Talend (TLND) 10-Q 2019 Q2 Quarterly report

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 June 30, 2019

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	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

9, rue Pages
Suresnes, France	92150
(Address of principal executive offices)	(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 Ordinary shares, nominal value €0.08 per share*	TLND	The NASDAQ Stock Market LLC 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 August 2, 2019, the registrant had 30,565,605 ordinary shares, nominal value of €0.08 per share, outstanding.

TALEND S.A.

TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION	3
Item 1.      Condensed Consolidated Financial Statements (unaudited)	3
Condensed Consolidated Statements of Financial Position as of June 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	4
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	8
Notes to the Condensed Consolidated Financial Statements	9
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.      Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.      Controls and Procedures	35
PART II.  OTHER INFORMATION	36
Item 1.      Legal Proceedings	36
Item 1A.   Risk Factors	37
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.      Defaults Upon Senior Securities	75
Item 4.      Mine Safety Disclosures	75
Item 5.      Other Information	75
Item 6.      Exhibits	76
Signatures	78

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands, except per share data)

(unaudited)

	June 30,		December 31,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	32,112	$	34,104
Accounts receivable, net of allowance for doubtful accounts of $2,767 and $1,882, respectively		47,560		67,531
Contract acquisition costs		10,074		9,563
Other current assets		9,199		9,461
Total current assets		98,945		120,659
Non-current assets:
Contract acquisition costs		19,927		19,390
Operating lease right-of-use assets		29,067		—
Property and equipment, net		5,951		6,335
Goodwill		49,834		49,659
Intangible assets, net		16,739		19,420
Other non-current assets		4,640		3,661
Total non-current assets		126,158		98,465
Total assets	$	225,103	$	219,124
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,807	$	5,760
Accrued expenses and other current liabilities		33,461		36,475
Contract liabilities - deferred revenue, current		125,109		127,065
Operating lease liabilities, current		4,228		—
Short-term debt		289		208
Total current liabilities		168,894		169,508
Non-current liabilities:
Deferred income taxes		477		469
Other non-current liabilities		1,029		950
Contract liabilities - deferred revenue, non-current		16,852		23,082
Operating lease liabilities, non-current		26,210		—
Long-term debt		558		676
Total non-current liabilities		45,126		25,177
Total liabilities		214,020		194,685
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY
Ordinary shares, par value €0.08 per share; 30,558,748 and 30,158,374 shares authorized, issued and outstanding, respectively		3,164		3,128
Additional paid-in capital		267,281		244,878
Accumulated other comprehensive income		750		607
Other reserves		213		138
Accumulated losses		(260,325)		(224,312)
Total stockholders’ equity		11,083		24,439
Total liabilities and stockholders’ equity	$	225,103	$	219,124

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

3

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue
Subscriptions	$	52,901	$	42,027	$	102,938	$	81,813
Professional services		7,690		7,728		15,491		14,755
Total revenue		60,591		49,755		118,429		96,568
Cost of revenue
Subscriptions		8,484		5,559		15,806		10,927
Professional services		7,275		6,314		15,153		12,195
Total cost of revenue		15,759		11,873		30,959		23,122
Gross profit		44,832		37,882		87,470		73,446
Operating expenses
Sales and marketing		34,579		27,832		69,305		53,974
Research and development		16,577		10,142		31,435		19,871
General and administrative		11,616		8,738		22,028		18,612
Total operating expenses		62,772		46,712		122,768		92,457
Loss from operations		(17,940)		(8,830)		(35,298)		(19,011)
Other income (expense), net		(234)		132		(591)		209
Loss before benefit (provision) for income taxes		(18,174)		(8,698)		(35,889)		(18,802)
Provision for income taxes		(116)		(41)		(39)		(52)
Net loss	$	(18,290)	$	(8,739)	$	(35,928)	$	(18,854)
Net loss per share attributable to ordinary shareholders:
Basic and diluted net loss per share	$	(0.60)	$	(0.29)	$	(1.18)	$	(0.64)
Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:		30,455		29,741		30,352		29,641

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

4

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net loss	$	(18,290)	$	(8,739)	$	(35,928)	$	(18,854)
Other comprehensive gain (loss)
Foreign currency translation adjustment		(245)		(287)		143		(29)
Total comprehensive loss	$	(18,535)	$	(9,026)	$	(35,785)	$	(18,883)

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

5

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands, except share data)

(unaudited)

	Three Months Ended June 30, 2019
						Accumulated
				Additional		other
	Ordinary shares			paid-in		comprehensive		Other		Accumulated		Total
	Shares	Amount		capital		income		reserves		loss		equity
Balance at March 31, 2019	30,359,600	$	3,146	$	255,408	$	995	$	182	$	(242,035)	$	17,696
Net loss for the period	—		—		—		—		—		(18,290)		(18,290)
Other comprehensive loss	—		—		—		(245)		—		—		(245)
Restricted stock units reserve	—		—		(31)		—		31		—		—
Shares issued from restricted stock unit vesting	109,994		11		(11)		—		—		—		—
Exercise of stock awards	89,154		7		1,359		—		—		—		1,366
Share-based compensation	—		—		10,556		—		—		—		10,556
Balance at June 30, 2019	30,558,748	$	3,164	$	267,281	$	750	$	213	$	(260,325)	$	11,083

	Three Months Ended June 30, 2018
						Accumulated
				Additional		other
	Ordinary shares			paid-in		comprehensive		Other		Accumulated		Total
	Shares	Amount		capital		income		reserves		loss		equity
Balance at March 31, 2018	29,630,663	$	3,079	$	221,918	$	930	$	91	$	(193,283)	$	32,735
Net loss for the period	—		—		—		—		—		(8,739)		(8,739)
Other comprehensive loss	—		—		—		(287)		—		—		(287)
Restricted stock units reserve	—		—		(23)		—		23		—		—
Shares issued from restricted stock unit vesting	51,904		—		—		—		—		—		—
Exercise of stock awards	198,742		19		2,166		—		—		—		2,185
Share-based compensation	—		—		4,695		—		—		—		4,695
Balance at June 30, 2018	29,881,309	$	3,098	$	228,756	$	643	$	114	$	(202,022)	$	30,589

6

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

(in thousands, except share data)

(unaudited)

	Six Months Ended June 30, 2019
						Accumulated
				Additional		other
	Ordinary shares			paid-in		comprehensive		Other		Accumulated		Total
	Shares	Amount		capital		income		reserves		loss		equity
Balance at January 1, 2019	30,158,374	$	3,128	$	244,878	$	607	$	138	$	(224,312)	$	24,439
Adjustment on initial application of ASC 842	—		—		—		—		—		(85)		(85)
Adjusted balance at January 1, 2019	30,158,374		3,128		244,878		607		138		(224,397)		24,354
Net loss for the period	—		—		—		—		—		(35,928)		(35,928)
Other comprehensive gain	—		—		—		143		—		—		143
Restricted stock units reserve	—		—		(75)		—		75		—		—
Shares issued from restricted stock unit vesting	142,628		13		(13)		—		—		—		—
Exercise of stock awards	198,847		18		2,977		—		—		—		2,995
Issuance of ordinary shares in connection with employee stock purchase plan	58,899		5		2,268		—		—		—		2,273
Share-based compensation	—		—		17,246		—		—		—		17,246
Balance at June 30, 2019	30,558,748	$	3,164	$	267,281	$	750	$	213	$	(260,325)	$	11,083

	Six Months Ended June 30, 2018
						Accumulated
				Additional		other
	Ordinary shares			paid-in		comprehensive		Other		Accumulated		Total
	Shares	Amount		capital		income		reserves		loss		equity
Balance at January 1, 2018	29,439,767	$	3,059	$	215,390	$	672	$	49	$	(183,168)	$	36,002
Net loss for the period	—		—		—		—		—		(18,854)		(18,854)
Other comprehensive loss	—		—		—		(29)		—		—		(29)
Restricted stock units reserve	—		—		(65)		—		65		—		—
Shares issued from restricted stock unit vesting	51,904		—		—		—		—		—		—
Exercise of stock awards	389,638		39		4,715		—		—		—		4,754
Share-based compensation	—		—		8,716		—		—		—		8,716
Balance at June 30, 2018	29,881,309	$	3,098	$	228,756	$	643	$	114	$	(202,022)	$	30,589

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

7

TALEND S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2019		2018
Cash flows from operating activities:
Net loss for the period	$	(35,928)	$	(18,854)
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Depreciation		1,399		923
Amortization of intangible assets		2,655		1,020
Unrealized loss foreign exchange		170		286
Share-based compensation		17,246		8,716
Changes in operating assets and liabilities:
Accounts receivable		20,020		13,401
Operating leases		(55)		—
Other assets		(2,122)		(1,973)
Accounts payable		1,041		(191)
Accrued expenses and other current liabilities		(2,051)		1,046
Contract liabilities - deferred revenue		(7,999)		115
Net cash (used in) from operating activities		(5,624)		4,489
Cash flows from investing activities:
Acquisition of property and equipment		(1,544)		(1,348)
Net cash used in investing activities		(1,544)		(1,348)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares related to exercise of stock awards		2,995		4,754
Proceeds from issuance of ordinary shares related to employee stock purchase plan		2,273		—
Repayment of borrowings		(36)		(154)
Net cash from financing activities		5,232		4,600
Net (decrease) increase in cash and cash equivalents		(1,936)		7,741
Cash and cash equivalents at beginning of the period		34,104		87,387
Effect of exchange rate changes on cash and cash equivalents		(56)		(1,739)
Cash and cash equivalents at end of the period	$	32,112	$	93,389

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

8

1. Organization and summary of significant accounting policies

Business

Talend S.A. (“the Company”), incorporated in France in 2005, has its registered office located at 9, rue Pages, 92150 Suresnes. 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.

As used in this Quarterly Report, the term “the Company” refers to Talend S.A, and the terms “Talend,” “we,” “our,” “us,” and “the Group” refer to Talend S.A. and its consolidated subsidiaries, unless the context otherwise requires.

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 financial position of the Company as of June 30, 2019 and December 31, 2018, the results of operations, comprehensive loss and changes in equity for the three and six months ended June 30, 2019 and June 30, 2018, and cash flows for the six months ended June 30, 2019 and June 30, 2018. 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, 2018 filed with the SEC on February 28, 2019. Certain prior year financial information in the statement of cash flows has been reclassified to conform with current year presentation. The Company’s results of operations, comprehensive loss and changes in equity for the three and six months ended June 30, 2019, and cash flows for the six months ended June 30, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, 2019, or for any future period.

In addition, the Consolidated Statement of Financial Position as of December 31, 2018 has been revised to reflect an immaterial re-classification of deferred revenue between short term and long term. The revision, in the amount of $2.6 million, resulted in an increase in Contract liabilities – deferred revenue, current, and a decrease in Contract liabilities – deferred revenue, non-current, compared to amounts previously presented on the Consolidated Statement of Financial Position. The Consolidated Statement of Financial Position as of December 31, 2018 and Consolidated Statement of Cash Flows as of June 30, 2018 have also been revised to reflect an immaterial re-classification of restricted cash between cash and cash equivalents and other current assets. The revision, in the amount of $0.4 million, resulted in an increase in cash and cash equivalents and a corresponding decrease in other current assets, compared to what was previously presented.

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), the amortization period for contract acquisition costs, 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.

9

Summary of significant accounting policies

Except for the accounting policies described below, there have been no changes to the Group’s significant accounting polices disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, that have had a material impact on the Group’s condensed consolidated financial statements and related notes.

Recently adopted accounting standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires the recognition of right-of-use assets and lease liabilities for those leases currently classified as operating leases under ASC Topic 840 Leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In 2018, the FASB issued ASU 2018-10, 2018-11 and 2018-20, providing, among other things, codification improvements, the optional transition method, the treatment of sales and similar taxes as lease cost by policy elections, the requirement to exclude certain variable payments from consideration and the allocation of certain variable payments between lease and non-lease components. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted.

The Group has adopted the standard utilizing the modified retrospective transition method, as of the effective date of ASC 842, which for the Group is January 1, 2019, with a cumulative-effect adjustment to equity. As a result, the Group recognized $27.1 million of operating lease assets and $27.7 million of operating lease liabilities. This method allows entities to continue to apply the legacy guidance in ASC 840, including disclosure requirements in the comparative periods presented in the year of adoption. Please see Note 10 within these financial statements for the impact of adoption and required disclosures.

Accounting standards issued not yet adopted

In August 2018, the FASB issued ASU No. 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, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard is effective for the Group’s interim and annual periods beginning January 1, 2020 and earlier adoption is permitted. This standard could be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Group will adopt this standard on a prospective basis as of January 1, 2020 and is evaluating the impact ASU 2018-15 will have on the consolidated financial statements and related disclosures.

2. Business combinations

On November 9, 2018, Talend, Inc., a wholly-owned subsidiary of the Company acquired all of the outstanding shares of Stitch Inc., (“Stitch”), a leading cloud-based service to seamlessly load data to cloud data warehouses, for a cash payment of $59.5 million. Talend, Inc, also incurred transaction costs of approximately $0.7 million, which are included in general and administrative expense in the Group’s consolidated statements of operations for the year ended December 31, 2018. Stitch’s self-service solution for efficiently moving data from cloud applications into cloud data warehouses and Stitch’s low-touch sales strategy further enhances the Group’s alignment with cloud platforms such as Microsoft Azure, Amazon AWS, Databricks and Snowflake. In addition, the acquisition of Stitch further addresses the growing demand from data engineers and analyst for self-service cloud data integration solutions.

10

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition including measurement period adjustments through June 30, 2019 (in thousands):

	Fair Value
Cash	$	1,625
Acquired developed technology		11,400
Customer relationships		3,300
Goodwill		43,635
Other assets, net		(57)
Deferred revenue		(410)
Total consideration transferred	$	59,493

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is primarily attributed to the assembled workforce and expanded market share within the data integration industry, which is moving towards cloud data warehouses. The goodwill balance is not deductible for income tax purposes. The fair values assigned to tangible assets acquired, liabilities assumed and identifiable intangible assets were based on management’s estimates and assumptions.

During the three months ended June 30, 2019, the Company adjusted the preliminary amount of the acquisition date fair value assigned to goodwill by $0.2 million to reflect measurement period adjustments related to accrued liabilities.

The fair value of acquired developed technology was determined using an excess earnings method based on revenue forecasts related to the expected evolution of the technology over time. The fair value of customer relationships was determined using the with-and-without method, whereby the value of existing customer relationships is determined using two different scenarios: 1) net revenues less related costs with the customer relationships and 2) net revenues less related costs without the customer relationships. The incremental difference between the two scenarios was then used to estimate the fair value of the Stitch’s existing customer relationships. Both methods used a discounted cash flow method at the discounted rate of 13.5%.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition.

	Fair Value		Useful Life (Years)
Acquired developed technology	$	11,400	5
Customer relationships		3,300	2
Total intangible assets subject to amortization	$	14,700

3. Contracts with customers

Sales commissions earned by the Group’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The Group recognizes these incremental costs of obtaining a subscription contract with a customer if the Group expects the benefit of those costs to be longer than one year. The Group amortizes the majority of the incremental sales commission costs to obtain a subscription contract on a straight-line basis over a period of benefit that the Group has determined to be five years. The Group recognizes these sales commissions as contract acquisition costs on the statement of financial position.

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to the Group’s contracts with customers. The Group may record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. These assets would be recorded as contract assets rather than receivables when receipt of the consideration is conditional on something other than the passage of time.

11

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 statement of financial position.

The following table reflects the Group’s accounts receivable, contract acquisition costs and contract liabilities – deferred revenue (in thousands):

	June 30, 2019		December 31, 2018
Assets
Accounts receivable, net	$	47,560	$	67,531
Contract assets - unbilled revenue		1,342		941
Contract acquisition costs - current		10,074		9,563
Contract acquisition costs - non-current		19,927		19,390
Total contract assets	$	78,903	$	97,424
Liabilities
Contract liabilities - deferred revenue - current		125,109		127,065
Contract liabilities - deferred revenue - non-current		16,852		23,082
Total contract liabilities	$	141,961	$	150,147

Significant changes in the contract acquisition costs and the contract liabilities balances during the period are as follows (in thousands):

	Contract assets -		Contract		Contract liabilities -
	unbilled revenue		acquisition costs		deferred revenue
Balances at January 1, 2019	$	941	$	28,953	$	150,147
Transferred to accounts receivable from unbilled revenue		(1,893)		—		—
Increase due to new unbilled revenue		2,294		—		—
Additional contract acquisition costs deferred		—		6,374		—
Amortization of deferred contract acquisition costs		—		(5,326)		—
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period		—		—		(89,918)
Increases due to invoicing prior to satisfaction of performance obligations, net of amounts recognized as revenue during the period		—		—		81,732
Balance at June 30, 2019	$	1,342	$	30,001	$	141,961

As of June 30, 2019, $10.1 million of the Group’s contract acquisition costs are expected to be amortized within the next 12 months and therefore are included in current assets. The remaining amount of Group’s contract acquisition costs are included in non-current assets. There were no impairments of assets related to Group’s contract acquisition costs during the period-ended June 30, 2019.

Remaining Performance Obligations

The Group’s contracts with customers include amounts allocated to performance obligations of $181.7 million that will be satisfied at a later date. As of June 30, 2019, $135.8 million of deferred revenue and backlog is expected to be

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recognized from remaining performance obligations over the next 12 months, and approximately $45.9 million thereafter.

Disaggregation of Revenues

The following table sets forth the Group’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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Americas	$	27,503	$	22,646	$	54,710	$	43,799
EMEA		27,245		23,887		53,582		46,747
Asia Pacific		5,843		3,222		10,137		6,022
	$	60,591	$	49,755	$	118,429	$	96,568

Revenues from the Company’s country of domicile, based on sales that took place in France, totaled $9.4 million and $7.9 million for the three months ended June 30, 2019 and 2018, respectively, and $18.4 million and $15.4 million for the six months ended June 30, 2019 and 2018, respectively.

4. 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 loss, all potential ordinary shares are anti-dilutive, so diluted net loss per share equals the basic net loss per share. 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 the three and six months ended June 30, 2019 and 2018, the diluted loss per share is equal to basic loss per share.

The net loss and weighted average number of shares used in the calculation of basic and diluted earnings per share are as follows (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Numerator (basic and diluted):
Net loss	$	(18,290)	$	(8,739)	$	(35,928)	$	(18,854)
Denominator (basic and diluted):
Weighted-average ordinary shares outstanding		30,455		29,741		30,352		29,641
Basic and diluted net loss per share	$	(0.60)	$	(0.29)	$	(1.18)	$	(0.64)

5. Fair value measurement

The Group reports assets and liabilities recorded at fair value on the Group’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 judgement associated with the inputs to the valuation of these assets or liabilities are as follows:

● Level 1: observable quoted prices (unadjusted) in active markets for identical financial assets or liabilities.

● Level 2: inputs other than quoted prices (other than level 1) in active markets, that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices).

● Level 3: unobservable inputs that are supported by little or no market data, and may require significant management judgment or estimation.

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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 statement of financial position, 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 debt.

For cash and cash equivalents, accounts receivable and certain other receivables, accounts payable and certain other payables, their fair value is deemed to approximate their carrying amount due to the short-term nature of these balances and are categorized as Level 1.

