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Edited Transcript of TLND earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q2 2019 Talend SA Earnings Call

SURESNES Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Talend SA earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Meister

Talend S.A. - CFO

* Lisa Laukkanen

The Blueshirt Group, LLC - MD

* Michael Tuchen

Talend S.A. - CEO, President & Director

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Conference Call Participants

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* Bhavanmit Singh Suri

William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications

* Christopher David Merwin

Goldman Sachs Group Inc., Research Division - Research Analyst

* Clarke Jeffries

KeyBanc Capital Markets Inc., Research Division - Associate

* Jon Philip Andrews

Needham & Company, LLC, Research Division - Senior Analyst

* Mark Ronald Murphy

JP Morgan Chase & Co, Research Division - MD

* Preetam Gadey

Barclays Bank PLC, Research Division - Research Analyst

* Tyler Maverick Radke

Citigroup Inc, Research Division - Senior Associate

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Presentation

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Operator [1]

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Good day, and welcome to the Talend's 2Q 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lisa Laukkanen. Please go ahead.

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Lisa Laukkanen, The Blueshirt Group, LLC - MD [2]

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Thank you. This is Lisa Laukkanen, Investor Relations for Talend, and I'm pleased to welcome you to Talend's Second Quarter Fiscal Year 2019 Conference Call. With me on the call today is Talend's CEO, Mike Tuchen; and CFO, Adam Meister.

During the course of today's presentations, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance and expectations and guidance for future periods, our expectations regarding our strategic product initiatives and their related benefits and our expectations regarding the market.

Our expectations and beliefs regarding these matters may not materialize and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release that we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof. You should not rely on them as predictions of future events and we disclaim any obligation to update forward-looking statements, except as required by law.

Please note that other than revenue or otherwise specifically stated, the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure in our press release. Talend customers that are referenced by name today do not endorse any vendor, product or service and do not advise any company on selection or use of technologies, products, services or vendors.

And now let me turn the call over to Mike Tuchen, Talend CEO.

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Michael Tuchen, Talend S.A. - CEO, President & Director [3]

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Thanks, Lisa, and thank you all for joining us today. We're pleased to report strong second quarter results as our cloud business continues to build momentum. We're landing cloud customers at an increasing pace and laying a foundation for future growth from both new customer adoption as well as existing customers expanding their use of Talend. The cloud market is the most important market to win as cloud will drive the majority of future growth in the data integration market, and the progress we've made in our Cloud business positions us to continue to gain market share. In the second quarter, we achieved record total revenue of $60.6 million, up 22% year-over-year.

Some additional highlights from the quarter include: annual recurring revenue totaled $218 million and grew 28% year-over-year or 29% on a constant currency basis. Our subscription revenue grew 26% year-over-year or 30% on a constant currency basis. Talend Cloud, our SaaS offering, grew over 100% year-over-year for the 12th consecutive quarter and represented 43% of new ARR, up from 36% in the first quarter. We're well on our way to achieving the target we set of having half of new ARR coming from Cloud by Q4 of this year. Our total customer count crossed 3,500, of which over 1,500 are cloud customers. And finally, I'm happy to announce the appointment of Lauren Vaccarello as Talend's Chief Marketing Officer; Lauren formerly served as the Vice President of Marketing at Box. She's an expert in modern digital marketing, branding and demand generation and has held executive positions at some of Silicon Valley's fastest-growing SaaS companies. Lauren is a valuable addition to Talend's leadership team as we continue our high-growth cloud trajectory.

Q2 was a solid quarter as our Cloud business continues to grow at a tremendous rate. However, as we look to the second half of the year, we see 3 factors that will impact our full year revenue. First, the exhilarating move to the cloud will result in less services business in the coming quarters. Second, the macro and political environment in Europe makes us more cautious about our EMEA business for the second half. And third, as previously discussed, the overall growth in our premise business continues to moderate. Despite these near-term headwinds, we believe we're better positioned today than at any other point in our history to address the largest growth opportunity in the data integration and integrity market, which is the cloud. As we've previously noted, several powerful secular trends are driving market growth and cloud adoption: the explosion in global data volumes, a broad transition to public and hybrid cloud environments, an increase in data privacy regulations and rapid technological innovation and evolution. With these trends come significantly greater integration and integrity complexity and the need for a modern and complete suite like Talend Data Fabric. Industry analysts are recognizing these shifts and reinforcing our strategy.

