Company Quick10K Filing
Talend
Price35.28 EPS-2
Shares31 P/E-22
MCap1,086 P/FCF-66
Net Debt-45 EBIT-49
TEV1,041 TEV/EBIT-21
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-17
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-02-28
20-F 2017-12-31 Filed 2018-03-05
20-F 2016-12-31 Filed 2017-03-07
8-K 2020-05-06 Earnings, Exhibits
8-K 2020-04-28 Enter Agreement
8-K 2020-03-30 Accountant, Exhibits
8-K 2020-03-17 Regulation FD
8-K 2020-03-02 Enter Agreement, Off-BS Arrangement
8-K 2020-02-20 Officers, Amend Bylaw, Exhibits
8-K 2020-02-13 Earnings, Exhibits
8-K 2020-02-11 Amend Bylaw, Exhibits
8-K 2020-01-08 Earnings, Officers, Regulation FD, Exhibits
8-K 2020-01-02 Officers, Exhibits
8-K 2019-11-06 Earnings, Exhibits
8-K 2019-10-30 Amend Bylaw, Exhibits
8-K 2019-09-13 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-09-13 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-09-04 Enter Agreement, Leave Agreement, Sale of Shares, Amend Bylaw, Other Events, Exhibits
8-K 2019-08-22 Officers, Amend Bylaw, Exhibits
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-08-02 Officers, Amend Bylaw, Exhibits
8-K 2019-06-26 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-02-14 Enter Agreement, Off-BS Arrangement
8-K 2019-02-14 Earnings, Exhibits
8-K 2019-01-02 Earnings, Officers, Exhibits
8-K 2019-01-01 Regulation FD

TLND 10Q Quarterly Report

Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 tlnd-20200331ex10159fa71.htm
EX-10.2 tlnd-20200331ex10201da87.htm
EX-10.3 tlnd-20200331ex10387d4f5.htm
EX-31.1 tlnd-20200331ex311a57b84.htm
EX-31.2 tlnd-20200331ex312df19fc.htm
EX-32.1 tlnd-20200331ex321f81f6b.htm

Talend Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.40.30.20.20.10.02016201720182020
Assets, Equity
0.10.10.0-0.0-0.1-0.12018201820192020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12016201720182020
Ops, Inv, Fin

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ___ to ___

Commission File Number 001-37825

Talend S.A.

(Exact name of registrant as specified in its charter)

France

Not Applicable

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

9, rue Pages

Suresnes, France

92150

(Address of principal executive offices)

(Zip Code)

+33 (0) 1 46 25 06 00

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

American Depositary Shares, each representing one
ordinary share, nominal value €0.08 per share

Ordinary shares, nominal value €0.08 per share*

TLND

The NASDAQ Stock Market LLC

The NASDAQ Stock Market LLC*

* Not for trading, but only in connection with the listing of the American Depositary Shares on the NASDAQ Stock Market LLC.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  

As of May 1, 2020, the registrant had 31,346,632 ordinary shares, nominal value of €0.08 per share, outstanding.

Table of Contents

TALEND S.A.

TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION

Item 1.      Condensed Consolidated Financial Statements (unaudited)

Condensed Balance Sheets as of March 31, 2020 and December 31, 2019

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

Notes to the Condensed Consolidated Financial Statements

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

20 

Item 3.      Quantitative and Qualitative Disclosures About Market Risk

30 

Item 4.      Controls and Procedures

31 

PART II.  OTHER INFORMATION

33 

Item 1.      Legal Proceedings

33 

Item 1A.   Risk Factors

34 

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

78 

Item 3.      Defaults Upon Senior Securities

78 

Item 4.      Mine Safety Disclosures

78 

Item 5.      Other Information

78 

Item 6.      Exhibits

79 

Signatures

81 

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TALEND S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

March 31, 

December 31, 

    

2020

    

2019

ASSETS

Current assets:

Cash and cash equivalents

$

177,812

 

$

177,075

Accounts receivable, net of allowance for doubtful accounts of $1,338 and $1,082, respectively

 

52,535

 

 

82,952

Contract acquisition costs

10,527

10,695

Other current assets

 

9,691

 

 

9,832

Total current assets

 

250,565

 

280,554

Non-current assets:

Contract acquisition costs

21,082

22,050

Operating lease right-of-use assets

26,375

27,821

Property and equipment, net

 

6,872

 

 

5,348

Goodwill

 

49,623

 

 

49,744

Intangible assets, net

 

12,619

 

 

14,018

Other non-current assets

 

4,403

 

 

4,382

Total non-current assets

 

120,974

 

123,363

Total assets

$

371,539

$

403,917

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

1,766

 

$

4,439

Accrued expenses and other current liabilities

32,497

41,182

Contract liabilities - deferred revenue, current

 

130,347

 

142,616

Operating lease liabilities, current

4,941

5,047

Short-term debt

 

266

 

 

