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Talend S.A. (NASDAQ:TLND)
Q1 2019 Earnings Call
May. 8, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Talend First Quarter FY 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to 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 first quarter 2019 conference call. With me on the call today are 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 performance or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those contemplated by 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 the 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 in this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We've provided a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP 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 of use of technologies, products, services or vendors.

And 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 start the year with solid first quarter results and strong cloud momentum. Our success comes from both new customers adopting our data integration platform and existing customers expanding their use, both of which are being fueled by the ongoing market shift to the cloud. We achieved a record total revenue of $57.8 million in the quarter, up 24% year over year.

Some additional highlights from the quarter include, our subscription revenue grew 26% year-over-year or 31% on a constant currency basis. Talend Cloud, our SaaS offering, grew over 100% year-over-year for the 11th consecutive quarter and represented 36% of new ARR for the first quarter, up from 14% just two quarters ago. We're well on our way to having half of new ARR in terms of cloud by Q4 this year.

Annualized recurring revenue totaled $205.1 million and grew 28% year-over-year or 34% on a constant currency basis. For the second year in a row, Talent was recognized by Gartner as a leader in the Magic Quadrant for Data Quality Tools, and we recently introduced Pipeline Designer, an application in Talent Cloud that enables customers to build a data pipeline smarter and faster with the next-generation design environment.

Companies are becoming increasingly data driven to improve their decision making and enhanced business performance. To truly enable their business teams with data, companies must solve two problems at the same time, speed and trust. These elements are essential and mutually reinforcing. Companies need to enable everyone to solve data problems in minutes. They need to take advantage of the latest innovations in data processing and machine learning technology and at the same time they also need to be able to trust their data which is the foundation of their business decisions.

This spring, we elevated our corporate messaging to focus on these two essential elements, speed of delivery and trust. We launched a new corporate website and, in conjunction with our Spring '19 release of Talend Data Fabric, we introduced Pipeline Design. Adding Pipeline Designer to Talent Cloud enables data engineers and developers to quickly and easily design modern data pipelines, they can scale with the latest cloud technologies and the power companies to process and analyze data in real time. Pipeline Designer has set a new standard in terms of user experience and architecture. The app is 100% web-based, which enables users to get started in minutes. It can also scale up to support the largest data problems, including real-time hybrid and multi-cloud scenarios. We designed the app for ease of use to appeal to a broad base of potential users range from data engineers to data scientists and analysts. We'll continuously upgrade the product in the coming months, including adding support for Pay-as-you-Go pricing.

Pipeline Designer is intended to be a natural expansion for six customers who joined from our frictionless channel, who will create another seamless way for cloud customers to quickly onboard with Talend, and will become an important part of our overall land and expand strategy. These additions to Talend Cloud with the Spring '19 release of Talend Data Fabric reflect our continued focus on innovation and cloud adoption.

Cloud is increasingly becoming the deployment model of choice for data integration, driven by the adoption of cloud analytics and cloud data warehouses. The majority of organizations considering a big data project choose to deploying the cloud because it's easier to use, more cost effective, more flexible and scaled elastically. Although we're still in the early innings of the industrywide cloud adoption, we believe that over time data integration will be managed primarily through the cloud. Demonstrating the cloud opportunity, Talend Cloud continued to grow over 100% in the first quarter and surpassed premise big data as the largest contributor to new ARR for the first time.

In the first quarter, cloud accounted for 36% of new ARR, up from 25% in Q4 and 14% in Q3. We're seeing larger companies adopt the cloud and deal sizes are now in line with their overall average deal size. While most of our existing customers are on premise today, there has been an increase in conversations about migration for their existing customers and most of our conversations with new customers are centered on Talend Cloud.

