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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ___ to ___
Commission File Number 001-37825
Talend S.A.
(Exact name of registrant as specified in its charter)

France
(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 October 30, 2020, the registrant had 31,763,338 ordinary shares, nominal value of €0.08 per share, outstanding.


Table of Contents
TALEND S.A.
TABLE OF CONTENTS


2

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).​
TALEND S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
September 30,December 31,
20202019
ASSETS
Current assets:
Cash and cash equivalents$160,527 $177,075 
Accounts receivable, net of allowance for doubtful accounts of $1,546 and $1,082, respectively
57,523 82,952 
Contract acquisition costs11,650 10,695 
Other current assets
10,816 9,832 
Total current assets240,516 280,554 
Non-current assets:
Contract acquisition costs23,594 22,050 
Operating lease right-of-use assets
36,603 27,821 
Property and equipment, net8,771 5,348 
Goodwill
50,000 49,744 
Intangible assets, net10,171 14,018 
Other non-current assets
5,377 4,382 
Total non-current assets134,516 123,363 
Total assets$375,032 $403,917 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$3,976 $4,439 
Accrued expenses and other current liabilities
36,522 41,182 
Contract liabilities - deferred revenue, current126,676 142,616 
Operating lease liabilities, current
4,586 5,047 
Short-term debt 227 
Total current liabilities171,760 193,511 
Non-current liabilities:
Deferred income taxes
580 768 
Other non-current liabilities1,924 1,137 
Contract liabilities - deferred revenue, non-current
11,764 17,807 
Operating lease liabilities, non-current33,726 24,252 
Long-term debt
139,856 130,490 
Total non-current liabilities187,850 174,454 
Total liabilities
359,610 367,965 
Commitments and contingencies (Note 8)


STOCKHOLDERS' EQUITY
Ordinary shares, par value €0.08 per share; 31,760,727 and 31,017,268 shares authorized, issued and outstanding, respectively
3,272 3,205 
Additional paid-in capital
350,777 309,988 
Accumulated other comprehensive income(362)1,107 
Other reserves
282 207 
Accumulated losses(338,547)(278,555)
Total stockholders’ equity15,422 35,952 
Total liabilities and stockholders’ equity$375,032 $403,917 
The above condensed consolidated balance sheets should be read in conjunction with the accompanying notes.
3

Table of Contents
TALEND S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenue
Subscriptions
$65,985 $54,952 $187,779 $157,432 
Professional services
6,717 7,484 20,780 22,975 
Total revenue
72,702 62,436 208,559 180,407 
Cost of revenue
Subscriptions
10,553 7,976 27,524 23,782 
Professional services
6,065 6,772 19,065 21,925 
Total cost of revenue
16,618 14,748 46,589 45,707 
Gross profit
56,084 47,688 161,970 134,700 
Operating expenses
Sales and marketing
40,686 33,240 118,470 102,428 
Research and development
16,836 15,552 50,409 46,987 
General and administrative
16,796 12,163 47,448 34,191 
Total operating expenses
74,318 60,955 216,327 183,606 
Loss from operations
(18,234)(13,267)(54,357)(48,906)
Interest income (expense), net
(2,063)(631)(5,790)(637)
Other income (expense), net
(62)396 203 (189)
Loss before benefit (provision) for income taxes
(20,359)(13,502)(59,944)(49,732)
Benefit (provision) for income taxes18 (9)(48)(48)
Net loss$(20,341)$(13,511)$(59,992)$(49,780)
Net loss per share attributable to ordinary shareholders, basic and diluted
$(0.64)$(0.44)$(1.91)$(1.63)
Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:
31,635 30,648 31,419 30,453 
The above condensed consolidated statements of operations should be read in conjunction with the accompanying notes.
4

Table of Contents
TALEND S.A.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net loss$(20,341)$(13,511)$(59,992)$(49,780)
Other comprehensive gain (loss)
Foreign currency translation adjustment(995)730 (1,469)871 
Total comprehensive loss$(21,336)$(12,781)$(61,461)$(48,909)
The above condensed consolidated statements of comprehensive loss should be read in conjunction with the accompanying notes.
5

Table of Contents
TALEND S.A.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)


