Q3 2019 Earnings Call
Good day and welcome to the talent third quarter 2019 earnings call.
Today's conference is being recorded.
Hi, I would like to turn the conference over to much Lauren Sloane. Please go ahead.
Thank you Lord <unk> Investor Relations for talent and I'm pleased to welcome you to tell its third quarter fiscal year 2018 conference call with me on the call today of talent CEO , Mike <unk> CFO Mr. During the course of today's presentation. Our executives will make forward looking statements, but at the meeting of the federal Securities laws farther.
These statements generally relate to future events or future financial or operating performance and involve known and unknown risks uncertainties and other factors that may cause our actual results performance or achievements it definitely materially from those contemplated by these forward looking statement.
Forward looking statements in this presentation shed include but are not limited to statements related to our business and financial performance and expectation thing guidance for future periods.
Kitchens regarding our strategic product initiatives and the related benefits and our expectations regarding the market.
Tissues and beliefs regarding these matters may not materialize and actual results in the future periods are subject to risks and uncertainties.
Actual results to differ materially from those projected.
These risks and put it the are set forth in the press release that we issued earlier today as well, but that is my boy, describing our filings with the Securities Exchange Commission. The forward looking statements. In this presentation are based on the information available to us at the date HERA you should not rely on them predictions of future events and we disclaim any obligation to update any forward looking statement.
As required by law. Please note that other than revenue or otherwise specifically stated financial measures to me I suppose on this call will be on a non-GAAP basis.
non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with guy.
We have provided a reconciliation of historical non-GAAP financial measure to the most directly comparable GAAP financial measures in our press release.
Alan customers that are referenced by name today do not endorse any vendor product or service not advice any company selection or use of technology products services and vendors no that makes and trying to calibrate. It makes you can tell CEO .
Thanks for the thank you all for joining us today.
We reported solid third quarter result.
Continue to execute well on our cloud transition with strong momentum in adding new cloud customers.
We're laying a foundation for future growth from both new customer adoption as well as existing customers expanding their use of talent.
We continue to believe that cloud will drive the majority of future growth and the date immigration laws.
Progress we've made in our cloud business positions us well to continue to gain market share.
In the third quarter, we achieved a record total revenue of $62.6 million up 20% year over year.
Some additional highlights from the quarter include.
Annual recurring revenue totaled $224.8 million and grew 24% year over year were 27% on a constant currency basis.
Subscription revenue grew 24% year over year for 26% on a constant currency basis.
And cloud, our SAS offerings global 100% year over year for the 13th consecutive quarter and represented 49% of new era, 43% and the second quarter.
Well on track to hit the target, we set a 60% of new era coming from cloud in Q4.
We now have over 2000 cloud customers and nearly 4000 total customers.
And finally, we strengthened our balance sheet through the issuance of 140 million euros and convertible notes.
The additional capital for continued growth in investing in cloud innovation.
We're pleased with the overall success more cloud business during the quarter with a frictionless sales model, we're showing our ability to rapidly land new customers. We're beginning their cloud journey and looking for a simple way to low data into a cloud data warehouse.
At the same time, we're continuing to gain momentum supporting the strategic cloud data needs of new and existing customers with talend data fabric.
As customers integration projects become increasingly complex there were a modern data integration and integrity sweet like Talend data fabric to achieve both speed and trust.
We've highlighted our success in the number of new cloud customers were adding each quarter, but were equally excited about the size of our cloud customers at the end of Q3, we had 74 customers with cloud air over $100000 more than three times. The number we had a year ago.
Additionally, our cloud deal sizes have become larger but our overall average deal size.
This growth demonstrate success landing enterprise cloud customers, expanding existing cloud customer relationships and cross selling tell in cloud to existing premise customers.
Momentum were seeing it our cloud business Nicholas incredibly excited about the opportunity ahead.
Our excitement is further bolstered by the fact that are win rates remain consistent even as our cloud business skills exponentially.
Several secular trends continue to drive market growth in cloud adoption explosion of global data volumes abroad transition to public and hybrid cloud environments, an increase in data privacy regulations, and rapid technological innovation and evolution.
These trends come significantly greater integration and integrity complexity and the need for modern and complete integration solutions challenged at the forefront of the market was telling data fabric, our unified environment that shortens the time to trusted data and solve some of the most complex aspects of the data value Shane.
