- A ‘tidal wave’ of data is being digitized and Talend will benefit significantly from that tailwind. ‘If anyone’s going to evolve the data pipe, [Talend] will be the ones to do it.’
- The company is on track to meet its full year 2020 guidance for cloud ARR of $100 million, posting 113% growth in Q3.
- COVID has acted as an accelerant to cloud sales.
In a far-ranging interview with the CEO we discussed the future of the business, the impacts of COVID-19, the role of data governance, and the opportunities ahead for Talend.
One on One with The CEO
It’s been a quiet 2020 for the shares of Talend, the maker of software to transform data for analysis, the stock up just about 2% this year. That is despite better-than-expected results all year long. The forecast offered on November 9th for the current quarter, moreover, was comfortably ahead of expectations.
As she has done often in past, Talend CEO Christal Bemont, who took over the firm earlier this year, sat down with Capital Market Labs to discuss the results and outlook.
Bemont spoke at length about a concept she’s been emphasizing this year, the notion of “trust” of data. She had already pointed out to Capital Market Labs in September that trustworthiness can add value to Talend’s software. This time around, she waxed elegiac about the potential of vast, untamed pits of meaningless data.
“And what I worry about is, what is on the other side of that, what are we doing,” said Bemont. “Are we creating a digital landfill of data that becomes either useless or so hard to parse through?”
Powerful questions, for which the solution set is under development at Talend. Bemont talked about Talend’s new CTO, Krishna Tammana, formerly head of engineering at Splunk. Tammana is going to be instrumental in building out the nascent trust functions, she indicated.
“With Krishna here, because from his time at Splunk he has so much experience, I’m really excited about him being here,” said Bemont. “I feel like next year we are going to be spending a lot of our time looking at what is possible with AI and machine learning” to enable a sense of trust in data, said Bemont.
Bemont also spoke about a newly announced partnership with Snowflake, the data warehouse giant that came public in September. Snowflake is located just up the road from Talend’s Redwood City office, in San Mateo, in Silicon Valley.
Bemont describes Snowflake as “an amazing partner.” The company “cares deeply about governance” and therefore data trust, she said, as an example of how the priorities of the companies are aligned. Asked if the partnership will expand the market, Bemont replied, “I think it expands the market because anything that we do with Snowflake gives us greater exposure to things that we are capable of delivering.”
Asked if Snowflake will eliminate the need for the data pipes that Talend makers, Bemont rejected the notion.
Rather, it is Talend that will someday dis-intermediate itself, she said.
“Do I think at some point the need for pipes will evolve?” asked Bemont, rhetorically. “Yes, and I’m going to tell you, we will be the ones, if anyone, to disrupt that.”
To recap the results, Talend turned in revenue of $72.7 million for the third quarter, and a net loss of 16 cents a share, topping expectations for $69.8 million and a 21-cent expected loss per share.
For this quarter, the company sees revenue in a range of $74.3 million to $75.3 million, ahead of the average estimate for $73 million.
One on One Transcription
Capital Market Labs: Christal, let’s throw it out to you first, as we usually do, tell us about what you think investors should focus on in the results and outlook.
Christal Bemont: There are really three things.
This is the third consecutive quarter that we exceeded the expectations we set relative to guidance on a number of fronts. And everything points back to cloud.
So, we exceeded guidance.
We had over 20%, year over year, in our ARR [annualized recurring revenue], and that’s, I think, great on its own, but I’m really proud of the cloud performance.
Because if you boil it down, that’s the future of our business, and that’s the biggest indicator of our success.
We had a hundred-million-dollar cloud [ARR] number that we targeted from the beginning of the year. And we are right at about $88 million, at the point of our earnings call.
That’s 113%, year over year, and it’s incredible. I’m really excited about it.
Cloud continues to have an accelerant that is coming from COVID.
This is no longer an opportunity alone just to improve or to make a move to the cloud; it has become a necessity.
And I do see the likes of our ecosystem partners with cloud data warehouse, and the movement of people needing to meet their customers where they are at, which means not only to be mobile and distributed in their own workforce, but to meet their customers in a very digital way that takes advantage of reinventing themselves in some cases.