227

Total current liabilities

 

169,817

 

193,511

Non-current liabilities:

Deferred income taxes

591

768

Other non-current liabilities

 

1,210

 

 

1,137

Contract liabilities - deferred revenue, non-current

 

15,990

 

17,807

Operating lease liabilities, non-current

22,852

24,252

Long-term debt

 

128,960

 

 

130,490

Total non-current liabilities

 

169,603

 

174,454

Total liabilities

 

339,420

 

367,965

Commitments and contingencies (Note 8)

STOCKHOLDERS' EQUITY

Ordinary shares, par value €0.08 per share; 31,337,694 and 31,017,268 shares authorized, issued and outstanding, respectively

 

3,233

 

 

3,205

Additional paid-in capital

 

324,141

 

309,988

Accumulated other comprehensive income

 

1,196

 

1,107

Other reserves

 

246

 

207

Accumulated losses

 

(296,697)

 

(278,555)

Total stockholders’ equity

 

32,119

 

35,952

Total liabilities and stockholders’ equity

$

371,539

$

403,917

The above condensed consolidated balance sheets should be read in conjunction with the accompanying notes.

3

Table of Contents

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Three Months Ended March 31, 

    

2020

    

2019

Revenue

 

  

 

  

Subscriptions

$

60,909

$

49,865

Professional services

 

7,210

 

7,801

Total revenue

 

68,119

 

57,666

Cost of revenue

 

  

 

  

Subscriptions

 

8,024

 

7,322

Professional services

 

6,741

 

7,878

Total cost of revenue

 

14,765

 

15,200

Gross profit

 

53,354

 

42,466

Operating expenses

 

  

 

  

Sales and marketing

 

38,253

 

34,660

Research and development

 

15,934

 

14,858

General and administrative

 

15,655

 

10,412

Total operating expenses

 

69,842

 

59,930

Loss from operations

 

(16,488)

 

(17,464)

Interest income (expense), net

(1,805)

(2)

Other income (expense), net

 

198

 

(355)

Loss before benefit (provision) for income taxes

 

(18,095)

 

(17,821)

Benefit (provision) for income taxes

 

(47)

 

76

Net loss

$

(18,142)

$

(17,745)

Net loss per share attributable to ordinary shareholders, basic and diluted

$

(0.58)

$

(0.59)

Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:

 

31,180

 

30,243

The above condensed consolidated statements of operations should be read in conjunction with the accompanying notes.

4

Table of Contents

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2020

    

2019

Net loss

$

(18,142)

$

(17,745)

Other comprehensive gain (loss)

 

  

 

  

Foreign currency translation adjustment

 

89

 

355

Total comprehensive loss

$

(18,053)

$

(17,390)

The above condensed consolidated statements of comprehensive loss should be read in conjunction with the accompanying notes.

5

Table of Contents

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Three Months Ended March 31, 2020

Accumulated

Additional

other

Ordinary shares

paid-in

comprehensive

Other

Accumulated

Total

Shares

    

Amount

    

capital

    

income

    

reserves

    

loss

    

equity

Balance as of December 31, 2019

31,017,268

$

3,205

$

309,988

$

1,107

$

207

$

(278,555)

$

35,952

Net loss for the period

(18,142)

(18,142)

Other comprehensive gain

89

89

Restricted stock units reserve

(39)

39

Shares issued from restricted stock unit vesting

101,523

9

(9)

Exercise of stock awards

145,928

13

1,591

1,604

Issuance of ordinary shares in connection with employee stock purchase plan

72,975

6

2,281

2,287

Share-based compensation

10,329

10,329

Balance as of March 31, 2020

 

31,337,694

$

3,233

 

$

324,141

 

$

1,196

 

$

246

 

$

(296,697)

 

$

32,119

Three Months Ended March 31, 2019

Accumulated

Additional

other

Ordinary shares

paid-in

comprehensive

Other

Accumulated

Total

    

Shares

    

Amount

    

capital

    

income

    

reserves

    

loss

    

equity

Balance as of December 31, 2018

 

30,158,374

$

3,128

 

$

244,878

 

$

404

 

$

138

 

$

(217,001)

 

$

31,547

Adjustment on initial application of ASC 842

(85)

(85)

Adjusted balance as of January 1, 2019

30,158,374

3,128

244,878

404

138

(217,086)

31,462

Net loss for the period

(17,745)

(17,745)

Other comprehensive gain

355

355

Restricted stock units reserve

(44)

44

Shares issued from restricted stock unit vesting

32,634

2

(2)

Exercise of stock awards

109,693

11

1,618

1,629

Issuance of ordinary shares in connection with employee stock purchase plan

58,899

5

2,268

2,273

Share-based compensation

6,690

6,690

Balance as of March 31, 2019

 

30,359,600

$

3,146

 

$

255,408

 

$

759

 

$

182

 

$

(234,831)

 

$

24,664

The above condensed consolidated statements of stockholders’ equity should be read in conjunction with the accompanying notes.

