Datawatch Corporation (DWCH) CEO Michael Morrison on Q3 2014 Results - Earnings Call Transcript

Jul.24.14 | About: Datawatch Corporation (DWCH)

Datawatch Corporation (NASDAQ:DWCH)

Q3 2014 Results Earnings Conference Call

July 24, 2014, 08:30 AM ET

Executives

James Eliason - CFO and Treasurer

Michael A. Morrison - President and CEO

Ben F. Plummer - Chief Marketing Officer and SVP, Strategic Alliances

Analysts

Richard Davis - Canaccord Genuity

Bhavan Suri - William Blair & Company

Operator

Greetings, and welcome to the Datawatch Corporation Third Quarter 2014 Earnings Conference. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Mr. James Eliason, Chief Financial Officer for Datawatch Corporation. Thank you. Sir, you may begin.

James Eliason

Thank you, Donna. Good morning, everyone, and thank you for joining us this morning for the Datawatch Corporation’s third quarter fiscal year 2014 earnings conference call. I’m 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, who is joining us from the road at a conference site today.

I would like to remind everyone that you can obtain a copy of our earnings release, which was distributed at 4 PM Eastern Time yesterday by emailing us at investor@datawatch.com. This release is also available on our website in the Investor Section at www.datawatch.com.

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, specifically around some of the exciting market trends we have seen around real time reservation and streaming high velocity data in motion, as well as an update of the actions we undertook in Q3 to improve our go-to-market execution. I will then provide a summary of our Q3 FY ‘14 financial results along with some key operating metrics. Finally Ben will provide an update on the company’s marketing initiatives, specifically around new programs launched during the second half of FY2014 and share with you some of the positive metrics we are beginning to see as a result of these targeted investments. 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, July 24, 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 description of these risk factors found in our earnings release along with the company’s annual report on Form 10-K for the year-ended September 30, 2013 and quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and December 31, 2013, as well as 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 would like to turn the call over to Michael.

Michael A. Morrison

Thanks Jim. And welcome everybody. As indicated in our press earnings release we issued after the market closed yesterday, fiscal 2014 Q3 results reflect decent revenue growth over the same quarter last year as well as Q2 of this fiscal year. Revenue for the 2014 fiscal third quarter was a record high for Datawatch, $9.2 million, up 18% compared to Q3 of last year.

License revenue of $5.6 million was up 11% from license revenue of $5 million in the year ago quarter. While our performance in Q3 represents important progress, none of us here at Datawatch are satisfied with these results. We know there is still much more to do to fully exploit the untapped opportunity in this market which we believe will allow us to grow our revenue at a rate at least double that reflected by our recent performance.

Today I’d like to highlight a very important and exciting theme that is the key component of our achieving above targets, namely Datawatch’s momentum in the rapidly growing market for real-time visualization of streaming high velocity data in motion. As more data streams flow into enterprises from a larger variety of sources and in a larger variety of formats IT leaders are discovering that they must extend data processing and visualization capabilities to capture and realize the value of this high velocity data. These opportunities are increasingly time sensitive driven by the velocity aspect of big data. This shift in data processing offers tremendous business opportunities for Datawatch in areas such as market liquidity and credit risk, straight execution analytics, energy optimization, the Internet of things, fraud detection and network usage among others.

Datawatch offers the only solution in the market that can visualize high volume streaming data in motion and we made significant progress this past quarter in laying claim to undisputed leadership in this important area of visual data discovery.

During the quarter we completed the integration of our visualization solution with several leading stream processing technologies in the market, including Informatica Vibe, EMC Pivotal GemFire and Amazon Kinesis. When you add these integrations to our existing relationship with IBM Streams, Pivotal Stream base, OSIsoft PI System and SAP Advance Streams Processor, it means that today we support the broadest portfolio of streaming technologies in the market. These integrations are critically important to us because they enable Datawatch to compete in the largest opportunities in this growing arena.

We also executed several go-to-market events and initiatives to promote the value of visualizing real-time streaming data to build upon the partnerships we developed all aimed to secure net market leadership position for Datawatch. One of the more exciting events we participated in during the quarter was Informatica World 2014. Informatica’s Worldwide User Conference in Las Vegas. Earlier in the quarter Datawatch and Informatica announce a global relationship to deliver real-time streaming visualization solutions for operational intelligence. At Informatica World Datawatch was featured on the main stage working together with Informatica’s five data streams technologies. As part of the demonstration of the real-time visualization of streaming sensor data from an energy company’s steam turbine. This was a classic internet of things use case, that involved monitoring and analyzing streaming machine sensor data for preventative maintenance purposes.

