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, 2021

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

(State or other jurisdiction of incorporation or organization)

5-7, rue Salomon de Rothschild

Suresnes, France

(Address of principal executive offices)

Not Applicable

(I.R.S. Employer Identification Number)

92150

(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	TLND	The NASDAQ Stock Market LLC
Ordinary shares, nominal value €0.08 per share*		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 April 30, 2021, the registrant had 32,595,355 ordinary shares, nominal value of €0.08 per share, outstanding.

TALEND S.A.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Balance Sheets as of March 31, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2021 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
	Signatures	75

2

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,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	172,996	$	162,855
Accounts receivable, net of allowance for doubtful accounts of $1,101 and $1,244, respectively	61,047		95,967
Deferred commissions, current	12,753		12,771
Other current assets	10,931		11,150
Total current assets	257,727		282,743
Non-current assets:
Deferred commissions, non-current	26,530		26,889
Operating lease right-of-use assets	33,717		35,987
Property and equipment, net	9,054		9,273
Goodwill	50,010		50,294
Intangible assets, net	8,184		9,236
Other non-current assets	4,802		5,308
Total non-current assets	132,297		136,987
Total assets	$	390,024	$	419,730
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,493	$	2,760
Accrued expenses and other current liabilities	37,834		46,720
Deferred revenue, current	149,182		160,215
Operating lease liabilities, current	4,875		4,798
Current portion of long-term debt	—		0
Total current liabilities	196,384		214,493
Non-current liabilities:
Deferred income taxes	299		345
Other non-current liabilities	2,106		2,197
Deferred revenue, non-current	10,802		12,590
Operating lease liabilities, non-current	31,157		33,251
Long-term debt	142,885		148,129
Total non-current liabilities	187,249		196,512
Total liabilities	383,633		411,005
Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY
Ordinary shares, par value €0.08 per share; 32,572,335 and 32,010,526 shares authorized, issued and outstanding, respectively	3,349		3,295
Additional paid-in capital	384,511		366,508
Accumulated other comprehensive income (loss)	(106)		(2,941)
Accumulated losses	(381,363)		(358,137)
Total stockholders’ equity	6,391		8,725
Total liabilities and stockholders’ equity	$	390,024	$	419,730

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

3

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Revenue
Subscriptions	$	72,375	$	60,909
Professional services	7,543		7,210
Total revenue	79,918		68,119
Cost of revenue
Subscriptions	11,834		8,024
Professional services	6,184		6,741
Total cost of revenue	18,018		14,765
Gross profit	61,900		53,354
Operating expenses
Sales and marketing	42,627		38,253
Research and development	20,984		15,934
General and administrative	19,893		15,655
Total operating expenses	83,504		69,842
Loss from operations	(21,604)		(16,488)
Interest income (expense), net	(2,084)		(1,805)
Other income (expense), net	584		198
Loss before benefit (provision) for income taxes	(23,104)		(18,095)
Benefit (provision) for income taxes	(122)		(47)
Net loss	$	(23,226)	$	(18,142)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.72)	$	(0.58)
Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:	32,218		31,180

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

4

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Net loss	$	(23,226)	$	(18,142)
Other comprehensive gain (loss)
Foreign currency translation adjustment	2,835		89
Total comprehensive loss	$	(20,391)	$	(18,053)

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

5

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

	Three Months Ended March 31, 2021
	Ordinary shares			Additional paid-in capital		Accumulated other comprehensive income		Accumulated loss		Total equity
	Shares	Amount
Balance as of December 31, 2020	32,010,526	$	3,295	$	366,508	$	(2,941)	$	(358,137)	$	8,725
Net loss for the period	—	—		—		—		(23,226)		(23,226)
Other comprehensive loss	—	—		—		2,835		—		2,835
Shares issued from restricted stock unit vesting	236,543	23		(23)		—		—		—
Exercise of stock awards	241,772	23		3,603		—		—		3,626
Issuance of ordinary shares in connection with employee stock purchase plan	83,494	8		2,791		—		—		2,799
Share-based compensation	—	—		11,632		—		—		11,632
Balance as of March 31, 2021	32,572,335	$	3,349	$	384,511	$	(106)	$	(381,363)	$	6,391

	Three Months Ended March 31, 2020
	Ordinary shares			Additional paid-in capital		Accumulated other comprehensive income		Accumulated loss		Total equity
	Shares	Amount
Balance as of December 31, 2019	31,017,268	$	3,205	$	310,195	$	1,107	$	(278,555)	$	35,952
Net loss for the period	—	—		—		—		(18,142)		(18,142)
Other comprehensive gain	—	—		—		89		—		89
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	$	324,387	$	1,196	$	(296,697)	$	32,119

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

6

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss for the period	$	(23,226)	$	(18,142)
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Depreciation	1,022		816
Amortization of intangible assets	938		1,321
Amortization of debt discount and issuance costs	1,429		1,266
Amortization of deferred commissions	3,464		2,827
Non-cash operating lease cost	1,825		1,498
Unrealized (gain) foreign exchange	(2,219)		(615)
Interest accrued on 2024 Convertible Notes	737		677
Share-based compensation	11,632		10,329
Changes in operating assets and liabilities:
Accounts receivable	33,359		27,834
Deferred commissions	(3,594)		(2,338)
Other assets	347		1,103
Accounts payable	1,823		(2,599)
Accrued expenses and other current liabilities	(8,438)		(8,767)
Deferred revenue	(9,624)		(10,878)
Operating lease liabilities	(1,808)		(1,484)
Net cash (used in) provided by operating activities	7,667		2,848
Cash flows from investing activities:
Acquisition of property and equipment	(1,081)		(2,449)
Net cash used in investing activities	(1,081)		(2,449)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares related to exercise of stock awards	3,626		1,604
Proceeds from issuance of ordinary shares related to employee stock purchase plan	2,799		2,287
Repayment of borrowings	—		(5)
Net cash from financing activities	6,425		3,886
Net increase (decrease) in cash and cash equivalents	13,011		4,285
Cash and cash equivalents at beginning of the period	162,855		177,075
Effect of exchange rate changes on cash and cash equivalents	(2,870)		(3,548)
Cash and cash equivalents at end of the period	$	172,996	$	177,812

