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Talend S.A. (NASDAQ:TLND)
Q2 2019 Earnings Call
Aug 7, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Talend's 2Q 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 second quarter fiscal year 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 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 initiative 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 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-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 have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP 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 are pleased to report strong second quarter results, as our cloud business continues to build momentum. We are landing cloud customers at an increasing pace and laying a foundation for future growth for both new customer adoption, as well as existing customers expanding their use of Talend. The cloud market is the most important market to win, as cloud will drive the majority of future growth in the data integration market and the progress we have made in their cloud business positions us to continue to gain market share.

In the second quarter, we achieved record total revenue of $60.6 million, up 22% year-over-year. Some additional highlights from the quarter include; annual recurring revenue totaled $218 million and grew 28% year-over-year, or 29% on a constant currency basis. Our subscription revenue grew 26% year-over-year, or 30% on a constant currency basis. Talend Cloud, our SaaS offering grew more than 100% year-over-year for the 12th consecutive quarter and represented 43% of new ARR, up from 36% in the first quarter.

We are well on our way to achieving the target we set of having half of new ARR coming from cloud by Q4 of this year. Our total customer count crossed 3500 of which over 1500 are cloud customers. And finally, I'm happy to announce the appointment of Lauren Vaccarello, as Talend's Chief Marketing Officer. Lauren formally served as the Vice President of Marketing at Box. She is an expert in modern digital marketing, branding and demand generation and has held executive positions at some of Silicon Valley's fastest growing SaaS companies. Lauren is a valuable addition to Talend's leadership team, as we continue our high growth cloud trajectory.

Q2 was a solid quarter, as our cloud business continues to grow at a tremendous rate. However, as we look to the second half of the year, we see three factors that will impact our full year revenue. First, the accelerating move to the cloud, will result in less services business in the coming quarters. Second, the macro and political environment in Europe makes us more cautious about our EMEA business for the second half. And third, as previously discussed, the overall growth in our premise business continues to moderate.

Despite these near term headwinds, we believe we are better positioned today than at any other point in our history to address the largest growth opportunity in the data integration and integrity market, which is the cloud. As we have previously noted, several powerful secular trends are driving market growth in cloud adoption.

The explosion in global data volumes, a broad transition to public and hybrid cloud environments, an increase in data privacy regulation and rapid technological innovation and evolution, with these trends come significantly greater integration and integrity complexity and the need for a modern and complete suite like Talend Data Fabric.

Industry analysts are recognizing these shifts in reinforcing our strategy. In fact just this week Talend was recognized as a leader in the 2019 Gartner Magic Quadrant for Data Integration Tools. This is our fourth consecutive placement in the leader's quadrant, driven by our ability to execute and completeness of vision.

In the report Gartner noted the Talend's strengths include our market momentum, saying "the vendor has also captured Mindshare appearing at over 50% of Gartner contract review calls for data integration tools and featuring very frequently in competitive situations during our inquiry calls.

The firm also praised Talend's strong portfolio and strategic investments in innovation including our recent Stitch and Restlet acquisitions. In their words "these strategic investments along with existing iPaaS capabilities position Talend well for hybrid and multi-cloud integration support. As we have discussed in the past and will illustrate again today in describing our recent customer wins, Talend is at the forefront of the market with

Talend Data Fabric, our unified environment that shortens the time to trusted data and solve some of the most complex aspects of the data value chain.

In Q2, we unveiled the summer release of Talend Data Fabric, which includes a number of enhancements around our Snowflake, Azure and Databricks support and we will shortly introduce pay-as-you-go pricing for pipeline designer. This is an important step in our overall land and expand strategy, providing an easy and frictionless way for customers to initiate cloud projects with Talend and then scale with us, as their needs grow.

Cloud is increasingly the deployment model of choice for data integration. Driven by the adoption of cloud analytics and cloud data warehouses. Although we are still in the early innings of industrywide cloud adoption, we believe that over time data integration will be managed predominantly through the cloud. We are seeing larger companies adopt the cloud and deal sizes continue to be in line with our overall average deal size.