For deposits, as they are not significant, the difference between their fair value and their carrying amount is not deemed significant.

For debt, their fair value was categorized as Level 2 and was estimated based on a discounted cash flow method using a market interest rate for similar debt. The difference between their fair value and their carrying amount of debt is not deemed significant.

There were no transfers between levels of the fair value hierarchy during the six month periods ended June 30, 2019 or 2018.

6. Balance sheet components

The following tables represent balance sheet components (in thousands):

	As of June 30,		As of December 31,
Other current assets	2019		2018
Research tax credit		625		612
Unbilled revenue		1,342		941
Prepaid expenses		5,879		6,244
Other assets		1,353		1,664
Other current assets	$	9,199	$	9,461

	As of June 30,		As of December 31,
Other non-current assets	2019		2018
Research tax credit	$	2,208	$	2,214
Deposits		862		793
Other non-current assets		1,570		654
Other non-current assets	$	4,640	$	3,661

	As of June 30,		As of December 31,
Property and equipment	2019		2018
Computer equipment and software	$	8,398	$	6,778
Fixtures and fittings		1,827		1,925
Leasehold improvements		3,839		4,823
Property and equipment, gross		14,064		13,526
Less: accumulated depreciation		(8,113)		(7,191)
Property and equipment, net	$	5,951	$	6,335

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	As of June 30,		As of December 31,
Accrued expenses and other liabilities	2019		2018
Accrued compensation and benefits	$	21,564	$	21,343
VAT payable		4,227		5,051
Other taxes		525		698
Contingent liabilities		656		408
Other current liabilities		6,489		8,975
Accrued expenses and other liabilities	$	33,461	$	36,475

Intangible assets as of June 30, 2019 and December 31, 2018 included the following (in thousands):

	June 30, 2019						December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net		Weighted Average Remaining Useful Life
Customer relationships	$	5,002	$	(2,802)	$	2,200	$	5,009	$	(1,984)	$	3,025	2 years
Acquired developed technology		19,682		(5,143)		14,539		20,087		(3,692)		16,395	5 years
Total	$	24,684	$	(7,945)	$	16,739	$	25,096	$	(5,676)	$	19,420

Amortization expense for intangible assets was $1.3 million and $0.5 million for the three months ended June 30, 2019 and 2018, respectively, and $2.7 million and $1.0 million for the six months ended June 30, 2019 and 2018, respectively.

The following table presents the estimated future amortization expense related to intangible assets at June 30, 2019 (in thousands):

	Amount
Remainder of 2019	$	2,660
2020		5,045
2021		3,669
2022		3,465
2023		1,900
Thereafter		—
Total amortization expense	$	16,739

7. Debt

As part of the Restlet SAS acquisition in 2016, the Company assumed debt totaling $1.2 million related to advances for research and development projects from Bpifrance to Restlet SAS. As of June 30, 2019, the debt had a carrying value of $0.8 million, of which $0.3 million is due within twelve months. The debt balance as of December 31, 2018 was $0.9 million, of which $0.2 million was due within twelve months.

Line of credit

On February 14, 2019, Talend, Inc., Talend USA, Inc. and Stitch Inc. (the “Borrowers”), all wholly-owned subsidiaries of the Company, entered into a revolving credit facility with Square 1 Bank, a division of Pacific Western Bank (“PWB) (the “Loan Agreement”). The Loan Agreement provides for a revolving line of credit facility, which expires February 14, 2022. Under the Loan Agreement, the Borrowers are able to borrow an aggregate principal amount of up to $30.0 million at any time outstanding (the “Maximum Amount”). Under the terms of the Loan Agreement, the principal amount of loans made to the Borrowers, plus the amount of any ancillary services, including Letters of Credit

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issued for the account of the Borrowers, at any time outstanding cannot exceed the lesser of (i) the Maximum Amount and (ii) the product of three times the average Trailing Monthly Subscription Revenue times the Retention Rate. The proceeds of the loans under the Loan Agreement may be used for working capital and general corporate purposes.

The Loan Agreement includes customary financial covenants and restrictive covenants, in each case subject to certain exceptions, that limit the Borrower’s ability to, among other things: dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens and make investments, in each case subject to certain exceptions. The documentation entered into by the Company pursuant to the Loan Agreement also contains similar types of restrictive covenants applicable to the Company and its subsidiaries. The Borrowers must also comply with a financial covenant requiring them to maintain minimum annualized recurring revenue, measured quarterly. The Borrowers must also maintain a minimum liquidity amount, comprised of the Company’s consolidated cash and cash equivalents plus loans available to be drawn under the Loan Agreement, equal to at least $15.0 million at all times.

Loans under the Loan Agreement will bear interest at PWB’s announced prime rate. Interest on each advance is due and payable monthly and the principal balance is due at maturity. The Borrowers are also required to pay, on a quarterly basis, a fee equal to 0.25% per annum of any amounts undrawn under the Loan Agreement. During the six months ended June 30, 2019, no amounts had been drawn on the credit facility under the Loan Agreement.

8. Share capital and reserves

At June 30, 2019, there were 30,558,748 ordinary shares outstanding, each with a nominal value of €0.08.

Between January 1, 2019 and June 30, 2019, the Company’s board of directors acknowledged increases in share capital as a result of the issuance of 198,847 ordinary shares, upon the exercise of share options, employee warrants (BSPCE) and warrants (BSA) classified as share-based payments, representing a total amount of €2.4 million.

Other reserves

The Company’s board of directors, acting upon delegation of the shareholders' meetings held to date, has granted restricted stock units or free shares (actions gratuites, under French law), to employees and officers of the Group. The Company created a specific restricted reserve account in connection with the issuance of granted restricted stock units or free shares equal to €186,955 at June 30, 2019. Upon vesting of each of the restricted stock units or free shares pursuant to our free share plans, a new share of the Company will be issued to the relevant beneficiary and, simultaneously, an amount equal to €0.08 will be withdrawn from the above reserve to increase the share capital of the Company.

9. Share-based payment plans

The following table summarizes the number of stock options and warrants outstanding (in thousands):

	Number of	Number of employee	Number of
	stock options	BSPCE warrants	BSA warrants
Balance at January 1, 2018	2,282	343	88
Granted during the period	2	—	38
Exercised during the period	(328)	(51)	(10)
Forfeited during the period	(79)	(2)	—
Balance at June 30, 2018	1,877	290	116
Balance at January 1, 2019	1,707	229	131
Granted during the period	—	—	75
Exercised during the period	(164)	(35)	—
Forfeited during the period	(112)	(4)	—
Balance at June 30, 2019	1,431	190	206

At June 30, 2019, there were 479,468 stock options, employee warrants (BSPCE), warrants (BSA) and restricted stock units available for grant under the Company’s share pool reserve.

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In general, vesting of stock options and warrants occurs 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. Individuals must continue to provide services to the Group in order to vest. Upon termination, all unvested options are forfeited and vested options must generally be exercised within three months. All expenses related to these plans have been recorded in the consolidated statements of operations in the same line items as the related employee’s cash-based compensation.

(a) Stock options

The Company’s board of directors has approved Stock Option Plans for the granting of stock options to employees outside of France. The terms of the Stock Option Plans are substantially the same and at this time new share option grants may only be made pursuant to the 2017 Plan. Stock options may be granted to any individual employed by the Group.

In addition, under French law, the maximum number of shares issuable upon exercise of outstanding employee stock options may not exceed one-third of the outstanding share capital on a non-diluted basis as of the date of grant.

A summary of stock option activity and related weighted-average exercise prices ("WAEP") and weighted-average remaining contractual term (“WACT”) under all of the plans at June 30, 2019 are presented in the following table (in thousands, except exercise price per option):

	Number of stock options outstanding		WAEP per share	WACT (in years)		Aggregate intrinsic value
Balance at December 31, 2018	1,707	$	11.95	6.3	$	42,769
Granted	—		—
Exercised	(164)		14.25
Forfeited	(112)		19.57
Balance at June 30, 2019	1,431	$	11.02	5.6	$	39,503
Vested and expected to vest at June 30, 2019	1,407	$	10.93	5.6	$	38,954
Exercisable at June 30, 2019	1,191	$	9.40	5.3	$	34,812

The total intrinsic values of stock options exercised during the period ended June 30, 2019 was $5.3 million.

(b) Employee warrants (BSPCE)

The Company’s board of directors has been authorized by the shareholders' general meeting to grant BSPCE (“bons de souscription de parts de créateur d'entreprise or employee warrants”) to employees who are French tax residents as they carry favorable tax and social security treatment for French tax residents. 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 share options.

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A summary of employee warrants (BSPCE) activity and related weighted-average exercise prices ("WAEP") and weighted-average remaining contractual term (“WACT”) under all of the plans at June 30, 2019 are presented in the following table (in thousands, except exercise price per warrant):

	Number of employee warrants outstanding		WAEP per warrant	WACT (in years)		Aggregate intrinsic value
Balance at December 31, 2018	229	$	15.49	6.7	$	4,922
Granted	—		—
Exercised	(35)		12.58
Forfeited	(4)		25.00
Balance at June 30, 2019	190	$	15.79	6.2	$	4,350
Vested and expected to vest at June 30, 2019	184	$	15.79	6.3	$	4,212
Exercisable at June 30, 2019	147	$	13.95	5.9	$	3,641

(c) Restricted Stock Units (RSU)

RSUs vest upon either performance-based or service-based criteria.

Performance-based RSUs vest based on the satisfaction of specific non-market performance criteria and a four-year service period. At each vesting date, the holder of the award is issued shares of the Company’s ordinary shares. 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. Performance-based RSUs are typically granted such that they vest upon the achievement of certain software subscription sales targets, during a specified performance period and the completion of a four-year service period.

In general, service-based RSU’s vest over a four-year period, with 25% on the one year anniversary of the grant and equal quarterly installments thereafter.

	Number of service-	Number of performance-		Weighted-average
	based RSUs	based RSUs		grant date fair value
Balance at December 31, 2018	1,210	301	$	44.9
Granted	924	351		47.4
Vested and released	(119)	(24)		35.1
Forfeited	(125)	(181)		43.7
Balance at June 30, 2019	1,890	447	$	46.9
Expected to vest at June 30, 2019	1,470	155	$	46.7

(d) Warrants (BSA)

The Company’s board of directors has granted warrants (otherwise known as “bons de souscription d'actions” or “warrants (BSA)”) to Company directors. 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 Company’s board of directors, such warrants need to be subscribed for at a price at least equal to 5% of the exercise price which represents the fair market value of the underlying ordinary shares at grant date.

In the second quarter of 2019, the Company’s board of directors granted 74,760 warrants (BSA), with an exercise price of $47.79 and grant date fair value of $14.98 per warrant. The warrants (BSA) vest quarterly over a one-year period and at June 30, 2019, none of the warrants (BSA) are exercisable.

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(e) Employee Stock Purchase Plan

In the fourth quarter of 2017, the Company established the 2017 Employee Stock Purchase Plan (the “ESPP”) which is intended to qualify under Section 423 of the Internal Revenue Code of 1986. The ESPP allows eligible employee participants to purchase ADSs, with each ADS representing one ordinary share of the Company, at a discount through payroll deductions. The Company’s executive officers and all of its other employees will be allowed to participate in the ESPP. A total of 571,000 ADSs of the Company’s ordinary shares are available for sale under the ESPP. In addition, with shareholder approval, the ESPP provides for increases by the Company’s board of directors in the number of ADSs available for issuance under the ESPP.

Under the ESPP, employees are eligible to purchase ADSs through payroll deductions of 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 will be 85% of the lower of the fair value of the Company’s ADSs on the first trading day of the offering period or on the last day of the offering period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of ADS, valued at the start of the offering period, under the ESPP in any calendar year. As of June 30, 2019, $2.1 million has been withheld on behalf of employees for a future purchase under the ESPP and is recorded in accrued compensation benefits.

(f) Compensation expense

Cost of revenue and operating expenses include employee share-based compensation expense as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Cost of revenue - subscriptions	$	899	$	315	$	1,528	$	492
Cost of revenue - professional services		603		183		1,130		287
Sales and marketing		3,106		1,523		4,633		2,704
Research and development		3,186		1,359		5,418		2,542
General and administrative		2,762		1,315		4,537		2,691
Total share-based compensation expense	$	10,556	$	4,695	$	17,246	$	8,716

As of June 30, 2019, the Company had $51.3 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 2.0 years.

10. Commitments and contingencies

Operating leases

The Group has adopted ASC 842 utilizing the optional modified retrospective transition method, as of the effective date of ASC 842, which for the Group is January 1, 2019, with a cumulative-effect adjustment to equity.

The Group determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s consolidated statement of financial position.

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ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Group’s leases do not provide an implicit rate, the Group uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Group’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Group has lease agreements with lease and non-lease components, which are generally accounted for separately, but the Group has made an accounting policy decision to account for the lease and non-lease components as a single lease component. The Group also made an accounting policy decision to not record ROU assets or lease liabilities for leases with terms of 12 months or less. The Group has operating leases for corporate offices, none of which have variable lease payments.

The components of lease expense as of June 30, 2019 were as follows (in thousands):

	Amount
Operating lease cost	$	633
Amortization of right-of-use assets		2,187
Total lease costs	$	2,820

The balances for our operating leases are presented within our consolidated balance sheet as follows (in thousands):

	June 30, 2019
Operating lease right-of-use assets	$	29,067
Operating lease liabilities	$	30,438

Other information related to our operating leases is as follows (dollars in thousands):

	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	2,018
Weighted average remaining lease term for operating leases		7.1 years
Weighted average discount rate		5.4%

Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):

	Amount
Remainder of 2019	$	2,788
2020		5,173
2021		5,176
2022		5,126
2023		4,043
Thereafter		13,970
Total lease payments		36,276
Less imputed interest		(5,838)
Total	$	30,438

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Disclosures Related to Periods Prior to Adoption of New Lease Standard

Future minimum undiscounted lease payments as of December 31, 2018 were as follows (in thousands):

	Amount
2019	$	5,286
2020		5,757
2021		5,591
2022		5,320
2023		4,014
Thereafter		14,832
Total future minimum lease payments	$	40,800

Legal Proceedings

In the ordinary course of business, the Company may be involved in various legal proceedings and claims related to intellectual property rights, commercial disputes, employment and wage and hour laws, alleged securities laws violations or other investor claims and other matters. For example, the Company has been, and may in the future be, put on notice and sued by third parties for alleged infringement of their proprietary rights, including patent infringement. The Company evaluates these claims and lawsuits with respect to their potential merits, the Company’s potential defenses and counterclaims, and the expected effect on it of defending the claims and a potential adverse result. The Company is not presently a party to any legal proceedings that in the opinion of its management, if determined adversely to it, would have a material adverse effect on its business, financial condition or results of operations.

11. 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 before discrete items was (0.3%) and (0.7%) for the three months ended June 30, 2019 and 2018, respectively, and 0.1% and (0.4%) for the six months ended June 30, 2019 and 2018, respectively.

The 2019 and 2018 annual effective tax rates differed from the French statutory income tax rate of 31.0% for 2019 and 33.3% for 2018, primarily due to a valuation allowance on current year losses in most jurisdictions.

The Company files income tax returns in France as well as many foreign jurisdictions. The tax years 2005 to 2018 remain open to examination by the various jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute 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.

12. 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. As of June 30, 2019, the debt had a carrying value of $0.8 million, see Note 7. There are no other material related party transactions that require disclosures.

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, and Section 21E of the Securities Exchange Act, as amended, 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”, “expect”, “anticipate”, “estimate”, “predict”, “intend”, “plan”, “targets”, “projects”,

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“likely”, “will”, “would”, “could”, “should”, “contemplate” 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, together with borrowing available under our Loan Agreement, to meet our liquidity needs;

● 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 hosting fees;

● 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;

● Our expectation that our cloud integration business will grow as a percentage of revenue;

● Our expectation that professional services revenue growth will slow, and may 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 plan to invest in training and retention of our sales team; and

● Our expectation that, in the future, general and administrative expenses will increase as we invest in our infrastructure and incur additional employee-related costs and professional fees related to the growth of our business.

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: 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 integration products; our ability to successfully manage our business model transition to cloud-based products and a customer-centric sales model; our ability to successfully expand into our existing markets and into new domestic and international markets; our long and unpredictable sales cycle; our ability to renew existing customers’ subscriptions; the growth of the market for big data applications; 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 Talend Big Data Integration and Talend Cloud solutions; our ability to deliver high quality customer support; the ability of our product offerings to operate with third-party products and services and our customers’ existing infrastructure; 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; our ability to comply with existing and modified or new government laws and regulations, including privacy, data security, data protection, export and import controls, anti-bribery, anti-corruption and anti-money laundering, and other laws and regulations; fluctuations in currency exchange rates; exposure to political, economic and social events in the United States, United Kingdom, China, and other

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jurisdictions in which we operate and have customers; general economic conditions; 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 do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, statements that ‘‘we believe’’ and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this quarterly report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements, related notes and other financial information included elsewhere in this Quarterly Report. The following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenue, expenses, results of operations, liquidity, plans, strategies and objectives of management and any assumptions underlying any of the foregoing. Our actual results could differ materially from those discussed in the forward-looking statements. Our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in Part II, Item 1A. “Risk Factors”.

Overview

Our mission is to enable every organization to realize the power of their data with trust and speed. We are a key enabler of the data-driven enterprise where data is a strategic asset powering business. Talend Data Fabric allows customers in any industry to improve business performance by using their data to create new insights and to automate business processes. Our customers rely on our software to better understand their customers, offer new apps and services, and improve operations with predictive maintenance.

Our employee base has grown from 886 employees as of December 31, 2017 to 1,136 employees as of December 31, 2018, and 1,227 employees as of June 30, 2019. We plan to continue to expand our non-U.S. presence to address the needs of our global customers as well as to acquire customers in new geographies. We also plan to continue to invest in new product development.

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

We generate the majority of our revenue from subscriptions of our commercial solutions. We primarily sell annual contracts billed in advance. Our subscription offering includes enterprise-grade features and capabilities to scale our solutions across production environments and customer infrastructures. These product features and capabilities include scheduling, management and monitoring of data integration flows, collaboration across a team of users and technical support. We also provide professional services to implement our solutions. Our subscription revenue represents a significant portion of our revenue, growing from 85% of our total revenue in the year ended December 31, 2017, to 86% in the year ended December 31, 2018, to 87% in the six month period ended June 30, 2019.

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New Accounting Standards

Refer to Note 1 contained in the “Notes to Condensed Consolidated Financial Statements” included in Part I of this Quarterly Report on Form 10-Q for further information.

Key Business Metrics

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

Annual Recurring Revenue

Annual Recurring Revenue (“ARR”) represents the annualized recurring value of all active contracts at the end of a reporting period. ARR includes subscriptions for use of premise-based products and SaaS offerings and excludes original equipment manufacturer (“OEM”) sales. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. As of June 30, 2019, ARR was $218.0 million, representing growth of 28% from June 30, 2018, driven by strong demand for our cloud-based solutions.

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

Subscription Revenue Growth Rate

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

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

The table below shows our subscription revenue growth rate on both an actual and constant currency basis for the past five quarters, calculated against the corresponding quarter in the prior year. We calculate revenue on a constant currency basis by applying the average monthly currency rate for each month in the comparative period to the corresponding month in the current period.

