Talend S.A.
Q3 2020 Earnings Call Transcript

Published: 9 Nov 2020

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[Operator:]

Good day and welcome to the Talend's third quarter Twenty twenty earnings call. Today's conference is being recorded at this time. I would like to turn the conference over to Damaari Drumright. Please go ahead, sir.

[Damaari Drumright:]

Thank you. This is demand from my VP of Treasury and Investor Relations for town, and I am pleased to welcome you down. Third quarter fiscal year Twenty twenty conference call. With me on the call today, County CEO Crystal Vimont and CFO Adam Meister. During the course of today's presentation, 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 and uncertainties and other factors that may cause our 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, expectations and guidance for future periods, our expectations regarding our strategic product initiatives and the related benefits and our expectations regarding the market. Our expectations and beliefs regarding these matters may not materialize in actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These results include those set forth in the press release that we issued earlier today, as well as those scornfully described in our filings with the Securities and Exchange Commission.

[Christal Bemont:]

Thank you. Welcome to our two three Twenty twenty earnings call. We hope you're all safe and well and we appreciate you joining today's call. We delivered another strong consecutive quarter, fueled by the momentum of digital transformation, covid continues to reinforce the importance for organizations of all sizes, locations and industries to digitize their businesses and take control of their data. This accelerated the shift to cloud and the opportunities it provides. I'm pleased to report ARAA grew to two hundred sixty nine million to the third quarter, up 16 percent year over year on a constant currency basis. Our success in Q3 was largely driven by the critical role we play in facilitating digital transformation through Talan data fabric and the continued execution of our strategic initiatives. Cloud ARAA now stands at eighty eight million, up one hundred and nine percent year over year on a constant currency basis. We are thrilled to announce that we now have over three thousand two hundred fifty cloud customers talent and continues to leverage a rich history and wealth of experience in data management and data quality as the foundation to extend our value proposition. This leaves us uniquely positioned to identify game changing opportunities otherwise lost in the chaos and associated with disorganized, untrustworthy data. Gaining trust in your data and knowing where your data is. Remove these inherent risks and leads to better decisions. Those are the challenges that talent to solving outstanding value is evident in our customer expansion. And I'm excited to announce that we acquired the largest new cloud win in our history.

[Adam Meister:]

Thanks, Krista, and good afternoon, everyone. Our solid execution in Q3 was driven by our continued momentum and focus on strategic priorities. I'll walk you through the details for the quarter and then provide our outlook for the remainder of Twenty twenty. We're pleased to announce that we end of the quarter with cloudy or 88 million, representing one hundred and thirteen percent year over year growth. One hundred and nine percent on a constant currency basis. It's all a healthy balance of expansions and new logos in Q3 and are excited to report that we now have over three thousand two hundred and fifty cloud customers. Crowd migrations contributed two point three million in Q3 is in line with expectations year to date, which reflects the handful of larger migrations in Q2 that came in ahead of schedule. Although they are of two hundred and sixty nine million at the end of Q3, a 20 percent year over year or 16 percent on a constant currency basis, total revenue for the third quarter was seventy two point seven million, up 16 percent year over year. Subscription revenue for the third quarter was sixty six million, up 20 percent year over year, or 18 percent on a constant currency basis. We continue to have success with larger scale deals to enterprise customers, particularly with cloud. As Chris mentioned, we closed our largest ever nuclear deal in Q3. At the end of the quarter, with six hundred and forty two customers at one hundred thousand or more of HRR, up from six hundred and fourteen at the end of Q2, these customers represent 67 percent of our total. A dollar base, that expansion rate for the period was one hundred and seven percent in constant currency. This reflects the pressure on ourselves that we have referenced over the course of the year due to covid as a spending environment stabilizes. So our overall valuation and expansion expansions remaining above the overall average. Professional services revenue with six point seven million, only nine percent of total revenue for the quarter is consistent with our continued shift towards cloud sales, which generally require less and professional services. Before moving to profit and loss items, I'll point out that unless otherwise specified all expense and profitability metrics discussed today are on an ongoing basis, a full reconciliation of death. And now gap result can be found in our earnings press release issued today, which is posted in the investor relations portion of our website. For the third quarter, total gross margin was 80 percent increase in gross margin with 86 percent. We expect a modest impact as a gross margin as we continue scaling our cloud operations, professional services, gross margin, 18 percent this quarter, benefiting from our focus on balancing resources and customer engagements globally. We incurred an operating loss for the quarter of four point two million or six percent of revenue. We outperformed our guidance due to strong topline performance and another quarter of prudent expense management operating loss also benefited from currency tailwind and expenses are slightly more weighted toward dollars than our Revenants. Free cash flow for the quarter was negative, thirteen point two million cash and cash equivalents ended at one hundred and sixty one million as of September 30th.