With that, let me walk you through a few customer success stories. We saw a healthy mix of new wins and strong expansions in the first quarter. We also saw existing customers start using Talend for new use cases. In Q1, we secured an agreement with one of the largest US life insurers. To win reinforced their core value proposition for large enterprises enabling them to leverage the full power of the cloud to deliver trusted data at the speed required for modern business. The firm is moving to AWS and Talend Cloud as part of an organizationwide modernization effort. One of the first projects will be to support and update to the web portal to make them more responsive and customer-friendly. The company is also applying Talend's data quality and data catalog capabilities to improve data integrity throughout the organization. This major win is in conjunction with our consulting partner Accenture.

During the quarter, when the top three automobile manufacturers in the world selected Talend Cloud to bring sales (inaudible) dealer network into its cloud data lake. Talend is driving speed and accuracy for data analytics by their data science and business analyst teams.

We also won a number of new agreements internationally to help companies move to the cloud. In APAC, Talend landed a cloud agreement with a major national tourist board. The board is using AWS to merge diverse data source into a single hub. The aim is to increase its customer base by creating a rich digital platform that allows tourism businesses and consumers to gain easy access to relevant information about the country and its travel software services. Talend earned the business based on breadth of capability and technical depth, including its ability to build high performance smart data pipeline, leveraging technologies such as spark machine learning to process data automatically.

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. In Q1, we expanded our relationship with a leading movie studio. This expansion is another strong example of our ability to deliver a unique combination of data speed and trust. The entertainment company's latest use case is to optimize customer satisfaction and reduce returns using theater data. In a proof-of-concept test, the studio used Talent Cloud to load and clean historical data in a variety of formats into their new Snowflake data warehouse. It previously took 13 weeks and Talend enabled the team to complete the task in five days.

In Europe, we secured new business with an existing customer, a major television broadcasting company, who was moving to the cloud with Talend through speed analytics. The company reduced the time it takes to deliver a TV viewer report from 12 hours to less than one hour by moving from an on-premise infrastructure to Azure and Talend Cloud. We continue to strengthen our relationships with our ecosystem partners.

Earlier this week, we were pleased to announce that we'll be bringing Talent Cloud to Azure in Q3, marking another key development in our move to the cloud. This initiative benefits all companies who've selected Azure providing better performance and additional options for modern data integration on that platform. Talent Cloud and Azure will help extend our relationship with the Microsoft team while helping customers more easily collect, govern, transform and share trusted data. We also announced plans to support delta lake, a new open source project from Databricks.

Talend Cloud more seamlessly integrate data to and from delta lake, leveraging its data consistency, asset compliance, time travel (ph) versioning and reprocessing. Our market-leading support will strengthen our relationship with Databricks and bring reliability and transactional consistency to data lakes to the first half.

And finally, during Q1, we announced that Gartner had once again recognized Talend as a leader in the Magic Quadrant for Data Quality Tools. This is the second consecutive time that we've been positioned in the leader's quadrant, and we're delighted by how much we improved our position based on Gartner's assessment of Talend's completeness of vision and ability to execute. We believe the position validates our vision to deliver trusted data. With our unique approach where data quality and governance are built into the suite and managed throughout the data value chain. Combined with our introduction of Pipeline Designer, this reinforces Talend's unique ability to deliver trusted data at the speed of business. We've demonstrated strong progress toward our goal of exiting 2019 with half a new ARR in the cloud and continue to see the opportunity expand ahead of us.

Our focus remains on continuing investment in both go-to-market and RMB our ready to sustain our cloud momentum. Given the traction we're seeing with larger customers we've accelerated additional investment in cloud operations to support this customer base. Adam will walk through the details but we've decided to burn a small amount of free cash flow this year for these initiatives. We continue to focus on overall efficiency of growth and believe this is the right strategy to position talent for long term success as a leader in cloud integration and integrity.

Let me now during the call over to Adam. He'll discuss our Q1 financial results in more detail and provide our outlook

Adam Meister -- Chief Financial Officer

Thank you, Mike. Today, I'll review our financial results for the first quarter of 2019 as well as provide our outlook for the second quarter and fiscal year 2019. As a reminder, we're reporting Q1 financial results under US GAAP as required when we became a domestic filer on January 1st, 2019. We are pleased with our first quarter results. Annualized recurring revenue was $205.1 million as of March 31st 2019, and grew 28% year-over-year or 34% year-over-year on a constant currency basis.

