Talend S.A.
Q4 2018 Earnings Call Transcript

Published: 15 Feb 2019

[Operator:]

Good day and welcome to the Talend’s 4Q and FY2018 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 ma’am.

[Lisa Laukkanen:]

Thank you. This is Lisa Laukkanen, Investor Relations for Talend, and I'm pleased to welcome you to Talend's fourth quarter and fiscal year 2018 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 our actual results, performance or achievements to differ materially from those contained 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 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-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 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 of use of technologies, products or services or vendors. And now let me turn the call over to Mike Tuchen, Talend's CEO.

[Mike Tuchen:]

Thanks, Lisa, and thank you all for joining us. We’re pleased to report a solid finish to the year as we continue our cloud momentum. Our success comes from both new customers adopting our data integration platform and existing customers expanding their use and is being fueled by the ongoing market shifts to the cloud. We achieved record total revenue of $55.7 in the fourth quarter, up 34% year-over-year. For the fiscal year, we achieved record total revenue of $204.3 million, up 38% from fiscal year 2017. Some additional highlights from the quarter include

[Adam Meister:]

Thank you, Mike. Today I will review the financial results for the fourth quarter and fiscal year 2018, as well as provide our outlook for the first quarter and fiscal year of 2019. To begin, I'd like to address the feedback we've heard regarding the current complexity of our financials and their effect on our expectations for 2019. There are three structural impacts belying the momentum of our business. The adoption of ASC 606, the growing proportion of cloud subscriptions, which are entirely ratable for revenue recognition and foreign exchange. As Mike mentioned, we're disclosing annualized recurring revenue to provide greater clarity into our results given it is not affected by accounting changes, cloud shift or contract duration. We'll disclose ARR as long as those factors obscure our financial results. Annualized recurring revenue was $198.1 million as of December 31, 2018, and grew 33% year-over-year. We defined ARR as the annualized value of all active contracts contributing to revenue at the end of the period. This measure includes Stitch, which accounted for 2% of total ARR as of December 31. We are breaking out the contribution from Stitch as a onetime disclosure. Please note we are reporting Q4 2018 financial results under U.S. GAAP as required when we became a domestic filer on January 1, 2019. As we have previously discussed, the translation from IFRS to GAAP did not have any impact on our financials. Total revenue for the fourth quarter was $55.7 million, up 34% year-over-year. Subscription revenue for the fourth quarter was $48.8 million, up 38% year-over-year. Please recall under ASC 606, we recognized 10% of premise software sales immediately and the remainder ratably over the contract term. Under ASC 605, where we recognized all subscriptions ratably, subscription revenue would have been $46.8 million, representing 33% year-over-year growth. Total revenue for the year was $204.3 million up 38% year-over-year. Subscription revenue for the year was $174.9 million, up 39% year-over-year. Under ASC 605, subscription revenue would have been $170.4 million, representing 35% year-over-year growth. Foreign exchange negatively impacted subscription revenue growth by two percentage points in both the fourth quarter and for the full year. The strong demand for Talend Cloud our SaaS offering continued in the fourth quarter. Talend Cloud represented 25% of new ARR for the fourth quarter, up from 14% in Q3. We are very pleased with our progress in Q4 and continue to target Talend Cloud to reach half of new ARR exiting 2019. Most of our offerings are now available via Talend Cloud and all new products will be cloud native. Subscription revenue from Talend Cloud grew more than 100% year-over-year for the tenth consecutive quarter. Talend Cloud does include Stitch, which contributed $642,000 of revenue in Q4 since the transaction closed on November 9, 2018. For comparison purposes, on a stand-alone basis, for the nine months ended September 30, 2018, Stitch generated $2.2 million of revenue. Talend Cloud is beginning to contribute to growth of the enterprise customers, defined as companies with 100,000 or more of annualized subscription revenue where their number grew by 34% and reached 472 this quarter. Although, we continue to set new record highs in cloud transaction sizes, most Talend Cloud deals are new lands, which tend to be smaller than our later expansion deals. As a result, the contribution of subscription revenue from enterprise customers remained at 67% in Q4 2018. We expect this mix to be relatively stable for the near-term to medium-term as we focus on Cloud lands. For the quarter ended December 2018, our dollar-based net expansion rate was 120% in constant currency. As we have stated on prior earnings calls, our dollar-based net expansion rate, which excludes monthly customers, can fluctuate quarter-over-quarter. It is important to note that this revenue-based metric was boosted by a few percentage points during 2018 due to ASC 606 adoption. Professional services revenue was $7.2 million in the fourth quarter, up 14% year-over-year. For 2018, professional services revenue was $29.4 million, an increase of 30% from the prior year. Professional services slowed in Q4 as Talend Cloud sales typically have a smaller professional services requirement. Growth in professional services will moderate during 2019 as our cloud mix increases. Our primary focus remains on enabling our systems integrator partners to supplement services demand from our customers. Before I move to profit and loss items, I would like to point out that unless otherwise specified, all expense and profitability metrics I'll be discussing going forward are non-GAAP results. A full reconciliation between GAAP and non-GAAP results can be found in our earnings release issued today and available on our website. Our total gross margin for fourth quarter was 78% compared to 77% in the same period last year. Total gross margin for 2018 was 77% consistent with the 77% in 2017. We expect Talend Cloud to impact gross margins slightly in 2019 as we expand our cloud operations. Operating