Datawatch's (DWCH) CEO Michael Morrison on Q2 2017 Results - Earnings Call Transcript

| About: Datawatch Corporation (DWCH)

Datawatch Corporation (NASDAQ:DWCH)

Q2 2017 Earnings Conference Call

April 20, 2017 08:30 AM ET


Jim Eliason - CFO

Michael Morrison - CEO

Ken Tacelli - COO


David Hynes - Canaccord

Chad Bennett - Craig-Hallum

Ilya Grozovsky - National Securities


Good day, ladies and gentlemen, and welcome to the Datawatch Corporation Second Quarter 2017 Earnings Conference Call. All lines have been placed on a listen-only mode. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to your host, Jim Eliason, Chief Financial Officer. Sir, the floor is yours.

Jim Eliason

Thank you, Julie. Good morning, everyone, and welcome to the Datawatch Corporation Q2 FY2017 earnings call.

With me on the call this morning are Datawatch's President and Chief Executive Officer, Michael Morrison; and Chief Operating Officer, Ken Tacelli.

As you can see from our press release issued last evening, we had another strong quarter, which makes three consecutive quarters with double-digit revenue growth and even higher license growth.

In addition to the continued improvement with our top-line results, the company was profitable on a non-GAAP EBITDA basis, excluding severance costs and generated positive operating cash flow during the quarter for the first time since Q3 FY2013. The business continues to trend positively and the metrics across the board were once again excellent this past quarter. Michael, Ken and I are very excited to share some of these metrics in more detail on the call today, right after I review some conference call details and our Safe Harbor statement.

As I mentioned, our press release containing our Q2 FY2017 results was issued yesterday afternoon at 4 PM and is posted on our website. You can also request a copy by emailing us at This call is being broadcast live via webcast and following the call, an audio replay of the webcast will be available in the Investor Relations section of our website at Following the prepared remarks, we will open the call for questions. The operator will provide instructions at that time.

Before we begin, I would like to remind you that any statements we make today 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, April 20, 2017, 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, along with the Company's Annual Report on Form 10-K for the year-ended September 30, 2016, and the quarterly report on Form 10-Q for the quarter ended December 31, 2016, as well as other publicly available documents filed with the SEC. Any forward-looking statements should be considered in light of those factors.

I would also like to remind you that to supplement our financial results prepared 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 nor as a substitute for comparable GAAP measures and should be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP.

At this point in time, let me briefly recap some of the key financial results from the just completed quarter. Q2 total revenue was $8.8 million, up 18% from the prior year's second quarter, when total revenue was $7.4 million. License revenue for Q2 FY2017 was $4.9 million versus $3.6 million in Q2 of the previous year, an increase of 34%.

Sales of our Monarch product line continue to be the primary driver to this growth, with Monarch revenues coming in at $7.6 million in Q2 2017, up 31% versus Q2 of FY2016, when they were $5.8 million.

Growth in Monarch license revenue line was even more impressive, with 2Q FY2017 at $4.6 million versus $2.8 million in the previous year's Q2, up more than 60% year-over-year.

Maintenance revenue for the just completed quarter was $3.6 million up slightly from the prior year's second quarter, when maintenance revenue was $3.5 million. This modest growth in our maintenance revenue stream continues despite the fact that we have been transitioning to a license subscription model in a measured way over the past two years.

Services revenue were approximately $310,000 was also up slightly from Q2 FY2016 when it was $299,000. We continue to see consistent momentum with our license subscription model, with approximately $1.3 million of growth bookings during the second quarter of FY2017, up almost 60% year-over-year, as well as contributing approximately $1 million of license revenue during the quarter, representing over 20% of our current quarters license revenue for the second consecutive quarter, while growing almost 90% over the prior year's quarter.

Monarch Complete continues to be the primary driver for this growth with 193 net new land customers during Q2 FY2017 versus a 171 such lands in Q2 FY2016. As I indicated at the beginning of the call, for the first time in almost four years, the company generated a profit of approximately $200,000 on a non-GAAP EBITDA basis excluding severance costs of approximately $300,000 versus a $1.7 million loss in Q2 of FY2016.

Our non-GAAP operating expenses once again excluding severance cost came in at $8.6 million, down significantly from Q2 FY2016 when they were $9.1 million.

As we discussed in our last few earnings calls, rationalizing our cost structure was a key priority for the executive team coming out of year-end 2016 and we are happy to report that we met our stated goal of running the business on a cash breakeven basis, two full quarters earlier than we had planned.