We define ARR as the annualized value of all active contracts contributing to revenue at the end of a period. And as a result, the FX impact at this point in time measure will differ from that of subscription revenues. Strong demand for Talent Cloud contributed meaningfully to this growth. Talend Cloud represented 36% of new ARR for the first quarter, up from 25% in Q4 and 14% in Q3. We're excited with our progress toward Talend Cloud reaching half of new ARR exiting 2019.

Our launch of Pipeline Designer and the Spring '19 release of Talend Data Fabric, which Mike discussed, will contribute to this momentum. Total revenue for the first quarter was $57.8 million, up 24% year-over-year. Subscription revenue for the first quarter was $15 million, up 26% year over year. In constant currency, subscription revenue growth was 31% year-over-year.

The headwind from FX with larger than anticipated and the headwind to total revenue growth from professional services was slightly less than expected. Subscription revenue from Talend Cloud grew more than 100% year-over-year for the 11th consecutive quarter. As previously noted, Talend Cloud (inaudible). The growth in subscription revenue was also impacted by the greater proportion of ratable revenues related to our larger cloud mix in the quarter.

Growth in enterprise customers defined as companies with $100,000 or more of annualized subscription revenue was 32% year-over-year and reached 5.1 customers this quarter. The contribution of subscription revenue from enterprise customers remained stable at 67% in Q1, consistent with expectations as our near to medium-term strategy remains focusing on cloud lands. For the quarter ended March 2019, our dollar-based net expansion rate was 118% in constant currency. Our dollar-based net expansion rate, which excludes monthly customers can fluctuate quarter-over-quarter. As we discussed previously, this revenue-based metric was bolstered during 2018 due to ASC 606 adoption and will come down gradually over the course of this year as this fourth quarter (ph) rolling measure fully reflects the new revenue standard.

Professional services revenue was $7.8 million for the first quarter, up 11% year-over-year. This moderation of growth is largely related to the lower average services requirement for Talend Cloud. We like the lower services requirement in cloud because it means our cloud customers are up and running faster. We believe our increasing cloud mix will impact professional services growth throughout 2019. Our primary strategy is to enable systems integrator partners to supplement services demand for our customers, but we will continue to also lead many of these projects. And as a result, professional services revenue may vary. Accordingly, ARR growth is the best indicator of our momentum with both new and existing customers during our cloud shift.

Before moving to profit and loss items, I would like to point out that unless otherwise specified, all expense and profitability metrics I will be discussing going forward are non-GAAP results. A full reconciliation between GAAP and non-GAAP results can be found in our earnings press release issued today and available on our website. Our total gross margin for the first quarter was 76% compared to 77% in the same period of last year. The continuing expansion of Talend Cloud impacted gross margins in the first quarter and will continue to impact gross margins throughout 2019 as we grow our cloud operations.

Professional services gross margin was 6% this quarter. Professional services gross margin is typically lowest in Q1 and we expect them to improve in Q2 and for the balance of the year. We expanded this team in the back half of 2018 and continue to ramp productivity of the new employees and deployed them to new engagements. Operating expenses for the first quarter with $53.1 million, up 29% year-over-year.

Sales and marketing expenses for the first quarter were $33.2 million, up 33% year-over-year. This was primarily due to a 25% increase in sales and marketing headcount from last year. The larger majority of which were onboard where beginning of the quarter. R&D expenses for the quarter were $11.7 million, up 44% year over year. The increase was driven by greater investment in our cloud products and operations and is particularly impacted by the inclusion of Stitch, where our R&D accounted for most of the operating expense.

G&A expenses for the quarter were $8.2 million, up 1% year-over-year. We incurred an operating loss for the quarter of $9.3 million or 16% compared to an operating loss of $5.4 million or 11% in the first quarter of 2018. This is mainly due to the ratable shift from increased cloud mix as well as the impact of professional services gross margin. Net loss for the quarter was $9.6 million compared to a net loss of $5.3 million in the prior year period. Cash and cash equivalents totaled $29.1 million as of March 31st, 2019 versus $33.7 million at the end of December. Free cash flow for the quarter was a loss of $8.5 million compared to free cash flow of $5.1 million for the first quarter of 2018.

