Datawatch's CEO Discusses F1Q 2014 Results - Earnings Call Transcript

Jan.28.14 | About: Datawatch Corporation (DWCH)

Datawatch Corporation (NASDAQ:DWCH)

F1Q 2014 (Qtr End 12/31/2013) Earnings Call

January 28, 2014, 8:30 AM ET


James Eliason - Chief Financial Officer and Treasurer

Michael Morrison - President and Chief Executive Officer

Ben Plummer - Chief Marketing Officer and Senior Vice President, Strategic Alliances


Richard Davis - Canaccord Genuity

Chad Bennett - Craig-Hallum

Anya Shelekhin - Sidoti & Company

Bhavan Suri - William Blair

Steve Koenig - Wedbush Securities


Greetings, and welcome to the Datawatch Corporation first quarter 2014 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Jim Eliason, Chief Financial Officer for Datawatch. Thank you. Mr. Eliason, you may begin.

James Eliason

Thank you, Manny. Good morning, everyone. Thank you for joining us this morning for Datawatch Corporation's first quarter fiscal year 2014 earnings conference call. I am Jim Eliason, Chief Financial Officer of Datawatch. Joining me today is Michael Morrison, our President and CEO; and Ben Plummer, our Chief Marketing Officer and Senior VP of Strategic Alliances.

I would like to remind everyone that you can obtain a copy of our earnings release, which was distributed at 4:00 PM Eastern Time yesterday, by emailing us at This release is also available on our website at

Let me first outline to you this morning's agenda. I will begin by presenting our Safe Harbor statement, followed by Michael, who will provide a general update on our overall business with specific color around some new go-to-market strategies as well as discuss around market trends and update on our acquisition of Panopticon, last August. I will then provide a summary of our Q1 FY '14 financial results, along with some key operating metrics. Lastly, Ben will provide an update on the marketing partner activity as well as specific details around our recently launched land and expand sales initiatives, followed by a brief update on our product roadmap. We will then open up the call for a question-and-answer session.

Before we begin, I'd like to remind you that any statements we make that do not describe historical facts may constitute forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such statements are accurate as of today, January 28, 2014, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations. We undertake no obligation to update any forward-looking statements.

For more information, I refer you to the descriptions of these risk factors found in our earnings release as well as the company's Annual Report on Form 10-K for the year ended September 30, 2013, and other publicly available documents filed with the SEC. Any forward-looking statement should be considered in light of those factors.

I would also like to remind you that to supplement our financial results, in accordance with Generally Accepted Accounting Principles, we will from time-to-time discuss certain non-GAAP financial measures that we believe are helpful in understanding our financial performance and future results. A reconciliation of our GAAP and non-GAAP financial results is contained in the press release issued yesterday and is also available in our filings with the SEC.

Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP.

With that, I will turn the call over to Michael.

Michael Morrison

Thanks, Jim, and welcome, everybody. As indicated in the press release we issued at the market close yesterday, fiscal 2014 is off to a promising start. Revenue for the first fiscal quarter was $8.8 million, up 29% compared to Q1 of last year and license revenue of $5.4 million was up 25% versus last year. As a reminder, Q1 was the first full quarter that Datawatch operated as a combined company, following our acquisition of Panopticon at the end of August in 2013.

During the quarter, we completed the full integration of Panopticon into Datawatch in the important areas of product, marketing and sales. Specifically, on a critical product front, the Datawatch and Panopticon desktop solutions are now totally integrated into a single offering, making it easier for customers to download and deploy our software. The Datawatch and Panopticon server solutions were also combined into a single offering.

To emphasize our differentiated value to the market, we rolled out our new messaging and positioning around visual data discovery to customers, partners, industry analysts and employees, and we received universally positive feedback from all those constituents. Finally, the Panopticon sales organization was consolidated into that of Datawatch, forming a global major accounts group in the process to serve the largest and most complex visualization customers' prospects.

A tremendous amount of focus and energy accompanied this very successful integration initiative, and I am pleased to report that the execution was exceptional and that we ended our fiscal first quarter singularly focused on driving aggressive revenue growth with the benefits of the integrations fully available to us and behind us.

Speaking of revenue, let me update you on several of the strategic growth initiatives. During Q1, we formally launched our land and expand business model, where we seek to land within new customer by solving a business need of specific users or the partners. We then work to expand the use of our solution across the enterprise by targeting other business units, use cases or geographies.

We believe that this land and expand strategy provides an increased level of financial visibility for us, as aggregate revenues from subsequent sales of products and customers to typically be multiples of the revenues we received from these customers' initial purchases. Customers where we initial landed in Q1 include, HSBC, Standard Chartered Bank and Memorial Healthcare. Customers where we expanded more significantly on initial purchases of our visual data discovery solution includes Citigroup, Invesco and Deutsche Bank.