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

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 5-7, rue Salomon de Rothschild, 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, 2021 and December 31, 2020, the consolidated statements of operations, the consolidated statements of comprehensive loss and the consolidated statements of stockholders’ equity for and the consolidated statements of cash flows for the three months ended March 31, 2021 and March 31, 2020. 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, 2020 filed with the SEC on March 1, 2021.

Pending Acquisition by Thoma Bravo

On March 10, 2021, the Company entered into a Memorandum of Understanding (the “MoU”) with Tahoe Bidco (Cayman) LLC, an exempted company incorporated under the laws of the Cayman Islands (“Parent”) and an affiliate of Thoma Bravo, L.P. (“Thoma Bravo”), a leading private equity investment firm focused on the software and technology-enabled services sectors. Pursuant to the MoU, Parent has agreed to cause Tahoe Bidco B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) organized under the laws of the Netherlands and an affiliated entity of Thoma Bravo and Parent to commence a tender offer to acquire all of the outstanding ordinary shares and American Depositary Shares (“ADSs”) of the Company, for $66.00 per ordinary share and ADS (each ADS representing one ordinary share) in cash. The offer values the Company at approximately $2.4 billion and is expected to be completed in the third calendar quarter of 2021. The closing of the transaction is subject to the valid tender pursuant to the tender offer of ordinary shares and ADSs of the Company representing – together with ordinary shares and ADSs of the Company then beneficially owned by Thoma Bravo, if any – at least 80% of the outstanding ordinary shares and ADSs, receipt of customary transaction regulatory approvals (including French foreign investment control procedure) and other customary closing conditions. If the MoU is terminated under certain circumstances, the Company will be required to pay to Parent a termination fee of approximately $48 million. The MoU contains representations, warranties and covenants of Parent and the Company that are customary for a transaction of this nature, including among others, covenants regarding the conduct of the Company’s business during the pendency of the transactions

Refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for further details.

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 and the determination of the stand-alone selling price), the amortization period for deferred commissions, 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.

8

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, 2020, filed with the SEC on March 1, 2021, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Recently adopted accounting standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods therein, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted ASU 2019-12 effective January 1, 2021 and the adoption did not have a material impact on our consolidated financial statements.

Accounting standards issued not yet adopted

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for convertible instruments by removing the separation models in Subtopic 470-20 that required embedded conversion features to be separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The new standard also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. ASU 2020-06 is effective for the Company beginning January 1, 2022, although early adoption is permitted for fiscal periods beginning January 1, 2021. The new standard can be adopted using either a modified or full retrospective transition method. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

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 $160.0 million and $172.8 million as of March 31, 2021 and December 31, 2020, respectively. Revenue recognized from the deferred revenue balances at the beginning of each period was $63.1 million and $55.4 million for the three months ended March 31, 2021 and 2020, respectively.

Remaining Performance Obligations

The Company’s contracts with customers include amounts allocated to performance obligations of $233.4 million that will be satisfied at a later date. As of March 31, 2021, $175.8 million of deferred revenue and backlog is expected to be recognized from remaining performance obligations over the next 12 months, and approximately $57.6 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 $2.3 million and $2.8 million as of March 31, 2021 and December 31, 2020, respectively.

Deferred Commissions

9

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 deferred commissions in the consolidated balance sheet. Deferred commissions, including current and non-current balances, were $39.3 million and $39.7 million as of March 31, 2021 and December 31, 2020, respectively. Amortization expense of deferred commissions, was $3.5 million and $2.8 million for the three months ended March 31, 2021 and 2020, respectively. There were no impairments of assets related to Company’s deferred commissions during the period ended March 31, 2021.

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,
	2021		2020
Americas	$	35,800	$	31,167
EMEA	35,653		29,886
Asia Pacific	8,465		7,066
Total revenue	$	79,918	$	68,119

Revenues from the Company’s country of domicile, based on sales revenue recognized from customers in France, totaled $14.4 million and $10.9 million for the three months ended March 31, 2021 and 2020, respectively.

10

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, 2021 and 2020, 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 may 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 initial conversion price of €51.75 per share.

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,
	2021		2020
Numerator (basic and diluted):
Net loss	$	(23,226)	$	(18,142)
Denominator (basic and diluted):
Weighted-average ordinary shares outstanding	32,218		31,180
Basic and diluted net loss per share	$	(0.72)	$	(0.58)

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, 2021, the fair value of the 2024 Notes was $146.3 million.

There were no transfers between levels of the fair value hierarchy during the three month periods ended March 31, 2021 or 2020.

12

5. Balance Sheet Components

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

	March 31, 2021		December 31, 2020
Accrued compensation and benefits	$	23,237	$	30,371
VAT payable	5,039		7,889
Other taxes	870		885
Contingent liabilities	633		703
Other current liabilities	8,055		6,872
Accrued expenses and other liabilities	$	37,834	$	46,720

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

	March 31, 2021		December 31, 2020
Computer equipment and software	$	13,073	$	12,905
Fixtures and fittings	3,530		3,496
Leasehold improvements	4,844		4,918
Property and equipment, gross	21,447		21,319
Less: accumulated depreciation	(12,393)		(12,046)
Property and equipment, net	$	9,054	$	9,273

Depreciation expense related to property and equipment was $1.0 million and $0.8 million for the three months periods ended March 31, 2021 and 2020, respectively.