In Q3, we now see availability of telling cloud on Microsoft as you work with advanced integration and data quality capabilities optimized for the Microsoft cloud platform with native support for as you were services.
We also announced the solution to automate migrations from on premise data warehouses to snowflake in the cloud.
Both initiatives are part of our continued commitment to helping customers at every stage of the club journey.
As we increasingly focus our R&D and go to market resources on the cloud opportunity. That's the overall market shifts to the cloud we see a continued slow down in our premise business.
As I've mentioned in the past the large majority of our new customer engagements focused on the cloud. We've now reached the point where half of our overall customers are in the club.
We're starting to pilot migrating a small number of our existing on premise customers to the cloud and we believe that the vast majority of our premise customers will migrate to the cloud in the coming years.
Using talent these customers will have a far easier past, the cloud and others, who aren't using tell yet.
We saw healthy mix of new wins and strong expansions in the third quarter. Let me walk you through a few customer success stories, which illustrates this trend.
An exciting new customer in Q3 is a multinational tire manufacturer based operational issues from silo data around the world.
The company issued its largest and most strategic technology project don't spend the next five years to solve this problem.
They are building a data lake and AAMC don't combined many different types of data, including financial ERP supply chain manufacturing and R&D into a single environment.
The manufacture evaluated companies like walk and Informatica and selected tell him for a platform capabilities and did a quality big data data governance and cloud when fully implemented the data Lake will provide the entire business with a single source of truth built everything from customer engagement through regulatory compliance.
Another new customer wins for talent is one of the largest and oldest U.S. financial institutions as part of a broader cost savings initiatives. The organization is migrating customer data out of axiom into their own environment within NWS using snowflake nfthree.
Working closely with Infosys in cap Gemini to evaluate several options. The company just like to tell based on a multi cloud support and embedded data quality capabilities.
This new customer win illustrates our continued success in joint wins with our cloud technology partners as well as the strength of her ESI partner referrals.
Most companies a fortune 50 home improvement company expanded its footprint with talent in Q3.
Low CIO issued a directed to move 65% of its infrastructure and applications to the cloud.
Flexibility the cloud will prepare lows for black Friday, the company's biggest revenue generating events of the year.
Tell them selected over competitors like informatic here for several reasons, including are open source foundation, our apiay offering multi cloud support an ability to support modern data integration and governance needs.
With this increased investment in Palin cloud lows plans to implement a multi cloud environment running a variety of data use cases to support aiotv supply chain sales financial applications, and Microsoft Azure and Google Cloud platform.
Another telling cloud customer in Q3 is a fortune 100 company in the financial services sector, serving the academic research medical and government sectors.
They were looking to move away from legacy technologies, and abrasive platform that would enable them to recognize the benefits of cloud and big data.
The company will feed a number of databases into a single cloud data warehouse based and Amazon integrating multiple hybrid and cloud to cloud environments.
Felt at the agility and extensibility of towns platform fit perfectly with their desired use cases and provides flexibility to adopt new technologies and address new use cases in the future.
Telling cloud was also selected by one of the largest commercial and civil contractors in the U.S. with over $5 billion and annual revenue.
As part of its broader transition to cloud the construction companies migrating its ERP system to Sep for Honda and using their cloud data warehouse for analytics.
The company selected talent after considering alternative solutions from yourself Informatica and they'll booming.
Tell stirred up from the competition, because we can blend together data integration and application integration to solve the construction companies immediate challenges, including cataloguing their application data in understanding the impact analysis Lincoln selectively shift their most critical data to the new ERP system.
Tell it also supports the upcoming advanced use cases, including Aiotv.
Another highlight from Q3 was their annual user conference Teleconnect, which took place in Paris, and London last month.
We featured a mix of keynotes from partners and customers, which we're very well received.
Event featured strong customer stories, including main stage presentations from Astrazeneca, the global Biopharmaceutical company and Lori all the world leader in cosmetics.
Astrazeneca spoke about their data journey with talent over the last several years, where they started by dramatically improving their financial reporting system and then expanded into other use cases across the organization eventually making us their enterprise wide strategic data integration and catalog provider as they move their entire business to NWS.
One results from this expansion is streamlining how astrazeneca develops and rigorously tested drugs.
Using talent Astra Zeneca estimates that it can shave one month from its clinical trial saving the company approximately a $1 billion per year.