As an extension of our land and expand business model, we're also focused on cross-selling our visual data discovery solution into our sizeable installed base of heritage Datawatch customers. Cross-sell customers in Q1 include, Fauquier Bank, Carlsberg Group and Phelps County Medical Center.

Also in Q1 we made great strides with our strategic growth initiative to develop a world-class partner ecosystem. We extended existing partnerships with NASDAQ, TIBCO, Thompson Reuters and Neochange. As we previously noted, during Q1 we entered into a global agreement with IBM for IBM to resell Datawatch solutions, together with IBM's Enterprise Content Management systems.

Even though this agreement with IBM was only in place for a portion of our quarter, IBM closed some business in this short-time span and we're very encouraged by the activity and the interest on the part of the IBM sellers. We entered into new value-added reseller relationships with Viseo Asia Limited in Hong Kong, IT Channel in China, SYSPOWER Corporation in Taiwan, and both Armada Consulting and Precedent Technologies, United States.

Our pipeline of perspective OEMs, [ph] bars and Strategic Alliance Partners is strong and expanding, providing us with increasing confidence and license revenue contribution from our partner channel, a metric that we have begun to share as noted in the release. We'll continue to grow throughout fiscal year 2014.

With regard to our revenue pipeline, the increased investments we made in marketing and lead generation programs in Q4 of fiscal '13 and Q1 of fiscal '14 are already showing favorable trend lines. The 90-day pipeline at the beginning of our fiscal second quarter this year was up a 110% sequentially from Q1 and 135% year-over-year. This represents, by far, the largest and most well validated pipelines since I arrived at Datawatch nearly three years ago.

As I mentioned during our last earnings call, our most pressing challenge in 2014 is to continue to build our visibility and awareness with customers and influencers in the visual data discovery market. While our visibility in the market is indeed improving, we still have a lot more work to do in order to gain the awareness enjoyed by the revenue leaders in this space.

They need to constantly educate the market about our capabilities and compel organizations to include us and compete when they're considering new tools for visual data discovery, require us to continue to invest marketing and lead gen at this elevated level certainly in the short term.

We're confident, however, that these investments will pay increasing dividends, as we enhance our presence and have visualization market. I've said it before and I'll say it again, we see tremendous wide space in this arena with a multi-billion dollar market opportunity open to several competitors, we're encouraged by our progress and excited about the opportunity in front of us.

And with that, I'm going to turn it over to Jim Eliason to take you through our financials in more detail.

James Eliason

Thanks Michael. At this point, I'd like to give a summary on the company's financial performance for Q1 fiscal 2014 as well as some other key operating metrics. Datawatch's total revenue for Q1 was $8.81 million as compared to $6.82 million for Q1 in the prior year, an increase of 29% year-over-year.

Revenues from the sale of software licenses in the first quarter of fiscal 2014 were $5.43 million as compared to $4.33 million in the first quarter of 2013, representing a 25% increase over the prior year. As a percentage of revenue, software licenses in Q1 FY '14 accounted for 62% of the total revenue as compared to 63% of the total revenue in Q1 2013.

Revenues from maintenance and services in the first quarter of 2014 were $3.38 million as compared to $2.49 million in the first quarter of 2013. As a percentage of revenue, maintenance and services accounted for 38% of total revenues in Q1 FY '14 as compared to 37% for Q1 in the prior year, reflecting our strong license revenue growth.

Gross margin for software licenses, excluding IP amortization charges, were 94.6% in the first quarter of 2014 as compared to 98% in the first quarter of 2013. Gross margins for maintenance and services were 74.9% in Q1 FY '14 versus 78.7% in Q1 of 2013. Overall, gross margins once again, excluding IP amortization charges, came in at 87% for Q1 2014 as compared to 91% in Q1 of the previous year.

On a non-GAAP basis, the company incurred a loss for Q1 2014 of $1.98 million or $0.23 per diluted share as compared to net income of $786,000 or $0.11 per diluted share for Q1 of 2013.

As we have stated repeatedly over the past six months, as a result of our acquisition of Panopticon at the end of August 2013, our plan was to invest in our go-to-market infrastructure, marketing programs and R&D, in order to jumpstart our launch into the real-time visual data discovery marketplace. We feel these investments as well as the timing of them are critical to enabling Datawatch to take full advantage of our fair share of the total addressable market, as analysts have said that as multi-billion dollar opportunity.

Moving to the balance sheet. Datawatch's cash balance at December 31, 2013, was $7.97 million, a decrease of approximately $2.3 million or 23% from September 30, 2013. As I just mentioned, we purposely are using our cash to fund the investments that we believe will lead to accelerated growth.