In fact, just this week, Talend was recognized as a leader in the 2019 Gartner Magic Quadrant for Data Integration Tools. This is our fourth consecutive placement in the leaders' quadrant, driven by our ability to execute and completeness of vision. In the report, Gartner noted that Talend's strengths include our market momentum, saying "The vendor has also captured mindshare, appearing in over 50% of Gartner contract review calls for data integration tools and featuring very frequently in competitive situations during our inquiry calls." The firm also praised Talend's strong portfolio and strategic investments in innovation, including our recent Stitch and Restlet acquisitions. In their words, "These strategic investments, along with existing iPaaS capabilities, position Talend well for hybrid and multi-cloud integration support."

As we discussed in the past and we'll illustrate again today in describing our recent customer wins, Talend is at the forefront of the market with Talend Data Fabric, our unified environment that shortens the time to trust the data and solve some of the most complex aspects of the data value chain. In Q2, we unveiled the summer release of Talend Data Fabric, which includes a number of enhancements around our Snowflake, Azure and Databricks support, and we'll shortly introduce pay-as-you-go pricing for Pipeline Designer. This is an important step in our overall land and expand strategy, providing an easy and frictionless way for customers to initiate cloud projects with Talend and then scale with us as their needs grow.

Cloud is increasingly the deployment model of choice for data integration, driven by the adoption of cloud analytics and cloud data warehouses. Although we are still in the early innings of industry-wide cloud adoption, we believe that over time data integration will be managed predominantly through the cloud. We're seeing larger companies adopt the cloud and deal sizes continue to be in line with our overall average deal size. As I've mentioned in the past, while the majority of our existing customers are on-premise today, we're beginning the process of migrating a small number of customers to the cloud and most of our conversation is with new customers focused on Talend Cloud. We believe, ultimately, the vast majority of our premise customers will migrate to the cloud in the coming years. By using Talend, these customers will have a far easier path to the cloud than others who aren't using Talend yet.

In the near term, however, it's important to emphasize that we have a stable base of premise customers with solid expansions. As a matter of fact, in Q2, the constant currency dollar-based net expansion rate for on-premise big data solutions was actually a few points higher than our overall business, which was 118% on a constant currency basis. Furthermore, this big data net expansion rate doesn't capture customers who migrated from premise big data to Talend Cloud, including enterprise customers in Q2.

As one example of a premise customer migrated to the cloud, this quarter, we won a record multimillion-dollar cloud deal with an existing customer, a major multinational biopharmaceutical firm. Our initial landing point with the company several years ago was focused on optimizing and reducing the cost associated with financial data management. Based on the success of that project and our compelling product road map, the company decided to make us their enterprise-wide strategic data integration and catalog provider to support all divisions of the business as they move to the cloud. We're particularly excited about this win because we believe it validates our market vision with a large enterprise customer, who is also our largest ever cloud deal, and we displaced Informatica, who was the on-premise incumbent, as the go-forward enterprise standard.

Let me walk you through a few other customer success stories. We saw a healthy mix of new wins and strong expansions in the second quarter. In Q2, we signed an agreement with Splunk, a company that helps enterprises search, analyze and visualize machine-generated data. Technology companies are the most discriminating buyers, and we believe it's a testament to the strength of our solutions when we earn their business. Splunk is using Talend Cloud to support a major corporate data governance program, where improved data quality and lineage will improve sales, marketing and customer service productivity.

Travelopia is a pioneer in the specialist travel sector, with a portfolio of more than 50 independently operated brands, many of which are leaders in their sector. Talend is helping Travelopia gain data speed and trust, as they move to an optimized data lake on AWS Redshift. As part of this transformation, the company is merging data from a range of legacy reservation systems to gain a unified view of their data and drive personalized customer interactions. Moving forward, Travelopia will be using Talend to power their real-time data integration and maintain a precise up-to-date view of the customer. Talend won Travelopia's business based on our end-to-end data suite approach with built-in enterprise data quality, governance and lineage, and our ability to run natively in AWS. Talend's partner, Harman International, the consulting arm of the famous audio equipment company, introduced Talend into this account and is supporting delivery.