Another great story, we heard it connects us l'oreal the companies using talented powered research and innovation departments data Lake and Microsoft Azure.
With talent Borealis processing more than 50 million data entry is per day from a variety of scientific aiotv and marketing sources.
This data is collected secured and shared in order to run cutting edge and analysis and drug new product innovation, while maintaining maximum safeguards to protect theater and insurance compliance with privacy regulations.
Our transition to the cloud continues to build momentum.
Our strategy is to land new cloud customers quickly with dish to allow them to low data into their cloud data warehouse minutes, and then expand by solving our customers most important data quality and governance problems.
With a focus on solving the most complex hybrid and multi cloud scenarios across both R&D and sales were well positioned to succeed as the enterprise market increasingly moves to the cloud.
We call. This unique combination of Fastlane, followed by enterprise expand speed and trust.
In parallel will help our existing on premise customers migrate to the cloud so that they can take full advantage of the cloud across their business, which we expect will result in higher satisfaction and higher net expansion rate after they moved to the cloud.
We see the opportunities expanding ahead of us as their cloud business scales and becomes a meaningful growth driver for our business.
As you've seen over the last few quarters, we're prioritizing scaling a rapidly growing cloud business, particularly as our premise business slows.
Our strategy is to aggressively drive or cloud business. So as it becomes first our largest driver new era, which we expect to achieving the current quarter and next the largest component of our total error in revenue in the coming years, we see this transition as a tremendous value driver for the company. Despite the near term headwinds that it has caused.
Some of our broader business metrics.
To give investors clear visibility into the scale and growth of our cloud business will start disclosing cloud air our next quarter.
In Q3, we saw headwinds in our European business, particularly in our premise bookings this impacted our sequential growth in total error as we discussed in our Q2 earnings call the macro and political uncertainty in Europe , which continues maxes cautious for the remainder of the year in that region.
Let me now turn the call over the Adam discuss our Q3 financial results and the outlook for Q4 in 2019. Thank you Mike.
Today I'll review, our financial results for the third quarter 2019, as well as provide our outlook for the fourth quarter in fiscal year 2019.
As a reminder, we were reporting Q3 financial results under U.S. gap as required we became a domestic filer at the beginning of this year.
Annual recurring revenue or a our grew to 224.8 million as of September Thirtyth, 2019, up 24% year over year or 27% year over year on a constant currency basis.
We define air our as the annualized value of all active contracts at the end of the period and as a result, the FX impact at this point in time measure will differ from that of subscription revenues.
Strong demand for telling cloud contributed meaningfully to this gross.
Alan Cloud represented 49% of new aircraft for the third quarter up from 43% into Q2.
We are pleased with our sustained cloud momentum in our progress towards reaching our goal is exiting 2019 with half of new era.
As a percent next has been a key measure of our sales and marketing rotation to the cloud during this year.
Well, it's Alan cloud established is our largest sales engine a measure of success entering 2020 will shift to overall cloudy our new cloud sales continued expansion within existing cloud customers and the cross sale of talent cloud to existing premise customers will each be meaningful contributors to our business in 2020.
And our Q4 call, we will begin providing talen quality, our quarterly and we will also provide talen clouds for your air our guidance for 2020.
I'd like to expand further on Mike's comments regarding the sequential growth in total air or during Q3, we added 6.8 million of new air or.
Performance in Europe weighed on overall sales for the quarter. It was the largest contributor to the lower sequential growth in they are relative to last quarter.
The momentum in Europe remains relatively strong, but the I.T. spending environment, there, particularly impacted printer sales in the quarter for both new customers and expansions within existing customers.
The quarter ended September Thirtyth 2019 of our dollar base net expansion rate was 114% in constant currency. As a reminder, this revenue base metric was bolstered during 2018 due to assay success six as we've previously noted we anticipated that this four quarter rolling measure would come down over the course of this year.
Fully reflect the new revenue standard.
However, the four percentage points change since Q2 2018 also resulted from lower expansions within existing European customers during the quarter.
Overall customer retention during the quarter was in line with our historical trends.
Customer additions in the quarter was strong we now have nearly 4000 customers with over 2000 than being cloud customers. We ended the quarter with 521 enterprise customers defined as customers with 100000 or more of annualized subscription revenue.