To be clear, we continue to carefully monitor and assess all current investments as well as incremental investments that we may make behind our growing revenue base as we pursue the goal of reaching operating profitability on a sustainable basis.

Moving to balance sheet, our cash position remains strong as we generated approximately $1.5 million of cash during the quarter, ending with approximately $27.8 million of cash on hand. Approximately $700,000 of the improvement was a result of a one-time settlement payment, including other income from a stockholder related to such stockholder short swing stock trading profits, and the remaining $800,000 was a combination of operating cash flow and positive working capital swings during the quarter.

Accounts receivables are in great shape in terms of quality with roughly 87% of our outstanding receivables in the current aging category. DSOs were 66 days for the most recent quarter versus 63 days in Q2 FY2016.

Deferred revenues were $10.1 million at the end of Q2 FY2017 growing approximately 16% or up some $1.4 million from the prior year second quarter. License deferred revenues continue to rise its impressive trajectory, increasing almost 75% from the prior year quarter. This is now the seventh consecutive quarter when subscription bookings have grown significantly on a year-over-year basis.

At this time, I would like to share some operating metrics from just completed quarter. There were three six figure deals in the second fiscal quarter of this year as compared to eight in the second quarter of fiscal 2016. I am pleased to report that in this quarter's tally was Datawatch's first even seven figure license deal, a transaction that represents a further expansion of a long-time Monarch Classic customer that had upgraded to Monarch Complete in Q1 FY2017 and then in Q2 FY2017 more broadly embraced Monarch platform across its organization.

The average deal size in Q2 FY2017 was approximately $36,000 as compared to approximately $43,000 in Q2 FY2016. As we said before, this number tends to move around from quarter-to-quarter depending on the composition of deals, although we still see the annual trend moving higher.

Our total headcount at the end of Q2 FY2017 was 130 people, down from 141, as of the end of Q1 FY2017 and 17 fewer than prior year's second quarter when there were 147 people. Included in the Q2 FY2017 headcount numbers are 17 quarter carrying sales people of whom nine are outside sales reps and eight are inside sales reps.

Lastly, our total shares outstanding as of March 31, 2017 were 1,225,000 and weighted average shares outstanding were 1,214,000.

In summary, the key business metrics that best define and predict our performance are very positive and are trending in the right directions. This is the third consecutive quarter of double-digit revenue growth and greater than 30% license revenue growth for the company.

Full rationalization of the underlying cost structure to better align with our current revenue trajectory has been achieved and we are well on track to exceed our stated goals for the current fiscal year. We are optimistic about our ability to deliver strong results for the remainder of the year and beyond, but at the same time we recognize that we still have much work to do to gain our fair share what we believe is a large and growing data preparation market, which in turn will drive positive results for all our shareholders.

With that, I would now like to turn the call over to our President and CEO, Michael Morrison.

Michael Morrison

Thank you, Jim, and good morning everyone joining us on this call to review our fiscal 2017 second quarter results.

I'm pleased to report solid second quarter results which were consistent with our expectations, and also included important progress on several fronts. We continue to capitalize on our extensive customer base leading to a strong growth in our core Monarch data preparation and analytics business.

We extended the overall market opportunity for Datawatch with the release of Monarch's Swarm, our next generation cloud offering. And as Jim just noted now, we delivered on our commitment to return to operating profitability two quarters earlier than we originally targeted.

Total bookings in the second fiscal quarter top $10 million, up 23% year-on-year in the historic high for Datawatch. With our controlled transition to a recurring revenue model, total bookings remain a critical metric for the company and one that we closely monitor.

Our strong performance over the past three quarters coupled with our positive outlook for the second half of fiscal 2017, placed the company firmly on track to achieve our financial targets for the year including double-digit revenue growth and operating profitability exiting the year.

We continue to execute on our strategic plan in a very discipline manner. Let me share with you some product details on this plan which added core calls for us to produce consistent predictable and profitable revenue growth. Our focus on delivering innovative technology that improves business processes and empowers business analysts, to quickly and easily access data for analytic insights, provides a significant growth opportunity for Datawatch. In the secular ship towards self-service analytics is an added accelerant for this growth.

Our strategy to capitalize on the opportunity includes the following. First, expanding within our current customer base, we count nearly 14,000 organizations as customers and the growing number of used cases that we have developed demonstrating how we improved customer's efficiency and productivity helps to constantly increase the footprint of our Monarch platform within our customers. Nearly all of our largest transactions this past quarter were to our existing Monarch customers.