expenses for the fourth quarter were $48 million, up 20% year-over-year. Operating expenses for the fiscal year were $174 million, up 29% year-over-year. Sales and marketing expenses for the quarter were $28.8 million, up 15% year-over-year. Sales and marketing expenses for 2018 were $106.4 million, up 26% year-over-year. Note these results were positively impacted by the adoption of ASC 606, which requires capitalization of commission expense. Our sales and marketing headcount increased from the prior year by 26% to 459 employees. R&D expenses for the quarter were $10 million, up 35% year-over-year. R&D expenses for 2018 were $34.7 million, up 37% year-over-year. The increase was driven by additions to the team as we scale our cloud products and operations. G&A expenses for the quarter were $9.1 million, up 20% year-over-year. G&A expenses for the full year 2018 were $32.9 million, up 30% year-over-year. We incurred an operating loss for the quarter of $4.8 million or 9% compared to an operating loss of $8.2 million or 20% in the fourth quarter of 2018. For the fiscal year 2018, we incurred an operating loss of $16.7 million or 8% compared to an operating loss of $20.2 million or 14% in 2017. The adoption of ASC 606 benefited 2018 operating margin by 5 percentage points. This impact will normalize this year and we expect operating margins to improve throughout and beyond 2019. We believe prioritizing investment in our cloud transition this year is critical as we push forward to half of new ARR in the cloud exiting 2019. Net loss for the quarter was $3.9 million compared to a net loss of $8.1 million in the prior year period. Net loss for the year was $15.5 million compared to a net loss of $22.7 million in 2017. For 2018, free cash flow was a loss of $1.8 million compared to a free cash flow loss of $4.5 million in 2017. Cash flow for the year was impacted by $1.5 million of non-recurring expenses related to the acquisition of Stitch and follow-on transactions. We have always taken a balanced approach to growth and cash flow and continue to do so. We expect to remain approximately free cash flow neutral for the full year of 2019; and as a result, are comfortable with our cash position from an operating perspective. As of December 31, 2018 we had cash and cash equivalents of approximately $33.7 million. I would like to highlight the metrics that we will be providing going forward on a quarterly basis. Subscription revenue in constant currency adjusted year-over-year growth; total ARR in year-over-year growth; Talend cloud as a percentage of new ARR in the period; dollar-based net expansion rate and enterprise customer count and growth. Going forward, we will no longer provide the combined cloud and big data subscription growth rate or combined subscription revenue contribution, given that we are providing additional disclosures for the cloud. We will continue to provide color on trends for our on-premise big data business. Before providing guidance for Q1 in 2019, I'll summarize the structural impacts between our Q4 2018 results and forward guidance. Adoption of ASC 606 provided a tailwind of 5 percentage points to subscription revenue growth. This tailwind will not continue in 2019. We expect our increasing cloud mix will create 2 to 3 percentage points of revenue growth headwind during 2019, given these are entirely ratable subscriptions. Based on FX rates, so far this year, we expect a 2% to 3% reduction to growth for Q1 2019. Professional service resulted in a few points of drag on revenue growth in Q4 2018 and we expect that trend to continue in Q1 and for the full year of 2019. Finally, we still expect Stitch to contribute $6 million of subscription revenue and negatively impact operating margin by approximately 2 percentage points in 2019. Now for the Q1 and 2019 fiscal year guidance, which assumes similar business conditions and foreign exchange rates as of January 31, 2019. For the first quarter of 2019, total revenue is expected to be in the range of $56 million to $57 million. Loss from operations is expected to be in the range of $18.9 million to $17.9 million, and non-GAAP loss from operations is expected to be in the range of $9.3 million to $8.3 million. Net loss is expected to be in the range of $19.3 million to $18.3 million, and non-GAAP net loss is expected to be in the range of $9.6 million to $8.6 million. Net loss per basic and diluted share is expected to be in the range of $0.64 to $0.60, and non-GAAP net loss per share is expected to be in the range of $0.32 to $0.29. This is based on a basic and diluted weighted average share count of 30.3 million shares. For the full year 2019, total revenue is expected to be in the range of $248 million to $250 million. Loss from operations is expected to be in the range of $80.3 million to $78.3 million, and non-GAAP loss from operations is expected to be in the range of $27.3 million to $25.3 million. Net loss is expected to be in the range of $81.9 million to $79.9 million, and non-GAAP net loss is expected to be in the range of $28.9 million to $26.9 million. Net loss per basic and diluted share is expected to be in the range of $2.67 to $2.60, and non-GAAP net loss per share is expected to be in the range of $0.94 to $0.88. This is based on a basic and diluted weighted average share count of 30.7 million shares. With respect to our expected revenue trends by quarter for 2019 consistent with prior seasonal patterns, we do not expect sequential growth in the second quarter and we expect revenue to increase sequentially in the third and particularly fourth quarters. Given the shape of this revenue curve and the ramping of expenses, investors should expect our bottom line results to be weak or sequentially in the first half and stronger in the second half of 2019. To summarize, our total ARR growth of 33% demonstrates our strong continued momentum, that growth will moderate some over the course of this year as we scale and given our conservative assumptions for our on-premise big data offering. With the impact of ASC 606 behind us in 2019, constant currency subscription revenue growth will largely normalize over the course of this year. We are excited at our opportunity this year and particularly exiting 2019 with Talend Cloud is the largest contributor to new business. Our market leadership, strong customer and ecosystem partnerships and continued innovation and position us well to take advantage of this long-term industry shift to the cloud. Let me turn the call back over to Mike for some final comments.