There is a high level of interest in our real-time streaming visualization solution and we now have several opportunities in the pipeline coming out of this event. We closed a number of transactions in Q3 where our capabilities of visualized streaming real-time was a critical factor in our competitive success.

Capital Malls, Asia, one of the largest shopping mall owners in Asia with a Pan-Asian portfolio of a 104 malls across the five countries selected Datawatch technology to monitor and analyze in real-time in-store traffic patterns for targeted advertising as well as real time employee movement for better customer service. This was a competitive win against an incumbent data discovery vendor. In another key win [inaudible] Investment Partners a London based alternative asset management firm selected Datawatch for its ability to seamlessly embed Blacktree’s foreign change trading platform to best service their clients and enable these clients to maximize their profits on trades through real time visualizations and replays of trade and trading activity.

Air Asia, winner of SkyTrack’s World Best Low Cost Airline five years running chose Datawatch for our ability to easily connect to multiple data sources and provide near real time spending analysis of vendors by airport using time series visualizations. And [Peter Six] a leading financial services firm in the U.S. selected Datawatch for our ability to handle streaming high velocity data as well as our ability to easily embed our visualization solution in their applications. Our unique ability to visualize real time streaming data has also helped make progress on the partnering front.

As an example, in Q3 we expanded and extended our existing relationship with NASDAQ. In May NASDAQ announced the next generation analytic offering for capital markets operators around the globe, which is based on Datawatch’s visualization technology and which enables real time visualization across system data as markets evolve in order help drive liquidity, grow revenues enhanced client services. Our growing relationship with NASDAQ is a great example of value that can be derived from monetizing streaming high velocity data.

Leading industry analysts including Gartner, Forester, Aberdine and GigaOM Research have all published recent research notes that highlights the growing interest in streaming data in motion and the need to monetize this important asset. The Gartner note published two weeks ago stresses that it’s critical to close the analytical loop by “integrating the streaming present with the analytical path to get the maximum value from your data.” GigaOM published research just last week that states in the June quarter of this year the processing of streaming data reached a “real critical mass in mainstream popularity in the Big Data market” And the Forester on Big Data streaming analytics platform, which began just last week notes that there’s been a 66% increase in firms using streaming analytics in the past two years.

On the thought leadership front Datawatch is now playing an active role in the newly formed Industrial Internet Consortium which was founded by AT&T, Cisco, GE, Intel and IBM to further the development, adoption and wide spread use of interconnected machines and real time analytics. As I have emphasized Datawatch is uniquely positioned to exploit the opening in the market to visualize high velocity, real time data and this area remains a high priority for us as we build market awareness.

With that I will turn over to Jim Allison to take you through our Q3 and year-to-date financials in more details. Jim?

James Eliason

Thanks, Michael. At this point I’d like to give you a summary of the company’s financial performance for Q3 fiscal 2014 as well as some other key operating metrics. Datawatch’s core revenue for Q3 was $9.23 million as compared to $7.83 million for Q3 in the prior year, an increase of 18% year-over-year. Revenues from the sale of software licenses in the third quarter fiscal 2014 were $5.58 million as compared to $5.01 million in the third quarter of 2013, representing an 11% increase over the prior year. As a percentage of revenue, software licenses in Q3 FY’14 accounted for 60% of the total revenue as compared to 64% of the total revenue in Q3, 2013. Revenues from maintenance and services in the third quarter of 2014 were $3.65 million as compared to $2.82 million in the third quarter of 2013. As a percentage of revenue maintenance and services accounted for 40% of the total revenues in Q3 FY’14 as compared to 36% for Q3 of the prior year. Gross margins for software licenses excluding IP amortization charges were 95% from the third quarter of 2014 as compared to 98% in the third quarter of 2013.

Gross margins for maintenance and services were 73% in Q3 FY’14 versus 79% in Q3 of 2013. Overall, gross margins once again excluding IP amortization charges came in at 86% for Q3, 2014 as compared to 91% in Q3 of previous year. On a non-GAAP basis, the company incurred a net loss in Q3 of 2014 of $2.61 million or $0.24 per diluted share as compared to net income of $617,000 or $0.09 per diluted share for Q3 of 2013.