6

Table of Contents

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2020

    

2019

Cash flows from operating activities:

Net loss for the period

 

$

(18,142)

 

$

(17,745)

Adjustments to reconcile net loss to net cash (used in) from operating activities:

Depreciation

816

707

Amortization of intangible assets

1,321

1,330

Amortization of debt discount and issuance costs

1,266

Amortization of contract acquisition costs

2,827

2,458

Non-cash operating lease cost

1,498

1,385

Unrealized (gain) loss foreign exchange

(615)

362

Accrued interest on convertible debt

677

Share-based compensation

10,329

6,690

Changes in operating assets and liabilities:

Accounts receivable

27,834

19,676

Contract acquisition costs

(2,338)

(2,409)

Other assets

1,103

(477)

Accounts payable

(2,599)

(3,122)

Accrued expenses and other current liabilities

(8,767)

(7,538)

Contract liabilities - deferred revenue

(10,878)

(7,750)

Operating lease liabilities

(1,484)

(1,353)

Net cash from (used in) operating activities

2,848

(7,786)

Cash flows from investing activities:

Acquisition of property and equipment

(2,449)

(587)

Net cash used in investing activities

(2,449)

(587)

Cash flows from financing activities:

Proceeds from issuance of ordinary shares related to exercise of stock awards

1,604

1,629

Proceeds from issuance of ordinary shares related to employee stock purchase plan

2,287

2,273

Repayment of borrowings

(5)

(7)

Net cash from financing activities

3,886

3,895

Net increase (decrease) in cash and cash equivalents

4,285

(4,478)

Cash and cash equivalents at beginning of the period

177,075

34,104

Effect of exchange rate changes on cash and cash equivalents

(3,548)

(192)

Cash and cash equivalents at end of the period

 

$

177,812

 

$

29,434

The above condensed consolidated statements of cash flows should be read in conjunction with the accompanying notes.

7

Table of Contents

1. Organization and Summary of Significant Accounting Policies

Business

Talend S.A. (“the Company”) is a leader in data integration and data integrity. Talend’s software platform, Talend Data Fabric, integrates data and applications in real-time across modern big data and cloud environments, as well as traditional systems, allowing organizations to develop a unified view of their business and customers. The Company, organized under the laws of France in 2005, has its registered office located at 9, rue Pages, 92150 Suresnes, France.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the consolidated balance sheets as of March 31, 2020 and December 31, 2019, the consolidated statements of operations, the consolidated statements of comprehensive loss, the consolidate statements of stockholders’ equity and the consolidated statements of cash flows for the three months ended March 31, 2020 and March 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 17, 2020.

Certain prior year financial information in the consolidated statement of cash flows has been reclassified to conform with current year presentation. In addition, an immaterial reclassification of unbilled revenue between other assets and accounts has been made in our prior year consolidated balance sheet to conform to the current period presentation. These reclassifications had no impact on net loss, stockholders’ equity, operating cash flows or total cash flows as previously reported.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include, but are not limited to, revenue recognition (including allocation of the transaction price to separate performance obligations), the amortization period for contract acquisition costs, contract period of leases, fair value of acquired intangible assets and goodwill, and share-based compensation expense. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantly from these estimates.

Summary of significant accounting policies

Except for the accounting policies described below, there have been no changes to the Company’s significant accounting polices disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 17, 2020, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Recently adopted accounting standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and

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in November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU 2019-11 requires entities that did not adopt the amendments in ASU 2016-13 as of November 2019 to adopt ASU 2019-11, and contains the same effective dates and transition requirements as ASU 2016-13. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company adopted ASU 2016-13 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which modifies the goodwill impairment test and requires an entity to write down the carrying value of goodwill for the amount by which the carrying amount of a reporting unit exceeds its fair value. The Company adopted ASU 2017-04 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. The Company adopted ASU 2018-15 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

Accounting standards issued not yet adopted

There have been no other recent accounting pronouncements issued or not yet adopted or changes in accounting pronouncements that would be significant, or potentially significant, to the Company.

2. Revenue from Contracts with Customers

Contract Liabilities

Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current contract liabilities – deferred revenue in the consolidated balance sheet. Deferred revenue, including current and non-current balances, was $146.3 million and $160.4 million as of March 31, 2020 and December 31, 2019, respectively. Revenue recognized from the deferred revenue balances at the beginning of each period was $55.4 million and $41.7 million for the three months ended March 31, 2020 and 2019, respectively.

Remaining Performance Obligations

The Company’s contracts with customers include amounts allocated to performance obligations of $193.2 million that will be satisfied at a later date. As of March 31, 2020, $145.6 million of deferred revenue and backlog is expected to be recognized from remaining performance obligations over the next 12 months, and approximately $47.6 million thereafter.