Free cash flow was impacted by three factors. First, pre-build contract duration shortened to 1.04, consistent with our goal of minimizing discounting and co-terming contracts to simplify future renewals. Second, the quarter ending on a weekend impacted collections. Third, we also shortened days payable during Q1. Cash inflows from financing totaled $3.9 million Q1, largely due to employee participation in our stock purchase plan. We targeted roughly cash flow breakeven for the full year of 2019. But as Mike mentioned, we now anticipate we will burn a small amount, roughly $5 million for the year, given the factors I mentioned earlier and as we continue our investment in cloud strategy.

We believe it's important to invest against the significant opportunity we're seeing in the market and the trade-off of some modest cash burn for the year is the right decision for the business. We remain comfortable with our cash position from an operating perspective. We also put in place a $30 million revolving credit facility in February for added flexibility. The key terms of this were filed with the SEC on February 14th and the loan agreement will be filed with our 10-Q this quarter.

Now for Q2 and 2019 fiscal year guidance. Please note that going forward we will provide only non-GAAP guidance. The impact of share price fluctuations on stock-based compensation inherently limits the precision of GAAP estimates, which we believe is not helpful for investors. We will provide color on GAAP versus non-GAAP trends for actual results as necessary. Our guidance assumes similar business conditions and foreign exchange rates as of April 30, 2019. For the second quarter of 2019 total revenue is expected to be in the range of $58.8 million to $59.8 million. Non-GAAP loss from operations is expected to be in the range of $10.1 million to $9.1 million.

Non-GAAP net loss is expected to be in the range of $10.6 million to $9.6 million. Non-GAAP net loss per share is expected to be in the range of $0.35 to $0.31 per share. This is based on a basic and diluted weighted average share count of 30.5 million shares. At this early point in the year and given the rapid progress we've seen in our cloud shifts, we believe it's prudent to maintain our top line outlook for the full year 2019. As we discussed in our last call, a faster cloud shift will dampen revenue growth, given the greater proportion of fully ratable revenues. Given the outperformance in Q1 and our guidance for Q2, this should result in overall revenue seasonality similar to last year.

We are updating guidance for the full year 2019 as follows. Total revenue was still expected to be in the range of $248 million to $250 million. Non-GAAP loss from operations is expected to be in the range of $29.3 million to $27.3 million. Non-GAAP net loss is expected to be in the range of $31 million to $29 million. Non-GAAP net loss per share is expected to be in the range of $1.01 to $0.95. This is based on a basic and diluted weighted average share count of 30.6 million shares.

We've increased our full year operating expenses versus our initial guidance by $2 million, partly due to our faster progress toward our goal of exiting 2019 with half of new ARR from the cloud as well as investments we believe are important to support this shift. This is consistent with my earlier comments about free cash flow.

To summarize, our total ARR growth of 34% on a constant currency basis demonstrates our strong continued momentum. We are excited about the opportunity this year and particularly exiting 2019 with Talent Cloud as the largest contributor to new business. We believe our market leadership, strong customer and ecosystem relationships and continued innovation will enable us to continue our momentum throughout 2019 and over the long-term.

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

Mike Tuchen -- Chief Executive Officer

Thank you, Adam. 2019 is off to a strong start as we maintain our focus on driving cloud adoption. Our market leadership positions us well to take advantage of the industry shift to the cloud. As we look to the rest of the year, we will remain focused on driving our continued rotation to the cloud to enable our customers to meet the demand with ever-increasing data volumes with speed and trust.

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

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we will take our first question from Raimo Lenschow with Barclays. Please go ahead.