Another significant win for the quarter was with a multibillion-dollar manufacturing company. The firm is using Talend and AWS to create an analytics data lake to support its large team of data scientists. This team will analyze operational and sales data to uncover new revenue opportunities and cost-cutting measures. They expect to see a $200 million impact on the business in the first year alone. Talend won the agreement based on the breadth and flexibility of our Talend Data Fabric suite and seamless connectivity with AWS.

We also won a number of new agreements in APAC to help companies move to the Cloud. Talend won the business of flybuys, Australia's largest loyalty program, with over 10 million cardholders. Speed and trust were major themes as flybuys selected Talend and Snowflake to help accelerate data throughput and improve data governance. Flybuy is one of the more robust, higher performance data platform to improve service for its partners. The company collects point-of-sale data from its retail partners to manage member points. It used to take flybuys over 5 hours to process the daily batch of information from its largest retailer. With their new platform powered by Talend and Snowflake, they can now complete the same task in just 60 seconds.

Coopers Brewery Limited is the largest Australian-owned brewery and the world's largest manufacturer of home-brewing equipment. In Q2, Cooper selected Talend to help transform its logistics operations. Their automated warehouses use an integrated inventory and supply chain system, which has been crashing due to increased demand and complexity. This slowed operations and increased costs. With this latest architecture powered by Talend, Coopers is looking to better manage increased demand by accelerating their delivery operations, reducing costs and optimizing customer and partner experience. The ability for Talend's Cloud and API solutions to flexibly fit with Cooper's current tech ecosystem without changing or disrupting the technology was a key consideration of selecting Talend.

We continue to strengthen our relationships with our ecosystem partners and have expanded our reach with the introduction of Stitch Data Loader on AWS marketplace and new remote engines for Talend Cloud in the Microsoft Azure marketplace.

Talend also unveiled a new technology alliance program to accelerate cloud data deployments for customers. The program provides partners with access to integration toolkits, product licenses for testing and demonstration, marketing assistance and technical and development support. The overall aim of the program is to help partners speed the creation of value-added data integrations and connectors for customers.

As we look to the second half of the year, we're confident that our transition to the cloud continues to gather momentum. Our cloud business grew by 100% for the 12th consecutive quarter and represented 43% of our new ARR in Q2. We're solidly on track for our goal of exiting 2019 with half of new ARR in the cloud and continue to see the opportunity expand ahead of us. However, as I mentioned earlier, the impact from lower professional services revenue and a cautious outlook on EMEA, combined with a slightly slower-than-anticipated growth of our premise business, causes us to lower the midpoint of our full year guidance by $2 million. You can see the impacts from professional services on our overall revenue growth in Q2. This impact will continue throughout the year as our cloud business ramps and that translates to lower revenue expectations for the full year.

Separately, our ongoing strategy of reducing pre-billed duration for both new and renewal transactions has been working faster than expected this year, as a greater portion of transactions were billed annually or less in Q1 and Q2. You can see this effect in the divergence of ARR and calculated billings growth in the last 2 quarters. This is the largest contributor to us increasing our cash burn guidance to $15 million for the full year. We remain confident in our position as a global leader in the cloud integration and integrity market and continue to see an opportunity to create enduring value with the strength of our platform and our cloud-first innovation.

Let me now turn the call over to Adam to discuss our Q2 financial results and the outlook for Q3 and the second half of 2019.

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Adam Meister, Talend S.A. - CFO [4]

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Thank you, Mike. Today, I will review our financial results for the second quarter of 2019 as well as provide our outlook for the third quarter and fiscal year 2019. As a reminder, we're reporting Q2 financial results under U.S. GAAP as required when we became a domestic filer at the beginning of this year. We're pleased with our second quarter results, which were driven by continued momentum in our cloud business. Annual recurring revenue or ARR grew to $218 million as of June 30, 2019, up 28% year-over-year or 29% year-over-year on a constant currency basis. We define ARR as the annualized value of all active contracts at the end of the period, and as a result, the FX impact at this point in time measure will differ from that of subscription revenues. The strong demand for Talend Cloud is contributing meaningfully to this growth. Talend Cloud represented 43% of new ARR for the second quarter, up from 36% in Q1. We are excited with our progress towards Talend Cloud reaching half of new ARR exiting 2019.

