TALEND S.A.
The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated
financial statements, related notes and other financial information included
elsewhere in this Quarterly Report. The following discussion contains
forward-looking statements, including, without limitation, our expectations and
statements regarding our outlook and future revenue, expenses, results of
operations, liquidity, plans, strategies and objectives of management and any
assumptions underlying any of the foregoing. Our actual results could differ
materially from those discussed in the forward-looking statements. Our
forward-looking statements and factors that might cause future actual results to
differ materially from our recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
Part II, Item 1A. "Risk Factors".
Overview
Our mission is to provide data intelligence for all users by delivering trusted
data when and where is it needed. We are a key enabler of the data-driven
enterprise where data is a strategic asset powering business. Talend Data Fabric
allows customers in any industry to improve business performance by using their
data to create new insights and to automate business processes. Our customers
rely on our software to better understand their customers, offer new
applications and services, and improve operations.
We had 1,413 employees as of March 31, 2021 and we plan to continue to grow our
employee base to address the needs of our global customers as well as to acquire
customers in new geographies. We also plan to continue to invest in new product
development.
Our business model combines our open source approach and direct sales. We
supplement our direct sales and demand generation activities with self-service
trials of our software. Developers and users can download and try the free and
paid versions of our products, creating sales leads for our more feature-rich
commercial solutions. Users of our open source products often catalyze adoption
of our commercial solutions by their organizations, primarily to benefit from
enterprise-grade features that include the scaling out of our offering to a
larger set of users, among others. Following an initial deployment of our paid
subscription products, organizations often purchase more subscriptions or expand
usage to additional products from our fully integrated suite after realizing the
benefits of additional features or scale. We sell our product offerings as
subscriptions based primarily on the number of users.
We generate the majority of our revenue from subscriptions of our commercial
solution Talend Data Fabric. We primarily sell annual contracts billed in
advance. Our subscription offering includes enterprise-grade features and
capabilities to scale our solutions across production environments and customer
infrastructures. These product features and capabilities include scheduling,
management and monitoring of data integration flows, collaboration across a team
of users and technical support. We also provide professional services to
implement our solutions. Our subscription revenue represents a significant
portion of our revenue, growing from 88% of our total revenue in the year ended
December 31, 2019 , to 90% in the year ended December 31, 2020 , to 91% in the
three months ended March 31, 2021 .
We intend to generate profits based on increased sales of our solutions to new
and existing customers. We currently anticipate that at some point in the future
we will be able to increase revenues at a greater rate than increases in our
operating expenses. However, there can be no assurances that we will achieve or
maintain profitability on a consistent basis, that we will increase our sales to
new and existing customers, or that our operating expenses will increase at a
lower rate than our revenue may grow.
COVID-19 Update
Our first priority remains ensuring the safety and health of our employees,
customers and others with whom we partner in conducting our business. In
response to the pandemic, and in line with guidance provided by government
agencies and international organizations, we temporarily closed our offices and
requested our employees work remotely, suspended all non-essential travel and
activated our business continuity plan so we can continue to support customers
while protecting our employees. We continue, in the vast majority of instances,
to operate our business remotely. We have also moved all in-person
customer-facing events to virtual ones. To date, the pandemic, which has
affected nearly all regions around the world, and preventive measures taken to
contain or mitigate the pandemic, have adversely impacted and may continue to
adversely impact economic activity and have caused and may continue to cause
significant disruptions in the financial markets. The COVID-19 pandemic and
resulting economic uncertainty have negatively impacted our business and
although we believe the demand environment for our offerings may be beginning to
improve, we anticipate that the negative impacts our business experienced in
prior periods will continue to have an adverse impact on our results of
operations and financial performance because of our
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subscription-based business model. We cannot predict with any certainty the
degree to, or the time period over, which we will be affected by this pandemic.
