Q2 2025 Snowflake Inc Earnings Call
Participants
Jimmy Sexton; Head of Investor Relations; Snowflake Inc
Sridhar Ramaswamy; Chief Executive Officer, Director; Snowflake Inc
Michael Scarpelli; Chief Financial Officer; Snowflake Inc
Christian Kleinerman; Executive Vice President of Product; Snowflake Inc
Keith Weiss; Analyst; Morgan Stanley & Co LLC
Raimo Lenschow; Analyst; Barclays Bank PLC
Mark Murphy; Analyst; JPMorgan Chase & Co
Kirk Materne; Analyst; Evercore ISI
Kash Rangan; Analyst; The Goldman Sachs Group Inc
Karl Keirstead; Analyst; UBS Investment Bank
Brent Thill; Analyst; Jefferies LLC
Brad Zelnick; Analyst; Deutsche Bank Securities Inc
Mike Cikos; Senior Analyst; Needham & Company LLC
Joel Fishbein; Analyst; Truist Securities Inc
Patrick Colville; Analyst; Scotiabank
Michael Turrin; Analyst; Wells Fargo Securities LLC
Tyler Radke; Analyst; Citigroup Inc
Matthew Hedberg; Analyst; RBC Capital Markets
Aleksandr Zukin; Analyst; Wolfe Research LLC
Presentation
Operator
Good afternoon. Thank you for attending today's Snowflake Q2 and fiscal year 2025 earnings call.
My name is Cole, and I'll be the moderator for today's call. (Operator Instructions) I'd now like to pass the call over to Jimmy Sexton, Head of Investor Relations. Please go ahead.
Jimmy Sexton
Good afternoon. And thank you for attending today's Snowflake Q2 and fiscal 2025 earnings call. Joining me on the call today is Sridhar Ramaswamy, our Chief Executive Officer; Mike Scarpelli, our Chief Financial Officer; and Christian Kleinerman, our Executive Vice President of Product who will participate in the Q&A session.
During today's call, we will review our financial results for the second-quarter fiscal 2025 and discuss our guidance for the third quarter and full year fiscal 2025.
During today's call, we will make forward-looking statements, including statements related to our business operations and financial performance. These statements are subject to risks and uncertainties, which could cause them to differ materially from our actual results. Information concerning these risks and uncertainties is available in our earnings press release, our most recent Forms 10-K and 10-Q, and our other SEC reports. 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 statement.
During today's call, we will also discuss certain non-GAAP financial measures. See our investor presentation for a reconciliation of GAAP to non-GAAP measures and business metric definitions, including adoption. The earnings press release and investor presentation are available on our website at investors.snowflake.com. A replay of today's call will also be posted on the website.
With that, I would now like to turn the call over to Sridhar.
Sridhar Ramaswamy
Thanks, Jimmy, and hi, everyone. Thanks for joining us today. As you've seen by now, we had another strong quarter feeding guidance and increasing our FY25 product revenue expectations. I'm really proud of the team and how we accelerated our innovation pipeline. And our product delivery momentum continues to be really strong.
In the first half of this year alone, we brought as much product to market as we did all of last year. We're making Snowflake the best cloud for computation, collaboration, and applications on all data. And we're leveraging the power of AI to make all of these easier to create, maintain, and use. This is what our team is aligned around. And I can tell you our customers are adopting our new capabilities at an incredible pace.
As I said last quarter, I have three key areas I'm personally focused on: listening to and learning from our customers, fueling innovation and product delivery, driving execution and alignment within our go-to-market teams. And in Q2, we delivered on all fronts, which you can see in our results.
Product revenue for the quarter was $829 million, up 30% year over year. Remaining performance obligations totaled $5.2 billion, with year over year growth accelerating to 48%. Given the strong quarter, we are increasing our product revenue outlook for the year. Companies like Capital One, NBCU, Petco, Pfizer, Snapchat, and Western Union are all relying on Snowflake to help them fuel their business.
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 on the opportunities we have in front of us to deliver for our customers. In fact, the more I'm with our customers, the more I appreciate just how critical we are to their business and how much they're counting on us to be their trusted advisor in their AI data.
Nothing brings to life how strong and trusted a relationship is than when you go through challenges together. We obviously had some rough headlines in the quarter as some of our customers dealt with the cybersecurity threat. As extensively reported, the issue wasn't on the snowflake side. After multiple investigations by internal and external cybersecurity experts, we found no evidence that our platform was breached or compromised.
However, we understand that when it comes to cybersecurity, we are all in it together. My one ask of all businesses around the world, whether they are a Snowflake customer or not, is to enable and enforce multifactor authentication in your organization and ensure that you have network policies are as strong as possible.
Two things we at Snowflake have supported since 2016. There 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 UK, Germany, Canada, and across the US, and of course, at Snowflake Summit in June. The affinity for our product is incredible and the consistent theme I hear from the C-suite across industries and geographies is that Snowflake is delivering ease, efficiency, and reliability to their business.
