clients, lots of them on my travels to the U.Ok., Germany, Canada and throughout the U.S. And naturally, a Snowflake Summit in June.

The affinity for our product is unbelievable. And the constant theme I hear from the C suite throughout industries and geographies is that Snowflake is delivering ease, effectivity and reliability to their enterprise. And a lot of this got here to life at Snowflake Summit.We’ve 15,000 on-site SMBs, up 28% year-on-year with clients and companions from around the globe. We hosted our first ever Builders Day with over 3,000 attendees.

The power was merely unbelievable. And for those who had been there, you skilled lots of our innovation and product momentum the place we delivered to life Cortex AI and introduced Iceberg being typically accessible, each of which have gained lots of traction already with clients.Penske Logistics, a number one supplier of transportation and warehousing options has developed quite a lot of progressive use instances involving Cortex AI. In a single instance, Penske plans to make use of Cortex to eat varied efficiency metrics associated to its transportation enterprise. Cortex analyses will assist present suggestions to Penske’s operations managers with the purpose of bettering efficiency and enhancing truck driver retention.Additionally, one of many largest monetary companies corporations is utilizing Cortex AI to research unstructured textual content knowledge, working sentiment evaluation on name middle transcripts to enhance their buyer assist expertise.

Twilio Section’s reverse ETL integrates with Snowflake’s Cortex AI and allows Twilio clients to derive perception from their unstructured knowledge to enhance the shopper journey. And Iceberg is offering one of many largest shopper companies and hospitality corporations with a extra versatile and interoperable deployment mannequin, enabling them to speed up their migration to the cloud. Iceberg is enabling us to play offense and handle a bigger knowledge footprint. Lots of our largest clients have indicated they are going to now leverage Snowflake for extra of their workloads on account of this performance. Greater than 400 accounts are utilizing Iceberg as of the tip of Q2. I advised you final quarter that product supply is considered one of our highest priorities.

And in Q2, we made 9 web new product bulletins and introduced greater than 15 product capabilities to basic availability to the market. That is what we name progress. We’re additionally seeing broad adoption of our merchandise throughout our buyer base. As of the tip of Q2, greater than 2,500 accounts had been utilizing Snowflake AI on a weekly foundation.

We count on this adoption to proceed to extend and income contribution to comply with.Our Notebooks providing can also be seeing nice traction in public preview with greater than 1,600 accounts utilizing that characteristic. That is important to interact with knowledge scientists and can unlock new alternatives that we beforehand didn’t handle. We’re within the early innings of this chance, and we’ll proceed to convey new options to market. Cortex Search and Cortex Analyst are anticipated to be typically accessible in Q3. We’re persevering with to responsibly put money into AI and machine studying to ship enterprise AI that’s simple, environment friendly and most of all, trusted.

It is nice to have a lot momentum on the product entrance. It is fueling our unbelievable go-to-market theme, which, as you realize, is considered one of our greatest benefits. To wrap issues up, our innovation engine and product supply are in overdrive. The mixture of our platform and the community impact of collaboration in addition to the innovation we’re engaged on in AI is Snowflake’s future and creates an enormous alternative forward. We’ve lots of work to do, but it surely’s in our palms to ship and reap the benefits of it.Mike, I am going to flip it over to you.

Mike Scarpelli — Chief Monetary Officer

Thanks, Sridhar. 2Q product income grew 30% year-over-year, totaling $829 million. Monetary companies and know-how verticals drove development within the quarter. We proceed to see indicators of a steady optimization atmosphere.

Our largest clients are contributing sequential product income development in keeping with historic patterns. We delivered robust reserving within the quarter. RPO grew 48% year-on-year to achieve greater than $5.2 billion. We signed 2 9-figure offers within the quarter.Earlier this yr, we introduced FY ’25 gross sales incentives that may prioritize consumption and new buyer acquisitions.

With a view to drive consumption, gross sales reps prosecute new use instances and promote new product options. We imagine this focus will convert into significant income over time. Our new buyer acquisition movement is ramping. We count on it to have a extra materials affect in FY ’26. In Q2, non-GAAP product gross margin of 76% was down barely year-over-year.

As talked about on our prior name, we’re incurring GPU-related prices so as to fulfill buyer demand for our newer product options. Non-GAAP working margin of 5% exceeded our steerage, benefiting from income outperformance. As anticipated, non-GAAP working margin is down year-on-year on account of R&D and go-to-market investments. Our non-GAAP adjusted free money circulate margin was 8%.

We proceed to see roughly 80% of our clients paying yearly upfront. We ended the quarter with $3.9 billion in money, money equivalents, short-term and long-term investments.In Q2, we used $400 million to repurchase 3 million shares. From our authentic $2 billion repurchase plan, we’ve $492 million remaining by means of March 2025. Our Board of Administrators approved the repurchase of an extra $2.5 billion beneath our inventory repurchase program by means of March 2027.

This permits us to make use of our money stability and anticipated free money circulate to handle dilution over this era. Our share rely steerage doesn’t embrace the affect from the inventory repurchases.Now let’s flip to our outlook. We forecast product income primarily based on noticed habits. Our FY ’25 steerage contains contribution from Snowpark as beforehand acknowledged.

Our steerage doesn’t embrace materials contribution from the newer product options.Our forecast does embrace income headwinds related to efficiency enhancements. For Q3, we count on product income between $850 million and $855 million. We’re rising our FY ’25 product income steerage. We now count on full yr product income of roughly $3.356 billion, representing 26% year-over-year development.Turning to margins.

