Datawatch Reports Third Quarter Fiscal 2016 Financial Results

BEDFORD, Mass., July 21 — Datawatch Corporation (NASDAQ-CM: DWCH), a leading global provider of self-service data preparation and fast data analytics solutions, today announced that total revenue for its third quarter of fiscal 2016 ended June 30, 2016 was $7.4 million, flat with revenue of $7.42 million in the second quarter of fiscal 2016, and down from total revenue of $7.8 million in the third quarter of fiscal 2015. License revenue for the third quarter of fiscal 2016 was $3.67 million, a 1% increase from the $3.65 million recorded in the prior quarter this fiscal year, and an 11% decline from the $4.12 million recorded in the same quarter a year ago, which was the first quarter to reflect the company’s move to subscription license sales.

Net loss for the third quarter of fiscal 2016 was ($5.37) million, or ($0.45) per diluted share, compared to a net loss of ($4.12) million, or ($0.36) per diluted share, for the year ago period. Included in the 2016 third quarter net loss were charges of approximately $400,000 related to the contested election of directors at the 2016 annual shareholders meeting in April 2016. Excluding the effects of the non-cash amortization associated with the purchase of certain intellectual property and other intangible assets, non-cash stock compensation costs, and non-cash deferred tax valuation allowance the Company’s non–GAAP net loss for its third quarter of fiscal 2016 was ($2.90) million, or ($0.25) per diluted share, compared to a non-GAAP net loss of ($2.06) million, or ($0.18) per diluted share, for the third quarter of fiscal 2015.

“During the third fiscal quarter, we added 228 new customers for our market-leading Monarch self- service data preparation solution,” said Michael A. Morrison, president and chief executive officer of Datawatch. “Since we first released this next generation technology one year ago, nearly 600 new name and upgraded heritage customers have adopted this re-invented Monarch self-service data preparation solution. The heritage customers alone that have upgraded, have produced nearly $3 million in incremental subscription license revenue for the Company. Notably, in the fiscal third quarter, we completed a six-figure Monarch upgrade transaction with one of the Big Four public accounting firms. This longstanding customer of our heritage product was able to quickly develop a compelling ROI for the added value of our next generation Monarch offering based on its intuitiveness, ease-of-use and self-service capabilities, and upgraded its existing 3,000 users, while also licensing several thousand additional users. We believe that well over half of our existing heritage Monarch customers are candidates to upgrade to the next generation Monarch self-service data preparation offering, and we are aggressively promoting this opportunity to our large customer base.”

Mr. Morrison continued, “Our partner relationship with IBM achieved an important milestone in mid- May when our Monarch self-service data preparation offering was officially added to IBM’s price list to complement both IBM Watson Analytics and IBM Cognos Analytics, making it available to thousands of IBM sales people and partners for resale. In the ensuing weeks, we have worked with IBM to develop a very healthy pipeline of opportunities, and we are focused on continuing to grow this pipeline of business and convert initial deals as quickly as possible. In addition, we continue to make inroads in the Tableau partner ecosystem as the cost-effective data preparation solution for Tableau’s market-leading self-service analytics. For example, in the Asia-Pacific region alone, we signed up a half dozen new partners that are leading Tableau partners. Several of these new partners selected Datawatch over competing data preparation solutions, due to our tight integration with Tableau, ease-of-use, rich functionality and our attractive price point, which is oftentimes less than half of competing offerings while providing higher value capabilities.”

Mr. Morrison added, “In the past quarter, we also appointed Ken Tacelli as senior vice president, worldwide sales for Datawatch. Previously, Ken was a Senior Vice President of Content Sales at Skillsoft. He also held a Senior Vice President role at OpenText within the World Wide Enterprise Sales Division and Vice President roles at CA Technologies, including North American Growth to Market Sales, New Enterprise and Routes to Market. Ken has an impressive track record in large and small companies alike, and we look forward to him being a catalyst to drive revenue growth for our market-leading solutions.”

Mr. Morrison concluded, “Lastly, we are very excited about the new enhancements to Monarch and Panopticon products, which we anticipate becoming commercially available later this calendar year. These enhancements will provide greater scalability, broader accessibility and improved ease-of-use, which should all drive customer demand. We are very pleased with the progress we have made with our Monarch self-service data preparation solution in its first year on the market, especially the 100s of new customers and the market and technology validation we received from new partners such as IBM, Fiserv and Vertex.”