Enterprise customers contributed 67% of subscription revenue in Q3 versus 68% in Q2, we did see slightly higher down sales this quarter for customers around the 100000 dollar level, which resulted in a slight sequential decline from 925 enterprise customers in Q2.
Customer attention in that group, however was inline with prior periods down cells are common as some customers adjust the number of seats required as projects evolved from initial deployments to steady state.
These are more than offset by growth within accounts from the other departments are projects as evidenced by our dollar basis net expansion rate.
We've made a strategic decision to prioritize cloud with both new and existing customers and we believe that this will result in some accounts deferring additional purchases as they evaluate their own cloud strategies as Mike mentioned as these customers moved to the cloud we expect to see their expansion rates increase.
We've seen significant growth in the number of large cloud customers over the last year and ended Q3 was 74 customers with 100000 or more of quality. Our this demonstrates our success in expanding cloud customers and the rapid adoption of cloud amongst large organizations. Please note that this air our base to measure.
Reflects the ending value of cloud contracts at the ended the period first our enterprise customer definition, which is revenue based and will lag because the sales linearity.
On an air our basis total enterprise customers grew quarter over quarter in Q3, as we're focused on air our as the primary measure of the business will transition to an air aren't based measure for enterprise customers. It starting next quarter.
Total revenue for the third quarter was 62.6 million up 20% year over year.
The impact on overall revenue growth from FX in professional services gross moderation were inline with our expectations subscription revenue for the third quarter was 55.1 million up 24% year over year or 26% on constant currency basis subscription revenue from telling cloud grew more than 100% year over year for the 13th consecutive quarter.
Professional services revenue was 7.5 million in the third quarter, an increase of 1% year over year. This moderation is largely related to lower average professional services requirement for telling cloud.
Professional services revenue can fluctuate due to project, telling me as well as Klondex. We're pleased with the continued mix shift towards subscription revenue, which accounted for 88% of total revenue for the quarter, regardless. We believe they are our growth is the best indicator of our momentum with both new and existing customers during our cloud chefs.
As I mentioned earlier, we have seen softening demand in Europe , given the macroeconomic backdrop.
Total revenue from our EMEA region grew 8% year over year in Q3, we continue to take a cautious outlook into me for the near term.
Before moving to profit and loss items I would like to point out that unless otherwise specified all extends and profitability metrics I will be discussing going forward our non-GAAP results.
Full reconciliation between GAAP and non-GAAP results can be found in the earnings press release issued today, which is posted on the Investor relations portion of our website.
Our total gross margin for the third quarter was 78% compared to 77% and the same period of last year precepts professional services gross margin was 16% this quarter up from 13% last quarter subscription gross margin reached 87%, which reflects greater economies of scale to their cloud business continues to grow.
Operating expenses for the third quarter were 51.9 million up 21% year over year.
Sales and marketing expenses for the quarter with 30.2 million up 15% year over year. This lower growth reflects the change we made at the end of last year, just focused sales hiring during Q4 to align new starts to the beginning of the year.
R&D expenses for the quarter were 12 million up 48% year over year as we continue to drive investment in our cloud products and operations.
Also particularly impacted by the inclusion of stench, where R&D accounted for most of the operating expense GNS expenses for the quarter were 9.7 million or 15% of revenue versus 16% of revenue in the prior period. This reflects our ongoing focus to drive efficiency the business.
We incurred an operating loss for the quarter of 2.8 million or 4% compared to an operating loss of 3 million or 6% in the third quarter 2018.
Performance versus initial guidance reflects efforts to drive efficiency during Q3 as well as some non cash savings, including benefits from reduced tax expense related to RSU vesting and a reduction in allowance for doubtful accounts.
Net loss for the quarter was 2.6 million compared to a net loss of 2.8 million in the prior year period.
Cash and cash equivalents totaled 172 million as of September Thirtyth 2019 versus 32.1 million at the end of June our cash position includes 149 million in net proceeds from the convertible notes offering we closed in September .
We now have additional flexibility to invest in the business with this long term capital.
We are focused on shaping our business around the cloud opportunity and we believe the continued strategic investments in our cloud products and go to market strategy positions us to be a leader in data integration innovation.
Free cash flow for the quarter was negative 11.3 million given the dynamics in Europe , and lower sequential air our growth. This quarter, we expect that free cash flow burden for the full year will be a few million higher than the 15 million we discussed in prior calls.