[Mike Tuchen:]

Thank you, Adam. 2018 was a transformative year for Talend as we strengthened our cloud capabilities and made strong traction in growing our cloud business. We further accelerated our cloud momentum with the acquisition of Stitch enhanced our sales strategy with a new frictionless channel. Additionally, as validation of our technological leadership for the third consecutive time, we secured our position as a leader in the 2018 Gartner Magic Quadrant for data integration tools. And for the first time, Talend was recognized as a leader in the Forrester Big Data Fabric weight. Talend has positioned to capitalize on the market shifts to the cloud by scaling our business through investments in sales, marketing and R&D, while maintaining cash flow neutral. As we look to 2019, we’re focused on driving continued demand for offerings and empowering our customers with ability to work with their data in real-time operational and analytical scenarios, which meet their specific needs. Our goal is to continue to drive cloud adoption by expanding our product and service offerings in the coming year. We expect our cloud offerings become an increasing contributor to our overall business and represent the majority of our new ARR in Q4. With that, Adam and I would be happy to take your questions. Operator?

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from Raimo Lenschow with Barclays.

[David Reichel:]

Hey guys, this is actually David Reichel on for Raimo. Thanks for taking our questions and nice to see an healthy ARR number like that. So thanks for providing. Maybe I’ll start with a question for Mike and then I have a follow-up for Adam. Mike, when we think of the different product groups, could you give us a little update on what you are seeing in the field for the on-prem big data business or product. And how should we think of that installed base eventually moving to Talend cloud, what kind of uplift and what kind of headwind we'll get in the big data business there.

[Mike Tuchen:]

You bet. Thanks David. What we're seeing right now is that, as we've talked about before the majority of our new customers are choosing Talend cloud as the way to solve their big data problems. It's a far more streamlined approach, more scaleable, easier to take advantage some of the advance cloud capabilities like machine learning and so on. What we're seeing right now is, our existing big data customers, premise big data customers are still expanding their deployment at a healthy pace. And that's blending with fewer new customers choosing to go with premise big data and instead solving their big data problems in the cloud. We believe that in the medium-term over the course of the next couple of years that the revenue growth for big data probably starts to look like the overall revenue growth for our non-cloud business. As it starts to have a more similar set of characteristics to non-cloud business. Cloud business of course is in hyper growth and we expect it to be in hyper growth for years to come given the overall market trends.