	Three Months Ended
	Jun 30,		Sep 30,		Dec 31,		March 31,		June 30,
	2018		2018		2018		2019		2019
Actual FX rates	39	%	36	%	38	%	26	%	26	%
Constant Currency	34	%	36	%	40	%	31	%	30	%

Number of Customers Above a Certain Subscription Revenue Threshold

We believe our ability to increase the number of customers above a certain subscription revenue threshold over time is an indicator of our ability to penetrate large enterprise customers. We track our performance in this area by measuring the number of customers which generates an annualized subscription revenue of $0.1 million or above, calculated by multiplying the total subscription revenue from a customer in the given quarter by four.

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As we continue to expand the sales of existing and new products within our existing customer base, we expect more of our existing customers will cross the $0.1 million threshold. However, this may be offset if we do not successfully renew subscriptions with our existing customers.

The following table summarizes on a quarterly basis the number of customers above $0.1 million of annualized subscription revenue since June 30, 2018.

	Three Months Ended
	June 30,	September 30,	December 31,	March 31,	June 30,
	2018	2018	2018	2019	2019
Customers count	427	444	472	501	525

Dollar-Based Net Expansion Rate

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

We calculate our dollar-based net expansion rate by dividing our recurring customer revenue by our base revenue. We define base revenue as the subscription revenue we recognized from all customers during the four quarters ended one year prior to the date of measurement. We define our recurring customer revenue as the subscription revenue we recognized during the four quarters ended on the date of measurement from the same customer base included in our measure of base revenue, including revenue resulting from additional sales to those customers. This analysis excludes revenue derived from our OEM sales. We expect our dollar-based net expansion rate to potentially decline as we scale our business, particularly as we continue to focus on increasing sales of our cloud-based solutions to new customers. The dollar-based net expansion rate will also face a potential decline as the benefit from the adoption of ASC 606 will not repeat in 2019.

The following table summarizes our quarterly dollar-based net expansion rate since April 1, 2018 on both an actual and constant currency basis.

	Three Months Ended
	June 30,		September 30,		December 31,		March 31,		June 30,
Dollar-based net expansion rate	2018		2018		2018		2019		2019
Actual FX rates	125	%	123	%	122	%	117	%	115	%
Constant Currency	119	%	118	%	120	%	118	%	118	%

Free Cash Flow

To provide additional information regarding our financial results, we use free cash flow, a financial measure not calculated in accordance with GAAP, within this Quarterly Report. We define free cash flow as net cash (used in) from operating activities less net cash used in investing activities for purchases of property and equipment and intangible assets, except for those acquired as part of a business combination. We have included free cash flow in this Quarterly Report because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. We believe that free cash flow provides useful information in understanding and evaluating our results of operations in the same manner as our management and board of directors. Although free cash flow measures are frequently used by investors and securities analysts in their evaluation of companies, free cash flow measures each have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our cash

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flows as reported under GAAP. Free cash flow as defined by us may not be comparable to similar measures used by other companies.

The table below shows our free cash flow for each of the three and six months ended June 30, 2019 and 2018, and a reconciliation to the most directly comparable GAAP measure for such period (in thousands). For the six months ended June 30, 2019, our free cash flow was negatively impacted by pre-billed contract duration compression. We expect free cash flow to continue to be negatively affected by this trend for the remainder of fiscal 2019.

	Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018
Net cash from (used in) operating activities	$	2,297	$	(1,196)	$	(5,624)	$	4,489
Less: Acquisition of property & equipment		957		788		1,544		1,348
Free Cash Flow	$	1,340	$	(1,984)	$	(7,168)	$	3,141

Key Components of Results of Operations

Revenue

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

Subscription revenue.  Subscription revenue consists of fees earned from arrangements to provide customers with the right to use our commercial software either in a cloud-based infrastructure that we provide or installed within the customer’s own environment. Our subscriptions include unspecified future updates, upgrades and enhancements and technical product support. Subscription fees are based primarily on the number of users of our software and to a lesser extent the processing power required to operate the software. Our subscription-based arrangements generally have a minimum contractual term of one year and are invoiced in advance for the full subscription term. Subscription fees are generally non-refundable regardless of the actual use of the service.

Professional services revenue.  Professional services revenue consists of fees earned for consulting engagements related to the deployment and configuration of our product offering, training customers and associated expenses. These engagements are generally provided by our own team of specialized consultants or by third-party consultants to whom we contract on a periodic basis. Consulting engagements consist of time-based arrangements for which the revenue is recognized using a time and material basis. Training revenue results from contracts to provide educational services to customers and partners regarding the use of our technologies and is recognized as delivered. We expect our professional services revenue growth will slow, and may decline, as we work with more systems integrators, who assist our customers with the implementation of our solutions and as our cloud-based offerings increase since less service attach to such offerings.

Cost of Revenue

Cost of subscription revenue.  Cost of subscription revenue consists primarily of employee-related costs, including salaries and bonuses, sales commissions, share-based payment expense and employee benefit costs associated with our customer support organization. It also includes expenses related to hosting and operating our cloud infrastructure, licensing of third-party intellectual property and related overhead. We use a third-party cloud platform provider to provide our cloud solution. We allocate overhead such as information technology infrastructure, rent and occupancy charges in each expense category based on headcount in that category. As such, general overhead expenses are reflected in cost of subscription revenue and operating expense categories.

We intend to continue to invest additional resources in our cloud-based offering and services. We expect that the cost of hosting fees to provide our cloud-based offering will increase over time as we sell more of our cloud integration products. The timing of these expenses will affect our cost of subscription revenue in the affected periods.

Cost of professional services revenue  Cost of professional services revenue consists primarily of personnel costs for employees including salaries and bonuses, sales commissions, share-based payment expense and employee benefit

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costs and fees to external consultants associated with our professional service contracts, travel costs and allocated shared costs. We allocate overhead such as information technology infrastructure, rent and occupancy charges in each expense category based on headcount in that category. As such, general overhead expenses are reflected in the cost of professional services revenue and operating expense categories.

Gross Profit and Gross Margin

Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of total revenue. We expect 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. Over time, we expect revenue from our cloud integration business to grow as a percentage of our total revenue. As a result, the cost of hosting fees to third-party cloud infrastructure providers, as a percentage of revenue will increase, which may affect our gross margin.

Operating Expenses

Our operating expenses are classified as sales and marketing, research and development and general and administrative. For each functional category, the largest component is employee and labor-related expenses, which include salaries and bonuses, sales commissions, share-based payment expense, employee benefit costs and contractor costs. We allocate overhead such as information technology infrastructure, rent and occupancy charges in each expense category based on headcount in that category.

Sales and marketing.  Sales and marketing expenses consist primarily of salaries, sales commissions and related expenses, including share-based payment expense, for our sales and marketing employees, marketing programs and related overhead. Our sales and marketing employees include quota carrying headcount, sales administration, sales engineering, marketing and management. Marketing programs consist of advertising, promotional events, corporate communications, brand building, product marketing activities such as online lead generation, and developing sales strategies that emphasize particular products or services.

We plan to continue to invest in sales and marketing by expanding our global promotional activities, building brand awareness, attracting new customers and sponsoring additional marketing events. The timing of these events, such as our annual sales kickoff, will affect our sales and marketing costs in a particular quarter. We also plan to invest in training and retention of our sales team.

Research and development.   Research and development expenses consist primarily of salaries and related expenses, including share-based payment expense, contractor software development costs and related overhead, as well as amortization of acquired developed technology, less any research and development subsidies. We continue to focus our research and development efforts on building new products, adding new features and services, increasing functionality and enhancing our integration cloud infrastructure.

We expect that, in the future, 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.

General and administrative.  General and administrative expenses consist of salaries and related expenses, including share-based payment expense, for finance, legal, human resources and management information systems personnel, as well as external legal, accounting and other professional fees, other corporate expenses and related overhead.

We will continue to incur additional expenses associated with being a publicly traded company, including higher legal, corporate insurance and accounting costs as well as costs of achieving and maintaining compliance with other public company regulations. We expect that in the future, general and administrative expenses will increase as we invest in our infrastructure and we incur additional employee related costs and professional fees related to the growth of our business.

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Results of Operations

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Consolidated statements of operations
Revenue
Subscriptions	$	52,901	$	42,027	$	102,938	$	81,813
Professional services		7,690		7,728		15,491		14,755
Total revenue		60,591		49,755		118,429		96,568
Cost of revenue (1)
Subscriptions		8,484		5,559		15,806		10,927
Professional services		7,275		6,314		15,153		12,195
Total cost of revenue		15,759		11,873		30,959		23,122
Gross profit		44,832		37,882		87,470		73,446
Operating expenses (1)
Sales and marketing		34,579		27,832		69,305		53,974
Research and development		16,577		10,142		31,435		19,871
General and administrative		11,616		8,738		22,028		18,612
Total operating expenses		62,772		46,712		122,768		92,457
Loss from operations		(17,940)		(8,830)		(35,298)		(19,011)
Other income (expense)		(234)		132		(591)		209
Loss before benefit (provision) for income taxes		(18,174)		(8,698)		(35,889)		(18,802)
Provision for income taxes		(116)		(41)		(39)		(52)
Net loss for the year	$	(18,290)	$	(8,739)	$	(35,928)	$	(18,854)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Cost of revenue - subscriptions	$	899	$	315	$	1,528	$	492
Cost of revenue - professional services		603		183		1,130		287
Sales and marketing		3,106		1,523		4,633		2,704
Research and development		4,099		1,747		7,247		3,343
General and administrative		3,174		1,419		5,363		2,900
Total share-based payment and amortization of acquired intangibles expense	$	11,881	$	5,187	$	19,901	$	9,726

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue
Subscriptions	87	%	84	%	87	%	85	%
Professional services	13	%	16	%	13	%	15	%
Total revenue	100	%	100	%	100	%	100	%
Total cost of revenue	26	%	24	%	26	%	24	%
Gross profit	74	%	76	%	74	%	76	%
Operating expenses
Sales and marketing	57	%	56	%	58	%	56	%
Research and development	28	%	20	%	27	%	21	%
General and administrative	19	%	18	%	19	%	19	%
Total operating expenses	104	%	94	%	104	%	96	%
Loss from operations	(30)	%	(18)	%	(30)	%	(20)	%
Other income (expense)	—	%	—	%	—	%	—	%
Loss before income tax (expense) benefit	(30)	%	(18)	%	(30)	%	(20)	%
Income tax (expense) benefit	—	%	—	%	—	%	—	%
Net loss for the year	(30)	%	(18)	%	(30)	%	(20)	%

Three and Six Months Ended June 30, 2019 and 2018

Revenue

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
Subscriptions	$	52,901	$	42,027	$	10,874	26%	$	102,938	$	81,813	$	21,125	26%
Professional services		7,690		7,728		(38)	0%		15,491		14,755		736	5%
Total revenue	$	60,591	$	49,755	$	10,836	22%	$	118,429	$	96,568	$	21,861	23%

Total revenue increased $10.8 million, or 22%, for the three months ended June 30, 2019 compared to the corresponding period in 2018. The growth in total revenue was attributable to the sale of subscriptions.

Subscription revenue increased $10.9 million, or 26%, for the three months ended June 30, 2019 compared to the corresponding period in 2018. The increase in subscription revenue was primarily attributable to greater demand for Talend Cloud and Talend Big Data Integration. Revenue from Talend Cloud grew by over 100% in the three months ended June 30, 2019 compared to the prior period.

Professional services revenue remained relatively flat for the three months ended June 30, 2019 compared to the corresponding period in 2018.

Total revenue increased $21.9 million, or 23%, for the six months ended June 30, 2019 compared to the corresponding period in 2018. The growth in total revenue was attributable primarily to the sale of subscriptions and to a lesser extent the growth of professional services revenue.

Subscription revenue increased $21.1 million, or 26%, for the six months ended June 30, 2019 compared to the corresponding period in 2018. The increase in subscription revenue was primarily attributable to greater demand for Talend Cloud and Talend Big Data Integration.

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We expect our subscription revenue to be negatively impacted by overall economic conditions in Europe for the remainder of fiscal 2019.

Professional services revenue increased $0.7 million, or 5%, for the six months ended June 30, 2019 compared to the corresponding period in 2018. The increase in professional services revenue was mainly due to greater demand from North American customers.

Subscription revenues by geography were as follows for the three and six months ended June 30, 2019 and 2018 (in thousands):

					��
	Three Months Ended June 30,								Six Months Ended June 30,
	2019		2018			$ Change		% Change	2019		2018		$ Change		% Change
Americas	$	23,701	$	19,439		$	4,262	22%	$	47,257	$	37,854	$	9,403	25%
EMEA		23,884		19,599			4,285	22%		46,319		38,561		7,758	20%
Asia Pacific		5,316		2,989			2,327	78%		9,362		5,398		3,964	73%
Total subscription revenue	$	52,901	$	42,027		$	10,874	26%	$	102,938	$	81,813	$	21,125	26%

Cost of Revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2019			2018		$ Change		% Change	2019			2018		$ Change		% Change
Cost of subscription	$	8,484		$	5,559	$	2,925	53%	$	15,806		$	10,927	$	4,879	45%
Cost of professional services		7,275			6,314		961	15%		15,153			12,195		2,958	24%
Total cost of revenue	$	15,759		$	11,873	$	3,886	33%	$	30,959		$	23,122	$	7,837	34%
Gross Profit	$	44,832		$	37,882	$	6,950	18%	$	87,470		$	73,446	$	14,024	19%
Gross Margin		74%	%		76%					74%	%		76%

Total cost of revenue for the three months ended June 30, 2019 increased $3.9 million, or 33%, compared to the corresponding period in 2018. We increased both our support and professional services headcount during the period to meet the higher demand for support from our customers.

Cost of subscription revenue increased $2.9 million, or 53%, for the three months ended June 30, 2019 compared to the corresponding period in 2018. The increase in our support team headcount resulted in increased compensation expense for employees and contractors of $1.8 million. Between June 30, 2018 and June 30, 2019, the support team headcount increased by 29% to 148 employees.

Cost of professional services revenue increased $1.0 million, or 15%, for the three months ended June 30, 2019 compared to the corresponding period in 2018, as we increased our headcount to support increased demand for our professional services. Between June 30, 2018 and June 30, 2019, our professional services team headcount increased by 19% to 123 employees, resulting in increased employee compensation and related expenses of $1.3 million for the three months ended June 30, 2019.

Total cost of revenue for the six months ended June 30, 2019 increased $7.8 million, or 34%, compared to the corresponding period in 2018. We increased both our support and professional services headcount during the period to meet the higher demand for support from our customers.

Cost of subscription revenue increased $4.9 million, or 45%, for the six months ended June 30, 2019 compared to the corresponding period in 2018, as we increased our headcount to meet the higher demand for support from our customers.

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Cost of professional services revenue increased $2.9 million, or 24%, for the six months ended June 30, 2019 compared to the corresponding period in 2018, as we increased our headcount to support increased demand for our professional services.

Sales and Marketing

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
Sales and Marketing	$	34,579	$	27,832	$	6,747	24%	$	69,305	$	53,974	$	15,331	28%

Sales and marketing expenses increased $6.7 million, or 24%, in the three months ended June 30, 2019 compared to the corresponding period in 2018. The increase was primarily due to a $5.2 million increase in employee compensation expenses, related to increased headcount and increased share-based compensation expense as a result of an adjustment to the forfeiture rate during the period. Between June 30, 2018 and June 30, 2019, our sales and marketing headcount increased by 18% to 475 employees. In addition, to support our continued growth, spending on marketing programs increased by $0.5 million in the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Sales and marketing expenses increased $15.3 million, or 28%, in the six months ended June 30, 2019 compared to the corresponding period in 2018. The increase was primarily due to a $10.3 million increase in employee compensation expenses, related to increased headcount and increased share-based compensation expense as a result of an adjustment to the forfeiture rate during the period. The increase in sales and marketing expense was also driven by an increase of $1.3 million in travel costs. In addition, to support our continued growth, spending on marketing programs increased by $1.1 million in the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Research and Development

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
Research and Development	$	16,577	$	10,142	$	6,435	63%	$	31,435	$	19,871	$	11,564	58%

Research and development expenses increased $6.4 million, or 63%, in the three months ended June 30, 2019 compared to the corresponding period in 2018. The increase was primarily due to a $4.5 million increase in employee compensation expenses, related to increased headcount and increased share-based compensation expense as a result of an adjustment to the forfeiture rate during the period. Between June 30, 2018 and June 30, 2019, our research and development headcount increased by 17% to 293 employees. In addition, research and development expenses increased by $0.5 million related additional amortization expense from our November 2018 acquisition of Stitch Inc for the three months ended June 30, 2019.

Research and development expenses increased $11.6 million, or 58%, in the six months ended June 30, 2019 compared to the corresponding period in 2018. The increase was primarily due to a $7.5 million increase in employee compensation expenses, related to increased headcount and increased share-based compensation expense as a result of an adjustment to the forfeiture rate during the period. In addition, research and development expenses increased by $1.0 million related additional amortization expense from our November 2018 acquisition of Stitch Inc. for the six months ended June 30, 2019.

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General and Administrative

	Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
General and Administrative	$	11,616	$	8,738	$	2,878	33%	$	22,028	$	18,612	$	3,416	18%

General and administrative expenses increased $2.9 million, or 33%, in the three months ended June 30, 2019, compared to the corresponding period in 2018. The increase was primarily due to an increase of $3.4 million in employee compensation expenses. Between June 30, 2018 and June 30, 2019, our general and administrative headcount increased by 22% to 147 employees as we added personnel to support our growth. These increases were partially offset by new corporate allocations of IT-related costs. Our amortization of intangible assets also increased by $0.3 million for the three months ended June 30, 2019.

General and administrative expenses increased $3.4 million, or 18%, in the six months ended June 30, 2019, compared to the corresponding period in 2018. The increase was primarily due to an increase of $4.9 million in employee compensation expenses. These increases were partially offset by new corporate allocations of IT-related costs. Our amortization of intangible assets also increased by $0.6 million for the six months ended June 30, 2019.

Liquidity and Capital Resources

	Six Months Ended June 30,
(In thousands)	2019		2018
Cash (used in) from operating activities	$	(5,624)	$	4,489
Cash used in investing activities		(1,544)		(1,348)
Cash from financing activities		5,232		4,600
Net (decrease) increase in cash and cash equivalents	$	(1,936)	$	7,741

Through June 30, 2019, we have financed our operations primarily through cash received from customers for subscriptions of our software and professional services, as well as equity financings and loans. As of June 30, 2019, we had $32.1 million of cash and cash equivalents. We believe that our current cash and cash equivalents, together with borrowings available under our loan agreement, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

Our future capital requirements will depend on many factors, including our growth rate, and the timing and extent of our spending to support our operating expenses and strategic investments. In the event that we require or choose to seek financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when needed or desired, our business, results of operations and financial condition could be adversely affected.

Operating Activities

During the six month period ended June 30, 2019, operating activities used $5.6 million in cash as a result of a net loss of $35.9 million offset by non-cash charges of $21.5 million and a $8.8 million favorable impact from changes in working capital.

During the six month period ended June 30, 2018, operating activities provided $4.5 million in cash as a result of a net loss of $18.9 million offset by non-cash charges of $11.0 million and a $12.3 million favorable impact from changes in working capital. The net decrease in our working capital was primarily the result of a $13.4 million decrease in our trade receivables in the six month period ended June 30, 2018 due to an intended reduction in contract duration in order to minimize discounts and reduce the complexity of our sales cycle.