Intangible assets as of March 31, 2021 and December 31, 2020 included the following (in thousands):

	March 31, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net		Weighted Average Remaining Useful Life
Customer relationships	$	5,052	$	(5,052)	$	—	$	5,134	$	(5,134)	$	0	0 years
Acquired developed technology	19,929		(11,746)		8,183		20,329		(11,093)		9,236		2 years
Total	$	24,981	$	(16,798)	$	8,183	$	25,463	$	(16,227)	$	9,236

Amortization expense for intangible assets was $0.9 million and $1.3 million for the three months periods ended March 31, 2021 and 2020, respectively.

The following table presents the estimated future amortization expense related to intangible assets as of March 31, 2021 (in thousands):

	Amount
Remainder of 2021	$	2,783
2022	3,500
2023	1,900
2024	—
Thereafter	—
Total amortization expense	$	8,183

13

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 9, Debt, of the Company’s consolidated financial statements for the year ended December 31, 2020 for details of the issuance of the 2024 Notes.

As of March 31, 2021, 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, 2021 and December 31, 2020 (in thousands):

	March 31, 2021		December 31, 2020
Principal	$	163,913	$	171,599
Unamortized debt discount	(16,766)		(18,704)
Unamortized debt issuance costs	(4,262)		(4,766)
Net carrying amount	$	142,885	$	148,129

The net carrying amount of the equity component of the 2024 Notes was as follows as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021		December 31, 2020
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, 2021 and 2020 (in thousands):

	Three Months Ended March 31,
	2021		2020
Contractual interest expense	$	737	$	677
Amortization of debt discount	1,130		998
Amortization of issuance costs	299		268
Total	$	2,166	$	1,943

7. Equity Incentive Plans

In June 2020, the Company's shareholders delegated authority to the Company's board of directors to grant stock options and RSUs to employees, and warrants (BSA) to the company's directors and consultants, superseding and replacing the previous delegations of authority to grant equity awards. Consequently, in August 2020, the Company adopted the 2020 Free Share Plan (the "Free Share Plan") and the 2020 Stock Option Plan (the "Stock Option Plan"). The Free Share Plan provides for the grant of RSUs to the Company's employees and employees of any company or group in which the Company holds, directly or indirectly, 10% of the share capital or voting rights as of the date of the grant. The Stock Option Plan provides for the grant of stock options

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to the Company's employees and directors. The Company no longer grants employee warrants (BSPCE) as the Company no longer meets the eligibility criteria for granting BSPCEs.

As of March 31, 2021, there were 1,692,810 ordinary shares available for future grants of stock options, RSUs and warrants (BSA) under the Company’s share pool reserve.

Stock options and warrants

Most of our stock options and employee warrants (BSPCE) vest 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 generally 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, 2021 (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, 2020	1,726	108	235	$	23.97	6.1	$	31,789
Granted	4	—	1	48.41
Exercised	(219)	(23)	—	14.73
Forfeited	(21)	—	(3)	30.90
Balance as of March 31, 2021	1,490	85	233	$	23.96	6.1	$	71,726
Vested and expected to vest as of March 31, 2021	1,363	85	232	$	23.18	5.8	$	67,987
Exercisable as of March 31, 2021	847	84	218	$	18.06	4.3	$	52,359

The total intrinsic values of stock options and warrants exercised during the period ended March 31, 2021 was $9.7 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 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 years period, with 25% vesting on the one year anniversary of the grant and equal quarterly installments thereafter.

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A summary of RSU activity under all of the plans as of March 31, 2021 is presented in the following table (in thousands, except the weighted-average grant date fair value per RSU):

	Number of service- based RSUs	Number of performance- based RSUs	Weighted-average grant date fair value
Balance as of December 31, 2020	2,388	480	$	43.26
Granted	96	—	48.41
Vested and released	(193)	(43)	46.26
Forfeited	(47)	(128)	39.46
Balance as of March 31, 2021	2,244	309	$	41.26
Expected to vest as of March 31, 2021	1,875	253	$	41.47

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 2020. In June 2020, the Company's shareholders authorized 550,000 shares for future issuance under the ESPP, which superseded and replaced the shares previously available for issuance under ESPP. 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 390,436 ADSs are available for sale under the ESPP as of March 31, 2021. As of March 31, 2021, $0.9 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,
	2021		2020
Cost of revenue - subscriptions	$	989	$	248
Cost of revenue - professional services	470		406
Sales and marketing	4,028		2,454
Research and development	2,602		2,957
General and administrative	3,543		4,264
Total share-based compensation expense	$	11,632	$	10,329

As of March 31, 2021, the Company had $44.8 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 1.6 years.

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.

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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 is less than a reasonable possibility that the Company will incur 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, 2021.

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 (0.6)% and (0.3)% for the three months ended March 31, 2021 and 2020, respectively.

The 2021 and 2020 annual effective tax rates differed from the French statutory income tax rate of 28.0% for 2021 and 2020, primarily due to a valuation allowance on current year losses in US and France.

The Company files income tax returns in France as well as many foreign jurisdictions. The tax years 2007 to 2020 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.