During Q3 '14 we continued to invest in our go-to market infrastructure specifically focused around marketing programs in an effort to build brand awareness for the company in order to leverage our leadership position in the real-time visual data discovery marketplace. Although our top-line performance during the quarter was a rebound from our future results, we are confident that we can improve the current trajectory and we'll continue to work diligently in order to win our fair share of what we believe is a huge market opportunity for Datawatch.

While our business remains fairly lumpy from quarter-to-quarter, simply in terms of how long deals take to close which is especially true of the larger transactions we are confident that we are capable of producing much higher results over the longer term and that is what we have targeted.

Moving to the balance sheet, Datawatch's cash balance at June 30, 2014 was $50.17 million, a decrease of approximately $3.75 million or 7% from March 31, 2014. As we stated in February 2014 when we raised additional capital we intended to use those proceeds for marketing purposes and thus in Q3 '14 the primary use of cash was for sales and marketing expenses. The decrease in cash also reflects some unfavorable shift in working capital, specifically around accounts receivable end of our revenue which are timing related items only.

Speaking of accounts receivable, the quality of our customer account remains consistent with recent prior periods, with DSO coming in at 61 days for the quarter just ended versus 57 days at March 31, 2014 and 60 days at June 30, 2013. In addition, 81% of our receivable balances are current as of June 30, 2014.

I would like to now share some of the operating metrics from the just completed quarter. During the quarter Datawatch signed 21 new partners in Q3 of FY14 as compared to 15 new partners in Q3 of fiscal 2013. Our strategic partners OEM channel contributed approximately 7% of the total license revenue in Q3, FY14. This percentage is down in the previous two quarters of the current fiscal year where we saw partner contribution levels of 14% and 10% respectively for Q2 and Q1 of FY2014.

As we have mentioned on prior calls we realize that this metrics will spike up and down based upon the sales volume experienced in a particular quarter with some of our largest strategic partners. We're still very confident in the long term opportunity represented by this area of our business and we expect to continue to drive that percentage to a steady state model of 25% to 30% of license revenue over the next 12 to 18 months. The average deal size in Q3 of fiscal 2014 was approximately $62,000 as compared to approximately $60,000 in Q3 FY13. Our worldwide ending headcount as of June 30, 2014 was 185 people, an increase of 13 people from Q2 FY14 and 19 people from year end FY13. The incremental headcount additions have been focused primarily in the areas of sales and research and development. We had average shares outstanding as of June 30, 2014 with approximately 10,825,000 shares. Total shares outstanding as of June 30, 2014 was approximately $10,869,000 shares.

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

Ben F. Plummer

Thanks Jim and thanks everyone for joining. To get started I'd like to continue providing you some insight into the results that Jim just reviewed with you particularly in terms of our land and expand strategy that we started to share with you last quarter.

During Q3 we saw marked increase in the amount of trial downloads of Datawatch products with an increase of over 72% quarter-over-quarter and actual downloads that when we combined the previous two quarters this actually exceeded. I point this out primarily because these trials of the foundations of the LAN component of our land and expand strategy. Our actual land and expand performance continue to gain momentum during Q3 based on the criteria we outlined last quarter our results were as follows.

Our land opportunities increased 49% quarter-to-quarter from a revenue perspective and accounted for 68% of our Q3 FY14 license revenue with customers like Capital Mall, Asia and Singapore the Planet Group in UK and [Vendor based] station ownership making initial purchases of the Datawatch products. Our expand revenue increased by 39% from Q2 accounting for 32% of our Q3 FY14 license revenue. Our large and small companies alike increased their investments in Datawatch including names like Deutsche Bank, Barclays and Coventry. We believe the growth that we're seeing in the strategic area of our business has been encouraging and is a strong leading indicator of the increased awareness we're building around Datawatch and our products.

As I describe to you in last quarter we're now full stride with our digital marketing, advertising and marketing programs to support increased awareness of Datawatch as a leader in the visual data discovery space and to aid in development of our pipeline globally. Like we saw in Q2 these efforts have continued to deliver strong results in Q3 with an increase of just over 40% in enquires these are initial plus points to Datawatch entering our sales funnel. And maybe more importantly an increase of over 40% in our overall pipeline quarter-over-quarter with making more importantly two-thirds of that pipeline now being focused on visual data discovery sales agenda.