We anticipated that growth in on-premise would slow as customers increasingly prefer a cloud solution, and our rapid rotation to the cloud is evidence of that. As I will discuss shortly, we expect this dynamic to impact our outlook for the back half of 2019, particularly due to lower professional services attached with cloud transactions.

Total revenue for the second quarter was $60.6 million, up 22% year-over-year. Subscription revenue for the second quarter was $52.9 million, up 26% year-over-year or 30% on a constant currency basis. Most of the FX impact was foreseen with changing rates over the course of Q2 2018 with a small incremental headwind due to changes since our last guidance. Subscription revenue from Talend Cloud grew more than 100% year-over-year for the 12th consecutive quarter. Customer additions in the quarter were strong, and we now have over 3,500 customers with over 1,500 of them being cloud customers. We also reached 525 enterprise customers, defined as customers with $100,000 or more of annualized subscription revenue. Enterprise customers contributed 68% of subscription revenue in Q2 versus 67% in Q1.

For the quarter ending June 30, 2019, our dollar-based net expansion rate was again 118% in constant currency. We're pleased with this result, given the downward pressure during this year related to the adoption of ASC 606. As a reminder, this revenue-based metric was bolstered during 2018 due to ASC 606 and is expected to come down gradually over the course of the year as this 4-quarter rolling measure fully reflects the new revenue standard.

As Mike noted, we continue to see healthy retention and expansion from existing on-premise big data customers. The dollar-based net expansion rate for on-premise big data was a few points higher than our overall average dollar-based net expansion rate and has been consistently for the last few quarters. This speaks to the stability of our on-premise big data installed base.

Professional services revenue was $7.7 million in the second quarter, flat year-over-year. This moderation is largely related to the lower average Professional services requirement for Talend Cloud, which was anticipated, although the impact was more pronounced than expected in Q2. Professional services revenue resulted in a 4% drag on overall revenue growth for the quarter versus our expectation of 1% to 2% in our prior guidance. Professional services revenue can fluctuate due to project timing as well as cloud mix. But based on current trends, we expect the impact of Professional services to overall revenue growth for the remainder of 2019 to be similar to the impact in Q2. Accordingly, ARR growth is the best indicator of our momentum with both new and existing customers during our cloud shifts.

As Mike noted, from a geographical perspective, we've seen some softening of demand in Europe, given the macroeconomic backdrop. Total revenue from our EMEA region grew 14% year-over-year in Q2. We're taking a cautious outlook on EMEA for the remainder of 2019.

Before moving to profit and loss items, I would like to point out that unless otherwise specified, all expense and profitability metrics I will be discussing going forward are non-GAAP results. A full reconciliation of GAAP and non-GAAP results can be found in our earnings press release issued today, which is posted on the Investor Relations portion of our website.

Our total gross margin for the second quarter was 76% compared to 77% in the same period last year. Professional services gross margin was 13% this quarter, up from 6% last quarter. Operating expenses for the second quarter were $52.4 million, up 25% year-over-year. Sales and marketing expenses for the quarter were $31.5 million, up 20% year-over-year. R&D expenses for the quarter were $12.5 million, up 49% year-over-year as we continue to drive investment in our cloud products and operations. It's also particularly impacted by the inclusion of Stitch, where R&D accounted for most of the operating expense. G&A expenses for the quarter were $8.4 million, up 15% year-over-year. This reflects our ongoing focus to drive efficiency in the business, but G&A also benefited relative to last year due to some overhead expenses that we began allocating at the beginning of this year. We incurred an operating loss for the quarter of $6.1 million or 10% compared to an operating loss of $3.6 million or 7% in the second quarter of 2018. The performance versus initial guidance primarily reflects our efforts to drive efficiency during Q2. Net loss for the quarter was $6.4 million compared to a net loss of $3.6 million in the prior year period.

Cash and cash equivalents totaled $32.1 million as of June 30, 2019, versus $29.1 million at the end of March. Free cash flow for the quarter was $1.3 million. We are focusing on shaping our business around the cloud opportunity, and we believe the continued strategic investment in our cloud products will position us to be a leader in data integration innovation. We now anticipate free cash flow will be roughly $15 million negative for the year versus our prior expectation of $5 million negative. The largest contributor to the increased free cash flow burn is the impact from shortening contract duration.