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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;

•Our expectations about the structure, timing, consideration, and consummation of our acquisition by Thoma Bravo;

•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;

•Our plans to continue to invest additional resources in our cloud 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 may potentially decline as we scale our business, particularly as market demand for term-based deployed solutions continues to contract;

•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, and may decline as cloud offerings represent a growing portion of our total revenue;

•Our expectations regarding free cash flow;

•Our expectation that our cloud offerings will grow as a percentage of revenue;

•Our expectation that professional services revenue will decline as we work with more systems integrators and as our cloud offerings increase;

•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 expectations about our attrition rate and headcount growth in 2021;

•Our expectations about changes in our general and administrative expenses as we invest in our infrastructure and incur additional employee-related costs and professional fees related to the growth of our business;

•Our expectations about the trading volume of our ADSs;

•Our expectation regarding the impact of risks related to foreign currency exchange rates and whether we will enter into derivative or hedging transactions;

•Our expectations regarding the impact of the novel coronavirus, or COVID-19, pandemic on economic activity, IT spending, financial markets, and our customers, partners, and employees; and

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•Our expectation that our operating expenses will increase for 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 on demand for our solutions, on our operations, and on our partners, vendors, customers, 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 offerings; our ability to successfully manage our transition to cloud offerings and a cloud-oriented sales model; the impact of the transition to cloud on our professional services revenue; our ability to successfully manage our leadership transition; our ability to successfully expand into our existing markets and into new domestic and international markets; the length and predictability of our sales cycle; our ability to renew existing customers’ subscriptions; the growth of the market for cloud offerings; 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 hire, train and retain highly skilled and qualified employees, including senior level managers and engineers, and 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, data 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; natural, man-made and other disasters, including pandemics; 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; changes in accounting principles generally accepted in the United States; and the effects of the proposed acquisition of us by entities affiliated with Thoma Bravo on, among other things, our performance, operations, and relationships with employees, suppliers and customers, which could be exacerbated by any delay or abandonment of the proposed transaction.

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 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 1,413 employees as of March 31, 2021 and we plan to continue to grow our employee base to address the needs of our global customers as well as to acquire customers in new geographies. We also plan to continue to invest in new product development.

Our business model combines our open source approach and direct sales. We supplement our direct sales and demand generation activities with self-service trials of our software. Developers and users can download and try the free and paid versions of our products, creating sales leads for our more feature-rich commercial solutions. Users of our open source products often catalyze adoption of our commercial solutions by their organizations, primarily to benefit from enterprise-grade features that include the scaling out of our offering to a larger set of users, among others. Following an initial deployment of our paid subscription products, organizations often purchase more subscriptions or expand usage to additional products from our fully integrated suite after realizing the benefits of additional features or scale. We sell our product offerings as subscriptions based primarily on the number of users.

We generate the majority of our revenue from subscriptions of our commercial solution Talend Data Fabric. We primarily sell annual contracts billed in advance. Our subscription offering includes enterprise-grade features and capabilities to scale our solutions across production environments and customer infrastructures. These product features and capabilities include scheduling, management and monitoring of data integration flows, collaboration across a team of users and technical support. We also provide professional services to implement our solutions. Our subscription revenue represents a significant portion of our revenue, growing from 88% of our total revenue in the year ended December 31, 2019, to 90% in the year ended December 31, 2020, to 91% in the three months ended March 31, 2021.

We intend to generate profits based on increased sales of our solutions to new and existing customers. We currently anticipate that at some point in the future we will be able to increase revenues at a greater rate than increases in our operating expenses. However, there can be no assurances that we will achieve or maintain profitability on a consistent basis, that we will increase our sales to new and existing customers, or that our operating expenses will increase at a lower rate than our revenue may grow.

COVID-19 Update

Our first priority remains ensuring the safety and health of our employees, customers and others with whom we partner in conducting our business. In response to the pandemic, and in line with guidance provided by government agencies and international organizations, we temporarily closed our offices and requested our employees work remotely, suspended all non-essential travel and activated our business continuity plan so we can continue to support customers while protecting our employees. We continue, in the vast majority of instances, to operate our business remotely. 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, have adversely impacted and may continue to adversely impact economic activity and have caused and may continue to cause significant disruptions in the financial markets. The COVID-19 pandemic and resulting economic uncertainty have negatively impacted our business and although we believe the demand environment for our offerings may be beginning to improve, we anticipate that the negative impacts our business experienced in prior periods will continue to have an adverse impact on our results of operations and financial performance because of our

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subscription-based business model. 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 the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, particularly because the full extent to which the COVID-19 pandemic may impact our results of operations and financial performance will depend on future developments, which are highly uncertain and cannot be predicted, including but not limited to, the duration and geographic spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. We have experienced curtailed customer demand that could adversely impact our business, results of operations and overall financial performance in future periods. Specifically, we have experienced impacts from reduced IT budgets of customers and potential customers resulting in deferred purchase decisions, delayed implementation of our products, reduced renewals of subscriptions by existing customers, and decreases in software license sales driven by channel partners. However, we have begun to see the impact from reduced IT budgets begin to lessen and customers expand the scope of projects in which they are willing to invest. We also have experienced challenges in creating sales pipeline in the absence of in-person marketing events, which in particular has negatively impacted our ability to win new customers and as a result over the past few quarters we have seen a decrease in the number of new customers. We have seen and may see in the future a slowing in our collections of outstanding accounts receivable and requested changes in billing terms from some of our customers. We believe the demand environment for our offerings may be beginning to improve in light of an improving macroeconomic environment. However, because of our subscription-based business model, the effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. There has been no impact to our financial reporting systems, internal control over financial reporting, or any disclosure controls or procedures.

Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. Specifically, difficult macroeconomic conditions, such as decreases in per capita income and levels of disposable income, increased and prolonged unemployment or a decline in business confidence and business investment as a result of the COVID-19 pandemic, could have a continuing adverse effect on the demand for some of our products. The degree of impact of the COVID-19 pandemic on our business will depend on several factors, such as the duration and the extent of the pandemic, as well as actions taken by governments, businesses and others in response to the pandemic, all of which continue to evolve and remain uncertain at this time. We have established a task force to actively monitor the ongoing COVID-19 pandemic situation and provide updates, current information, and support to our employees. We remain committed to serving our customers’ needs and to providing creative and flexible customer support. We may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners, and shareholders. See the Risk Factors section for further discussion of the possible impact of the COVID-19 pandemic on our business.

Pending Acquisition by Thoma Bravo

On March 10, 2021, Talend S.A. (the "Company") entered into a Memorandum of Understanding (the “MoU”) with Tahoe Bidco (Cayman), LLC, an exempted company incorporated under the laws of the Cayman Islands (“Parent”) and an affiliate of Thoma Bravo, L.P. (“Thoma Bravo”). It is contemplated that pursuant to the MoU, Parent and the Company shall pursue a series of transactions pursuant to which, among other transactions, Parent is seeking to acquire for $66.00 per share in cash (through one or more of its affiliates) all of the issued and outstanding ordinary shares, nominal value of €0.08 per share, of the Company (the “Company Shares”), including American Depositary Shares representing Company Shares (the “ADSs”), and Company Shares issuable upon the exercise of any outstanding options, warrants, convertible securities or rights to purchase, subscribe for, or be allocated Company Shares, pursuant to a cash tender offer (the “Offer”). The Offer will expire one minute after 11:59 p.m. (New York City time) on the calendar day that is twenty (20) business days following the commencement of the Offer, unless extended in accordance with the terms of the MoU, including as required by the applicable rules and regulations of the U.S. Securities and Exchange Commission.

The MoU contains certain termination rights for each of the Company and Parent, including if the consummation of the transactions contemplated by the Offer has not been consummated on or prior to December 31, 2021. If the MoU is terminated under certain circumstances, the Company will be required to pay to Parent a termination fee of $47,886,769. The MoU contains representations, warranties and covenants of Parent and the Company that are customary for a transaction of this nature, including among others, covenants regarding the conduct of the Company’s business during the pendency of the transactions, public disclosures, and the use of reasonable best efforts to cause the conditions to the transaction to be satisfied.

Key Business Metrics

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We review a number of metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. These key business metrics include the following:

Annual Recurring Revenue

We believe disclosing Annual Recurring Revenue (“ARR”) provides greater clarity into our results because it is not affected by revenue recognition differences between our term-based deployed licenses and cloud offerings or contract duration. Our management uses ARR to monitor the growth of our subscription business. ARR represents the annualized recurring value of all active contracts at the end of a reporting period. ARR includes subscriptions for use of premise-based products and SaaS offerings and excludes original equipment manufacturer ("OEM") sales. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve.

Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our ARR growth rate on a constant currency basis, thereby removing the effect of currency fluctuation.

The following table summarizes ARR and its year-over-year growth rate on both an actual and constant currency basis as of the end of each reporting period since March 31, 2020. The year-over-year growth rate for each quarter was calculated against the corresponding quarter in the prior year. We calculate ARR growth on a constant currency basis by applying the spot currency rate from the last day of the comparative period to the corresponding day in the current period. ARR growth for the period ended March 31, 2021 was driven by strong demand for our cloud solutions. During the three months ended March 31, 2021, our ARR was negatively impacted by the absence of in-person marketing events for demand generation, and reduced IT budgets as a result of the COVID-19 pandemic.

(Dollars in thousands)	March 31, 2020			June 30, 2020			September 30, 2020			December 31, 2020			March 31, 2021
ARR	$	245,943		$	255,926		$	268,906		$	288,720		$	291,496
Actual FX growth rate	20		%	17		%	20		%	19		%	19		%
Constant Currency growth rate	22		%	19		%	16		%	15		%	14		%

ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

Cloud Annual Recurring Revenue

We believe disclosing Cloud Annual Recurring Revenue (“Cloud ARR”) provides greater clarity into our results because it is not affected by accounting changes or contract duration. Furthermore, the majority of new ARR comes from cloud and providing the metric enables investors to better understand our progress in our shift to cloud. Our management uses Cloud ARR to monitor the growth of our cloud subscription business. Cloud ARR represents the annualized recurring value of all active cloud-based subscription contracts at the end of a reporting period and excludes OEM sales. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve.

Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our Cloud ARR growth rate on a constant currency basis, thereby removing the effect of currency fluctuation.

The following table summarizes Cloud ARR and its year-over-year growth rate on both an actual and constant currency basis as of the end of each reporting period since March 31, 2020. We calculate Cloud 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 year-over-year growth rate for each quarter was calculated against the corresponding quarter in the prior year. Cloud ARR growth for the period ended March 31, 2021 was driven by strong demand for our cloud solutions. During the three months ended March 31, 2021, our Cloud ARR was negatively impacted by the absence of in-person marketing events for demand generation, and reduced IT budgets as a result of the COVID-19 pandemic.

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(Dollars in thousands)	March 31, 2020			June 30, 2020			September 30, 2020			December 31, 2020			March 31, 2021
Cloud ARR	$	61,082		$	74,992		$	87,822		$	108,483		$	119,328
Actual FX growth rate	150		%	128		%	113		%	101		%	95		%
Constant Currency growth rate	154		%	130		%	109		%	95		%	88		%

Cloud ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. Cloud ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. Cloud ARR is not a forecast and the active contracts at the end of a reporting period used in calculating Cloud ARR may or may not be extended or renewed by our customers.