So, cloud continues to be an accelerant that further impacts the value that we bring, which is data is at the heart of everything people do to reinvent or to meet an opportunity.
We gave a couple of examples of customers like GSK [GlaxoSmithKline Plc].
Who better than these amazing customers we have that are in this world of trying to solve the world’s problems, and create opportunity.
GSK was a big marquee customer for us. They were a great customer coming in, but they had already done a migration to cloud.
This was a big project that we had with them that really allowed them to expand across multiple lines of business in terms of gaining efficiencies, supply chain optimization, marketing, finance.
That piece right there is critical because what we see as the future is, this is no longer about a project or a business, this is about your whole company running in a way that you can operationalize it, digitize it, and really start to run your business.
I think it started more as projects, in bits and pieces.
GSK is a perfect example of how the whole company is now running and operating in a way that goes across multiple lines of business.
And I believe this is what will look like in the future. So, this is a great marquee customer for a number of reasons.
The third piece, and I’m really excited about this, it’s probably something that we have talked about this before, I am excited because I feel there is a big gap right now around just the process of moving data and the problems that that could cause.
I feel like there’s a big tidal wave, or tsunami, of data that is being digitized for the reasons we just talked about.
And what I worry about is, what is on the other side of that, what are we doing?
Are we creating a digital landfill of data that becomes either useless or so hard to parse through?
Or, in our case, what we really worry about, we bring it back down to the level of, can you really trust it?
Who has touched it, what are they doing with it?
The ability to substantiate something beyond quality of data.
Quality of data is table stakes. How do we put a lens on who is measuring the health of data in this industry? That’s a big area.
So, third quarter in a row consecutive beat, and exciting results. Cloud is absolutely the key, and we’ve had continued massive growth there with the likes of customers that are expanding across their business like GSK.
And really focusing on, at the end of day, what does this all matter if we can’t trust the data.
And that trust piece is really critical for us to build out our value proposition, quite frankly, that goes beyond just being pipes.
I’m just going to cut it down to the quick here.
It’s not just about being a pipe that takes something from point A to point B.
What’s the there, there, after that?
What do we really stand for?
And our ability to do what all of this is about anyway, is to help people make really good business decisions.
None of it matters if we can’t help companies make it meaningful. I feel really passionate about it, as you can probably tell.
CML: Elaborate on, in addition to your passion for this broadly, was there something in the quarter that pertains to the issue of data trust, or is reflective of that?
CB: Yeah, we have continued the evolution of our trust score.
We had an investor day — the deck is on our web site.
It had a number of things that our new CTO, Krishna [Tammana] — he’s amazing, Krishna came from Splunk.
And we offered an expanded purview into really where we see trust going.
So, the idea that it’s not just in the hands of the developer to actually see the qualifications of trust, but we believe that every single person will be a data creator not just a consumer.
And the need for someone who’s actually at the end point that’s using the data becomes maybe even more critical to know what the level of trust is.
And so, we started to peel that back to show what does that mean, how does that look, where are we going with this?
Ultimately, the thing that we’re really working on is, how do we make sure that anything from an individual to an entire company can run their business on data that’s digitized, and that they can then effect, at a report level, or at a line of business level, or at a company level, a health score.
And if you’re an executive, you can say, my business — when someone asks you how do you measure the success of your business — it really comes down to data points.
Because you’ll say there are five or six different variables of leading and lagging indicators, well how do you measure the success of that data?
How do you measure the health of that?
We empower industries and company leaders, and individuals when they make a recommendation on how to spend money, that they have a trusted source of data.
So, we really unpacked that about what our vision is for it.
And it just continues to resonate with our customers more. And we see that becoming something — here’s when I know it’s catching on and it’s the right thing: We see other people in the industry starting to talk about this, and use these same words.
And those things are when you’re like, yep, there’s a there, there.
So, it really is about Krishna coming in and putting his lens on it, thinking about how do we become the specialists in an area of governance, something that goes beyond quality, and how do we see around corners, and help people see trouble coming, and take advantage of opportunities because of it.