Three Months Ended September 30, 2020
Ordinary shares
Additional
paid-in
capital
Accumulated
other
comprehensive
income
Other
reserves
Accumulated
loss
Total
equity
Shares
Amount
Balance as of June 30, 202031,536,529 $3,250 $335,571 $633 $272 $(318,206)$21,520 
Net loss for the period
— — — — — (20,341)(20,341)
Other comprehensive loss— — — (995)— — (995)
Restricted stock units reserve
— — (10)— 10 —  
Shares issued from restricted stock unit vesting
102,406 10 (10)— — —  
Exercise of stock awards
45,722 4 838 — — — 842 
Issuance of ordinary shares in connection with employee stock purchase plan76,070 8 2,354 — — — 2,362 
Share-based compensation
— — 12,034 — — — 12,034 
Balance as of September 30, 202031,760,727 $3,272 $350,777 $(362)$282 $(338,547)$15,422 


Three Months Ended September 30, 2019
Ordinary shares
Additional
paid-in
capital
Accumulated
other
comprehensive
income
Other
reserves
Accumulated
loss
Total
equity
Shares
Amount
Balance as of June 30, 201930,558,748 $3,164 $267,281 $545 $213 $(253,355)$17,848 
Net loss for the period— — — — — (13,511)(13,511)
Other comprehensive loss— — — 730 — — 730 
Equity component of 2024 Notes, net of issuance costs— — 20,793 — — — 20,793 
Restricted stock units reserve— — 6 — (6)—  
Shares issued from restricted stock unit vesting43,017 4 (4)— — —  
Exercise of stock awards107,997 10 1,377 — — — 1,387 
Issuance of ordinary shares in connection with employee stock purchase plan72,478 7 2,462 — — — 2,469 
Share-based compensation— — 9,039 — — — 9,039 
Balance as of September 30, 201930,782,240 $3,185 $300,954 $1,275 $207 $(266,866)$38,755 

6

Table of Contents
TALEND S.A.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(in thousands, except share data)
(unaudited)

Nine Months Ended September 30, 2020
Ordinary sharesAdditional paid-in capitalAccumulated other comprehensive incomeOther reservesAccumulated lossTotal equity
SharesAmount
Balance as of December 31, 201931,017,268 $3,205 $309,988 $1,107 $207 $(278,555)$35,952 
Net loss for the period— — — — — (59,992)(59,992)
Other comprehensive loss— — — (1,469)— — (1,469)
Restricted stock units reserve— — (75)— 75 —  
Shares issued from restricted stock unit vesting379,166 34 (34)— — —  
Exercise of stock awards215,248 19 2,676 — — — 2,695 
Issuance of ordinary shares in connection with employee stock purchase plan149,045 14 4,635 — — — 4,649 
Share-based compensation— — 33,587 — — — 33,587 
Balance as of September 30, 202031,760,727 $3,272 $350,777 $(362)$282 $(338,547)$15,422 

Nine Months Ended September 30, 2019
Ordinary sharesAdditional paid-in capitalAccumulated other comprehensive incomeOther reservesAccumulated lossTotal equity
SharesAmount
Balance as of December 31, 201830,158,374 $3,128 $244,878 $404 $138 $(217,001)$31,547 
Adjustment on initial application of ASC 842
— — — — — (85)(85)
Adjusted balance as of January 1, 201930,158,374 3,128 244,878 404 138 (217,086)31,462 
Net loss for the period— — — — — (49,780)(49,780)
Other comprehensive gain— — — 871 — — 871 
Equity component of 2024 Notes, net of issuance costs— — 20,793 — — — 20,793 
Restricted stock units reserve— — (69)— 69 —  
Shares issued from restricted stock unit vesting185,645 17 (17)— — —  
Exercise of stock awards306,844 28 4,354 — — — 4,382 
Issuance of ordinary shares in connection with employee stock purchase plan131,377 12 4,730 — — — 4,742 
Share-based compensation— — 26,285 — — — 26,285 
Balance as of September 30, 201930,782,240 $3,185 $300,954 $1,275 $207 $(266,866)$38,755 
The above condensed consolidated statements of stockholders’ equity should be read in conjunction with the accompanying notes.​
7

