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Talend S.A.  (NASDAQ:TLND)
Q3 2018 Earnings Conference Call
Nov. 07, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Excuse me everyone. We now have our presenters in conference. I would now like to turn the call over to Ms. Lisa Laukkanen. Please go ahead.

Lisa Laukkanen -- Investor Relations

Thank you. This is Lisa Laukkanen, Investor Relations for Talend. And I'm pleased to welcome you to Talend's Third Quarter 2018 Conference Call. With me on the call today is Talend's CEO, Mike Tuchen and CFO, Adam Meister.

During the course of today's presentations, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance and involve unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from those contemplated in these forward-looking statements.

Forward-looking statements in this presentation include, but are not limited to statements related to our business and financial performance and expectations and guidance for future periods, our expectations regarding our strategic product initiatives and their related benefits and our expectations regarding the market.

Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release that we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission.

The forward-looking statements in this presentation are based on information available to us as of the date hereof. You should not rely on them as predictions of future events. And we disclaim any obligation to update any forward-looking statements, except as required by law.

Please note that, other than revenue or otherwise specifically stated, the financial measures to be discussed on this call will be on a non-IFRS basis. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of the non-IFRS financial measures to the most directly comparable IFRS financial measure in our press release. Talend customers that are referenced by name today do not endorse any vendor product or service and do not advise any company on selection or use of technologies products, services, or vendors.

Now let me turn the call over to Mike Tuchen, Talend's CEO.

Mike Tuchen -- Chief Executive Officer

Thanks, Lisa, and thank you all for joining us today. We're pleased to report solid third quarter results as we continue our cloud and enterprise momentum. We achieved record total revenue of $52.1 million in the third quarter, up 36% year-over-year.

Before I go into the detail on the third quarter, we are excited to announce this afternoon that we've entered into a definitive agreement to acquire Stitch, a leader in the fast growing self-service data integration market for $60 million. The company was founded in 2016 in a space in Philadelphia with 33 employees. Stitch has developed a frictionless way for companies to move data from cloud sources to cloud data warehouses quickly in it's scale without needing to learn a complicated tool set. The product allows data scientist, analyst and engineers to rapidly load their data into a cloud data warehouse of their choice and its purpose designed for a self-service purchase channel. We believe this will act as a high-volume, low friction learning strategy that will further accelerate our cloud momentum. The agreement is expected to close this quarter subject to customary closing conditions and we look forward to welcoming the extraordinary Stitch team to Talend.

Now, turning back to the third quarter, some of the highlights include; our subscription revenue grew 36% year-over-year on a constant currency basis. Our cloud subscription business grew over 100% year-over-year for the ninth quarter in a row, fueled by the ongoing market shift to the cloud. Revenue from the Asia Pacific regions, continued to grow over 100% for the sixth quarter in a row. And lastly, our total customer count cross the 2,000 customer mark during the quarter.

In the third quarter, we continue to see strong demand for our solutions from enterprise companies, growth in international markets and continued success in growing our installed base through our land and expand strategy. Let me walk you through some key customer wins and expansions in Q3.

Cloud and big data solutions delivered a combined subscription revenue growth of 71% year-over-year. As we've noted in past quarters, we continue to see cloud adoption accelerate as more customers deploy Talend in the cloud. As a result, our cloud business is quickly becoming an important overall company growth driver, as shown by its growth of over 100% year-over-year. We expect our cloud business to become an increasing component of bookings in the coming year, as we encourage existing customers to adopt our cloud offerings and increasingly focus our sales efforts on new cloud wins. At the same time we're seeing demand for on-premise big data decline, particularly with new customers.

Let's turn our attention to Q3 and some of our new cloud customer wins. During the quarter, we are in the cloud business of global real estate franchise of RE/MAX, who's industry leading network includes 120,000 agents in more than 100 countries and territories. Talend is supporting a strategic data modernization effort as RE/MAX transition to a state-of-the-art cloud data analytics platform.

During the quarter, we also signed a large cloud agreement with the Argo Group, an international underwriter of specialty insurance and reinsurance products, in the property and casualty market with approximately $2 billion in revenue. Talend is supporting Argo, as they leverage AWS and Snowflake to gain a broader picture of the business for strategic analysis, risk analytics, fraud detection and claims management.

In the third quarter, we also secured a new cloud win with an American consumer goods company. As with many companies this enterprise turns a talent to help them move from on-premise to the cloud, using AWS to reduce maintenance costs and improve the efficiency of their lean development team. Talend was selected over Informatica based on their scalability with new use cases, product flexibility and built-in data quality capabilities. We also secured to win with one of the largest management consulting firms in the world. The reason Talend to build out a modern data infrastructure in the cloud with Snowflake and Qubole. One of the first use cases is the development of a new knowledge management platform for their consultants.