I'll now turn to our outlook for Q4 and full year 2019, as a reminder, our guidance assumes similar business conditions and foreign exchange rates as of October 31st 2019.
For the fourth quarter 2019, total revenue is expected to be in the range of 65.4 million to 66.4 million.
non-GAAP loss from operations is expected to be in the range of 4.5 million to 3.5 million non-GAAP net loss is expected to be in the range of 6.8 million to 5.8 million non-GAAP net loss per share is expected to be in the range of 22 cents to 19 cents. This.
This is based on a basic and diluted weighted average share count of 30.9 million shares.
We are updating guidance for the full year 2019 as follows total revenue is expected to be in the range of 246.5 million to 247.5 million non-GAAP loss from operations are expected to be in the range of 22.6 billion to 21.6 million.
non-GAAP net loss is expected to be in the range of 25.4 million to 24.4 million non-GAAP net loss per share is expected to be in the range of 83 cents to 80 cents. This is based on the basic and diluted weighted average share count that's 30.6 million shares.
We're excited about the progress we have made and advancing our cloud strategy and expect to exit 2019 was telling cloud is the largest contributor to new business remain confident that our market leadership strong customer and ecosystem relationships in cloud first innovation will enable us to continue to drive durable growth over the long term, let me turn the call back over to Mike <unk>.
Final comments. Thank you Adam we're pleased with the progress we've made year to date, we're executing well on our cloud transition with strong momentum and adding new cloud customers.
Well positioned to take advantage of the market shift to the club with that Adam and I would be happy to take your questions.
Operator.
Thank you.
I would like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to a lot of your signaled reach <unk>.
Again press Star one to ask a question.
Paul for just a moment to allow everyone an opportunity to signal for questions.
And our first question comes from Avant surgery, with William Blair and company.
Great Hey, guys. This is David.
Thanks for taking the questions. So first I wanted to touch a little bit on talent cloud.
That businesses, obviously scale pretty considerably over the past five quarters here going from less than a thousand customers and 14% of new air our and your go quarter to over 2000, and nearly 50% of new air are today, So I think it'd be good.
Kind of helpful. If you could kind of unpack, what you're seeing in terms of the expansion characteristics about customers.
I guess, specifically can you give us some sense of what the expansion rates with the customers you've added over say the past four quarters here have looked like and how those compare to the expansion rate that you saw in the on premise big data business when it was that comparable scale.
[laughter] hugs, so I'll start and I'll hand, it to the add them for the second part of that.
Our cloud business, our cloud expansions have actually been increasing over the last year at a really nice clip to the point, where they're now materially higher than our overall expansions for the rest of or business.
It really exciting to see in it I think it demonstrates not just the a increasing maturity the offering that we have but also the.
The demand for it in the market as are the market is increasingly moving to the cloud.
In terms of how it compares to big data at an equivalent scale is a great question I'm not sure. If we have the data going back to their but I don't know hey, Dave and good to hear from you.
The numbers for cloud expansion are in line to play a little higher than where big data was at this scale you know part of the dynamic that is driving the the actual expansion in that number for us or last couple quarters is just frankly, the small base that we were starting with from the last couple of years and now that's really started to take off we're seeing.
[noise] expansion within those cloud customer cohorts.
And what's not picked up and that is the way we're framing it doesn't actually include.
Any conversions from premise to cloud if you added that it would be even higher.
Got it that's helpful. And then you know as we think about the migration side of the equation you know, it's obviously still very early days there, but you didn't mention that you're starting to migrate a small number of customers.
A couple of things related to that you know I guess first can you talk a little bit about how those early migrations are progressing or whether there's been any unexpected challenges or maybe even positive revelations.
And then you know as we enter the fourth quarter here and we start to think a little bit more about next year, how should we think about migration activity trending.
Seems like your focus on delivering.
Bulk of incremental product innovation in the cloud and I'm really just a broader cloud transition that we're seeing play out in the market.
Really implies that there could kind of be a a big ticket migration activity in 2020.
Is that the right way to think about it or do you think again, maybe take a little bit more time for that trend to build momentum.
The way we're looking at it right now is that during the first half of 2020 will be slowly ramping it up bring more and more partners into the mix to make it.
Into a.