Table of Contents
TALEND S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net loss for the period$(59,992)$(49,780)
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Depreciation2,453 2,082 
Amortization of intangible assets3,978 3,974 
Amortization of debt discount and issuance costs3,918 411 
Amortization of contract acquisition costs8,843 7,605 
Non-cash operating lease cost4,890 4,264 
Unrealized (gain) loss foreign exchange(290)34 
Accrued interest on convertible debt2,067 225 
Share-based compensation33,587 26,285 
Changes in operating assets and liabilities:
Accounts receivable25,950 14,377 
Contract acquisition costs(11,048)(10,072)
Other assets(1,660)(3,580)
Accounts payable(581)1,871 
Accrued expenses and other current liabilities(6,688)(2,927)
Contract liabilities - deferred revenue(23,566)(6,951)
Operating lease liabilities(4,845)(4,224)
Net cash used in operating activities(22,984)(16,406)
Cash flows from investing activities:
Acquisition of property and equipment(5,652)(2,064)
Net cash used in investing activities(5,652)(2,064)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs 149,145 
Proceeds from issuance of ordinary shares related to exercise of stock awards2,695 4,382 
Proceeds from issuance of ordinary shares related to employee stock purchase plan4,649 4,742 
Repayment of borrowings(660)(117)
Net cash from financing activities6,684 158,152 
Net decrease in cash and cash equivalents(21,952)139,682 
Cash and cash equivalents at beginning of the period177,075 34,104 
Effect of exchange rate changes on cash and cash equivalents5,404 (1,822)
Cash and cash equivalents at end of the period$160,527 $171,964 
The above condensed consolidated statements of cash flows should be read in conjunction with the accompanying notes.
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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 September 30, 2020 and December 31, 2019, the consolidated statements of operations, the consolidated statements of comprehensive loss and the consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and September 30, 2019, and the consolidated statements of cash flows for the nine months ended September 30, 2020 and September 30, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.​
These unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 17, 2020.​
Certain prior year financial information in the consolidated statement of cash flows has been reclassified to conform with current year presentation. In addition, an immaterial reclassification of unbilled revenue between other assets and accounts receivable has been made in our prior year consolidated balance sheet to conform to the current period presentation. These reclassifications had no impact on net loss, stockholders’ equity, operating cash flows or total cash flows as previously reported.​
Use of estimates​
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates include, but are not limited to, revenue recognition (including allocation of the transaction price to separate performance obligations and the determination of the stand-alone selling price), the amortization period for contract acquisition costs, contract period of leases, fair value of acquired intangible assets and goodwill, and share-based compensation expense. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ significantly from these estimates.
Summary of significant accounting policies
Except for the accounting policies described below, there have been no changes to the Company’s significant accounting polices disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 17, 2020, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.​
Recently adopted accounting standards​
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU 2019-11 requires entities that did not adopt the amendments in ASU 2016-13 as of November 2019 to adopt ASU 2019-11, and contains the same effective dates and transition requirements as ASU 2016-13. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of
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the effective date to align existing credit loss methodology with the new standard. The Company adopted ASU 2016-13 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.​
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which modifies the goodwill impairment test and requires an entity to write down the carrying value of goodwill for the amount by which the carrying amount of a reporting unit exceeds its fair value. The Company adopted ASU 2017-04 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.​
In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. The Company adopted ASU 2018-15 effective January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.​
Accounting standards issued not yet adopted​