As I have mentioned in the past well the majority of our existing customers are on-premise today, we are beginning the process of migrating the small number of customers to the cloud and most of our conversations with new customers focus on Talend Cloud. We believe ultimately the vast majority of our premise customers will migrate to the cloud in the coming years. By using Talend, these customers will have a far easier path to the cloud than others, who aren't using Talend yet.

in the near term, however, it's important to emphasize that we have a stable base of premise customers with solid expansions. As matter of fact, in Q2, the constant currency dollar based net expansion rate for on-premise Big Data solutions was actually a few points higher than our overall business, which was 118% on a constant currency basis.

Furthermore, this Big Data net expansion rate doesn't capture customers, who migrated from premise Big Data to Talend Cloud, including of enterprise customers in Q2. As one example of a premise customer migrating to the cloud, this quarter we won a record multi-million dollar cloud deal with an existing customer, a major multinational biopharmaceutical firm.

Our initial landing point with the company several years ago was focused on optimizing and reducing the cost associated with financial data management. Based on the success of that project and our compelling product road map, the Company decided to make us their enterprise wide strategic data integration and catalog provider to support all divisions of the business as we move to the cloud. We are particularly excited about this win because we believe it validates our market vision with a large enterprise customer. It was also our largest ever cloud deal and we displaced Informatica, who is the on-premise incumbent, as the go forward enterprise standard.

Let me walk you through a few other customer success stories. We saw a healthy mix of new wins and strong expansions in the second quarter. In Q2, we signed an agreement with Splunk, a company that helps enterprises search, analyze and visualize machine generated data. Technology companies are the most discriminating buyers and we believe it's a testament to the strength of our solutions, when we earn their business. Splunk is using Talend Cloud to support a major corporate data governance program, will improve data quality and Lineage will improve sales, marketing and customer service productivity.

Travelopia is a pioneer in the specialist travel sector with a portfolio of more than 50 independently operated brands, many of which are leaders in their sector. Talend is helping Travelopia gain data speed and trust, as they move to an optimized data lake on AWS Redshift.

As part of this transformation, the Company's emerging data from a range of legacy reservation systems to gain a unified view of their data and drive personalized customer interactions. Moving forward, Travelopia will be using Talend to power the real-time data integration and maintain a precise up-to-date view of the customer.

Talend won Travelopia's business based on our end-to-end data suite approach with built-in enterprise, data quality, governance and lineage and our ability to run natively in AWS. Talend's partner Harman International, the consulting arm of the famous audio equipment company introduced Talend into this account in a supporting delivery.

Another significant win for the quarter was with a multi-billion dollar manufacturing company. The firm is using Talend in AWS to create an analytics data lake to support as large team of data scientists. This team will analyze operational and sales data to uncover new revenue opportunities and cost cutting measures. They expect to see a $200 million impact on the business in the first year alone. Talend won the agreement based on the breadth and flexibility of our Talend Data Fabric Suite and seamless connectivity with AWS.

We also won a number of new agreements in APAC to help companies move to the cloud. Talend won the business of flybuys Australia's largest loyalty program with over 10 million cardholders. Speed and trust were major themes as flybuys selected Talend and also like to help accelerate data throughput and improve data governance. flybuys wanted a more robust, higher performance data platform to improve service for its partners.

The company collects point-of-sale data from its retail partners to manage member point. It used to take flybuys over five hours to process the daily batch of information from its largest retailer. With our new platform powered by Talend and Snowflake they can now complete the same task in just 60 seconds.

Coopers Brewery Limited, is the largest Australian-owned brewery and the world's largest manufacturer of home growing equipment. In Q2 Coopers selected Talend to help transform its logistics operations. Their automated warehouses use an integrated inventory and supply chain system, which has been crashing due to increased demand and complexity. This slowed operations and increased costs. With this latest architecture powered by Talend, Coopers is looking to better manage increased demand by accelerating their delivery operations, reducing cost and optimizing customer and partner experience. The ability for Talend's cloud in API solutions to flexibly fit with Coopers current tech ecosystem without changing or disrupting the technologies, was a key consideration in selecting Talend.