Repeatable and scalable motion because remember we have about 2000 premise customers and so over the next several years this will need to be a very high velocity motion for us So building that overall.
Program with partners is gonna be our primary goal for the first half of the year, you'll start to see is due in early ramp of higher volume towards the second half and really in a 21 and 22, we want to be really in full steam and you should see some.
Migration is really taking up towards the end of next year and going into the following year.
Got it that's helpful. Congrats on another good quarter here and thanks for taking the questions.
Thank you.
Thank you. Our next question comes from Raimo Lenschow with Barclays.
[laughter], Mike can you talk a little bit about.
How competition is evolving in on the call tied I'm. Just you know obviously, we started out with a lot of private vendors, but then you got to steer, but now you're kind of adding a lot more capabilities with pipeline build et cetera. Like what are you seeing in the landscape at the moment in terms of like kind of early lending spots versus kind of the next funding and then I'll follow up on.
In Europe .
Yep.
Okay. So right now the the way we see the market hasn't changed that much over the last couple of quarters in the sense that we still see there being a segmentation of.
Oh, hi speed land competitors.
That are largely a new entrants.
That are really doing a nice job of landing new customers quickly as we do with stitch and then separate from that the large incumbents.
Really headed by Informatica that can help customers solve their most complex data problems and their trust problems and governance problems.
And we remain the only company in the market that can.
Land fast help you get started solving your problems immediately be live in a couple of minutes and then seamlessly scale up and solve your most complex problems than that.
So called speed and trusts positioning remains unique in the market and.
I think I will be stable for some period of time and that really is what drives our.
Our overall when rates as I mentioned in the prepared remarks, those remain stable is we've scaled our cloud offering dramatically over the last several years.
The wind rates initially grew to a really nice level and now this is a this stabilized.
Okay, and then on Europe like like it's it's funny because some companies in your speech like Hamann impact in hours, just kind of them are worried but haven't seen anything [laughter] can you talk a little bit about maybe furniture crew and geographical footprint, where you see more or less stuff going on there just to maybe frame across thank you.
Yeah, the the probably the.
The most useful segmentation that that we look at internally is actually less about vertical.
And is more about a premise versus cloud because what we're seeing is our cloud business in Europe continues to grow really strongly and our premise business.
[noise] is where we're seeing the impact and the read through that we have on that is that.
Cloud business a club projects tend to have a bunch of strategic drivers that customers are continuing to greenlight and continuing to fund even in the sense. It in the.
Faced with macro uncertainty in the the political environment. So on that we're seeing over.
Over there, whereas the label projects premise projects tend to be seen as more delayable, because it's adding onto more something that's already working.
And so I think that's the best read through that we can give on that at this point.
Okay perfect. Okay. Thank you.
Thank you. Our next question comes from Jack Andrews with Needham.
Oh good afternoon. Thanks for taking my question I was wondering if you could drill down a little bit on the I think you said you have 74 customers in the cloud paying you more than $100000 I was wondering if there's any.
You know specific common use cases, or you know partners that have really been driving that that growth is it for example, specifically focused on data warehouse use cases, or just any more color about what's really driving that particular strength in in that I think you said it was tripling year over year in terms of that metric.
That's right. It has what we're finding is that cloud data warehousing is a very very high volume use case for US right now and is a.
Very frequent initial landing spot for us.
As we expand you know typically for a a customer that's.
Using more than $100000 with us, they're probably doing more than just that initial land use case.
What we're finding on you know add on.
You know follow on all sorts of opportunities.
Tend to be around solving things like governance, helping companies solve their apiay problems.
You know we mentioned in the on the call as well lows as a customer and they're using an EPA I first approach as they moved to the cloud. There were also looking at using Apiay. The shared data so using our Apiay services offering that we launched last fall it's been a key part of that.
Mansion.
So I'd say.
The absolutely cloud data warehousing is underpins a lot of what we're doing in the cloud, but for the enterprise I kind of accounts I think of it as there's probably more going on there as we expand into solving more of their did a problem solve more of their real enterprise complexity.
Great. Thanks for that and then just as a follow up question is there any more color you can provide in terms of how you're thinking about.
Making use of the additional capital you talked about further investments in the cloud should we be thinking about just overall hiring or perhaps.
More tuck in M&A type of situation. So how are you thinking about that.