While we believe the pandemic has had certain impacts on our business, we do not
believe there has been, nor are we anticipating, a material impact from the
effects of the pandemic on our operations, financial condition, liquidity and
capital and financial resources; however, the situation is rapidly changing and
hard to predict and actual results may differ materially from our current
expectations. The broader implications of the COVID-19 pandemic on our results
of operations and overall financial performance remain uncertain, particularly
because the full extent to which the COVID-19 pandemic may impact our results of
operations and financial performance will depend on future developments, which
are highly uncertain and cannot be predicted, including but not limited to, the
duration and geographic spread of the pandemic, its severity, the actions to
contain the virus or treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume. We have experienced curtailed
customer demand that could adversely impact our business, results of operations
and overall financial performance in future periods. Specifically, we have
experienced impacts from reduced IT budgets of customers and potential customers
resulting in deferred purchase decisions, delayed implementation of our
products, reduced renewals of subscriptions by existing customers, and decreases
in software license sales driven by channel partners. However, we have begun to
see the impact from reduced IT budgets begin to lessen and customers expand the
scope of projects in which they are willing to invest. We also have experienced
challenges in creating sales pipeline in the absence of in-person marketing
events, which in particular has negatively impacted our ability to win new
customers and as a result over the past few quarters we have seen a decrease in
the number of new customers. We have seen and may see in the future a slowing in
our collections of outstanding accounts receivable and requested changes in
billing terms from some of our customers. We believe the demand environment for
our offerings may be beginning to improve in light of an improving macroeconomic
environment. However, because of our subscription-based business model, the
effect of the COVID-19 pandemic will not be fully reflected in our results of
operations and overall financial performance until future periods. There has
been no impact to our financial reporting systems, internal control over
financial reporting, or any disclosure controls or procedures.
Even after the COVID-19 pandemic has subsided, we may continue to experience an
adverse impact to our business as a result of its global economic impact,
including any recession that has occurred or may occur in the future.
Specifically, difficult macroeconomic conditions, such as decreases in per
capita income and levels of disposable income, increased and prolonged
unemployment or a decline in business confidence and business investment as a
result of the COVID-19 pandemic, could have a continuing adverse effect on the
demand for some of our products. The degree of impact of the COVID-19 pandemic
on our business will depend on several factors, such as the duration and the
extent of the pandemic, as well as actions taken by governments, businesses and
others in response to the pandemic, all of which continue to evolve and remain
uncertain at this time. We have established a task force to actively monitor the
ongoing COVID-19 pandemic situation and provide updates, current information,
and support to our employees. We remain committed to serving our customers'
needs and to providing creative and flexible customer support. We may take
further actions that alter our business operations as may be required by
federal, state or local authorities or that we determine are in the best
interests of our employees, customers, partners, and shareholders. See the Risk
Factors section for further discussion of the possible impact of the COVID-19
pandemic on our business.
Pending Acquisition by Thoma Bravo
On March 10, 2021 , Talend S.A. (the "Company") entered into a Memorandum of
Understanding (the "MoU") with Tahoe Bidco (Cayman), LLC , an exempted company
incorporated under the laws of the Cayman Islands ("Parent") and an affiliate of
Thoma Bravo, L.P. ("Thoma Bravo"). It is contemplated that pursuant to the MoU,
Parent and the Company shall pursue a series of transactions pursuant to which,
among other transactions, Parent is seeking to acquire for $66.00 per share in
cash (through one or more of its affiliates) all of the issued and outstanding
ordinary shares, nominal value of €0.08 per share, of the Company (the "Company
Shares"), including American Depositary Shares representing Company Shares (the
"ADSs"), and Company Shares issuable upon the exercise of any outstanding
options, warrants, convertible securities or rights to purchase, subscribe for,
or be allocated Company Shares, pursuant to a cash tender offer (the "Offer").
The Offer will expire one minute after 11:59 p.m. (New York City time) on the
calendar day that is twenty (20) business days following the commencement of the
Offer, unless extended in accordance with the terms of the MoU, including as
required by the applicable rules and regulations of the U.S. Securities and
Exchange Commission .
The MoU contains certain termination rights for each of the Company and Parent,
including if the consummation of the transactions contemplated by the Offer has
not been consummated on or prior to December 31, 2021 . If the MoU is terminated
under certain circumstances, the Company will be required to pay to Parent a
termination fee of $47,886,769 . The MoU contains representations, warranties and
covenants of Parent and the Company that are customary for a transaction of this
nature, including among others, covenants regarding the conduct of the Company's
business during the pendency of the transactions, public disclosures, and the
use of reasonable best efforts to cause the conditions to the transaction to be
satisfied.