For Q3, we count on 3% non-GAAP working margin. We’re sustaining full yr margin steerage. For FY ’25, we count on roughly 75% non-GAAP product margin, 3% non-GAAP working margin and 26% non-GAAP adjusted free money circulate margin.With that, operator, now you can open up the road for questions.

Questions & Solutions:

Operator

[Operator instructions] Our first query is from Keith Weiss with Morgan Stanley. Your line is now open.

Keith Weiss — Analyst

Glorious. Thanks, guys, for taking the questions, and Congratulations on a strong quarter. Actually good to listen to concerning the optimization beginning to normalize. You guys are — appear to be settling into nearly like a 30% product income development fee over the previous couple of quarters.

There was lots of issues coming into this quarter about impacts from Iceberg Tables. There was issues that accrued in the course of the quarter concerning the knowledge leakage.That wasn’t your fault, but it surely positively was a advertising headwind. It was involved concerning the CrowdStrike, cybersecurity incident perhaps impacting consumption. Have been any of those outsized impacts? Have been any of those further impacts on the consumption within the quarter versus what you guys had been anticipating once you initially gave us the information?

Mike Scarpelli — Chief Monetary Officer

I might say the cybersecurity incident was nonetheless early, had no affect on us in any respect from a consumption standpoint. And the CrowdStrike outage was minimal. It was a day with a couple of clients, however nothing of any substance. And that by no means actually impacted us itself.

And our manufacturing doesn’t depend on Microsoft for that, so we did not have…

Keith Weiss — Analyst

Received it. After which was the Iceberg Tables in keeping with your expectations?

Mike Scarpelli — Chief Monetary Officer

Iceberg tables is rolling out. As we mentioned, we’ve about 400 clients which are utilizing it. We’ve not seen clients transfer storage out of Snowflake, however we’re seeing lots of our clients. We talked about 400 that we all know of which are truly utilizing Iceberg with new workloads, try that out.

And we’re very happy with the progress we’re seeing there. Storage remains to be working about 11% of our income.

Keith Weiss — Analyst

Received it. That is tremendous useful. Thanks, Mike.

Operator

Our subsequent query is from Raimo Lenschow with Barclays. Your line is now open.

Raimo Lenschow — Analyst

excellent. Thanks. Two fast questions. Mike, are you able to — the gross margins this quarter had been higher than what lots of people have modeled.

Are you able to converse to a few of the components for that? After which, Sridhar, for you, like across the Iceberg ecosystem, there’s clearly — there was lots of change this quarter with the Tabular acquisition by somebody. What do you see when it comes to attracting expertise to drive that highway map ahead right here? Like how is your positioning in that Iceberg ecosystem evolving?

Mike Scarpelli — Chief Monetary Officer

Sure. On the margin facet, the margins had been barely higher than what we had forecast internally, but it surely would not change the information that we have given, 75% for the yr. A part of that’s we’re nonetheless ready in some deployments for GPUs that — around the globe that we do not have but that we had been anticipating would have come on this quarter. That is actually the — on the margin facet — the gross margin facet.

Sridhar Ramaswamy — Chief Govt Officer

After which on the Iceberg facet, it is necessary to know that the acquisition of Tabular, the corporate, has no affect on the Iceberg undertaking, which is an Apache open supply undertaking. This has contributors and program committee members from a lot of cloud corporations, the hyperscalers, sure, but in addition different corporations. And we even have members inside Snowflake. So we very a lot intend for this to be an trade commonplace that we take a fairly vital position in shaping.And so from that perspective, we truly really feel that the Tabular acquisition, in some ways, is a vindication of our technique to wager on Iceberg as a result of that was the format that was actually interoperable.

Hopefully, that is the tip of the Betamax wars and everyone — with everyone centering across the one format that has broad assist. And as I mentioned, we’ll proceed to be a key participant on this ecosystem to make sure that the format actually serves everyone and strikes the trade ahead.

Keith Weiss — Analyst

OK. Good. Thanks. Effectively finished.

Operator

Our subsequent query is from Mark Murphy with J. P. Morgan. Your line is now open.

Mark Murphy — Analyst

OK. Thanks very a lot. I am going to add my congrats. Mike, you talked about a few 9-figure offers within the quarter.

I am curious if these are renewals with growth or maybe in the event that they’re associated to anything. As an example, Iceberg Desk is unlocking new enterprise the place corporations wish to faucet into some bigger knowledge sources which are in an open format or simply whether or not there’s anything to name out on the 9-figure offers. Then I’ve a fast follow-up.

Mike Scarpelli — Chief Monetary Officer

These had been current clients. You are by no means going to see — I by no means wish to say by no means. It is extremely unlikely you are going to see a 9-figure deal from a web new buyer. However these are actually as a part of the renewal course of and — however growth in each of these clients as they’re trying to do extra.

I can not particularly say that Iceberg on both of people who I am seeing, however they each plan on doing extra with Snowflake.

Mark Murphy — Analyst

Sure, I perceive. OK. After which as a follow-up, as we begin to suppose ahead into the subsequent fiscal yr, I feel we’re attempting to stability out the big slate of merchandise that not too long ago reached GA that you simply talked about, Sridhar, and may begin to contribute. Then on the opposite facet of the ledger, potential for any discrete headwinds from {hardware} and software program enhancements that you simply handed alongside, storage compression.

Previously, you had auto warehouse sizing. Any high-level ideas on, Sridhar, on how one can pencil that out when it comes to new merchandise ramping after which on the opposite facet, a few of these enhancements?