These results are encouraging but equally important we're investing in tools and training to ensure that we effectively move these opportunities through the sales funnel. To that end we made several investments in Q3 to more rapidly convert enquires into real sales opportunity and provide the sales teams with the resources and training necessary to progress these opportunity funnel into real sales opportunity are the relaunching and complete redesign of the datawatch.com website and the delivery of our new Datawatch community.

Our new datawatch.com website has been specifically designed to highlight the unique differences that Datawatch brings to the data visualization market. Specifically around the high velocity and motion data that Michael highlighted earlier and the data varieties we can actually work with to visualize as well. As you heard Michael discussed in his comments, Datawatch’s differentiation in being able to deliver visual data discovery solutions against in-motion streaming data sources like IBM Stream, [inaudible] screen base, Informatica’s Vibe and Pivotal’s GemFire is gaining momentum in the market. And our new datawatch.com captures and expands on our thought leadership in this very critical area. We have also included more demonstrations video content and other areas to help our prospects who are participating in free trials to move through that far more effectively to give them the information that they need to actually make a buying decision.

Lastly, we developed a new set of vertical and horizontal use cases to help customers find more ways to leverage Datawatch technology to improve their businesses. Likewise we launched the new datawatch.com community to facilitate more collaborations with our customers and our employees. The trend that we’ve seen has been beneficial during sales process.

The datawatch.com community which is easily accessible directly from datawatch.com is a social gathering place where our customers, partners and Datawatch employees exchange information not only about Datawatch technology but about everything to do with visual data discovery and analyzing any source data including the in-motion sources we talked about. The new community is designed to help data Datawatch customers expand the value and use of Datawatch technologies throughout every aspects of their business. The initial levels of participation we’ve seen has been highly encouraging and we intend to keep building on these levels of interest.

The investments that we made in datawatch.com and Datawatch’s community are integral pools in helping our prospects plan with Datawatch desktop more effectively by using the access available on datawatch.com and expand more quickly by leveraging the knowledge base of our customers and our data watch experts made available through the Datawatch community.

As we enter Q4, the investments we made earlier in FY ‘14 are staring to deliver tangible results in the areas of visibility, awareness, high point growth and most importantly revenue. I personally am very encouraged by our results to-date and I can see the flywheel starting to turn but as I said to many of you in person there is no magic marketing wand. And so as we with look into Q4 and FY15 for that matter there will be a lot more of the same. We will continue to invest heavily, increasing our awareness in the market around establishing Datawatch as a leader in visualization in-motion streaming data, a leader in the use of data and the Internet of things and funding programs that directly impact pipeline development and more importantly self-cycle advancement.

With that I’d like to thank you all again for joining. I’d like to turn it over back to Michael for closing comments.

Michael A. Morrison

Thanks, Ben. In closing we believe that Datawatch is moving strictly in the right direction and that today we have all the pieces in place to accelerate our growth trajectory, building our market awareness, our partner ecosystem and our success with streaming data and motion are key drivers for us and we look forward to deploying our talents and the dedication of the employee base to achieve stronger growth in the quarters and the years ahead.

With that, Donna let’s open up the line for questions.

Question-and-Answer Session

Operator

Thank you. At this time we will be conducting a question-and-answer session. (Operator Instruction). Our first question is coming is from Richard Davis of Canaccord. Please proceed with your question.

Richard Davis - Canaccord Genuity

Hey, thanks. One quick question on the partner program, you kind of touched on a bit but it declined kind of sequentially. Is this kind of the ebb of inflow of that -- you know this sequencing of getting people on board? Then I have a follow-up?

Michael A. Morrison

Yes, Richard. I mean in terms of absolute dollars we’re down from Q2 a little bit less than a couple of hundred thousand dollars. The good news there is that all the revenue from partners in Q3 were from new partners. Our existing partners and especially the more strategic ones, that business is going to be lumpy. They tend to be larger deals with longer sales cycle. So we are not -- certainly we are not happy with the performance but we are not concerned at all. We feel good about the progress we are making on boarding new partners and we expect that the existing partners, especially the strategic ones are going to be delivering in the future.