And so much of this came to life 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. And if you're there, you experienced a lot of our innovation and product momentum that we brought to life Cortex AI and announced Iceberg being generally available, both of which have gained a lot of traction already with customers.
Penske Logistics, a leading provider of transportation and warehousing solutions, has developed a variety of innovative use cases involving Cortex AI. In one example, Penske plans to use Cortex to consume various performance metrics related to its transportation business. Cortex analysis 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's Segments Reverse ETL integrates with Snowflake's 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. That's what we call progress.
We're also seeing broader adoption of our products across our customer base. As of the end of Q2, more than 2,500 accounts were using Snowflake AI on a weekly basis. We expect this adoption to continue to increase and revenue contribution to follow.
Our Notebooks offering is also seeing great traction in public preview with more than 1,600 accounts using that feature. This is critical to engage with data scientists and will unlock new opportunities that we previously did not address. We are in the early innings of this opportunity and will continue to bring new features to market.
Cortex Search and Cortex Analyst are expected to be generally available in Q3. We are continuing to responsibly invest in AI and machine learning to deliver enterprise AI that is easy, efficient, and most of all, trusted. It's great to have so much momentum on the product front. It's fueling our incredible go-to-market team, which as you know, is one of our biggest advantages.
To wrap things up, our innovation engine and product delivery are in overdrive. The combination of our platform and the network effect of collaboration, as well as the innovation we are working on in AI, is Snowflake's future and create 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.
Michael Scarpelli
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 FY25 sales incentives that would prioritize consumption and new customer acquisitions in order to drive consumption sales reps for us to do 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 FY26. In Q2, non-GAAP product gross margin of 76% was down slightly year over year. As mentioned on our prior call, we are incurring GPU-related costs in order to fulfill customer demand for our newer product features. Non-GAAP operating margin of 5% exceeded our guidance benefiting from revenue outperformance.
As expected, non-GAAP operating margin is down year on year as a results 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 look 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. We forecast product revenue based on observed behavior. Our FY25 guidance includes contribution from Snowpark as previously stated. Our guidance does not include material contribution from an annuity product features. Our forecast does include revenue headwinds associate with performance improvements.
For Q3, we expect product revenue between $850 million and $855 million. We are increasing our FY25 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 3% non-GAAP operating margin. We are maintaining full-year margin guidance. For FY25, we expect approximately 75% non-GAAP product margin, 3% non-GAAP operating margin, and 26% non-GAAP adjusted free cash flow margins.
With that, operator, you can now open up the line for questions.
Question and Answer Session
Operator
(Operator Instructions) Keith Weiss, Morgan Stanley.
Keith Weiss
Excellent. Thank you guys for taking the question and congratulations on a solid quarter. It's really good to hear about the optimization starting to normalize. You guys are -- you seem to be settling into just about like a 30% product revenue growth rate over the past couple of quarters.
There's a lot of concerns coming into this quarter about impacts from Iceberg Tables. There was concerns that accrued during the quarter about the data leakage. That wasn't your fault, but it definitely was a marketing headwind. There was concern about the Crowdstrike cybersecurity incident maybe impacting consumption.
Were any of these outsized impacts -- were any of these additional impacts on the consumption in the corridor versus what you guys were expecting when you originally gave us the guide?
Sridhar Ramaswamy
I would say the cybersecurity incident was still -- pretty clearly had no impact on us at all from a consumption standpoint. And the Crowdstrike outage was minimal. It was a day with a few customers, but nothing of any substance. And it never really impacted us itself.
Our production does not rely on Microsoft for that. So we didn't have (technical difficulty).
Keith Weiss
Got it. And then was Iceberg Tables in line with your expectations?
Sridhar Ramaswamy
You know, Iceberg Tables is rolling out. As we said, we had 400 customers that are using it. We haven't seen customers move storage of Snowflake, but we are seeing a lot of our customers.
We mentioned 400 that we know of that are actually using Iceberg with new workloads, we're trying that out. And we're very pleased with the progress we're seeing there. Storage is still running about 11% of our revenue.
Keith Weiss
That's super helpful. Thank you, Mike.
Operator
Raimo Lenschow, Barclays.
Raimo Lenschow
Thank you. Two quick questions. Mike, can you give the gross margins this quarter are better than model? Can you speak to some of the factors for that?
And then Sridhar, for you, like -- around the Iceberg ecosystem, there's obviously -- there was a lot of change this quarter with the tabular acquisition by someone. What do you see in terms of attracting talent to drive the roadmap forward there? Like, how is your positioning in that Iceberg ecosystem evolving? Thank you.