Key Business Metrics
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We review a number of metrics to evaluate our business, measure our performance,
identify trends affecting our business, formulate business plans and make
strategic decisions. These key business metrics include the following:
Annual Recurring Revenue
We believe disclosing Annual Recurring Revenue ("ARR") provides greater clarity
into our results because it is not affected by revenue recognition differences
between our term-based deployed licenses and cloud offerings or contract
duration. Our management uses ARR to monitor the growth of our subscription
business. ARR represents the annualized recurring value of all active contracts
at the end of a reporting period. ARR includes subscriptions for use of
premise-based products and SaaS offerings and excludes original equipment
manufacturer ("OEM") sales. Both multi-year contracts and contracts with terms
less than one year are annualized by dividing the total committed contract value
by the number of months in the subscription term and then multiplying by twelve.
Due to the significant portion of our customers who are invoiced in non-U.S.
dollar denominated currencies, we also calculate our ARR growth rate on a
constant currency basis, thereby removing the effect of currency fluctuation.
The following table summarizes ARR and its year-over-year growth rate on both an
actual and constant currency basis as of the end of each reporting period since
March 31, 2020 . The year-over-year growth rate for each quarter was calculated
against the corresponding quarter in the prior year. We calculate ARR growth on
a constant currency basis by applying the spot currency rate from the last day
of the comparative period to the corresponding day in the current period. ARR
growth for the period ended March 31, 2021 was driven by strong demand for our
cloud solutions. During the three months ended March 31, 2021 , our ARR was
negatively impacted by the absence of in-person marketing events for demand
generation, and reduced IT budgets as a result of the COVID-19 pandemic.
March 31, June 30, September 30, December 31, March 31,
(Dollars in thousands) 2020 2020 2020 2020 2021
ARR $ 245,943 $ 255,926 $ 268,906 $ 288,720 $ 291,496
Actual FX growth rate 20 % 17 % 20 % 19 % 19 %
Constant Currency growth rate 22 % 19 % 16 % 15 % 14 %
ARR does not have any standardized definition and is therefore unlikely to be
comparable to similarly titled measures presented by other companies. ARR should
be viewed independently of revenue and deferred revenue and is not intended to
be combined with or to replace either of those items. ARR is not a forecast and
the active contracts at the end of a reporting period used in calculating ARR
may or may not be extended or renewed by our customers.
Cloud Annual Recurring Revenue
We believe disclosing Cloud Annual Recurring Revenue ("Cloud ARR") provides
greater clarity into our results because it is not affected by accounting
changes or contract duration. Furthermore, the majority of new ARR comes from
cloud and providing the metric enables investors to better understand our
progress in our shift to cloud. Our management uses Cloud ARR to monitor the
growth of our cloud subscription business. Cloud ARR represents the annualized
recurring value of all active cloud-based subscription contracts at the end of a
reporting period and excludes OEM sales. Both multi-year contracts and contracts
with terms less than one year are annualized by dividing the total committed
contract value by the number of months in the subscription term and then
multiplying by twelve.
Due to the significant portion of our customers who are invoiced in non-U.S.
dollar denominated currencies, we also calculate our Cloud ARR growth rate on a
constant currency basis, thereby removing the effect of currency fluctuation.
The following table summarizes Cloud ARR and its year-over-year growth rate on
both an actual and constant currency basis as of the end of each reporting
period since March 31, 2020 . We calculate Cloud ARR growth rate on a constant
currency basis by applying the spot currency rate from the last day of the
comparative period to the corresponding day in the current period. The
year-over-year growth rate for each quarter was calculated against the
corresponding quarter in the prior year. Cloud ARR growth for the period ended
March 31, 2021 was driven by strong demand for our cloud solutions. During the
three months ended March 31, 2021 , our Cloud ARR was negatively impacted by the
absence of in-person marketing events for demand generation, and reduced IT
budgets as a result of the COVID-19 pandemic.
