TALEND S.A.
The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated
financial statements, related notes and other financial information included
elsewhere in this Quarterly Report. The following discussion contains
forward-looking statements, including, without limitation, our expectations and
statements regarding our outlook and future revenue, expenses, results of
operations, liquidity, plans, strategies and objectives of management and any
assumptions underlying any of the foregoing. Our actual results could differ
materially from those discussed in the forward-looking statements. Our
forward-looking statements and factors that might cause future actual results to
differ materially from our recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
Part II, Item 1A. "Risk Factors".
Overview
Our mission is to provide data intelligence for all users by delivering trusted
data when and where is it needed. We are a key enabler of the data-driven
enterprise where data is a strategic asset powering business. Talend Data Fabric
allows customers in any industry to improve business performance by using their
data to create new insights and to automate business processes. Our customers
rely on our software to better understand their customers, offer new
applications and services, and improve operations.
We had 1,395 employees as of June 30, 2021 and we plan to continue to grow our
employee base to address the needs of our global customers as well as to acquire
customers in new geographies. We also plan to continue to invest in new product
development.
Our business model combines our open source approach and direct sales. We
supplement our direct sales and demand generation activities with self-service
trials of our software. Developers and users can download and try the free and
paid versions of our products, creating sales leads for our more feature-rich
commercial solutions. Users of our open source products often catalyze adoption
of our commercial solutions by their organizations, primarily to benefit from
enterprise-grade features that include the scaling out of our offering to a
larger set of users, among others. Following an initial deployment of our paid
subscription products, organizations often purchase more subscriptions or expand
usage to additional products from our fully integrated suite after realizing the
benefits of additional features or scale. We sell our product offerings as
subscriptions based primarily on the number of users.
We generate the majority of our revenue from subscriptions of our commercial
solution Talend Data Fabric. We primarily sell annual contracts billed in
advance. Our subscription offering includes enterprise-grade features and
capabilities to scale our solutions across production environments and customer
infrastructures. These product features and capabilities include scheduling,
management and monitoring of data integration flows, collaboration across a team
of users and technical support. We also provide professional services to
implement our solutions. Our subscription revenue represents a significant
portion of our revenue, growing from 88% of our total revenue in the year ended
December 31, 2019 , to 90% in the year ended December 31, 2020 , to 91% in the six
months ended June 30, 2021 .
We intend to generate profits based on increased sales of our solutions to new
and existing customers. We currently anticipate that at some point in the future
we will be able to increase revenues at a greater rate than increases in our
operating expenses. However, there can be no assurances that we will achieve or
maintain profitability on a consistent basis, that we will increase our sales to
new and existing customers, or that our operating expenses will increase at a
lower rate than our revenue may grow.
COVID-19 Update
Our first priority remains ensuring the safety and health of our employees,
customers and others with whom we partner in conducting our business. In
response to the pandemic, and in line with guidance provided by government
agencies and international organizations, we temporarily closed our offices and
requested our employees work remotely, suspended all non-essential travel and
activated our business continuity plan to continue to support customers while
protecting our employees. We continue, in most instances, to operate our
business remotely. We have also moved all in-person customer-facing events to
virtual ones. The pandemic, which has affected nearly all regions around the
world, and preventive measures taken to contain or mitigate the pandemic,
adversely impacted and in the future may adversely impact economic activity and
caused and may in the future cause significant disruptions in the financial
markets. The COVID-19 pandemic and resulting economic uncertainty negatively
impacted our business. We believe the demand environment for our offerings has
improved and continues to improve. However, we anticipate that the negative
impacts our business experienced in prior periods will continue to have an
adverse impact on our results of operations and financial performance because of
our subscription-based business model. Moreover, a new Delta variant
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of COVID-19, which appears to be the most transmissible variant to date, has
begun to spread across the globe, including in Europe , Asia , and the United
States . The impact of the Delta variant cannot be predicted as this time and we
cannot predict with any certainty the degree to, or the time period over, which
we will be affected by this pandemic.