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Investing Activities

Cash used in investing activities for the six month period ended June 30, 2019 was $1.5 million. Investing activities consist primarily of capital expenditures to purchase furniture and equipment to support additional office space as well as miscellaneous information technology equipment for our employees.

Cash used in investing activities for the six months ended June 30, 2018 was $1.3 million. Investing activities consist primarily of capital expenditures to purchase furniture and equipment to support additional office space as well as miscellaneous information technology equipment for our employees.

Financing Activities

Cash from financing activities for the six month period ended June 30, 2019 was $5.2 million. Financing proceeds for the six month period ended June 30, 2019 was primarily driven by $2.9 million of proceeds from the exercise of employee stock awards and $2.3 million of proceeds received from employees as part of the Company’s employee stock purchase plan.

Cash from financing activities for the six month period ended June 30,2018 was $4.6 million. Financing proceeds for the six month period ended June 30, 2018 was driven by $4.8 million of proceeds from the exercise of employee stock awards.

Contractual Obligations

Our contractual obligations consist of leases for office space. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. We believe that we will be able to fund these obligations through cash generated from operations, from our existing balances of cash and cash equivalents and from borrowings available under our loan agreement. As of June 30, 2019, the future undiscounted non-cancelable minimum lease payments under these obligations were as follows:

	Payments Due By Period
			Less than		1 - 3		3 - 5		More than
		Total	1 year		Years		Years		5 Years
Debt obligations	$	847	$	289	$	367	$	191	$	-
Operating lease obligations		36,276		5,411		14,783		11,737		4,345
Total	$	37,123	$	5,700	$	15,150	$	11,928	$	4,345

Off-Balance Sheet Arrangements

As of June 30, 2019, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations as a result of changes in foreign currency exchange rates. Our sales contracts are generally denominated in the local currency of the entity with which they are contracted. Our operating expenses are generally denominated in the local currencies of the countries where our operations are located. Most of our expenses are incurred in Euros and United States dollars. Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenues, operating expenses and cash flows that we report for

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our foreign subsidiaries upon the translation of these amounts into U.S. dollars. As the U.S. dollar fluctuates against certain international currencies, the amounts of revenue and deferred revenue that we report in U.S. dollars for foreign subsidiaries that transact in international currencies may also fluctuate relative to what we would have reported using a constant currency rate.

For the six months ended June 30, 2019, approximately 56% of our revenue and approximately 54% of aggregate cost of sales and operating expenses were generated in currencies other than U.S. dollars. For the year ended December 31, 2018 approximately 57% of our revenue and approximately 63% of aggregate cost of sales and operating expenses were generated in currencies other than U.S. dollars. We have not entered into derivatives or hedging transactions, as our exposure to foreign currency exchange rates has historically been partially hedged as our Euro denominated inflows have covered our Euro denominated expenses and our USD denominated inflows have covered our USD denominated expenses. However, we may enter into derivative or hedging transactions in the future if our exposure to foreign currency should become more significant. For the six months ended June 30, 2019, a hypothetical 10% increase or decrease in the foreign exchange rate of the Euro to the U.S. Dollar would lead to a corresponding increase or decrease of the consolidated net loss to the Company by approximately $2.0 million.

Interest Rate Risk

We had cash and cash equivalents of $32.1 million and $34.1 million at June 30, 2019 and December 31, 2018, respectively. The carrying amount of our cash equivalents reasonably approximates fair value, as a result of the short maturities of investment instruments used. The primary objective of our investment activities is the preservation of capital, and we do not enter into investments for trading or speculative purposes. Short-term and long-term investments we hold are in the form of term deposits with fixed interest rates, thereby limiting their exposure related to interest rate fluctuations. For the six months ended June 30, 2019, a hypothetical 10% increase in interest rates would not have had a material impact on our financial statements.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this

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Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth above under Legal Proceedings in Note 10 contained in the “Notes to Condensed Consolidated Financial Statements” is incorporated herein by reference.

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ITEM 1A. RISK FACTORS

You should carefully consider the risks described below and all other information contained in this quarterly report and the Annual Report on Form 10-K filed with the SEC on February 28, 2019. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. In that event, the market price of the ADSs could decline. This quarterly report also contains forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risks described below and elsewhere in this quarterly report. See “Special Note Regarding Forward-Looking Statements” above.

Risks Related to Our Business and Industry

We have a history of losses and may not be able to achieve profitability or positive cash flows on a consistent basis. If we cannot achieve profitability or positive cash flows, our business, financial condition and results of operations may suffer.

We have incurred losses in all years since our inception. We incurred a net loss of $31.2 million in the year ended December 31, 2017, $40.4 million in the year ended December 31, 2018 and $35.9 million in the six months ended June 30, 2019. As a result, we had accumulated losses of $260.3 million as of June 30, 2019. We anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to enhance our product and service offerings, broaden our installed customer base, expand our sales channels, expand our operations, hire additional employees and continue to develop our technology. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our products or services, increasing competition, a decrease in the growth of our overall market, failure to acquire large enterprise customers, or a failure to capitalize on growth opportunities. Any failure to increase our revenue as we grow our business could prevent us from achieving profitability or maintaining or increasing cash flow on a consistent basis. If we are unable to meet these risks and challenges as we encounter them, our business, financial condition and results of operations may suffer.

Our business and operations have experienced rapid growth, and if we do not appropriately manage any future growth or are unable to improve our systems and processes, our business, financial condition, results of operations and prospects will be adversely affected.

We have experienced rapid growth and increased demand for our products over the last few years. You should not consider our revenue growth in recent periods as indicative of our future performance. While we have recently experienced significant revenue growth, we may not achieve similar revenue growth in future periods.  Our employee headcount and number of customers have increased significantly, and we expect to continue to grow our headcount significantly over the next year. For example, our employee base has grown from 886 employees as of December 31, 2017 to 1,136 employees as of December 31, 2018 to 1,227 employees as of June 30, 2019. The growth and expansion of our business and product offerings places a continuous significant strain on our management, operational and financial resources. As we have grown, we have managed more complex deployments of our subscriptions with large enterprise customers, and our growth strategy is dependent upon increased sales to these large enterprise customers. We must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems, and our ability to manage headcount, capital and processes in an efficient manner to manage our growth to date and any future growth effectively.

We may not be able to scale improvements successfully to our product offering or implement our other systems, processes and controls in an efficient or timely manner or in a manner that does not negatively affect our results of operations. In addition, our existing systems, processes and controls may not prevent or detect all errors, omissions or fraud. We may experience difficulties in managing improvements to our systems, processes and controls or in connection with third-party software, which could disrupt existing customer relationships, cause us to lose customers, limit us to smaller deployments of our products, or increase our technical support costs. Our failure to improve our systems, processes and controls, or their failure to operate in the intended manner, may result in our inability to manage

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the growth of our business and to forecast our revenue, expenses and earnings accurately, or to prevent certain losses. For example, we are implementing certain new enterprise management systems and any failure to implement these systems may disrupt our operations and our operating expenses could increase. Additionally, our productivity and the quality of our products and services may be adversely affected if we do not integrate and train our new employees quickly and effectively. Any future growth would add complexity to our organization and require effective coordination throughout our organization. Failure to manage any future growth effectively could result in increased costs, negatively affect our customers’ satisfaction with our products and services and harm our results of operations.

If we are unable to increase sales of our solution to new customers and sell additional products to our existing customers, our future revenue and results of operations will be harmed.

Our future success depends, in part, on our ability to sell our subscriptions to new customers, particularly large enterprise customers, and to expand the deployment of our platform with existing customers by selling additional subscriptions. This may require increasingly sophisticated and costly sales efforts to differentiate our offerings from those of our competitors that may not result in additional sales. In addition, the rate at which our customers purchase additional subscriptions depends on a number of factors, including the perceived need for additional data integration products, evolving sales strategies as well as general economic conditions. Even if we are able to convince a potential customer of the benefits of big data integration capabilities, they may choose to adopt our competitors’ offerings instead. If our efforts to sell additional subscriptions to our customers are not successful, our business may suffer.

The market for our cloud integration products is relatively new, unproven and evolving, and our future success depends on the growth and expansion of such market and our ability to adapt and respond effectively to an evolving market. 

The market for cloud integration is relatively new, rapidly evolving and unproven. Our future success will depend in large part on our cloud integration solutions’ ability to penetrate the existing market for data integration and management platforms, as well as the continued growth and expansion of the market for data integration and management platforms. It is difficult to predict subscription customer adoption and renewals, subscription customers’ demand for our offerings, the size, growth rate and expansion of these markets, the entry of competitive products or the success of existing competitive products. If we do not correctly anticipate changes in these markets or are unable to respond quickly and effectively to changes in these markets, our business may be harmed. Our ability to penetrate the existing market and any expansion of the market depends on a number of factors, including the cost, performance and perceived value associated with our offerings, as well as subscription customers’ willingness to adopt an alternative approach to data integration and management platforms. Additionally, demand for our cloud integration products will depend in large part on the adoption of cloud data warehouses. Furthermore, many potential subscription customers have made significant investments in hand coding or legacy ETL software and may be unwilling to invest in a new solution. If the market for cloud integration and management platforms fails to grow or continues to decrease in size, or if we fail to adapt to any changes in the industry, our business would be harmed.

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If we fail to successfully manage our business model transition to cloud-based products and a customer-centric sales model, our results of operations could be negatively impacted.

To address the industry transition to cloud-based technologies and the decrease in big data application adoption, we have accelerated the development of our cloud offerings. We expect the shift to a customer-centric sales model will help drive increased subscriptions by providing us with competitive insights during the sales process and more flexible pricing approaches. During this transition, revenue, orders, gross margin, net income (loss), earnings (loss) per share, deferred revenue, and cash flow from operations will be impacted as more revenue is recognized ratably rather than up front. Further, our cloud customers typically demand less professional services from us compared to on-premise customers, which has had, and we anticipate will continue to have, a negative impact on our professional services revenue. This transition may give rise to a number of risks, and if we do not successfully execute this transition, our business and future operating results could be adversely affected.

Our ability to achieve our financial objectives is subject to risks and uncertainties. Continued development of existing cloud offerings as well as new cloud offerings requires a considerable investment of technical, financial, legal, and sales resources, and a scalable organization. Market acceptance of such offerings is affected by a variety of factors, including but not limited to: security, reliability, performance, current license terms, customer preference, social/community engagement, customer concerns with entrusting a third-party to store and manage their data, public concerns regarding privacy and data protection and the enactment of restrictive laws or regulations. Whether our business model transition will prove successful and will accomplish our business and financial objectives is subject to numerous uncertainties, including but not limited to: customer demand, attach and renewal rates, channel acceptance, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, competitive offerings, particularly from low end cloud competition, tax and accounting implications, pricing, and our costs. In addition, the metrics we use to gauge the status of our business model transition may evolve over the course of the transition as significant trends emerge. If we are unable to successfully establish these new offerings and navigate our business model transition in light of the foregoing risks and uncertainties, our results of operations could be negatively impacted. Even if we successfully implement this transition, new customers and existing customers may not purchase subscriptions for our new or redeveloped cloud offerings.

If we are not successful in executing our strategy to increase sales of our solution to new and existing large enterprise customers, our operating results may suffer.

Our growth strategy is dependent in large part upon increasing sales of our solution to new and existing large enterprise customers, particularly when such sales result in large orders for our solution. Sales to these large enterprise customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller customers, which can act as a disincentive to our sales team to pursue these larger customers. These risks include:

● Competition from companies that traditionally target larger enterprises and that may have pre-existing relationships or purchase commitments from such customers;

● Increased purchasing power and leverage held by large enterprise customers in negotiating contractual arrangements with us;

● More stringent requirements in our support services, including demand for quicker support response times and penalties for any failure to meet support requirements; and

● Longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that elects not to purchase our solutions.

Large organizations often undertake a significant evaluation process that results in a lengthy sales cycle. Although we rely on our channel partners for a portion of our sales, our sales representatives typically engage in direct interaction with our prospective customers as well as our distributors and resellers. We typically provide evaluation products to these customers and may spend substantial time, effort and money in our sales efforts to these prospective customers. In

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addition, product purchases by large organizations are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and other delays. Finally, large organizations typically have longer implementation cycles, require greater product functionality and scalability, require a broader range of services, demand that vendors take on a larger share of risks, require acceptance provisions that can lead to a delay in revenue recognition and expect greater payment flexibility. If we fail to realize an expected sale from a large customer in a particular quarter or at all, our business and operating results could be adversely affected. All of these factors can add further risk to business conducted with these customers.

Our sales cycle can be long and unpredictable, particularly with respect to sales through our channel partners or sales to enterprise customers, and our sales efforts require considerable time and expense.

Our results of operations may fluctuate, in part, because of the resource-intensive nature of our sales efforts, the length and variability of the sales cycle of our subscription offerings and the difficulty in making short-term adjustments to our operating expenses. Our results of operations depend in large part on sales to larger subscription customers and increasing sales to existing customers. The length of our sales cycle, from initial contact with our sales team to contractually committing to our subscription offerings, generally averages seven and a half months, but can vary substantially from customer to customer based on deal complexity as well as whether a sale is made directly by us or through a channel partner. Particularly for larger enterprise customers, the sales cycle can be longer and require additional resources as these customers may undertake an evaluation process and we may spend substantial time, effort and money in these sales efforts. Additionally, product purchases by larger organizations are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and other delays. Larger enterprise customers may also have longer implementation cycles and require greater product functionality or support. Our sales cycle can extend to more than a year for some customers. It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The loss or delay of one or more large transactions in a quarter could affect our cash flows and results of operations for that quarter and our revenue for any future quarters. Because a substantial proportion of our expenses are relatively fixed in the short term, our results of operations will suffer if we are unable to convert large enterprise customers and our revenue falls below our expectations in a particular quarter, which could cause the price of the ADSs to decline.

If our existing customers terminate or do not renew their subscriptions, it could have an adverse effect on our business and results of operations. 

We expect to derive a significant portion of our revenue from renewals of existing subscription agreements. For the six months ended June 30, 2019, over half of our subscription bookings were generated from the renewals of existing subscription agreements or from the transition of our current customers to our cloud offering. As a result, achieving a high renewal rate of our subscription agreements will be critical to our business. Our existing customers that purchase our subscription services have no contractual obligation to renew their contracts after the completion of their initial subscription term, which is typically one year, and some customers may have a right to terminate during the subscription term. As a result, we may not accurately predict future revenue from existing customers. Our customers’ renewal rates may decline or fluctuate, and termination rates may increase or fluctuate, as a result of a number of factors, including their satisfaction with our platform and our customer support, our products’ ability to integrate with new and changing technologies, the frequency and severity of subscription outages, our product uptime or latency, and the pricing of our, or competing, products. If our customers renew their subscriptions, they may renew for shorter subscription terms or on other terms that are less economically beneficial to us. We have limited historical data with respect to rates of customer terminations or renewals, so we may not accurately predict future renewal trends. Our customers may not renew their subscriptions. If our customers terminate or do not renew their subscriptions, or renew on less favorable terms, our revenue may grow more slowly than expected or decline and our dollar-based net expansion rate, a key metric we use to track the growth of our business, may decline.

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We rely significantly on revenue from subscriptions, which may decline and, because we recognize a significant portion of revenue from subscriptions over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations. 

Subscription revenue accounts for a significant portion of our revenue, comprising 85% of total revenue in the year ended December 31, 2017, 86% in the year ended December 31, 2018 and 87% for the six months ended June 30, 2019. Sales of new or renewal subscription contracts may decline and fluctuate as a result of a number of factors, including customers’ level of satisfaction with our products, the prices of our products, the prices of products affected by our competitors and reductions in our customers’ spending levels. If our sales of new or renewal subscription contracts decline, our total revenue and revenue growth rate may decline and our business will suffer. 

Under ASC 606, the new revenue recognition standard, adopted by us on January 1, 2018, the support and maintenance element of subscription arrangements represents a series of performance obligations that are delivered over time and are recognized over time, while the software license element, which is a much smaller portion of the subscription arrangement, represents a separate performance obligation and is recognized upfront when the license key is delivered to the customer.

As a result, a significant portion of the subscription revenue we report each quarter continues to be recognition of deferred revenue from subscription contracts entered into during previous fiscal quarters. Consequently, a decline in new or renewed subscription contracts in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter but will negatively affect our revenue in future fiscal quarters. Accordingly, the effect of significant downturns in new or renewed sales of our subscriptions is not reflected in full in our results of operations until future periods. Also, it is difficult for us to increase our subscription revenue rapidly through additional sales in any period, as the support and maintenance element of the revenue from new and renewal subscription contracts must be recognized over the applicable period. 

We also pre-bill subscription orders and offer larger discounts to customers willing to pre-pay for longer, multi-year subscription contracts. Since 2014, we have decreased the average pre-billed duration of our subscriptions, which has directly reduced billing while decreasing the average discount related to longer-duration contracts.

One of our marketing strategies is to offer free open source and trial versions of our products, and we may not be able to realize the benefits of this strategy. 

We are dependent upon lead generation strategies, including our marketing strategy of offering free open source and trial versions of our products, to generate sales opportunities. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from the free open source or trial versions to the paid versions of our products. To the extent that users do not become, or we are unable to successfully attract, paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.

Our future success depends in large part on the growth of the market for big data applications and an increase in the desire to ingest, store and process big data, and we cannot be sure that the market for big data applications will grow as expected or, even if such growth occurs, that our business will grow at similar rates, or at all.

Our ability to increase the adoption of Talend Big Data Integration, increase sales of related support subscriptions and professional services depends on the increased adoption of big data services and applications by enterprises. While we believe that big data services and applications can offer a compelling value proposition to many enterprises, the broad adoption of big data applications and services also presents challenges to enterprises, including developing the internal expertise and infrastructure to manage big data applications and services effectively, coordinating multiple data sources, defining a big data strategy that delivers an appropriate return on investment and implementing an information technology infrastructure and architecture that enables the efficient deployment of big data solutions. Accordingly, our expectations regarding the potential for future growth in the market for big data applications and services, and the third-party growth estimates for this market are subject to significant uncertainty. Market demand for on-premise big data

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systems and applications has slowed recently, due in part to the rapid advance of big data capabilities from cloud platform providers. If the market for big data applications and services does not grow as expected or continues to decline, our business prospects may be adversely affected. Even if the market for big data applications and services increases, we cannot be sure that our business will grow at a similar rate, or at all.

We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.

The market for our products is highly competitive, quickly evolving and subject to rapid changes in technology, which may expand the alternatives to our customers for their data integration requirements. Our current primary competitors generally fall into four categories.

● Diversified technology companies that offer data integration solutions, including: IBM, Microsoft, Oracle and SAP;

● Pure-play data integration vendors, including: Ab Initio, SAS, Informatica and Tibco;

● Early-stage, niche data integration technologies; and

● Hand-coded, custom data integration solutions built internally by organizations that we target as potential customers.

Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as:

● Greater name recognition and longer operating histories;

● Larger sales and marketing budgets and resources;

● Broader distribution and established relationships with distribution partners and customers;

● Greater customer support resources;

● Greater resources to make acquisitions;

● Lower labor and development costs;

● Larger and more mature intellectual property portfolios; and

● Substantially greater financial, technical and other resources.