In Q2, we saw pre-billed contract duration compressed to 1.02 versus an average of 1.08 over 2018. Note that our pre-billed duration calculation exclude the impact of monthly billed customers, including much of Stitch, which is a growing part of our business. Our goal of reducing pre-billed duration has worked in both new and renewal transactions and had a larger-than-expected impact for the first half of 2019. This is evident with the decline in long-term deferred revenue since the end of 2018. Analyzing the difference between our ARR growth and calculated billings growth is helpful to understand the impact of shortening duration on free cash flow.

I'll now turn to our outlook for Q3 and full year 2019. As a reminder, our guidance assumes similar business conditions and foreign exchange rates as of July 31, 2019. For the third quarter of 2019, total revenue is expected to be in the range of $61.5 million to $62.5 million, non-GAAP loss from operations is expected to be in the range of $7.3 million to $6.3 million, non-GAAP net loss is expected to be in the range of $7.8 million to $6.8 million. Non-GAAP net loss per share is expected to be in the range of $0.25 to $0.22. This is based on a basic and diluted weighted average share count of 30.7 million shares.

We are updating guidance for the full year 2019 as follows. Total revenue is expected to be in the range of $246 million to $248 million. Non-GAAP loss from operations is expected to be in the range of $28.5 million to $26.5 million. Non-GAAP net loss is expected to be in the range of $30.1 million to $28.1 million. Non-GAAP net loss per share is expected to be in the range of $0.98 to $0.92. This is based on a basic and diluted weighted average share count of 30.6 million shares. Our revised guidance for the full year reflects our expectations for: one, lower professional services related to cloud; two, conservatism regarding Europe for the remainder of the year; and three, continued moderation of on-premise revenue growth.

We are excited about the progress we have made in advancing our cloud strategy and exiting 2019 with Talend Cloud as the largest contributor to new business. We remain confident that our market leadership, strong customer and ecosystem relationships and cloud-first innovation will enable us to continue to drive durable growth over the long term.

With that, I'll open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We will go to Bhavan Suri, with William Blair & Company, first.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [2]

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Obviously, a great job there on the cloud business. I guess I just wanted to touch on one comment, Mike, you made, which was about cloud deal sizes. You said they had sort of started trending towards the average deal size. Just wanted to get that clear. So the initial cloud deal sizes, are they headed towards what the historical on-premise cloud deal size were? Just some color there would be helpful, and then I've a quick follow-up.

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Adam Meister, Talend S.A. - CFO [3]

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Sure. Bhavan, it's Adam. So right now, cloud deal sizes are, in large, in line with the overall average we're seeing. So that's still a bit below kind of the max peak we saw back in 2016 related to big data, but we're very comfortable that now the cloud deals and the overall deal sizes that we're seeing are in line. We don't expect that to diverge much from this trend at this point.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [4]

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Got it. That's helpful. And I got a quick follow-up. I think it's a 2-part follow-up. One, I'd love to understand where the data governance product is? Obviously, that's pretty strategic. And sort of some of these challenges around where transformation happens are not part of that, so data governance and the adoption of that? And then two, I guess, what are you guys seeing in Europe or EMEA, specifically, I guess, that sort of has some concerns. Is the U.K. -- is it verticals? Is it new deals, people not willing to start new projects? Just trying to understand what gives you guys that caution?

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Michael Tuchen, Talend S.A. - CEO, President & Director [5]

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Bhavan, it's Mike. The data governance remains a area of very strong interest with our enterprise customers, an area that we're investing in across the board from engineering to sales and services. And so that business is growing strongly. We don't break it out as a separate area, but it's a strong part of our business and a key part of our enterprise sales conversation. In terms of Europe, what's going on is the overall demand environment seems to be in a -- slowing a bit due to the macroeconomic and political scenarios going on right there. We -- what's interesting, though, is the cloud business there is really moving fast. And so what's really happening is the premise business in Europe is where we're seeing the softening. And so as a matter of fact, the -- when we talk about the premise business softening, it is Europe, in particular, that's running lower than we expected, whereas the cloud business, worldwide, is really moving fast. That's really the picture that we're seeing right now.