The quality of accounts receivable remains consistent with recent prior period, with DSOs coming in at 57 days versus 61 days as of September 30, 2013, and December 31, 2012. Finally, 83% of our receivable balances occurred as of December 31, 2013.

Turning to the key operating metrics for Q1. As we alluded to during our Q4 FY '13 earnings call, we have adjusted the key operating metrics, we will be sharing with you on a quarterly basis moving forward. Given the land and expand initiative Michael mentioned earlier, which Ben will review in more details shortly, we have found that the new enterprise customer metric represents a less meaningful measure of our performance at this point in time.

We also believe that our average deal size metric maybe negatively impacted by the land and expand program, due to the nature of smaller C-type deals that will result from such programs, but we will still call up that metric for the time being.

On the flipside, we have begun tracking and we'll report the percentage of our license revenue that is derived through our partner OEM channel on a go-forward basis. And beginning with our Q2 FY '14 earnings call, metric such as number of new visualization customers resulting from our land and expand program will be reported as well.

We will continue to assess the metrics we share with you and potentially adjust them as our business evolves in the coming quarters, with higher priority being placed on metrics and enable you to better understand the state of our business and measure how well we are performing against our goals.

With that said, let me share some of the operating metrics on the just completed quarter. The average deal size in Q1 of fiscal 2014 was $58,000 as compared to $49,000 in Q1 FY '13. We signed 10 new partners in Q1 of FY '14 as compared to six new partners in Q1 of fiscal 2013. Our partner OEM channel contributed slightly more than 10% of the total license revenue in Q1 FY '14.

As you'll recall, in prior quarters, the contribution from this size of business has historically been in the low-single digit on a percentage basis. We are extremely encouraged by the uptick in this metric already, as it provides us validation on our investments in this area and the business over the past 12 months are beginning to bear fruit.

As I know, someone will ask me the questions, I'll tell you now that as of December 31, 2013, at the end of our first fiscal quarter in '14, our headcount was 174, which reflect an increase of eight people from the end of the prior quarter and an increase of 45 people from the end of the first fiscal quarter of 2013.

In summary, I agree with Michael, that fiscal 2014 is off to a promising start and we have much work to do. I know as a company, we all look forward to the challenges that are ahead of us in the coming quarters, but we remain very bullish about our abilities to capture more of the available market opportunity that is presented to us as well.

At this time, I would like to turn the call over to Ben Plummer. Ben?

Ben Plummer

Thanks, Jim. Good morning, everybody. So as we exit our first full quarter as a visual data discovery company, there are some encouraging indicators that we're building awareness in this fast growing data visualization market. Michael indicated our pipelines have increased substantially, but even more interesting is the fact that these pipelines have now shifted to include even more opportunities that are led by data visualization agendas.

What I'd like to do is to provide you with a bit more color on some of the key initiatives that you've heard Jim and Michael talk about, and that we're working to increase Datawatch's visibility around and ability to load at the top end of the funnel.

So let me start by talking a little bit more about our land and expand strategy. You heard Michael and I both talk about this as a key component of our overall go-to-market strategy. Over the last quarter, we took a number of steps in terms of pricing and packaging, to make it easier for our customers to adopt their products and we started to change some of our internal processes to encourage this behavior as well.

Results of these initial efforts have been encouraging with our trial downloads increasing significantly and several customers making both initial and secondary purchases with Datawatch. To further accelerate this model, we are instituting some additional changes that I'd like to share with you.

First, we're focusing all of our lead generation activities on getting prospects to try the Datawatch desktop, and the reason for this is really simple. We want people to experience speed, which you can get value from using all your data, including the real-time sources to better analyze and understand their businesses. There is no substitute for this experience and we want to make sure that the entry point for as many of our customers is possible with product.

Secondly, we've enhanced our trial process to include a high-touch nurturing program. Under this program, we will encourage prospect to download the trial version, to access even more resources sooner, including direct access to live technical experts to help and get more value from the Datawatch desktop with what's new and best in this area.

The final area that I'd like to talk to you about our investment in is around our systems to support land and expand. To make it easier to get started and to truly nurture and grow the use of Datawatch within our customers, we're making some major changes to our website that includes streamlining the download process and implementing features that will allow a user to speak directly to a product evangelist here at Datawatch.

To support broader adoption faster and give new customers a place to find valuable information about what can be done with Datawatch's software, we're launching the Datawatch community. This is a place for our customers to be able to communicate. They'll be able to come and see examples of applications, they'll be able to find partners to help them with deployment and they'll be able to gain access to other information that will allow them to maximize their experience with Datawatch.