We continue to strengthen our relationships with our ecosystem partners and have expanded our reach with the introduction of Stitch Data Loader on AWS Marketplace and a Remote Engines for Talend Cloud in the Microsoft Azure marketplace.

Talend also unveiled a new Technology Alliance Program to accelerate Talend Data deployments for customers. The program provides partners with access to integration toolkits, product licenses for testing and demonstration, marketing assistance and technical and development support. The overall aim of the program is to help partners speed the creation of value-added data integrations and connectors for customers

As we look to the second half of the year, we are confident that our transition to the cloud continues to gather momentum. Our cloud business grew by 100% for the 12th consecutive quarter and represented 43% of our new ARR in Q2. We are solidly on track for our goal of exiting 2019 with half of new ARR in the cloud and continue to see the opportunity expand ahead of us.

However, as I mentioned earlier, the impact from lower professional services revenue and the cautious outlook on EMEA, combined with a slightly slower than anticipated growth of our premise business causes us to lower the midpoint of our full year guidance by $2 million. You can see the impact from professional services on our overall revenue growth in Q2. This impact will continue throughout the year, as our cloud business ramps and that translates to lower revenue expectations for the full year.

Separately, our ongoing strategy of reducing prebuilt duration for both new and renewal transactions has been working faster than expected this year, as a greater portion of transactions were build annually or less than Q1 and Q2. You can see this effect in the divergence of ARR in calculated billings growth in the last two quarters. This is the largest contributor to us increasing our cash burn guidance to $15 million for the full year. We remain confident in our position as a global leader in the cloud integration and integrity market and continue to see an opportunity to create enduring value with the strength of our platform in our cloud first innovation.

Let me now turn the call over to Adam to discuss our Q2 financial results and the outlook for Q3 and the second half of 2019.

Adam Meister -- Chief Financial Officer

Thank you, Mike. Today, I will review our financial results for the second quarter 2019 as well as provide our outlook for the third quarter and fiscal year 2019. As a reminder, we are reporting Q2 financial results under U.S. GAAP, as required when we became a domestic filer at the beginning of this year.

We are pleased with our second quarter results, which were driven by continued momentum in our cloud business. Annual recurring revenue or IRR grew $218 million as of June 30, 2019, up 28% year-over-year, or 29% year-over-year on a constant currency basis. We define ARR as the annualized value of all active contracts at the end of a period, and as a result, the FX impact of this point in time measure will differ from that of subscription revenues.

The strong demand for Talend Cloud contributing meaningfully to this growth. Talend Cloud represented 43% of new ARR for the second quarter, up from 36% in Q1. We are excited with our progress toward Talend Cloud reaching half of new ARR exiting 2019. We anticipated that growth in on-premise would slow as customers increasingly prefer a cloud solution and our rapid rotation to the cloud is evidence of that. As I will discuss shortly, we expect this dynamic to impact our outlook for the back half of 2019, particularly due to lower professional services attached with cloud transactions.

Total revenue for the second quarter was $60.6 million, up 22% year-over-year. Subscription revenue for the second quarter was $52.9 million, up 26% year-over-year, or 30% on a constant currency basis. Most of the FX impact was foreseen with changing rates over the course of Q2 2018 with a small incremental headwind due to changes since our last guidance.

Subscription revenue from Talend Cloud grew more than 100% year-over-year for the 12th consecutive quarter. Customer additions in the quarter were strong and we now have over 3500 customers with over 1500 of them being cloud customers. We also reached 525 enterprise customers, defined as customers with 100,000 or more of annualized subscription revenue. Enterprise customers contributed 68% of subscription revenue in Q2 versus 67% in Q1.

For the quarter ending June 30, 2019, our dollar-based net expansion rate was again 118% in constant currency. We are pleased with this result given the downward pressure during this year related to the adoption of ASC 606. As a reminder, this revenue based metric was bolstered during 2018 due to ASC 606 and is expected to come down gradually over the course of the year, as this four-quarter rolling measure fully reflects the new revenue standard .