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Operator [6]

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(Operator Instructions)

We'll go to Jack Andrews with Needham.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [7]

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Mike, you talked about landing cloud customers at an increasing pace. I mean that sounds like an acceleration to me. I was just wondering if you could provide some more context and growth rates and things around the actual number of customer as you're really experiencing right now.

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Michael Tuchen, Talend S.A. - CEO, President & Director [8]

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Yes. We had announced in Q4 -- at the end of the Q4 call, so on our February call, that we were up to 3,000 customers, of which around 1,000 were cloud. And we just announced that we are at 3,500 customers, of which 1,500 are Cloud. So we added around 500 cloud customers in the last 2 quarters, which is clearly a significant uptick from where we've been prior to that.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [9]

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Great. And then you gave an example of customers migrating from on-premise to the Talend Cloud. Could you help us think through what the potential financial ramifications are that -- are for that for your company? Is this an opportunity to expand with customers? Or do you have an update in terms of how their behavior might change in those [such as] migration scenarios?

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Michael Tuchen, Talend S.A. - CEO, President & Director [10]

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Yes. So as of right now, the way our pricing works, the pricing is level between premise and cloud, just to make exactly these kind of situations easier. What we're finding to date is that we're seeing a modest uplift as customers move to the cloud. Typically, they end up buying a little bit more as they do that, as they're expanding into the cloud. And for us, we see the -- this is still very early days in the cloud migration. We expect the bulk of that to happen over the next several years.

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Operator [11]

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We'll now take a question from Chris Merwin with Goldman Sachs.

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Christopher David Merwin, Goldman Sachs Group Inc., Research Division - Research Analyst [12]

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I was wondering if you could just talk a bit more about the integration of Stitch and how that higher velocity go-to-market is helping to drive the cloud business. And then I just had a quick follow-up.

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Michael Tuchen, Talend S.A. - CEO, President & Director [13]

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Yes, Stitch, as we had anticipated and hoped to see, Stitch is really driving a very high velocity new customer acquisition vehicle, and that's a -- a lot of the new cloud lands that we talked about were through the Stitch as initial land. We're now starting to work on the expansion from a Stitch land into further parts of Talend Cloud, and we're seeing nice progress on that.

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Christopher David Merwin, Goldman Sachs Group Inc., Research Division - Research Analyst [14]

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Okay. Great. And then just in terms of the cash flow guidance, I just saw that came down a little bit as you called out due to shorter billed contract duration. I feel like that's, I guess, fully derisked at this point, even to receive maybe a higher influx of shorter duration deals. I was just curious how we should be thinking about that, and particularly as it relates to the cash cushion that comes at the end of the year?

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Adam Meister, Talend S.A. - CFO [15]

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Yes, good question. So yes, we think we've fully derisked it. The first quarter, we saw that shortening duration we talked about on our prior call. As we got through second quarter, we realized there is definitely a trend here. And so we looked at 1.02 as potentially a steady state. And just to be helpful, people look at this in a couple of different ways. I mentioned in my prepared comments, the difference in growth between ARR and calculated billings as one indicator. And if you grew basically calculated billings at the same rate as ARR, that would be about $8.5 million for the first half of the year. If you look at the just decline in long-term deferred, that's about $8.9 million since the end of Q4. And then I think most importantly, if you look at just change in RPO plus revenue relative to calculated billings, there's a difference of 9.7%. So all those kind of triangulate and give you a sense of what the true duration-oriented impact was for the first half. We think some of what we've done around efficiency in the business will ensure that it's not that large for the second half of the year as well, but basically those are the big factors that go into the $50 million guide.

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Operator [16]

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We'll now take a question from Mark Murphy with JPMorgan.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [17]

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Mike, you mentioned that overall growth in the on-prem business continues to moderate. I'm just wondering if you'd be able to quantify the rate of moderation you expect there in the second half. And is your feeling that, that on-premise revenue stream is going to begin to decline year-over-year? Or do you think it would continue to grow?

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Michael Tuchen, Talend S.A. - CEO, President & Director [18]

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Mark, we talked about our overall net expansion rate of being at 118%. The -- and we mentioned that the premise to do a piece of that actually is premise big data part. It's actually even a slight tick above that. So we see that as a very stable base for us right now. I think overall, the premise business continues to moderate, ends up as a very low double-digit grower. That's our current outlook on it.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [19]

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Very low double-digit grower in the second half?