James L. Eliason, chief financial officer, commented, “Our deferred license revenue at the end of the third fiscal quarter grew more than 160% year-over-year as we generated more than $1 million in license subscription bookings for the first quarter ever, with gross bookings up approximately 40% or $327,000 sequentially and up more than $600,000 year-over-year. Recognized revenue in the fiscal third quarter from our subscription license business was more than $700,000, representing a $2.5 million annual run rate that continues to build nicely. Our balance sheet remains strong, with $29 million in cash and equivalents. While continuing to appropriately invest in key product development initiatives, we remain disciplined around our use of capital and expect that our Q4 expenses will be well below the expense level for the third fiscal quarter.”

Transition to Subscription Sales

In Q3 of fiscal 2015, Datawatch changed its pricing practice for Monarch, transacting all small volume orders on a subscription basis only, rather than a perpetual license basis. The total value over the life of the subscription is recorded as bookings, but only the ratable portion of the annual subscription fee earned in the quarter sold is treated as revenue in that quarter. The balance is deferred and recorded as revenue over the life of the subscription. This lowers current reported revenue, but builds deferred revenue that will be recorded as revenue over the life of the subscription. Since subscription sales include maintenance, current maintenance revenue will be similarly reduced.

Third Quarter Fiscal 2016 Business Highlights

• Datawatch closed business with all four of the Big Four public accounting firms, as well as dozens of internal audit groups at commercial organizations, further cementing its leading position as the self-service data preparation solution of choice.
• Datawatch and Vertex, Inc. entered into a managed analytics OEM agreement under which Vertex will use Datawatch’s Monarch solution to acquire and prepare data for customers of Vertex’s integrated tax technology solutions.
• Aetna, whose single vision is to provide improved access to quality health care services for all Americans, selected Datawatch as its self-service data preparation solution to acquire, enrich and blend data for its Tableau self-service analytics users.
• Fiserv, a global provider of technology solutions to the financial world, including banks, credit unions, securities processing organizations and insurance companies, entered into an agreement to resell Monarch for self-service data preparation with Fiserv’s matching and account reconciliation solution.
• Pentagon Federal Credit Union, a longstanding heritage Monarch customer, recognized the ROI from Datawatch’s next generation self-service data preparation solution and upgraded its existing heritage licenses of Monarch for more than 100 users.

Third Quarter Fiscal 2016 Financial Highlights

• Cash and short-term investments were $28.8 million at June 30, 2016, down from $33.02 million at December 31, 2015 and $36.32 million at June 30, 2015.
• Gross margin (excluding IP amortization expense) for the third quarter of fiscal 2016 was 81%, a decrease from 84% for the third quarter of fiscal 2015.
• Days sales outstanding were 69 days at June 30, 2016, compared to 73 days at June 30, 2015.
• There were 3 six-figure deals in the third quarter this fiscal year, down from 10 in the third quarter of fiscal 2015.
• The average deal size in the third quarter of fiscal 2016 was $35,000, a decrease from $56,000 in the third quarter of fiscal 2015.
• Deferred revenue reached $8.9 million at June 30, 2016, the highest in the company’s history, and a 22% increase from $7.3 million at June 30, 2015.

Review of Strategic Alternatives

The company also announced its Board of Directors has initiated a process to explore and evaluate a broad range of strategic alternatives for the company to enhance shareholder value. The Company strongly believes in its current business strategy, but does not believe that its current share price accurately reflects its business prospects and strong balance sheet.

Strategic alternatives to be considered may include the acquisition or disposition of assets, joint ventures, the sale of the company, alternative operating models or continuing with the current business plan, among other potential alternatives. Canaccord Genuity is serving as financial advisor to the company.

There can be no assurance that this strategic review process will result in the completion of any transaction or other alternative. The Company has not set a timetable for completion of the review process, and it does not intend to comment further regarding the review process unless a specific transaction or other alternative is approved by the Board of Directors, the review process is concluded or it is otherwise determined that further disclosure is appropriate or required by law.

About Datawatch Corporation

Datawatch Corporation (NASDAQ-CM: DWCH) enables ordinary users to deliver extraordinary results with all their data. Only Datawatch can unlock data from the widest variety of sources and prepare it for use with visualization tools or other business processes. When real-time visibility to rapidly changing data is critical, Datawatch enables you to visualize streaming data for the most demanding business environments such as capital markets. Organizations of every size worldwide use Datawatch products including 93 of the Fortune 100. Datawatch is headquartered in Bedford, Massachusetts with offices in New York, London, Frankfurt, Stockholm, Singapore, and Manila, and with partners and customers in more than 100 countries worldwide. See how Datawatch can help you by downloading a free version at www.datawatch.com.

Source: Datawatch