As Mike noted, we continue to see healthy retention and expansion from existing on-premise big data customers. The dollar-based net expansion rate for on-premise big data was a few points higher than our overall average dollar-based net expansion rate and has been consistently for the last few quarters. This speaks the stability of our on-premise Big Data install base.

Professional services revenue was $7.7 million in the second quarter, flat year-over-year. This moderation is largely related to the lower average professional services requirement for Talend Cloud, which was anticipated, although the impact was more pronounced than expected in Q2. Professional services revenue resulted in a 4% drag on overall revenue growth for the quarter versus our expectation of 1% to 2% in our prior guidance.

Professional services revenue can fluctuate due to project timing as well as cloud mix, but based on current trends, we expect the impact of professional services to overall revenue growth for the remainder of 2019, to be similar to the impact in Q2. Accordingly, ARR growth is the best indicator of our momentum with both new and existing customers during our cloud shifts. As Mike noted, from a geographical perspective, we've seen some softening of demand in Europe, given the macro economic backdrop. Total revenue from our EMEA region grew 14% year-over-year in Q2. We're taking a cautious outlook on EMEA for the remainder of 2019.

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 of GAAP and non-GAAP results can be found in our earnings press release issued today, which is posted on the Investor Relations portion of our website.

Our total gross margin for the second quarter was 76% compared to 77% in the same period last year. Professional services gross margin was 13% this quarter, up from 6% last quarter. Operating expenses for the second quarter was $52.4 million, up 25% year-over-year. Sales and marketing expenses for the quarter were $31.5 million, up 20% year-over-year.

R&D expenses for the quarter were $12.5 million, up 49% year-over-year, as we continue to drive investment in our cloud products and operations. It's also particularly impacted by the inclusion of Stitch for R&D accounted for most of the operating expense.

G&A expenses for the quarter were $8.4 million, up 15% year-over-year. This reflects our ongoing focus to drive efficiency in the business, but G&A also benefited relative to last year due to some overhead expenses that we began allocating at the beginning of this year.

We incurred an operating loss for the quarter of $6.1 million, or 10% compared to an operating loss of $3.6 million, or 7% in the second quarter of 2018. The performance versus initial guidance primarily reflects our efforts to drive efficiency during Q2.

Net loss for the quarter was $6.4 million compared to a net loss of $3.6 million in the prior year period. Cash and cash equivalents totaled $32.1 million, as of June 30, 2019 versus $29.1 million at the end of March. Free cash flow for the quarter was $1.3 million. We are focusing on shaping our business around the cloud opportunity and we believe the continued strategic investment in our cloud products will position us to be a leader in data integration, innovation.

We now anticipate free cash flow will be roughly $15 million negative for the year versus our prior year expectation of $5 million negative. The largest contributor to the increased free cash flow burn is the impact from shortening contract duration. In Q2 we saw pre-built contact duration compressed to 1.02 versus an average of 1.08 over 2018. Note that our pre-built duration calculation exclude the impact of monthly billed customers, including much of Stitch, which is a growing part of our business.

Our goal of reducing pre-built duration has worked in both new and renewal transactions and had a larger-than-expected impact for the first half of 2019. This is evident with the decline in long-term deferred revenue since the end of 2018. Analyzing the difference between our ARR growth and calculated billings growth is helpful to understand the impact of shortening duration on free cash flow.

I'll now turn to our outlook for Q3 and full-year 2019. As a reminder, our guidance assumes similar business conditions and foreign exchange rates as of July 31, 2019. For the third quarter 2019, total revenue is expected to be in the range of $61.5 million to $62.5 million. Non-GAAP loss from operations is expected to be in the range of $7.3 million to $6.3 million. Non-GAAP net loss is expected to be in the range of $7.8 million to $6.8 million. Non-GAAP net loss per share is expected to be in the range of $0.25 to $0.22. This is based on a basic and diluted weighted average share count of 30.7 million shares.

We are updating guidance for the full-year 2019 as follows. Total revenue is expected to be in the range of $246 million to $248 million. Non-GAAP loss from operations is expected to be in the range of $28.5 million to $26.5 million. Non-GAAP net loss is expected to be in the range of $30.1 million to $28.1 million. Non-GAAP net loss per share is expected to be in the range of $0.98 to $0.92. This is based on a basic and diluted weighted average share count of 30.6 million shares.