While we believe the pandemic had certain impacts on our business, we do not
believe there has been, nor are we anticipating, a material impact from the
effects of the pandemic on our operations, financial condition, liquidity and
capital and financial resources; however, the situation is hard to predict,
subject to rapid change, and actual results may differ materially from our
current expectations. The full extent to which the COVID-19 pandemic may impact
our results of operations and financial performance will depend on future
developments, which are highly uncertain and cannot be predicted, including but
not limited to, the duration and geographic spread of the pandemic, its
severity, the effectiveness of COVID-19 vaccines, the actions to contain the
virus or treat its impact, and how quickly and to what extent normal economic
and operating conditions resume. We previously experienced curtailed customer
demand that could adversely impact our business, results of operations and
overall financial performance in future periods. Specifically, we experienced
impacts from reduced IT budgets of customers and potential customers resulting
in deferred purchase decisions, delayed implementation of our products, reduced
renewals of subscriptions by existing customers, and decreases in software
license sales driven by channel partners. However, we have seen a rebound in IT
spending and customers expand the scope of projects in which they are willing to
invest. We have experienced challenges in creating sales pipeline in the absence
of in-person marketing events, which in particular has negatively impacted our
ability to win new customers. During part of 2020 we saw and may see in the
future a slowing in our collections of outstanding accounts receivable and
requested changes in billing terms from some of our customers. We believe the
demand environment for our offerings has improved and continues to improve in
light of an improving macroeconomic backdrop. However, because of our
subscription-based business model, the effect of the COVID-19 pandemic will not
be fully reflected in our results of operations and overall financial
performance until future periods. There has been no impact to our financial
reporting systems, internal control over financial reporting, or any disclosure
controls or procedures.
Even after the COVID-19 pandemic has substantially subsided, we may continue to
experience an adverse impact to our business as a result of its global economic
impact, including any recession that has occurred or may occur in the future.
Specifically, difficult macroeconomic conditions, such as decreases in per
capita income and levels of disposable income, increased and prolonged
unemployment or a decline in business confidence and business investment as a
result of the COVID-19 pandemic, could have a continuing adverse effect on the
demand for some of our products. The degree of impact of the COVID-19 pandemic
on our business will depend on several factors, such as the duration and the
extent of the pandemic, as well as actions taken by governments, businesses and
others in response to the pandemic, all of which continue to evolve and remain
uncertain at this time. We have established a task force to actively monitor the
ongoing COVID-19 pandemic situation and provide updates, current information,
and support to our employees. We remain committed to serving our customers'
needs and to providing creative and flexible customer support. We may take
further actions that alter our business operations as may be required by
federal, state or local authorities or that we determine are in the best
interests of our employees, customers, partners, and shareholders. See the Risk
Factors section for further discussion of the possible impact of the COVID-19
pandemic on our business.
Pending Acquisition by Thoma Bravo
On March 10, 2021 , Talend S.A. (the "Company") entered into a Memorandum of
Understanding (the "MoU") with Tahoe Bidco (Cayman), LLC , an exempted company
incorporated under the laws of the Cayman Islands ("Parent") and an affiliate of
Thoma Bravo, L.P. ("Thoma Bravo"). It is contemplated that pursuant to the MoU,
Parent and the Company shall pursue a series of transactions pursuant to which,
among other transactions, Parent is seeking to acquire for $66.00 per share in
cash (through one or more of its affiliates) all of the issued and outstanding
ordinary shares, nominal value of €0.08 per share, of the Company (the "Company
Shares"), including American Depositary Shares representing Company Shares (the
"ADSs"), and Company Shares issuable upon the exercise of any outstanding
options, warrants, convertible securities or rights to purchase, subscribe for,
or be allocated Company Shares, pursuant to a cash tender offer (the "Offer").