Well, this is not a comprehensive list of everything that's underway, I believe that these are concrete example that demonstrate our commitment to the land and expand strategy, and more importantly to ensuring that our customers get maximum value from the Datawatch products and experience.

Another area I'd like to talk a bit more about is the success we're starting to see with partners. As Jim mentioned, partner contribution for our revenue was up to just a little bit over 10% this quarter. This increase is very encouraging and ideally it's a direct result of the work we've been doing over the last year in terms of recruiting and more recently working with partners to do co-marketing and advance around the world. This work is obviously going to continue, but there is even more opportunity to grow our partnerships and we plan to continue to work to recruit, enable and execute with our partners.

Let me outline a few instances of this that's taken place recently. First is our work with Splunk. For the last quarter, we announce an advanced visual connector for Splunk database to allow our customers access and work with that technology. This has actually resulted in Splunk reaching out and us developing a technology partnership directly with them to give us even deeper integration to their products. We plan to take this very seriously. We're actually going to be launching a customer program this quarter to allow all the Splunk customers out there to download and receive a free copy of the Datawatch desktop to be used with there technology.

Another partnership that we've announced just this morning as a matter of fact is with Amazon Web Services. Yesterday, Amazon announced their financial services area for the Amazon marketplace, as part of Amazon Web Services, and as a part of this announcement several vendors were selected to participate including Datawatch.

Through this marketplace organizations will be able to setup big data application using the Amazon infrastructure and acquire technologies to support these implementations. Datawatch was asked to participate because of our unique real-time data visualization capabilities. So now users wishing to deploy a cloud-based version of the Datawatch server can purchase and deploy this immediately with one click to the Amazon marketplace.

Finally, we signed up several OEM agreements this quarter, as Michael indicated, including one from TIBCO, who embeds the Datawatch technology into their live new stream-based product set. The reason for this is it gives them the ability to provide real-time visualization to their customers. These agreements, which are a testament to the embeddability of the Datawatch visualization software offers a strong entry point in organization as part of other products. This way we can grow and expand our footprint through post-selling efforts.

Each one of these partnerships continues to spread the awareness of Datawatch and our real-time visual data discovery solution as well as our next generation analytics capabilities. We plan to work with these partners to ensure our message reaches their customers that they understand the full potential of Datawatch.

To wrap up, I'd like to spend just a moment talking about our product integration. As Michael mentioned, at the end of December we completed the integration of the heritage Datawatch technologies and the Panopticon products. We're excited about accomplishing this milestone, but we're already planning for the future.

As we look forward into the rest of 2014 and beyond, we're going to be focusing on extending our leadership position in support of in-motion real-time data sources as well as the ability to connect to the greatest variety of data structures. But we're also adding additional capabilities to allow to connect the big data sources as well in the coming year, and as well we're investing in ease-of-use and visualization capabilities that will allow our customers to get greater value from our products quicker.

So with that, I'll turn it back over to Michael.

Michael Morrison

Thank you, Ben. In closing, we're quite pleased with our execution with respect to the integration between Panopticon and Datawatch. We're also delivering solid growth in total revenue and license revenue. We made good progress in our land and expand and partner development growth initiatives.

We have positioned us to take full advantage to the enormous market opportunity in visual data discovery in the coming quarters. The important progress we made in Q1 leaves us confident that we can continue to improve our growth trajectory, as we move throughout fiscal 2014.

With that, Manny, let's open the lines for questions.

Question-and-Answer Session


(Operator Instructions) Our first question is from Richard Davis of Canaccord Genuity.

Richard Davis - Canaccord Genuity

Two questions. So you guys kind of touched on some of those, but I was just going to drill down a little bit more on it. So by my calculations, on a December-to-December kind of run rate basis, non-GAAP operating expenses have increased about $20 million, revenues have increased on a run rate basis about $8 million, and so doubling the pipeline is awesome and a lot of the other kind of color around there. But I think it would be helpful for investors as, how should we -- what I can't try to triangulate on is the doubling of the pipeline, does that mean that organic growth rate should double or basically can you give investors a specific kind of measurable milestones and benchmarks, as to how we should assess the payoff from these efforts? And then I have one quick follow-up?

Michael Morrison

So, Richard, I would say that at a high level I would characterize what we've done in Q4 and in Q1 of this fiscal year is we did priming the pump. We got ready for what we expected to be the acquisition of Panopticon, by really levering and investing in lead gen programs and visibility programs to get ourselves out there and known in this space. And it's still going to take some kind.

We did a lot of that, I would expect that from here going forward that you're not going to see that same kind of increase quarter-over-quarter, year-on-year in the short-term. We've put a lot of energy and to getting ourselves prime to get after the marketplace today. Jim, I don't know, if you want to add to that?