Our revised guidance for the full-year reflects our expectations for one, lower professional services related to cloud; two, conservatism regarding Europe for the remainder of the year; and three, continued moderation of on-premise revenue growth. We are excited about the progress we have made in advancing our cloud strategy and exiting 2019 with Talend Cloud, as the largest contributor to new business. We remain confident that our market leadership, strong customer and ecosystem relationships and cloud-first innovation will enable us to continue to drive durable growth over the long term.

With that, I'll open the call to questions.Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll go to Bhavan Suri with William Blair & Company, first.

Bhavan Suri -- William Blair & Company -- Analyst

Hey guys, thanks for taking my questions. And obviously a great job there on the cloud business. I guess I just want to touch on one comment. Mike, you made, which was about cloud deal sizes. Is that the sort of start trending toward the average deal size? I just want to get that clear. So, the initial cloud deal sizes, are they headed toward what the historical on-premise deal size? Were just some color there would be helpful. And then I have a quick follow-up.

Mike Tuchen -- Chief Executive Officer

Sure. Hey Bhavan it's Adam. So, right now cloud deal sizes are in large in line with the overall average we're seeing. So, that's still a bit below kind of the max peak we saw back in 2016 related to big data, but we're very comfortable with that. Now the cloud deals and the overall deal sizes that we're seeing are in-line and we don't expect that to diverge much from this trend at this point.

Bhavan Suri -- William Blair & Company -- Analyst

Got it. It's helpful. And I got a quick follow-up. I guess it's a two-part follow up. One, I'd love to understand, where the data governance product is obviously that's pretty strategic, and sort of some of these challenges around, where transformation happens or not part of that? It's a data governance and the adoption of that?

And then two, I guess what are you guys seeing in Europe, or EMEA, specifically, I guess that sort of has some concerns. Is the UK is it verticals? Is it new deals that people not willing to start new projects, trying to understand what gives you guys that caution? Thank you.

Mike Tuchen -- Chief Executive Officer

Yeah, Bhavan it's Mike. The data governance remains a area of very strong interest with our enterprise customers. And area that we're investing in across the board from engineering to sales and services and so that business is growing strongly. We don't break it out as a separate area, but it's -- it's a strong part of our business and a key part of our enterprise sales conversation.

In terms of Europe, what's going on is the, the overall demand environment seems to be in a slowing a bit due to the macro-economic and political risks [Phonetic] going on right there. We, -- what's interesting though is the cloud business there is really moving fast. And so what's really happening is the premise business in Europe is where we're seeing the softening. And so, as a matter of fact, when we talk about the premise business softening, it is Europe in particular that's running lower than we expected, where is the cloud business worldwide is really moving fast. That's really the picture that we're seeing right now.

Bhavan Suri -- William Blair & Company -- Analyst

Got it. That's helpful. Thanks guys. Thanks for taking my questions.

Mike Tuchen -- Chief Executive Officer

You bet.

Operator

[Operator Instructions] We'll go to Jack Andrews with Needham.

Jack Andrews -- Needham & Company -- Analyst

Good afternoon and thanks for taking my question. Mike, you talked about landing cloud customers at an increasing pace. I mean, that sounds like an acceleration to me. I was just wondering if you could provide some more context and growth rates and things around the actual number of customer as you're really experiencing right now?

Mike Tuchen -- Chief Executive Officer

Yeah,we had announced in Q4 -- at the end of the Q4 call, so in on our February call. That we were up to 3,000 customers and of which around 1,000 were cloud. And we just announced that we are at 3500 customers, of which 1500 to cloud. So, we added around 500 cloud customers in the last two quarters, which is clearly a significant uptick from where we've been prior to that.

Jack Andrews -- Needham & Company -- Analyst

Great. And then you gave an example of customers migrating from on-premise to the Talend Cloud. Could you help us think through what the potential financial ramifications are that or for that for your company is this an opportunity to expand with customers, or do you have enough data in terms of how their behavior might change in those such as migration scenarios?