Analyst

Hey, Adam. This is David on for Raimo today. Thanks for taking our question. The first one is a bit more high level for Mike, and I'll have a follow up but Adam on the numbers. Mike, as we think of Talend Cloud and Stitch, which sit at completely opposite end of the cloud integration market. Can you help us understand the different drivers or vectors of growth here both in regards of the use cases they're used for but also whether there is some replacement from legacy on-prem technologies there?

Adam Meister -- Chief Financial Officer

Yeah. What's really going on is, there is an overall shift to the cloud from premise, right. And you're seeing that across the entire ecosystem, not just in the data world but really all of IT is in a long-term secular shift to the cloud.

And so, what's happening is, companies are adopting cloud data warehouses is the very first thing. If you think about that just from a timeline progression, the very first thing they'll do is just start loading data in, and that's what Stitch does. You can literally be live in minutes. Then as they start building their data warehouse incrementally, normally what happens is, they start saying, well, I'd like to start doing some cleaning and blending and transformation and start creating standardization in my data warehouse. And that's where the rest of Talend Cloud comes in.

And of course, there's room for data cataloging and a broader governance kind of story as well, which are other components that we bring. And so, think of that as just a progression that companies adopt as they incrementally build a data warehouse, which is a very common phenomenon that we're seeing right now. I mean, I'd say, one of the changes that we're seeing in the cloud these days is that kind of incremental building approach is one that didn't used to happen on premise.

Back in the premise days, generally speaking, given how expensive it was to create a data warehouse, there was a whole lot of upfront design and effort that went in before you did anything in the data warehouse at all. And you could spend $1 million on consulting before you had a single byte in your data warehouse. These days it's flipped around, and companies really just push to get started quickly and incrementally and then build into more complex scenarios over time. And that's why I think of Stitch as that on-ramp in the rest of Talent Cloud solves the more complex problems as they emerge.

Analyst

That makes sense. That makes sense thanks. Thanks for answering that. Adam, quickly it would be helpful if you could provide a bit more color on what Stitch did this quarter, so maybe they are growth on an organic basis. And also, if you could double-click on what constant currency our growth looked like last quarter so we have something to compare again. Thanks

Adam Meister -- Chief Financial Officer

Yeah. Sure. So we're not going to breakout Stitch in each quarter going forward. We'll just give you a little bit of color. Contribution was still relatively small. So, I think about it as couple of points of growth on that overall number. But that's as much detail as we're going to give on kind of a quarterly basis. We'll update you at the end of the year with overall contribution relative to our expectations. In terms of the constant currency growth for ARR last quarter, it would have been 37% versus the 33% that we reported. So, 6-point difference in this quarter versus a 4-point difference for the Q4 balance.

Analyst

You got it. Thanks so much.

Mike Tuchen -- Chief Executive Officer

Thanks, Dave.

Operator

And our next question comes from Jack Andrews with Needham. Please go ahead, sir.

Khanh Ngo -- Needham & Co. -- Analyst

Hi, gentleman. It's Khanh Ngo filling in for Jack today. I wanted to dig a little bit deeper into (ph) Stitch. So you guys talked about Stitch, so there is a frictionless degeneration. But can you talk about the what you kind of need to do to kind of build up this playbook. Have you seen any positive signs of expansion so far from the strategy?

Mike Tuchen -- Chief Executive Officer

Absolutely, we're seeing a number of new customers start with Stitch. So we're very -- very bullish about the overall frictionless approach going forward. I think we're still early in our overall exploration of the frictionless channel. We launched a product called Pipeline Designer that I mentioned a few moments ago, and we'll be introducing a Pay-as-you-Go pricing for that in the next several months. So that in the second half will become another frictionless option from the company.

And so, for us, I think you'll see us continuing to learn and build that frictionless channel over the course of this year. And we hope going forward into future years, the bet that we're making is that it becomes a major part of our overall go-to-market strategy. But as I said, in this calendar year, it's -- we're in the early days of building that out. We're very pleased with our early progress.