James Eliason

I would just add on the sales side too, Richard. We got a fair amount of capacity that we can grow into here. So Michael's point, we specifically chose in Q4 to make those investments ahead of time versus leading typically in the first quarter of the fiscal year. We made the same type of investments in first quarter, but we really wanted them in-house ready-to-go, so we get the majority of our fiscal '14 with those investments ready to utilize. But I'd agree with Michael, I think we made those investment and I wouldn't expect the same uptick.

Richard Davis - Canaccord Genuity

And then with regard to the partner channel, 10% on revenues is a good quick start. Just a quick kind of detail question. Do these relationships require you guys training their sales staff, and if so, where are you on that process? Or if not, if it's a simpler sale, do you have a sense as to what percentage of those firms kind of sales people even reached, and therefore what kind of rational expectation to be in terms of sell-through through these channel partners? I mean should this ratio get to 20% or 30%, I mean where would you see this in a year or two or something like that? Thanks.

Ben Plummer

So, Richard, I'll take the first half of that and I'll let Jim grab the second. In terms of what we need to do to enable this partners is, as I indicated in my comments, we spent a lot of the first half of last year sort of recruiting and getting people in-house has been obviously a lot longer than that. It was something like IBM, where we spent two years. But we probably entered the enablement phase and going into Q4 and Q1, and that was part of the investment we were making there.

Yes, we have to get these sales teams up to speed. And as Michael indicated, we spent a lot of time in the last couple of quarters going out and training folks at places like IBM and Thompson Reuters, that will continue. But the vast majority of them, they are trained, as we bring other partners on board they will go through a similar process. The good news is now we've got the materials and the technology and the infrastructure to support that and bring them online faster. So I think the folks that we got on earlier last year were there. As we recruit new people, we'll continue to make those enablement investments, but it is going to go a little quicker now.

James Eliason

To your second question, we're very happy with the 10% performance in Q1. I would expect that numbers stay in the double-digit, but probably creep up to high-teens during the year. I will say that this current quarter, it wasn't all one channel partner that contributed to that 10%, it was basically 300 people we spread. So if that trend continued, I'd expect somewhat the number not to be lumpy and linearly grow. At the model, I think we've always said, a year, 18 months down the road, we'd like to see that in the 20%, 30% range, but certainly we're not going to get there this year on that.

Michael Morrison

Just to add one final point to that. We mentioned the number of IBM deals that we actually closed very quickly after this agreement, none of that revenue actually fell into this quarter. So that's not even part of this.

Richard Davis - Canaccord Genuity

And then, Ben, just to make sure I'm clear. With regard to the enablement, would it be like just based on analogy since the passing is over. But anyways now, and we're like in the second inning or something in terms of existing customers, in terms of another word, you enable people, I just want to make sure I got this right, you've enabled people, but you still have more to go, in other words a plenty of upside with regard to getting those partners fully sold out. So I just want to make sure that's right.

Ben Plummer

I mean, it obviously is different with each partner. But, yes, second or fourth inning with most of them, and there is still the payoff coming.


The next question is from Chad Bennett of Craig-Hallum.

Chad Bennett - Craig-Hallum

I think a little bit of follow-up on Richard's questions earlier. I guess just plain and simple, should the dollar OpEx run rate in the December quarter be a good run rate you should use going forward?

James Eliason

Chad, the short answer is yes. We're comfortable with that number to the reasons Mike and I alluded to before. I mean there's always some expenses that are not reoccurring and some that flow in, and obviously a little bit of flowing from the Q1 hiring that's give the full quarter impact. That's really it.

Chad Bennett - Craig-Hallum

Where are we in terms quota-carrying sales headcount today versus when you maybe started the quarter?

James Eliason

Well, where we are today, we have 24 quota-carrying sales people. Actually two others that aren't included in that number. They had just started at the end of Q1. Coming into the quarter, like I said, I think we made lot of the investments in Q4, so that number is only up maybe two or three heads. We hired most of the sales people, we wanted to hire exiting FY '13.

Chad Bennett - Craig-Hallum

And gross margins, I think on an apples-to-apples basis were down year-over-year, a few 100 basis points. Is that a function of the channel growing as a percentage of revenue and how should we look at that going forward?

James Eliason

It's a little bit channeled. I'd say it's some of the investments we're making on the services and support side, more so.

Chad Bennett - Craig-Hallum

So is this kind of the level we should be thinking about?

James Eliason

Yes. I mean, when you take out the IP amortizations, I think it's going to be in the high-80s, low-90s.

Chad Bennett - Craig-Hallum

And Michael, I guess, just want to get kind of your current or up-to-date take on what you believe the visualization or big data market growth rate is currently or will be this year?

