With companies increasingly showing a preference for best-of-breed cloud applications over turnkey enterprise systems, there’s growing demand for data-integration solutions.
Data integrators are clearly in a good position at present. A case in point: Talend, a publicly held company founded in 2005 that was first to market with a commercial version of open-source data-integration software.
For the most part, investors are in love with the France-based company. The company initially priced its shares at $18 for its U.S. IPO in July 2016, and they opened for trading at $27.66. The stock reached a high of $45.89 on Nov. 20 of this year (although by mid-afternoon on Dec. 7, the price had moderated somewhat, to $40.23).
Revenue-wise, the company has enjoyed a 40% growth rate the past couple of years and expects to gross $149 million by the end of this year, according to CFO Thomas Tuchscherer. And its free cash-flow is at the break-even point.
The company was at about $9 million in revenue at the time Tuchscherer came aboard in 2010 as vice president of corporate development. Tuchscherer, who was promoted to finance chief in June 2012, recently visited CFO’s offices in New York to talk about the company, the IPO and its aftermath, and plans for 2018.
What’s the elevator speech for what Talend does?
We help companies integrate disparate data sources. For example, you have customer-invoice information in your ERP system. You have information about how often customers contacted your support organization in another system, and you have sales information on Salesforce. You want to consolidate all of that data to understand how customers behave. We enable those applications to speak with one another and consolidate data in a data warehouse or data lake so you can do the analyses.
Obviously, your business is well-positioned in light of current market trends.
Yes. Years ago, SAP and Oracle would try to sell you everything from the ERP to the [customer relationship management] system and the data warehouse. Microsoft had its own technology stack, too. Today the cloud is blowing that away. More customers are taking the big CRM system that’s available cheaply in the cloud, which is Salesforce. Maybe they decide to use NetSuite’s ERP. They’re going back to a best-of-breed [approach].
Essentially, that increases the complexity of a company’s IT environment, because it needs to gather, pool, and centralize all of that information to make sense out of it. And the company may still have some on-premises applications.
Here’s another way to look at it. Even just five years ago, Barnes & Noble, for example, would analyze transactional data — when and where a customer bought books, what type of books they were, prices paid, whether there was a discount.
Now the game is completely changed. You’re trying to analyze what we call precursor data, which is the information that would lead you to forecast when that customer will buy books. You look at social media information: did she post any book recommendations or get any from friends? You look at what types of books people her age buy. And the volume of the precursor data is much greater than the volume of transactional data.
We help companies find that information, process it, clean it, standardize it, and store it in one of the new big-data technology frameworks like Hadoop or Spark. Then companies can use business intelligence tools to analyze the data in order to make better decisions or optimize your processes.
What’s your unique selling proposition in the data integration market?
Our top competition, believe it or not, is developers who are hand-coding their integration jobs using an integration script like Java or Perl. About half the market is still doing that instead of automatically generating the code [with data-integration software]. We want developers to go to our website and download our products. We monetize that usage by convincing a portion of them to use our commercial version.
It’s been a year and a half since Talend’s IPO, which was one of only 16 technology IPOs in 2016. What sealed the deal for going public when you did?
A lot of companies, the unicorns with billion-dollar-plus valuations, have raised a large amount of cash through private fundraising. You’re not seeing many of them go public. In many cases they’re not executing on the business plans they pitched to those private investors, and their valuations are much higher [than would be the case] if they went public.
Who’s really at fault there? The company for not executing, or the investor for overzealous valuation?
I want to say they’re both at fault, although it was the investor that decided to proceed after [conducting] due diligence.
But these companies have real revenue and real business models. It’s just a matter of time. We’ve even seen some companies go public at lower valuations than they had when they were private. They may have needed the cash, or their investors pushed them to do it despite the haircut on the valuation.
At the same time, overhyping is a consistent theme in the software business, right?
Right. I think even big data was an overhyped term three or four years ago. Now what’s in vogue is artificial intelligence and machine learning, so there’s hype around that. Every software company is throwing some of that into their pitch. But there is a lot of innovation in that space, especially recently.
Back to the question: Why was Talend able to go public?
A lot of the companies with high valuations have burned a lot of cash to fuel their growth. We were always very disciplined in the investments made. We perhaps grew at a lesser rate than those companies, but it was profitable growth in the sense that it didn’t consume a large amount of cash. And we were at break-even on free cash-flow last year, we are this year, and we will be next year.
I would argue that our IPO has been very successful. I think the investors are pleased.
Of course, the overall market has been doing handsprings over that whole time.
Was this your first experience being with a company when it went public?
Yes. But I’d say how well you know the company is more important than having that experience, and I think bankers and investors would tell you that as well. Then you can position the company correctly and talk about it to investors.
When a company brings in a CFO with a lot of public-company experience 6 or 12 months before the IPO, he or she may struggle to answer questions. That’s not so great.
What’s on your agenda for 2018?
We’re going to be losing our foreign private issuer status, because more than 50% of our shares will be held by U.S. citizens. We’ve been publishing IFRS financials, but we’ll be preparing for filing U.S. GAAP financials in 2019 and preparing the additional SEC disclosures required of domestic issuers.
Since we’re a French company, we’re still going to have to publish IFRS financials too. That will add work for our teams, so we may have to bring in a few more people.
We’re also most likely going to lose our status as an emerging growth company, which means we’ll have to comply with Sarbanes-Oxley by the end of 2018.
That’s a big project, because you have to identify all of the control points across all of the processes that lead to the publication of your financial statements. You also have to make sure the controls are effective. And you have to ensure that everyone on the finance team, as well as the HR team and anyone else that touches the financial statements, are also familiar with the control points.