We also won a number of new cloud agreements internationally in Q3. For example, we signed with the multinational semiconductor and electronics company, this creating an entirely new analytics platform based on Microsoft Azure. The agreement is a testament to our strong support for Azure, and our relationship with the Microsoft team, technically Talend overall flexibility and capacity to manage unstructured and IoT data were important for this win.

In Europe, we also earned a new win for the multi-billion euro firm operating in the Aerospace segment to support a major data governance initiatives. We won based on our flexibility, ease of use and ability to get projects up and running quickly. These new wins with large brands around the world highlight our continued momentum with large global enterprise companies in their journey to the cloud.

In addition to new customer wins, we continue to expand in a number of our existing accounts as part of our land and expand strategy. Last quarter we talked to you about a win with British American Tobacco, the UK's fourth largest company by market cap. The company selected Talend to integrate both on-premise and cloud applications into a Microsoft Azure environment to allow integrated reporting. This quarter British American Tobacco made an additional investment in Talend for new projects across the organization.

In Q3, we also expanded our relationship with the Department of Justice, in order to safeguard against potential insider threats through the real-time analysis of a broad range of sensitive data. This was a strong technical win for Talend powering analytics and extremely complex environment. We also continue to see extremely strong results in APAC, with revenue continuing to grow over 100% year-over-year. Talend cloud growth has been so strong that in order to meet the increasing regional demand in APAC, we added a new cloud region.

Talend's APAC cloud region is based on AWS and supports Talend cloud in the AWS Tokyo region with AWS Singapore serving as the backup. Last month, we hosted our Talend Connect user conference in London and Paris. These were outstanding standing room-only event that generated a great deal of market excitement. At the event we introduced the full release of Talend Data Fabric. The cloud platform update is significant and introduces several new enterprise class features designed to enable our customers to reduce the time it takes to go from raw data to insight-ready data.

The first is the Data Catalog, which helps companies automatically signed profile and classify all company data, whether it's in a database, data lake, data store on-premise in the cloud or any combination. This is an essential capability for enterprises today.

A recent IDC survey reveal that 80% of the data effort is spent on data discovery, preparation and protection and only 20% of time is spent on actual data analytics. The survey also uncovered that data worker spend 10 hours per week creating new information assets only to learn that the same asset already existed haven't been previously created by someone else. Talend Data catalog will help our customers avoid these issues and spend less time searching for and recreating data and more time using it to gain insight. The fall of 2018 Talend Data Fabric also accelerates running machine learning models that scale, with serverless cloud support for Databricks and Qubole. This new support will help our customers automate insight and process more data at lower costs.

The final feature of the fall update, I want to highlight is our new cloud API services module, which provides full API development lifecycle support from design to test to documentation. These services offer standard and scalable way for customers to make data available to more users inside the organization and the package data for consumption outside the organization. The latter allows companies to create new products and services that can drive new business models and revenue streams.

In addition to introducing new products and feature enhancements, another compelling aspect of our Talend Connect event is customer presentations. At this year shows, we learned about BMWs extensive use of machine learning to analyze everything from assembly line robot performance to driverless cars. We also discovered how AstraZeneca, a $22 billion global biopharmaceutical business moved to the cloud using Talend to create a global Data Lake that helps significantly streamline financial reporting and is now working to accelerate new medical research.

We also heard from Uniper a Fortune 500 energy enterprise, which uses Talend to consolidate data coming from nearly 100 internal and external sources; such as IoT data from power station centers, into a Snowflake based Data Lake on Microsoft Azure. The deployment in self business users that Uniper improved energy trading performance by exiting real time industry customer and financial data to react better and faster to the market.

One of my favorite cloud success stories from the show came from Euronext, which is, Europe's largest stock exchange. Euronext began its journey to become a cloud first company with Talend and AWS a couple of years ago. The scale of Euronext migration to the cloud is impressive with the company moving one of the largest database in Europe to the cloud processing millions of transactions per day, while meeting stringent regulatory requirements. This is a significant undertaking that Euronext viewed as a central to compete successfully in today's market. As a result of its cloud first focus, Euronext estimates they're now able to process 10 times more data for the same spend and it got from delivering next day analytics to near-realtime analytics.