Michael Morrison

So Chad, you could see the publicly available information, right. You could see how Tableau and Splunk are growing. You can look at how Forrester and Gartner are looking at that market, right. There is fairly heavy growth expectations build into. And we subscribed to that. As I mentioned in my prepared comments, we are one full quarter into being a real player in this market.

So we've got a lot of work to do there to get on the radar screen, have a lot of prospects, and partners and analysts, but it's clearly the way for the future and everybody sees traditional business intelligence, as sort of transforming, I won't say, its hit a wall, but it's starting to move from traditional business intelligence to data discovery visualization, that's where we play. You can see the players that have been there for a bit and how well they're doing.

We think we've got a technology set that's every bit the, that the peer of anybody else with some real key differentiators with data variety and with the real-time capabilities. We just need a bit of time to make our mark in the space to get a bit more visibility. So we're quite bullish on the prospects.

Chad Bennett - Craig-Hallum

So there is no reason to believe, considering your low revenue base that you should be able to grow at the rates that the peers that you just mentioned?

Michael Morrison

We have very high expectations of ourselves.

Chad Bennett - Craig-Hallum

And then last for me, just on the partners. I guess kind of interesting, the TIBCO partnership that you guys would be chosen as a visualization solution behind StreamBase considering that they have Spotfire. Can you kind of get into that?

Ben Plummer

The TIBCO, StreamBase relationship has actually existed pre-Datawatch as well through Panopticon. This was re-up, and kind of a bit of a growth around that partnership. The reality is the two technologies are extremely complimentary with TIBCO being able to provide the real-time streaming information from their CEP engine.

And our ability to take that in-flight, in-motion and visualize it, give their customer base a very unique capability, right. Even though there are other visualization technologies available, the real-time piece is an architectural difference that we bring to this combination. So that's why that partnership has kind of developed and blossom and is showing a lot of promise.

Chad Bennett - Craig-Hallum

And then on Splunk, I think you guys talked about launching a customer program at this quarter that Splunk users would be able to download your visualization software. Do you know Splunk's offering, anybody else's visualization software to their customer base right now?

Ben Plummer

They do. I mean they're partnered with obviously other visualization players out there. Once again, the real-time nature of our technology is appealing to them because of the operational real-time aspects of machine data. So when they get in those types of customer situations where we're unique and give them something that they can point to, to add better visualization capabilities on top of what they provide to sort of themselves as well as what another person might provide against to sort of app less data. So we're seeing a lot more pickup in real-time, and this is something that's driven that relationship.

Chad Bennett - Craig-Hallum

And last one from me. On the AWS deal, can you kind of talk about the economics as much as you can on that deal? Is that going to be a license model or is it going to be more of a subscription model from a revenue standpoint?

Ben Plummer

So the Amazon Web Services, their financial services implementation up there is allowing customers to put their infrastructure up and then purchase software to work with that and our service up there to be purchased as part of their market slice, it's not going to be necessarily a cloud, a SaaS-based model. They will be able to purchase it directly as a perpetual license, but then deployed up on to the sovereign environment. So we build the images and made them all available that way.


The next question is from Anya Shelekhin of Sidoti & Company.

Anya Shelekhin - Sidoti & Company

The first question is, it looks like you added a number of new customers and intangible services last quarter and I was wondering have you adopted a new strategy to create a niche in this industry with the combined software product line?

Michael Morrison

Nothing out of the ordinary. We both, the heritage Datawatch as well as Panopticon had financial services as the top vertical where we both penetrated. So it's just more of a continuation of what we've seen in the past.

Anya Shelekhin - Sidoti & Company

And what's your strategy for geographic expansion long-term? Are you targeting any specific region there?

Michael Morrison

So we're being, I would put it, quite opportunistic about it. We've had, just in this past quarter, a number of very significant wins in geographies where we don't have people on the ground. And we look at each one of those as opportunities to potentially have a local presence, and particularly drive from these marquee to some of these lighthouse account. So that's the strategy. And I think you'll see in the next quarter or two, us opening offices in the couple of geographies, really on the backs of several key wins with very large brand name customers.

Anya Shelekhin - Sidoti & Company

And then in regards to your competitors, especially this Splunk, Tableau, which are typically a lot bigger company, what is your advantage against them? Is it mainly the real-time visual data discovery or are there any other advantages besides those for the software?

Michael Morrison

The key for us, Anya, is in the visual data discovery market, we have the ability to handle any real-time need. And as Ben mentioned earlier, specifically around the TIBCO Spotfire, I mean we can handle real-time visualization used cases. The other big differentiation is around the heritage Datawatch capabilities in terms of getting any variety of data. Those are two big architectural differences that we believe, the others -- they can't make up with the next point release of their product, their architectural differences.