CML: And does it feel like that’s in the product suite today, or a future direction?
CB: We have the trust score today.
Where I see it evolving is in ways that incorporate even more of machine learning and AI, that makes it as powerful as possible.
I’ll give you a couple real-life examples that exist today in the world that no one can solve.
This is a problem I’ve had in business my whole life, and anyone in my operations team, or anyone in business.
I’ll give you a perfect example.
Let’s say that you’ve been running a business for five years and you — you know, one of the things about data that’s interesting, if you think about what instruments your business, people aren’t that creative.
Like, the same pipeline reports and sales metric reports, you go from company to company and, I hate to say it, but, it’s almost like a static way of looking at information.
And so, look, that is going to be improved by the fact that all these different data sources are coming together.
But even if you’ve been running a business on the same reports for the last five years, guess what happens that no one has the ability to catch unless it’s so wildly off: those reports are fed by all these different data sources.
Or jobs running at night.
The job fails one night, you wake up the next morning — and I’ve literally been in this situation — you wake up in the morning, and you’re looking at a report, and you see our Web traffic is really off, what is going on?
Something’s happened here. What is going on? Maybe our investment in Google search? Maybe our SEO?
You start making all these assumptions, and then you’re like, Huh, I don’t know if this report is right.
Well, let‘s maybe spend three hours trying to figure out if it’s right. What happened?
Even on the thing you have been fricking looking at for five years!
One of the things I find really interesting is, who is flagging that something is wrong?
So, in our trust score, if you’re looking at it and know it’s an 82, whatever metric it is, and the next day, you walk in the door and it’s a 40, hello!
That’s the first visual indicator that’s ever existed, in the face of this world, that I’m aware of, that said, hello, there’s something you’re looking that’s not right.
Unless the numbers are so wildly skewed, you don’t know that you’re making a decision on something that’s — we had a situation where someone thought they needed to invest more because their Web traffic fell off, and then the conversion rate had fallen off, and they were looking at this whole cascading situation.
Turned out, a job failed on a Sunday night. They didn’t update the report and it skewed the results.
It was the same thing they looked at.
They spent hours trying to figure out what was wrong, where they needed to spend money, making recommendations, and it was just that the job failed, and no one knew.
So, two things come from that.
One, we have the trust score to say, I know what I should expect from this report, and second of all, an explainability.
So, one, the visual indicators to tell you something is wrong, and then something to tell you what is wrong.
Because people spend hours to figure out, when they do realize something’s off, what the heck has happened, what’s changed.
And those two things may seem simple, but they are really, really important.
And, I just feel really strongly that, if our job really is to do something more than moving data, how do we put ourselves in the intersection making sure that people can — and we use the world very thoughtfully — trust that what they’ve done is actually something they can rely on and they can have confidence in.
And so those are things that are in our product today.
Where I want to go, where I really get excited about, is that kind-of evolved scenario where today, we think we are very innovative as a society, and I actually think we are massively behind.
And, if anything, what COVID has shown is, when people say to me, we rolled out Microsoft Teams or Zoom to 100,000 employees, okay, that’s what you’re excited about?
You should have done that five years ago.
So what? Who cares?
It’s amazing to me that people feel that we are so far ahead, and I think we are so far behind.
So, here’s one with this report scenario that I’ll give you.
I learned it by looking at Qualtrics [a unit of SAP] and talking to Ryan Smith [CEO of Qualtrics] and the founders there.
This is where my thought process comes from.
If I have all this data — and, actually quite frankly, more than any company really realizes they have, which is one of the problems, because you don’t know what you have and what you don’t, that scenario — if I’m looking at this report that I run my business on, and I get a new piece of data, let’s say that it’s my marketing team and the same pipeline report, and the Web traffic report that shows the top of the funnel, and I get a new source of data from my marketing team, they start to look at different sources of data, let’s say, what’s influencing traffic and so forth, I really want to know, I want the system, through AI and machine learning, first to say, there’s a new source of data that is similar to the pattern that you are looking at.
That could change that view.
Do you want to bring that piece of data in to complement the view that you have?