Mike Tuchen -- Chief Executive Officer

Yeah. So, as of right now, the way our pricing works, the pricing is leveled between premise and cloud, just to make exactly these kind of situations easier. What we're finding to date is that we are seeing a modest uplift as customers moves to the cloud, typically they end up buying a little bit more as they do that is expanding into the cloud. And for us, we see the, -- this is still very early days in the cloud migration. We expect the bulk of that to happen over the next several years.

Jack Andrews -- Needham & Company -- Analyst

Great. Thanks for taking my questions.

Mike Tuchen -- Chief Executive Officer

You bet.

Operator

We'll now take a question from Chris Merwin with Goldman Sachs.

Chris Merwin -- Goldman Sachs -- Analyst

Okay, great. Thanks for taking my questions. I was wondering if you just talk a bit more about the integration of Stitch and how that higher velocity go-to-market is helping to drive the cloud business? And then I had a quick follow-up.

Mike Tuchen -- Chief Executive Officer

Yes, Stitch, as we had anticipated and hope to see, Stitch is really driving a very high velocity, new customer acquisition vehicle. And that's a lot of the new cloud lands that we've talked about were through the Stitch as initial land. We are now starting to work on the expansion from a Stitch land into further parts of Talend Cloud and we're seeing nice progress on that.

Chris Merwin -- Goldman Sachs -- Analyst

Okay, great. And then just in terms of cash flow guidance, as we saw that came down a little bit, as you call out due to shorter build contract duration. I feel like that's I guess fully be derisk at this point even to receive maybe a higher influx of shorter duration deals. Just curious how we should be thinking about that, and particularly as it relates to the cash cushion will come at the end of the year?

Adam Meister -- Chief Financial Officer

Yeah, good question. So, yes, we think we've fully derisk it. The first quarter, we saw that short in duration we talked about on our prior call. As we got through second quarter, realized there is definitely a trend here. And so we looked at 1.02 as potentially a steady state. And it just be helpful, people look at this a couple of different ways.

I mentioned in my prepared comments, the difference in growth between ARR and calculated billings as one indicator. And if you grew basically calculated billings, at the same rate as ARR, that would be about $8.5 million in the first half of the year. If you look at the just decline in long-term defer, that's about $8.9 million, since the end of Q4. And then I think most importantly, if you look at just change in RPO plus revenue, relative to calculate billings there is a difference of $9.7 million.

So, all those kind of triangulate and give you a sense of what the true duration oriented impact was for the first half. We think some of what we've done around efficiency in the business will ensure that it's not that large for the second half of the year as well. But basically, those are the big factors that go into the $50 million guide.

Chris Merwin -- Goldman Sachs -- Analyst

Okay, great. Thank you.

Operator

We'll now take a question from Mark Murphy with JPMorgan.

Mark Murphy -- JPMorgan Chase -- Analyst

Yes, thank you very much. Mike, you mentioned that overall growth in the on-prem business continues to moderate. I'm just wondering if you'd be able to quantify the rate of moderation you expect there in the second half?

And is your feeling that, that on-premise revenue stream is going to begin to decline year-over-year, or do you think it would continue to grow?

Mike Tuchen -- Chief Executive Officer

Hey, Mark. We talked about our overall net expansion rate of being at 118% and we mentioned that the premise do piece of that actually is premise Big Data part, is actually even a slight tick above that. So, we see that as a very stable base for us right now. I think overall the premise business continues to moderate, ends up as a very low double-digit grower. That's our current outlook on it.

Mark Murphy -- JPMorgan Chase -- Analyst

Very low double-digit grower in the second half?

Mike Tuchen -- Chief Executive Officer

Yeah. And going forward, it seems to be stable at this point.

Mark Murphy -- JPMorgan Chase -- Analyst

Okay.

Adam Meister -- Chief Financial Officer

Hey, Mark it's Adam. I'll add on to that. I think we covered this in our last call. We predicted that, that moderation of growth to low double digits would be four to six quarters. And based on what we're seeing right now, it's probably on the shorter end of that range, but still in the range.