Richard Davis - Canaccord Genuity

Got it. And then when you say you kind of aspire to kind to grow it two times as fast as you grew this quarter. I’m trying to figure out what that does mean, so by our reckoning if you added about a $1 million to revenues this quarter your organic growth rates maybe mid-single-digit. Are you saying it will accelerate 10% to 12% or you are talking about even aspire to have the company grow 2x of what the reported number was which was 18% i.e. 36% of the kind band of the plan there? Thanks.

Michael A. Morrison

It’s the latter. We certainly have a chunk of our existing revenue which is our heritage Datawatch variety platform, that certainly won’t grow the same level as visualization but at a topline we should be able to grow at least double where we think we’ve been executing in the last several quarters.

Richard Davis - Canaccord Genuity

Got it, okay, cool. Thanks very much.

Operator

Thank you. Our next question is coming from Bhavan Suri of William Blair & Company. Please proceed with your question.

Bhavan Suri - William Blair & Company

Hey, guys thanks for taking my questions. You know you sort of increase comments about the real time component this quarter. I guess the first question is that maybe some color on sort of what portions of deals in the quarter involved the real-time component? And then you know little bit about sort of what that pipeline just for the real time component looks like say Q4 vis-à-vis Q3 vis-à-vis Q2?

Michael A. Morrison

So in terms of the deals that close where the actual of immediate need was for real-time visualization data and motion it’s probably in the 20% range although a large part of our go-to-market strategy, Bhavan is around painting vision for prospects that ultimately you are going to have visualization opportunities where you are visualizing data, -- visualizing data…

Bhavan Suri - William Blair & Company

Sure across the board, yes.

Michael A. Morrison

Right, we’ve got the only platform in the market that can handle the whole, yeah that whole continuum so, why would buy into a platform that can’t do that. So 100% of the time we are presenting that vision, i.e. the 20% of our wins, roughly that included the immediate need for visualization, real time visualization is up significantly from the prior quarter. The pipeline, I don’t have a precise answer for you in terms of pipeline. In terms of which deals in the pipeline are predominantly motivated by real time streaming data motion but it’s just anecdotally it’s certainly growing as I mentioned in the prepared remarks, literally in the last two week a lot of industry analyst commentary about this part of the market really starting to take off.

Ben F. Plummer

Bhavan this is Ben I would add one thought there, just to give you an idea of the level of interest in how we’ll I think ultimately translate the pipeline. Michael mentioned the Informatica Conference that we did, we followed that up by doing some real time streaming webinars with Informatica where we had 400 people register for these types of events. And we did customer events with IBM streams and a couple of the other folks that Michael mentioned. So there is a lot of interest in it and it is early stage pipeline, if you will. It’s forming as enquiries and thoughts about doing things with Datawatch. So I can give you that kind of color.

Bhavan Suri - William Blair & Company

No that’s helpful. and then one of the challenges you had last quarter is obviously the Global Accounts group so just a little bit update on the development in the global accounts group and sort of do you feel that stabilize or you think there’s still got room to grow, coupled with sort of how many of the -- what percentage of stuff that was pushed out of the Q2 quarter, did you guys end up actually closing this quarter?

Michael A. Morrison

So organizationally on the global accounts group we’re quite pleased with where we’re at. The organization stack in - as I mentioned that’s how we put a new leader in place. We filled out the entire group. They contributed to the results as expected. So we’re quite pleased there. There’s still a lot of opportunities. That group was just put in place on January 1. And as I mentioned in the past they target our most -- typically our largest existing customers and the ones with the most opportunity and then there’s still a lot of runway in front of them but quite pleased with where we are right now in terms of having the organization in place to get out after it.

And Bhavan on your last question, so with the deals that slipped out of the prior quarter probably it’s somewhere around three quarters of that revenue has been accounted for this quarter. The bulk of the remainder 95 plus of the remainder continues to be in the pipeline as opposed to lost just going their way. So we recovered from the miss step last quarter in a reasonable manner.

Bhavan Suri - William Blair & Company

Yeah I guess when you look at the deals that slipped out in the second quarter and obviously you also had nice large deal activity which I suspect a couple of those were from the prior quarter, but if back those out, it feels like the core business kind of did a little worse, just some thoughts on that and sort of, is it moving to larger deal dynamic and is there commonality in those large deals that driving it or you kind of also said that the performance of that you’ve got probably more of it, just sort of if I back those out it feels like not organic or inorganic growth I am just saying the large deals that might have moved over from Q2 into Q3 was there anything else or was it just kind of the fading away that we see of the older sort of legacy business and that’s kind of a little bit of a drag as the desktop business in the visualization in real time tries to offset some of that drag?