I want the system to be smart enough to recognize that there are other sources out there that could change your view of something, and actually change the way you think about it, and be dynamic, and at least tell you about it, and give you the choice, and be smart enough to be able to pair it in a way that says — because Qualtrics did this, this experience data, where they bring different types of data together in a way that you never thought about it, and it drives you to a different outcome.
That’s where I want to go.
Qualtrics do it in a way that is very different, but the concept was formed in my mind about what’s possible based on being part of that team [at SAP] when Jen Morgan had Ryan, the founder of Qualtrics, reporting to her, and the three of us would work together on — I would work together on some different ideas when I was SAP SAP/Concur.
But when I came here, I applied some of the same principles, and thought, they do it for some very specific ways that just gave me the idea to orient around what’s possible.
And so, when I think of us being a pipe, I’m like, yeah, we need to be the fastest, the easiest, the most nimble, that’s what that should be.
CML: How far are we from this? How far out do you feel that Talend is from all that?
CB: I see that with Krishna here, because from Splunk he has so much experience, I’m really excited about him being here.
I feel like next year we are going to be spending a lot of our time looking at what is possible with AI and machine learning.
And figuring out with our customers and with our partners, there could be some collaboration there.
But I really feel like, first and foremost, before we go there, that is something I want to validate, what is most important to our customers right now, and how do we sequence the things that we can do.
There is a little more due diligence to do in terms of what we bring in, in terms of the level of priorities, and that to me is more important, that we not only meet our customers where they are at today, but also try to get in front of the stuff that they really could use that has the highest priority next.
So, it’s a little bit of prioritization we need to go through first with them.
We just had a product advisory board this week, we have a customer advisory board.
It’s invaluable talking to these customers about how they are benefitting from it.
But also, what they think the world will look like in the future.
CML: On that score, you have announced a partnership with Snowflake. Interesting!
CB: I know. It’s like, how do I say, the pinnacle for everything this year of what’s possible, and how people can see the opportunity.
Snowflake is an amazing partner for us.
I look at them, and I think that they are an example of how excited people are about making this move, and how much is behind it.
One of the things they care about deeply is governance.
And they have some of the same philosophy about making sure that it’s not just about data, just dumping data somewhere.
They have this whole meaningful, you know, sharing data between companies.
When I hear Frank [Slootman, CEO of Snowflake] talk about this marketplace, it’s not just about sharing data within your own four walls.
It’s sharing data across companies.
When you do something like that, there’s nothing more important than trust, and having a handle on your data.
You have to be really careful with that.
So, I think philosophically, we are really aligned. And I get excited about bringing trust to Snowflake as a partner.
Because they are amazing as a partner.
And, anything that we can do to triangulate — there are two people here, Mr. Customer, that are looking at unique ways or specific ways to make you better.
And if we can come together in specific ways with Snowflake, and bring value to our customer that’s even greater than it would have been with either one of us alone, that’s what we’re going to go run after.
CML: Does it feel like it expands the market for you?
CB: You know what’s interesting?
I think it expands the market because anything that we do with Snowflake gives us greater exposure to things that we are capable of delivering.
But I think more than that, one of the things that’s been a little under-served is just the fact that unlike any other vendor in this space, our ability to serve every segment of the market is unique to Talend.
The ability to serve more traditional down-market, like you would see some of the down-market that goes on with Stitch [acquired in 2018], and then go all the way to the more complex needs of Talend Cloud, where customers had, maybe, a hybrid multi-cloud, or they may need to have high levels of governance and oversight of data, and the things that they do with data is more complex.
And really what I think is opening up our addressable market is just the awareness that people are starting to gain or, we actually, when you look at that investor presentation — I think it’s on slide 84 of 87, and I don’t know why I know that, but I think it’s somewhere in there — we put a slide together that shows what our business distribution looks like in terms of different sizes of customers, essentially.
And I think people would be surprised at how well we, and how much of our business sits at that bottom of the market. It’s almost evenly distributed across small, medium, and large customers.
And that to me is the awareness that we get from Snowflake for sure, but it’s people understanding how well we show up at different stages that a company needs.