Sridhar Ramaswamy
Yeah. On the margin side, the margins were slightly better than what we had forecast internally, but it doesn't change the guide that we've given, 75% for the year. Part of that is we're still waiting in some deployments for GPUs around the world that we don't have yet that we were anticipating would have come in this quarter. That's really the margin side.
Michael Scarpelli
And then on the Iceberg side, it's important to understand that the acquisition of tabular the company has no impact on the Iceberg project, which is an Apache open source project. This has contributors and program committee members from a number of cloud companies; the hyperscalers, yes, but also other companies. And we also have members within Snowflake. So we very much intend for this to be an industry standard that we take a pretty significant role in shaping.
And so from that perspective, we actually feel that the tabular acquisition in many ways is a vindication of our strategy to bet on Iceberg, because that was the format that was truly interopable. Hopefully, this is the end of the Betamax wars, with everybody centering around the one format that has broad support. And as I said, we will continue to be a key player in this ecosystem to ensure that the format truly serves everybody and moves the industry forward.
Raimo Lenschow
Okay, perfect. Thank you, well done.
Operator
Mark Murphy, JPMorgan.
Mark Murphy
Thank you very much, a lot of 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 some larger data sources that are in an open format, or just whether there's anything else to call out on the nine figure deals? And I have a quick follow up.
Michael Scarpelli
Those who are existing customers you're never going to see. I never want to say never. But you might -- you're going to see a nine-figure deal and net new customer, but those are really -- as part of renewal process, and but expansion in both of those customers as they're looking to more. I can't specifically say that Iceberg on either of those that I'm seeing, but they both plan on doing more with the Snowflake.
Mark Murphy
Yeah, 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 a GA that you mentioned, TRIDAR, and might start to contribute. Then on the other side of the ledger, potential for any discrete headwinds from hardware and software improvements that you pass along.
Storage compression, in the past you had auto warehouse, I think. Any high-level thoughts, Sridhar, on how to pencil that out in terms of new products, you know, ramping and then on the other side some of those improvements?
Sridhar Ramaswamy
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 where we have indication about how new products are going to perform, we certainly tell you about it. We have given guidance, for example, about what Snow Park is going to do this year.
And similarly with the AI products, as I said, we are seeing broad adoption and we expect that it will begin to contribute materially to revenue next year. With respect to performance optimizations, I would say that's more of an ongoing thing. We have talked to you about the things that we have on tap for this year.
It is important to understand that these optimizations turn into massive cost savings for our customers and make the core product strong. And it's really important that our teams continue to do that because that's what protects our overall base. Christian?
Christian Kleinerman
I would just emphasize that our leadership position on price performance and continues to be a priority for all of us. And at this point, you've seen several years of us continuing to innovate, but also the ever growth and additional use from our customers.
Mark Murphy
Thank you.
Operator
Kirk Materne, Evercore.
Kirk Materne
Yeah, thanks. Just two really quick ones. Sridhar, actually, a lot of your partners and customers at the Summit event talked about the excitement around some of these newer products like Cortex and Snow Park. But one of the refrain was, we just need better maps to understand how to use them.
And from an industry perspective, it came up a lot too (technical difficulty) country is really, you are being. [the product that they can push in the ROI].
Operator
Kirk, your line is breaking up.
Kirk Materne
(technical difficulty) I'll stop here. Thanks.
Operator
Kash Rangan, Goldman.
Kash Rangan
Hey, thank you guys. So one for you, Sridhar. One for you, Mike.
Sridhar, when you look at the product portfolio, some clearly initiative is to get these services out in quick cadence. I think you pointed out the net new 809 services. But one of the conversations with customers, like when they are discussing these services with you, what is your take on where we going to be a year out with the consumption profile of an average Snowflake customer, kind of this, I think, on average?
How do you see that mix changing between the core, if you want to just bluntly call it, warehousing, later revenues versus unstructured data, what are we calling it, 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 that the second force compensation tilt towards consumption is still in its early days. But you also intimated that in fiscal 2006, we could start to see the fruit of all this. So help us understand what you mean by that and what are the KPIs that you'd be internally monitoring to inform you, and therefore us, that that tilt towards getting more consumption within your customers is actually working to your advantage? Thank you so much.
Sridhar Ramaswamy
Thank you, Kash. On the product side, I would say that our customers go through a journey, typically starting with a desire to have a really good data platform that gives visibility. They end up adopting different architectures, but often the enterprise's most pristine, clean data, the gold layer, so to say, is the one that's put into Snowflake. And there are lots of customers that have standardized on Snowflake as that key data backplane.
Next, usually, there is a leaning towards collaboration. Because all companies exist in the context of an ecosystem. They have partners, they have customers, and collaboration of various kinds, certainly starting with data sharing becomes the key next thing that they adopt broadly. And you've often heard Christian talk about things like stable edges, which is a metric that we track, because it creates value and it obviously also creates a network effect.