Michael A. Morrison

It’s actually, I mean the heritage business if you will -- it used to with Monarch which is now a key differentiator for us in the visualization work. It’s difficult almost impossible just to call that out since we combined the products technologically but that business is essentially flat. I expect that it will grow next year in the single-digit range, where our entire go to market organization is focused on leading with visualization which is what is contributing to the flatness of that business. There are a couple of really small pieces of our business some heritage parts that are core to us there are dropping off that are sort of contributing to the end results. But the core business is essentially flat, we expect it to pick up as we move forward.

Bhavan Suri - William Blair & Company

That's really helpful. And then one last one from me before I jump back in the queue, when you look at the competitive situation, you've provide this metric in the past, but sort of the number of competitive deals, and sort of the win rates, I know you mentioned a couple of specific customer examples but just you sort of gave the numbers the last couple of quarters. Any sense of the number of competes you did sort of the win rates in that set of competes?

Michael A. Morrison

So we don't have precise numbers but the number of competes from the last quarter, it is up about three-fold which is good, but our win rate is trending down a little bit which is also good, right. We're getting in some more deals, it's a reflection of all the work and all the money we've spent in the marketing lead gen area. So it's trending in the right direction and in terms of the competitive environment it has not changed dramatically. It's still cap low, it's still -- I will say that you were seeing much -- we're a small sample base but what we saw transpire in the last couple of quarters has dropped off dramatically this past quarter, but was otherwise the competitive environment is basically the same.

Bhavan Suri - William Blair & Company

Well, it's interesting. Thanks guys. I'll jump back in queue. Thanks for taking my questions.

Michael A. Morrison

Thanks Bhavan.

Operator

Thank you. Our next question is coming from Chad Bennett of Craig-Hallum. Please proceed with your question.

Chad Bennett - Craig-Hallum

Hey, guys. Good morning.

Michael A. Morrison

Hi Chad.

Chad Bennett - Craig-Hallum

So just to kind of follow on up I think on a question before on the channel and your partners and the contribution there, I guess I am trying to understand where we are in that ramp process. I assume it's pretty early but even as we let's see get to the 20% kind of bogie that you're looking out that I think Jim reiterated in the next 12 to 18 months. Even on a call it a $30 million license number and now that's kind of my number and not anybody else's for next year, that kind of $6 million right. And if I take about what you would for example Thompson Reuters was kind of assuming is in that kind of partner bucket, there’s probably at least half set number and I am not kind of questioning your bogie there but if we're putting in all this effort into channel partners $6 million over the next 12 to 18 months seems like not a lot of bang for the buck so to speak. Any comment there?

James Eliason

Yes, so Chad. I think the comps are 25% to 30%. So but I would suggest so that closer to the 10 right on your 30 number. It's definitely lumpy. I think the silver lining as Michael pointed out is with the exception of Thompson Reuters the other large contributors, typically IBM, Cisco did not contribute and conversely we bought some new guys in. And year to-date I will point out, I didn't it point out in my comments but if you just take the year to -date number we’re at 10% which I think is pretty good getting to that goal, right. I think I've said in the past if we can be in mid-teens exiting the year on a run rate basis we'd be happy with that and now we've got some work to do in few quarter do that but I hope that answered your question.

Michael A. Morrison

And Chad let me -- it's Michael, I'll add to that. I mean there you’ve going to keep in mind we've been a visual data discovery company for about 11 months. So while we had started to invest in our partner channel before that we had done that under the umbrella of information optimization and there is new names, new opportunities. I am very, very bullish on the partner channel there as I look at the pipeline coming through the partner channel, it's quite healthy and there is some very attractive opportunity.

They also -- we thought all the time that our number one challenge is building the awareness of the market. There is no better way to do that than to be able to align with iconic brands with big names, the system integrators or partners and start driving revenue through their channels. So it's a lumpy business. It's still fairly immature because we have not been at it for very long but I am no less bullish on it today than I was a year ago.