Hey, Jack It's Adam you know really both of those will be the things we think about handicap. It gives us a lot of flexibility to keeping grow to keep investing in just the.
The pace of growth in cloud and so some of that will absolutely be just more feet on the street more marketing dollars.
And then obviously, we keep our eyes opened for tuck in M&A anything that would really accelerate our product road map more than anything else.
Instead. This capital is is just you know dry powder for those purposes.
There's nothing really that we have you know in near sites on the M&A front.
Great. Thanks for taking my questions.
Thanks Chuck.
Thank you. Our next question comes from Chris Merwin with Goldman Sachs.
Okay. Thank you I was wondering if you don't mind talking a bit about the <unk>, which announced the snowflake I guess, there's an offering now that automates the migration of on Prem data to Snowflake can you just talk a bit about how that's different from what you were doing before and and how we should also think about this as a driver of new customer growth. Thanks.
Yeah. So we would snowflake, we do a lot of business with no quick and we see them as a very very compelling cloud data warehouse.
And but to date the vast majority of our business with them is been with net new data warehouses. So companies that are building a new data warehouse in the cloud for some some problem that.
It wasn't being felt before on premise.
But the other hand, there's roughly 50 billion dollars' worth of of spend every year on premise data warehouses.
And our expectation and largely I'd say the shared expectation amongst us and snowflake is that all of that is gonna moved to the cloud over the next decade.
And so we're now working with them to help move some of those premise data warehouses to the cloud.
And we see that is a really nice opportunity.
To take to help companies modernize their infrastructure take advantage of a lot of the new cloud capabilities.
And with that.
You know see strengthen relationship with snowflake and a.
Strong growth and expansion within those accounts in the coming years.
Okay, Great and I think are in the prepared remarks, you mentioned that you're seeing some some down cells from customers I know, that's being offset to degree by new projects I mean, but to the extent that you see more of that from customers does it make sense to to contemplate solution based pricing you know just given the strategic value being being delivered.
That's fair question, Hey, Chris It's Adam So you know reiterate what I said on the down sell side. It is really handful of customers right around that 100, K threshold and so that's what I'm kind of explains the sequential change in enterprise customers, but from a dollar perspective, it wasn't really material driver we kinda car.
Certainly look at and think about pricing and packaging strategy and you know overtime moving to more of a solution based sale isn't vast majority of use cases in the cloud is something that probably makes sense, but I don't think we had a near term urgency around it given any particular business trend that we're seeing right now.
Great. Okay. Thank you.
Thank you. Our next question comes from Tyler Radke with Citigroup.
Hi, Thank you for taking the questions.
Question, maybe for you Mike on what you're seeing the on premise business. Obviously, you called out some issues in Europe , I think weaker macro conditions that you think had a negative impact on the on premise business that I guess, if you. If you were to look at side of.
You know outside of the macro impacts how did that perform relative to your expectation and how have you had to kind of take your expectations for that business down you know into Q4 and next year, given what you've seen a here in Q3.
Well I'd say outside of Europe . The U.S. business is going really strong right now and so.
And that's across both follow ons to existing premise customers as well as expansions into the cloud and new cloud customers all of the above.
And so what we're seeing really is a.
Weakness in Europe , and as we mentioned Tibet, Indeed, the cloud business Europe is actually going really well and so it really is concentrated on the.
You know premise expansions in Europe .
The.
Yeah. If you were to step back and say move away from just Q3 and say what do we expect it happened over the next several years, we certainly expect that the this transition that we've been really happy to see over the course of 2019 is going to continue and more and more of our business becomes cloud and more.
And more of our customers.
First add on cloud and then ultimately migrate and become fully cloud customers.
So our expectation in the longer term is that the premise business.
Declines as a as a percentage and as an absolute value in the cloud becomes you know the majority and then all of what we sell.
But in in Q3 itself or the trend that we saw it was really in Europe on the premise thought.
Yeah, and I'll add Mike alluded to this and his response, just then but it's it's important just reiterate.
The vast vast majority of our new logo lands now our cloud.
And so that's a function of customer readiness product market fit getting better and frankly, our sales organization, just getting better and better at a positioning cloud in generic opportunities and so you know as we move into next year with cloud the biggest contributor to overall growth.
It's already the biggest contributor to new logo business.
And that that trend is definitely going to continue and we'll just keep keep expanding.