Second, increasing our overall customer base, our land and expand business model appeals the net new name customers with even engage with our Monarch self-service data preparation and analytics platform in a very frictionless try and buy manor. Of the new lands in Q2, nearly half for the net new name customers for Datawatch.

Third, growing our partner ecosystem, specifically, we're targeting large system integrators and managed service providers that can help us enter and grow the new markets as a complement to our direct sales efforts. Monarch Swarm is a perfect enabling platform for these partners.

Fourth, standing our value proposition, we continue to invest in innovation and new capabilities for our Monarch platform. As I noted earlier in Q2, we released the next generation of our flagship platform, Monarch Swarm, which is a cloud-enabled release with enhanced data governance, collaboration, socialization and gamification features. I am delighted to tell you that one of the world's leading oil and gas companies became the first customer of Monarch Swarm within days of its released, drawn by this platform's ability to enable collaboration amongst the various uses of Monarch in it supply chain operations.

And finally, fifth, embracing our Monarch community, our customers or our best sales people and we regularly promote initiatives to keep them engage and energize. There is one example, in recent months we've conducted free training events in Dallas, New York City and London attended by some 200 individuals where we shared some of the innovative ways that Monarch can dramatically improve business outcomes. Helping our customers learn from each other, as well as from us makes our technology even more useful and widespread within organizations.

So, I'm happy to report that we're executing well on these key elements of our growth strategy, there is always room for improvement. As we move into the second half of fiscal 2017, we're continuing to fine tune our marketing messaging programs, enhance our sales enablement initiatives and increase the level of engagement with our customers. We are on a mission to continually improve our execution and maximize productivity and results.

Before I turn the call over to Ken, let me share a few perspectives about the market in general based upon my interactions with customers, prospects, and partners.

For the better part of 2016, it seems to me that the hype around self-service data preparation and analytics was ahead of organization's actual appetite for these technologies. We certainly saw a lot of interest, but that didn't always translate to a firm intention to buy.

In the past two quarters, I definitely sensed a shift in the marketplace. Where I continue to believe that self-service data preparation and analytics is in its early days, I perceived a heightened awareness within organizations around the value that can be gained by deploying these next generation technologies.

Whether in meanings with customers and prospects or industry events like the Gartner BI Summit, we hear fewer questions, like what is self-service data preparation than far more questions around, how do I maximize the value of a self-service data preparation deployment?

While this input is largely anecdotal in nature, it certainly different than it was even six months ago and I firmly believe that an element of cans growing pipeline can be attributed to a maturing understanding of this segment of the analytics market like companies who are more galvanized to act than they had been in the past, so I would not call it an inflection point in the adoption of this technology, yet I believe we are seeing a fundamental change in how customers perceive the benefits of self-service data analytics.

With that, let me now turn the call over to Ken Tacelli, our Chief Operating Officer to provide some color on our go-to market initiatives.

Ken Tacelli

Thank you, Michael. Good morning, everyone. I'm happy to be joining you this morning to provide some updates on a go-to market sales and marketing initiatives, as well as our partnering program. I will also share some specific results from the just completed Q2 2017.

I'll start with the go-to market approach and then cover some details from the quarter within each aspect of our strategy.

I am very pleased to say that our sales productivity continues to grow, which is reflected in our license revenue growth of 34% in the past quarter, compared to Q2 of last year. This represents a 76% increase in sales productivity Q2 over Q2. The continuation and the success we produced in the prior two quarters proves that our deliberate moves towards industry-specific territories, targeted selling campaigns, and a concerted effort to increase sales and marketing alignment is paying off nicely.

As I told you last quarter, our efforts to align sales and territories and focus on targeted industries with corresponding used cases has enabled us to create repeatable and scalable sales campaigns. This focus is demonstrating clear success, our approach enables us to better understand and respond to specific customer business problems that we can help solve through Monarch platform.

Moreover, we are deploying several newer initiatives that specifically target the opportunity for Monarch that resides in a large customer base. Our Monarch self-service data preparation platform is ideally suited to deliver analytics solutions that address horizontal or vertical used cases.

The increased traction with our existing customer base is a direct result of our ability to demonstrate to these customer's intangible ROI that can be realized from our Monarch platform. We remain confident that we can continue this pattern of new growth by applying this approach more broadly within the existing base.