James Eliason

Okay. And one more point not to belabor it but to forget the top line is important but if you think the $6 million or call it $8 million of that kind of revenue what it can do to the bottom-line from a margin standpoint is significant for our company.

Chad Bennett - Craig-Hallum

Yeah, well understood.

James Eliason

Yeah.

Chad Bennett - Craig-Hallum

I think net-net it’s early still.

Michael A. Morrison

You are right.

Chad Bennett - Craig-Hallum

So I guess next question you know good metrics that then on kind of pipeline growth and downloads and what not and I think other guys have asked this question differently. But Michael where do you think we are in terms on the sales execution side of actually monetizing those things? I know close rates probably improved this quarter you know stop moving through the pipeline probably accelerated this quarter but how -- not to pin it down but how close are to we really realizing the growth rates that are the growth rates that you expect out of the business?

Michael A. Morrison

So in terms of the sales execution, and sales execution was better this quarter then the prior quarter, it was hard to be any worse from Q2 and that’s an ongoing effort internally. We are putting a lot of energy into ongoing sales enablement and training so that I would expect sales execution to trend up from where it’s at right now. And if all things being equal if the opportunities to our pipeline increase and our sales execution at the very least remains constant we ought be able to drive the top line somewhat in line with the additional opportunities coming into the pipeline. So it’s I didn’t answer your question directly to that but that will give you some sense of what we are looking at.

Chad Bennett - Craig-Hallum

Okay. And then just last for me the pure visualization deals that you are competing on, not factoring in streaming and real-time interest, how do you win those deals?

Michael A. Morrison

We win them largely on the vision, painting the visions to the prospect. You might not have a real-time need today or you might not have a need to get a data that’s is neatly arranged for relation database. But as you -- if you are investing in a visualization platform and you look out you think in the next quarter or the next year you will run into a situation where you need to take data and motion and visualize it or you need to take data from documents to the contact management system or they come in over the wires in PDF format and you never get a prospect that says no that will never happen. So you’re painting the vision and we win with the prospect that see that and say yeah, I get and buys -- our final line is why would you invest in the platform that can’t accommodate those use cases the -- forward thinking companies get that and we will lose because while we have a very good story around ease of use our story there is a very strong and their presence in the market is very strong.

So we win based on the vision and the opportunity that we can provide our prospects looking out not just for this immediate project but down the road.

Chad Bennett - Craig-Hallum

Okay.

Ben F. Plummer

This is Ben. I would add one other thing to that and one of the areas that we also want to add is when people go beyond sort of the personal use case and start looking at industrial strength large scale strong server environments then we typically do extremely well there. That’s an area where we are very differentiated. So that’s -- if you get beyond sort of that just touch it in the pretty picture and really we got to deploy this to a lot of people and a lot of data then the story changes pretty quickly .

Chad Bennett - Craig-Hallum

Okay, last one for me. Any abnormal slippage at the end of the quarter and in terms of deals you know?

James Eliason

No, as Michael reviewed execution is very good especially at the end.

Chad Bennett - Craig-Hallum

Okay, thanks guys.

James Eliason

Thanks Chad.

Operator

Thank you. Our next question is coming from Greg [Moscovitch] of Cowen & Company. Please proceed with your question.

Unidentified Analyst

Hi. Thank you and good morning. Just following on one of the recent questions, so the share volume that you’ve seen has been interesting, Ben talked about 72% sequential increase in the number of downloads. I am wondering is as a function of the website improvement specifically also some of the stuff that you are doing on the community side if you expect to see an increase in conversion rates this year as well?

Ben F. Plummer

So this is Ben, yeah, we have seen significant increase -- and just to give you some context, the website went up in June, [feeding] went up in June as well so it was still early days for that. We’ve also made changes in terms of how the downloads work been more effective. They are faster, they are smaller. So all of that contributed to the download.

I certainly would believe that the conversion rates are going to go up even if they stay where they are at today they're quite high just in terms of a percentage. So we certainly think the conversion rates are going to go up as we provide people a better access to tools and content to help them move through this process.

So all indicators we have is that these are going to continue to trend in the right direction.

Michael A. Morrison

Okay, great. And then Michael, getting back to your comment about growing at least two -- which you're showing today, what time frame do you vision that playing out how should we be thinking about that?