Subscription Revenue Growth Rate

Subscription revenue is primarily derived from the sale of subscription-based license agreements to our customers. The growth of our subscription revenue reflects our ability to renew subscriptions with our existing customers, expand the sales of existing and new products within our existing customer base and sell our products to new customers. We believe subscription revenue growth is an important performance metric because it reflects the adoption of our software.

Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on our results of operations. Management uses the constant currency subscription growth rate to monitor the growth of our subscription business absent currency fluctuations.

The table below shows our subscription revenue growth rate on both an actual and constant currency basis for the past five quarters, calculated against the corresponding quarter in the prior year. We calculate revenue on a constant currency basis by applying the average monthly currency rate for each month in the comparative period to the corresponding month in the current period. Headwinds to sales and renewals related to the macroeconomic conditions resulting from the COVID-19 pandemic may impact subscription revenue growth.

	Three Months Ended
	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020		March 31, 2021
Actual FX rates	22	%	16	%	20	%	20	%	19	%
Constant Currency	24	%	17	%	18	%	17	%	14	%

Number of Customers Above a Certain ARR Threshold

We believe our ability to increase the number of customers above a certain threshold is an indicator of our ability to penetrate large enterprise customers and is therefore monitored by management and we believe provides useful insight to investors. We track and disclose the number of customers that, as of the end of the relevant period, have ARR of $0.1 million or more.

The following table summarizes on a quarterly basis since March 31, 2020 the number of customers that have, as of the end of the relevant period, ARR of $0.1 million or more.

	Three Months Ended
	March 31, 2020	June 30, 2020	September 30, 2020	December 31, 2020	March 31, 2021
Customers count	598	614	642	678	665

As we continue to expand the sales of existing and new products within our existing customer base, over time we expect more of our existing customers will cross the $0.1 million ARR threshold, driven particularly by cloud customers as we increasingly focus our resources on our cloud offerings and the overall market shifts to cloud. However, this increase may not materialize if we do not successfully renew subscriptions with our existing customers, particularly if our term-based deployed license results fall below our expectations. Note that due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, this metric is impacted by currency changes from period to period.

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Dollar-Based Net Expansion Rate

Our ability to generate and increase revenue is dependent on our ability to maintain and grow our relationships with our existing customers. We believe our ability to retain customers and expand their subscription revenue over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships and is therefore monitored by management and, we believe, is useful information for investors. We track our performance in this area by measuring our dollar-based net expansion rate. Our dollar-based net expansion rate increases when customers expand their number of subscribed users or use additional Talend Data Fabric applications. Our dollar-based net expansion rate is reduced when customers reduce their number of subscribed users, use fewer Talend Data Fabric components, or cease to be customers.

We calculate our dollar-based net expansion rate by dividing our recurring customer revenue by our base revenue. We define base revenue as the subscription revenue we recognized from all customers during the four quarters ended one year prior to the date of measurement. We define our recurring customer revenue as the subscription revenue we recognized during the four quarters ended on the date of measurement from the same customer base included in our measure of base revenue, including revenue resulting from additional sales to those customers. This analysis excludes revenue derived from our OEM sales. We expect our dollar-based net expansion rate to potentially decline as we scale our business, particularly as market demand for term-based deployed solutions continues to contract. Further, we may experience greater customer loss or reduction in contract renewals due to customers’ IT budgetary constraints related to COVID-19 and the current macroeconomic environment, which would negatively impact this measure.

Due to the significant portion of our customers who are invoiced in non-U.S. dollar denominated currencies, we also calculate our dollar-based net expansion rate on a constant currency basis, thereby removing the effect of currency fluctuation.

The following table summarizes our quarterly dollar-based net expansion rate since January 1, 2020 on both an actual and constant currency basis. We calculate dollar-based net expansion rate on a constant currency basis by applying the average monthly currency rate for each month in the comparative period to the corresponding month in the current period.

	Three Months Ended
	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020		March 31, 2021
Actual FX rates	109	%	108	%	107	%	108	%	110	%
Constant Currency	111	%	110	%	107	%	107	%	108	%

Non-GAAP Financial Measures

To provide additional information regarding our financial results, we report free cash flow and customer acquisition costs, financial measures not calculated in accordance with GAAP, within this Quarterly Report. Free cash flow and customer acquisition costs as defined by us may not be comparable to similar measures used by other companies. We have included free cash flow and customer acquisitions costs in this Quarterly Report because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. Each of these non-GAAP financial measures has limitations as an analytical tool and you should not consider them in isolation or as a substitute for analysis of our cash flows, sales and marketing expenses, or any other performance measure reported under GAAP.

Free Cash Flow

We define free cash flow as net cash from (used in) operating activities less net cash used in investing activities for purchases of property and equipment and intangible assets, except for those acquired as part of a business combination. We believe that free cash flow provides investors useful information in understanding and evaluating our results of operations in the same manner as our management and board of directors.

The table below shows our free cash flow for each of the three months ended March 31, 2021 and 2020, and a reconciliation to the most directly comparable GAAP measure for such period (in thousands). We expect free cash flow during fiscal year 2021 to be negative.

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	Three Months Ended March 31,
	2021		2020
Net cash from operating activities	$	7,667	$	2,848
Less: Acquisition of property & equipment	1,081		2,449
Free Cash Flow	$	6,586	$	399

Customer Acquisition Costs

We monitor sales efficiency through our customer acquisition costs. We define customer acquisition costs, or CAC, as our trailing twelve month non-GAAP sales and marketing expenses, which excludes share-based compensation expense and other expenses, divided by the year-over-year change in total ARR. We believe that CAC effectively measures the cost required to generate a dollar of net new business and provides useful insight to our investors about the efficiency of our sales and marketing activities.