Sridhar Ramaswamy — Chief Govt Officer

I am going to begin to reply, and Christian ought to — and Mike ought to chime in. To begin with, we clearly cannot say something about subsequent yr. It’s subsequent yr. However wherever doable, the place we’ve indication about how new merchandise are going to carry out, we definitely let you know about it.

We’ve given steerage, for instance, about what Snowpark goes to do that yr. After which equally, with the AI merchandise, as I mentioned, we’re seeing broad adoption, and we count on that it’ll start to contribute materially to income subsequent yr.With respect to efficiency optimization, I might say that is extra of an ongoing factor. We’ve talked to you concerning the issues that we’ve on faucet for this yr. It is very important perceive that these optimizations flip into large value financial savings for our clients and make the core product robust and that it is actually necessary that our groups proceed to do this as a result of that is what protects our general base.

Christian?

Christian Kleinerman — Govt Vice President, Product

I might simply emphasize that our management place on worth efficiency continues to be a precedence for all of us. And at this level, you have seen a number of years of us persevering with to innovate but in addition ship development and extra makes use of for our clients.

Mark Murphy — Analyst

Thanks.

Operator

We’ve a query from Kirk Materne with Evercore. Your line is now open.

Kirk Materne — Analyst

Yeah. Thanks. Simply 2 actually fast ones. Sridhar, clearly, lots of your companions and clients on the Summit occasion talked concerning the pleasure round a few of these newer merchandise like Cortex and Snowpark.

However one of many chorus was we simply want higher maps to know how one can use them. And I feel from an trade perspective, it got here up quite a bit, too. So I am form of curious, the place do you suppose you might be inside your product that they’ll point out the ROI that [Inaudible].

Mike Scarpelli — Chief Monetary Officer

Kirk, your line is breaking apart, and we won’t actually hear you.

Kirk Materne — Analyst

Is that the any higher?

Mike Scarpelli — Chief Monetary Officer

Getting a extremely dangerous echo. And it is onerous to listen to you.

Kirk Materne — Analyst

Oh. Thanks.

Operator

We’ve a query from Kash Rangan with Goldman. Your line is now open.

Kash Rangan — Analyst

Hey. Thanks, guys. So one for you, Sridhar. One for you, Mike.

Sridhar, once you take a look at the product portfolio, so clearly initiative is to get these companies out. And I feel you identified to web new 8 or 9 companies. What are the conversations with clients like when they’re discussing your companies with you? What’s your tackle the place are we going to be a yr out with the consumption profile of a median Snowflake buyer. I feel on common, how do you see that blend altering between the core if you wish to simply bluntly name it warehousing-related revenues versus unstructured knowledge, no matter you wish to name it, Cortex AI and the opposite rising buckets.

How does that blend change for purchasers as they begin to admire the online new merchandise you may have popping out?And one for you, Mike. You mentioned that the Salesforce compensation tilt towards consumption. It is nonetheless in its early days, however you additionally intimated that in fiscal ’26, we might begin to see the fruit of all this. So assist us perceive what you imply by that? And what are the KPIs that you simply’d be internally monitoring to tell you and due to this fact us, that, that tilt towards getting extra consumption inside your clients is definitely working to your benefit?

Sridhar Ramaswamy — Chief Govt Officer

Thanks, Kash. On the product facet, I might say that our clients undergo a journey sometimes beginning with a need to have a extremely good knowledge platform that provides visibility. They find yourself adopting completely different architectures, however typically, the enterprise is most like pristine, clear knowledge. The gold layer, so to say, is the one which’s put into Snowflake.

And there are many clients which have standardized on Snowflake as that key knowledge again aircraft.Subsequent, normally, there’s a leaning towards collaboration as a result of all corporations exist within the context of an ecosystem. They’ve companions. They’ve clients and collaboration of varied varieties, definitely beginning with knowledge sharing, turns into the important thing subsequent factor that they undertake broadly. And you have typically heard Christian speak about issues like steady edges, which is a metric that we observe as a result of it creates worth.

And it clearly additionally creates a community impact.Our general technique at Snowflake is to make it possible for the entire type of knowledge workloads that an organization has is glad by Snowflake. And that is the place issues like knowledge engineering, which we’ve performed a fairly vital position in for some time, has been an funding for us. And that is the place issues like Iceberg turn out to be fairly key as a result of, unexpectedly, the universe of knowledge that may be acted upon by Snowflake goes by means of a big growth as a result of — exactly as a result of not all knowledge must be ingested into Snowflake earlier than issues occur. I might say AI is a little bit uncommon on this entrance due to, clearly, the trade pleasure round it. However we strategy it very a lot from a viewpoint, and I feel this was a part of the earlier query of how can we go about creating utility to our clients.

We simply do not go in and say use AI. We speak about how it may be used to derive significantly better insights over unstructured info, for instance, through the use of an LLM operate for doing knowledge transformation like sentiment detection and simpler entry to knowledge whether or not it’s with a chatbot or textual content docs or utilizing one thing like Analyst to provide a enterprise consumer entry to structured knowledge. These are usually the follow-on functions. And actually, we really feel snug sufficient to have the ability to be investing in these in parallel and driving income development.I might say it is too early to speak about X p.c for this versus Y p.c for that.

Our purpose is to be related. And for me, relevance is a lot and many our clients, 1000’s of consumers utilizing our merchandise and driving significant 9-, 10-digit income for us.