[Operator:]

Thank you, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. And we will take our first question from the answer with William Blair.

[Bhavan Suri:]

Hey, everybody, thanks for taking my questions and my staff, especially at the search problem. I just want to touch on something so you mentioned, which was that you seem to the day of closing fast sort of pace and proving a lot of the same sort of, you know, what's driving that. And you might just tell them so much about the environment that the market is doing and working toward the goals you want to get to. Given all the changes you've been making, such as this since you started to get a sense of what's driving that accelerated to have a quick follow up.

[Christal Bemont:]

You bet. And good afternoon, I would say that just to directly hit it, the biggest impact that we've seen has been the work that and Cosell and the team have done to just put a prescriptive lens on, you know, making sure that the quality of the work that we're doing on the V in quarter deals that we're working, quite frankly, has become much tighter and laying the foundation for the fine tuning that we're doing in the field and making sure that we're pulling through deals in quarters, as well as working on, as I said, the right quality and the right types of deals that we can pull through right now. So it's it's really the basic blocking and tackling that we've needed to do to really lay that foundation. And it's tracking it's trending very much. It's a build. You don't see those things immediately that have the big impact. It's it's a compounded effect over time, but it's tracking exactly where I would expect it to be.

[Bhavan Suri:]

They discussed in depth in the past week about the government's trust, privacy, compliance, that's a pretty attractive opportunity and makes sense right with you today. And you said it's just an uptick in momentum. We're seeing within that data, governance within the American strategy might have attracted greater share and.

[Christal Bemont:]

Yeah, you bet. This is something we're going to spend a fair amount of time on at the Investor Day on November 18th. It's something we're really excited about. It's top of mind for a lot of people in terms of not just digital transformation for sure is at the heart of everything that's driving a lot of momentum. But on the other side of that, making sure that there is a beyond quality, a level of quantifiable and explainable trust or confidence. And it's something that we continue to really double down on as what we see as the most strategic part of what we do for our customers in the future. So you heard that Christina has joined us. This is a big focus for Christian and our team as we continue to develop those opportunities for the future.

[Bhavan Suri:]

Thank you, guys. Thank you. Thanks.

[Operator:]

[Unidentified Analyst:]

Thanks for taking my question, because I was wondering how should we be thinking about blood migrations moving forward, given I think out of you mentioned there's two point three million contribution from that this particular quarter. Is that something that you're actively seeking to facilitate or is this happening more just organically within your customer base? And I guess the second part of the question would be, can you remind us, is there a potential uplift opportunity as customers migrate from unplumbed to cloud in terms of just our.

[Adam Meister:]

Gets out of here, I'll start. So we're really pleased with the progress year to date. We had mentioned last quarter that there was a handful of bigger deals that pulled for a little bit faster. And so overall, where we're tracking through September, we're very comfortable with relative to our original target. And, you know, this is this is an area where really it's about creating conversation with the customer versus creating a push or a pull in terms of their motivations. And we want to to really be in a discussion with them around their broader cloud strategy and how a migration of talent will fit into that. And so, you know, this is a balance we've had through the year of making sure we're dedicating the right amount of energy and resources to facilitating those conversations relative to just bringing in new business. And so from that perspective, we're really going to defer to our customers on their pacing. But what's most important is that we're there and having that conversation with engaging with them early so that we're helping guide them through it strategically. And when we do that. Well, Jack, there is an opportunity. I wouldn't say that based on the amount we've done year to date, there's a consistent enough trend to call exactly what that expansion opportunity is. But we have seen in a number of the migrations that we've done that customers will choose to expand when they move to the cloud.

[Unidentified Analyst:]

Thanks for the color on that, you just squeeze one more in. Are there any lessons learned from from this large cloud deal that could be, you know, maybe applicable to other opportunities that you have in your pipeline?

[Christal Bemont:]

Yeah, I'll take that one. I think it just underscores the strategic nature of our partnership with our customers, as we talked about the fact that they are already a customer, we are we're seeing that there's an opportunity to really double down on the trust and confidence factor. And it's something that we see will continue in terms of the strategic nature of how we really add value. I think you'll start to hear more and more of the larger enterprise types of opportunities versus maybe a one off project, so to speak. So it's the underpinnings of how it goes across an entire organization and that that form of confidence that we would deliver in the talent trust.

[Adam Meister:]

Well, I don't think so, I think GSK is a great example of a land and expand motion, right. Demonstrated to be able to prove value and then grow from there across different departments for a broader set of use cases and frankly, just a more strategic positioning in the overall infrastructure. And it's another one where we were successful in in going to market with partners. And so I think it's another indicator that, you know, showing up and solving an overall business challenge for a customer is a far faster path to those large enterprise deals that we want to win more of. And that's a motion that we're going to look to replicate next year.