Our overall strategy at Snowflake is to make sure that all of the data workloads that a company has is satisfied by Snowflake. And this is where things like data engineering, which you have played a pretty significant role in for a while, has been an investment for us. And this is where things, like Iceberg become pretty key because all of a sudden, the universe of data that can be acted upon by Snowflake goes through a large expansion, precisely because not all data needs to be ingested into Snowflake before things happen.
I would say AI is a little unusual in this front, because of obviously the industry excitement around it. But we approach it very much from a viewpoint that I think this was part of the previous question of how do we go about creating utility to our customers, we just don't go in and say use AI. We talk about how it can be used to derive much better insights over unstructured information, for example, by using an LLM function for doing data transformation like sentiment detection. And easier access to data, whether it is with a chatbot or text docs, or using something like analyst to give a business user access to structured data, those tend to be the follow-on applications.
And really, we feel comfortable enough to be able to be investing in these in parallel and driving revenue growth. I would say it's too early to talk about X percent for this versus Y percent for that. Our goal is to be relevant. And for me, relevance is lots and lots of our customers, thousands of customers using our products and driving meaningful 9, 10-digit revenue for us.
Michael Scarpelli
And, Kash, on your question for me on the sales comp changes, what I was meaning by that is, you know, we really bifurcated our salesforce into the acquisition reps. And those customers, that are landing today, we really have them focused on trying to land the right type of customer that can grow. WE think they will have a meaningful impact on revenue next year with the new ones.
And also then also the new muscle that we've been building in the sales organization where the reps are just being paid on consumption is what is driving them that's really the growth within customer's 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.
Karl Keirstead
Excellent. Thank you so much.
Operator
Kash Rangan, Goldman.
Karl Keirstead
Thank you, guys, one for you through the ones that you might come through that. When you look at the product portfolio, sincerely initiative is to get these services can quickly. And 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 core ones? Just bluntly conduct some warehousing later 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 force compensation still tours consumption is still early days, but you also intimated that in fiscal 2006, we could start to see that hood of all the. So help us understand what you mean by that and what are the KPIs that you'd be turning monitoring to inform you in there for us that that tilt towards getting more consumption within your customers is actually working toward package? Thank you so much.
Sridhar Ramaswamy
Thank you goes on on the product side, I would say that our customers go through a journey typically starting with a desire to have a really good data platform that gives visibility. They end up adopting different architectures, but often the enterprises most like pristine, clean the data, the gold later, so to say. This the one that's put into into in into Snowflake.
And there are lots of customers that have standardized on Snowflake as that key data backplane. Next usually that is a leaning towards a collaboration because all companies exist in the context of an ecosystem, partners, and customers and color aberration of various kind. Certainly, starting with data sharing becomes the key next thing that they are up broadly on. You've often heard cushion talk about things like stable hedges, which is a metric that we track because it creates value and obviously also create a network effect pump.
Our overall strategy of Snowflake is to make sure that all of the sort of data workloads that a company has satisfied is satisfied by Snowflake. And this is the things like data engineering, which you have played a pretty significant role in for a while, has been an investment for us. And this is that things like Iceberg become pretty key because all of a sudden the universe of data that can be hard to on a large expansion on because precisely because not all data needs to be ingested into snow.
Blake before before things happen on, I would say Asia is a little unusual in this front because of obviously the industry excitement around it. But we approach it very much from a viewpoint that I think this was part of the previous question of how do we go about creating utility on to our customers. We just don't go in and say use a I will talk about how it can be used to derive much better insights or unstructured information, for example, by using and Alan function for doing data transformation like sentiment detection.
An easier access to data, whether it is with the chat box, Cortex docs on are using something like on a list to give a business using our access to structured data does tend to be the follow on on applications on. I know, obviously we feel comfortable enough to be able to be investing in these in parallel and driving revenue growth. I would say it's too early to talk about X percent for this versus 1% for that.
Our goal is to be relevant for me. Relevance is lots and lots of our customers, thousands of customers using our products and driving meaningful in 9, 10 digit revenue for us.
Michael Scarpelli
And on your question for me on the on the sales comp changes, what it was, meaning by that, as we have really bifurcated our sales force into the acquisition reps and those customers they're landing today. We really haven't focused on trying to land the right type of customers that can grow. We think they will have a meaningful impact on revenue next year with those new ones.
And then also the new muscle that we've been building in the sales organization where the reps are just paying being paid on consumption is what is driving them. And that's really the growth within customers' consumption. It's a new muscle for them to learn how two from go and find and help forecasts new workloads coming online in that muscle they're developing we see is going to have a really positive impact in 2026 for us.
Kash Rangan
Excellent. Thank you so much.
Operator
Karl Keirstead, UBS.