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March 31 ,June 30 ,
2020 2020 2020 2020 2021
Cloud ARR $ 61,082 $ 74,992 $
87,822
150 % 128 % 113 % 101 % 95 %
Constant Currency growth rate 154 % 130 % 109 % 95 % 88 %
Cloud ARR does not have any standardized definition and is therefore unlikely to
be comparable to similarly titled measures presented by other companies. Cloud
ARR should be viewed independently of revenue and deferred revenue and is not
intended to be combined with or to replace either of those items. Cloud ARR is
not a forecast and the active contracts at the end of a reporting period used in
calculating Cloud ARR may or may not be extended or renewed by our customers.
Subscription Revenue Growth Rate
Subscription revenue is primarily derived from the sale of subscription-based
license agreements to our customers. The growth of our subscription revenue
reflects our ability to renew subscriptions with our existing customers, expand
the sales of existing and new products within our existing customer base and
sell our products to new customers. We believe subscription revenue growth is an
important performance metric because it reflects the adoption of our software.
Due to the significant portion of our customers who are invoiced in non-U.S.
dollar denominated currencies, we also calculate our subscription revenue growth
rate on a constant currency basis, thereby removing the effect of currency
fluctuation on our results of operations. Management uses the constant currency
subscription growth rate to monitor the growth of our subscription business
absent currency fluctuations.
The table below shows our subscription revenue growth rate on both an actual and
constant currency basis for the past five quarters, calculated against the
corresponding quarter in the prior year. We calculate revenue on a constant
currency basis by applying the average monthly currency rate for each month in
the comparative period to the corresponding month in the current period.
Headwinds to sales and renewals related to the macroeconomic conditions
resulting from the COVID-19 pandemic may impact subscription revenue growth.
Three Months Ended
March 31, June 30, September 30, December 31, March 31,
2020 2020 2020 2020 2021
Actual FX rates 22 % 16 % 20 % 20 % 19 %
Constant Currency 24 % 17 % 18 % 17 % 14 %
Number of Customers Above a Certain ARR Threshold
We believe our ability to increase the number of customers above a certain
threshold is an indicator of our ability to penetrate large enterprise customers
and is therefore monitored by management and we believe provides useful insight
to investors. We track and disclose the number of customers that, as of the end
of the relevant period, have ARR of $0.1 million or more.
The following table summarizes on a quarterly basis since March 31, 2020 the
number of customers that have, as of the end of the relevant period, ARR of $0.1
million or more.
Three Months Ended
March 31, June 30, September 30, December 31, March 31,
2020 2020 2020 2020 2021
Customers count 598 614 642 678 665
As we continue to expand the sales of existing and new products within our
existing customer base, over time we expect more of our existing customers will
cross the $0.1 million ARR threshold, driven particularly by cloud customers as
we increasingly focus our resources on our cloud offerings and the overall
market shifts to cloud. However, this increase may not materialize if we do not
successfully renew subscriptions with our existing customers, particularly if
our term-based deployed license results fall below our expectations. Note that
due to the significant portion of our customers who are invoiced in non-U.S.
dollar denominated currencies, this metric is impacted by currency changes from
period to period.
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Dollar-Based Net Expansion Rate
Our ability to generate and increase revenue is dependent on our ability to
maintain and grow our relationships with our existing customers. We believe our
ability to retain customers and expand their subscription revenue over time is
an indicator of the stability of our revenue base and the long-term value of our
customer relationships and is therefore monitored by management and, we believe,
is useful information for investors. We track our performance in this area by
measuring our dollar-based net expansion rate. Our dollar-based net expansion
rate increases when customers expand their number of subscribed users or use
additional Talend Data Fabric applications. Our dollar-based net expansion rate
is reduced when customers reduce their number of subscribed users, use fewer
Talend Data Fabric components, or cease to be customers.
We calculate our dollar-based net expansion rate by dividing our recurring
customer revenue by our base revenue. We define base revenue as the subscription
revenue we recognized from all customers during the four quarters ended one year
prior to the date of measurement. We define our recurring customer revenue as
the subscription revenue we recognized during the four quarters ended on the
date of measurement from the same customer base included in our measure of base
revenue, including revenue resulting from additional sales to those customers.