[David Reichel:]

Okay. That makes sense. Thanks, Mike. And Adam, maybe just a quick question on the revenue guide. When ARR growing 33% this year, that's a forward looking metric. NER at 120% this quarter picking up, that's nice. Basically your guide implies no net new business, and I understand some of the moving parts that you discussed. But can you dig a little bit deeper into like the assumptions and what's driving that – expectation that NER goes down next year.

[Adam Meister:]

Sure, happy to take that. Really David, this connects to the structural impacts that I walk through in my comments before within guidance. And we laid this out actually in a bridge in the investor deck that's available on our website now on Page 23. Overtime ARR growth and subscription revenue growth are going to converge. The ratable shift related to cloud will sustain for some period of time. But in the long run those two things should look very similar. And so taking kind of that relative to a 21% growth rate for Q1 of 2019 from our guidance there is 7 points to 9 points of structural elements, the ratable shift, FX impact based on what we're seeing currently and the impact of PS growth moderation in Q1 that gets to that low 20s number for Q1 and for the full year.

[David Reichel:]

Make sense. So no expectation for expansion rates to actually start trending down.

[Adam Meister:]

No. I think it's important to note that expansion rate number that we have always disclosed is a revenue based metric, and so there is – there has been a bit of a benefit related ASC 606 during the course of 2018 that will go away in 2019. That's a couple of percentage points.

[David Reichel:]

All right, that's super helpful. Thanks guys. Congrats again.

[Operator:]

Thank you. We'll take our next question from Jack Andrews with Needham.

[Jack Andrews:]

Well, good afternoon and thanks for taking my question. I was wondering, you continued to post some very strong international growth in particular. And so I was wondering, are there any regional changes in your go-to-market strategy that you've implemented given that international regions may have a slightly different business mix? I mean, for example, my understanding is that international regions may not have large on-premise Hadoop installations like the United States does. So is there anything that you're doing differently by region that's helping to fuel that international growth?

[Adam Meister:]

I would say, what we're seeing is some different specific regional growth drivers. And it's less about a difference in go-to-market strategy. So for example, Europe, which has been showing really nice growth over the last year, it has a very strong driver in the GDPR regulation, which went into force last spring. And so that drives demand really for data broadly as companies really need to clean up their data infrastructure to meet the compliance requirements. Asia is in a secular growth trend, as companies are going through a digital transformation and we are seeing quite a bit of demand for big data in that region. The U.S., as you said had really bought into a lot of premise big data in the previous couple of years and is now in the midst of a rapid transition over to the cloud. So we're seeing different specific demand drivers, but that's not really as much of go-to-market strategies, as it just simply reflecting what's going on in the regions.

[Jack Andrews:]

Okay, thanks. And just as a follow-up, could you expand a little bit more on your comments regarding the gross margin profile of the cloud versus the on-premise business? Should these roughly be the same overtime as cloud continues to scale or how do we think about the overall gross margin profile of your company as cloud integration increase?

[Mike Tuchen:]

Sure. Overtime, cloud obviously, going to be a slightly lower gross margin than a pure install business given the cost of cloud operations to support that. We don't think that's a huge difference. I think the impact of that in 2019 is relatively small. It's not as substantial disconnect for us as it would be for some other cloud businesses.

[Jack Andrews:]

Great. Thanks for taking my questions.

[Operator:]

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

[Tyler Radke:]

Hey, thank you. Good afternoon. So Adam, I was wondering if you could talk about the profitability guidance for 2019. I know, you mentioned two points of headwind from the Stitch acquisition, but even if you back that out, it's looking like you're not expecting margins to improve, and in fact the midpoint would suggest even – at Stitch, they're getting a little bit worse yet you've improved margins for kind of the last four or five years as a company. So just wondering, if you could walk us through what's implied in that outlook.