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 $138.4 million and $160.4 million as of September 30, 2020 and December 31, 2019, respectively. Revenue recognized from the deferred revenue balances at the beginning of each period was $52.1 million and $48.6 million for the three months ended September 30, 2020 and 2019, respectively. Revenue recognized from the deferred revenue balances at the beginning of each period was $123.3 million and $100.6 million for the nine months ended September 30, 2020 and 2019, respectively.
Remaining Performance Obligations
The Company’s contracts with customers include amounts allocated to performance obligations of $210.7 million that will be satisfied at a later date. As of September 30, 2020, $153.0 million of deferred revenue and backlog is expected to be recognized from remaining performance obligations over the next 12 months, and approximately $57.7 million thereafter.
Contract assets​
The Company may record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. These assets, or unbilled revenue, are classified as accounts receivable, net in the consolidated balance sheet. Unbilled revenue was $1.9 million and $2.1 million as of September 30, 2020 and December 31, 2019, respectively.
Contract acquisition costs
The Company recognizes sales commissions earned by the Company’s sales force that are considered incremental and recoverable costs of obtaining a contract with a customer as contract acquisition costs in the consolidated balance sheet. Contract
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acquisition costs, including current and non-current balances, were $35.2 million and $32.7 million as of September 30, 2020 and December 31, 2019, respectively. Amortization expense of contract acquisition costs was $3.1 million and $2.6 million for the three months ended September 30, 2020 and 2019, respectively. Amortization expense of contract acquisition costs was $8.8 million and $7.6 million for the nine months ended September 30, 2020 and 2019, respectively. There were no impairments of assets related to Company’s contract acquisition costs during the period ended September 30, 2020.
Disaggregation of Revenues
The following table sets forth the Company’s total revenue by region for the periods indicated (in thousands). The revenues by geographic region were determined based on the country where the sale took place.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Americas
$33,654 $29,837 $96,194 $83,816 
EMEA
30,408 26,739 89,146 80,504 
Asia Pacific
8,640 5,860 23,219 16,087 
Total revenue
$72,702 $62,436 $208,559 $180,407 
Revenues from the Company’s country of domicile, based on sales revenue recognized from customers in France, totaled $10.6 million and $8.6 million for the three months ended September 30, 2020 and 2019, respectively, and $31.8 million and $27.0 million for the nine months ended September 30, 2020 and 2019, respectively.
3. Net Loss Per Share
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares outstanding during the period. In periods of net income, diluted net income per share is computed by dividing net income for the period by the basic weighted-average number of shares plus any dilutive potential ordinary shares outstanding during the period. As the Company was in a loss position for both of the three and nine months ended September 30, 2020 and 2019, the diluted loss per share is equal to basic loss per share because the effects of potentially dilutive shares, which include shares from share-based awards and convertible senior notes, were anti-dilutive.
During 2019, the Company issued 1.75% Convertible Senior Notes due September 1, 2024 (the “2024 Notes”) (see Note 6, Debt, for more details). Since the Company expects to settle the principal amount of the outstanding 2024 Notes in a combination of cash and shares, the Company uses the if-converted method for calculating any potential dilutive effect of the conversion spread on the diluted net income per ordinary share when the average market price of the Company’s ordinary shares, each represented by an American Depositary Share ("ADS"), for a given period exceeds the initial conversion price of €51.75 per share. This situation has not occurred as of September 30, 2020.​
The net loss and weighted average number of shares used in the calculation of basic and diluted earnings per share are as follows (in thousands, except per share data):​
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Numerator (basic and diluted):
Net loss
$(20,341)$(13,511)$(59,992)$(49,780)
Denominator (basic and diluted):
Weighted-average ordinary shares outstanding
31,635 30,648 31,419 30,453 
Basic and diluted net loss per share
$(0.64)$(0.44)$(1.91)$(1.63)
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.
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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 September 30, 2020, the fair value of the 2024 Notes was $144.2 million.​