This analysis excludes revenue derived from our OEM sales. We expect our
dollar-based net expansion rate to potentially decline as we scale our business,
particularly as market demand for term-based deployed solutions continues to
contract. Further, we may experience greater customer loss or reduction in
contract renewals due to customers' IT budgetary constraints related to COVID-19
and the current macroeconomic environment, which would negatively impact this
measure.
Due to the significant portion of our customers who are invoiced in non-U.S.
dollar denominated currencies, we also calculate our dollar-based net expansion
rate on a constant currency basis, thereby removing the effect of currency
fluctuation.
The following table summarizes our quarterly dollar-based net expansion rate
since January 1, 2020 on both an actual and constant currency basis. We
calculate dollar-based net expansion rate on a constant currency basis by
applying the average monthly currency rate for each month in the comparative
period to the corresponding month in the current period.
Three Months Ended
March 31, June 30, September 30, December 31, March 31,
2020 2020 2020 2020 2021
Actual FX rates 109 % 108 % 107 % 108 % 110 %
Constant Currency 111 % 110 % 107 % 107 % 108 %
Non-GAAP Financial Measures
To provide additional information regarding our financial results, we report
free cash flow and customer acquisition costs, financial measures not calculated
in accordance with GAAP, within this Quarterly Report. Free cash flow and
customer acquisition costs as defined by us may not be comparable to similar
measures used by other companies. We have included free cash flow and customer
acquisitions costs in this Quarterly Report because they are key measures used
by our management and board of directors to understand and evaluate our core
operating performance and trends, to prepare and approve our annual budget and
to develop short- and long-term operational plans. Each of these non-GAAP
financial measures has limitations as an analytical tool and you should not
consider them in isolation or as a substitute for analysis of our cash flows,
sales and marketing expenses, or any other performance measure reported under
GAAP.
Free Cash Flow
We define free cash flow as net cash from (used in) operating activities less
net cash used in investing activities for purchases of property and equipment
and intangible assets, except for those acquired as part of a business
combination. We believe that free cash flow provides investors useful
information in understanding and evaluating our results of operations in the
same manner as our management and board of directors.
The table below shows our free cash flow for each of the three months ended
March 31, 2021 and 2020, and a reconciliation to the most directly
comparable GAAP measure for such period (in thousands). We expect free cash flow
during fiscal year 2021 to be negative.
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Three Months Ended March 31,
2021 2020
Net cash from operating activities $ 7,667 $ 2,848
Less: Acquisition of property & equipment 1,081 2,449
Free Cash Flow $ 6,586 $ 399
Customer Acquisition Costs
We monitor sales efficiency through our customer acquisition costs. We define
customer acquisition costs, or CAC, as our trailing twelve month non-GAAP sales
and marketing expenses, which excludes share-based compensation expense and
other expenses, divided by the year-over-year change in total ARR. We believe
that CAC effectively measures the cost required to generate a dollar of net new
business and provides useful insight to our investors about the efficiency of
our sales and marketing activities.
The following table shows our CAC on a quarterly basis and a reconciliation to
the most directly comparable GAAP measure for such periods. The sales and
marketing expense, as reported on a GAAP and non-GAAP basis, are each presented
on a trailing twelve month basis in the following table.
(Dollars in thousands, except CAC March 31, June 30, September 30, December 31, March 31,
measure) 2020 2020 2020 2020 2021
GAAP Sales and Marketing expense
11,786 12,802 14,367 15,942
Other expenses(1) 634 716 716 716 716
Non-GAAP Sales and Marketing expense $ 129,819 $ 134,109 $ 140,540 $ 145,469 $ 148,267
Prior year period ARR $ 205,144 $ 218,021 $ 224,761 $ 243,137 $ 245,943
Ending ARR 245,943 255,926 268,906 288,720 291,496
Net New ARR $ 40,799 $ 37,905 $ 44,145 $ 45,583 $ 45,553
CAC $ 3.2 $ 3.5 $ 3.2 $ 3.2 $ 3.3 (1) Other expenses include expenses related to the reorganization of our business model in emerging markets.
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Results of OperationsThe following table sets forth our consolidated statement of operations (in thousands). The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
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