The following table shows our CAC on a quarterly basis and a reconciliation to the most directly comparable GAAP measure for such periods. The sales and marketing expense, as reported on a GAAP and non-GAAP basis, are each presented on a trailing twelve month basis in the following table.

(Dollars in thousands, except CAC measure)	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020		March 31, 2021
GAAP Sales and Marketing expense	$	141,608	$	146,611	$	154,058	$	160,552	$	164,925
Share-based compensation expense	11,155		11,786		12,802		14,367		15,942
Other expenses(1)	634		716		716		716		716
Non-GAAP Sales and Marketing expense	$	129,819	$	134,109	$	140,540	$	145,469	$	148,267
Prior year period ARR	$	205,144	$	218,021	$	224,761	$	243,137	$	245,943
Ending ARR	245,943		255,926		268,906		288,720		291,496
Net New ARR	$	40,799	$	37,905	$	44,145	$	45,583	$	45,553
CAC	$	3.2	$	3.5	$	3.2	$	3.2	$	3.3

(1) Other expenses include expenses related to the reorganization of our business model in emerging markets.

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Results of Operations

The following table sets forth our consolidated statement of operations (in thousands). The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

	Three Months Ended March 31,
	2021		2020
Consolidated statements of operations
Revenue
Subscriptions	$	72,375	$	60,909
Professional services	7,543		7,210
Total revenue	79,918		68,119
Cost of revenue (1)
Subscriptions	11,834		8,024
Professional services	6,184		6,741
Total cost of revenue	18,018		14,765
Gross profit	61,900		53,354
Operating expenses (1)
Sales and marketing	42,627		38,253
Research and development	20,984		15,934
General and administrative	19,893		15,655
Total operating expenses	83,504		69,842
Loss from operations	(21,604)		(16,488)
Interest income (expense), net	(2,084)		(1,805)
Other income (expense)	584		198
Loss before benefit (provision) for income taxes	(23,104)		(18,095)
Benefit (provision) for income taxes	(122)		(47)
Net loss for the period	$	(23,226)	$	(18,142)

________________________________________

(1)Amounts include share-based payment and amortization of acquired intangibles expense, as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Cost of revenue - subscriptions	$	989	$	248
Cost of revenue - professional services	470		406
Sales and marketing	4,028		2,454
Research and development	3,540		3,865
General and administrative	3,543		4,677
Total share-based payment and amortization of acquired intangibles expense	$	12,570	$	11,650

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The following table sets forth our results of operations data for each of the periods indicated as a percentage of total revenue.

	Three Months Ended March 31,
	2021		2020
Revenue
Subscriptions	91	%	89	%
Professional services	9	%	11	%
Total revenue	100	%	100	%
Total cost of revenue	23	%	22	%
Gross profit	77	%	78	%
Operating expenses
Sales and marketing	53	%	56	%
Research and development	26	%	23	%
General and administrative	25	%	23	%
Total operating expenses	104	%	102	%
Loss from operations	(27)	%	(24)	%
Interest income (expense), net	(3)	%	(3)	%
Other income (expense)	1	%	—	%
Loss before benefit (provision) for income taxes	(29)	%	(27)	%
Benefit (provision) for income taxes	—	%	—	%
Net loss for the period	(29)	%	(27)	%

Revenue

	Three Months Ended March 31,				Change
(Dollars in thousands)	2021		2020		$		%
Subscriptions	$	72,375	$	60,909	$	11,466	19	%
Professional services	7,543		7,210		$	333	5	%
Total revenue	$	79,918	$	68,119	$	11,799	17	%

We primarily derive our revenue from the sale of subscriptions and professional services engagements.

Subscription revenue consists of fees earned from arrangements to provide customers with the right to use our commercial software either in a cloud-based infrastructure that we provide or installed within the customer’s own environment. Our subscriptions include unspecified future updates, upgrades and enhancements and technical product support that includes single offering customer success packages comprised of initial onboarding, technical advice, mission critical support, and training.

Professional services revenue consists of fees earned for consulting engagements related to the deployment and configuration of our product offering, training customers and associated expenses. Consulting engagements consist of time-based arrangements for which the revenue is recognized using a time and materials basis. Training revenue results from contracts to provide educational services to customers and partners regarding the use of our technologies and is recognized as delivered. We expect professional services revenue will decline as we work with more systems integrators, who assist with the implementation of our solutions, as our cloud-based offerings increase because cloud customers typically demand fewer professional services, and potential project implementation delays resulting from the COVID-19 pandemic.

Total revenue increased $11.8 million, or 17%, for the three months ended March 31, 2021 compared to the corresponding period in 2020. The increase in revenue was attributable primarily to an increase in subscription revenue of $11.5 million, and an increase in professional services revenue.

Subscription revenue increased $11.5 million, or 19%, for the three months ended March 31, 2021 compared to the corresponding period in 2020. The increase in subscription revenue was primarily attributable to greater demand for our cloud solutions.

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Professional services revenue increased $0.3 million, or 5%, for the three months ended March 31, 2021 compared to the corresponding period in 2020, due to a modest increase in demand for professional services.

Subscription revenues by geography were as follows for the three months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended March 31,				Change
(Dollars in thousands)	2021		2020		$		%
Americas	$	32,908	$	27,573	$	5,335	19	%
EMEA	31,959		26,702		5,257		20	%
Asia Pacific	7,508		6,634		874		13	%
Total subscription revenue	$	72,375	$	60,909	$	11,466	19	%

Cost of Revenue

	Three Months Ended March 31,						Change
(Dollars in thousands)	2021			2020			$		%
Cost of subscription	$	11,834		$	8,024		$	3,810	47	%
Cost of professional services	6,184			6,741			(557)		(8)	%
Total cost of revenue	$	18,018		$	14,765		$	3,253	22	%
Gross Profit	$	61,900		$	53,354		$	8,546	16	%
Gross Margin	77		%	78		%

Cost of subscription revenue consists primarily of employee-related costs, including salaries and bonuses, share-based payment expense, and employee benefit costs associated with our customer support organization. It also includes expenses related to hosting and operating our cloud infrastructure, licensing of third-party intellectual property and related overhead. We intend to continue to invest additional resources in our cloud offerings and services and expect that the cost of third-party infrastructure and hosting fees will increase over time as we sell more of our cloud products.