Great and and maybe a follow up there for for you at him. So obviously you kind of have this.
You know you have this mix dynamic where you have.
A large on premise business as a percent of revenue that sounds like ultimately may may start to decline.
On an absolute basis it at some point and cloud business, it's small but crying over 100% you know a ours is we look at that from a year over year growth rate I mean that yeah that that continued to grow kind of in the high Twentys is on a constant currency basis, I mean, how should we be thinking about.
The the kind of the growth rate of that going forward just given the mix shift dynamics that you described.
Yes Fair question I mean, it you know it's its important to to pull this back to the whole conversation around how we think about migrations and so is as I'd mentioned in my comments next year overall dollar of quality, our our will be really the primary indicator of how we're doing.
In that cloud rotation, because not just new sales, but also the migrations of existing premise customers to cloud become a pretty material driver a and so you'll have more visibility into that and so we think about that as being important component of how you bridge the continued scaling of cloud versus.
You know the stability or decline of premise a our overtime frankly at this point in Q4 and still pretty early and budget process in season.
Don't want to point to anything that we really signal 2020 overall growth expectations for aerostar.
But just the most important thing to keep it rating is the most important thing that we can do as a management team as a company is to get a as much of our business to the cloud as fast as possible.
Because that's absolutely where our customers are going and that's where the growth is gonna be over the next 10 years.
Thank you.
Thank you. Our next question comes from Mark Murphy with JP Morgan.
Oh, Great Hey, that's been Jim on behalf of Mark Thanks for taking my question.
I just wanted to ask about stage <unk> could you talk about maybe the win rates and the competitive dynamics, you're seeing in that particular business because I know there are few.
Companies that and you mentioned that that lance customer as far as fast and kind of skills from there, but what are you seeing and also do you view cosco.
Screening services isn't kind of an alternative technology to what states does or is it just completely different.
[laughter], Okay I'll pick the first one and then the second one the first question is what do we see for stage 200 and <unk>.
Business works is.
It's it's much less of a sales driven process, where you know we're in head to head competition with someone else and.
You know competing side by side, it's much more of a.
Self service driven evaluation process.
And so the way we look at this ditch business is.
It's a very very efficient way to up for us to acquire new customers.
The payback period is really strong.
The business is extremely linear and die level and predictable and you know as you've seen in the first nine month of 2019, we acquired about a thousand new cloud customers many of them being ditch. So that's proven to be a very very effective new logo acquisition vehicle.
For us, but you really have to think about it differently, where the given the evaluation process is largely being done in the self service way.
You know, we don't have competitive win rates, because we don't see that process, Tom it's not a sales driven process in general.
The in terms of how we think about kafka.
Okay is a you know really strong I'm.
You know streaming engine, that's I'm seeing a great adoption, we use it internally as part of our offerings ditch actually uses coffee internally as well.
Cost of talent cloud used kafka internally.
We allow you to plug and play in a use kafka within a pipeline if you want to create a streaming pipeline and so we see it as almost entirely complimentary to what we're doing what our since we don't provide a.
You know any kind of run time.
Our goal is to help our customers take advantage of the most capable run times out there and for streaming I think we think as a great choice and we have a number of customers that use it and as I mentioned, we use it internally.
For.
Things like machine learning Runtimes, then spark a and general unstructured crossing spark is really good for structured data processing things like snowflake in sequence is really good. So our goal is to help customers use all of those in a really easy to use you know web based.
Designed environment.
Understood very helpful.
One follow up on <unk>.
Revenue for next year, I mean, it's kind of going down I guess as percentage of revenue and with cloud I guess, it'll becoming a larger part of revenue.
The business next year.
Do you think it could have.
Oh, FID or drag on total revenue next year, and that's why maybe <unk> or is the right.
Yeah, that's absolutely right. So you know we've seen some moderation in P.S., a which show which is largely related to the cloud growth and scale, we're going to continue to be conservative on that and I do think that it will continue to be a drag on overall revenue probably not as much as it's been in the last couple of quarters.
But you know, we're really pleased and would like to continue to push the mix shift further towards subscription revenue.
Thank you.
Thank you and we have no further questions at this time.
And gentlemen, this concludes today's call. We thank you for your attendance and participation you may now disconnect.
[noise].
[noise].
[noise].
[noise].
[noise].
[noise].