Karl Keirstead
Okay, great. Hey, Mike, I'd love to just ask you about usage trends as you closed the July quarter and what assumptions you're embedding in the second half product revenue guide? I think we've -- everybody on the line has heard fairly ample evidence from Microsoft all the way down that it's a tough IT spending environment. So I'm just curious, as you set the 3Q and 4Q product revs guide, what you would call out as the key variables or maybe changes in macro related assumptions that you embedded in that guide? Thank you.
Michael Scarpelli
I'll just say, I think the quarter showed from a booking standpoint that it's a normal environment and we're very pleased with the deals we closed in the quarter. I don't see it any worse. It's not euphoric or anything but it's very stable customer buying pattern we're seeing. And in terms of consumption trends, obviously we just guided our revenue. Right now for the quarter, we beat and we've raised the full year as well, too. And that's seeing that consumption trends up through this week. So we're pleased with that right now is what we're seeing.
Karl Keirstead
Okay, Mike. And then just maybe a follow-up. I know that you've embedded in your guidance the assumption of some degree the runoff of the storage revenues that you just repeated earlier, still represent 11% of revs. Is the expected pace of that storage runoff in this new guidance tracking similar to what you embedded three months ago? Or is it a little bit lighter or a little bit faster?
Michael Scarpelli
Yeah. What I said -- as I said earlier, we really haven't seen any storage leave some slight gap, but that was always forecast to happen in the second half of this year. And we are expecting that is -- some of that is going to happen and that is factored into our guidance.
Karl Keirstead
Okay. Thank you, Mike.
Operator
Brent Thill, Jefferies.
Brent Thill
Thanks. Sridhar, can you give us an update on the adoption of Cortex and how you're seeing that trend?
And from Mike, just on RPO, it's good to see really good sequential growth in 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 on a consistent patterns you've seen in the past?
Sridhar Ramaswamy
I'll actually answer that first, it's well 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 2 of our top 10 customers right now that can continue to buy through the end of the year, and we're seeing that.
So there, in their top 10 customers. And I think, top 10 customers are roughly in the $50 million or $40 million range. Those aren't reflected in current RPO very much, because they're just buying as they go.
Michael Scarpelli
Great question here. And the adoption of Cortex, obviously, we have a number of product capabilities under that umbrella; Cortex lens, which represents the different language models that are available. That one, the adoption is quite strong. Lots of the use cases that Sridhar alluded to on tax amortization, tax sentiment analysis. That's very strong.
But also we introduced at Summit both Cortex Analyst and Cortex Search as a way to enable users across all things are going to do just to be able to chat and interrogate the data, whether it is a structure or unstructured. Those two are important for you, but the adoption at this stage is quite strong. And we have quite a bit of demand for a -- go into general availability.
And maybe last one that I will call out is the store they called Pilot. We see a lot of usage on customers getting assistance and how to write better at cheaper price, which also drives consumption back into interest open. So all up a strong product suite and interest in adoption across all of them.
Brent Thill
Thanks.
Operator
Brad Zelnick, Deutsche Bank.
Brad Zelnick
Great. Thanks so much for taking the question. It's really a bigger picture question for Sridhar; maybe, Christian. If the world increasingly interacts with data through generative AI and LLMs, how does the role that data warehouse, as we've known it for decades, evolve from here? And why is Snowflake well-positioned to help enterprises bridge these worlds, leveraging mountains of enterprise data to build newer-generation AI applications? Thanks.
Sridhar Ramaswamy
I mean, first of all, Snowflake is often at the center of all of the interesting data in company. Absolutely, we started out of their homes, but increasingly, we are the data backplane that provides a single unified view on. Obviously, this comes from production systems but also increasingly from multiple connectors. We have two other systems, whether they are not salesforce or segment os SAP or any of the other applications that data that you use. And what we are doing with additional capabilities, like machine learning, like AI is to be able to act on that data to then drive operational systems.
Disney, for example, uses Snowflake to do a lot of in-park optimization. And we see a lot of people that bring supply chain data into Snowflake and then optimize within Snowflake. And obviously, that are also partners like Blue Yonder, which is the supply chain company data platform on Snowflake, and then provide additional capability to their customers so they can combine the supply chain data with other data.
Our bet is really that AI and machine learning are going to go where the data is. Data is going to have a strong gravity. And this is the reason why we are seeing such broad adoption. And by providing easy-to-use products, Cortex AI, for example, any analysts that no sequel now was able to use language models.
You don't need to go buy new systems, set up new things, and things like data transformation, tax transformations to become as simple as writing like a two-line sequel. It is really this ease of use that makes Snowflake such an amazing platform, to be able to do all the value-add obligations in addition to the core analytics applications on the data sharing that people have done on Snowflake.
Brad Zelnick
Thank you very much for that, Sridhar. Maybe just a quick one for you, Mike. Am I too optimistic to think that ARR could stabilize here, especially in light of all the new product that you guys are bringing online? Thank you.