Additionally, certain of our current strategic partners, such as Cloudera, Amazon Web Services and Alphabet may develop and offer their own data integration solutions. Such competitors may be more likely to promote and sell their own solutions over our products. Further, such competitors may cease their relationships with us, and ultimately be able to transition customers onto their competing solutions, which could materially and adversely affect our revenues and growth. 

In addition, some of our larger competitors have substantially broader and more diverse product offerings and leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products, including through selling at zero or negative margins, product bundling, or closed technology platforms. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. These larger competitors often have broader market focus and may therefore not be as susceptible to downturns in a particular market. Many of our smaller competitors that specialize in niche data integration technologies may introduce new products which are disruptive to our solution. Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering by our competitors, or continuing market consolidation. New start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our products and technology. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources. While we endeavor to engage customers on our standard form agreements, in order to successfully engage larger customers in a highly competitive environment we may be required to negotiate our standard terms or transact on our customers’ forms, which may result in accepting more onerous terms and obligations, and greater liability exposure, than we do in our standard forms. 

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Some of our competitors have made or could make acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered. As a result of such acquisitions, our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of acquisitions or other opportunities more readily, or develop and expand their product offerings more quickly than we do. Due to various reasons, organizations may be more willing to add solutions incrementally to their existing data management infrastructure from competitors than to replace it with our solution. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins and loss of market share. Any failure to meet and address these factors could seriously harm our business and results of operations.

Because of the characteristics of open source software, there are few technological barriers to entry into the open source market by new competitors and it may be relatively easy for competitors, some of whom may have greater resources than we have, to enter our markets and compete with us. 

One of the characteristics of open source software is that anyone may obtain access to the source code for our open source products and then modify and redistribute the existing open source software and use it to compete in the marketplace. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies. It is possible for competitors to develop their own software, including software based on Talend Open Studio, potentially reducing the demand for our solution and putting price pressure on our subscription offerings. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure or the availability of new open source software will not result in price reductions, reduced operating margins and loss of market share, any one of which could harm our business, financial condition, results of operations and cash flows.

We may be unable to predict the future course of open source technology development, which could reduce the market appeal of our offerings, damage our reputation and adversely affect our business, financial condition, results of operations and cash flows. 

We do not exercise control over many aspects of the development of open source technology. Different groups of open source software programmers compete with one another to develop new technology. Typically, the technology developed by one group will become more widely used than that developed by others. If we acquire or adopt new technology and incorporate it into our offerings but competing technology becomes more widely used or accepted, the market appeal of our offerings may be reduced, which could harm our reputation, diminish our brands and adversely affect our business, financial condition, results of operations and cash flows.

If we do not accurately predict, prepare for, and respond promptly to the rapidly evolving technological and market developments and changing customer needs in our market, our competitive position and prospects will be harmed. 

The market for our products is characterized by continuing rapid technological development, the emergence of new technologies, evolving industry standards, changing customer needs and frequent new product introductions and enhancements. The introduction of products by our direct competitors or others incorporating new technologies, the emergence of new industry standards, or changes in customer requirements could render our existing products obsolete, unmarketable, or less competitive. In addition, industry-wide adoption or increased use of hand-coding, open source standards or other uniform open standards across heterogeneous applications could minimize the importance of the integration functionality of our products and materially adversely affect the competitiveness and market acceptance of our products. Furthermore, the standards on which we choose to develop new products or enhancements may not allow us to compete effectively for business opportunities. 

Our success depends upon our ability to enhance existing products, respond to changing customer requirements and develop and introduce, in a timely manner, new products that keep pace with technological and competitive developments and emerging industry standards. For example, many of our customers have transitioned to cloud computing environments, which has accelerated the development of our cloud offerings. We have in the past

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experienced delays in releasing new products and product enhancements and may experience similar delays in the future. We may also pursue marketing strategies that focus on certain products or features over other offerings, and decisions to deploy our limited resources towards particular goals that do not meet a positive market response will harm our operating results. As a result, in the past, some of our customers deferred purchasing our products until the next upgrade was released. Additionally, the success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, our ability to manage the risks associated with new product releases, our ability to successfully plan and execute on a sales strategy for our new products, the availability of software components for new products, the effective management of development and other spending in connection with anticipated demand for new products, the availability of newly developed products and the risk that new products may have bugs, errors or other defects or deficiencies in the early stages of introduction. Future delays or problems in the installation or implementation of our new releases may cause customers to forgo purchases of our products and purchase those of our competitors instead. Additionally, even if we are able to develop new products and product enhancements, we cannot ensure that they will achieve market acceptance.

Our debt agreements contain certain restrictions that may limit our ability to operate our business.

The terms of the Loan and Security Agreement that our subsidiaries, Talend, Inc., Talend USA, INC. and Stitch Inc., entered into with Square 1 Bank, a division of Pacific Western Bank, or Square 1, on February 14, 2019, or the Loan Agreement, and the related collateral documents with Square 1 contain, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability, and the ability of our subsidiaries, to take actions that may be in our best interests, including, among others, disposing of assets, consummating change of control transactions, mergers or acquisitions, incurring additional indebtedness, granting liens on our assets, and declaring and paying dividends. The Loan Agreement requires us to satisfy specified financial covenants, including a minimum annualized recurring revenue covenant and a minimum liquidity covenant. Our ability to meet those financial covenants can be affected by events beyond our control, and we may not be able to meet those covenants in the future. A breach of any of these covenants or the occurrence of other events specified in the Loan Agreement and/or the related collateral documents could result in an event of default under the Loan Agreement. Upon the occurrence of an event of default, Square 1 could elect to declare all amounts outstanding under the Loan Agreement to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, Square 1 could proceed against the collateral granted to them to secure such indebtedness. We and certain of our subsidiaries have pledged substantially all of our respective assets as collateral under the loan documents. If Square 1 accelerates the repayment of borrowings, if any, we may not have sufficient funds to repay our existing debt.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products could reduce our ability to compete and could harm our business.

We expect that our existing cash and cash equivalents, together with borrowings available under our Loan Agreement, will be sufficient to meet our anticipated cash needs for the foreseeable future. We anticipate negative cash flows during fiscal 2019 as pre-billed contract duration has compressed. We may invest more in our business and we may need to raise additional funds in the future or we may elect to raise additional funds. If we seek to raise capital for any reason, we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity, our shareholders may experience significant dilution of their ownership interests and the per share value of our ordinary shares and ADSs could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of ADSs and underlying ordinary shares, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations and financial condition. If we need or seek additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

● Develop or enhance our products and professional services;

● Continue to expand our sales and marketing and research and development organizations;

● Acquire complementary technologies, products or businesses;

● Expand operations in the United States or internationally;

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● Hire, train and retain employees; or

● Respond to competitive pressures or unanticipated working capital requirements.

Our failure to have sufficient capital to do any of these things could seriously harm our business, financial condition and results of operations.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute shareholder value and adversely affect our results of operations. 

As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies. For example, in November 2018 we acquired Stitch Inc. However, our ability as an organization to acquire and integrate other companies, products, or technologies in a successful manner is unproven. Our ability to successfully acquire other companies, products and technologies depends, in part, on our ability to attract and retain highly skilled personnel. If we are unable to attract and retain qualified personnel, we may be unable to take advantage of opportunities to make beneficial acquisitions or investments. The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy, we may be subject to claims or liabilities assumed from an acquired company, product, or technology, and any acquisitions we complete could be viewed negatively by our customers, investors and securities analysts. In addition, if we are unsuccessful at integrating recent and future acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and results of operations of the combined company could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully.

We may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges. We may have to pay cash, incur debt, or issue equity to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of the ADSs. The sale of equity to finance any future acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. The occurrence of any of these risks could harm our business, results of operations and financial condition.

Our relatively limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.

We were founded in 2005, launched our first product in 2006 and began offering our platform on a subscription basis in 2007. Our relatively limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing companies in constantly evolving industries, including changing customer preferences, competing offerings and pricing, evolving sales strategies and other risks described in this Quarterly Report. If we do not address these risks successfully, our business and results of operations will be adversely affected, and the market price of our ADSs could decline. Further, we have limited historical financial data and we operate in a rapidly evolving market. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

Delivering certain of our products via the cloud increases our expenses and may pose other challenges to our business. 

We offer and sell our products via both the cloud and on premise using the customer’s own infrastructure. Our cloud offering enables quick setup and subscription pricing. Historically, our products were developed in the context of the on-premise offering, and we have less operating experience offering and selling our products via our cloud offering. Although a majority of our revenue has historically been generated from customers using our on-premise products, we

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believe that over time more customers will continue to move to the cloud offering. As more of our customers transition to the cloud, we may be subject to additional contractual obligations with respect to privacy, security and data protection, as well as competitive pressures and higher operating costs, any of which may harm our business. If our cloud offering does not develop as quickly as we expect, or if we are unable to continue to scale our systems to meet the requirements of a large cloud offering, our business may be harmed. We are directing a significant portion of our financial and operating resources to implement a robust cloud offering for our products and to transition our existing customers to our cloud offerings, but even if we continue to make these investments, we may be unsuccessful in growing or implementing our cloud offering competitively, and our business, results of operations and financial condition could be harmed.

We derived a substantial portion of our subscription revenue in the year ended December 31, 2018 from our Talend Big Data Integration and Talend Cloud solutions and failure of these solutions to satisfy customer demands or to achieve increased market acceptance would harm our business, results of operations, financial condition and growth prospects. 

We derived a substantial portion of our subscription revenue in the year ended December 31, 2018 and expect to continue to derive a significant portion of our subscription revenue from our Talend Big Data Integration and Talend Cloud solutions. Demand for Talend Big Data Integration and Talend Cloud is affected by a number of factors, many of which are beyond our control, including market acceptance of our solutions by referenceable accounts for existing and new use cases, the timing of development and release of new products by our competitors and additional capabilities and functionality by us, technological change and growth or contraction in the market in which we compete, including the adoption of big data technologies. We expect the proliferation of data to lead to an increase in the IT integration needs of our customers, and Talend Big Data Integration and Talend Cloud may not be able to perform to meet those demands. If we are unable to continue to meet our subscription customer requirements, to achieve more widespread market acceptance of Talend Big Data Integration and Talend Cloud, or to increase demand for these solutions, our business, results of operations, financial condition and prospects will be harmed.

The sales prices of our products may decrease, which may reduce our gross profits and adversely affect our financial results. 

The sales prices for our subscription offerings and professional services may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of subscription offerings and professional services and their respective margins, introduction of new pricing models such as on-demand pricing or new sales models, anticipation of the introduction of new subscription offerings or professional services, or promotional programs. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price of products or services that compete with ours or may bundle them with other products and services. Additionally, currency fluctuations in certain countries and regions may negatively impact actual prices that channel partners and customers are willing to pay in those countries and regions. We may not be successful in developing and introducing new subscription offerings with enhanced functionality on a timely basis, or that any such new subscription offerings, if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

Incorrect implementation or use of our software could result in customer dissatisfaction and negatively affect our business, operations, financial results and growth prospects. 

Our platform is designed to be operated in a self-service manner by our customers who subscribe to our cloud-based solution. In addition, our platform may be deployed in large scale, complex IT environments of our customers. Our customers and channel partners require training and experience in the proper use of and the variety of benefits that can be derived from our platform to maximize its potential. If our platform is not implemented or used correctly or as intended, inadequate performance or security vulnerabilities may result. Because our customers rely on our software to manage a wide range of operations, the incorrect implementation or use of our software or our failure to train customers on how to use our software productively may result in customer dissatisfaction, negative publicity and may adversely affect our reputation and brand. Failure by us to provide these training and implementation services to our customers

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would result in lost opportunities for follow-on sales to these customers and adoption of our platform by new customers and adversely affect our business and growth prospects.

In cases where our platform has been deployed on-premise within a customer’s IT environment, if we or our customers are unable to configure or implement our software properly, or unable to do so in a timely manner, customer perceptions of our platform may be impaired, our reputation and brand may suffer, and customers may choose not to increase their use of our platform or to discontinue its use. In addition, our on-premise solution imposes server load and data storage requirements for implementation. If our customers do not have the server load capacity or the storage capacity required, they may not be able to implement and use our platform effectively and, therefore, may choose to discontinue their use of our platform or not increase their use.

Our ability to increase sales of our solution is highly dependent on the quality of our customer support, and our failure to offer high quality support would have an adverse effect on our business, reputation and results of operations. 

After our products are deployed within our customers’ IT environments, our customers depend on our technical support services, as well as the support of our channel partners, including value added resellers, to resolve issues relating to our products. Our channel partners often provide similar technical support for third parties’ products and may therefore have fewer resources to dedicate to the support of our products. If we or our channel partners do not succeed in helping our customers quickly resolve post-deployment issues or provide effective ongoing support, our ability to sell additional subscriptions to existing customers would be adversely affected and our reputation with potential customers could be damaged. Many larger enterprise and government entity customers have more complex IT environments and require higher levels of support than smaller customers. If we or our channel partners fail to meet the requirements of these enterprise customers, it may be more difficult to grow sales with enterprise customers. 

Additionally, if our channel partners do not effectively provide support to the satisfaction of our customers, we may be required to provide direct support to such customers, which would require us to hire additional personnel and to invest in additional resources. It can take several months to recruit, hire and train qualified technical support employees. We may not be able to hire such resources fast enough to keep up with unexpected demand, particularly if the sales of our products exceed our internal forecasts. To the extent that we or our channel partners are unsuccessful in hiring, training and retaining adequate support resources, our and our channel partners’ ability to provide adequate and timely support to our customers, and our customers’ satisfaction with our products and services, will be adversely affected. Additionally, to the extent that we may need to rely on our sales engineers to provide post-sales support while we are ramping our support resources, our sales productivity will be negatively affected, which would harm our revenue. Our or our channel partners’ failure to provide and maintain high-quality support services would have an adverse effect on our business, financial condition and results of operations.

A significant defect, security vulnerability, error or performance failure in our software could cause us to lose revenue and expose us to liability. 

The software and professional services we offer are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors or not perform as contemplated, especially when first introduced. These defects, security vulnerabilities, errors or performance failures could cause damage to our reputation, loss of customers or revenue, product returns, order cancellations, service terminations, or lack of market acceptance of our software. As the use of our solution, including products that were recently acquired or developed, expands to more sensitive, secure, or mission critical uses by our customers, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our software fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our software to fix these defects, errors or performance failures, which could require us to allocate significant research and development and customer support resources to address these problems. 

Our standard form agreements with our customers typically contain provisions intended to limit both the types of claims for which we would be liable and the maximum amount of our liability. However, some of our customers require

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us to accept contract terms that do not include the same limitations. Additionally, any limitation of liability provisions that may be contained in our license agreements may not be effective as a result of existing or future national, federal, state, or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any liability claims to date with respect to defects, security vulnerabilities, errors, or performance failures, the sale and support of our products entail the risk of such claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim, and if we experienced a significant incident that impacted many customers, we could be subject to indemnity claims or other damages that exceed our insurance coverage. If such a breach or incident occurred, our insurance coverage might not be adequate for data handling or data security liabilities actually incurred, such insurance may not continue to be available to us in the future on economically reasonable terms, or at all, and insurers may deny us coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

Interruptions or performance problems associated with our technology and infrastructure, such as security incidents, and our reliance on technologies from third parties, may adversely affect our business operations and financial results. 

Our website and internal technology infrastructure may experience performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions or capacity constraints due to a number of potential causes, including technical failures, natural disasters or fraud or security incidents. Our use and distribution of open source software may increase this risk. If our website is unavailable or our users are unable to download our tools or order subscription offerings or professional services within a reasonable amount of time or at all, our business could be harmed.

Further, we expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features and applications for Talend Data Fabric and Talend Open Studio. To the extent that we do not effectively upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business and results of operations may be harmed.

In addition, we rely on cloud technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services and lead generation management services. We also host our Talend Cloud services on third-party cloud platforms. If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing sales of our subscription offerings and professional services and supporting our customers could be impaired, and our ability to generate and manage sales leads could be weakened until equivalent services, if available, are identified, obtained and implemented, all of which could harm our business and results of operations.

If our security measures are breached or unauthorized access to private or proprietary data is otherwise obtained, or if any security breach or other incident is perceived to have occurred, our software may be perceived as not being secure, customers may reduce the use of or stop using our products, and we may incur significant liabilities.

Our products involve the processing of large amounts of our customers’ sensitive and proprietary information, as well as personal data and personal information. Additionally, we collect and store certain sensitive and proprietary information in the operation of our business, including trade secrets, employee data, and other confidential data. While we have taken measures to protect our own 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 of our cloud-based services, any security breach, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in loss of or unauthorized access to our customers’ or our confidential information, personal information or other private or proprietary data, damage to our reputation, litigation, regulatory investigations or other liabilities. These attacks may

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come from individual hackers, criminal groups, and state-sponsored organizations. These sources can also implement social engineering techniques to induce our employees, contractors, or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our customers’ data. Further, security breaches and other security incidents may result from employee or contractor error or negligence. Any compromise of our security or any unauthorized access to or breaches of the security of our or our service providers’ systems or data processing tools or processes, or of our product offerings, as a result of third-party action, employee error, defects or bugs, malfeasance or otherwise and, as a result, someone obtains unauthorized access to our confidential information, personal information or other private or proprietary data, or any such information or data of our customer, could result in the loss of data or the loss or corruption of, or unauthorized access to or acquisition of, intellectual property or trade secrets or other data, loss of business, reputational damage, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws, regulations, or contractual obligations, and significant costs, fees and other monetary payments for remediation. Further, any belief by customers or others that a security breach or other incident has affected us or any of our vendors or service providers, even if a security breach or other incident has not actually occurred, could have any or all of the foregoing impacts on us, including damage to our reputation. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers. We expect to incur significant costs in an effort to detect and prevent security breaches and other security-related incidents, and we could be required to expend significant capital and other resources to address any data security incident or breach and to implement measures in an effort to prevent further breaches or incidents.

We engage third-party vendors and service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal information. Our vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, fraud, and other risks to the confidentiality, security, and integrity of their systems and the data they process for us. Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, disclosure, loss or destruction of our and our customers’ data, including sensitive and personal information.

Techniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until launched against a target. We and our service providers may be unable to anticipate these techniques, react, remediate or otherwise address any security breach or other security incident in a timely manner, or implement adequate preventative measures.

Further, any limitations of liability provisions in our customer and user agreements, contracts with third-party vendors and service providers or other contracts may not be enforceable or adequate or otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter. While our insurance policies include liability coverage for certain of these matters, if we experienced a widespread security breach or other incident that impacted a significant number of our customers, we could be subject to indemnity claims or other damages that exceed our insurance coverage. If such a breach or incident occurred, our insurance coverage might not be adequate for data handling or data security liabilities actually incurred, such insurance may not continue to be available to us in the future on economically reasonable terms, or at all, and insurers may deny us coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

The competitive position of our product offerings depends in part on their ability to operate with third-party products and services and our customers’ existing infrastructure. 