Mike Scarpelli — Chief Monetary Officer

And Kash, in your query for me on the gross sales comp adjustments, what I used to be which means by that’s we actually bifurcated our gross sales power into the acquisition reps. And people clients which are touchdown at the moment, we actually have been centered on attempting to land the precise sort of buyer that may develop. We expect they are going to have a significant affect on income subsequent yr with these new ones.After which additionally, the brand new muscle that we have been constructing within the gross sales group, the place the reps are simply being paid on consumption, is what’s driving them. It is actually the expansion inside clients’ consumption.

It is a new muscle for them to discover ways to go and discover and assist forecast new workloads coming on-line, and that muscle they’re growing, we see, goes to have a extremely constructive affect in 2026 for us.

Kash Rangan — Analyst

Glorious. Thanks a lot.

Operator

We’ve a query from Karl Keirstead with UBS. Your line is now open.

Karl Keirstead — Analyst

OK. Nice. Mike, I might love to only ask you about utilization traits as you closed the July quarter and what assumptions you are embedding within the second half product income information. I feel we have — everyone on the road has type of certainly ample proof from Microsoft all the best way down, but it surely’s a tricky IT spending atmosphere.

So I am simply curious, as you set the 3Q and 4Q product revs information, what you’d name out as key variables or perhaps adjustments in macro-related assumptions that you simply embedded in that information?

Mike Scarpelli — Chief Monetary Officer

I am going to simply say I feel order confirmed from a reserving standpoint that it is a regular atmosphere, and we’re very happy with the offers we closed within the quarter. I do not see it any worse. It isn’t euphoric or something, but it surely’s very steady buyer shopping for sample we’re seeing. And when it comes to consumption traits, clearly, we simply guided our income proper now for the quarter.

We beat and we raised the complete yr as nicely, too, and that is seeing the consumption traits up by means of this week. So we’re happy with that proper now could be what we’re seeing.

Karl Keirstead — Analyst

OK. Mike, after which simply perhaps a follow-up. I do know that you have embedded in your steerage the belief of some extent of runoff of the storage revenues that you simply simply repeated earlier, nonetheless symbolize 11% of revs. Is the anticipated tempo of that storage runoff on this new steerage monitoring much like what you embedded 3 months in the past? Or is it a little bit bit lighter or a little bit bit sooner?

Mike Scarpelli — Chief Monetary Officer

Sure. Effectively, I might say, as I mentioned earlier, we actually have not seen any storage go away Snowflake but, however that was at all times forecast to occur within the second half of this yr, and we expect that’s — a few of that’s going to occur and that’s factored into our steerage.

Karl Keirstead — Analyst

Thanks, Mike.

Mike Scarpelli — Chief Monetary Officer

You are welcome.

Operator

Our subsequent query is from Brent Thill with Jefferies. Your line is now open.

Brent Thill — Analyst

Thanks. Sridhar, are you able to give us an replace on the adoption of Cortex and the way you are seeing that pattern? And for Mike, simply on RPO, it was good to see actually good sequential development and the acceleration of RPO. However the hole between income and RPO continues to be one of many highest we have seen. Is there something that is happening that we should always think about there.

Is that this simply comparable constant patterns you have seen up to now?

Mike Scarpelli — Chief Monetary Officer

I am going to truly reply that first simply whereas it is on my thoughts. As we have mentioned earlier than, we’ve clients that signal long-term contracts. If they’ve consumed all the things beneath their contract, they’ve the flexibility to purchase month-to-month. We’ve 2 of our prime 10 clients proper now that may proceed to purchase by means of the tip of the yr, and we’re seeing that.

In order that they’re of their prime 10 clients and suppose prime 10 clients are roughly within the $50 million to $40 million vary. These aren’t mirrored in present RPO very a lot as a result of they’re simply shopping for as they go.

Christian Kleinerman — Govt Vice President, Product

On — Christian right here. On the adoption of Cortex, I imagine we’ve a lot of product capabilities beneath that umbrella. Cortex LMS, which represents the completely different language fashions which are accessible. That one, the adoption is sort of robust, plenty of new use instances, as Sridhar alluded to, on textual content summarization, textual content sentiment evaluation.

That is very robust. But in addition, we launched at Summit, each Cortex Analyst and Cortex Search as a approach to allow customers throughout workplace, organizations to have the ability to chat and interrogate the info, whether or not it is structured or unstructured. These 2 are necessary for you, however the adoption at this stage is sort of robust. We’ve fairly a little bit of demand for — going to basic availability.And perhaps the final one which I might name out is the Snowflake Copilot.

We see lots of utilization on clients getting help on how one can write higher SQL queries, which additionally drives consumption again into Snowflake. So all up, a robust product suite and curiosity in adoption throughout all of it.

Brent Thill — Analyst

Thanks.

Operator

We’ve a query from Brad Zelnick with Deutsche Financial institution. Your line is now open.

Brad Zelnick — Analyst

Nice. Thanks a lot for taking the query. It is actually an even bigger image query for Sridhar or perhaps Christian. If the world more and more interacts with knowledge by means of generative AI and LLMs, how does the position of the info warehouse, as we have identified it for many years, evolve from right here? And why is Snowflake nicely positioned to assist enterprises bridge these worlds, leveraging mountains of enterprise knowledge to construct newer era AI functions?