Given the compliance requirements of their highly regulated industries governance is at the core of Euronext cloud first strategy. Talend Data catalog is supporting them and providing a single point of control for their data pipeline along them to track and trace every data movement and processing activity across their platform. A great example of the improvements that we made with Talend is the effect of reduced data lineage tracking from weeks to seconds. They're also able to share data more efficiently, including to external users. As a result, Euronext pay-per-use data services are now driving 20% of their annual revenue. Euronext is a great example of the breadth and depth of value, Talend (inaudible) enterprises as they move to the cloud and the significant impact you can have on their business.

And finally, we're thrilled to welcome Adam Meister as our new CFO. Having worked with Adam on our IPO, I can speak first hand through his in-depth knowledge of the software industry and capital markets expertise, which has already proved to be invaluable. Prior to joining Talend, Adam served as a Managing Director in the Tech Investment Banking Group at Goldman Sachs. I look forward to working with him as we continue to strengthen Talend's market leadership.

I'd also like to take this opportunity to thank Ram Bartov for serving as our Interim CFO for the last six months. Ram has been appointed Talend's Chief Accounting Officer and will continue to be an integral part of our team.

Let me now turn the call over to Adam. He'll discuss our Q3 financial results in more detail and provide our outlook.

Adam Meister -- Chief Financial Officer

Thank you, Mike. I'm very excited to be part of the Talend team. Today, I'll review the financial results for the third quarter, as well as provide our outlook for the fourth quarter and fiscal year 2018.

Total revenue for the third quarter was $52.1 million, an increase of $13.7 million from the third quarter of 2017 representing 36% year-over-year growth. Our subscription revenue for the quarter was $44.6 million, an increase of $11.7 million from the third quarter of 2017 or 36% year-over-year growth. In constant currency, subscription revenue growth was also 36% year-over-year.

The strong demand for Talend Cloud offerings continued to drive growth in subscription revenue. Our cloud subscription revenue in the third quarter grew more than 100% year-over-year for the ninth consecutive quarter, and we expect momentum to continue as Talend continues to direct sales and R&D investment in our cloud offering. Cloud offerings include data integration, big data integration, data prep, data stewardship and API services. We have more offerings planned over the course of 2019 and Stitch will be an important contributor to cloud subscription revenues going forward.

Our big data and cloud products together represent approximately 50% of our subscription revenue in the third quarter. Talend Cloud specifically represented 14% of new ARR for the third quarter. It's important to note that this metric does not include customers, who deploy our solutions in the cloud, which we believe is two to three times greater today. We are targeting Talend Cloud to reach approximately half of new ARR exiting 2019. This rapid shift to a cloud first company is our most important strategic priority for 2019 and we plan to discuss cloud contribution to new ARR going forward.

From a geographic perspective, EMEA represented 46% of subscription revenue in the third quarter and grew 31% year-over-year. In the third quarter, Asia-Pacific grew by more than 100% year-over-year. We also see growth being driven by enterprise customers defined as companies with more than 100,000 of annualized subscription revenue, where their number grew by 33% and reached 444 this quarter. 67% of Talend's subscription revenue was derived from these enterprise customers in Q3 of 2018, momentum of large deals has somewhat muted due to our greater focus on driving adoption of the cloud.

Professional services revenue for the quarter was $7.4 million, an increase of $2 million or 36% from the prior year quarter. We have grown our professional services organization and increase the use of contractors through the year to meet current customer requirements. However, as we discussed in past earnings calls, Talend continues to make investments and enabling our system integrator ecosystem to ensure sufficient implementation capacity for our customers. Our priority is to focus on strategic consulting revenues, while depending more on our systems integrator ecosystem for broader implementation services.

For the quarter ended September 2018, our dollar-based net expansion rate was 118% in constant currency. As we have stated on prior earnings calls, our dollar-based net expansion rate can fluctuate quarter-over-quarter, reflecting the mix of new versus existing customers in the reported quarter. This quarter our dollar-based net expansion rate was impacted as we continue to focus on landing new cloud customers.

I would also like to point out that our dollar-based net expansion rate on a constant currency basis for the second quarter of 2018 was 119%, now 124% as previously reported. We identified an era that impacted our calculation for the second quarter and have updated this number in our filings issued today.

Before moving to profit and loss items, I would like to point out, unless otherwise specified all expenses and profitability metrics I'll be discussing going forward are non-IFRS results. A full reconciliation of IFRS and non-IFRS results can be found in our earnings press release issued today and available on our website.

