Talend S.A.
Q2 2018 Earnings Call Transcript

Published: 7 Aug 2018

[Operator:]

Good day, everyone, and welcome to the Talend Second Quarter Fiscal Year 2018 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Lisa Laukkanen. Please go ahead.

[Lisa Laukkanen:]

Thank you. This is Lisa Laukkanen, Investor Relations for Talend. And I'm pleased to welcome you to Talend's Second Quarter 2018 Conference Call. With me on the call is today is Talend's CEO, Mike Tuchen; and Interim CFO, Ram Bartov. 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 unknown risks and uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those contemplated in these forward-looking statements. Forward-looking statements in this presentation include but are not limited to statements related to our business, financial performance and expectations and guidance for future periods, and 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 detailed 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 any 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-IFRS basis. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of the non-IFRS financial measures to the most directly comparable IFRS financial 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's CEO.

[Michael Tuchen:]

Thanks, Lisa, and thank you all for joining us today. We're pleased to report strong second quarter results as we continue our cloud and enterprise momentum. We achieved record total revenue of $49.8 million in the second quarter, up 39% year-over-year, while substantially improving operating leverage. Some of the highlight of the June quarter include

[Ram Bartov:]

Thanks, Mike. Today I will read the financial results for the second quarter as well as provide our outlook for the third quarter and fiscal year of 2018. Total revenue for the second quarter was $49.8 million, an increase of $13.9 million from the second quarter of 2017, representing 39% year-over-year growth. Our subscription revenue for the quarter was $42 million, an increase of $11.7 million from the second quarter of 2017, or 39% year-over-year growth. In constant currency, subscription revenue grew 34% year-over-year. The strong demand for Talend cloud offerings continued to drive growth in subscription revenue. Our cloud SaaS subscription revenue in the second quarter grew more than 100% year-over-year for the eighth consecutive quarter, and we expect this trend to continue as Talend continues to invest R&D efforts in our cloud offering, which now includes data, big data integration, data prep and with more offerings to come over the course of 2018. Our big data and cloud products now together represent our largest product category and make up approximately 50% of our subscription revenue in the second quarter. From a geographic perspective, EMEA represented 47% of subscription revenue in the second quarter, and grew 39% year-over-year. In the second quarter, APAC grew by more than 100% year-over-year. Although Asia-Pacific still represents a small percentage of our subscription revenue in the second quarter, it shows great potential and has grown above 100% for now 5 consecutive quarters. We also see growth being driven by our enterprise customers, as defined as companies with $100,000 or more of annualized subscription revenue, where their number grew by 47% and reached 427 customers this quarter. 67% of Talend's subscription revenue was derived from these enterprise customers in Q2 2018. Professional services revenue for the quarter was $7.7 million, an increase of $2.2 million or 40% from the prior year quarter. As we discussed in past earnings calls, Talend has made strong investment in enabling our systems' integrator ecosystem in order to have sufficient implementation capacity for our customers. Our priority is to focus on strategic consulting revenue while depending more on our systems integrator ecosystem for the broader implementation services. For the quarter ending June 30, 2018, our net-dollar expansion rate was 124% in constant currency. It has been above 120% in constant currency for now 17 consecutive quarters. I would like to remind investors that our net dollar based expansion rate can fluctuate quarter-over-quarter, reflecting the mix of new versus existing customers in the reported quarter. Before moving to profit and loss items, I would like to point out, unless otherwise specified, all of the expense and profitability metrics I'll be discussing going forward are non-IFRS results. A full reconciliation between IFRS and non-IFRS results can be found in our earnings press release issued today and available on our website. Our total gross margin for the second quarter was 77%, the same as what we had in the same period last year. Operating expenses for the second quarter were $42 million, an increase of $9.7 million from the second quarter of 2017. Sales and marketing expense for the quarter were $26.3 million, an increase of 31% year-over-year. The increase was primarily the result of higher personnel expenses due to increased headcount. We expect that our sales and marketing expenses will continue to grow in absolute dollars as we continue to invest in our International expansion, identify and retain top talent, and engage in global promotional activities to strengthen our brand awareness. Our sales and marketing headcount increased from the prior year by 28% to 400 employees. R&D expenses for the quarter were $8.4 million, an increase of 38% year-over-year. The increase was driven by an increase in staff expenses due to an increase in headcount, especially in France. Additionally, there was an increase in amortization expense of $0.3 million in the quarter related to the intangible assets purchased in the Restlet SAS acquisition in the fourth quarter of 2017. Our R&D headcount reached 251 employees at the end