And then, when you layer on that the trust, it’s just ripe for people getting exposed to us.
It’s simply the ability for us to do the best job of communicating our abilities.
I don’t think it’s about not having them, it’s about getting it out there so people can see it.
CML: One concern that popped up when Snowflake came public was, you know, analysts write these notes saying that you’ll never need to do data cleansing or transformation ever again.
You’ll never do ETL again.
You just dump all your data in the Snowflake warehouse and it figures it out.
CB: What did you think when you heard that?
CML: I thought, well, that’s interesting.
It sounds like pie-in-the-sky theory.
But then, you are much closer to the metal than I am.
These analysts say maybe you never again will need a pipe with Snowflake, you just throw your data at Snowflake, and it magically figures it out.
Is that a concern for you, that they take away some of the need for pipes?
CB: I don’t think it’s where their value is.
Do I think at some point the need for pipes will evolve?
Yes, and I’m going to tell you, we will be the ones, if anyone, to disrupt that.
We will be the ones to make this easier and easier and easier.
Snowflake has a tremendous amount of value in what they bring, and what they do.
Anything they do on this side of it is very, very incremental.
It is not in any way close to — it’s not just the pipe, it’s the ability to get data in quickly and easily and transform it, and to make sure you can use it in a quality way, and to make sure you have governance with it.
Literally, there is a replacement for writing code, it’s a code generator, it’s tiny.
It’s not their area of business.
They have a tremendous business they are focusing on. I don’t see it as a replacement.
Look, they have a lot of partnerships in this arena.
We are not the only ones.
Where I think that comes from, when you go out to IPO, you talk about all the things that are possible, right?
And you look at all of my addressable market, and how do I build my perspective and my thesis on all the things that I could do that are possible?
Well, a lot of people could do a lot of things.
Seems to me they are doing quite well focusing on the thing that they bring value in.
I don’t believe that this is the place that they will be focused on because it’s more than just writing code or replacing code with a product. It goes far beyond that.
And I think that’s what they realized when we talk to them.
Ann-Christel [Graham, Talend’s chief revenue officer] and Chris [Degnan], their CRO, they were just on a podcast for Snowflake, they were just talking about this.
You know, this is more than moving data or dumping data.
It’s about being stewards of this ecosystem and of these customers to say, we have a responsibility beyond here that goes beyond just bulk data loading and data storage.
And yes, we both can do certain things, but if we come together, and we take some of the expertise in governance and trust and overlay it with Snowflake, it makes us both better as an offering to our customers.
And I think that, to me, is the most important piece.
And I look at it and I say, it’s not even about moving the data. That’s not the piece that’s important.
But certainly, look, there’s always going to be a healthy paranoia about what the world is going to look like as it relates to data transformation and data movement.
There isn’t a single part of me that doesn’t believe at some point that landscape will change.
It’s the innovator’s dilemma, right?
I look at it and I say, it’s not a matter of if, it’s a matter of when and how.
And we should be the ones to do it; we should be the ones to disrupt our own market.
And say, it’s not even — that’s table stakes right now to me.
But how do we make that something people don’t have to think about, it’s something that is a means to an end, but doesn’t require the kinds of work, even when you are looking at what people do from the development side today?
Let’s take that effort out of it. It’s certainly better than writing code. You certainly can’t scale code.
If there’s people writing code, there’s a problem; you shouldn’t have to do that.
But beyond just even what the tool can do, how do we make that where, we really get down to where the value is.
And anything that doesn’t have value to it, it becomes as easy, and doesn’t require thinking and doesn’t require resources, or as much oversight, and let’s just get straight to the value.
That’s the boundary we’re going to keep pushing. Which means pushing on our own business.
CML: A couple of housekeeping questions, Christal. Let’s come back, just for a moment, to the matter of cloud and cloud ARR.
Cloud ARR continues to boom. How much of this cloud ARR growth is a reorganization of existing customers to cloud versus brand new customers?