Sridhar Ramaswamy — Chief Govt Officer

I imply, initially, Snowflake is usually on the middle of the entire attention-grabbing knowledge in corporations, completely. We began out as a warehouse, however more and more, we’re the info backplane that gives a single unified view. Clearly, this comes from manufacturing methods, but in addition more and more from a number of connectors we’ve to different methods whether or not they’re a Salesforce or Section or SAP or any of the opposite functions that you simply use. And what we’re doing with further capabilities like machine studying, like AI is to have the ability to act on that knowledge to then drive operational methods.Disney, for instance, makes use of Snowflake to do lots of in-park optimization.

And we see lots of people that convey provide chain knowledge into Snowflake after which optimize inside Snowflake. And clearly, there are additionally companions like Blue Yonder, which is a provide chain firm, that platform on Snowflake after which present further functionality to their clients in order that they’ll mix the provision chain knowledge with different knowledge that there’s.Our wager is basically that AI and machine studying are going to go the place the info is. Information goes to have a robust gravity. And that is the explanation why we’re seeing such broad adoption.

And by offering easy-to-use merchandise with Cortex AI, for instance, any analyst that is aware of SQL now is ready to use language fashions. You needn’t go purchase new methods, arrange new issues. And issues like knowledge transformation, textual content transformations turn out to be so simple as writing like a 2-line SQL. It’s actually this ease of use that makes Snowflake such a tremendous platform to have the ability to do all these value-add functions along with the core analytics functions and the info sharing that individuals have finished on Snowflake.

Brad Zelnick — Analyst

Thanks very a lot for that, Sridhar. Perhaps only a fast one for you, Mike. Am I too optimistic to suppose that NRR can stabilize right here, particularly in mild of all the brand new product that you simply guys are bringing on-line?

Mike Scarpelli — Chief Monetary Officer

As we have mentioned earlier than, I am not likely going to information NRR and I mentioned it’ll, over time, converge with our income. And clearly, we would wish to see NRR stabilize at this degree, however we’ll see on the finish of the quarter. I am not disenchanted with our NRR. Given our income development, I am proud of it.

Brad Zelnick — Analyst

Is smart. Thanks a lot.

Operator

Our subsequent query is from Mike Cikos with Needham Firm. Your line is now open.

Mike Cikos — Needham and Firm — Analyst

Nice. Thanks for taking the query right here, guys. The primary one for Sridhar, and I simply wished to return again to Keith’s query on the prime of the Q&A. I do know we’re saying that there wasn’t an affect on consumption within the quarter associated to the muddled headlines round safety.

However has Snowflake observed any change when occupied with the time line for gross sales cycles or the demand gen because it pertains to a few of these headlines that had been on the market?After which the follow-up for Mike could be after we take a look at the reiterated margin steerage that we’ve at the moment, is there something to consider. Was there any delayed spend that is now anticipated within the again half of the yr simply given Snowflake’s outperformance on a year-to-date foundation by means of the primary half?

Sridhar Ramaswamy — Chief Govt Officer

On the primary one concerning the mannequin safety headlines, clearly, we make it possible for we convey up the subject after we — whether or not we speak to an current buyer or to a brand new buyer. We level to the safety capabilities that we’ve had, actually, for near a decade and take a look at to make sure that all current clients, for instance, comply with finest practices.They’re easy like multifactor authentication, like community insurance policies in relation to safety. And our gross sales workforce in addition to I, at any time when we’ve conversations with potential new clients, convey this up entrance and middle. And a part of the explanation why we’re barely muted about that is like these are all the purchasers that acquired — the those who acquired breached, these are our clients.

And we wish to work carefully with them to make it possible for they get out of the tough scenario that they’re in.And each current clients and new clients admire that spirit of partnership and serving to them get by means of tough conditions. We’ve them speak to our CISOs. We’ve them speak to our safety discipline CTOs, advise them on finest practices. So roughly, I might say that there is not likely been any noticeable impact or delay in issues like our capability to enroll clients or get — or, I imply, enroll new clients or get current clients to deploy new tasks.

We simply have to be extra proactive about having the safety dialog, and we completely do this.

Mike Scarpelli — Chief Monetary Officer

In your query, Mike, on whether or not there’s any delayed spend or not having an affect, so there isn’t any delayed spend. However I’ll let you know is we’re taking a look at accelerating, and it would not change our steerage. Our steerage is identical what it was. We’re taking a look at probably accelerating a few of our hiring within the second half of the yr, particularly for the gross sales power in a few of the areas the place we wish, and that is factored into our full yr steerage, which is the steerage we gave final quarter.

Mike Cikos — Needham and Firm — Analyst

That is nice. Thanks. Recognize the extra coloration.

Operator

Our subsequent query is from Joel Fishbein with Truist. Your line is now open.

Joel Fishbein — Analyst

Thanks, and congrats on the nice execution. Sridhar, you spoke about this hospitality buyer utilizing Iceberg. Are you able to give us some extra coloration about that use case and perhaps ROI, and perhaps if that use case could also be used for example to draw different clients?

Sridhar Ramaswamy — Chief Govt Officer

Are you able to repeat the primary sentence in your query? What buyer?

Joel Fishbein — Analyst

You talked a few hospitality buyer utilizing Iceberg for a particular use case. I used to be simply hoping to get a little bit bit extra element and coloration round that. After which perhaps if that can be utilized for example to draw different clients.

Sridhar Ramaswamy — Chief Govt Officer

Sure. I feel the final sample that we noticed there, and we see in our use case — from our clients is the will to undertake an structure that’s primarily based on open file codecs. And normally, the adoption begins with a small use case. This is some incremental spend, validate interoperability between engines after which you possibly can go and deploy at a bigger scale.