And that that gets back to something I mentioned earlier. I think we've got a product set, a technology set, that's very differentiated and very valuable. What we lack is the visibility in the market. We've got all of our efforts focused on getting the visibility, winning deals, leveraging up those getting into the next deal.


Our next question is from Bhavan Suri of William Blair.

Bhavan Suri - William Blair

So a few questions here. First on the OEM business, and obviously the synergy around sort of IBM and Content Management makes a ton of sense, given what the integration capabilities you have around structured and semi-structured data, but as you think about expanding that into other areas, so into other operational type of areas and partnering with guys or might OEM, maybe Oracle for financial analysis, stuff that's a little more traditional. When you look at those opportunities, just could you give us a sense of sort of are you approaching them? How do you think about approaching them today? And are they less of an opportunity or are they just as big of an opportunity?

Ben Plummer

So I think we mentioned it in our last call, last quarter, we've actually made an investment, if you will, in terms of setting up a sales force specifically targeting OEMs now, which we did not have prior to the combination of Panopticon and Datawatch. And this group is really focused on literally going to every software organization that might need some high visualization capabilities as part of their solution and working to try to develop those types of relationships.

We've just started that last quarter and put some effort into it, both in terms of marketing and sales. We're starting to see traction there. And we mentioned TIBCO, but there were other OEMs that we signed up last quarter. There are certainly places for, as you described the more traditional types of relationships with companies like Oracle or as even people like the sales force or somebody like that to incorporate this kind of technology.

And the rapid success I think we had in this quarter is a testament to the better ability that we have in the product and its proving itself to operate quickly, so we're encouraged by it. Obviously, OEM selling is quite different than direct sales. You have to match people's product cycles and timing and things like that. So I don't know if the same success will have next quarter, but we're certainly putting the effort into it and are encouraged by the initial results we've gotten.

Bhavan Suri - William Blair

And then, obviously the visualization is an interesting piece, and maybe not the Splunk, but other companies given sort of the backend infrastructure, your ingestion engine, if I can call it that, also provides pretty much a differentiated sort of set of value propositions. When you're seeing the OEM, is it largely focused on Panopticon visualization side? Or they're also offering the kind of old ingestion engine, and when I'm saying old, I mean more traditional stuff that you had for a while as an OEM option too?

Ben Plummer

It's a great point, Bhavan. Yes, absolutely. When we're meeting with these various vendors, we are actually providing insight into both capabilities. And frankly, we're signing people up on both sides, right. Certainly visualization is important, but the ability to consume these unstructured and semi- structured sources, and make them part of the solutions that are being provided is a big play as well.

And we've had a number of sale cycles this past quarter. That was part of the agenda and we certainly see that going forward. It's important for everybody to realize, we certainly have not abandoned or left that part of the business behind. We are continuing to invest there as well.

Bhavan Suri - William Blair

And then, turning to the other side of your partners and not the OEMs, but the SIs and I might have missed this, but did you put out a number, sort of number of people trained in the SI channel, not the sales guys, but you know once the SIs have feet in the street, that ends up being a nice tailwind to growth because they've got to put those guys to work. Any sense of how many guys you have trained up on that side?

Michael Morrison

So we don't have that number, Bhavan. We certainly have done a fair amount of that, we don't have that. But I would suggest, in the next quarter or two you're going to see some announcements out of us. We're focusing on the SI world, the Big Four as well as some of the very large players. We have a particular opportunity in the BPO, the business process outsourcing space.

And we've had dialogues with a number of key players over the course of the last nine months that are coming to fruition. So we hope in the next quarter or two, to have some announcements in that regard, likely not revenue announcements, but certainly partnerships where we can both exploit each others capabilities.

Bhavan Suri - William Blair

And then maybe this one is for both, you, Michael and Ben. When you look at the sales approach, obviously you move to the land and expand, but there has always been a concept in enterprise sales of suite selling, right. So if I offer you the data integration engine, I offer you the structured and unstructured data storage part. And then if offer you the visualization, you've got kind of an end-to-end solution there, and you find that guys tend to buy more from some one who offers across the board offering, certainly the large guys, IBM, Oracle, have seen success, despite sort of weaker product sets in there. The land and expand somehow suggests though that you're selling more point solutions than expanding? Help me understand to reconcile that a little bit?

Michael Morrison

So I will give you my perspective on that, then Ben can add if he wants, but certainly the offering we have in visual data discovery is very much like Tableau. It cuts across any vertical, any used-case, it's very self-serviced, very easy. It's not something that Panopticon did as an independent company. They couldn't afford to do it. So we are certainly pursuing that.