The competitive position of our product offering depends in part on their ability to operate with products and services of third parties, including companies that offer big data solutions, cloud-based solutions, software services and infrastructure, and our products must be continuously modified and enhanced to adapt to changes in hardware, software, networking, browser and database technologies. In the future, one or more technology companies, whether our partners

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or otherwise, may choose not to support the operation of their software, software services and infrastructure with our product offerings. In addition, to the extent that a third-party were to develop software or services that compete with ours, that provider may choose not to support our product offering. We intend to facilitate the compatibility of our solution with various third-party software, big data solutions, cloud-based solutions, software services and infrastructure offerings by maintaining and expanding our business and technical relationships. If we are not successful in achieving this goal, our business, financial condition and results of operations may suffer. 

Additionally, our products must interoperate with our customers’ existing infrastructure, which often have different specifications, deploy products from multiple vendors, and contain multiple generations of products that have been added over time. As a result, when problems occur, it may be difficult to identify the sources of these problems. If we find errors in the existing software that create integration errors or problems in our customers’ IT environments, as we have in the past, we may have to issue software updates as part of our normal maintenance process. Any delays in identifying the sources of problems or in providing necessary modifications to our software could have a negative impact on our reputation and our customers’ satisfaction with our products and services, and our ability to sell products and services could be adversely affected. In addition, governments and other customers may require our products to comply with certain security or other certifications and standards.

We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could harm our business. 

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in finance, engineering and sales, may seriously harm our business, financial condition and results of operations. Although we have entered into employment offer letters with our key personnel, these agreements have no specific duration and constitute at-will employment. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our platform. 

Any failure to hire, train and adequately incentivize our sales personnel could negatively affect our growth. If our sales model is not successful, or if new sales models we adopt are not successful, our business could be adversely affected. In addition, any failure of our management and sales personnel to develop and implement sales strategies for our new product offerings, such as our Talend Catalog offering, could harm our ability to successfully introduce new products. Further, the inability of our recently hired sales personnel to effectively ramp up to target productivity levels could negatively affect our operating margins. In addition, if we are not effective in managing any leadership transition in our sales organization, our business could be adversely affected and our results of operations and financial condition could be harmed. 

Competition for highly skilled personnel is often intense, especially in the San Francisco Bay Area, the United Kingdom and France, where we have substantial presence and need for highly skilled personnel. Additionally, the industry in which we operate generally experiences high employee attrition. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product. 

Our future performance also depends on the continued services and continuing contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of services of senior management could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition and results of operations. 

Our employees do not have employment arrangements that require them to continue to work or us for any specified period, and therefore, they could terminate their employment with us at any time. We do not maintain key person life insurance policies on any of our employees. The loss of one or more of our key employees could seriously harm our business.

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If we do not effectively expand and train our sales force, we may be unable to add new customers or increase sales to our existing customers and our business will be adversely affected. 

We continue to be substantially dependent on our sales force to obtain new customers and to drive additional usage and sales among our existing customers. We believe that there is significant competition for sales personnel, including enterprise sales representatives and sales engineers, with the skills and technical knowledge that we require. In particular, there is significant demand for sales engineers with big data and cloud-based software expertise. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. For example, attrition and changing sales team leadership have resulted and may continue to result in slower than expected growth in those geographies. New hires require significant training and may take significant time before they achieve full productivity before we can continue to scale our sales efforts. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, as we continue to grow rapidly, a large percentage of our sales force will have relatively little experience working with us, our subscription offerings and our business model. If we are unable to hire and train sufficient numbers of effective sales personnel, or our sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be harmed.

Employment laws in some of the countries in which we operate are stringent, which could restrict our ability to react to market changes and cause us to incur higher expenses. 

As of June 30, 2019, we had 1,227 full-time employees, of whom approximately 36% were located in the United States, 28% were located in France, 7% were located in China, 7% were located in Germany and 6% were located in the United Kingdom. In some of the countries in which we operate, employment laws may grant significant job protection to certain employees, including rights on termination of employment and setting maximum number of hours and days per week a particular employee is permitted to work. In addition, in certain countries in which we operate, we are often required to consult and seek the advice of employee representatives and unions. These laws, coupled with the requirement to consult with any relevant employee representatives and unions, could affect our ability to react to market changes and the needs of our business and cause us to incur higher expenses.

Any unauthorized, and potentially improper, actions of our sales or other personnel could adversely affect our business, results of operations and financial condition. 

The recognition of our revenue depends on, among other things, the terms negotiated in our contracts with our customers. Our sales or other personnel may act outside of their authority and negotiate additional terms without our knowledge. We have implemented policies to help prevent and discourage such conduct, but there can be no assurance that such policies will be followed. For instance, in the event that our sales personnel negotiate terms that do not appear in the contract and of which we are unaware, whether such additional terms are written or verbal, we could be prevented from recognizing revenue in accordance with our plans. Furthermore, depending on when we learn of unauthorized actions and the size of the transactions involved, we may have to restate revenue for a previously reported period, which would seriously harm our business, results of operations and financial condition.

We rely on channel partners to execute a portion of our sales; if our channel partners fail to perform, our ability to sell our solution will be limited, and, if we fail to optimize our channel partner model going forward, our results of operations will be harmed. 

A portion of our revenue is generated by sales through our channel partners, especially in international markets. As we grow our business into new and existing international markets, we expect that our reliance on channel partners to generate sales will also grow. We provide our channel partners with specific training and programs to assist them in selling our products, but there can be no assurance that these steps will be effective. In addition, our channel partners may be unsuccessful in marketing, selling and supporting our products. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell our products to customers and, in particular, to large enterprises. These partners may also market, sell, and support products

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and services that are competitive with ours and may devote more resources to the marketing, sales and support of such competitive products. These partners may have incentives to promote our competitors’ products to the detriment of our own or may cease selling our products altogether. Our agreements with our channel partners may generally be terminated for any reason by either party with advance notice prior to each annual renewal date. We may not retain these channel partners and may not be able to secure additional or replacement channel partners. The loss of one or more of our significant channel partners or a decline in the number or size of orders from any of them could harm our results of operations. In addition, any new channel partner requires extensive training and may take several months or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresents the functionality of our products or services to customers or violates laws or our corporate policies. If we fail to effectively manage our existing sales channels, if our channel partners are unsuccessful in fulfilling the orders for our products, or if we are unable to enter into arrangements with, and retain a sufficient number of, high quality channel partners in each of the regions in which we sell products and services and keep them motivated to sell our products, our ability to sell our products and results of operations will be harmed.

If we are unable to maintain successful relationships with our strategic partners, our business operations, financial results and growth prospects could be adversely affected. 

In addition to our direct sales force and channel partners, we maintain strategic relationships with a variety of strategic partners, including systems integrators and big data, cloud application and analytical software vendors, to jointly market and sell our subscription offerings. We expect that sales through our strategic partners will continue to grow as a proportion of our revenue for the foreseeable future. 

Our agreements with our strategic partners are generally non-exclusive, meaning our strategic partners may offer customers the products and services of several different companies, including products and services that compete with ours, or may themselves be or become competitors. If our strategic partners do not effectively market and sell our subscription offerings, choose to use greater efforts to market and sell their own products and services or those of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our subscription offerings may be harmed. Our strategic partners may cease marketing our subscription offerings with limited or no notice and with little or no penalty. The loss of a substantial number of our strategic partners, our possible inability to replace them, or the failure to recruit additional strategic partners could harm our results of operations. 

Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our strategic partners, and in helping our partners enhance their ability to market and sell our subscription offerings. If we are unable to maintain our relationships with these strategic partners, our business, results of operations, financial condition or cash flows could be harmed.

If we are not successful in sustaining and expanding our international business, we may incur additional losses and our revenue growth could be harmed.

Our future results depend, in part, on our ability to sustain and expand our penetration of the international markets in which we currently operate and to expand into additional international markets. We depend on direct sales and our channel partner relationships to sell our subscription offerings and professional services in international markets. Our ability to expand internationally will depend upon our ability to deliver functionality and foreign language translations that reflect the needs of the international clients that we target. Our ability to expand internationally involves various risks, including the need to invest significant resources in such expansion, and the possibility that returns on such investments will not be achieved in the near future or at all in these less familiar competitive environments. We may also choose to conduct our international business through strategic alliances. If we are unable to identify strategic alliance partners or negotiate favorable alliance terms, our international growth may be harmed. In addition, we have incurred and may continue to incur significant expenses in advance of generating material revenue as we attempt to establish our presence in particular international markets. 

Sustaining and expanding our international business will also require significant attention from our management and will require us to add additional management and other resources in these new markets. Our ability to expand our

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business, attract talented employees and enter into channel partnerships in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems, commercial infrastructures and technology infrastructure. If we are unable to grow our international operations in a timely and effective manner, we may incur additional losses and our revenue growth could be harmed.

Our business is substantially dependent on sales leads from digital marketing efforts and if we are unable to generate significant volumes of such leads, traffic to our websites and our revenue may decrease. 

We utilize digital marketing channels, such as paid and free online search, display advertising, email and social media, in order to direct potential customers interested in our solution to our websites and generate sales leads. Many of these potential customers find our websites by searching for data integration solutions through Internet search engines, particularly Google. A critical factor in attracting potential customers to our websites is how prominently our websites are displayed in response to search inquiries. If we are listed less prominently or fail to appear in search result listings for any reason, visits to our websites by customers and potential customers could decline significantly and we may not be able to replace this traffic. Furthermore, if the costs associated with our digital marketing channels increase, we may be required to increase our sales and marketing expenses, which may not be offset by additional revenue, and our business and results of operations could be adversely affected.

If we are not able to maintain and enhance our brand, our business and results of operations may be adversely affected. 

We believe that the brand identities that we have developed have contributed significantly to the success of our business. We also believe that maintaining and enhancing our brands is important to expanding our customer base and attracting talented employees. In order to maintain and enhance our brands, we may be required to make further investments that may not be successful. Maintaining our brands will depend in part on our ability to remain a leader in data integration and management technology and our ability to continue to provide high-quality offerings. If we fail to promote and maintain our brands, or if we incur excessive costs in doing so, our business, financial condition, results of operations and cash flows may be harmed.

Reliance on sales at the end of the quarter could cause our revenue for the applicable period to fall below expected levels. 

As a result of customer buying patterns, we have historically received a substantial portion of subscriptions during the last month or later of each fiscal quarter. If expected sales at the end of any fiscal quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize, our inability to release new products on schedule, any failure of our systems related to order review and processing, or any delays in order fulfillment based on trade compliance requirements, our cash flows and results of operations for that quarter, and our revenue for subsequent periods could fall below our expectations and the estimates of analysts, which could adversely impact our business and results of operations and cause a decline in the market price of the ADSs.

The seasonality of our business can create variance in our quarterly bookings, subscription revenue and cash flows from operations. 

We operate on a December 31 fiscal year end and believe that there are seasonal factors which may cause us to experience lower levels of sales in our first fiscal quarter ending March 31 as compared with other quarters. We believe that this seasonality results from a number of factors, including:

● Companies using their IT budget at the end of the calendar year resulting in higher sales activity in the quarter ending December 31;

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● Sales personnel being compensated on annual plans and finalizing sales transactions in the quarter ending December 31, thereby exhausting most of their sales pipeline for the quarter ending December 31; and

● Recruiting sales personnel primarily in the first and second quarters, which leads to greater sales productivity in the second half of the fiscal year.

Additionally, to the extent we experience lower new customer bookings in earlier quarters, the resulting reduced subscription revenue may not be reflected in our operating results until subsequent quarters. We believe that these seasonal trends have been masked in recent periods due to our growth, but we anticipate that they may be more pronounced in future periods.

Our future quarterly results may fluctuate significantly, which could adversely affect the trading price of our ADSs.

Our results of operations, including the levels of our revenue, cost of revenue, gross margin, operating expenses, cash flow and deferred revenue, have fluctuated from quarter-to-quarter in the past and may continue to vary significantly in the future so that period-to-period comparisons of our results of operations may not be meaningful. Accordingly, our financial results in any one quarter should not be relied upon as indicative of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict, and may or may not fully reflect the underlying performance of our business. Because the timing and amount of our revenue is difficult to forecast and because our operating costs and expenses are relatively fixed in the short term, if our revenue does not meet our expectations, we are unlikely to be able to adjust our spending to levels commensurate with our revenue. As a result, the effect of revenue shortfalls on our results of operations may be more accentuated, and these and other fluctuations in quarterly results may negatively affect the market price of our ADSs.

Factors that may cause fluctuations in our quarterly financial results include, but are not limited to, those listed below:

● Our ability to attract and retain new customers;

● The addition or loss of enterprise customers;

● Our ability to successfully expand our business domestically and internationally;

● Our ability to gain new channel partners and retain existing channel partners;

● Fluctuations in the growth rate of the overall market that our solution addresses;

● Fluctuations in the mix of our revenue;

● The amount of contract revenue that we recognize ratably as the proportion of our business represented by cloud increases;

● The amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including continued investments in sales and marketing, research and development and general and administrative resources;

● Network outages or performance degradation of our cloud service;

● Actual or perceived security breaches and incidents;

● General economic, industry and market conditions;

● Customer renewal rates;

● Increases or decreases in the number of elements of our subscription offerings or pricing changes upon any renewals of customer agreements;

● Changes in our pricing policies or those of our competitors;

● The budgeting cycles and purchasing practices of customers;

● Decisions by potential customers to purchase alternative solutions from larger, more established vendors, including from their primary software vendors;

● Decisions by potential customers to develop in-house solutions as alternatives to our platform;

● Insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our software and services;

● Delays in our ability to fulfill our customers’ orders;

● Seasonal variations in sales of our solution;

● The cost and potential outcomes of future litigation or other disputes;

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● Future accounting pronouncements or changes in our accounting policies;

● Our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments;

● Fluctuations in share-based compensation expense;

● Fluctuations in foreign currency exchange rates;

● The timing and success of new products and service introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners;

● The timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; and

● Other risk factors described in this Quarterly Report.

Our current research and development efforts may not produce successful products or features that result in significant revenue, cost savings or other benefits in the near future, if at all. 

Developing our products and related enhancements is expensive. Our investments in research and development may not result in significant design improvements, marketable products or features, or may result in products that are more expensive than anticipated. Additionally, we may not achieve the cost savings or the anticipated performance improvements we expect, and we may take longer to generate revenue, or generate less revenue, than we anticipate. Our future plans include significant investments in research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not receive significant revenue from these investments in the near future, if at all, or these investments may not yield the expected benefits, either of which could adversely affect our business and results of operations.

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations. 

Our success depends to a significant degree on our ability to protect our proprietary technology, methodologies, know-how and our brand. We rely on a combination of trademarks, copyrights, contractual restrictions and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology and our business may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property rights that we have or may obtain may be challenged by others or invalidated through administrative process or litigation. As of June 30, 2019, we had one issued patent and one pending patent application. If we decide to seek further patent protection in the future, we may be unable to obtain any patent protection for our technology. In addition, our issued patent and any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our products are available. We may be unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information will likely increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. These agreements, however, may not be effective in controlling access

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to and distribution of our proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. 

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation.

We could incur substantial costs as a result of any claim of infringement or other violations by us of another party’s intellectual property rights.

In recent years, there has been significant litigation involving patents, copyrights, trademarks, trade secrets and other intellectual property rights in the software industry. Companies providing software are increasingly bringing and becoming subject to suits alleging violations of proprietary rights, particularly patent infringement, misappropriation or other violations, and to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement, misappropriation or other claims. As of June 30, 2019, we had one issued patent and one pending patent application. As a result, we currently have a limited patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. The risk of patent litigation has been amplified by the increase in the number of a type of patent holder, which we refer to as a non-practicing entity, whose sole business is to assert such claims and against whom our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual property litigation. If we sue to enforce our rights or are sued by a third-party that claims that we or our solution violates its intellectual property rights, the litigation could be expensive and could divert our management resources. Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

● Cease selling or using products that incorporate the intellectual property that we allegedly infringe;

● Make substantial payments for legal fees, settlement payments or other costs or damages;

● Obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or

● Redesign the allegedly infringing products to avoid infringement, which could be costly, time-consuming or impossible.

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement or other claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business.

Our use of open source software could negatively affect our ability to sell our solution and subject us to possible litigation. 

A portion of our technologies incorporate open source software, and we expect to continue to incorporate open source software in our solution in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot assure you that we have not incorporated additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with these licenses, we may

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be subject to certain requirements, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third-party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our solutions that contained the open source software and required to comply with onerous conditions or restrictions on these solutions, which could disrupt the distribution and sale of these solutions. In addition, there have been claims challenging the ownership rights in of open source software against companies that incorporate open source software into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products, and to re-engineer our products or discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis. We and our customers may also be subject to suits by parties claiming infringement due to the reliance by our solutions on certain open source software, and such litigation could be costly for us to defend or subject us to an injunction. Any of the foregoing could require us to devote additional research and development resources to re-engineer our solutions, could result in customer dissatisfaction, and may adversely affect our business, results of operations and financial condition.

We may be the subject of litigation which, if adversely determined, could harm our business and operating results.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages and civil and criminal penalties or injunctions. We are, and may in the future be, subject to legal claims arising in the normal course of business, including patent, copyright, trade secret, commercial, product liability, employment, class action, whistleblower and other litigation and claims. An unfavorable outcome on any litigation matter could require that we pay substantial damages. In addition, we may decide to settle any litigation, which could cause us to incur significant costs.  

The outcome of litigation and other claims or lawsuits is intrinsically uncertain. Management’s view of the litigation might also change in the future. Actual outcomes of litigation and other claims or lawsuits could differ from the assessments made by management in prior periods, which are the basis for our accounting for these litigations and claims under GAAP. A settlement or an unfavorable outcome on any litigation matter could have a material adverse effect on our business, operating results, reputation, financial position or cash flows. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

Our actual or perceived failure to protect personal information adequately could have an adverse effect on our business.

A wide variety of provincial, state, national and international laws and regulations, including the European Union’s General Data Protection Regulation, or GDPR, apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data and other information. These data protection and privacy-related laws and regulations are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny as well as escalating levels of enforcement and sanctions. For example, administrative fines under the GDPR can be as great as 20 million Euros or four percent of annual global turnover, whichever is highest. Any actual or perceived loss, improper retention or misuse of personal data, personal information, or other information or any actual or alleged violations of laws and regulations relating to privacy, data protection or data security, and any relevant claims, could result in regulatory investigations, enforcement actions, private litigation or other proceedings against us, with related consequences potentially including fines, imprisonment of company officials and public censure, consent decrees or other orders that may hamper our ability to conduct business or adapt our business, claims for damages by customers and other affected individuals, damage to our reputation and market position and loss of goodwill (both in relation to existing

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customers and prospective customers), any of which could have an adverse effect on our operations, financial performance and business. Evolving and changing definitions of personal data and personal information, within the European Union, the United States and elsewhere, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Any perception of privacy, data protection, or data security concerns or an inability to comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations, even if unfounded, may result in additional cost and liability to us, harm our reputation and inhibit adoption of our products by current and future customers, and adversely affect our business, financial condition and operating results.

We have implemented and maintain security measures intended to protect personal data and personally identifiable information within our control. However, our security measures, and those of our vendors, remain vulnerable to various threats posed by hackers and criminals as well as employee error, misconduct or inadvertent mistakes. If our security measures, or those of our vendors, are overcome and any personal data or personally identifiable information that we collect or store becomes subject to unauthorized access or acquisition, or loss or misuse, we may be required to comply with costly and burdensome breach notification obligations and may otherwise incur substantial costs in connection with remediating and otherwise responding to any such incident. Additionally, if any security incident occurs or is perceived to have occurred, we may be subject to investigations, enforcement actions and private lawsuits. Any actual or perceived data security incident also is likely to generate negative publicity and have a negative effect on our business. We expect to incur significant costs in an effort to detect and prevent security breaches and other security-related incidents, and we may face increased costs for these matters in the event of an actual or perceived security breach or other security-related incident.