Sales and marketing alignment continues to be a critical component of our go-to market focus. This produces higher quality top of the funnel leads which then enable our sales team to focus their time and energies on pursuing better opportunities.

In applying continuous improvement to the ongoing alignment between sales and marketing, we implemented a measurable marketing operating process in the first quarter of 2017 that has directly impacted our positive sales results. We have increased our marketing qualified leads by 52% quarter-over-quarter sequentially, while significantly rationalizing our overall marketing spend.

Our team now benefits from defined quarterly goals that are shared across both sales and marketing teams for better to monitoring and improvement of our performance. We have implemented a disciplined approach to measuring all aspects of our marketing, we have redefined both marketing contribution measurements in the way in which we track the original lead source.

This has allowed us to more accurately predict the success of our activities and proactively adjust our actions based on early indicators. This has already resulted in a significantly higher conversion rate of marketing generated leads for sales qualified opportunities.

Our successful land and expand strategy remains the element of our approach. As Jim mentioned, we had a 193 new land deals in Q2 2017 as compared to 171 in Q2 2016, which is an increase of 13%. We have 42 expand deals in Q2 2017 and by comparison, we only had 18 such deals in Q2 2016.

On the partnering front, as Michael noted, we have seen an improvement on both the quarter-over-quarter and year-over-year basis, especially with large volume resellers in managed service providers.

Our base of global reseller partner accounts has in some cases realized double-digit growth in their Monarch business in Q2 2017. The Datawatch sales team managing the partner channel has focused the resellers on targeting key used cases in both financial services and healthcare industries. These are sectors where Datawatch is a proven and well-established leader making the customer acquisition of the technology more repeatable.

We have also seen better growth in partner related subscription deals recently, with half of the new customer acquisitions being subscription-based transactions. We believe our continued investment in partners will drive more incremental revenue across all of our Datawatch sales teams.

I know, many of you have asked about our traction with several key partners. I'm pleased to say that we have also realized partner growth in technology partners like IBM, and the former Dell Statistica in Q2 2017. We are continuing to make good progress engaging with IBM on larger enterprise solution opportunities building on our inclusion as a seven figure IBM deal in Q1 2017. In Q2 2017, we continue to acquire new logos by leveraging IBM and the IBM partnered ecosystem.

Additionally, Statistica continues to gain traction bundling Datawatch with its core product of predictive analysis. We are pleased with the results we saw in Q2 2017. On a quarter-over-quarter basis, our software royalties from this program have doubled sequentially over the last three quarters.

Lastly, our technology partners that are focused in our target verticals like financial services and healthcare had continue to introduce new land opportunities to the pipeline. As a result, our total pipeline today is stronger than it was entering the fiscal year and more importantly, I believe it's better qualified, because it reflects the work we've done in learning our sales and marketing messaging.

In conclusion, I believe that we continue to be well-positioned for success this year. We know that we have much work to do, but we are employing a highly focused and disciplined approach that's already demonstrated strong results. The entire sales and marketing organization is highly motivated to build upon our recent success and generate stronger growth ahead.

With that, I'll turn the floor back to Michael.

Michael Morrison

Thanks, Ken. Julie, let's open the line for questions now.

Question-and-Answer Session


Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from David Hynes with Canaccord. David, State your question?

David Hynes

Yeah, hey thanks. Good morning, guys. So, maybe want to start with Swarm first. Mike, I'm curious, what are the one or two features I guess that most differentiate the new product from the legacy. And then I guess part two of that question would be to talk about how this new release will affect pricing. Curious what does a like-for-like Swarm versus legacy Monarch purchase look like in terms of an ASP uplift?

Michael Morrison

So, DJ, on the first point, think of Swarm as our Monarch and a browser. It's - consider it evolutionary as opposed to revolutionary. So, what it does is again, it's a cloud application. So, we all know that's where the world is going.

In the data prep world, most of the battles are being fought on premise today. But we know overtime, it's going to migrate to the cloud. So, Monarch Swarm brings all the goodness of Monarch on prem and on the desktop into the cloud.

The key capabilities that we're already seeing resonate with customers and also prospects are the ability to collaborate amongst users. I mean we've got - if you look into our customer base we've got customers with hundreds or sometimes thousands of individual users doing their own thing in the desktop, being able to collaborate and share all the goodness of what an individual does throughout the organization giving IT the ability to govern all of that what historically occurred at an individual basis on a desktop is huge. So, it's collaboration and socializing what's you've done individually that's where we're seeing the big play in these early days.