Our total gross margin for the third quarter was 77%, compared to 79% in the same period last year. Operating expenses for the third quarter were $42.8 million, an increase of $10.2 million from the third quarter of 2017. Sales and marketing expenses for the quarter were $26.4 million, an increase of 31% year-over-year. This increase was primarily a result of higher personnel expenses due to increased headcount. We expect that our sales and marketing expenses will continue to grow in absolute dollars and we continue to invest in our international expansion, identify and retain top talent, and engage in global promotional activities to strengthen our brand awareness. Our sales and marketing headcount increased from the prior year by 31% to 439 employees.

R&D expenses for the quarter were $8.1 million, an increase of 30% year-over-year. This increase was driven by greater staff expenses due to higher headcount, especially in France. Additionally, there was an increase in amortization expense of $300,000 in the quarter related to intangible assets persist in the Restlet SAS acquisition in the fourth quarter of 2017. Our R&D headcount reached 264 employees at the end of this quarter representing 22% growth over the same period last year. G&A expenses for the quarter were $8.3 million, an increase of 33% year-over-year. This increase for the quarter was largely attributable to greater staff expenses due to higher headcount and expansion of our leadership team to support our growth in the additional requirements of being a publicly -- public reporting company.

Our G&A headcount reached 125 employees, representing 28% growth for the same quarter in the prior year. We expect our G&A expenses to continue to increase as we invest in our infrastructure, incur additional compliance costs related to being a public company and support our global expansion. We ended the quarter with 1,068 full time employees, compared to 816 employees at the end of the third quarter in 2017. We incurred an operating loss for the quarter of $3 million, compared to the third quarter of the prior year's operating loss of $2.2 million. Expressed as a percentage of revenue, operating loss was 6%, compared to an operating loss of 6% in the third quarter of 2017.

As previously discussed, we expect quarterly fluctuations in operating margins, but overall, we continue to take a balanced approach to growth and profitability. We expect to continue to invest in our business and in particular our cloud products as part of our long-term growth strategy. Net loss for the quarter was $2.8 million, compared to a net loss of $3.1 million in the prior year period. Free cash flow for the nine-month period was a negative $3.5 million, compared to free cash flow of negative $2.5 million in the same period of the prior year. We anticipate remaining approximately free cash flow neutral to positive for the full year 2018. The adoption of IFRS 15 contributed approximately 363,000 to our subscription revenue, as we recognize the component of the subscription revenue upfront, the FX impact on deferred revenue was a negative 500,000 in Q3 of 2018.

Turning to the balance sheet as of September 30th, 2018 we had cash and cash equivalents of approximately $89.7 million. We paid approximately $60 million in cash for the acquisition of Stitch. This will be reflected in our cash balance at the end of the fourth quarter given the timing of the close of the acquisition.

As we discussed during our IPO and during all of our prior earnings calls, I would like to remind investors that we do not view calculated billings as a good leading indicator of the performance of the business. Calculated billings does not take into account changes in prebuilt subscription duration, professional services, co-terming of subscription contracts, certain renewal dynamics and as mentioned earlier, FX fluctuation. We provide guidance on a revenue basis, and we believe this is a more meaningful and accurate reflection of our business, operating and financial position.

As discussed during our prior earnings calls, we were targeting a pre-billed subscription duration of 1.1 years for our new business sales in 2018. In the third quarter pre-billed subscription duration came in exactly and one year. This is consistent with our previously announced strategy to minimize discounts and reduce the complexity of our sales cycle.

The Stitch business model focuses on frictionless selling and self-service model, which builds predominantly on a monthly basis and as a larger proportion of smaller customers today. We plan to disclose some metrics associated with our frictionless self-service business separately from the rest of the business over the coming quarters.

Before I give guidance, I would like to emphasize some key financial highlights. Our subscription revenue grew by 36% year-over-year, driven in large part by strong growth in cloud and strong performance in Europe. Our operations in Asia Pacific are continuing to drive top line growth with over 100% revenue growth. Our operating margin was a loss of 6% in the third quarter of 2018.

As I indicated earlier, we adopted IFRS 15, which is the IFRS equivalent of ASC 606 on January 1st, 2018 on a modified retrospective approach. Specifically in Q3, IFRS 15 reporting contributed to an improvement of 0.9% on revenue growth and 819,000 of lower commission expense.

Now for the Q4 and 2018 fiscal year guidance, which assumes similar business conditions and foreign exchange rates as of October 31st, 2018 and includes the anticipated contribution of Stitch. For the fourth quarter 2018, total revenue is expected to be in the range of $56.6 million to $57.4 million. Loss from operations is expected to be in the range of $12.3 million to $11.3 million and non-IFRS loss from operations is expected to be in the range of $4.4 million to $3.4 million.