of the quarter, representing 21% growth over the same period of last year. G&A expenses for the quarter were $7.3 million, an increase of 21% year-over-year. The increase for the quarter was largely attributable to increase in staff expenses due to greater headcount, the expansion of the leadership team, and increases in professional and outside services related to being a public company. Our G&A headcount reached 120 employees, resenting 30% growth from the same quarter in the prior year. We expect our G&A expenses to continue to increase as we invest in our infrastructure, incur additional compliance costs related to being a public company, and support our global expansion. We ended the quarter with 989 full-time employees compared to 765 employees at the end of the second quarter of 2017. We incurred an operating loss for the quarter of $3.6 million compared to the second quarter of the prior year's operating loss of $4.5 million. Expressed as a percentage of revenue, operating loss was 7% compared to an operating loss of 13% in the second quarter of 2017. We continue to make progress in our operating leverage as we continue our path towards profitability. As we have stated, we continue to expect quarterly fluctuations in operating margins. Net loss for the quarter was $3.6 million compared to a net loss of $5.8 million in the prior year period. Free cash flow for the 6-month period was $3.1 million compared to free cash flow of $1 million in the same period in the prior year. We intend to continue our balanced-plan approach and going forward, we anticipate remaining approximately free cash flow breakeven on an annualized basis with normal seasonal and quarterly fluctuations. The adoption of IFRS 15 contributed approximately $0.6 million to our subscription revenue as we recognized a component of the subscription revenue upfront. The FX impact on deferred revenue was a negative $3.6 million in Q2 of 2018. Turning to the balance sheet. As of June 30, 2018, we had cash and cash equivalents of approximately $93 million. As we discussed during our IPO, and on all of our prior earnings calls, I would like to remind investors that we do not view calculated billing as a good indicator of the performance of our business. Calculated billings does not take into account changes in pre-billed subscription duration, professional services, co-terming of subscription contracts, certain renewal dynamics and as mentioned earlier, FX fluctuation. We provide forward guidance on a revenue basis as we believe this is a more meaningful and accurate reflection of our business operations and financial position. As discussed during our prior earnings calls, we were targeting a pre-billed subscription duration of 1.1 years for our new business sales in 2018. In the second quarter, prebilled subscription duration came in approximately on target at 1.09 years. This intended lower prebilled subscription duration is consistent with our previously announced strategy to minimize discounts and reduce the complexity of our sales cycle. Before I give guidance, I would like to emphasize some key financial highlights. Our net dollar base expansion rate continues on its strong performance, where it has now been above 120% for 17 consecutive quarters. Our subscription revenue grew by 39% year-over-year, driven in large part by our strong growth of big data and cloud, and strong performance in Europe. Our operations in APAC have continued to drive top line growth with over 100% revenue growth for now 5 consecutive quarters. Our operating margin improved 600 basis points from a negative 13%, a year ago, to a negative 7% in the second quarter of 2018. This substantial operating margin improvement shows our commitment towards income statement profitability. As I indicated earlier, we adopted IFRS 15, which is the IFRS equivalent of ASAC 606 on January 1, 2018, on a modified retrospective approach. Specifically in Q2, IFRS 15 reporting contributed to improvement of 1.4% on a revenue growth and $807,000 of lower commission expenses. Now for the Q3 and 2018 fiscal year guidance, which assumes similar business conditions and foreign exchange rates as of July 31, 2018. Third quarter of 2018. Total revenue is expected to be in the range of $51.6 million to $52.6 million. Loss from operations is expected to be in the range of negative $10.5 million to negative $9.5 million, and non-IFRS loss from operations is expected to be in the range of negative $3.4 million to negative $2.4 million. Net loss is expected to be in the range of negative a $10.8 million to negative $9.8 million, and non-IFRS net loss is expected to be in the range of negative $3.7 million to negative $2.7 million. Net loss per basic and diluted share is expected to be in the range of a negative $0.36 to $0.33, and non-IFRS net loss per share is expected to be in the range of negative $0.12 to negative $0.09. Basic and diluted weighted average share count of 30 million shares. Full year of 2018, total revenue is expected to be in the range of $204.6 million to $206.6 million. Loss from operations is expected be in the range of negative $39.3 million to negative $37.3 million, and non-IFRS loss from operations is expected to be in the range of a negative $15.1 million to negative $13.1 million. Net loss is expected to be in the range of negative $39.7 million to a negative $37.7 million, and non-IFRS net loss is expected to be in the range of negative $15.5 million to negative $13.5 million. Net loss per basic and diluted share is expected to be in the range of a negative $1.32 to negative $1.26, and non-IFRS net loss share is expected to be in the range of negative $0.52 to negative $0.45. Basic and diluted weighted average share count of 30 million shares. Thank you. And let me turn the call back to Mike for some final remarks.