CB: We have a good mix of new and existing customers. And one of the things we announced at this investor conference is that we are moving to a model next year where we will be focusing some employees who wake up every day, and focus on just bringing new customers in the door, new logos in the door, and employees who are working and focusing on the existing customer base and expanding the footprint, as opposed to reps who do both.
But right now, it’s both, almost like an equal mix of customers who are expanding and adding on.
The GSK example is the perfect one, where we have a project that they started that they want to expand to the rest of the business.
So, maybe a little more than 50% new, but it’s still a very healthy mix. That’ll continue.
It’s going to be interesting to see how it evolves. But binging in logos into the door is important for sure.
CML: So, maybe it will expand beyond 50%?
CB: For sure.
CML: But it’s not a hard requirement to do so?
CB: Oh, for sure. It’s over the fifty percent mark now in terms of new logos.
But, the most important thing is — where I see a big opportunity in terms of our addressable market, we have customers today, I’m going to say our penetration is in the low single digits.
And it’s — our customers that we have today — you know, we have 3,250 is the number of cloud customers we said at the time of the earnings call.
And the percent of our customers that are cloud customers, that needs to be eighty percent of their business running on Talend, ninety percent.
So, when you think about just the opportunity that exists within 3,250 customers, that’s massive.
But make no mistake: the ability to bring new logos in the door is laser-focused for us.
And we have teams that are not only focused on new business and clients, we’ll also have teams focused on the SMB market, and more of the mid-tier, and then more of strategic enterprise.
And that further distinction is going to really drive some of that awareness, about showing up in a way that is really intentional.
And there are some competitors in each one of those, but, again, we are really the only one that goes across all three.
So that will even drive more new logo business.
CML: I suspect you’re very experienced in how to proceed in that kind of build-out…
CB: It’s one of the things that I just love to build.
It’s been an amazing ride to see at SAP/Concur, when we had a really mature enterprise business that was not only the market leader but had been for many years, and to pull that business into an equal part of the $2 billion business being SMB.
That’s an amazing experience.
And that’s why I was working with Ryan and Jen Morgan and McDermott and those guys over at SAP, was to think you how do we bring that across SAP.
I’m so excited about it.
And we are embarking on many of those things next year.
You think I’m excited now, you’re going to be, like, I can’t get her off the phone!
CML: I have no problem with that! One other housekeeping thing. Your dollar-based net expansion rate has been well over 100%, which is very impressive. But in the world of software today, investor expectations have been reset to astronomical numbers. The expansion rate for you fell from 122% in Q1 of 2018 to 107% in this just-ended Q3. Why the drop?
CB: Look, I do think we have — if there’s anything I could tie it to, there’s a lot of downsides to COVID, but one of the things is, there are places where budgets are being impacted.
And in those situations, what we really saw if there was any trend at all, in some cases, in some industries, there were some customers who couldn’t expand on projects, they just had to put them on hold for budgeting reasons.
I do think some of that comes at this time of the year as well, as people think about, what do we need to get through the rest of this year, what is next year going to look like.
So, I do think it was largely budget-related relative to caution around COVID, more than it was anything as a change, per se.
CML: But you haven’t had the Splunk had the other night? Doug Merritt [Splunk CEO] said, I haven’t seen this in thirty years, CEOs want to buy the product, and someone like the CFO says, No, we’re not doing it. You haven’t seen that yet?
CB: It’s crazy. I mean, people are having to make hard choices and trade-offs, where they’re going to spend their money.
And I think there’s just a little bit, people in general right now with the vaccine coming, what are we going to expect in 2021 relative to the vaccine, and also where we go put our investments.
Getting through 2020, everyone has handled that a little differently.
We’ve had benefits from COVID, and we’ve also had things like this, where you’re going to see impact.
But we are very fortunate that we haven’t seen it like some industries and some people have.
But that’s cautionary more than anything. Or they’re getting to the end of the year, and they’re, like, we just need to pull back a little bit.
CML: You’re not concerned it’s waiting there for you?
CB: No, no, I’m not. I actually think the opportunity is great to really have expansion, and that’s why we’re putting the strategic resources on really going after it.
CML: Christal, always a pleasure.
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