Net loss is expected to be in the range of $12.7 million to $11.7 million and non-IFRS net loss is expected to be in the range of $4.7 million to $3.7 million. Net loss per basic and diluted share is expected to be in the range of $0.42 to $0.39 and non-IFRS net loss per share is expected to be in the range of $0.16 to $0.12. This reflects a basic and diluted weighted average share count of $30.2 million shares.

For the full year 2018, total revenue is expected to be in the range of $205.2 million to $206 million. Loss from operations is expected to be in the range of $40.7 million to $39.7 million and non-IFRS loss from operations is expected to be in the range of $16.3 million to $15.3 million. Net loss is expected to be in the range of $40.8 million to $39.8 million and non-IFRS net loss is expected to be in the range of $16.3 million to $15.3 million. Net loss per basic and diluted share is expected to be in the range of $1.36 to $1.33 and non-IFRS net loss per share is expected in the range of $0.55 to $0.51. This assumes a basic and diluted weighted average share count of $29.9 million shares.

The acquisition of Stitch will have a nominal contribution to revenue in the fourth quarter due to expected timing of closing of the transaction and purchase accounting adjustments. We expect the acquisition to add $1.2 million to non-IFRS operating loss in the fourth quarter. In addition, we expect one-time transaction expenses of approximately 700,000 in Q4 of 2018. Given our plans to invest in growth of this business and the new frictionless channel, we estimate Stitch will contribute approximately $6 million of revenue for 2019 and lower operating margin in 2019 by approximately one point.

Lastly, we should note we are becoming a domestic registrar starting in 2019, and going forward we will report on a US GAAP basis. Our fiscal year 2018 Annual Report will be filed on a Form 10-K, we have substantially completed our scoping work and do not anticipate any significant differences relative to our IFRS results.

Let me turn the call back over to Mike for some final comments.

Mike Tuchen -- Chief Executive Officer

Thanks, Adam. Talend delivered solid performance in the third quarter, as we continue to work toward our goal to delivered a unified platform for data integration, to facilitate greater collaboration between IT and business teams. The business success of our cloud customers that we highlighted today demonstrates the ongoing momentum we're experiencing in our cloud business. And finally, we're excited about the potential of the Stitch acquisition to further accelerate our cloud momentum by providing a high-volume, low friction channel to land new customers.

With that Adam, and I would be happy to take your questions. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And your first question comes from Raimo Lenschow, Barclays.

Raimo Lenschow -- Barclays -- Analyst

Hey, thanks for taking my question and Adam welcome to the team. Two questions from me. Mike, can you talk a little bit about the puts and take, we should think about as you to do more, more of a cloud poker's where is this kind of maybe more of the traditional business. I'm thinking about the dollar and then retention, you made some comments around that earlier. Just kind of what's different, how is that impacting numbers that we should be aware of?

And then on Stitch, maybe can you go little bit deeper into when is Stitch coming in and when is kind of classic talent coming in, as you work with Snowflake I think and some of the other cloud solutions, you mentioned that quite a bit. I'm just trying to understand like when you are doing one, and when you are doing the other? Thank you.

Mike Tuchen -- Chief Executive Officer

You bet. Thanks Raimao. I'll start with that last question, and then I'll circle back, and talk about the broader impact. So what we're seeing right now is that a lot of the new customers moving to the cloud for data warehousing are looking for really simple quick ways to start using their data warehouse immediately, and so they want a very simple frictionless zero config way to get started in minutes. And so what we have is a much more capable enterprise system that allows you to solve your true enterprise problems, but it doesn't solve that first problem that the majority of customers are looking for immediately out of the gate. And that's what we look for with Stitch.

We were looking for that really simple solution to get started quickly and critically importantly that has a frictionless channel, that customers buy by themselves with a credit card without having to go through a purchase process or anything like that, which is increasingly becoming the preferred adoption approach in the cloud. And our bet here is, this gives us a extremely high volume low friction customer acquisition vehicle for all the cloud data warehouses that we can then build on. The -- by working with customers early in their cloud journey, right if they are adopting these cloud data warehouses, we can then work with them through the entire customer life cycle. And we're the only company in the world today that has that full spectrum of solutions from really simple frictionless start immediately pay as you go, all the way up to your most complex enterprise challenges. And we think that's a unique differentiator that allows us to start early in the customer cloud journey and grow with them over time.