Khanh Ngo -- Needham & Co. -- Analyst

Great, that makes sense. And I want to dig a little bit into the innovations that you guys made on cloud deal warehouse. So, how should we think about Pipeline Designer as you're in kind of remote engines? What kind of trials can this leads to just kind of drive customers along on their cloud data warehouse journey. Are there any GAAPs that you're seeing in the cloud version that you're looking to shore up?

Mike Tuchen -- Chief Executive Officer

Yeah. So what we're -- what Pipeline Designer brings to us is a more complete design environment that's 100% web-based. And very soon to be frictionless in nature like stitch. And so if you go back to that progression that I mentioned where customers start by just simply loading data into a cloud data warehouse. The next thing that they want to do is start blending, transforming and cleaning data. And that's the job for Pipeline Designer. So it's Designed to be there to be that natural add on, an expansion point from Stitch. So that's where we expected to see and we see that also starting out in a frictionless way, and then becoming an opportunity to expand with more capability for larger enterprise customers.

Khanh Ngo -- Needham & Co. -- Analyst

Great. Thank you.

Operator

(Operator Instructions) Our next question is coming from Bhavan Suri with William Blair & Company. Please go ahead.

Bhavan Suri -- William Blair & Company -- Analyst

Hey, guys. Thanks for taking my question and congrats. I wanted to touch a little bit more on your support for OAS Version 3.0 which started in April obviously here. It feels like you're taking another step toward addressing like Mulesoft value proposition, API lifecycle management, reusable API components. Is that the right way to think about it? And then, how do you think you differentiate with Mulesoft in the market. I mean, it's very early for you guys but just trying to understand sort of the strategy and their approach.

Mike Tuchen -- Chief Executive Officer

Well, OK. So, Bhavan, thank you for drilling deep onto this one. So, for those that haven't been following us quite as closely, we took an API...

Bhavan Suri -- William Blair & Company -- Analyst

I can ask you a software question too, but let's get into something.

Mike Tuchen -- Chief Executive Officer

All right. So, we don't see ourselves competing with Mulesoft very much at all. We see ourselves very generally solving neighboring problems in the market by and large. What we would -- what OAS 3 is, it's really just the next-generation of the Swagger spec. And so, for us when we bought rest of it and which is now a talent API services, what that allows companies to do is share data, right. So, our overall value prop is collect, govern, transform share and API services being that final point of sharing.

So if you've built a data warehouse and you want to share it with customers, partners, suppliers and so on, then API services is a very natural way to do that. And in order to integrate with the latest versions of Apogee and the other cloud gateways, we needed to support the latest versus Swagger which is OAS 3 and it brings some additional capabilities as well. But that's overall what that announcement was. And we see that really being a primarily solving those sharing data in analytical scenarios, whereas Mulesoft is primarily about connecting together applications. Many companies will do both. And I know that we share a number of companies and we're not really today in any meaningful competition with them, and don't expect to be.

Bhavan Suri -- William Blair & Company -- Analyst

Got it. Thanks for the color then. On pricing, if you like at Italian car pricing, that's moved up over the past year. It's not a big surprise given you've added capabilities, but just broadly what do you guys think as in terms of pricing strategy. And so, a, sort of as you think about that, how do you guys think about pricing overall. And then there hasn't been any push back on customers. Thanks.

Mike Tuchen -- Chief Executive Officer

Yeah. So, the pricing actually hasn't changed. What's happening is, we're selling larger deals which is why the ASP is moving up. So, on a sort of per unit basis, price exactly the level. The way we think strategically we are pricing is that we have products at different price points, that's all different parts of the customer problem. And from entry products from the Stitch family where we really want to help customers get started really quickly and not have to make a big commitment, so Pay-as-you-Go in very, very inexpensively. As you solve more complex problems, we have higher price points to solve those problems, Talend Cloud being the next step in that value chain, and then other things like data catalog and so on which tend to be more expensive.

And so, really what we do is, we look to price the offerings that we have based on the value they're providing, which is pretty highly correlated into the complexity of the problem they solve for our customers.

Bhavan Suri -- William Blair & Company -- Analyst

Got it. Thanks guys and nice job there. Congrats.