[Adam Meister:]

Yes. I’m happy to. We really organize the company in our budgeting process around that cash flow neutrality. And so as we think about 2019, our starting place was cash flow breakeven. And so our operating margin guidance and expectations are really a function and output of that. I think it's important to know Tyler that last year, there was about a five point benefit to the operating margin related to 606. And so that's something you have to normalize when you're looking at the trend over the last couple of years. But really what's implied in the guidance is, the way the math works out to solve for a cash flow breakeven target for the full year.

[Tyler Radke:]

I guess quick follow-up to that. Is there – what would be driving a lighter divergence of cash flow margin versus operating margin in 2019 relative to 2018? Is it the shift to cloud? Or can you help me understand that?

[Adam Meister:]

Yes, it’s a little bit of the shift to cloud, right, because the more we have as fully ratable transaction; there is actually a greater depression to revenue. But then that's all made up of course on the cash flow statement with deferred revenue.

[Tyler Radke:]

Okay. And then a question for Mike. I'm curious just now that you've seen Stitch kind of integrated and you're working through some of the strategies. What have you observed just competitively in the field either from the larger players like the Informaticas, who I think your – your win rates probably could be – you'd like to see them better than they currently are. And then again you mentioned Fivetran and some of these other smaller competitors. Just what have you observed from a competitive perspective now that the acquisitions closed?

[MikeTuchen:]

Right now, we are actually very happy with our competitive win rates. With Stitch we're super excited about the opportunity that frictionless brings. It's a dramatically higher velocity and more streamlined go-to market motion for us. And so, the number of new customers that we're able to acquire with Stitch is really exciting to us. In terms of the competitive scenarios there I haven't seen a competitive offering from any of the large legacy incumbent players. And so, the competitive environment really is entirely limited to some of the new entrance and you mentioned one of them Fivetran, there's another one called the Alooma. So really there are only a couple of players out there. We're finding a lot of excitement amongst the overall partner ecosystem to work with us to help solve the broader end-to-end customer problem. Because uniquely on the market, we're the only player that can get you started in a couple of minutes with Stitch and they continue to scale up and solve your most complex problems as they present themselves as you need to do more transformations that you need to solve the data quality problems as you need to solve the catalog and compliance and governance problems. We're the only player in the market. They can start fast and simple and get you live, and also solve that broader trust problem. So we're seeing a lot of interest both from customers and from partners and going to market with us.

[Tyler Radke:]

Thank you guys

[Operator:]

[Operator Instructions] We'll take our next question from Brent Bracelin with KeyBanc Capital Markets.

[Brent Bracelin:]

Thank you and good after noon. Couple for Mike if I could and then one for Adam. Mike, given some of the personnel changes in the sales team, I was just wondering if you could talk a little bit more about kind of your thoughts around go-to-market changes here particularly as you're looking to kind of elevate the cloud mix. What's your current kind of thinking on what needs to change to kind of accelerate momentum around cloud?

[MikeTuchen:]

You bet. So our previous EVP of Sales, Brad, did a really nice job. When he came in, the company was about $60 million, helped to grow the company up to $200 million, significantly strengthened the team along the way and really wish him the best of luck in his next steps career wise. For us, as we scale from a $200 million company to a $500 million and $1 billion company that these – scaling the business is one attribute and another one that you touched on is becoming more and more of a purely cloud company with a strong frictionless component, as a high velocity land followed by a significant enterprise expand. And so it’s really those attributes that we’re solving for both the overall scale as well as this new cloud native kind of model.

[Brent Bracelin:]

Got it. Helpful color there. And then Mike on Stitch, we picked up Shopify as a use case, using Stitch to migrate off of their legacy data lake to kind of a Google big query. What have some of the use cases that are becoming more popular, is that a use case, that for Stitch that that this resonating? Are there others? any sort of kind of use case that you’d say is boiling to the top that customers are really migrating that solution for? And then again, one quick follow-up for Adam.

[Mike Tuchen:]

You bet. So, the use case is the super broad one, and it’s really any time using a cloud data warehousing, whether the migrating from something else or starting new in a greenfield way with a new scenario and leaving the migration for later from whatever they used to use. What we’re finding is that most customers right now want to get started with some data immediately improved to themselves that they’re happy with their new set of technical solution providers. And so are we in the right cloud? Are we using the right data warehouse? Are we using the right analytical scenario and BI and so on? And so in that scenario, they really want to get live as quickly as they can with some real data. And Stitch allows them to do that. They’re alive literally in minutes and just a couple of clicks in a website and swiping credit card. And so what we’re finding is it’s not one specific scenario like in one vertical or anything. What it really is broadly speaking across any analytical data warehousing scenario that’s it’s being done in the cloud. This really is turning into the preferred way to land the solution as an initial getting started approach.