Mark Murphy -- JPMorgan Chase -- Analyst

Okay, great. And as a follow up, Mike architecturally, what work do you think remains to be done to continue to evolve your on-prem data integration engine, so that it's fully adapted for modern cloud environments? What has been done and what remains on the roadmap there?

Mike Tuchen -- Chief Executive Officer

Well, the just to make sure I answered the question. We've really rearchitected the cloud products from the ground up. And the reason why, when we kicked off the project about five and half years ago, the reason why it took us a couple of years to rebuild it back then, was we did the investment to make it multi-tenant and containerized and elastic and really take advantage of all of the benefits you get in the cloud.

And so we have a number of further enhancements that we're bringing, but I don't look at that as modifying our promising because we took that investment five years ago. What we're doing is, we're continuing to move forward to the best-in-class cloud engine, is the way I look at the investments we're making right now.

And there is a bunch of things that we're doing to get probably the biggest one right now that we've announced is our Azure support coming up in this quarter, by the end of September. And the pay-as-you-go billing engine behind pipeline designer to give us a pure pay-as-you-go model. So, there are two very near term things, but there aren't anything about modifying our old on-premise architecture. It's about continue to further and expand our new cloud architecture.

Mark Murphy -- JPMorgan Chase -- Analyst

Okay, got it. Thank you very much for taking my questions.

Operator

We'll now take a question from Brent Bracelin with KeyBanc Capital Markets.

Clarke Jeffries -- KeyBanc Capital Markets -- Analyst

Hi guys. It's Clarke Jeffries on for Brent. As we think about the kind of assumptions that you've built in at the beginning of the year. And I guess revisiting and putting together some of the comments you just made. 43% of new ARR are being driven by cloud, but it seems like on-premise big data could still have the potential of being a low double-digit revenue grower.

Is it safe to say that this acting assumptions for on-premise big data are relatively same as entering the year and that you've only seen now performance on the cloud business in terms of that were nearly 43%, nearly 50% of new IRR from cloud in 2Q?

Adam Meister -- Chief Financial Officer

Hey, Clarke, It's Adam. I'd say the cloud performance has exceeded the expectations that underlie the guidance that we provided. And that's been counterbalanced a little bit by the slightly faster than we had anticipated deceleration of growth in Big Data. So, I think, you're spot on in terms of how you're framing it and really what's going into the guidance for the rest of the year.

Clarke Jeffries -- KeyBanc Capital Markets -- Analyst

Great. And in terms of the migration efforts, in those discussions are they willing to purchase ahead of a core infrastructure decision? Or, are those conversations really happening alongside another cloud platform product or other another cloud infrastructure decision that they're making. And that's it from me. Thank you.

Mike Tuchen -- Chief Executive Officer

It's a great question. Typically they happen in conjunction with them with customers, -- with larger customers that happens in conjunction with a broader strategic move to the cloud and as they're starting to figure out their cloud strategy, whether it's a single primary cloud or two clouds that are at a relatively equal one, what level of multi-cloud and hybridization they want to go through. And those conversations tend to be going on in parallel.

With smaller customers, what we're finding is the cloud is such a superior value prop that even if they keep their analytical infrastructure on-premise in the near term. Just moving the Talend portion of infrastructure of the cloud gives them some immediate near-term benefits. So, we're seeing smaller customers just go ahead and migrate to the cloud in advance of their overall infrastructure migration. But with larger customers, it's part of that larger strategic conversation.

Operator

[Operator Instructions] We'll take our next question from Tyler Radke with Citi.

Tyler Radke -- Citigroup Inc. -- Analyst

Hey, thank you. Good afternoon, guys. Can you talk about you mentioned that the net expansion rate among your premise big data customers were it sounds like in the low-20s. You're expecting the growth to moderate a little bit faster than you had originally expected. So, I guess is that, are you expecting kind of a less robust net expansion rate there going forward? Or is the new business falling off faster than you expected? If you could just walk through the dynamics there.

Mike Tuchen -- Chief Executive Officer

You know, both things are happening. We had very little expectations for new customer adds in the premise big data product and those -- that proved to be true. And I do expect our net expansion rate for the big data business to decline. Remember it's a lagging metric because it's a four-quarter rolling average. So, yes, I do expect that to decline over time.