Michael Scarpelli
You know, as we've said before, I'm not really going to guide ARR. And like I said, it will over time converge with our revenue. And clearly, we'd like to see ARR stabilize at this level, but we'll see at the end of the quarter. I'm not disappointed with ARR. Given our revenue growth, I'm happy with it.
Brad Zelnick
Makes sense. Thanks so much, guys.
Operator
Mike Cikos, Needham & Company.
Mike Cikos
Great. Thanks for taking the questions here, guys. The first was for Sridhar, and I just want to come back to Keith's question at the top of the Q&A. I know we're saying that there wasn't an impact on consumption in the quarter related to the muddled headlines around security. But has Snowflake noticed any change when thinking about the timeline for sales cycles or the demand gen as it relates to some of the 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? Was there any delayed spend that's now expected in the back half of the year, just given Snowflake's outperformance on a year-to-date basis through the first half?
Sridhar Ramaswamy
On the first one about the model 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 have had honestly for close to a decade and try to ensure that all existing customers, for example, follow best practices. You know, they're simple, like multi-factor authentication, like network policies, when it comes to security.
And our sales team, as well as I, whenever we have conversations with potential new customers, bring this up front and center. And part of the reason why we are slightly muted about this is like these are our customers that got -- the people that got breached, these are our customers, and we want to work closely with them to make sure that they get out of the difficult situation that they are in. And both existing customers and new customers appreciate that spirit of partnership and helping them get through a difficult situation.
We have them talk to our CISOs, we have them talk to our security field CTOs, advise them on best practices. So roughly, I would say that there's not really been any noticeable effect or delay in things like our ability to sign up customers or get -- I mean, sign up new customers or get existing customers to deploy new projects. We just need to be more proactive about having the security conversation and we absolutely do that.
Michael Scarpelli
In your question from, Mike, on whether there's any delays spend are not having an impact, here's no delays spend. But I will tell you is we are looking at accelerating and it doesn't change our guidance. Our guidance is the same what it was. We are looking at potentially accelerating some of our hiring in the second half of the year, particularly for the sales force of some of the areas where we want, and that's factored into our full year guidance, which is guidance we gave last quarter.
Mike Cikos
That's great. Thank you. Appreciate the additional color.
Operator
Joel Fishbein, Truist.
Joel Fishbein
Thanks and congrats on the good execution. Sridhar, you spoke about this hospitality customer using Iceberg. Can you give us some more color about that use case and maybe ROI? And maybe if that use case may be used as an example to attract other customers? Thanks.
Sridhar Ramaswamy
Can you repeat the first sentence in your question? What customer?
Joel Fishbein
You talk about a hospitality customer using Iceberg for a specific use case. I was just hoping to get a little bit more detail and color around that. And then maybe if that can be used as an example to attract other customers?
Sridhar Ramaswamy
Yeah, I think, the general pattern that we saw there and we see in other use case from other customers is they've decided to adopt an architecture that is based on open platform formats. And usually the adoption starts with a small use case, here's some incremental span, validate interoperability between engines, and then you can go and deploy a larger scale. And I think that's the pattern that we see.
Joel Fishbein
Okay, thank you.
Operator
Patrick Colville, Scotiabank.
Patrick Colville
Thank you so much for taking my question. So my question is for Sridhar. I want to ask about kind of classic data analytics and warehousing. Do you mind commenting on the pace of migrations, new analytical workloads coming online, query placing, competition in analytics now versus six months ago? Is there anything to call out there?
Sridhar Ramaswamy
Yeah. In the code analytics space, we are the best in the world, especially when people consider migrating from complex on-prem systems. We have a professional services team that is exceptionally skilled at it. And a very large ecosystem of partners that have been battle tested with massive migration.
And we have 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, very efficient and low maintenance. This is an area that continues to be important for us. And we see migrations from a wide variety of legacy systems.
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, but sometimes also by our customers. And especially in the world of AI, we are investing more into tools like these, so that migrations can be faster. I would say these kinds of data migrations from legacy systems remain an important part of both new customer acquisition, but also driving substantial consumption increases in existing customers.
Christian, you have a lot of background on this.
Christian Kleinerman
Yeah, maybe the additional color is that some of the systems run the most critical processes in organizations, typically, they're closing the books of it. 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 some parts of it where the validation and testing is very important to customers.
Michael Scarpelli
And your in your question, Patrick, on your specific, you're 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 compare credit and pricing. You get so much compute that has remained stable quarter-over-quarter sequentially. It actually grew year over year, 1.3%. But what I can say is the price performance has gotten better quarter over quarter for customers, and that continues to be.
Sridhar Ramaswamy
Yeah, and then we have been public about a Snowflake performance index, where we take not synthetic benchmarks, but actual customer workloads. And we measure the performance improvement over time. And that's how we give a transfer to our customers that the economics are getting better on a regular basis.