Contract assets

The Company may record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. These assets, or unbilled revenue, are classified as accounts receivable, net in the consolidated balance sheet. Unbilled revenue was $1.8 million and $2.1 million as of March 31, 2020 and December 31, 2019, respectively.

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Contract acquisition costs

The Company recognizes sales commissions earned by the Company’s sales force that are considered incremental and recoverable costs of obtaining a contract with a customer as contract acquisition costs in the consolidated balance sheet. Contract acquisition costs, including current and non-current balances, were $31.6 million and $32.7 million as of March 31, 2020 and December 31, 2019, respectively. Amortization expense of contract acquisition costs was $2.8 million and $2.5 million for the three months ended March 31, 2020 and 2019, respectively. There were no impairments of assets related to Company’s contract acquisition costs during the period ended March 31, 2020.

Disaggregation of Revenues

The following table sets forth the Company’s total revenue by region for the periods indicated (in thousands). The revenues by geographic region were determined based on the country where the sale took place.

Three Months Ended March 31, 

    

2020

    

2019

Americas

$

31,167

$

26,888

EMEA

 

29,886

 

26,534

Asia Pacific

 

7,066

 

4,244

Total revenue

$

68,119

$

57,666

Revenues from the Company’s country of domicile, based on sales revenue recognized from customers in France, totaled $10.9 million and $9.0 million for the three months ended March 31, 2020 and 2019, respectively.

3. Net Loss Per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares outstanding during the period. In periods of net income, diluted net income per share is computed by dividing net income for the period by the basic weighted-average number of shares plus any dilutive potential ordinary shares outstanding during the period. As the Company was in a loss position for both of the three months ended March 31, 2020 and 2019, the diluted loss per share is equal to basic loss per share because the effects of potentially dilutive shares, which include shares from share-based awards and convertible senior notes, were anti-dilutive.

During 2019, the Company issued 1.75% Convertible Senior Notes due September 1, 2024 (the “2024 Notes”) (see Note 6, Debt, for more details). Since the Company expects to settle the principal amount of the outstanding 2024 Notes in a combination of cash and shares, the Company uses the if-converted method for calculating any potential dilutive effect of the conversion spread on the diluted net income per ordinary share when the average market price of the Company’s ordinary shares, each represented by an ADS, for a given period exceeds the conversion price of €51.75 per share. This situation has not occurred as of March 31, 2020.

The net loss and weighted average number of shares used in the calculation of basic and diluted earnings per share are as follows (in thousands, except per share data):

Three Months Ended March 31, 

    

2020

    

2019

Numerator (basic and diluted):

 

  

 

  

Net loss

$

(18,142)

$

(17,745)

Denominator (basic and diluted):

 

  

 

  

Weighted-average ordinary shares outstanding

 

31,180

 

30,243

Basic and diluted net loss per share

$

(0.58)

$

(0.59)

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4. Fair Value Measurements

The Company reports assets and liabilities recorded at fair value on the Company’s consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. Hierarchical levels that are directly related to the amount of judgment associated with the inputs to the valuation of these assets or liabilities are as follows:

Level 1: observable quoted prices (unadjusted) in active markets for identical financial assets or liabilities.

Level 2: inputs other than quoted prices (other than level 1) in active markets, that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: unobservable inputs that are supported by little or no market data, and may require significant management judgment or estimation.

The fair value measurement level within the fair value hierarchy for a particular asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial instruments not measured at fair value on the Company's consolidated balance sheet, but which require disclosure of their fair values include: cash and cash equivalents, accounts receivable and certain other receivables, deposits, accounts payable and certain other payables and the 2024 Notes. The fair values of these financial instruments, other than the 2024 Notes, are deemed to approximate their carrying amount.

The fair values of cash and cash equivalents, accounts receivable and certain other receivables, deposits, accounts payable and certain other payables are categorized as Level 1. The fair value of the 2024 Notes was categorized as Level 2 and was estimated based on a discounted cash flow method using a market interest rate for similar debt. As of March 31, 2020, the fair value of the 2024 Notes was $132.0 million.

There were no transfers between levels of the fair value hierarchy during the three month periods ended March 31, 2020 or 2019.

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5. Balance Sheet Components

Accrued expenses and other liabilities consisted of the following (in thousands):

    

March 31, 2020

    

December 31, 2019

Accrued compensation and benefits

$

19,469

$

24,201

VAT payable

 

3,505

 

6,238

Other taxes

 

153

 

502

Contingent liabilities

441

578

Other current liabilities

 

8,929

 

9,663

Accrued expenses and other liabilities

$

32,497

$

41,182

Property and equipment, net consisted of the following (in thousands):

    

March 31, 2020

    

December 31, 2019

Computer equipment and software

$

10,525

$

8,587

Fixtures and fittings

 

2,394

 

2,312

Leasehold improvements

 

4,406

 

3,858

Property and equipment, gross

 

17,325

 

14,757

Less: accumulated depreciation

 

(10,453)

 

(9,409)

Property and equipment, net

$

6,872

$

5,348

Depreciation expense related to property and equipment was $0.8 million and $0.7 million for the three months periods ended March 31, 2020 and 2019, respectively.