Cost of professional services revenue consists primarily of personnel costs for employees including salaries and bonuses, share-based payment expense, employee benefit costs and fees to external consultants associated with our professional service contracts, travel costs, and allocated shared costs.

Total cost of revenue for the three months ended March 31, 2021 increased $3.3 million, or 22%, compared to the corresponding period in 2020 driven by higher cost of subscription revenue partially offset by lower cost of professional services revenue.

Cost of subscription revenue increased $3.8 million, or 47% for the three months ended March 31, 2021 compared to the corresponding period in 2020. The increase was primarily attributable to an increase in employee compensation expenses of $3.0 million, which resulted from increased headcount and share-based compensation, and an increase in hosting support costs for our cloud offerings as a result of the increase of purchases of our cloud solutions.

Cost of professional services revenue decreased $0.6 million, or 8%, for the three months ended March 31, 2021 compared to the corresponding period in 2020, primarily due to a decrease in consulting expense and travel and entertainment expense of $1.2 million from the continued impact of COVID-19, partially offset by an increase in employee compensation expense of $0.5 million, which resulted from an increase in headcount.

Sales and Marketing

	Three Months Ended March 31,				Change
(Dollars in thousands)	2021		2020		$		%
Sales and Marketing	$	42,627	$	38,253	$	4,374	11	%

Sales and marketing expenses consist primarily of salaries, sales commissions and related expenses, including share-based payment expense, for our sales and marketing employees, marketing programs and related overhead. We plan to continue to invest in sales and marketing by expanding our global promotional activities, building brand awareness, attracting new customers

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and sponsoring additional marketing events. The timing of these events, such as our annual sales kickoff, will affect our sales and marketing costs in a particular quarter. We plan to invest in training and retention of our sales team.

Sales and marketing expenses increased $4.4 million, or 11%, in the three months ended March 31, 2021 compared to the corresponding period in 2020. The increase was primarily due to a $4.0 million increase in employee compensation expenses, which resulted from an increase of $2.4 million salary expense due to an increase in headcount and an increase of $1.6 million in share-based compensation; an increase in online marketing costs of $0.6 million mainly related to advertising on third-party websites, and an increase in employee related training expenses of $0.4 million. These increases were partially offset by a decrease in travel and entertainment expenses of $0.9 million due to the impact of COVID-19.

Research and Development

	Three months ended March 31,				Change
(Dollars in thousands)	2021		2020		$		%
Research and Development	$	20,984	$	15,934	$	5,050	32	%

Research and development expenses consist primarily of salaries and related expenses, including share-based payment expense, contractor software development costs and related overhead, as well as amortization of acquired developed technology, less any research and development subsidies. We expect that research and development expenses will increase in absolute dollars as we invest to build the necessary employee and system infrastructure required to enhance existing and support development of new technologies and the integration of acquired businesses and technologies.

Research and development expenses increased $5.1 million, or 32%, in the three months ended March 31, 2021 compared to the corresponding period in 2020. The increase was primarily due to a $3.6 million increase in employee compensation expenses, which resulted from increased headcount, consultant fees and certain foreign payroll expense, and an increase of overhead costs related to facilities and IT of $1.2 million.

General and Administrative

	Three months ended March 31,				Change
(Dollars in thousands)	2021		2020		$		%
General and Administrative	$	19,893	$	15,655	$	4,238	27	%

General and administrative expenses consist of salaries and related expenses, including share-based payment expense, for finance, legal, human resources and information systems management personnel, as well as external legal, accounting and other professional fees, other corporate expenses and related overhead. We expect that general and administrative expenses will increase as we invest in our infrastructure and we incur additional employee-related costs and professional services related to the growth of our business.

General and administrative expenses increased $4.2 million, or 27%, in the three months ended March 31, 2021, compared to the corresponding period in 2020. The increase was primarily due to third-party consulting and legal expense associated with pending Thoma Bravo acquisition of $5.3 million and an increase in salary expenses of $2.1 million due primarily to increased headcount. These increases were partially offset by a decrease of legal expenses, excluding the Thoma Bravo acquisition, of $0.8 million, a decrease of share-based compensation of $0.7 million, a decrease of corporate audit fees of $0.7 million, and decrease of overhead costs related to facilities and IT of $0.7 million.

Interest income (expense), net

	Three months ended March 31,				Change
(Dollars in thousands)	2021		2020		$		%
Interest income (expense), net	$	(2,084)	$	(1,805)	$	(279)	15	%

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Interest income (expense), net consists primarily of the interest associated with our outstanding debt obligations, including the amortization of debt issuance costs, and interest income from our investments in money market securities.

Interest income (expense), net changed unfavorably by $(0.3) million in the three months ended March 31, 2021, compared to the corresponding period in 2020. The change was primarily due to the impact of the change in the euro to U.S. dollar exchange rate in the three months ended March 31, 2021, compared to the corresponding period in 2020, to contractual interest expense and amortization of debt discount and issuance costs attributable to our 2024 Notes.

Other income (expense), net

	Three months ended March 31,		Change
(Dollars in thousands)	2021	2020	$	%
Other income (expense), net	584	198	386	195