Furthermore, while our insurance policies include liability coverage for certain liabilities that we may incur in connection with any security breach or other security incident, we could be subject to damages or other liabilities that exceed our insurance coverage. Our insurance coverage may not be adequate for liabilities actually incurred, continue to be available to us on economically reasonable terms, or at all, and any insurer might deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

In connection with the operation of our business, we collect, store, transfer and otherwise process certain personal data and personally identifiable information. As a result, our business is subject to a variety of federal, state, foreign government and industry regulations, as well as self-regulation, related to privacy, data security and data protection. 

Privacy, data protection and security have become significant issues in the United States, Europe and in other jurisdictions where we offer our products. The regulatory frameworks for privacy, data protection and information security issues worldwide are rapidly evolving and are likely to remain uncertain for the foreseeable future. Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt, new laws and regulations or may make amendments to existing laws and regulations affecting data protection, data privacy and/or security. Industry organizations also regularly adopt and advocate for new standards in these areas. If we fail to comply with any of these laws or standards, we may be subject to investigations, enforcement actions, civil litigation, fines and other penalties, all of which may generate negative publicity and have a negative impact on our business. 

In the United States, we may be subject to investigation and/or enforcement actions brought by federal agencies and state attorneys general and consumer protection agencies. We publicly post notices and other documentation regarding our practices concerning the processing, use and disclosure of personally identifiable information and other data. Although we endeavor to comply with our published notices and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy notices and other documentation that provide promises and assurances about privacy, data protection, and data security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices. 

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Additionally, on June 28, 2018, California enacted the California Consumer Privacy Act, or CCPA, that will, among other things, require covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, and other information, when it goes into effect on January 1, 2020. The CCPA was amended on September 23, 2018, and it remains unclear whether any further modifications will be made to this legislation or how it will be interpreted. We cannot yet predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

Internationally, virtually every jurisdiction in which we operate has established its own data security, privacy and data protection legal frameworks with which we or our customers must comply. In the European Union, the GDPR replaced prior European Union data protection law as of May 25, 2018. The GDPR imposes additional obligations and risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can be as great as 20 million Euros or four percent of annual global turnover, whichever is highest. We have incurred substantial expense in complying with the obligations imposed by the GDPR and we may be required to make significant changes in our business operations in connection with compliance with the GDPR, all of which may adversely affect our revenue and our business overall. Additionally, because the GDPR contains a number of obligations that differ from previously-effective data protection legislation in the European Union, and because the GDPR’s enforcement history is limited, we are unable to predict how certain obligations under the GDPR may be applied to us. Despite our efforts to attempt to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company.

Among other requirements, the GDPR regulates transfers of personal data outside of the European Economic Area or EEA, to third countries that have not been found to provide adequate protection to such personal data, including the United States. We have undertaken certain efforts to conform transfers of personal data from the EEA to the United States and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities, including the use of standard contractual clauses approved by the European Commission. Despite this, we may be unsuccessful in transferring such data from the EEA in a manner that conforms to data protection requirements in the EEA, in particular as a result of continued legal and legislative activity within the European Union that has challenged or called into question multiple means of data transfers to countries that have not been found to provide adequate protection for personal data.

Further, in June 2016, the United Kingdom voted to leave the European Union, commonly referred to as “Brexit,” with a current planned exit date of October 2019. Brexit may lead to further legislative and regulatory changes. The UK Data Protection Act that substantially implements the GDPR became law in May 2018. It remains unclear, however, how United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated.

Owing to this regulatory environment and sentiment regarding international data transfers, we may also experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our platform. We may find it necessary or appropriate to establish systems to maintain personal data originating from certain countries or regions within those regions. This may involve substantial expense and may cause us to need to divert resources from other aspects of our business, all of which may adversely affect our business.

In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may legally or contractually apply to us. One example of such a self-regulatory standard is the Payment Card Industry Data Security Standard, or PCI DSS, which relates to the processing of payment card information. In the event we fail to comply with the PCI DSS, fines and other penalties could result, and we may suffer reputational harm and damage to our business. We may also be bound by and agree to contractual obligations to comply with other obligations relating to privacy, data protection or data security, such as particular standards for information security measures. Further, we expect that there will continue to be changes in interpretations of existing laws and

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regulations, or new proposed laws and regulations concerning privacy, data protection and information security. We cannot yet determine the impact these laws and regulations or changed interpretations may have on our business, but we anticipate that they could impair our or our customers’ ability to collect, use or disclose information relating to consumers, which could decrease demand for our platform, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.

Because the interpretation and application of many laws and regulations relating to privacy, data protection and information security, along with mandatory industry standards, are uncertain, it is possible that these laws, regulations and standards, or contractual obligations to which we are or may become subject, may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products, and we could face fines, lawsuits and other claims and penalties, and we could find it necessary or appropriate to fundamentally change our products, or our practices, which could have an adverse effect on our business. Any actual or perceived inability to adequately address privacy, data protection and data security concerns, even if unfounded, or comply with applicable privacy, data protection and data security laws, regulations, policies or other obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy, data protection and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries. If we are not able to adjust to changing laws, regulations and standards in these areas, our business may be harmed.

We are subject to governmental export and import controls and economic sanctions that could impair our ability to compete in international markets or subject us to liability if we violate these controls.

Our business activities are subject to U.S. export controls, specifically the Export Administration Regulations, and economic sanctions enforced by the Office of Foreign Assets Control. Because our products use encryption, certain of our products are subject to U.S. export controls and may be exported from the United States only with the required export license or through an export license exception. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments and persons targeted by U.S. sanctions. The inclusion of one of our foreign customers on any U.S. Government sanctioned persons list, including but not limited to the U.S. Department of Commerce’s List of Denied Persons and the U.S. Department of Treasury’s List of Specially Designated Nationals and Blocked Persons List, may also be material to our business. We take precautions to prevent our products and services from being exported in violation of these laws and, we have advised our channel partners and distributors that they must also comply with the laws when working with the Company.

Any failure to comply with the U.S. export requirements, U.S. customs regulations, U.S. economic sanctions, or other laws could result in the imposition of penalties against the Company or individuals responsible for any such violations. The penalties may include substantial civil and criminal fines, incarceration for responsible employees and managers, the possible loss of export or import privileges and reputational harm. 

In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our products by, or our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect our business, financial condition and results of operations.

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Our international operations and expansion expose us to several risks.

During the years ended December 31, 2017 and 2018 and the six months ended June 30, 2019, total revenue generated outside of France and the Americas was 38.2%, 41.2% and 42.3% of our total revenue, respectively. Our primary research and development operations are located in France, China and Germany. In addition, we currently have international offices outside of France, China, Germany and the United States, which focus primarily on selling and implementing our solution in those regions. In the future, we may expand to other international locations. Our current international operations and future initiatives will involve a variety of risks, including:

● Unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;

● Government trade restrictions, including those which may impose restrictions, including prohibitions, on the exportation, re-exportation, sale, shipment or other transfer of programming, technology, components and/or services to foreign persons;

● Changes in diplomatic and trade relationships, including new tariffs, trade protections measures, import or export licensing requirements, trade embargoes and other trade barriers;

● Tariffs imposed by the U.S. government on goods from other countries and tariffs imposed by other countries on U.S. goods, including the tariffs implemented and additional tariffs that have been proposed by the U.S. government on various imports from China, Canada, Mexico and the E.U. and by the governments of these jurisdictions on certain U.S. goods, and any other possible tariffs that may be imposed on services such as ours, the scope and duration of which, if implemented, remains uncertain;

● Different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

● Exposure to many onerous and potentially inconsistent privacy, data protection and data security laws and regulations, particularly in the European Union;

● Changes in a specific country’s or region’s political or economic conditions;

● Deterioration of political relations between the U.S. and France, the United Kingdom, Germany and Japan, which could have a material adverse effect on our sales and operations in these countries;

● Challenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

● Risks resulting from changes in currency exchange rates and the implementation of exchange controls, including restrictions promulgated by the Office of Foreign Assets Control of the U.S. Department of the Treasury and other similar trade protection regulations and measures in the United States or in other jurisdictions;

● Reduced ability to timely collect amounts owed to us by our clients in countries where our recourse may be more limited;

● Limitations on our ability to reinvest earnings from operations derived from one country to fund the capital needs of our operations in other countries;

● Limited or unfavorable intellectual property protection;

● Exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and similar applicable laws and regulations in other jurisdictions; and

● Restrictions on repatriation of earnings.

Furthermore, weak domestic or global economic conditions, fear or anticipation of such conditions, or uncertainty how the U.S. or foreign governments will act with respect to tariffs, international trade agreements and policies, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including lower prices for our products, reduced sales and lower or no growth. For example, the global macroeconomic environment could be negatively affected by, among other things, instability in global economic markets resulting from increased U.S. trade tariffs and trade disputes between the U.S. and other countries, instability in the global credit markets, the impact and uncertainty regarding global central bank monetary policy, rising interest rates and increased inflation, including the recent rise in U.S. interest rates, the instability in the geopolitical environment as a result of the

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United Kingdom “Brexit” decision to withdraw from the European Union, economic challenges in China and ongoing U.S. and foreign governmental debt concerns. Such challenges have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets, particularly if any future sovereign debt defaults or significant bank failures or defaults occur. Market uncertainty and instability in Europe or Asia could intensify or spread further, particularly if ongoing stabilization efforts prove insufficient. Continuing or worsening economic instability could adversely affect sales of our products. Continued turmoil in the geopolitical environment in many parts of the world may also affect the overall demand for our products. A prolonged period of economic uncertainty or a downturn may also significantly affect financing markets, the availability of capital and the terms and conditions of financing arrangements, including the overall cost of financing. Circumstances may arise in which we need, or desire, to raise additional capital, and such capital may not be available on commercially reasonable terms, or at all.

We have limited experience in marketing, selling and supporting our solution outside of France, the United Kingdom, the United States, Germany and Japan. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and results of operations will suffer. 

Additionally, operating in international markets also requires significant management attention and financial resources. The investment and additional resources required in establishing operations in other countries may not produce desired levels of revenue or profitability.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

A portion of our subscription agreements and operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro. The strengthening of the U.S. dollar increases the real cost of our products to our customers outside of the United States, leading to delays in the purchase of our products and the lengthening of our sales cycle. If the U.S. dollar continues to strengthen, this could adversely affect our financial condition and results of operations. In addition, increased international sales in the future, including through our channel partners and other partnerships, may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations.

Exposure to United Kingdom political developments, including the outcome of the United Kingdom referendum on membership in the European Union, could have a material adverse effect on us.

On June 23, 2016, a referendum was held on the United Kingdom’s membership in the European Union, the outcome of which was a vote in favor of leaving the European Union. The United Kingdom’s vote to leave the European Union creates an uncertain political and economic environment in the United Kingdom and potentially across other European Union member states, for the foreseeable future, including during any period while the terms of any UK exit from the European Union are being negotiated.

Article 50 of the Treaty of the European Union, or Article 50, allows a member state to decide to withdraw from the European Union in accordance with its own constitutional requirements. On March 29, 2017, the UK government delivered the Article 50 notice to the European Council. This started a period of up to two years of negotiations for the United Kingdom to exit from the European Union, although this period can be extended with the unanimous agreement of the European Council. Although the withdrawal of the UK from the EU was scheduled to take effect on March 29,

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2019, the withdrawal agreement was extended until April 12, 2019, and further extended until October 31, 2019. Without any further extension (and assuming that the terms of withdrawal have not already been agreed), the United Kingdom’s membership in the European Union would end automatically on October 31, 2019.

The delivery of the Article 50 notice means that the long-term nature of the United Kingdom’s relationship with the European Union is unclear and that there is considerable uncertainty as to when any such relationship will be agreed and implemented. In the interim, there is a risk of instability for both the United Kingdom and the European Union, as well as globally, which could adversely affect our results, financial condition and prospects. 

There is also a risk of the United Kingdom’s exit from the European Union being affected without mutually acceptable terms being agreed and that any terms of such exit could adversely affect our operating results, financial condition and prospects. 

The political and economic instability created by the United Kingdom’s vote to leave the European Union has caused and may continue to cause significant volatility in global financial markets and the value of the Pound Sterling currency or other currencies, including the Euro. We are exposed to the economic, market and fiscal conditions in the United Kingdom and the European Union and to changes in any of these conditions. Current political and economic conditions in Europe may negatively impact revenue growth in our Europe, Middle East and Africa region. Depending on the terms reached regarding any exit from the European Union, it is possible that there may be adverse practical and/or operational implications on our business. 

A significant amount of the regulatory regime that applies to us in the United Kingdom is derived from European Union directives and regulations. For so long as the United Kingdom remains a member of the European Union, those sources of legislation will (unless otherwise repealed or amended) remain in effect. However, the United Kingdom exit may change the legal and regulatory framework within which we operate in the United Kingdom. For example, the outcome of the referendum has created uncertainty with regard to the regulation of data protection in the United Kingdom. The GDPR became fully effective on May 25, 2018. Additionally, the United Kingdom implemented a Data Protection Act, effective May 25, 2018, that substantially implemented the GDPR. Given the timelines set out above, the GDPR has become applicable to the United Kingdom prior to the United Kingdom ceasing to be a member of the European Union. However, it is unclear how data protection in the United Kingdom will be regulated in the medium term, and how data transfers to and from the United Kingdom will be regulated after the United Kingdom ceases to be a member of the European Union. 

Consequently, no assurance can be given as to the impact of the referendum outcome and, in particular, no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.

Because we conduct substantial operations in China, risks associated with economic, political and social events in China could negatively affect our business and results of operations.

We operate a research and development center in Beijing, China and may plan to continue to increase our presence in China. Our operations in China are subject to a number of risks relating to China’s economic and political systems, including:

● A government-controlled foreign exchange rate and limitations on the convertibility of the Chinese Renminbi;

● Uncertainty regarding the validity, enforceability and scope of protection for intellectual property rights and the practical difficulties of enforcing such rights;

● Ability to secure our business proprietary information located in China from unauthorized acquisition;

● Extensive government regulation;

● Changing governmental policies relating to tax benefits available to foreign-owned businesses;

● A relatively uncertain legal system; and

● Instability related to continued economic, political and social reform.

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Any actions and policies adopted by the government of the People’s Republic of China, particularly with regard to intellectual property rights, or any prolonged slowdown in China’s economy, could have an adverse effect on our business, results of operations and financial condition.

Further, at various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversy between the United States and China could adversely affect the U.S. and French economies and materially and adversely affect the market price of our ADSs, our business, financial position and financial performance.

Our business could be negatively impacted by changes in the United States political environment.

There is significant ongoing uncertainty with respect to potential legislation, regulation and government policy at the federal level, as well as the state and local levels in the United States. Any such changes could significantly impact our business as well as the markets in which we compete. Specific legislative and regulatory proposals discussed during election campaigns and more recently that might materially impact us include, but are not limited to, changes to import and export regulations, income tax regulations and the U.S. federal tax code and public company reporting requirements. To the extent changes in the political environment have a negative impact on us or on our markets, our business, results of operation and financial condition could be materially and adversely impacted in the future.

Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, and similar laws associated with our activities outside of the United States could subject us to penalties and other adverse consequences.

We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act of 2010 and possibly other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. We face significant risks if we fail to comply with the FCPA and other anti-corruption and anti-bribery laws that prohibit companies and their employees and third-party intermediaries from authorizing, promising, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties or candidates, employees of public international organizations and private-sector recipients for a corrupt purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. In addition, we use various third-party intermediaries to sell our solutions and conduct our business abroad. We, our channel partners, and our other third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities. Although we continue to implement our FCPA/anti-corruption compliance program, some of our employees and agents, as well as those companies to which we outsource certain of our business operations, may nevertheless take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

Any violation of the FCPA, other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, business, results of operations and prospects. In addition, responding to any enforcement action may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements for products like ours may change, thereby

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restricting our ability to sell into the U.S. federal government, U.S. state government, or foreign government sectors until we have attained the revised certification. Government demand and payment for our subscription offerings and professional services may be affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our subscription offerings and professional services.

Governmental entities often require contract terms that differ from our standard arrangements, including terms that can lead to those customers obtaining broader rights in our products than would be standard. Government entities may have statutory, contractual, or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely affect our future results of operations. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our subscription offerings, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely affect our results of operations in a material way.

We are exposed to the credit risk of some of our distributors, resellers and customers and to credit exposure in weakened markets, which could result in material losses.

We have programs in place that are designed to monitor and mitigate credit risks of some of our distributors, resellers and customers, and our credit exposure in weakened markets. However, these programs may not be effective in reducing our credit risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our business, results of operations and financial condition could be harmed.

Unanticipated changes in effective tax rates, adverse outcomes resulting from examination of our income or other tax returns, and other aspects of our international operations and structure could expose us to greater than anticipated tax liabilities.

We are subject to income taxes in France, the United States and other jurisdictions, and our income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop, value and use our intellectual property and the valuations of our intercompany transactions. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities, and changes in federal, state, or international tax laws and accounting principles. The tax laws applicable to our business are subject to interpretation and certain jurisdictions may aggressively interpret their laws in an effort to raise additional tax revenue. It is not uncommon for taxing authorities in different countries to have conflicting views with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, the valuation of intellectual property, or the tax treatment of SaaS-based companies, which could increase our worldwide effective tax rate and harm our financial position and results of operations. It is possible that tax authorities may disagree with certain positions we have taken or may determine that the manner in which we operate our business does not achieve our intended tax consequences and any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. Further, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our condensed consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.

On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act, was enacted and significantly changed U.S. federal tax law. It includes several key tax provisions, including a reduction of the U.S. federal statutory tax rate to 21%, limitations on the use of net operating loss carryforwards and changes to the treatment of certain tax deductions which may affect our tax obligations in the future. If we attain profitability, these changes may materially impact the value and usability of our deferred tax assets and liabilities, which may impact our results of operations.

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Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our financial results. 

The various jurisdictions in which we have sales and operations have different rules and regulations governing sales and use, value added, and similar taxes, and these rules and regulations are subject to varying interpretations that change over time. Certain jurisdictions in which we did not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Any tax assessments, penalties and interest, or future requirements may adversely affect our results of operations. Moreover, imposition of such taxes on us going forward will effectively increase the cost of our products to our customers and might adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.

Our ability to use our accumulated gross tax losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2018, we had accumulated gross tax losses in various jurisdictions of $229.9 million, which may be utilized against future income taxes. Limitations imposed by the applicable jurisdictions on our ability to utilize accumulated gross tax losses could cause income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such accumulated gross tax losses to expire unused, in each case reducing or eliminating the benefit of such accumulated gross tax losses. Furthermore, we may not be able to generate sufficient taxable income to utilize our accumulated gross tax losses before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our accumulated gross tax losses.

Our failure to maintain certain tax benefits applicable to French technology companies may adversely affect our results of operations.