On May 5, 2021 , the Company's board of directors, following the completion of
consultation with the works council of the Company, unanimously determined that
Thoma Bravo's proposed offer is consistent with and will further the business
objectives and goals of the Company and is in the best interests of the Company,
its employees, and its shareholders. The Company's board of directors
unanimously recommended that the holders of ordinary shares and holders of ADSs
accept Thoma Bravo's offer and tender their outstanding ordinary shares of the
Company and ADSs to Thoma Bravo in such offer. In connection with the proposed
acquisition of the Company, Parent commenced a tender offer for all of the
outstanding ordinary shares and ADSs of the Company on June 11, 2021 . The Offer
will expire at 5:00 p.m. (New York City time) on July 28, 2021 , unless extended
in accordance with the terms of the MoU, including as required by the applicable
rules and regulations of the U.S. Securities and Exchange Commission , or SEC . On
July 19, 2021 , the Company announced the receipt of all required regulatory
approvals and clearances, including authorization of the French Ministry of the
Economy and Finance for Thoma Bravo's tender offer. On July 26, 2021 , the
Company held a general meeting of shareholders at which shareholders approved
certain proposals, including with respect to certain transactions to occur
following the consummation of the tender offer that will result in the Company
structurally, but not operationally, redomiciling in the Netherlands . The board
of directors of the Company previously approved those transactions and the
execution of the relevant
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asset contribution and cross-border merger agreements on
The MoU contains certain termination rights for each of the Company and Parent, including if the consummation of the transactions contemplated by the Offer has not been consummated on or prior toDecember 31, 2021 . If the MoU is terminated under certain circumstances, the Company will be required to pay to Parent a termination fee of$47,886,769 . The MoU contains representations, warranties and covenants of Parent and the Company that are customary for a transaction of this nature, including among others, covenants regarding the conduct of the Company's business during the pendency of the transactions, public disclosures, and the use of reasonable best efforts to cause the conditions to the transaction to be satisfied. Key Business Metrics We review a number of metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key business metrics include the following: Annual Recurring Revenue We believe disclosing Annual Recurring Revenue ("ARR") provides greater clarity into our results because it is not affected by revenue recognition differences between our term-based deployed licenses and cloud offerings or contract duration. Our management uses ARR to monitor the growth of our subscription business. ARR represents the annualized recurring value of all active contracts at the end of a reporting period. ARR includes subscriptions for use of premise-based products and SaaS offerings and excludes original equipment manufacturer ("OEM") sales. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our ARR growth rate on a constant currency basis, thereby removing the effect of currency fluctuation. The following table summarizes ARR and its year-over-year growth rate on both an actual and constant currency basis as of the end of each reporting period sinceJune 30, 2020 . The year-over-year growth rate for each quarter was calculated against the corresponding quarter in the prior year. We calculate ARR growth on a constant currency basis by applying the spot currency rate from the last day of the comparative period to the corresponding day in the current period. ARR growth for the period endedJune 30, 2021 was driven by strong demand for our cloud solutions and an improvement in the IT spending environment. June 30, September 30, December 31, March 31, June 30, (Dollars in thousands) 2020 2020 2020 2021 2021 ARR$ 255,926 $ 268,906 $ 288,720 $ 291,496 $ 307,822 Actual FX growth rate 17 % 20 % 19 % 19 % 20 % Constant Currency growth rate 19 % 16 % 15 % 14 % 17 % ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers. Cloud Annual Recurring Revenue We believe disclosing Cloud Annual Recurring Revenue ("Cloud ARR") provides greater clarity into our results because it is not affected by accounting changes or contract duration. Furthermore, the majority of new ARR comes from cloud and providing the metric enables investors to better understand our progress in our shift to cloud. Our management uses Cloud ARR to monitor the growth of our cloud subscription business. Cloud ARR represents the annualized recurring value of all active cloud-based subscription contracts at the end of a reporting period and excludes OEM sales. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our Cloud ARR growth rate on a constant currency basis, thereby removing the effect of currency fluctuation. The following table summarizes Cloud ARR and its year-over-year growth rate on both an actual and constant currency basis as of the end of each reporting period sinceJune 30, 2020 . We calculate Cloud ARR growth rate on a constant currency 23 -------------------------------------------------------------------------------- Table of Contents basis by applying the spot currency rate from the last day of the comparative period to the corresponding day in the current period. The year-over-year growth rate for each quarter was calculated against the corresponding quarter in the prior year. Cloud ARR growth for the period endedJune 30, 2021 was driven by strong demand for our cloud solutions and an improvement in the IT spending environment. June 30, September 30, December 31, March 31, June 30, (Dollars in thousands) 2020 2020 2020 2021 2021 Cloud ARR$ 74,992 $ 87,822 $ 108,483 $ 119,328 $ 134,096 Actual FX growth rate 128 % 113 % 101 % 95 % 79 % Constant Currency growth rate 130 % 109 % 95 % 88 % 74 % Cloud ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. Cloud ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. Cloud ARR is not a forecast and the active contracts at the end of a reporting period used in calculating Cloud ARR may or may not be extended or renewed by our customers. Subscription Revenue Growth Rate Subscription revenue is primarily derived from the sale of subscription-based license agreements to our customers. The growth of our subscription revenue reflects our ability to renew subscriptions with our existing customers, expand the sales of existing and new products within our existing customer base and sell our products to new customers. We believe subscription revenue growth is an important performance metric because it reflects the adoption of our software. Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on our results of operations. Management uses the constant currency subscription growth rate to monitor the growth of our subscription business absent currency fluctuations. The table below shows our subscription revenue growth rate on both an actual and constant currency basis for the past five quarters, calculated against the corresponding quarter in the prior year. We calculate revenue on a constant currency basis by applying the average monthly currency rate for each month in the comparative period to the corresponding month in the current period. Three Months Ended June 30, September 30, December 31, March 31, June 30, 2020 2020 2020 2021 2021 Actual FX rates 16 % 20 % 20 % 19 % 21 % Constant Currency 17 % 18 % 17 % 14 % 16 % Number of Customers Above a Certain ARR Threshold We believe our ability to increase the number of customers above a certain threshold is an indicator of our ability to penetrate large enterprise customers and is therefore monitored by management and we believe provides useful insight to investors. We track and disclose the number of customers that, as of the end of the relevant period, have ARR of$0.1 million or more. The following table summarizes on a quarterly basis sinceJune 30, 2020 the number of customers that have, as of the end of the relevant period, ARR of$0.1 million or more. Three Months Ended June 30, September 30, December 31, March 31, June 30, 2020 2020 2020 2021 2021 Customers count 614 642 678 665 705 As we continue to expand the sales of existing and new products within our existing customer base, over time we expect more of our existing customers will cross the$0.1 million ARR threshold, driven particularly by cloud customers as we increasingly focus our resources on our cloud offerings and the overall market shifts to cloud. However, this increase may not 24 -------------------------------------------------------------------------------- Table of Contents materialize if we do not successfully renew subscriptions with our existing customers, particularly if our term-based deployed license results fall below our expectations. Note that due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, this metric is impacted by currency changes from period to period. Dollar-Based Net Expansion Rate Our ability to generate and increase revenue is dependent on our ability to maintain and grow our relationships with our existing customers. We believe our ability to retain customers and expand their subscription revenue over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships and is therefore monitored by management and, we believe, is useful information for investors. We track our performance in this area by measuring our dollar-based net expansion rate. Our dollar-based net expansion rate increases when customers expand their number of subscribed users or use additional Talend Data Fabric applications. Our dollar-based net expansion rate is reduced when customers reduce their number of subscribed users, use fewer Talend Data Fabric components, or cease to be customers. We calculate our dollar-based net expansion rate by dividing our recurring customer revenue by our base revenue. We define