Intangible assets as of March 31, 2020 and December 31, 2019 included the following (in thousands):

March 31, 2020

December 31, 2019

    

Gross Carrying Amount

    

Accumulated Amortization

    

Net

Gross Carrying Amount

    

Accumulated Amortization

    

Net

    

Weighted Average
Remaining Useful
Life

Customer relationships

$

4,940

$

(3,978)

$

962

$

4,975

$

(3,600)

$

1,375

1 years

Acquired developed technology

19,384

(7,727)

11,657

19,555

(6,912)

12,643

4 years

Total

$

24,324

$

(11,705)

$

12,619

$

24,530

$

(10,512)

$

14,018

Amortization expense for intangible assets was $1.3 million for both of the three months periods ended March 31, 2020 and 2019, respectively.

The following table presents the estimated future amortization expense related to intangible assets as of March 31, 2020 (in thousands):

    

Amount

Remainder of 2020

$

3,677

2021

 

3,619

2022

 

3,423

2023

 

1,900

Thereafter

 

Total amortization expense

$

12,619

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6. Debt

Convertible Senior Notes due September 1, 2024

In September 2019, the Company issued an aggregate principal amount of 125.0 million of the 2024 Notes and an additional 14.8 million pursuant to the partial exercise of the option to purchase additional 2024 Notes granted to the initial purchasers, in a private placement, pursuant to an exemption from the registration requirements afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers (as defined in Rule 144A promulgated under the Securities Act). The net proceeds from the issuance, after deducting initial purchaser discounts and debt issuance costs of 6.0 million, were 133.8 million. The 2024 Notes mature on September 1, 2024, unless earlier repurchased, redeemed or converted, and bear interest at a fixed rate of 1.75% per year payable semi-annually on March 1 and September 1 of each year, beginning on March 1, 2020. Each 1,000 of principal amount of the 2024 Notes will initially be convertible, subject to adjustment upon the occurrence of specified events, into 19.3234 ADSs, corresponding to 19.3234 of the Company’s ordinary shares per 1,000 principal amount of the 2024 Notes as of the date hereof, which initial conversion rate is equivalent to an initial conversion price of approximately 51.75 per ADS calculated on the basis of the closing price of the Company’s ADSs of $38.72 and a euro to U.S. Dollar exchange rate of €1 to $1.1036 on the pricing date of the 2024 Notes. Refer to Note 15, Debt, of the Company’s consolidated financial statements for the year ended December 31, 2019 for details of the issuance of the 2024 Notes.

As of March 31, 2020, none of the conditions permitting the holders of the 2024 Notes to early convert had been met. Therefore, the 2024 Notes were classified as long-term debt for such period.

The net carrying amount of the 2024 Notes was as follows as of March 31, 2020 and December 31, 2019 (in thousands):

    

March 31, 2020

    

December 31, 2019

Principal

 

$

153,432

 

$

156,716

Unamortized debt discount

(19,792)

(21,227)

Unamortized debt issuance costs

(5,066)

(5,443)

Net carrying amount

$

128,574

$

130,046

The net carrying amount of the equity component of the 2024 Notes was as follows as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020

December 31, 2019

Gross amount

$

21,866

$

21,866

Allocated debt issuance costs

(945)

(945)

Net carrying amount

$

20,921

$

20,921

Interest expense related to the 2024 Notes was as follows during the three months ended March 31, 2020 (in thousands):

Three Months Ended March 31, 

2020

Contractual interest expense

$

677

Amortization of debt discount

998

Amortization of issuance costs

268

Total

$

1,943

There was no interest expense related to the 2024 Notes during the three months ended March 31, 2019.

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7. Equity Incentive Plans

In April 2017, the Company adopted the 2017 Stock Option Plan (the “2017 Plan”), primarily for the purpose of granting stock options to employees and employee warrants BSPCE (bons de souscription de parts de créateur d'entreprise” or employee warrants (BSPCE)”) to employees who are French tax residents. In August 2019, the Company adopted the 2019 Free Share Plan (the “Free Share Plan”), primarily for the purpose of granting Restricted Stock Units (“RSUs”) to employees. In June 2019, the Company’s shareholders also delegated authority to the Company’s board of directors to grant warrants (“bons de souscription d'actions” or “warrants (BSA)”) to the Company’s directors and consultants. The Company no longer grants employee warrants (BSPCE) as the Company no longer meets the eligibility criteria for granting BSPCEs.

As of March 31, 2020, there were 1,259,480 ordinary shares available for future issuance under the 2017 Plan and 751,240 warrants (BSA) and RSUs available for grant under the Company’s share pool reserve.

