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Talend CEO: Profit? We're a few years off... But we're cash-flow positive
Tuchen tells El Reg what's wrong with the per-core software pricing model
Interview Founded in France in 2005, Talend made its initial public offering on the NASDAQ in July, listing as a French company although it's now headquartered in Redwood City, south of San Francisco.
It was only the fifth technology IPO of the year, raising questions as to how fruitful the listing might be. But Talend raised $94m, and the last four months have left its shares valued at approximately $25, well above the listing price of $18.
CEO Mike Tuchen spoke to The Register about his company's value, both to investors and customers following its IPO, at its European conference, Talend Connect, in Paris.
The listing itself was "a blast", said Tuchen. "We were surrounded by the founders and all of the early employees, and you know this is something that the team had been dreaming of and planning for, building towards, for ten years, right? And so, yeah, it was really great, just an emotional moment for all of us."
Unlike the New York Stock Exchange, where trades commence when an actual bell is rung, the ceremony at NASDAQ involves what Tuchen described as "basically a big iPad. And so ringing the bell is hitting a big button on the screen that says, you know, 'ring the bell', there's not physically a bell."
Originally from Boston, Tuchen says, "these days I'm a California guy". Out in Redwood City, Oracle is "literally right next door" to Talend's offices. "In my office, I look one way I can see Oracle, I look the other way, I see our office. So I see the old this way and I see the new here, it's a great juxtaposition."
This contrast between new and old is visible in many European technology companies' westward expansion, and particularly in Talend's business focus, where revenue generation is very much tied to the new world of database technologies rather than in capturing customers from the incumbents.
Tuchen said Talend has "plenty of customers that use Oracle Database, of course, because they're so pervasive" but although there was "a small part of Oracle that competes with us" Tuchen said the company spends most of its time "from a partnership perspective, with the Hadoop distros, with the other new database players like MongoDB, and of course with the cloud providers."
Strategy and finance
The drive towards the cloud is Talend's biggest area of growth. Tuchen told The Register that its "big data cloud business [continues] to grow by 100 per cent" each quarter.
Results filed last week revealed that the company brought in $27.3m over the three months ending on 30 September, a 40 per cent increase on the $19.6m it had brought in the year before. Of that, $22.9m, just over 80 per cent, was subscription revenue, which grew by 44 per cent thanks to the company's cloud integration offering.
"You couldn't have a better quarter for our first quarter as a public company," said Tuchen, adding that as of Q3 the company is now cash positive. "We're no longer burning cash, we're not from an accounting perspective – there's a difference between being profitable versus being cash-flow positive – if you're a subscription company you get to cash-flow positive first because, simply, customers pay you in advance. So we now are cash-flow positive. We're not yet from an accounting perspective profitable but we will be over the next couple of years."
Following the Q3 results, Talend predicted net loss for the year to be between $25.7m and $26.7m. As Thomas Tuchscherer, Talend's CFO, told investors and analysts during the call that the business held cash and cash equivalents of around $90m following on from the IPO.
Net loss as a percentage of revenue was also relatively flat and negative 20 per cent for the third quarter of 2016, compared with negative 18 per cent for the third quarter of 2015.
Free cash flow for the quarter improved 14 percentage points year-over-year to $0.1 million from negative $2.7 million in the prior year period, as we continue on our balance plan approach. For the first nine months of 2016, we were approximately free cash flow breakeven.
Going public has been lauded for increasing the company's profile. Tuchen told those on the call that the Q3 results displayed the benefits to Talend's "brand recognition... with record recruiting across our company, record website traffic and significantly increased media and social visibility."
Such popularity may prove necessary. During Talend Connect, the most regular complaint about the company was the lack of potential employees who knew how to use its product.
Despite this, many managers were merry about Talend's pricing structure.
Back in the olden days, companies hoping to wring some value out of their accumulated data would prepare it as much as possible before loading it into their data warehouse.
Whether they were using an IBM mainframe or a Teradata system, they knew they were going to be charged for "each CPU cycle, each byte of data" as Tuchen put it to us, and so data would be extracted, transformed in a proprietary runtime in front of the data warehouse then loaded into that warehouse.
When this proprietary runtime cost a tenth as much as the data warehouse, this was an obvious cost optimisation, said Tuchen, adding: "You only put in the minimal amount of data that's already been cleaned up and blended together and transformed in the exact right place, so you minimise your footprint in the data warehouse."
These days, however, "you're dealing with ten times as much data" and "the new data warehouse equivalent is Hadoop and Spark, and those things are 40 or 50 times cheaper than the old ones, literally. And so what was a smart cost optimisation before is now actually more expensive than the data warehouse itself."
That layer before the data warehouse is not only prohibitively expensive, according to Tuchen, but also a barrier to scale considering the performance of Hadoop and Spark. Talend allows users to natively take their data and directly slip it into their data warehouse.
"The way we work, which is different from all of the old legacy or incumbent players, is we charge per developer," Tuchen said, rather than charging per core. Tuchen considers Talend's competitors' pricing models as "directly analogous to the old mainfraime MIPS pricing model", where customers were charged by the Millions of Instructions Per Second.
"Now the new MIPS equivalent is to charge by the processor core," Tuchen said. "Customers hate it! I mean it's just the wrong way to do it – it's clearly a way that won't last that long — and so our approach, I think, just makes a lot more logical sense."
Talend's bet is that there is a significant proportion of the market in which developers continue to write individual point-to-point connections between their data places by hand. Tuchen said: "In that world it makes intuitive sense that you charge by the number of developers that are using the software solution. It makes developers more productive, so it's a very logical approach which means if the integration you're doing is more complex then you put more developers on the problem.
"What the incumbents do is they charge you by the processor core in their own proprietary runtime. And what that means is, in a world where the data volumes are continuing to increase at an incredibly rapid pace, they want to basically charge you more and more money as you run more data through their solution, even if you haven't made any change at all to the actual integration, if you're solving the exact same problem, just putting more data through it.” ®