[Brent Bracelin:]

Helpful color there. And then Adam, obviously encouraging to see kind of positive free cash flow in Q4, the guide, the neutral free cash flow kind of balance in 2019. I guess my question is really around net dollar retention you talked about, maybe 200 basis point of benefit last year that goes away. Do you expect any sort of change in that net retention ratio above that as we think about the lands around cloud maybe being smaller, and initially, you won’t get as much of a benefit. I’m just trying to think through what other factors should we kind of bake in just to be conservative around the net dollar retention as this business model shifts? Thanks.

[Adam Meister:]

Sure. Happy to talk you that that. So, as I think pretty typical, those net expansion rates for company is moderate over time. And so we’re rooted and how we think about the outlook, beyond the accounting kind of change impact that that I mentioned. There’s nothing in a structural that went back to this year. There’s a put and a take to what you described from the cloud perspective. Could we see migrations to customers and that have some headwind? Sure. We don’t price differently between cloud and on-prem. So, if it’s a straight migration, there wouldn’t actually be an issue. And on the foot side is – if cloud deals are smaller to start, we believe and we hope that they’ll actually offer a much larger expansion opportunities over time, which actually be a boost to that number. So, there are some puts and takes, I think, I think you what you walk through and it’s assuming at a steady state with some moderate decline there is probably the best way to think about it.

[Brent Bracelin:]

Helpful color. Thank you both.

[Adam Meister:]

Thanks, Brent.

[Operator:]

[Operator Instructions] And we’ll take our next question from Mark Murphy with JPMorgan.

[Matt Coss:]

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. Can you talk about the average deal sizes in the billings duration mix for Stitch, compared to Talend or if not, what has Stitch done to your deal sizes? And then Stitch customers can get started pretty quickly without committing much capital, what have you seen to be the conversion rate of those customers, who are just getting things up and running quickly and how – at what rate did they turn into more meaningful relationships?

[Adam Meister:]

Yes. the Stitch business model is fundamentally different than in talend. So, I want to be clear that when we talk about prebuilt duration, it excluded the impact of all monthly relationships, which would be stitch as well as the handful that we have for Talend directly. And so as Mike has mentioned, really a high velocity landing vehicle for us, that comes with much larger – much smaller initial lands, a higher natural churn rate. And so what I really think about that business as – can I run it as a positive unit economics mechanism to land new opportunities to upsell over time. And so when we talk about average deal size and duration, we’re going to continue to talk about that on a committed contract basis, where there’s a Talend sales rep involved. That’s going to be the cleanest way for you to think about the trends and really separate the two pieces.

[Matt Coss:]

Got it. Thank you. Then one more, just quickly, can you update us on the traction that you’re seeing in a self-service data prep offering?

[Adam Meister:]

Yes. Self-service data prep right now is – it’s an attach – the other things that we do, which rarely sold as a standalone offering. Our belief statement right now is that, it probably becomes more and more a set of features into other offerings in the market over time, either from us or from – we’re all seeing it being integrated into some of the BI players offerings and so on. And so I think it likely becomes less of a standalone category in the next couple of years, then we – or I think much of the market was anticipating a year or two back.

[Matt Coss:]

That’s helpful. Thank you.

[Operator:]

And we’ll take our next question from Bhavan Suri with William Blair.

[David Griffin:]

Good afternoon. This is actually David Griffin on for Bhavan. Thanks for taking our questions. Just one quick one on the sales organization and your investment plans there as it relates to expansion in 2019, what type of growth in sales and marketing headcount can we expect to see?

[Adam Meister:]

We ramped – we ramped quite – headcount quite a bit in the back half of the year. And so there’s still a decent amount of population coming up the learning curve, sales and marketing headcount and grew in the mid-20s in Q4. I would expect that to be pretty consistent next year as well. It might come down slightly. So that’s probably I used to think about sales productivity incapacity.

[David Griffin:]

Got it. That’s helpful. Thank you.

[Operator:]

And there are no further questions at this time. So that will conclude today’s conference. We do thank you for your participation and you may now disconnect.