And I feel that is the sample that we see.

Joel Fishbein — Analyst

OK. Thanks.

Operator

We’ve a query from Patrick Colville with Scotiabank. Your line is now open.

Patrick Colville — Analyst

All proper. Thanks a lot for taking my query. So principally, Sridhar, I imply I wish to ask about form of basic knowledge analytics and warehousing. Do you thoughts simply commenting on the tempo of migrations, new analytical workloads coming on-line, question pricing competitors in analytics now versus 6 months in the past? Is there something to name on the market?

Sridhar Ramaswamy — Chief Govt Officer

Sure. Within the core analytics area, we’re the very best on this planet that there’s. Particularly when individuals think about migrating from complicated on-prem methods, we’ve an expert companies workforce that’s exceptionally expert at it and a really giant ecosystem of companions which were battle examined with large migrations. And we’ve finished migrations from on-prem workloads that find yourself saving one thing like 60% of the associated fee the shopper has to bear, and their Snowflake implementations find yourself being very, very environment friendly and low upkeep. That is an space that continues to be necessary for us.

And we see migrations from all kinds of legacy methods. And there may be additionally rising curiosity in having AI-aided instruments. We’ve a instrument known as SnowConvert that’s used each by our skilled companies groups but in addition by our clients. And particularly on this planet of AI, we’re investing extra into instruments like these in order that migrations might be sooner.

I might say these varieties of knowledge migrations from legacy methods stay an necessary a part of each new buyer acquisition but in addition driving substantial consumption will increase in current clients.Christian, you may have lots of background on this. Perhaps you possibly can…

Christian Kleinerman — Govt Vice President, Product

Perhaps the extra coloration is that a few of the methods run probably the most important processes in organizations. Usually, they’re closing the books on this. So oftentimes, an enormous portion of the migration cycle is validation and guaranteeing that the outcomes are right. And as Sridhar mentioned, we’re continuously taking a look at how one can create know-how and methods to speed up the method, however there are some elements of it the place the validation continues to be crucial to clients.

Mike Scarpelli — Chief Monetary Officer

And your query, Patrick, you particularly had been speaking about the price of queries and the way that has gone. We do not worth on a per question as a result of each buyer’s queries are completely different. We do a per credit score pricing. You get a lot compute.

That has remained steady quarter-over-quarter. Sequentially, that really grew year-over-year 1.3%. However what I can say is the worth efficiency has gotten higher quarter-over-quarter for purchasers, and that continues to be.

Christian Kleinerman — Govt Vice President, Product

And we’ve been public a few Snowflake Efficiency Index after we take not artificial benchmarks however precise buyer workloads. And we measure the efficiency enchancment over time, and that is how we give expertise to our clients that the economics are getting higher regularly.

Patrick Colville — Analyst

Tremendous useful. Can I — I suppose I wish to ask a fast follow-up. I am going to go away it open to whoever desires to reply. It is concerning the ready remarks saying you are not factoring in profit from new merchandise after which solely minimal profit in fiscal ’25 from Cortex and Snowpark.

I feel — when might these hockey stick and extra materially drive product income? As a result of your earlier reply was that the core is rock strong and really wholesome. So what concerning the new stuff and when that is going to essentially replicate?

Mike Scarpelli — Chief Monetary Officer

The one newer product that’s within the ’25 information for the complete yr is Snowpark as we mentioned at first of the yr. And we mentioned that is going to be about 3% of our income or $100 million and monitoring to that properly. And the newer merchandise usually are not factored into our steerage till we see extra historical past. I do count on they will have an effect this yr.

I do not know but, however 2026 will have an effect.

Patrick Colville — Analyst

Crystal clear. Thanks a lot.

Operator

Our subsequent query is from Michael Turrin with Wells Fargo. Your line is now open.

Michael Turrin — Wells Fargo Securities — Analyst

Hey. Nice. Thanks. I admire you taking the query.

Sridhar, I wish to return to that final level and simply ask your perspective. You talked about innovation is a key focus space. In order we’re occupied with these newer product efforts and also you’re having these preliminary buyer conversations significantly round Summit, what are the couple of product areas past Snowpark that you simply see probably the most early demand indicators or simply buyer dialog round?

Sridhar Ramaswamy — Chief Govt Officer

So not solely have we had buyer conversations, however we have additionally doubled up particular cadences that groups are implementing in taking new issues to market. So we place a particular emphasis on what we name knowledge engineering. Iceberg is unquestionably part of it, the place Snowflake can be utilized for various sorts of computation that’s distinct from the analytic workloads that we have been working.Christian talked about how a hospitality buyer is working Snowflake on Iceberg Tables that weren’t created by us. We very a lot concentrate on that.

We concentrate on different issues like streaming ingestions. So knowledge engineering is one work stream. Positively an enormous concentrate on AI. We’ve a — principally a struggle room, a top-to-bottom workforce from engineering to gross sales that’s centered on how we take AI merchandise to market.

And we count on our Notebooks, for instance, to hit GA in a couple of weeks. And we can be making an effort round ensuring that these get into the palms of knowledge scientists in order that they’ll run probably the most complicated machine studying algorithms that they wish to run on prime of Snowflake.And so we’ve a fairly methodical strategy to how we’re taking new merchandise to market however throughout the gamut, whether or not it’s AI or machine studying or extra refined knowledge engineering operations together with the unstructured knowledge or issues like Notebooks interesting to a really completely different persona, there may be broad curiosity. It is a matter of organizing ourselves to place the precise product providing in entrance of the precise buyer on the proper time.