Michael A. Morrison

So therein lies the $64,000 question. We don't provide guidance and I want don't want get down that slippery slope. But we're committed to getting there as soon as we can. We’ve got, there is a lot of moving parts, I mean starting with the work we've done to build up the awareness and get more interest on to sales execution. But I know that we're -- everyone here is committed to doing that as quickly as possible.

Unidentified Analyst

Okay. Thank you very much.

Operator

Thank you. Our next question is coming from Michael Kim of Imperial Capital. Please proceed with your question.

Unidentified Analyst

Hi. This is actually Nate calling for Michael Kim. How you're guys doing?

Michael A. Morrison

Good, Nate. How are you?

Unidentified Analyst

Doing great. A quick question on the average deal size, I think it ticked up to $62,000 you said?

Michael A. Morrison

Correct.

Unidentified Analyst

And that's a somewhat of a significant jump from the last couple of quarters. Do you think this is a short term anomaly or is this a growing trend and it’s going to continue going up? And to follow that up is this fair to say that the number of deals we are getting is smaller, coinciding with the average deal size getting larger?

James Eliason

So this is Jim. I’d say it's a little bit of -- it's the lumpiness in the quarter. So you get a couple of bigger deals and it can drive the number up a little bit. I think that's how it happened this quarter. I would expect as I said on previous calls, with the land and expand strategy, the volume of deals will go up. I think the average selling price will go down and I think the number that I would be tracking from your perspective is -- when Ben talked about the land and expand metrics. If you want to add anything Ben or Michael but that's how I view the average selling price.

Michael A. Morrison

Good metric to look at but it can move around a bit.

Ben F. Plummer

Yeah. This is Ben. I would agree with Jim and I think the expand side of the business is where the average selling price will move. I would just keep my eyes on the revenue percentage in terms of land revenue versus expand revenue. As I said it's still heavily on the land side right now, that become as I said 68% of business is land.

So as long as that metric stays high it's going to drive the average deal size down, right? So I would think Jim is right there is probably some expansion deals that pushed it up a little bit this quarter. And as we look out the expansion deals what we were to leverage comes in that model.

Unidentified Analyst

Got it. Thanks guys.

Michael A. Morrison

Thank you.

Operator

Thank you. Our next question is coming from Bhavan Suri with William Blair. Please proceed with your follow up question.

Bhavan Suri - William Blair & Company

Hi guys. Just a quick follow up on sales headcount, just an update on the headcount and then split between the hunters versus the farmers split too?

James Eliason

Great. So this is Jim, Bhavan. So the outside lapsed the core and the rest has gone up, I think it’s been around 25, it’s increased to 28.

Bhavan Suri - William Blair & Company

Yeah.

James Eliason

And total sales inside grew [inaudible] was mid-40s.

Bhavan Suri - William Blair & Company

What was that last quarter again Jim just remind me?

James Eliason

Last quarter is probably low 40s, total sales.

Bhavan Suri - William Blair & Company

Okay. That’s it from me, thanks guys.

Operator

Thank you. Our next question is coming from Steve Woods of [Leblon Company]. Please proceed with your question.

Unidentified Analyst

Hi guys, Steve Woods from Leblon. Over this call I’ve heard the reference to lumpiness about seven or eight times, my question is when do you think we’re going to see that smooth out?

Michael A. Morrison

Steve it’s Michael Morrison, I think that’s a fact of the overall size of the business. We have a number of very large deals in the pipeline which depending on which side of the quarter they fall into that it plays into your lumpiness and so you get the denominator, that much bigger those larger deals in which case larger deals don’t make that much of the impact or much less of an impact. And I don’t see that changing for the next fiscal year.

Unidentified Analyst

Okay fine, Thank you very much.

Operator

Thank you. At this time I’d like to turn the floor back over to Mr. Morrison for any additional or closing comments.

Michael A. Morrison

Thanks Donna and thanks again for joining us this morning. Just one point before we sign off, on August 13 we will be presenting at the Big Data Analytics Panel at the 34th Annual Canaccord Genuity Growth Conference in Boston. And look forward to seeing some of you there and as always feel free to contact us if you have any follow on questions. So thank you and thank you Donna.

Operator

Ladies and gentlemen thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day.

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Datawatch (NASDAQ:DWCH): FQ3 EPS of -$0.24 in-line. Revenue of $9.23M (+17.9% Y/Y) beats by $0.13M. Shares +5.3%.