[Unidentified Analyst:]

That appreciate the detail around that. Thank you.

[Operator:]

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

[Tyler Radke:]

Hey, thank you and good afternoon. I wanted to ask you a little bit about the cloud deal that you reference, I think he said of the largest cloud you've seen. I'm curious if that was a conversion that drove the large deal value of this was kind of net new net new use case. And I think if I recall correctly, last quarter you did reference the seven figure conversion. I would assume that this one is larger than that. But maybe just give us a sense for the deal and a little bit more detail on whether it was a conversion or not. Thank you.

[Adam Meister:]

Hey, Tyler, it was a new deal, so this was the largest new deal in the cloud. We've we've won. And so this is a situation where it was an existing customer and it was a more wall to wall expansion with them, but it did not have a migration component to it. Got the seven figures. Yes. OK.

[Tyler Radke:]

And then I wanted to ask you, Adam, about the dollar based on that expansionary, which came down a few points relative to Q2, and I think the way you guys define it is a revenue base metric that's a little bit backwards looking. But just curious as you look out, which, you know, it seems like a strong IRR in bookings quarter, do you think we've kind of hit the trough in that level? Obviously, it kind of depends on the macro environment, but which is kind of your confidence level that this is the low point?

[Adam Meister:]

Yeah, good question, so I'll rewind to the beginning of the year and remind everybody that we did expect this number to come down a point or two in any given quarter as we shift more and more business to the cloud, that revenue based metric just has a little bit of a structural headwind to it. And so any deviation from that kind of one to two point trend in the quarter signals over underperformance. And so I think we've been very upfront and transparent around just an elevated level of down sell through the course of this year. And those are finally starting to show up in the number. And so it's it's a little bit elevated from what we really expected. We don't think it's materially higher. And you could see some of that impact continue into Q4. And really calling stability is going to be, I think, totally dependent, wrapped up. And just when the overall spending environment stability starts to come through and we're kind of past the headwind of Cauvin, so we're not ready to call that quite yet.

[Tyler Radke:]

I see how helpful color, if I could just ask a quick follow up to that, I mean, it seems like, you know, you are seeing pretty good Menard's, at least on the on the cloud. I think you added, you know, roughly four hundred fifty Nenad versus 300 last quarter was kind. And you did talk about just higher velocity as well. So I guess, do you feel like we're at a point where the new business and some of the issues that, you know, some of the new go to market leaders have to put in? Do you feel like we're at a point where those new initiatives can kind of offset the headwinds from a down self-destructive in terms of trying new customers?

[Adam Meister:]

Yeah, it's a good question, I mean, this whole year, the the investment thesis has been put in place, the foundation, the structure, the processes and mechanisms to to really be able to reaccelerate growth and part of that being expanded with with existing customers more. And look, I think I think a lot of the positive diesel mechanics signals the crystal walk through that we've talked about are evidence of that starting to show up. So we're we're enthusiastic about next year.Obviously, a lot depends on the hate to have. That is as a little bit of an overhang in the conversation. But, you know, we're confident that once you have that alleviates there should be stability on that net retention number. And we think it's the right foundation and kind of set up for a pretty exciting twenty twenty one.

[Tyler Radke:]

Thanks so much. Our next question comes from Chris Marvin with Goldman Sachs.

[Chris Marvin:]

Ok, thanks very much for taking my question for us about the ability to grow, use the customer base. How are you thinking about that opportunity? Specifically, will we see more of an opportunity to grow the footprint? We can move to other meetings about the legacy for expansion based on a go forward basis.

[Christal Bemont:]

I think I'll take that one first. Good afternoon. I would say there's a couple of different ways to look at it. First of all, we have a tremendous opportunity to expand our existing footprint within our customer base. And we look at that in terms of some of the things we just talked about, more of the not just the digital transformation, but more of the enterprise wide, both the users that are that are interested in making sure that they have access to trusted data, but also the number of expansions across the enterprise that has a need to make sure that data is running through an accessible and facilitating in such a way that it's not just a one off. So we see it. We see a big opportunity there with the focus to just shift the conversation from a single project to a more of an enterprise wide type of engagement. I also see this as an opportunity to look at how we engage with customers on the front end from the very beginning, when we think about what the opportunity is to move from just a moment in time to your operations discussion to more of an executive discussion that we've been focusing a lot on in terms of how we provide strategic alignment to our customers that really facilitates driving business outcomes for those companies that we work with. So I say in our existing customer base, a big opportunity for expansion and then the new customers that will be looking at how we bring in the door will be starting with the lens of how do we really help the entire enterprise and power your business on talent in a in a way that's different than the way that we've seen in the past.

[Chris Marvin:]

Ok, very helpful. Thanks so much. Thank you.

[Operator:]

We'll take our next question from Matt Cosper, J.P. Morgan.