Patrick Colville
Super helpful. Thank you, all three of you, for answering that question. 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 at fiscal '25 from Cortex and Snow Park. 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 gonna really reflect? Thank you.
Michael Scarpelli
The only newer product that is in the '25 guide for the full year is Snow Park, as we said at the beginning of the year. And we said that's going to be about 3% of our revenue were $100 million. That's tracking to that nicely. And the newer products are not factored into our guidance until we see more history. I do expect to have an impact this year. I don't know yet, but 2026 will have an impact.
Patrick Colville
Thank you so much.
Operator
Michael Turrin, Wells Fargo.
Michael Turrin
Hey, great. Thanks. I appreciate you taking the questions. Sridhar, I want to go back to that last point just to ask your perspective. You mentioned innovation as a key focus areas.
So as we're thinking about those newer product efforts and you are having those initial customer conversations, particularly around Summit, what are the couple of product areas beyond Snow Park that you see the most certainly demand signals or just how's customer conversation around?
Sridhar Ramaswamy
So not only have we had customer conversations, but we've also developed specific cadences that teams are implementing in taking new things to market. So we place a special emphasis on what we call data engineering, Iceberg is definitely a part of it.
For Snowflake can be used for different kinds of computation, that is distinct from the analytic workloads that we've been running. Christian talked about how a hospitality customer is running Snowflake on Iceberg Tables that are not created by us to be very much focused on that. We focus on other things like streaming injection. So data engineering is one workstream.
Definitely a big focus on AI, we have a basically a water on on a top-to-bottom team from engineering to sales that is focused on how we take AI products to market. And we expect our Notebooks, for example, to hit GA in a few weeks. And we will be making an effort around making sure that that those get into the hands of data scientists. So that they can draw on the most complex machine learning algorithms that they wanted on top of Snowflake.
And so we have a pretty methodical approach to how we are taking new products to market. But across the gamut, whether it is AI or machine learning or more sophisticated data engineering operations, including the unstructured data or things like Notebooks appealing to a very different persona that has broad interest, it's a matter of organizing ourselves to put the right product offering in front of the right customer at the right time.
Michael Turrin
That's helpful. I also just -- summarizing a lot of the little comment on rest of your guidance, just go back to that point. We initially started the year with I think it was around 625 basis points of potential impact contemplated from the mix of things you've talked about throughout the calls. Is that still the right zip code for us to think about? And is it fair to assume that you're leaving room for storage to come down from 11% level and the second half, but you're not seeing that at this point? Is that the right takeaway for us?
Michael Scarpelli
Well, the storage, we always plan it with Iceberg. And that was going to be in the second of the year. And we still think there will be an impact and that's factored in. But every year, we look at the potential headwinds as we see with our performance improvements and other things. We don't update that on a quarterly basis and we're not going to trade at reconciled back to that. We never have and never will.
Michael Turrin
Understood. Thank you.
Operator
Tyler Radke, Citi.
Tyler Radke
Yes, thanks for taking the question. Encouragingly here that you didn't see any negative impacts from the cyber headlines intra-quarter. I was wondering if you could just sort of talk about some of the offsets to this strong consumption impact in financial services customers that you saw? The magnitude of the [beat] was smaller than maybe some Q1. And I know there were some may be part of the trend in Q1 that didn't continue into Q2. But if you could just help us reconcile the magnitude of the smaller from Q1 into Q2? That would be great. Thank you.
Michael Scarpelli
Tyler, we've always said that we tried to match this business such that a 3% to 5% beat is a big beat. And we were at 2.4%, just says I don't get excited if it comes down to 5%. And that's exciting because it's at two. I just really trying to manage this business for long-term.
I think it would have (multiple speakers) -- the beat that you're -- the raise that we're putting through the full year, I think speaks more to what we've seen in the second half of the year happening now.
Tyler Radke
Yeah. Helpful. 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 on 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? And are you seeing kind of the billings terms compress more than expected?
Michael Scarpelli
As the billings terms are remaining consistent, as I said 80% of our customers are in advance. And actually Q2 collections were actually pretty much as we'd planned. Payables were a little bit higher and the timing of payables. But our Q4 -- or Q4, remember, we have have a lot of seasonality and cash flow? Q1 and Q4 are going to always going to be our strongest free cash flow quarter. So I'm comfortable keeping the 26% for the year right now.
Tyler Radke
Right. Thank you.
Operator
Matt Hedberg, RBC.
Matthew Hedberg
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 the gross margins have in fact bottomed. And I think we could see start to see it upward trajectory here at some point?
Michael Scarpelli
So first of all, [about procuring GPUs, we don't actually hide GPUs, we rank them]. So I just wanted to clarify that. And we have a lot of demand from customers outside of our major regions in Asia and even in certain areas in Europe that want us to have GPU. 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 H1, the data once you can get to smaller GPUs. And you know, is this the bottom of margin? As you know, a lot -- and I'm never going to say that'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.