base revenue as the subscription revenue we recognized from all customers during the four quarters ended one year prior to the date of measurement. We define our recurring customer revenue as the subscription revenue we recognized during the four quarters ended on the date of measurement from the same customer base included in our measure of base revenue, including revenue resulting from additional sales to those customers. This analysis excludes revenue derived from our OEM sales. We expect our dollar-based net expansion rate to potentially decline as we scale our business, particularly as market demand for term-based deployed solutions continues to contract. Further, in the future we may experience greater customer loss or reduction in contract renewals if customers are subject to renewed IT budgetary constraints related to future COVID-19 developments and macroeconomic conditions, which would negatively impact this measure. Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our dollar-based net expansion rate on a constant currency basis, thereby removing the effect of currency fluctuation. The following table summarizes our quarterly dollar-based net expansion rate sinceJanuary 1, 2020 on both an actual and constant currency basis. We calculate dollar-based net expansion rate on a constant currency basis by applying the average monthly currency rate for each month in the comparative period to the corresponding month in the current period. Three Months Ended June 30, September 30, December 31, March 31, June 30, 2020 2020 2020 2021 2021 Actual FX rates 108 % 107 % 108 % 110 % 113 % Constant Currency 110 % 107 % 107 % 108 % 109 % Non-GAAP Financial Measures To provide additional information regarding our financial results, we report free cash flow and customer acquisition costs, financial measures not calculated in accordance with GAAP, within this Quarterly Report. Free cash flow and customer acquisition costs as defined by us may not be comparable to similar measures used by other companies. We have included free cash flow and customer acquisitions costs in this Quarterly Report because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. Each of these non-GAAP financial measures has limitations as an analytical tool and you should not consider them in isolation or as a substitute for analysis of our cash flows, sales and marketing expenses, or any other performance measure reported under GAAP. Free Cash Flow We define free cash flow as net cash from (used in) operating activities less net cash used in investing activities for purchases of property and equipment and intangible assets, except for those acquired as part of a business combination. We believe that free cash flow provides investors useful information in understanding and evaluating our results of operations in the same manner as our management and board of directors. The table below shows our free cash flow for each of the three and six months endedJune 30, 2021 and 2020, and a reconciliation to the most directly comparable GAAP measure for such period (in thousands). We expect free cash flow during fiscal year 2021 to be negative. 25
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Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net cash from operating activities
781 716 1,862 3,165
Free Cash Flow $ (14,583) $ (15,815) $ (7,997) $ (15,416)
Customer Acquisition Costs
We monitor sales efficiency through our customer acquisition costs. We define
customer acquisition costs, or CAC, as our trailing twelve month non-GAAP sales
and marketing expenses, which excludes share-based compensation expense and
other expenses, divided by the year-over-year change in total ARR. We believe
that CAC effectively measures the cost required to generate a dollar of net new
business and provides useful insight to our investors about the efficiency of
our sales and marketing activities.
The following table shows our CAC on a quarterly basis and a reconciliation to
the most directly comparable GAAP measure for such periods. The sales and
marketing expense, as reported on a GAAP and non-GAAP basis, are each presented
on a trailing twelve month basis in the following table.
(Dollars in thousands, except CAC June 30, September 30, December 31, March 31, June 30,
measure) 2020 2020 2020 2021 2021
GAAP Sales and Marketing expense
12,802 14,367 15,942 15,726
Other expenses(1) 716 716 716 $ 82 $ -
Non-GAAP Sales and Marketing expense
$ 145,469 $ 148,901 $ 151,855 Prior year period ARR$ 218,021 $ 224,761 $ 243,137 $ 245,943 $ 255,926 Ending ARR 255,926 268,906 288,720 291,496 307,822 Net New ARR$ 37,905 $ 44,145 $ 45,583 $ 45,553 $ 51,896 CAC 3.5 3.2 3.2 3.3 2.9
(1) Other expenses include expenses related to the reorganization of our business model in emerging markets.
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Results of OperationsThe following table sets forth our consolidated statement of operations (in thousands). The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
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