[Michael Tuchen:]

Thank you, Ram. Talend delivered a strong performance in the second quarter. I'm pleased with the execution by our team as we continue to bring industry-leading solutions to the market. This summer marks our second anniversary as a public company, and I'm proud of achievements we made. Recently, Talend was named a leader in the Forrester Wave for big data fabric, earning the highest score of any vendor in both the current offering and strategy categories. We had a very strong showing in this report, earning the highest possible scores, 5 out 5, in 6 of the 12 subcategories evaluated by Forrester Research, including vision, ability to execute and professional services. And more recently, for the third consecutive time, we secured our position as a leader in the 2018 Gartner Magic Quadrant for data integration tools, which acknowledges our completeness of vision and ability to execute. Gartner and Forrester are 2 of the largest independent analyst firms in the world and both continue to recognize Talend as a leader. For Talend we believe this is a very strong validation of our market approach and focus. This is another year where we are seeing the incumbents fade in the reports and Talend becoming stronger. Talend has a clear advantage for where the market is going in modern-cloud scenarios. We view these accolades as validation of the technology and market progress we've made as the world transitions to next generation data platforms. With that, Ram and I would be happy to take your questions. Operator?

[Operator:]

[Operator Instructions]. We'll take our first question from Bhavan Suri with William Blair & Company.

[Bhavanmit Suri:]

Congrats, especially on the enterprise business. I guess, Mike, just starting off on the enterprise business. You've seen some really solid strength there now for a few quarters, and you've talked a little bit in the past about segmenting sort of the base there, or the sales force to really focus on enterprise. Just some update on the progress there. Is that what's driving some of the enterprise activity you've seen and sort of -- just -- how is that compared to your broader efforts, the whole sales force vis-à-vis this enterprise focus?

[Michael Tuchen:]

Yes. Bhavan, it's a great question. We are continuing the same approach that we talked about in Q1. So it's -- going into 2018, we expanded the number of the Enterprise segment team, and I think we more or less doubled it from last year. And we haven't done anything different in Q2 relative to Q1. But that really reflects our offering continuing to become more and more Enterprise capable, and more and more the de facto choice for large companies looking at modernizing their infrastructure and making next generation bets. And we're saying, on that note, a lot of exciting momentum on our cloud business in the enterprise, and I think we'll be talking about that a lot more in the coming quarters.

[Bhavanmit Suri:]

Mike, and then I guess when I look at the cloud business vis-à-vis the sort of on-prem data lake or big data business, you sort of had a shift there and you've sort of seen growth reaccelerate or be really solid in sort of the cloud-based business, but less so in sort of the on-premise [indiscernible] side of the house. Just -- what are the puts and takes and sort of when you look at that business, it sort of decel-ed -- the combined business, and reaccelerated and sort of bouncing around. How should we think about puts and takes and what that might look like for the rest of the year?

[Michael Tuchen:]

It really is reflecting, as you stated, differential growth rates between what's going on in premise Hadoop versus what's going on in the cloud, and the cloud is just exploding. I mean, it's really the bullet train right now. And it's actually, believe it or not, cloud is accelerating quarter-on-quarter to some really eye-popping numbers. So we're seeing the on-premise Hadoop, I think gradually decelerating down versus last year. I'd say right now, year-to-date, probably consistent with what you're seeing from the other players there, sub-30% growth in terms of sales and it will bounce around from one quarter to the next, but I think year-to-date, that's what we're seeing. Of course, cloud is actually accelerating and you know our current expectation is that cloud becomes the biggest single segment of our business by the middle or so of next year, and it may become as much as half of our business by the end of next year. And so it is a really, really exciting transformation for us right now.

[Operator:]

We'll go next to Jesse Hulsing with Goldman Sachs.

[Jesse Hulsing:]

Mike, how do the deal sizes compare in a typical cloud deal versus an on-prem deal? Is it similar more or less, just curious there.