There were no transfers between levels of the fair value hierarchy during the nine month periods ended September 30, 2020 or 2019.
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5. Balance Sheet Components​
Accrued expenses and other liabilities consisted of the following (in thousands):​
September 30, 2020December 31, 2019
Accrued compensation and benefits
$25,569 $24,201 
VAT payable
3,259 6,238 
Other taxes
34 502 
Contingent liabilities
1,152 578 
Other current liabilities
6,508 9,663 
Accrued expenses and other liabilities
$36,522 $41,182 
Property and equipment, net consisted of the following (in thousands):
September 30, 2020December 31, 2019
Computer equipment and software
$12,031 $8,587 
Fixtures and fittings
3,268 2,312 
Leasehold improvements
5,612 3,858 
Property and equipment, gross
20,911 14,757 
Less: accumulated depreciation
(12,140)(9,409)
Property and equipment, net
$8,771 $5,348 
Depreciation expense related to property and equipment was $0.8 million and $0.7 million for the three months periods ended September 30, 2020 and 2019, respectively, and $2.5 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively.
Intangible assets as of September 30, 2020 and December 31, 2019 included the following (in thousands):​
September 30, 2020December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
NetWeighted
Average
Remaining
Useful
Life
Customer relationships$5,049 $(4,912)$137 $4,975 $(3,600)$1,375 1 year
Acquired developed technology19,915 (9,881)10,034 19,555 (6,912)12,643 4 years
Total$24,964 $(14,793)$10,171 $24,530 $(10,512)$14,018 
Amortization expense for intangible assets was $1.3 million for both of the three months periods ended September 30, 2020 and 2019, respectively, and $4.0 million for both of the nine months ended September 30, 2020 and 2019, respectively.​
The following table presents the estimated future amortization expense related to intangible assets as of September 30, 2020 (in thousands):​
Amount
Remainder of 2020$1,065 
20213,708 
20223,498 
20231,900 
Thereafter 
Total amortization expense$10,171 
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6. Debt
Convertible Senior Notes due September 1, 2024
In September 2019, the Company issued an aggregate principal amount of €125.0 million of the 2024 Notes and an additional €14.8 million pursuant to the partial exercise of the option to purchase additional 2024 Notes granted to the initial purchasers, in a private placement, pursuant to an exemption from the registration requirements afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers (as defined in Rule 144A promulgated under the Securities Act). The net proceeds from the issuance, after deducting initial purchaser discounts and debt issuance costs of €6.0 million, were €133.8 million. The 2024 Notes mature on September 1, 2024, unless earlier repurchased, redeemed or converted, and bear interest at a fixed rate of 1.75% per year payable semi-annually on March 1 and September 1 of each year, beginning on March 1, 2020. Each €1,000 of principal amount of the 2024 Notes will initially be convertible, subject to adjustment upon the occurrence of specified events, into 19.3234 ADSs, corresponding to 19.3234 of the Company’s ordinary shares per €1,000 principal amount of the 2024 Notes as of the date hereof, which initial conversion rate is equivalent to an initial conversion price of approximately €51.75 per ADS calculated on the basis of the closing price of the Company’s ADSs of $38.72 and a euro to U.S. Dollar exchange rate of €1 to $1.1036 on the pricing date of the 2024 Notes. Refer to Note 15, Debt, of the Company’s consolidated financial statements for the year ended December 31, 2019 for details of the issuance of the 2024 Notes.
As of September 30, 2020, none of the conditions permitting the holders of the 2024 Notes to early convert had been met. Therefore, the 2024 Notes were classified as long-term debt for such period.
The net carrying amount of the 2024 Notes was as follows as of September 30, 2020 and December 31, 2019 (in thousands):​
September 30, 2020December 31, 2019
Principal
$163,633 $156,716 
Unamortized debt discount
(18,944)(21,227)
Unamortized debt issuance costs
(4,833)(5,443)
Net carrying amount
$139,856 $130,046 
The net carrying amount of the equity component of the 2024 Notes was as follows as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Gross amount
$21,866 $21,866 
Allocated debt issuance costs
(945)(945)
Net carrying amount
$20,921 $20,921 
Interest expense related to the 2024 Notes was as follows during the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Contractual interest expense$715 $225 $2,067 $225 
Amortization of debt discount1,093 323 3,097 323 
Amortization of issuance costs285 88 821 88 
Total$2,093 $636 $5,985 $636 