Michael Turrin — Wells Fargo Securities — Analyst

That is useful. And in addition simply in summarizing lots of the little feedback on remainder of your steerage, simply return to that time. We initially began the yr with — I feel it was round 625 foundation factors of potential affect contemplated from the combination of stuff you’ve talked about all through the decision. Is that also the precise ZIP code for us to consider? And is it truthful to imagine that you simply’re leaving room for storage to return down from that 11% degree within the second half, however you are not seeing that at this level? Is that the precise takeaway for us?

Mike Scarpelli — Chief Monetary Officer

Effectively, the storage, we at all times deliberate with Iceberg that, that was going to be the second half of the yr, and we nonetheless suppose there can be an affect to that, and that is factored in. However our — yearly, we take a look at potential headwinds related to efficiency enhancements and different issues. We do not replace that on a quarterly foundation, and we’re not going to attempt to reconcile again to that. We by no means have and by no means will.

Michael Turrin — Wells Fargo Securities — Analyst

That is truthful. Thanks.

Operator

Our subsequent query is from Tyler Radke with Citi. Your line is now open.

Tyler Radke — Citi — Analyst

Sure. Thanks for taking the query. Encouraging to listen to that you simply did not see any unfavorable impacts from the cyber headlines that hit intra-quarter. I used to be questioning for those who might simply type of speak about a few of the offsets, although, to the robust consumption in tech and monetary companies clients that you simply noticed.

The magnitude of the beat was smaller than you noticed in Q1. And I do know there have been some perhaps constructive traits in Q1 that did not proceed into Q2, however for those who might simply assist us reconcile the magnitude of the smaller beat from Q1 to Q2, that may be nice.

Mike Scarpelli — Chief Monetary Officer

Tyler, we have at all times mentioned that we attempt to handle this enterprise such {that a} 3% to five% beat is an enormous — a great beat, and we had been 2.4%. Simply as I do not get excited if it is available in at 5%, I am not excited if it is at 2%. I simply — actually we’re attempting to handle this enterprise for the long run. I feel what’s extra necessary is the truth that the beat or the increase that we’re placing by means of the complete yr, I feel, speaks extra to what we see within the second half of the yr taking place now.

Tyler Radke — Citi — Analyst

Sure, sure. Useful commentary. On money circulate, it — I feel collections had been a bit lighter. I feel that could possibly be a operate of the go-to-market adjustments you talked about.

The complete yr money circulate outlook was maintained. Are you able to simply speak concerning the shifting items in money circulate? Is there any affect from decrease CapEx simply given a few of the GPU availability you talked? And are you seeing form of the billings phrases compress greater than anticipated?

Mike Scarpelli — Chief Monetary Officer

No, the billings phrases are remaining constant. As I mentioned, 80% of our clients are yearly superior, and really, Q2 collections had been truly just about as we deliberate. Payables had been a little bit bit larger and the timing of payables. However our This autumn — keep in mind, we’ve lots of seasonality in money circulate.

Q1 and This autumn are going to at all times going to be our strongest free money circulate quarter. And so I am snug retaining the 26% for the yr proper now.

Tyler Radke — Citi — Analyst

Nice. Thanks.

Operator

We’ve a query from Matt Hedberg with RBC. Your line is now open.

Matthew Hedberg — Analyst

Nice. Thanks, guys. Mike, for you, there was an early query on gross margin. It sounds such as you nonetheless have some GPUs to acquire within the second half.

However I am curious, now that you simply’re form of pondering by means of the affect of AI on Snowflake, confidence in type of the medium time period that gross margins have, the truth is, bottomed and that we might see — begin to see an upward trajectory right here sooner or later?

Mike Scarpelli — Chief Monetary Officer

So initially, after we speak about procuring GPUs, we do not truly purchase GPUs. We lease them. So I simply wish to make clear that. And we’ve lots of demand from clients exterior of our main areas in Asia and even sure areas in Europe that need us to have GPUs, to allow them to be utilizing a few of our newer merchandise.

And sadly, a few of the cloud distributors are simply not accessible but. And after I say they need the H100s, the larger ones, you may get the smaller GPUs.And is that this the underside of margins? Loads — I am by no means going to say it is the underside as a result of I do not know what’s sooner or later with new merchandise that would have an effect on the margin. I am not speaking subsequent yr. However I be ok with the 75% for the yr as we have guided.

Matthew Hedberg — Analyst

Received it. After which with U.S. Fed being an enormous quarter for you guys subsequent quarter and type of, I suppose, a few of the uncertainty on the U.S. election, have you ever discounted some U.S.

Fed expectations for 3Q? Simply form of curious on type of how you need to take into consideration — how we should always take into consideration that vertical going into subsequent yr.

Mike Scarpelli — Chief Monetary Officer

Effectively, I’ll say our federal enterprise is our smallest vertical. And as I mentioned earlier than, it is solely upside for us, so there’s not lots of expectations in our numbers in any respect for federal. And I do count on we’ll shut some offers this quarter.And by the best way, public sector is fairly good worldwide in what we do. However your query was on U.S.

Federal itself. I do count on some offers. However when it comes to affect on income, it takes time. That will not be till the longer term as soon as we shut these offers.

We do have FedRAMP Excessive now. We’re engaged on another issues as nicely, too. And so I do count on to shut some offers this quarter within the U.S. Federal area.

Matthew Hedberg — Analyst

Received it. OK. Thanks, Mike.