[Michael Tuchen:]

So for apples-to-apples, the cloud deals are relatively similar to on-prem and actually interestingly a notch higher on an apples-to-apples basis. We're still -- when you look at the -- across the entire product line, we're just now getting the full scope of the business into the cloud. And so historically, the -- we haven't been selling the full product line in the cloud , only some of the smallest SKUs. So -- but when you compare those SKUs to their on-prem equivalents, we're actually selling at slightly higher ASPs in the cloud. And what's really happening now, in Q2, was we've seen a really rotation upwards as we're selling larger and larger deals in the cloud. And that was what I -- I was kind of hinting out a moment ago. I'd say, let's keep talking about it over the next couple of quarters. Assuming that trend continues, it's a really exciting part of our business right now.

[Jesse Hulsing:]

And if I look at cash flow billings, I know you guys of deemphasize that metric but to kind of clean up some of the currency headwind stuff, if I look at cash flow billings, growth accelerated versus the first quarter and seasonally it was quite a bit stronger than last year. Is that just cloud momentum or are you starting to see some of those reps in Europe that you hired at the end of last year start to ramp?

[Michael Tuchen:]

So clearly, Europe was a -- an out-of-the-park success for us. And we talked a lot in the second half of last year about the attrition that we saw, and how we we're rehiring and waiting for those reps to ramp and so on and so forth. And it's -- I'd say it's gone as well or better than we could've hoped. The team is absolutely kicking butt right now, you saw in the report, Europe grew 39% year-on-year and clearly firing on all cylinders. So yes, that European hiring retention ramp went incredibly well. And we also, for what it's worth, brought in a new overall European sales leader, and that person has been extremely enthusiastically received. And we couldn't be more excited to have him on board.

[Operator:]

We'll go next to Raimo Lenschow with Barclays.

[Raimo Lenschow:]

Mike, can you talk a little bit -- if you talk cloud, you mentioned Snowflake a couple of times. What's sort of projects are you seeing there that you guys getting pulled into? Or is it like sitting on top of a data lake and tried to pull data out? Or what are you actually doing there?

[Michael Tuchen:]

So Snowflake is doing a number of things. And so as we're working with them on some of their bigger and more complex kind of customers, what we're seeing them do is being a -- probably at this point, one of the most capable cloud data warehouses in the world. And so someone who's looking at moving from an Oracle or a Teradata -- a premise data warehouse to a cloud data warehouse or even just augmenting one, Snowflake is a really interesting choice for that. We do see them in addition as a kind of the relational adjunct to a data lake scenario. Most data lakes have both a unstructured kind of file system storage -- in Amazon, that would be S3, as well as relational capabilities. They can easily be, and have been in some of the deals, the relational capability in a data lake scenario. But what I would say is that the way we think about them is -- as really one of the most highest performance relational engines right now in the cloud.

[Raimo Lenschow:]

And what I was trying to get to Mike, so -- what are you doing as part of these projects? Like is it kind data ingestion into them? Or how do I have to think about you in this new world?

[Michael Tuchen:]

Yes, I mean, anything to do with data ingestion, data integration is a problem that we'll solve. And typically, if you're building a large data lake or data warehouse, either one, you've got to take data from a number of different sources and clean it up and blend it together, and then put it into either the refined part of your data lake, or into a relational engine, like Snowflake, for downstream analytics. And so that's the part of the problem that we solve. And it really is -- whether we're working with a Snowflake or a Redshift, or Google BigQuery, or an Azure SQL data warehouse, the problem that we solves ends up being really, really similar across all of them.

[Raimo Lenschow:]

Okay, that helps. And like one last question for me is like -- I guess you went kind of down that path a little bit on the billing side. So like obviously you tell us not to use it, obviously, we have some big FX moves that kind of hurt you. And you went -- commented around your performance around Europe being strong, in Asia, it's -- from your -- how has the U.S. done that respect like? So overall would this kind of been a very good quarter, because I don't look at the billings growth. I can -- there were some questions [indiscernible] on the back of that one.

[Michael Tuchen:]

Yes, so our overall revenue growth in the quarter was 39%. APAC grew over 100% as we mentioned, and Europe grew 39%. And so therefore, mathematically the U.S. grew slower than it grew 31%, I believe was the number. And really what's going on in the U.S. is exactly that rotation that we talked about from premise, big data to the cloud, and the U.S. got much more tied to the premise big data business back in years past. And so they have a bigger rotation to do than the rest of the world. The rest of the world never really did really as much premise big data, so they're able to do more or less a rotation to the cloud as an incremental thing, whereas in the U.S., we're substituting from one to the other. And so that right now is -- as we're going through that transition, the U.S. is most impacted from the shift away from premise big data.

[Operator:]

We'll go next to Tyler Radke with Citi.