[Matt Cruz:]

Good afternoon, this is Max Foster on behalf of Mark Murphy, thank you. It seems like growth in headcount is accelerating year over year, at least for the past couple of quarters. Can you describe kind of where this is happening in your organization? And this is just a catch up on perhaps some of hiring during the closing earlier this year?

[Adam Meister:]

Hey, Matt, good to hear from you. I'll start. So we it's coupled with the investment thesis we've had through the year. A big part of that was bringing in some additional members to bolster the team. It has been pretty broad based. I mean, there definitely have been probably a little bit higher concentration around go to market functions, but I think we did a pretty good bout in Q1. And maybe, you know, I think, frankly, there's probably some pause in even canted interest for a little bit of a period there during covid. But I wouldn't call it like an intentional acceleration right now relative to the middle of the year. So we're feeling really good about the people that we're bringing in.A big part of the strategy this year was to make sure you have the right team on the field going into twenty one. And I think that we're we're feeling very confident about that.

[Matt Cruz:]

Ok, thank you. And then you can provide an update on what long term suspension, gross margin looks like, it seems like they want to hire 80 or 90 percent this year. That's where we are on the long term. Well, this one compared.

[Adam Meister:]

Yeah, in fact, I think we've we've called out in the last couple of quarters that there will be a little bit of a headwind to subscription gross margin as we just see cloud get to be a bigger and bigger mix. Obviously has not had that much of an impact, but I would say it probably stabilizes in the mid 80s. And so it could come down a bit more from right here. And we'll talk about that a little bit more in detail at the Investor Day next week.

[Matt Cruz:]

Thank you.

[Operator:]

We'll take our next question from GAAP with Barclays.

[Unidentified Analyst:]

Hey, congrats on the strong quarter, guys. So, again, with skills like public now you've been talking quite a bit about automated data management, where users don't necessarily have to clean the data for structured and unstructured data. You know, I was hoping. Walk through how much of that is reality versus snowflake? Ma'am, it's just been fairly limited amount of resources right now.

[Adam Meister:]

Yeah, good to hear from you. I'll start and then can chime in know, I think that we've been really pleased with the partnership that we've got with Snowflake on the go to market side, both on larger enterprise transactions as well as the higher volume, higher velocity and of our business. I think that that that traction of the market has just continued. And, you know, by and large, I think there's a very strong value proposition, compelling one that using TALONED as the platform for for data quality and cleansing in conjunction with stuff like environment actually makes a lot of sense for a lot of customers. And so I'll go back and remind everybody kind of a key principle and premise of our business is it's look, we want to abstract away some of that manual complexity. And that has been the value prop for a long time. Whether you do that on the way into the data warehouse or whether you do it in the data warehouse, we're actually very agnostic to that. So for us, that that abstraction layer that we provide and that consistency that we provide for customers across broader deployments of snowflake or other cloud data warehouses is pretty compelling. And, you know, we haven't seen that really shift or change over the last couple of quarters and certainly not just since their IPO.

[Christal Bemont:]

Yeah, and the only thing I would add to that is, you know, I I see the relationship with Snowflake continuing to evolve. It's a strategic partnership. As Adam said, we have a value proposition that I think is unique to Talon's relative to our focus on quality and our extension of quality to trusted data. And I think that's going to be a heightened area of focus for for the entire ecosystem. And looking at how we combine, quite frankly, with the likes of Snowflake to create a unique value proposition in the future for our joint customers, this really is really where will we'll put our focus. And so I think there's there's a strong alignment and we each provide a value that we think it's really important to the ecosystem that combines even even more so.

[Unidentified Analyst:]

And if my math is right, you can't bookings accelerated this quarter 10 to 20 percent. I was hoping you could kind of walk through maybe some of the moving parts. Was the large customer impact bookings quite a bit or just kind of the norm in terms of growth rates that we should be thinking about going forward?

[Adam Meister:]

Sure. So will avoid any kind of real detail on Twenty twenty wanted to stage will obviously provide guidance the same way we always do in our Q4 call in February. We will provide a little bit of context for just kind of an intermediate financial framework at the Analyst Day or Investor Day next week. So tune in for that for sure. You know, there's definitely some moving parts did benefit us a bit this quarter. When we call that out with some of the constant currency numbers, RPO is up well quarter over quarter. Some of that is just our ability to win multiyear deals, even if they're not built up front. And, you know, just in general, I think we're just we've been pleased with the progress that we had this quarter and the outcome relative to kind of our base case going into it was, you know, it exceeded what we expected. So I think that that's as much as what kind of comment on it for now. But next week at our Investor Day, we'll give a little bit more detail on how and how we think about the curve or the shape of growth next year.

[Operator:]

There are no further questions at this time. I would like to conclude today's call. Thank you for your participation. You may now disconnect.