But in parallel with that, we're also pursuing the high-value applications, which we don't believe that Tableau or QLIK or the others can get after, that really require the real-time capability. So we're very strong in risk management applications where you need to see your risk exposure, not at the end of the trading day, but during the day. We're very strong in trading application, where you're looking at trading cost analytics during the days, you're making a trade, the smart-grid, energy utilization, things of that sort.

So our approach is to go deep in the areas where we're clearly differentiated, but opening up a new market to what used to be Panopticon standalone, which is we can get into all of these other places in a very effective manner, go toe-to-toe with all the other vendors out there.

What we can do that the others can't is we can take you from the more, and I'd say basic, but I don't mean exaggeratedly, but the basic visualization scenario is to the more complex ones where you need real-time, where you need to get at all the different varieties of data. That's where we're going to really differentiate ourselves, and that's where we're working towards.

Ben Plummer

I would sum it up by just saying, the visualization components of an application, which is what, a company like a Tableau delivers is a nice space, right, and certainly important. And it has to be there to really win, but being able to take a customer from and do all the dirty work behind the scene, that we've got a platform behind our front-end, right.

And most of people we're competing with don't have that luxury. So we can handle the more complex, heavy-lifting type applications, whereas the customers we're trying to do that with one of our competitors. They have to depend on another vendor or other technology. So there is a lot more depth to what we're offering.


The next question is from Steve Koenig of Wedbush Securities.

Steve Koenig - Wedbush Securities

I have just one for you here. So you guys have been operating in BI state for quite some time. So I am pretty interested on your building on the discussion on visualization market and can you describe some of the vendors that are doing well on visualization data discovery?

I'm curious here, we're seeing hiccups from a couple of best-of-breed vendors in visual data discovery, you recently this quarter and more generally in the last year -- and I'm just curious without commenting on specific vendors, any thoughts on what's going on, are these market issues, as people try to discover what you say that verticals work here or are these internal issues with some of those best-of-breed vendors? How do you look at that from a perspective of that you're trying to compete in this market as well as the smaller vendors coming out?

Michael Morrison

So Steve, it's Michael Morrison, I'll give you my perspective and then Ben, you might want to way in. So we both grew up in the traditional BI world, which is never going to go away, right. I mean it's a multi-billion dollar industry and very effective for customers, for partners over the last 20 years. That world is transforming into this new visual data discovery world. And the traditional players are all trying to play in that by trading their own or developing their own solutions.

But where you see most of the traction is these independent players, like a Tableau, like QLIK, like ourselves going after the opportunity where it's more self-serviced, more discovery as oppose to basic reporting. And it's like the time going in and out. There is a bit of a wash there, right. Inevitably, you're going to have one of these companies having a bad quarter or a quarter that's not as well as the outside world expected.

But I think without a doubt, the entire momentum is towards a more self-serviced, end-user oriented, a discovery experienced than what grew up over the last 20 years. It will take some time. Everybody sees the market evolving into that. And again, there will be hiccups from all the vendors, probably including ourselves. But the market two, three and four years from now will be large in my opinion, largely dominated by this new breed. And that's what everybody is calling now the next-generation analytics.

That's where we see ourselves squarely in next-generation analytics. And we think going back to something I said earlier, that we've got two real key differentiators that are not point release things that somebody else can catch up to, their real architectural advantages around real-time, around getting at all varieties of data. That's what we've been doing for 20-plus years. And I would argue, there is nobody even close to us in that regard.

So there is a fair amount of upheaval that we'd be going out for the next two or three or four years, but that's clearly where the market is going. We think from a technology perspective, we've got the best quarter build of. We've got to do a very good job executing from a sales perspective and from a marketing perspective, this is where Ben needs to earn his keep is getting ourselves out there, getting people knowledgeable about what we do and delivering the message.

Ben Plummer

I would only add to that, I think all of these vendors are at different phases of maturity cycles, both as organizations and with their products, as people want to do more complicated things and it's not just about the front-end. I think that's where you'll see some of them hiccup and they can't respond at the enterprise requirements.

So in my view point, having a platform behind you that's a bit more mature and has some substance to it, had to deal with some of the bigger problems that are coming up and people want to tackle with this, it's important. But I am with Michael 100%, as new applications come up within organizations, they're going to look at their traditional BI stack, where I've spend a large portion of my career, and they're going to realize, it isn't ready to deal these types of things they want, and that's why you're seeing these vendors move at the rates they've been moving.


Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to Mr. Morrison for any closing remarks.

Michael Morrison

Manny, thanks. And thanks everybody for joining us again this morning. And as always, if you got any follow-on questions or areas of enquiry just give us a call, contact us, and I would be happy to have a dialogue. So with that, thank you very much.


Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!

Datawatch Corporation (DWCH): Q4 EPS of $-0.23 Revenue of $8.81M (+29.2% Y/Y)