7. Equity Incentive Plans​
In April 2017, the Company adopted the 2017 Stock Option Plan (the “2017 Plan”), primarily for the purpose of granting stock options to employees and employee warrants BSPCE (“bons de souscription de parts de créateur d'entreprise” or employee warrants (BSPCE)”) to employees who are French tax residents. In August 2019, the Company adopted the 2019 Free Share Plan, primarily for the purpose of granting Restricted Stock Units (“RSUs”) to employees. In June 2019, the Company’s shareholders also delegated authority to the Company’s board of directors to grant warrants (“bons de souscription d'actions” or
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“warrants (BSA)”) to the Company’s directors and consultants. 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 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 September 30, 2020, there were 2,054,617 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 nine months ended September 30, 2020 (in thousands, except exercise price per option):​
Stock options
outstanding
BSPCE
warrants
outstanding
BSA warrants
outstanding
WAEP per
share
WACT (in years)
Aggregate
intrinsic
value
Balance as of December 31, 20191,215 155 210 $14.61 5.1$40,809 
Granted
746  41 33.41 
Exercised
(192)(23) 12.71 
Forfeited
(47)(3)(11)33.63 
Balance as of September 30, 20201,722 129 240 $21.82 6.1$37,203 
Vested and expected to vest as of September 30, 20201,576 127 237 $21.00 5.9$36,227 
Exercisable as of September 30, 20201,056 125 199 $15.86 4.4$33,240 
The total intrinsic values of stock options and warrants exercised during the period ended September 30, 2020 was $5.4 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 September 30, 2020 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, 20191,924 384 $44.96 
Granted
1,144 411 37.88 
Vested and released
(341)(39)46.75 
Forfeited
(258)(216)43.21 
Balance as of September 30, 20202,469 540 $41.97 
Expected to vest as of September 30, 20202,013 321 $42.49 
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 supersedes and replaces 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 473,930 ADSs are available for sale under the ESPP as of September 30, 2020. As of September 30, 2020, $0.8 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 September 30,Nine Months Ended September 30,
2020201920202019
Cost of revenue - subscriptions
$1,313 $773 $2,592 $2,301 
Cost of revenue - professional services
574 472 1,389 1,602 
Sales and marketing
4,046 3,030 10,237 7,663 
Research and development
1,413 2,680 7,085 8,098 
General and administrative
4,688 2,084 12,284 6,621 
Total share-based compensation expense
$12,034 $9,039 $33,587 $26,285 
During fiscal year 2019, the Company decreased the estimated forfeiture rate as part of the Company’s annual assessment of the assumptions used in the calculation of share-based compensation expense. The adjustment resulted in higher expense recognized in periods subsequent to March 31, 2019.​
As of September 30, 2020, the Company had $56.0 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 1.8 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
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the opinion of its management, if determined adversely to it, would have a material adverse effect on its business, financial condition or results of operations.
The Company accrues estimates for resolution of legal proceedings when losses are probable and estimable. Although the results of legal proceedings and claims are unpredictable, the Company believes that there 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 September 30, 2020.
9. ​Income Tax
The Company provides for income taxes in interim periods based on the estimated annual effective tax rate for the year, adjusting for discrete items in the quarter in which they arise. The annual effective tax rate after discrete items was 0.1% and (1.0)% for the three months ended September 30, 2020 and 2019, respectively, and (0.1)% and (0.1)% for the nine months ended September 30, 2020 and 2019, respectively.​
The 2020 and 2019 annual effective tax rates differed from the French statutory income tax rate of 28% for 2020 and 2019, primarily due to a valuation allowance on current year losses in most jurisdictions.​
The Company files income tax returns in France, the U.S. federal jurisdiction, many U.S. states, as well as many foreign jurisdictions. The tax years 2005 to 2019 remain open to examination by the various jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statutes of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized.
10. Related Party Transactions​
As part of the Restlet SAS acquisition, the Company assumed debt totaling $1.2 million related to advances for research and development projects from Bpifrance to Restlet SAS. The debt was completely paid during the second quarter of fiscal year 2020. There are no other material related party transactions that require disclosure.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “may”, “believe”, “can”, “intend”, “potential”, “designed to”, “expect”, “anticipate”, “estimate”, “predict”, “plan”, “targets”, “projects”, “likely”, “will”, “would”, “could”, “potential”, “continue”, “should”, “contemplate”, or similar expressions or phrases or the negative of these and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
Our future financial performance, including our revenue, cost of revenue, gross profit or gross margin, operating expenses, expectations about our future cash flow, and ability to achieve and maintain profitability;
The sufficiency of our cash and cash equivalents to meet our liquidity needs;
Our expectation that as organizations adopt and scale out deployments of modern data technologies such as cloud data warehouses, machine learning, and big data processing, they will continue to use Talend to facilitate the integration of these technologies within their IT environments;
Our plans to expand our non-U.S. presence to address the needs of our global customers and to acquire customers in new geographies;
Our plans to invest in new product development, adding new features and services, increasing functionality, and enhancing our integration cloud infrastructure, which will increase research and development expenses in absolute dollars;
Our plans to continue to invest additional resources in our cloud-based offerings and services and increased cost of third-party cloud infrastructure and hosting;
The sufficiency of our security measures to protect our own proprietary and confidential information, as well as the personal information, personal data, and confidential information that we otherwise obtain, including confidential information we may obtain through customer usage;
Our expectation that, over time, more of our existing customers will have subscription contracts with Annual Recurring Revenue, or ARR, of $0.1 million or more;
Our expectation that our dollar-based net expansion rate may decline as we scale our business and as a result of IT spending constraints in the current economic environment;
Our expectation that our gross margin may fluctuate from period to period as a result of changes in the mix of our subscription and professional services revenue, and may decline as cloud-based offerings represent a growing portion of our total revenues;
Our expectation that our cloud-based 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-based 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 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 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
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.​
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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-based offerings; our ability to successfully manage our transition to cloud-based products 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-based 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, 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; and changes in accounting principles generally accepted in the United States.​
We qualify all of our forward-looking statements by these cautionary statements. Other sections of this Quarterly Report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Furthermore, if any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.​
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this Quarterly Report relate only to events or information as of the date on which the statements are made in this Quarterly Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
​In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.