[Tyler Radke:]

Mike, a question just to follow-up on the last point. You said in the U.S. it's -- it's kind of substitution from premise big data to the cloud. And guess I'm just trying to understand, if I look at that big data versus cloud business broadly as the whole company. Do you see that business, if you were to combine the 2, decelerating, accelerating in the next 2 quarters? I'm just trying to understand how big of a headwind the big data is in terms of that combined bucket?

[Michael Tuchen:]

Yes, it's a great question. We haven't actually done the math. I'd say right now, cloud is still smaller than big data but growing not only at a crazy pace, but quite a bit faster than the big data stuff ever grew back in its early days. And so when we look forward, the one progression that we have done, or the one projection that we've done is that cloud becomes our single biggest segment around about the middle of next year, on the path of being half of our sales in -- by the end of next year. So that's kind of the forward look that we've done. I've not trying to build out -- and that's on a sales perspective. We've not tried to build out a revenue based view of it because that's the trailing measure. We can do that, it's a new question, but I don't have that at our fingertips right now.

[Tyler Radke:]

So I guess, from a new sales or bookings perspective, next year when cloud is the biggest piece, would you expect -- I guess are you anticipating that the big data continues to slow, and where do you think it slows down to? Does it start to decline or does it just level off at maybe a high single digit, double-digit growth rate?

[Michael Tuchen:]

For triangulation purposes, for us internally, here are our planning assumptions. 2016 for us, big data grew over 100%, on a stand-alone basis. And so I'll talk about -- I'll breakout bid on a stand-alone basis for just a moment. It grew over 100% in '16. It grew roughly 50% in '17 and right now, I'd say it's growing sub-30s year-to-date, and it probably continues roughly on that path for the 2018, for the rest of the year. On that trajectory, if you kind of walk you through, I expect big data is going to be -- if it cracks double-digit growth, that would probably be a good thing. If it's flat, that's probably a baseline assumption for us right now. So anything that grows, that it been growing above flat is good news for us. And next year is really all about cloud growth is what's going to drive the top line.

[Tyler Radke:]

Got it. And do you think the top line, given the strong growth in big data, you should see kind of top line growth rates better than where things are now, given the mix shift?

[Michael Tuchen:]

I'm not in a position to be giving guidance for 2019 right now. But I'd say we'll give guidance for that by the end of the year. And I do like what we've set up for cloud growth for next year, let's put it that way.

[Tyler Radke:]

Okay, fair enough. Just lastly, on a clarification question on Europe. Ram described strong performance in Europe. And I guess if I look at the revenue, it looked like it might have decelerated from Q1 and possibly that's currency. But with the comment on a strong performance, was that related to bookings, or was that a revenue comment? Because it looked like it decelerated from the Q1 growth rate.

[Michael Tuchen:]

On a bookings basis, it definitely accelerated. What'd it do on a revenue basis?

[Ram Bartov:]

It did slightly...

[Michael Tuchen:]

Oh, it's because of the delayed -- okay. There is a kind of a quirk of the IFRS accounting thing, that caused a one-time small bump in Q1 that obviously didn't recur in Q2. On a bookings basis, we've seen continuous acceleration in Europe over the last several quarters as that sales team got fully hired and got productive.

[Operator:]

We'll go next to Jack Andrews with Needham.

[Jon Andrews:]

Mike, I want to follow up on your comments in the prepared remarks about you mentioned something along the lines of having, you felt, an exceptional competitive position in the cloud. But I was just wondering if you could draw out a bit more what -- how do you see the landscape in the cloud that is -- competitively that is perhaps different than the on-premise world?

[Michael Tuchen:]

Well what's happening right now is in the cloud, for complex cloud scenarios, there really are only 2 players that matter. It's us and Informatica. And Informatica has an architectural challenge, drag around this proprietary runtime and the business model challenge that goes along with that. And so really any high-volume, real-time advanced analytics kind of scenarios, data lake kind of scenarios, self-service kind of scenarios, we bring really strong competitive advantage. And so -- that's -- just given that those scenarios that I just described are really the next generation scenarios that's representative of a lot of the demand today and even more of it tomorrow, we really like that setup.

[Jon Andrews:]

That's great. And then just as a follow-up. Is there any update you can provide in terms of perhaps some -- how some of the products you launched at Talend Connect are doing so far?