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Michael Tuchen, Talend S.A. - CEO, President & Director [20]

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Yes, and going forward. It seems to be stable at this point.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [21]

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Okay.

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Adam Meister, Talend S.A. - CFO [22]

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Mark, it's Adam. I'll add on to that. I think when we covered this in our last call, we predicted that, that moderation of growth to low-double digits would be 4 quarters to 6 quarters. And based on what we're seeing right now, it's probably on the shorter end of that range, but still in that range.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [23]

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Okay. Great. And as a follow-up, Mike, architecturally, what work do you think remains to be done to continue to evolve your on-prem data integration engine so that it's fully adapted for modern cloud environments? What has been done? And what remains on the road map there?

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Michael Tuchen, Talend S.A. - CEO, President & Director [24]

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Well, the -- just to make sure I answer the question, we've really re-architected the cloud products from the ground up. And the reason why -- when we kicked off the project about 5.5 years ago, the reason why it took us a couple of years to rebuild it back then was we did the investment to make it multi-tenant and containerized and elastic and really take advantage of all of the benefits you get in the cloud. And so we have a number of further enhancements that we're bringing, but I don't look at that as modifying our premising because we took that investment 5 years ago. What we're doing is we're continuing to move forward with the best-in-class cloud engine, is the way I look at it, the investments we're making right now. And there is a bunch of things that we're doing to get -- probably the biggest one right now that we've announced is our Azure support coming up in this quarter by the end of September, and the pay-as-you-go billing engine behind Pipeline Designer to give us a pure pay-as-you-go model. So they are 2 very near-term things, but they aren't anything about modifying our old on-premise architecture, it's about continuing to further expand our new cloud architecture.

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Operator [25]

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We'll now take your question from Brent Bracelin with KeyBanc Capital Markets.

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Clarke Jeffries, KeyBanc Capital Markets Inc., Research Division - Associate [26]

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It's Clarke Jeffries on for Brent. As we think about the kind of assumptions that you've built in at the beginning of the year, and I guess, revisiting and putting together some of the comments you just made, 43% of new ARR being driven by cloud, but it seems like on-premise big data could still have the potential of being a low double-digit revenue grower. Is it safe to say that the acting assumptions for on-premise big data are relatively the same as entering the year, and that you've only seen outperformance on the cloud business in terms of -- that were nearly 43% and nearly 50% of new ARR from cloud in 2Q?

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Adam Meister, Talend S.A. - CFO [27]

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Clarke, it's Adam. I'd say that the cloud performance has exceeded the expectations of the underlying guidance that we provided. And that's been counterbalanced a little bit by the slightly faster than we had anticipated deceleration of growth in big data. So I think you're spot on in terms of how you're framing it and really what's going into the guidance for the rest of the year.

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Clarke Jeffries, KeyBanc Capital Markets Inc., Research Division - Associate [28]

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Great. And in terms of the migration efforts, in those discussions, are they willing to purchase ahead of a core infrastructure decision? Or are those conversations really happening alongside another cloud platform product or another cloud infrastructure decision that they're making? And that's it for me.

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Michael Tuchen, Talend S.A. - CEO, President & Director [29]

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It's a great question. And typically, they happen in conjunction with them -- with customers -- let me start back. With larger customers, that happens in conjunction with a broader strategic move to the cloud and as they are starting to figure out their cloud strategy, whether it's a single primary cloud or 2 clouds that are at a relatively equal one, what level of multi-cloud and hybridization they want to go through, and those conversations tend to be going on in parallel. With smaller customers, what we're finding is the cloud is such a superior value prop, that even if they keep their analytical infrastructure on-premise in the near term, just moving the Talend portion of infrastructure to the cloud gives them some immediate near-term benefit. So we're seeing smaller customers just go ahead and migrate to the cloud in advance of their overall infrastructure migration. But with larger customers, it's part of that larger strategic conversation.

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Operator [30]

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(Operator Instructions)

We'll take our next question from Tyler Radke with Citi.