Mike Tuchen -- Chief Executive Officer

Okay. Thanks, Bhavan.

Operator

And our next question comes from Tyler Radke with Citi. Please go ahead.

Tyler Radke -- Citigroup -- Analyst

Hey. Thank you. Good afternoon, guys. Could you talk about what you saw in the on-premise big data business? Have you seen any changes there, I think, in the past? Net new customer adds has been a weak spot, but the existing customer spend has continued to be pretty healthy. Just curious if you've seen changes there. Any commentary on the trajectory of that on-prem big data business?

Mike Tuchen -- Chief Executive Officer

I see the same trends continue to hold. We're seeing the vast majority of new customers are buying our cloud, which is why our cloud growth is so high right now. And -- but existing customers for all our premise products, including our premise big data products, our continued to buy more. And that trajectory really remains on the same trajectory that we saw in the last several quarters.

Tyler Radke -- Citigroup -- Analyst

Okay great. And then could you just talk about you know maybe some of the metrics and trajectory of deal sizes and expansion and how we should think about that as you go through the cloud transition, it looks like net expansion rate (ph) will go up this quarter at 118%. I didn't hear you call out any stat on traction with large deals, and I think you've said in the past that it might take some time as you ramp the cloud product to really get back to those larger deal sizes. Could you just kind of give us an update on what you're seeing there and how we should think about those metrics?

Mike Tuchen -- Chief Executive Officer

Yeah. So, Tyler, I was just going to walk through sequentially everything that you brought up. On overall metrics, we're absolutely focused on ARR as the best metric that cuts through some of the puts and takes around the radical shift. So I'd encourage analyst investors to really watch that over the course of the year. In terms of the net expansion rate, as you mentioned, has come down a couple of points from last quarter. It's very consistent with what we described in our last call because there was a boost to that number associated with 606 adoption. And so that should tick down a bit more over the course of this year as it fully reflects clean compares with 606.

And then, in terms of your last point around, just I'll chalk it up some more enterprise customer and the contribution of enterprise customers to the overall, that was still stable at about two-thirds of revenue. We're pretty pleased with the growth enterprise customers just in terms of count. And as we've been mentioning, we're very focused on cloud land, that's absolute the highest priority for us right now. And so we're comfortable with that next staying about where it's at.

With regards to the two-thirds, we did mention that quality Asps are now basically in line with the overall average, and so we've been pleased with seeing that continue to tick upwards over the last couple of quarters.

Tyler Radke -- Citigroup -- Analyst

Great, thank you.

Mike Tuchen -- Chief Executive Officer

Our next question comes from Mark Murphy with JPMorgan. Please go ahead.

Matthew Coss -- JPMorgan -- Analyst

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. Thinking about Talend Cloud on Azure coming later this year, currently what is your view on the lead flow from Azure Data Warehouse or Azure Data Lake Store and how big could that get in terms of lead flow versus some of the other cloud data warehouses?

Mike Tuchen -- Chief Executive Officer

We're seeing a lot of interest from many of our larger enterprise customers in Azure. And so, what we're actually seeing our average deal size, an Azure being quite a bit higher than our average deal size and other clouds, and partly because of that enterprise interest in Azure, the overall dynamics that we see in the market is that Microsoft has built and maintained very strong relationships with large enterprise companies. And that combined with their strong partner network really has an enterprise waiting to the leads and deals we work with there. And so that was one of the drivers for us to build into a native offering in the Azure Cloud that will come out in Q3. And we expect those trends to remain over time, which is a larger enterprise mix on the Microsoft side relative to some of the other clouds.

And there's -- what we're seeing in Azure is strong interest in Azure SQL Data Warehouse and their Data Lake and of course in Snowflake and Azure as well.

Matthew Coss -- JPMorgan -- Analyst

Great. Thank you. And then, one for Adam. Were there any $1 million ACV wins this quarter? And if not, do you see some of them in your pipeline and what are you expecting more to close this year?