In terms of how we see this impacting numbers. Really the -- one of the big things to think about is we are looking to really aggressively ramp our transition to cloud over the next year. We had -- Adam mentioned a few moments ago that in Q3, 14% of our new way ARR is from cloud, and that number is exploding, growing well over 100%, as we mentioned a couple of times. Our goal is that approximately half of our new ARR, of our new sales will be cloud over the -- by the end of 2019 in Q4. And what that means from a numbers perspective is the IFRS 15 tailwind that we've seen in 2018 actually turns into a headwind over the course of 2019. I think the IFRS 15 year-to-date has given us about a 2.7% revenue boost. And so obviously that gets reversed, but I think we get another further couple of points of revenue headwind, as we now start -- as we go through a really rapid transition to cloud bookings, which are of course recognize completely radically.

And so, it's clearly positions us the right way for the future, but we have to recognize that tailwind turning to headwind is going to be a notable adjustment and I can only not sure that we've been -- clear enough with the Street about how that transition works and the headwind to tailwind adjustment, and how that should be factored into guidance.

Raimo Lenschow -- Barclays -- Analyst

Okay, make sense. Thank you.

Operator

Our next question comes from Tyler Radke, Citi.

Tyler Radke -- Citi -- Analyst

Yes, hi there. Thanks a lot for the question and welcome on board, Adam. Sounds like you're off to a busy start with the acquisition and all the changes in these business.

Mike Tuchen -- Chief Executive Officer

Yeah, he's been busy. We had to put him right to work to use his acquisition, M&A skill set.

Tyler Radke -- Citi -- Analyst

It sounds like, it sounds like you're wasting that time. I wanted to talk about the comment you made, Mike, around the on-prem big data slow down. Did I hear you correctly that you said you're actually seeing that business now start to decline was that like a comment on bookings or was that just overall interest, maybe if you could share some color there and just obviously there's been a lot of changes in that market with the two big incumbents deciding to get the band back together in the last year or last month. I'm just curious if -- what you're seeing there that's driving that continued weakness?

Mike Tuchen -- Chief Executive Officer

Yeah. So what we're seeing right now is that existing customers are actually still purchasing premise Hadoop at a pretty aggressive pace, but new customers are by and large aren't, and pretty much at all. And so, what's happening is the sort of deceleration in growth, it's actually, it's not decelerating in the sense of it's growing at a positive number year-to-date, but the deceleration is happening faster than we thought, because most new customers are now just using to solve the same problems in the cloud. The concept that what they were buying with premise Hadoop is still a very compelling and exciting vision, right? Customers really want to deal with all kinds of different data, in a flexible way, they want to be able to do machine learning on it, they want to do all kinds of advanced analytics on it, whether it's relational or spark based or any of your -- you choose your favorite processing Hadoop.

So that data lake, advanced analytics, machine learning approach is incredibly compelling vision. But what they're choosing is to do it in the cloud, because it's just a well of lot simpler and cheaper to do it there. And so, what we're finding then is when we talked previously that our sort of estimate of premise Hadoop might grow this year in the mid '20s, right now based on the Q3 results, we're now saying it's growing sub 20% year-to-date, and that's likely we where we expected to end the year. So the deceleration in growth is happening faster than we had anticipated.

Tyler Radke -- Citi -- Analyst

Okay, great. And then if I could just ask a follow-up, you talked about how you're seeing, I guess less enterprise or large deal traction as you've transitioned to the cloud. I'm just curious, if why you're not seeing more of a, you know, I guess how cloud would impact that, I mean obviously enterprises are, you know, we see they are moving over to the cloud, is it just that they're not moving over at the same pace. You're targeting more smaller customers with the cloud product, just some color around that would be helpful. Thank you.

Mike Tuchen -- Chief Executive Officer

No, we're targeting both mid-market customers and enterprise customers with our cloud, and what we're seeing is that our cloud ASPs are actually moving up nicely and are now relatively similar to what we're seeing across the business, which is great. But what's happening right now is we're not getting the kind of large enterprise deployments on the cloud. So in this matter of fact that we're not getting them on premise Hadoop either, but we used to see deals that were -- few deals above 500K and every now and then, deals above $1 billion of new ARR in any given quarter. And those we are getting fewer and further between in -- because the cloud deals now are almost entirely to new customers and customers with any new technology to tend to start smaller. And so we're seeing initial land deals and departmental deals and larger companies and so on.

And so I think as that cloud business continues to scale, and we now have -- start lapping those initial first year deployments. I think we'll see our cloud deals continue to scale up and get bigger, it will start seeing those larger enterprise deals that we used to see. But in the cloud versus in premise Hadoop, so that's something to look forward to going forward.