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Tyler Maverick Radke, Citigroup Inc, Research Division - Senior Associate [31]

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Can you talk about -- you mentioned that the net expansion rate among your premise big data customers were -- and it sounds like in the low 120s. Yet, you're expecting the growth to moderate a little bit faster than you had originally expected. So I guess, is that -- are you expecting kind of a less robust net expansion rate there going forward? Or is new business falling off faster than you expected? If you could just walk through the dynamic there.

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Michael Tuchen, Talend S.A. - CEO, President & Director [32]

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Yes, both things are happening. We had very little expectations for new customer adds in the premise big data product, and those -- that proved to be true. And I do expect our net expansion rate for the big data business to decline. Remember, it's a lagging metric because it's a 4 quarter rolling average. So yes, I do expect that to decline over time.

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Tyler Maverick Radke, Citigroup Inc, Research Division - Senior Associate [33]

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Okay, great. And maybe just provide an update on how the search for a chief revenue officer, head of sales? And in the meantime, how you're thinking about kind of managing the sales force between kind of the higher velocity Stitch in some of these new pay-as-you-go models versus kind of the larger deals that it sounds like you're having some success with here.

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Michael Tuchen, Talend S.A. - CEO, President & Director [34]

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Yes. So we're seeing strong interest in the position. We've seen some very strong candidates. We don't have anything to announce right now. In terms of the -- how we're managing the team right now and making the transition to the kind of frictionless lands and expands from there, we have 3 very strong regional leaders, and they're doing a great job of leaning into the cloud opportunity, and that's why we're seeing such terrific growth on the cloud side. And I'd say we're excited in a related area, with our -- introducing Lauren to the team as our Chief Marketing Officer, given her experience in the modern digital marketing and frictionless cloud world. And we think that's going to be an important part of us continuing to accelerate that motion going forward. We're seeing it work extremely well already with high velocity customer lands, and we're just now starting to see the expands happen from that as well.

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Operator [35]

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We'll go next to Raimo Lenschow with Barclays.

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Preetam Gadey, Barclays Bank PLC, Research Division - Research Analyst [36]

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This is Pree Gadey for Raimo Lenschow. I had a quick question on Stitch. I wanted to understand the go-to-market impact of having Stitch, if the sales force has started leveraging Stitch to sell -- to cross-sell the full Talend suite yet?

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Michael Tuchen, Talend S.A. - CEO, President & Director [37]

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Yes. So the rest of the Talend sales force is now starting to expand from customers that started their journey with Stitch. And now we're also starting to use it proactively as a seeding mechanism. If you're working with a customer that has a simple problem to solve, we are now starting to suggest, "Why don't you start with Stitch, you'll be live in minutes and solve that problem. Then we can help you solve the next part of your problem, when you're done with that." So that's giving us another tool in the toolkit for our sales force to use, not just as a separate frictionless motion.

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Preetam Gadey, Barclays Bank PLC, Research Division - Research Analyst [38]

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So fair to say that we're still early in that cross-sell opportunity then?

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Michael Tuchen, Talend S.A. - CEO, President & Director [39]

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For sure. For sure. I think that refining this and bringing Pipeline Designer into the mix is really the most important part of our evolution over the next couple of years.

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Preetam Gadey, Barclays Bank PLC, Research Division - Research Analyst [40]

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And just a final question on the cloud deal sizes. I was actually surprised to hear that they are on par with your on-prem deal sizes. Do you see those deal sizes changing in the future? Do you see the cloud deals ending up being larger than on-prem?

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Michael Tuchen, Talend S.A. - CEO, President & Director [41]

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Yes. So we've seen our cloud deal sizes improve nicely over the last year. I'll figure out what the current percentage growth in those is, but it's -- they've improved really nicely over the last year. And as we're seeing larger and larger cloud expansions, I wouldn't be surprised if that continued. We -- from my perspective, we have 2 countervailing things that are happening in the business. And the question ultimately is, how that blend ends up working. And we have larger and larger cloud expansions happening now with some very young cohorts that are in aggressive expansion phase. But we are also seeing high velocity lands, a number of smaller higher-velocity lands. And so the question of how that math blends out is a good one. But if the question is, are we seeing more and bigger cloud expansions, the answer is very definitively, yes.

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Operator [42]

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And that concludes today's question-and-answer session and concludes today's call. Thank you for your participation. You may now disconnect.