As a French technology company, we have benefited from certain tax advantages, including, for example, the French research tax credit (crédit d’impôt recherche), or CIR. The CIR is a French tax credit aimed at stimulating research and development. The CIR can be offset against French corporate income tax due and the portion in excess (if any) may be refunded at the end of a three fiscal-year period, subject to certain conditions. The CIR is reflected as an offset to our research and development expense. It is calculated based on our claimed amount of eligible research and development expenditures in France and represented $0.6 million for 2017, and $0.5 million for 2018. The French tax authority with the assistance of the Research and Technology Ministry may audit each research and development program in respect of which a CIR benefit has been claimed and assess whether such program qualifies in their view for the CIR benefit, in accordance with the French tax code (Code général des impôts) and the relevant official guidelines. If the French tax authority determines that our research and development programs do not meet the requirements for the CIR benefit, or that certain CIR rules were inconsistently applied, we could be liable for additional corporate tax, and penalties and interest related thereto, which could have a significant impact on our results of operations and future cash flows. Furthermore, if the French Parliament decides to eliminate, or reduce the scope or the rate of, the CIR benefit, either of which it could decide to do at any time, our results of operations could be adversely affected.

Prolonged economic uncertainties or downturns could harm our business.

Current or future economic downturns, fear or anticipation of such conditions, or uncertainty how the U.S. or foreign governments will act with respect to tariffs, international trade agreements and policies, could harm our business and results of operations, cause a decrease in corporate spending on enterprise software in general and slow down the rate of growth of our business. Macroeconomic conditions and uncertainty in Europe may result in slower revenue growth in our Europe, Middle East and Africa region. The U.S. and global macroeconomic environment could be negatively affected by, among other things, financial and credit market fluctuations, the impact and uncertainty regarding global central bank monetary policy, rising interest rates and increased inflation, changes in international trade relationships and trade disputes between the U.S. and other countries, instability in the geopolitical environment as a result of the United Kingdom “Brexit” decision to withdraw from the European Union, economic challenges in China, and terrorist attacks in the United States, Europe or elsewhere. A prolonged period of economic uncertainty or a

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downturn may also significantly affect financing markets, the availability of capital and the terms and conditions of financing arrangements, including the overall cost of financing. Circumstances may arise in which we need, or desire, to raise additional capital, and such capital may not be available on commercially reasonable terms, or at all. 

General worldwide economic conditions have experienced, and in the future may experience, a significant downturn. These conditions make it extremely difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers to reevaluate their decision to purchase our products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could impair their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts, which would harm our results of operations. We have a significant number of customers in the financial services, technology, telecommunications, healthcare, manufacturing and retail industries. A substantial downturn in any of these industries may cause firms to react to worsening conditions by reducing their capital expenditures in general or by specifically reducing their spending on information technology. Customers in these industries may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. To the extent purchases of our offerings are perceived by customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, subscription customers may choose to develop or utilize in-house support capabilities as an alternative to purchasing our subscription offerings. Moreover, competitors may respond to market conditions by lowering prices of subscription offerings. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our subscription offerings. 

We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or industries in which we operate worsen from present levels, our business, results of operations, financial condition and cash flows could be harmed.

Catastrophic events, or man-made problems such as terrorism, may disrupt our business.

A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, results of operations and financial condition. Our functional corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. In the event our or our channel providers abilities are hindered by any of the events discussed above, sales could be delayed, resulting in missed financial targets, such as revenue, for a particular quarter. In addition, acts of terrorism and other geopolitical unrest could cause disruptions in our business or the business of our channel partners, customers or the economy as a whole. Any disruption in the business of our channel partners or customers that affects sales at the end of a fiscal quarter could have a significant adverse impact on our future quarterly results. All of the aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, or the delay in the deployment of our products, our business, financial condition and results of operations would be adversely affected.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the trading price of the ADSs.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of the ADSs. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition (including allocation of the transaction price to separate performance obligations), the amortization period for contract acquisition costs, fair

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value of acquired intangible assets, goodwill impairment test and measurement of share-based compensation. As of January 1, 2019, we are no longer a foreign private issuer and therefore have prepared the financial statements in this Quarterly Report in conformity with GAAP.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

As of January 1, 2019, we are no longer a foreign private issuer and therefore have begun preparing our financial statements in conformity with GAAP. GAAP is subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change. For example, the adoption of ASC 842 in 2019, as discussed in Note 1 to our accompanying consolidated financial statements, has had and continues to have a significant impact on our consolidated statement of financial position. Further, the interpretation of these new standards may continue to evolve as other public companies adopt the new guidance and the standard setters issue new interpretative guidance related to these rules. New accounting pronouncements, changes in accounting principles, and changes in the interpretation of these rules have occurred in the past and are expected to occur in the future, which could adversely affect our financial results. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

Risks Related to Ownership of Our Ordinary Shares and ADSs

The market price for our ADSs has been and may be volatile or may decline.

The stock markets, and securities of technology companies in particular, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business. Furthermore, the market price of our ADSs has fluctuated and may continue to fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

● Actual or anticipated fluctuations in our revenue and other results of operations;

● The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

● Failure of securities analysts to initiate or maintain coverage of us and our securities, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

● Announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

● Changes in operating performance and stock market valuations of subscription model companies or other technology companies, or those in our industry in particular;

● Lawsuits threatened or filed against us; and

● Other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

Substantial future sales or perceived potential sales of our ADSs, ordinary shares, or other securities in the public market could cause the price of our ADSs to decline significantly. 

Sales of our ADSs, ordinary shares, or other equity securities in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. 

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In addition, holders of up to 2,112,895 shares of our ordinary shares and ADSs, or 7.0% of our total ordinary shares and ADSs, based on ordinary shares and ADSs outstanding as of June 30, 2019, are entitled to rights with respect to registration of our ordinary shares pursuant to a shareholder agreement. If these holders of our ordinary shares, by exercising their registration rights, sell a large number of ADSs, they could adversely affect the market price for our ADSs. Furthermore, if we file a registration statement for the purposes of selling additional ADSs to raise capital and are required to include ADSs held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired. 

We may issue ordinary shares or securities convertible into our ordinary shares from time to time in connection with a financing, acquisition, investment or otherwise. Any such issuance could result in substantial dilution to our existing holders and could cause the market price of our ADSs to decline significantly.

If securities analysts do not publish research or reports about our business, or if they publish negative reports about our business, the price of the ADSs could decline. 

The trading market for the ADSs, to some extent, depends on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of the ADSs, industry sector, or products, the market price for the ADSs would likely decline. If one or more of these analysts should cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our ADSs or trading volume to decline.

The loss of our foreign private issuer status and emerging growth company status and the requirements of being a public company in the United States may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members. 

As of January 1, 2019, we are no longer a foreign private issuer. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer will be higher than the costs we incurred as a foreign private issuer. As of January 1, 2019, we are required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We are required under current SEC rules to prepare our financial statements in accordance with GAAP, rather than IFRS, and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial statements to GAAP has and will continue to involve significant time and cost. In addition, we are no longer able to rely upon exemptions from certain corporate governance requirements of the NASDAQ Stock Market, or NASDAQ, that are available to foreign private issuers and are subject to the procedural requirements related to the solicitation of proxies consents and authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. Our officers and directors are also subject to the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities.

We also no longer qualified as an “emerging growth company” as defined in the JOBS Act as of December 31, 2018, because we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates. We are required to comply with the applicable provisions of Section 404 of the Sarbanes-Oxley Act, which requires that we implement additional corporate governance practices and comply with reporting requirements, such as requiring our independent auditors to attest to, and report on, management’s assessment of its internal controls. Losing our emerging growth company status also required us to hold a say-on-pay vote and a say-on-frequency vote at our 2019 annual meeting of shareholders. We anticipate holding a say-on-pay vote annually and will be required to hold a say-on-frequency vote no later than our 2025 annual meeting of shareholders. As a result, we expect that our loss of our foreign private issuer status and “emerging growth company” status will require additional attention from management and may further strain our resources and cause us to incur additional legal, accounting and other expenses.

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Additionally, as a public company in the United States, we have incurred and will continue to incur legal, accounting and other expenses that we did not previously incur. We are subject to the Exchange Act, including certain of the reporting requirements thereunder, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NASDAQ, enhanced legal and regulatory regimes and heightened standards relating to corporate governance and disclosure for public companies, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources. Being a public company in the United States and a French private company also has an impact on disclosure of information and require compliance with two sets of applicable rules. This could result in uncertainty regarding compliance matters and higher costs necessitated by legal analysis of dual legal regimes, ongoing revisions to disclosure and adherence to heightened governance practices.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of the ADSs may, therefore, be adversely affected.

As a public company in the United States, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, we are required to provide a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. This process is time-consuming, costly and complicated. In addition, our independent registered public accounting firm is required to attest to the effectiveness of our internal controls over financial reporting. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated, the market price of the ADSs could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Share ownership is concentrated in the hands of our principal shareholders and management, who are able to exercise a direct or indirect controlling influence on us.

 Our executive officers, directors, current five percent or greater shareholders and affiliated entities together beneficially own a significant percentage of our ordinary shares and ADSs outstanding as of June 30, 2019. As a result, these shareholders, acting together, have significant influence over all matters that require approval by our shareholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other shareholders may view as beneficial.

 We have entered into a shareholder agreement, or the Shareholder Agreement, with entities affiliated with Balderton Capital, Bpifrance Investissement, Galileo Partners, Idinvest Partners and Silver Lake Sumeru, which we refer to herein as our Major Shareholders. The Shareholder Agreement contains specific rights, obligations and agreements of these parties as holders of our ordinary shares or equity securities representing our ordinary shares (including the ADSs).

In addition, the Shareholder Agreement contains provisions related to the composition of our board of directors. Pursuant to the Shareholder Agreement, entities affiliated with Bpifrance Investissement are entitled to nominate one member of our board of directors. The current director nominated by affiliates of Bpifrance Investissement under the Shareholder Agreement is Thierry Sommelet. As a result, based on their ownership of our voting power and the approval rights in the Shareholder Agreement, our Major Shareholders currently have the ability to elect one of the nine members of our board of directors, and thereby to influence our management and affairs.

Holders of our ADSs do not directly hold our ordinary shares.

As an ADS holder, you are not treated as one of our shareholders and you do not have ordinary shareholder rights. French law governs shareholder rights. The depositary, JPMorgan Chase Bank, N.A., is the holder of the ordinary shares underlying your ADSs. As a holder of ADSs, you have ADS holder rights. The deposit agreement among us, the

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depositary and you, as an ADS holder, and all other persons directly and indirectly holding ADSs, sets out ADS holder rights, as well as the rights and obligations of the depositary.

You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement and not as a direct shareholder. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us and (2) a statement as to the manner in which instructions may be given by the holders.

You may instruct the depositary to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself. If the depositary does not receive timely voting instructions from you, it may give a proxy to a person designated by us to vote the ordinary shares underlying your ADSs in accordance with the recommendation of our board of directors. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

You may be subject to limitations on the transfer of your ADSs and the withdrawal of the underlying ordinary shares. 

Your ADSs, which may be evidenced by American Depositary Receipts, or ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason subject to your right to cancel your ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. For example, if changes are made to tax laws, our securities may then be subject to French or other applicable taxes.

Risks Related to Investing in a French Company

Our By-laws and French corporate law contain provisions that may delay or discourage a takeover attempt.

Provisions contained in our By-laws, and the corporate laws of France, the country in which we are incorporated, could make it more difficult for a third-party to acquire us, even if doing so might be beneficial to our shareholders. In addition, provisions of French law and our By-laws impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These provisions include the following:

● Provisions of French law allowing the owner of 95% of the share capital or voting rights of a public company to force out the minority shareholders following a tender offer made to all shareholders are only applicable to

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companies listed on the main French stock exchange and will therefore not be applicable to us unless we dual-list in France;

● A merger (i.e., in a French law context, a stock-for-stock exchange after which our company would be dissolved without being liquidated into the acquiring entity and our shareholders would become shareholders of the acquiring entity) of our company into a company incorporated in the European Union would require the approval of our board of directors as well as a two-thirds majority of the votes held by the shareholders present, represented by proxy or voting by mail at the relevant meeting;

● A merger of our company into a company incorporated outside of the European Union would require the unanimous approval of our shareholders;

● Under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;

● Our shareholders have granted and may grant in the future our board of directors broad authorizations to increase our share capital or to issue additional ordinary shares or other securities (for example, warrants) to our shareholders, the public or qualified investors, including as a possible defense following the launching of a tender offer for our shares;

● Our shareholders have preferential subscription rights proportional to their shareholding in our company on the issuance by us of any additional shares or securities giving the right, immediately or in the future, to new shares for cash or a set-off of cash debts, which rights may only be waived by the extraordinary general meeting (by a two-thirds majority vote) of our shareholders or on an individual basis by each shareholder;

● Our board of directors has the right to appoint directors to fill a vacancy created by the resignation or death of a director, subject to the approval by the shareholders of such appointment at the next shareholders’ meeting, which prevents shareholders from having the sole right to fill vacancies on our board of directors;

● Our board of directors can only be convened by its chairman or, when no board meeting has been held for more than two consecutive months, by directors representing at least one-third of the total number of directors;

● Our board of directors meetings can only be regularly held if at least half of the directors attend either physically or by way of videoconference or teleconference enabling the directors’ identification and ensuring their effective participation in the board of directors’ decisions;

● Under French law, a non-French resident as well as any French entity controlled by non-French residents may have to file a declaration for statistical purposes with the Bank of France (Banque de France) following the date of certain direct or indirect investments in us;

● Approval of at least a majority of the votes held by shareholders present, represented by a proxy, or voting by mail at the relevant ordinary shareholders’ general meeting is required to remove directors with or without cause;

● Advance notice is required for nominations to the board of directors or for proposing matters to be acted upon at a shareholders’ meeting, except that a vote to remove and replace a director can be proposed at any shareholders’ meeting without notice;

● Pursuant to French law, our By-laws, including the sections relating to the number of directors and election and removal of a director from office, may only be modified by a resolution adopted by a two-thirds majority vote of our shareholders present, represented by a proxy or voting by mail at the meeting; and

● Our shares take the form of bearer securities or registered securities, if applicable legislation so permits, according to the shareholder’s choice. Issued shares are registered in individual accounts opened by us or any authorized intermediary (depending on the form of such shares), in the name of each shareholder and kept according to the terms and conditions laid down by the legal and regulatory provisions.

Your right as a holder of ADSs to participate in any future preferential subscription rights or to elect to receive dividends in shares may be limited, which may cause dilution to your holdings.

According to French law, if we issue additional shares or securities for cash giving right, immediately or in the future, to new shares, current shareholders will have preferential subscription rights for these securities proportionally to their shareholding in our company unless they waive those rights at an extraordinary meeting of our shareholders (by a two-thirds majority vote) or individually by each shareholder. However, our ADS holders in the United States will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement

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provides that the depositary will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive dividends in shares and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

U.S. investors may have difficulty enforcing civil liabilities against our company and directors and the experts named in our annual report. 

Certain members of our board of directors and certain of our subsidiaries and certain experts named in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 28, 2019, are non-residents of the United States, and all of or a substantial portion of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States.

Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. In particular, there is some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered but is intended to punish the defendant. French law provides that a shareholder, or a group of shareholders, may initiate a legal action to seek indemnification from the directors of a corporation in the corporation’s interest if it fails to bring such legal action itself. If so, any damages awarded by the court are paid to the corporation and any legal fees relating to such action are borne by the relevant shareholder or the group of shareholders.

The enforceability of any judgment in France will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and France do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters.

We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment depends on appreciation in the price of the ADSs. In addition, French law and certain negative covenants may limit the amount of dividends we are able to distribute.

We have never declared or paid any cash dividends on our ordinary shares and do not currently intend to do so for the foreseeable future. In addition, certain negative covenants contained in our Loan Agreement restrict, and any future indebtedness may restrict, our ability to pay dividends. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs for the foreseeable future and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even

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maintain the price at which our shareholders have purchased the ADSs. Investors seeking cash dividends should not purchase the ADSs.

 Further, under French law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared and presented in accordance with French generally accepted accounting principles. In addition, payment of dividends may subject us to additional taxes under French law. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France. 

In addition, exchange rate fluctuations may affect the amount of Euros that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon the payment of cash dividends or other distributions we declare and pay in Euros, if any. These factors could harm the value of the ADSs, and, in turn, the U.S. dollar proceeds that holders receive from the sale of the ADSs.

U.S. holders of ADSs may suffer adverse tax consequences if we are characterized as a passive foreign investment company. 

A non-U.S. corporation will be considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income. Based on the value and composition of our assets, although not free from doubt, we do not believe we were a PFIC for the taxable year ended December 31, 2018, and we do not believe we are a PFIC in the current taxable year or the foreseeable future. Because a separate factual determination as to whether we are or have become a PFIC must be made each year (after the close of such year), we could be or become a PFIC in the current year or any future taxable year. If we are a PFIC for any taxable year during which a U.S. holder holds ADSs, the U.S. holder may be subject to adverse tax consequences, including (1) the treatment of all or a portion of any gain on disposition as ordinary income, (2) the application of an interest charge with respect to such gain and certain dividends and (3) compliance with certain reporting requirements. Each U.S. holder is strongly urged to consult its tax advisor regarding the application of these rules and the availability of any potential elections.

If a United States person is treated as owning at least 10% of our ADSs, such person may be subject to adverse U.S. federal income tax consequences.

If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ADSs, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. Failure to comply with such reporting requirements could result in adverse tax effects for United States shareholders and potentially significant monetary penalties. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply with the aforementioned obligations. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ADSs.

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The rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States. 

We are a French company with limited liability. Our corporate affairs are governed by our By-laws and by the laws governing companies incorporated in France. The rights of shareholders and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. For example, in the performance of its duties, our board is required by French law to consider the interests of our company, its shareholders, its employees and other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit
Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
3.1	Bylaws (statuts) of Talend S.A. (English translation), dated as of August 2, 2019	8-K	001-37825	3.1	August 8, 2019
10.1	Autonomous First-Demand Guarantee Agreement, dated April 12, 2019, by and between Talend S.A. and Pacific Western Bank					X
10.2	Pledge of Receivables Agreement, dated April 12, 2019, by and between Talend S.A. and Pacific Western Bank					X
10.3	Pledge of IP Rights Agreement, dated April 12, 2019, by and between Talend S.A. and Pacific Western Bank					X
10.4	First Rank Accounts Pledge Agreement, dated April 12, 2019, by and between Talend S.A. and Pacific Western Bank					X
10.5	Pledge Agreement, dated April 12, 2019, by and between Talend S.A. and Pacific Western Bank					X
10.6	Supplemental Agreement, dated April 12, 2019, by and between Talend S.A. and Pacific Western Bank					X
10.7	Guarantee and Indemnity Agreement, dated April 12, 2019, by and between Talend Ltd and Pacific Western Bank					X
10.8	Debenture, dated April 12, 2019, by and between Talend Ltd and Pacific Western Bank					X
31.1	Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.					X
32.1*	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.					X

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Exhibit
Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document					X
101.SCH	Inline XBRL Taxonomy Extension Schema Document					X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)					X

* The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Talend S.A. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TALEND S.A.

/s/ Michael Tuchen

Michael Tuchen

Chief Executive Officer

(Principal Executive Officer)

/s/ Adam Meister

Adam Meister

Chief Financial Officer

(Principal Financial Officer)

Dated:  August 9, 2019

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