Stock options and warrants

In general, vesting of stock options and employee warrants (BSPCE) occurs over four years, with 25% on the one year anniversary of the grant and 1/16th on a quarterly basis thereafter. Options have a contractual life of ten years and individuals must continue to provide services to the Company in order to vest. Employee warrants (BSPCE) are a specific type of option to acquire ordinary shares available to qualifying companies in France that meet certain criteria. Otherwise, employee warrants (BSPCE) function in the same manner as stock options.

In general, warrants (BSA) vest quarterly over a one-year period. In addition to any exercise price payable by a holder upon the exercise of any warrants (BSA), pursuant to the relevant shareholders' delegation to the board, such warrants need to be subscribed for a price at least equal to 5% of the volume weighted average price of the last five trading sessions on the Nasdaq Global Market preceding the date of allocation of the BSA by the board of directors. Otherwise, warrants (BSA) function in the same manner as stock options.

The following table summarizes the activity and related weighted-average exercise prices (“WAEP”) and weighted-average remaining contractual term (“WACT”) of the Company’s stock options and warrants for the three months ended March 31, 2020 (in thousands, except exercise price per option):

Stock options outstanding

BSPCE warrants outstanding

BSA warrants outstanding

WAEP per share

WACT (in years)

Aggregate intrinsic value

Balance as of December 31, 2019

1,215

155

210

 

$

14.61

 

5.1

$

40,809

Granted

 

 

Exercised

(144)

(2)

 

10.94

 

Forfeited

(11)

(2)

(11)

 

31.95

 

Balance as of March 31, 2020

1,060

151

199

 

$

14.35

 

5.2

$

15,215

Vested and expected to vest as of March 31, 2020

1,052

148

199

 

$

14.39

 

5.2

$

15,053

Exercisable as of March 31, 2020

993

136

186

 

$

13.60

 

5.1

$

14,896

The total intrinsic values of stock options and warrants exercised during the period ended March 31, 2020 was $4.0 million.

Restricted Stock Units (RSUs)

RSUs vest upon either performance-based or service-based criteria.

Performance-based RSUs are typically granted such that they vest upon the achievement of certain software subscription sales targets, during a specified performance period, subject to the satisfaction of certain time-based service criteria. Compensation expense from these awards is equal to the fair market value of the Company’s ordinary shares on

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the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics used in the specific grant’s performance criteria. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified non-market performance criteria, which are assessed at each reporting period. 

In general, service-based RSUs vest over a four-year period, with 25% vesting on the one year anniversary of the grant and equal quarterly installments thereafter.

A summary of RSU activity under all of the plans as of March 31, 2020 is presented in the following table (in thousands, except the weighted-average grant date fair value per RSU):

Number of service-

Number of performance-

Weighted-average

    

based RSUs

    

based RSUs

    

grant date fair value

Balance as of December 31, 2019

1,924

384

$

44.96

Granted

628

278

37.36

Vested and released

(78)

(24)

 

40.56

Forfeited

(113)

(201)

 

44.94

Balance as of March 31, 2020

 

2,361

437

$

41.89

Expected to vest as of March 31, 2020

 

1,886

327

 

$

42.18

Employee Stock Purchase Plan

In the fourth quarter of 2017, the Company established the 2017 Employee Stock Purchase Plan (the “ESPP”), which was amended and restated in August 2019. The ESPP allows the Company’s employees to purchase ADSs, with each ADS representing one ordinary share of the Company, at a discount through payroll deductions up to 15% of their eligible compensation, subject to any plan limitations. The ESPP has two consecutive offering periods of approximately six months in length during the year and the purchase price of the ADSs is 85% of the lower of the fair value of the Company’s ADSs on the first trading day or on the last trading day of the offering period. A total of 425,547 ADSs are available for sale under the ESPP as of March 31, 2020. As of March 31, 2020, $0.7 million has been withheld on behalf of employees for a future purchase under the ESPP and is recorded in accrued compensation benefits.

Compensation expense

Cost of revenue and operating expenses include employee share-based compensation expense as follows (in thousands):

Three Months Ended March 31, 

    

2020

    

2019

Cost of revenue - subscriptions

$

248

$

629

Cost of revenue - professional services

 

406

 

527

Sales and marketing

 

2,454

 

1,527

Research and development

 

2,957

 

2,232

General and administrative

 

4,264

 

1,775

Total share-based compensation expense

$

10,329

$

6,690

During fiscal year 2019, the Company decreased the estimated forfeiture rate as part of the Company’s annual assessment of the assumptions used in the calculation of share-based compensation expense. The adjustment resulted in higher expense recognized in periods subsequent to March 31, 2019.

As of March 31, 2020, the Company had $55.8 million of total unrecognized share-based compensation expense relating to unvested stock options, employee warrants (BSPCE), warrants (BSA) and RSUs, which are expected to be recognized over a weighted-average period of approximately 1.9 years.