[Michael Tuchen:]

Yes, I'd say given that -- in Talend Connect, we pretty much talked exclusively about cloud, and the cloud business is not only exploding but even accelerating quarter-on-quarter, I'd say they're doing pretty well. They were -- we were -- and what we announced were really by-and-large updates to existing products that we were -- paying products. We have some products in beta that aren't yet being charged for. But in terms of the rest of what we're talking about, there are updates to our existing products. And so I'd say the uptick in growth and the momentum of that really demonstrates that being well received by the market.

[Operator:]

[Operator Instructions]. We'll go next to Mark Murphy with JPMorgan.

[Matthew Coss:]

This is Matt Coss on for Mark Murphy. Are you able to share the duration for renewal bookings and then also the blended duration for the new and renewal bookings?

[Michael Tuchen:]

I think we have shared that in the past, do you have it off hand?

[Ram Bartov:]

Yes. It's, it's 1.09. It's the same as our prepaid earnings.

[Michael Tuchen:]

So it's the same, the blended average and the individual for renewals is the same...

[Ram Bartov:]

Is the same as the prepaid duration.

[Michael Tuchen:]

At 1.09. Yes, there you go.

[Matthew Coss:]

Okay, got it. That's helpful. And then can you give us a sense of the sort of the non-Cloud, non big data revenue growth rates? And then any critical inputs that we should inform our thinking about regarding that side of the business?

[Michael Tuchen:]

I don't have that at my fingertips. I think it's -- at this point it's relatively flat. If our overall growth rate was 39% and we told you that half of business is big data and cloud, and that's going a 69%, you can do some math and come to the conclusion that roughly about 34.5% of the 39% growth came from big data and cloud. And so the other 4.5% growth came from everything else. And that's just math in my head, that you can do from the other numbers that we released. And so I think -- but I think it also does answer your question.

[Matthew Coss:]

And yes, sure, that's helpful. And then it looks like the pace of sales hiring, the number of people in sales and marketing you hired accelerated quarter-over-quarter. And year-over-year a little bit -- are you accelerating hiring at this point or just opportunistically adding where you can? What does sales hiring look like for the rest of the year?

[Michael Tuchen:]

So we are right now in Q2, it was a business-as-usual quarter for us. In general, most of the hiring happens in the first half. And then Q3 is relatively quiet, typically from a sales hiring perspective, and then in Q4, you really start stepping on it again, building into the following year. And so built into our guidance is an expectation that we're now starting to step on it again in the back half of this year in preparation for 2019. But I would say that the -- the pace of sales hiring that you saw in Q2 was our -- just standard operating plan. There was really nothing unusual about it.

[Operator:]

We'll go next to Brent Bracelin with KeyBanc Capital Markets.

[Clarke Jeffries:]

This is Clarke Jeffries on for Brent. Mike, just on your comments on how large the cloud business could be for next year, correct me if I'm wrong, but I think previously you talked about that as being a deployment choice. Customers are using the SaaS solution compared to the on-premise solution. And that comparison being primarily the data integration or is there a comparable big data platform on premise. When you talk about that number of potentially 50% next year, is that inclusive of things like data streams in all SaaS-based products, in which case migrating SaaS-based -- or migrating current solutions to SaaS could be kind of a tailwind for that number?

[Michael Tuchen:]

Yes. So what we're thinking of is all SaaS-based offerings. So anything where the customer is buying some aspect of Talend Cloud. And so it would absolutely include data streams, it would include the cloud addition of the big data offering or any of the other offerings that we have. And so -- yes, sure, if -- I was thinking about it in terms of new sales in particular, was kind of the prediction that we're doing, if a customer were to take their existing renewal from a premise solution, and renew it into a cloud solution, that would be sort of outside the numbers, not even a tailwind. It's sort of outside the number of the forecast that we gave. It would be nice to see but it's not something that we're currently predicting right now.

[Clarke Jeffries:]

All right. And then any initial expectations for kind of what that duration of that business would look like? I mean, sort of implications for free cash flow?

[Michael Tuchen:]

I think right now durations are relatively stable at that somewhere between 1.0 and 1.1. The one thing that may end up being a somewhat further headwind to that in the coming years, is the advent of more flexible billing terms, whether it be monthly or purely hourly pay as you go. And so I say stay tuned on that as we -- as we see more of that in the mix, we'll see what the overall impact is. But our assumptions are right now that we're going to probably stay overall in that 1.0 to 1.1 range is my guess.

[Operator:]

And with no further questions in the queue, I would like to turn the call back over to management for any additional or closing remarks.

[Michael Tuchen:]

Yes, super. Well thank you, guys, and we look forward to talking more soon.

[Operator:]

This does conclude today's conference. We thank you for your presentation. You may now disconnect.