Right now, we're seeing a nice, not just the ASP coming up, but the largest deal that we've sold, I think we're setting a new record, every quarter for the last few quarters that we like the trend line on it, but we're still -- I'd say early in that overall rotation. And I think 2019 is going to be a really key strategic year for us.

Adam Meister -- Chief Financial Officer

Just to put a finer point on the growth in ASP that Mike mentioned, cloud deal size is up 25% year-over-year in Q3. And just to be really clear that the profile of the customer isn't really different from the traditional on-prem big data business. But as Mike mentioned, they're starting a little bit smaller. We did win a number of cloud deals over a 100K in the quarter, and so we're seeing good steady momentum upwards.

Tyler Radke -- Citi -- Analyst

Thank you.

Operator

Our next question comes from Mark Murphy, JPMorgan.

Matt Coss -- JPMorgan -- Analyst

Good afternoon. This is Matt Coss on behalf of Mark Murphy. Last quarter you mentioned was a pretty good quarter in Europe, and it sounded like in Q3, it was behind some of the strength of the subscription revenue growth. Can you give us an update on the bookings traction in Europe. And is there any sort of leftover effects from the attrition that you had in Europe last year?

Mike Tuchen -- Chief Executive Officer

Yes, I thought Europe right now continues to fire at all cylinders. The attrition has been low through the year, the team is running ahead of their numbers, and you can see it in the revenue growth. When you break out the European, can we report it that way. I think year-to-date revenue growth, I guess, that we're going to take a second to get to that, but relative to what we would have priority considered a mature economy, who have been very pleased at the growth in Europe.

And one of the demand drivers there in Europe isn't just that we have now a strong and stable team with strong leadership. The demand drivers in the market are -- this move to GDPR as they compliance initiative, and it really has very demanding data requirements. And so that's really driving a lot of interest in so-called data governance, as we help our customers meet these new GDPR kind of requirements. And so that in a healthy demand environment, we're meeting that with the strong team and that's leading to some great result.

Adam Meister -- Chief Financial Officer

Yes, and just on the revenue growth, EMEA revenue growth for the quarter was 31% year-over-year.

Mike Tuchen -- Chief Executive Officer

Yes, and the bookings growth is probably there or a bit higher, which again given our expectations going into a -- what you had considered of a relatively mature economy that we've been in since the company founded, we've been pretty happy with that.

Matt Coss -- JPMorgan -- Analyst

Got it. Thank you for the clarification. And then, you know, it is your more customers move to the cloud. Are you seeing any of a more flexible billing terms and if so, is that impacting deferred revenue in any way we should be aware of? or do you expect it to in the next two quarters?

Mike Tuchen -- Chief Executive Officer

Yes and yes. It's a minor effect in Q3, as we now are accepting monthly billing for our cloud product, the new Stitch product that we -- but also has it a Pay-as-you-Go monthly kind of component, as well as. As a matter of fact that their primary billing model and then going forward into Q1, we'll bring on more products with Pay-as-you-Go component. So I think the -- what's going to happen is the overall blended duration across the entire business is going to go down, we may -- we are still discussing internally about how we provide visibility into that, we may start breaking out some metrics of the Pay-as-you-Go portion of our business separate from the committed portion, but I'd say stay tuned on that as it becomes more material, it's still a -- it's a very small effect in Q3, but I expect it will start to grow into Q4 and into Q1. And so we'll spend some time thinking internally about how we can give the right visibility into the trends of that segment.

Matt Coss -- JPMorgan -- Analyst

Thank you.

Operator

(Operator Instructions) Our next question comes from Bhavan Suri, William Blair.

Bhavan Suri -- William Blair -- Analyst

Hi, guys. Can you hear me, OK?

Mike Tuchen -- Chief Executive Officer

Yes. You bet.

Bhavan Suri -- William Blair -- Analyst

Thanks. Adam welcome. I just had a couple of quick questions; one on the partner channel, you know, we've talked about this in the past, in the Analyst Day sort of focused on that. And then the comment you made with an inflection in terms of commitments you're starting to see from a larger firms. And then obviously you sort of seeing the Chinese increasing by 4x. I guess some sense of what the bookings contribution from partners look like? And I guess when you think about bookings are influence today versus what we might expect in a year, do you sort of see a more meaningful uptick next year? How should we think about that? I'd love to get some color there and a quick follow-up on sales?