Tyler Radke -- Citigroup Inc. -- Analyst

Okay, great. And maybe just provide an update on how the search for Chief Revenue Officer and Head of Sales? And in the meantime, how you're thinking about kind of managing the sales force between kind of the higher velocity Stitch and some of these new pay-as-you-go models versus kind of the larger deals that it sounds like you're having some success with here?

Mike Tuchen -- Chief Executive Officer

Yeah. So, we're seeing strong interest in the position. We've seen some very strong candidates. We don't have anything to announce right now. In terms of the how we're managing the team right now and making that the transition to the kind of frictionless lands and expand from there. We have three very strong regional leaders and they're doing a great job of leaning into the cloud opportunity. And that's why, we're seeing such terrific growth on the cloud side.

And I'd say we're excited in a related area with our introducing Lauren to the team as our Chief Marketing Officer, given her experience in the modern digital marketing and frictionless cloud world. And we think that's going to be an important part of us continuing to accelerate that motion going forward. We're seeing it work extremely well already with high velocity customer lands and we're just now starting to see the expands happen from that as well.

Tyler Radke -- Citigroup Inc. -- Analyst

Thank you.

Operator

We'll go next to Raimo Lenschow with Barclays.

David Rainville -- Barclays Capital Inc. -- Analyst

Hey this is David [Phonetic] on for Raimo Lenschow. I had a quick question on Stitch. I want to understand the go-to-market impact of having searching if the sales force has started leveraging Stitch to fell to cross-sell the full Talend suite, yeah?

Mike Tuchen -- Chief Executive Officer

Yes. So, that the rest of the Talend sales force is now starting to expand from customers that started their journey with Stitch. And now we're also starting to use it proactively, as a seeding mechanism. If you're working with a customer that has a simple problems solved, we are now starting to suggest, why don't you start with Stitch, you will be live in minutes. And solve that problem, then we can help you solve that the next part of your problem, when you're done with that. So, that's giving us a another tool in the toolkit for our sales force to use, not just as a separate frictionless motion.

David Rainville -- Barclays Capital Inc. -- Analyst

All right. So, fair to say that we're still early in that cross-sell opportunity then?

Mike Tuchen -- Chief Executive Officer

Oh, for sure. For sure. I think that's for us -- refining this and bringing pipeline designer into the mix is really the -- in the most important part of our evolution over the next couple of years.

David Rainville -- Barclays Capital Inc. -- Analyst

Thank you. And just the final question on the cloud deal sizes. I was actually surprised to hear that they're on par with your on-prem's deal sizes. Do you see those deal sizes changing in the future? Do you see the cloud deals ending up being larger than on-prem?

Mike Tuchen -- Chief Executive Officer

Yeah. So, we've seen our cloud deal sizes improved nicely over the last year. I think about the current percentage growth in those is, but it's improved really nicely over the last year. And as we're seeing larger and larger cloud expansions, I wouldn't be surprised if that continued.

We from my perspective, we have two countervailing things that are happening in the business and the question ultimately is how that blends ends up working. And we have larger and larger cloud expansions happening now with some very young cohorts that are in aggressive expansion phase. But we were also seeing high velocity lands a number of smaller higher velocity lands. And so the question is how that math blends out is a good one. But if the question is, are we seeing more and bigger cloud with engines, the answer is very definitively, yes.

David Rainville -- Barclays Capital Inc. -- Analyst

All right. Thank you, guys.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Lisa Laukkanen -- Investor Relations

Mike Tuchen -- Chief Executive Officer

Adam Meister -- Chief Financial Officer

Bhavan Suri -- William Blair & Company -- Analyst

Jack Andrews -- Needham & Company -- Analyst

Chris Merwin -- Goldman Sachs -- Analyst

Mark Murphy -- JPMorgan Chase -- Analyst

Clarke Jeffries -- KeyBanc Capital Markets -- Analyst

Tyler Radke -- Citigroup Inc. -- Analyst

David Rainville -- Barclays Capital Inc. -- Analyst

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