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8. Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, the Company may be involved in various legal proceedings and claims related to intellectual property rights, commercial disputes, employment and wage and hour laws, alleged securities laws violations or other investor claims and other matters. For example, the Company has been, and may in the future be, put on notice and sued by third parties for alleged infringement of their proprietary rights, including patent infringement. The Company evaluates these claims and lawsuits with respect to their potential merits, the Company’s potential defenses and counterclaims, and the expected effect on it of defending the claims and a potential adverse result. The Company is not presently a party to any legal proceedings that in the opinion of its management, if determined adversely to it, would have a material adverse effect on its business, financial condition or results of operations.

The Company accrues estimates for resolution of legal proceedings when losses are probable and estimable. Although the results of legal proceedings and claims are unpredictable, the Company believes that there was less than a reasonable possibility that the Company had incurred a material loss with respect to such legal proceedings and claims. As a result, the Company has not recorded an accrual for such contingencies as of March 31, 2020.

9.

Income Tax

The Company provides for income taxes in interim periods based on the estimated annual effective tax rate for the year, adjusting for discrete items in the quarter in which they arise. The annual effective tax rate after discrete items was (0.3%) and 1.0% for the three months ended March 31, 2020 and 2019, respectively.

The 2020 and 2019 annual effective tax rates differed from the French statutory income tax rate of 28% for 2020 and 31% for 2019, primarily due to a valuation allowance on current year losses in most jurisdictions.

The Company files income tax returns in France, the US federal jurisdiction, many US states, as well as many foreign jurisdictions. The tax years 2005 to 2019 remain open to examination by the various jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statutes of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized.

10.

Related Party Transactions

As part of the Restlet SAS acquisition, the Company assumed debt totaling $1.2 million related to advances for research and development projects from Bpifrance to Restlet SAS. As of March 31, 2020, the debt had a carrying value of $0.7 million. There are no other material related party transactions that require disclosures.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “may”, “believe”, “can”, “intend”, “potential”, “designed to”, “expect”, “anticipate”, “estimate”, “predict”, “plan”, “targets”, “projects”, “likely”, “will”, “would”, “could”, “potential”, “continue”, “should”, “contemplate”, or similar expressions or phrases or the negative of these and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

Our future financial performance, including our revenue, cost of revenue, gross profit or gross margin, operating expenses, expectations about our future cash flow, and ability to achieve and maintain profitability;
The sufficiency of our cash and cash equivalents to meet our liquidity needs;
Our expectation that as organizations adopt and scale out deployments of modern data technologies such as cloud data warehouses, machine learning, and big data processing, they will continue to use Talend to facilitate the integration of these technologies within their IT environments;
Our plans to expand our non-U.S. presence to address the needs of our global customers and to acquire customers in new geographies;
Our plans to invest in new product development, adding new features and services, increasing functionality, and enhancing our integration cloud infrastructure, which will increase research and development expenses in absolute dollars;
Our plans to continue to invest additional resources in our cloud-based offerings and services and increased cost of third-party cloud infrastructure and hosting;
The sufficiency of our security measures to protect our own proprietary and confidential information, as well as the personal information, personal data, and confidential information that we otherwise obtain, including confidential information we may obtain through customer usage;
Our expectation that, over time, more of our existing customers will have subscription contracts with Annual Recurring Revenue, or ARR, of $0.1 million or more;
Our expectation that our dollar-based net expansion rate will potentially decline as we scale our business and as a result of IT spending constraints in the current economic environment;
Our expectation that our gross margin may fluctuate from period to period as a result of changes in the mix of our subscription and professional services revenue;
Our expectation that our cloud integration business will grow as a percentage of revenue;
Our expectation regarding the impact of risks related to foreign currency exchange rates;
Our expectation that professional services revenue will decline as we work with more systems integrators and as our cloud-based offerings increase and as deployments change in response to travel curtailment related to the novel coronavirus (“COVID-19”) pandemic;
Our expectation that we will continue to invest in sales and marketing by expanding our global promotional activities, building brand awareness, attracting new customers, and sponsoring additional marketing events, which may affect our sales and marketing costs in a particular quarter;
Our expectation that research and development expenses will increase in absolute dollars as we invest in building the necessary employee and system infrastructure required to enhance existing and support development of new technologies and the integration of acquired businesses and technologies.
Our plan to invest in training and retention of our sales team;
Our expectation that general and administrative expenses will increase as we invest in our infrastructure and incur additional employee-related costs and professional fees related to the growth of our business;
Our expectation regarding the impact of the COVID-19 pandemic and the related responses by governments and private industry on our business and financial condition, as well as our customers and partners; and

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Our expectation that our operating expenses will increase substantially in the foreseeable future as we continue to develop our technology, enhance our product and services offerings, broaden our installed customer base, expand our sales channels, expand our operations and hire additional employees.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report. You should read thoroughly this Quarterly Report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect.