Adam Meister -- Chief Financial Officer

Yeah. There's always a handful of large transactions that sit in the pipeline. We didn't see any of this quarter. I don't think that's necessarily a trend. It's just quarter-to-quarter can vary. But we're pretty comfortable with big deal opportunities as we look out to the rest of '19? We're seeing, as we mentioned the overall, the AFC for talent cloud is now in line and part of that is reflected by we're starting to see larger deal mix has come into Talend Cloud, nothing across any part of the portfolio eclipsed $1 million in Q1, but again Q1 is not a quarter that you would typically see particularly large transactions.

Matthew Coss -- JPMorgan -- Analyst

And then lastly, how much worse has FX become versus this time last quarter? So, I presume there was a headwind to your full year guidance last quarter and how much worse has it gotten this quarter?

Mike Tuchen -- Chief Executive Officer

Yeah, it's spot on. I mean, from our read it's about 2 percentage points change just euro to the dollar since we last gave guidance. So that's absolutely part of the headwind associated with our holding top line guidance flat for the year?

Matthew Coss -- JPMorgan -- Analyst

Thank you.

Mike Tuchen -- Chief Executive Officer

(Operator Instructions) We will take our next question from Brent Bracelin with KeyBanc. Please go ahead sir.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Thank you. Mike for you, I was wondering if you could just provide some update on the search for the new sales leader kind of where you're out there and then Adam could you touch base a little bit around kind of the cloud gross margins. I know that mix shift is pressuring gross margins this quarter. Just wanted to understand is that just up early days of cloud and you'd expect the gross margins to normalize at scale, just any sort of color on margin implications of cloud would be helpful. Thanks.

Mike Tuchen -- Chief Executive Officer

Yeah. Hey, Brent. On the sales leader search, we're seeing a number of strong candidates and very much in the middle of the search now. We don't have any announcements to make, but we certainly will look forward to making announcement when we have a final candidate.

Adam Meister -- Chief Financial Officer

Yeah. And then, Brent, in terms of the cloud gross margins, we've shared that there's going to be naturally a few points of pressure on our subscription gross margins associated with, with cloud mix shift. We're totally comfortable with that because we think long term cloud customers are growing much stickier so from an economic perspective it's still the right move to make. That was you know one point in Q1 it'll be a couple of additional points over the course of the year. And I think it's too soon to tell when that will -- when and if it will inflect. But long-term, I think that our cloud gross margins should be right in line with our best-in-class businesses.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

That's helpful. And then, last question for me is on ARR as we think about that is the best proxy for the business this quarter it had a 6% effect headwind. That's a little different than the revenue effects you talked about being only 2% for the full year. Walk us through the FX headwind that you expect ARR for the full year and just why is it a little more significant in Q1 than at least what we were modeling. Thanks.

Mike Tuchen -- Chief Executive Officer

Yeah, absolutely. So first I'll clarify. The 2% points that I mentioned in the prior question was just the FX rate change since we gave initial guidance this year . It's not necessarily the hit for the full year that we're expecting in terms of the ARR FX impact, if you look back at Q1 of last year it was particularly pronounced. The dollar strengthened quite a bit over the course of Q2 and then started to stabilize. And so, we think there's still a decent amount of FX impact in Q2, and then it should start to level off in the back half of the year. I don't think we have a precise answer on exactly what it's going to be over the course of the year, but that should give you enough color to just to think of how it's going to narrow going from now into Q4.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

That's helpful color. Thanks for that. Thanks.

Operator

And this concludes today's question-and-answer session as well as today's conference call. Thank you for your participation and you may now disconnect.

Duration: 44 minutes

Call participants:

Lisa Laukkanen -- Investor Relations

Mike Tuchen -- Chief Executive Officer

Adam Meister -- Chief Financial Officer

Analyst

Khanh Ngo -- Needham & Co. -- Analyst

Bhavan Suri -- William Blair & Company -- Analyst

Tyler Radke -- Citigroup -- Analyst

Matthew Coss -- JPMorgan -- Analyst

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

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