Matthew Hedberg
Got it. Thanks, Mike. And then with US Fed being a big quarter for you guys, next quarter, and sort of, I guess, some of the uncertainty in the US election, have you discounted some of some US Fed expectations for 3Q? Just kind of kind of curious on sort of how you should think about how we're thinking about that vertical going into next quarter.
Michael Scarpelli
Well, I will say our federal business is our smallest vertical. And as I said before, it's only upside for us. So there's not a lot of expectations in our numbers at all for federal. And I do expect we'll close some deals this quarter. And by the way, public sector is pretty good worldwide and what we do. But your question was on US Federal itself.
I do expect some deals. But in terms of impact on the revenue, it takes time. That will be until the future once we close those deals. We do have FedRAMP high now. We're working on some other things as well, too. And so I do expect to close some deals this quarter in the US Federal space.
Matthew Hedberg
Got it. Great color. Thanks, Mike.
Operator
Aleks Zukin, Wolfe Research.
Aleksandr Zukin
Hey, guys, thanks for taking the question. Mike, maybe to the -- and Sridhar, may be to the question you got a little bit earlier, obviously, really, really great commentary on bookings growth, RPO strength, the raise being more than double the B, which is, I think, the strongest brands in a while for product revenue.
But to the public, what -- it's a little bit surprising to hear kind of technology being a strong vertical for you guys. Can you maybe talk about what you're seeing from the financial services and technology verticals that is maybe different? Is it just the macro in those areas as the use cases? And maybe where it was a little bit on the other side, a little bit weaker and kind of what you expect there?
Michael Scarpelli
I was -- I would say in the financial services, we just have some banks that are in the early innings of migrations. Like one of them has grown, I think 400% year over year, and they are going to continue to grow. And that really is driving a lot of that.
And on the technology side, we just have some number of other companies that are growing nicely in the tech space for us as well.
Sridhar Ramaswamy
And a different consideration, which we actively work on, is the -- like the size and quality of the teams that seek to play in the different areas, we have among the best teams in financial services. That's where we've our strong to begin with. And we are early pioneers of things like data sharing, that the positive momentum fed on itself.
There are other areas like the federal business, for example, where we are still building out of attracting. 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.
Aleksandr Zukin
Got it. And then maybe just just one more. If you think about the competitive landscape, that's kind of been a lot of the got a little bit of a charge topic this year, particularly for investors, what are maybe some of the major misconceptions or misunderstandings that you would say are out there? And how -- or any changes you observed in the competitive landscape over the course of the quarter or even the first half of the year or from a pipeline perspective?
Sridhar Ramaswamy
I'll start pushing 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. And the thing that fairly stands out from -- like an analytic capability, core data capability, data sharing, is that we are born on -- we are the best platform that there is and our customers absolutely recognize that.
And we see more and more of their data workloads move over to Snowflake. That doesn't make the process easy on migration of a large complex system that's managing the books of a bank, so they can close it every month. It's nothing to sneeze at. It's a multi-quarter project that has to be done on exceptionally carefully.
So one thing that - I wouldn't call it a misconception, but the one thing that I would reinforce is the strength that we have in our core capabilities. When it comes to newer things like AI, we've been open about the fact that we were a little behind early last year in terms of how much we've invested in it and the kind of products that we can rapidly moving field and the kind of products that we could deploy. But even before my coming on the management team, we recognize the opportunity invested heavily in it and things like the new acquisition through which I came, but an accelerant to things that were already in place at Snowflake.
And I would say what changed or the previous quarters is that we can tell our customers, they can tell you with confidence that holiday products are world class. And honestly, that we are much more reliable than building products off of APIs that you can get elsewhere because we pay a lot of meticulous attention to how we craft product. And it's that combination of reliability and ease of use that we are turning into a major strength for AI as well.
Christian Kleinerman
One quick last comment on and on top of what had said. Our product philosophy on ease of use, smart default, how do you make things work easier, out-of-the-box, we hear competitively is a strong advantage for us across all areas for analytics, pointed engineering, endpoint AI. And we'll see continue to invest with that philosophy. Mike?
Michael Scarpelli
I promised last comment on this side to give -- to talk about something very concrete that comes with the Snowflake platform, especially after the incidence of the summer like CrowdStrike. One of the hot topics has been how we've set up replications at Snowflake. This is now a battle tested operation and most customers are shocked to find out that you can't run a full replica of an important deployment. That's something like 15% of the cost of the original deployment, because the replicas is just -- basically keeping up is not running any of the workloads that are going on in the main one. It's features like that that continue drive our strength into the core.
Aleksandr Zukin
Super helpful. Thank you, guys.
Operator
We are out of time for questions. So thank you all for your participation. You may now disconnect your lines.