Actual results, levels of activity, performance or achievements may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including but not limited to: general economic conditions, including the impact on economic activity of the COVID-19 pandemic; the impact of COVID-19 related social distancing measures, including travel restrictions and work from home orders, on our ability to operate our business and our partners, vendors and employees; our ability to achieve profitability or positive cash flows; our ability to manage future growth and improve our systems and processes; our ability to increase sales of our solutions to new customers and sell additional products to existing customers; the growth and expansion of the market for our cloud integration products; our ability to successfully manage our business model transition to cloud-based products and a cloud oriented sales model; our ability to successfully expand into our existing markets and into new domestic and international markets; our long and unpredictable sales cycle; our ability to renew existing customers’ subscriptions; the growth of the market for cloud integration products; our ability to maintain or improve our competitive position; our ability to predict, prepare for, and respond to rapidly evolving technological and market developments; our ability to raise additional capital or generate the capital necessary to expand our operations and invest in new products; our ability to satisfy customer demands or to achieve increased market acceptance of our cloud solutions; our ability to deliver high-quality professional services and customer support; the ability of our product offerings to operate with third-party products and services and our customers’ existing infrastructure; our ability to effectively expand and train our sales force; our ability to maintain relations with strategic partners and sales channel partners; our ability to sustain and expand our international business; the seasonality of our business; our ability to protect our proprietary technology and intellectual property rights; any disruption in or fraudulent or unauthorized access to our information technology systems and production environment, including a breach of cybersecurity; our ability to comply with existing and modified or new government laws and regulations, including privacy, security, data protection, export and import controls, anti-bribery, anti-corruption and anti-money laundering, and other laws and regulations; fluctuations in currency exchange rates; exposure to political, economic and social events in France, the United States, United Kingdom, China, and other jurisdictions in which we operate and have customers; our estimates and judgments relating to our critical accounting policies; and changes in accounting principles generally accepted in the United States.

We qualify all of our forward-looking statements by these cautionary statements. Other sections of this Quarterly Report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Furthermore, if any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this Quarterly Report relate only to events or information as of the date on which the statements are made in this Quarterly Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or

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review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 1,238 employees as of March 31, 2020 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 with self-service trials of our commercial software and direct sales. We have been able to rapidly expand awareness and usage of our products through our free open source versions and self-service trials. This enables developers and users to 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 of our platform.

 

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 86% of our total revenue in the year ended December 31, 2018, to 88% in the year ended December 31, 2019, to 89% in the three month period ended March 31, 2020.

COVID-19 Update

COVID-19 was first reported in December 2019, and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level, and the WHO characterized COVID-19 as a pandemic on March 11, 2020. Across the United States and the world, national and local governments instituted measures in an effort to control the spread of COVID-19, including quarantines, shelter-in-place orders, travel restrictions and the closure of non-essential businesses. 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

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employees work remotely, suspended all non-essential travel and activated our business continuity plan so we can continue to support customers while protecting our employees. We have also moved all in-person customer-facing events to virtual ones. To date, the pandemic, which has affected nearly all regions around the world, and preventive measures taken to contain or mitigate the pandemic, are causing business slowdowns or shutdowns in affected areas and significant disruption in the financial markets. The COVID-19 pandemic and resulting economic uncertainty has negatively impacted our business and we anticipate that it will continue to have an adverse impact on our results of operations and financial performance. 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 has 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 rapidly changing and hard to predict and actual results may differ materially from our current expectations. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain. The effects of the COVID-19 outbreak were not observed until late in the first quarter of 2020 and it is extremely difficult to predict how the COVID-19 outbreak and economic and financial market conditions will affect our business in the current period and future periods. As a result, our historical results for the period ended March 31, 2020 may not be indicative of future trends or results. We have experienced and expect to continue to experience curtailed customer demand that could adversely impact our business, results of operations and overall financial performance in future periods. Specifically, we have experienced and expect to continue to experience 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, challenges in creating sales pipeline in the absence of in-person marketing events, and decreases in software license sales driven by channel partners. We may see a slowing in our collections of outstanding accounts receivable or a change in billing terms from some of our customers. Moreover, 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 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 COVID-19 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 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.

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New Accounting Standards

Refer to Note 1 contained in the “Notes to Condensed Consolidated Financial Statements” included in Part I of this Quarterly Report on Form 10-Q for further information.

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 the shift from on-premise to cloud, accounting changes, 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 since March 31, 2019. The year-over-year growth rate for each quarter was calculated against the corresponding quarter in the prior year. We calculate ARR growth rate 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. The growth rate as of March 31, 2020 is driven by strong demand for our cloud-based solutions. We anticipate that the growth rate of ARR will moderate due to headwinds to sales and renewals related to the macroeconomic conditions resulting from the COVID-19 pandemic.

March 31, 

June 30, 

September 30, 

December 31, 

March 31, 

(Dollars in thousands)

    

2019

    

2019