Operator

Our subsequent query is from Alex Zukin with Wolfe Analysis. Your line is now open.

Alex Zukin — Analyst

Hey, guys. Thanks for taking the query. Mike, perhaps to the reply relating to perhaps to the query you bought a little bit bit earlier, clearly actually nice commentary on bookings development, RPO energy, the increase being greater than double the beat, which is, I feel, the strongest increase shortly for product income. However to the purpose like what — it is a little bit bit stunning to listen to form of know-how being a robust vertical for you guys.

Are you able to perhaps speak about what you are seeing from the monetary companies and know-how verticals that’s perhaps completely different? Is it simply the macro in these areas? Is it use instances and perhaps the place it was a little bit bit on the opposite facet, a little bit bit weaker and form of what you count on there?

Mike Scarpelli — Chief Monetary Officer

I might say within the monetary companies, we simply have some banks which are within the early innings of migrations. Like considered one of them has grown, I feel, 400% year-over-year. And they’re going to proceed to develop, and that actually is driving lots of that. And on the know-how facet, we simply have some — a lot of different corporations which are rising properly within the tech area for us as nicely.

Sridhar Ramaswamy — Chief Govt Officer

And a unique consideration, which we actively work on, is the — like the dimensions and high quality of the groups that we put to play within the completely different areas. We’ve among the many finest groups in monetary companies. That is the place we had been robust to start with. And we’re early pioneers of issues like knowledge sharing the place that constructive momentum consumed itself.

There are different areas just like the federal enterprise, for instance, the place we’re nonetheless constructing out a crack workforce, and that is driving development. As a lot as one likes to suppose that it is the macroeconomic variations between sectors, what we will do typically finally ends up influencing how sturdy the expansion is.

Alex Zukin — Analyst

Received it. After which perhaps only one extra. If you concentrate on the aggressive panorama, that is form of been a — like a little bit little bit of a cost subject this yr, significantly for traders. What are perhaps a few of the main misconceptions or misunderstandings that you’d say are on the market? And the way — or any adjustments you noticed within the aggressive panorama over the course of the quarter and even the primary half of the yr or from a pipeline perspective?

Sridhar Ramaswamy — Chief Govt Officer

I am going to begin. Christian and Mike ought to add on. I feel I’ve spent lots of time on the highway. Simply this quarter, I’ve met with over 100 of our greatest clients one on one.

And the factor that clearly stands out from like an analytic functionality, core knowledge functionality, knowledge sharing is that we’re bar none. We’re the very best platform that there’s, and our clients completely acknowledge that. And we see increasingly of their knowledge workloads transfer over to Snowflake that does not make the method simple, a migration of a giant complicated system that is managing the books of a financial institution in order that they’ll shut it each month. It is nothing to sneeze at.

It is a multi-quarter undertaking that must be finished exceptionally rigorously. So one factor that — I would not name it a false impression, however the one factor that I might reinforce is the energy that we’ve in our core capabilities. Relating to newer issues like AI, we have been open about the truth that we had been a little bit behind early final yr when it comes to how a lot we had been invested in it and the form of merchandise that we — it is a quickly shifting discipline, and the form of merchandise that we might deploy. However even earlier than my coming, the administration workforce right here acknowledge the chance, invested closely in it and issues just like the Neeva acquisition by means of which I got here had been an accelerant to issues that had been already in place at Snowflake. And I might say the change over the earlier quarter is that we will inform our clients, we will let you know with confidence that our AI merchandise are world class and actually, that we’re rather more dependable than constructing merchandise off of APIs which you can get elsewhere as a result of we pay lots of meticulous consideration to how we craft merchandise. And it is that mixture of reliability and ease of use that we’re turning into a significant energy for us in AI as nicely.

Christian Kleinerman — Govt Vice President, Product

Sure. One fast final touch upon prime of what Sridhar mentioned. Our product philosophy on ease of use, good default, how do you make issues work simply out of the field, we hear competitively is a robust benefit for us throughout areas for analytics, for knowledge engineering and for AI. And we’ll proceed to take a position with that philosophy in thoughts.

Sridhar Ramaswamy — Chief Govt Officer

I promise, final touch upon this to provide — to speak about one thing very concrete that comes with the snowflake platform, particularly after the incidence of the summer season like CrowdStrike, one of many scorching matters has been how we arrange functions with Snowflake. That is now a battle-tested operation, and most clients are shocked to search out out that we will run a full reproduction of an necessary deployment. That is one thing like 15% the price of the unique deployment as a result of the reproduction is simply — is principally maintaining. It isn’t working any of the workloads which are happening in the primary one.

It is options like that, that proceed to drive our energy within the core.

Operator

[Operator signoff]

Length: 0 minutes

Name individuals:

Jimmy Sexton — Head of Investor Relations

Sridhar Ramaswamy — Chief Govt Officer

Mike Scarpelli — Chief Monetary Officer

Keith Weiss — Analyst

Raimo Lenschow — Analyst

Mark Murphy — Analyst

Christian Kleinerman — Govt Vice President, Product

Kirk Materne — Analyst

Kash Rangan — Analyst

Karl Keirstead — Analyst

Brent Thill — Analyst

Brad Zelnick — Analyst

Mike Cikos — Needham and Firm — Analyst

Joel Fishbein — Analyst

Patrick Colville — Analyst

Michael Turrin — Wells Fargo Securities — Analyst

Tyler Radke — Citi — Analyst

Matthew Hedberg — Analyst

Matt Hedberg — Analyst

Alex Zukin — Analyst

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