Mike Tuchen -- Chief Executive Officer

Yes. So it's been continued to trend up it's north of a third, I don't know if I have the exact stat on my fingertips, I'm going to stuck-I have a finger that either saying wait for a second or it's higher than the number I just quoted on 40% for which it might be a new high watermark. So it's come up number just around 18 months ago, that was 20%. So that's doubled partner contribution, so that's been a major, major focus that we were foreshadowing as we saw that the leading indicator being the kind of a consultant trainings really start to accelerate and inflect up. And sure enough now it's showing out. So we think that's an important new contribution for our business going forward.

Bhavan Suri -- William Blair -- Analyst

Got it. I guess as you think about that, Mike. I mean, it feels like those guys typically because of the strategic role they play have like the CXO year, like all those deal bigger, are you starting to see even if the cloud-based sort of the enterprises? Obviously, enterprises can't grew nicely, et cetera, et cetera. But like, are they starting to sort of drive largest deal sizes, is that what we're seeing maybe a potential move to larger cloud-based deals, in a year or two years? Or is it still fairly small? Could you focus on sort of the smaller size of the cloud deal, but obviously, there are some large cloud deals happening, not necessarily in the ETL or data movement or data management base, but concerning guidance (inaudible) cloud different basis. How should we think about the influence those have given the year that have?

Mike Tuchen -- Chief Executive Officer

Yes, that's a great point. We see in general that the partner initiated deals tend to be larger, they tend to close faster and they tend to have a higher close rate. And the reason being, as you say they come in with a set of strategic relationships, but also importantly, they are putting together an entire solution they tend to be building an entire package and solving it, a problem versus just providing one component that we do ourselves. And so for all those reasons, they tend to be more qualified opportunities by the time we get engaged with them.

What we're finding right now is that the, buy and large the -- large deal partner, the large partner deals aren't yet cloud-oriented. And so I think that's still a kind of a muscle that we need to build is to find the cloud partners that sell large deals because the cloud partners that we're working with right now, are doing more of the departmental lands and more the mid-market kind of scenarios. And where we're seeing and a lot of them either way. But we're not yet seeing the kind of large enterprise sort of classic SIs nearly as involved in the cloud kind of part of the ecosystem. And I think that's a -- it's a gap that the large SIs are looking to drive that rotation in, but it's, we haven't yet witnessed that in our business yet.

Bhavan Suri -- William Blair -- Analyst

Got it. That's helpful. If I might squeeze one quick one in for Adam, just on sales productivity here. Just a sense of where sales capacity additions are, and then sort of what sort of productivity improvement do you expect this year, you had made some comments earlier in the year and then sort of how do you think about 2019? Thank you.

Adam Meister -- Chief Financial Officer

Yes. So I'd say you can see the kind of sales and marketing headcount growth being in line with revenue growth. I'd say it's a capacity or productivity is relatively equal and what it was last quarter. In terms of how we're thinking about next year. I'll reemphasize what Mike mentioned around the IFRS rev rec, headwind that has been a tailwind during 2018 of a couple of percentage points on growth. If you couple that with on-prem big data business that's likely in the mid-teens this year, but probably flat next year. Flat bookings on big data, which translate to roughly mid-teens revenue growth and so you factor all of that and overall revenue growth for 2019 is likely in the low 20s. And that's largely a function of this rapid uptake we've seen on the cloud that continues to be our number one strategic priority, as I mentioned and the faster we push toward that 50% of new IRR coming from cloud by the end of the year, the more impact an that would have on overall growth for next year.

Mike Tuchen -- Chief Executive Officer

And just to add a little color to that for us -- as far as the most important initiative in 2019 is getting the whole sales team and ecosystem team and everything fully rotated into the cloud, and as we mentioned half of our new ARR by Q4 coming from the cloud, and that gets us well positioned in the coming bunch of years to be tightened the right long-term demand drivers. And we're laser focused on that and we're willing to let go of some other secondary and tertiary goals in light of that being really the primary strategic goal to position the company well in the coming years.

Bhavan Suri -- William Blair -- Analyst

That's really helpful, guys. Thank you. Thanks for taking my questions.

Mike Tuchen -- Chief Executive Officer

You bet. Thanks.

Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Duration:  49 minutes

Call participants:

Lisa Laukkanen -- Investor Relations

Mike Tuchen -- Chief Executive Officer

Adam Meister -- Chief Financial Officer

Raimo Lenschow -- Barclays -- Analyst

Tyler Radke -- Citi -- Analyst

Matt Coss -- JPMorgan -- Analyst

Bhavan Suri -- William Blair -- Analyst

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