On the pricing front, our intent is to bring Swarm into the market purely on a subscription basis. And while in the early days there may be some deviations from that, the goal is to - it's what you would expect with the cloud application, a SaaS based type model. So, looking into next year and the year beyond as Swarm takes traction, you need to plan for that revenue coming in largely almost exclusively on a subscription basis.

David Hynes

But just to be clear, it will be an uplift in pricing compared to the subscription deals that you're signing now?

Michael Morrison

Yeah, it will not replace the deals and the revenue that we're doing now. It extends what we do now offers up a new used case do opportunities. And as we get into those we'll be doing that largely on a subscription basis.

David Hynes


Ken Tacelli

This is Ken, just to clarify, we need to sell our subscription based pricing for Monarch Complete. Now on top of that, you then get the added functionality of Swarm, so you can either buy Swarm as a complete package or for an existing customer who has purchased subscription license on Monarch Complete, we would then upsell you on the Swarm functionality for an additional subscription charge.

David Hynes

Got it, okay. Second, maybe this one is for Jim, as it's more kind of numbers driven. As I look at deferred revenue right, which was down a bit sequentially. And then considering you guys had record maintenance renewals, it tells me the quarter certainly skewed towards perpetual licensing. So, A, is that correct. And then B, it surprises me a bit given the smaller average deal sizes which I think you guys typically try to handle on a subscription basis. So, can you just talk about kind of the dynamics at play there whether those are correct assumptions and what's going on with deferred revenue.

Jim Eliason

Yeah, so deferred revenue a little bit more on that, so it's down a 100K sequentially. So it certainly caught my eye when we closed the books. It's not that, it's actually the seasonality in our maintenance base. And so, Q2 is our lowest renewal invoicing quarter of the year, if that makes sense to you. So, essentially renewals are coming up, it's the lowest by almost the $1 million.

And so quite frankly, the reverse is true in the first half of FY2017 given the license growth we've seen the last two quarters, we've added about a $1 million, $1.5 million of new maintenance contracts. I fully expect the trend up into the right to continue next quarter, so that's the reason for the deferred revenue flattened sequentially.

On your second question, we still sell a fair amount of perpetual. I mean someone is on maintenance right, they can buy perpetual licenses one to twos. And so, the average selling price what's happening there DJ is if we break our invoicing down, our invoicing year-over-year in terms of number of invoices is up almost 20%.

So, we're doing a lot more deals. Invoicing over 25K, Q2 last year is down about 40%. So, we had more 25K and over invoicing deals in Q2 FY2016 versus 2017. And quite frankly on the six figure deals, it was about 100% more in Q2 2016 versus 2017, so it's a mixed thing, it bounces around, that's really what's causing it.

David Hynes

Okay. And did you give an operating cash flow number in the quarter, I know you guys don't put cash flow statement in the release.

Jim Eliason

If you pull out, you'll see in the queue, if you pull the statement which is not operating. We generated in Q2 roughly about $800,000 of operating cash flow for the quarter. And a lot of that some of the P&L, a lot of it was the balance sheet receivables as you know making your way down, so we had a really good quarter.

David Hynes

Got it. And then one last one if I may, and then I'll hop back in. Sales and marketing expense obviously, a big reset there on spend in the quarter, nice job with the cost controls. I guess should we think of this level is kind of the new norm that we build from or was there an anomaly in the quarter that kind of artificially brought that spend down?

Jim Eliason

So, I'll speak and Ken can add to it. So again, coming into this year, we had to rationalize our cost structure. So, we've definitely taken some sales and marketing programs down. We got there. Moving forward, our intent is to run this thing on a breakeven basis. I will say that the majority of our incremental spend if not all will go to sales and marketing because that's where it needs to be when you look at benchmarks and so forth. So, it was done by design, but we're very sensitive to it.

We talked about it Ken, Michael and I all the time where the next dollar goes and that's part of when we scrutinize what incremental investments to make, it's primarily, Ken where do you want to put it sales, sales heads, internationally domestic marketing programs, marketing people. I don't know if you want to add to that, Ken?

Ken Tacelli

I would just say we still made deliberate decision to rationalize marketing budget. So, we've looked at everything we've done in the past four five quarters. I took it line-by-line and we looked at things that have produced positive results from a sales perspective and then things that didn't.

So, the things that we eliminated from the marketing budget were things that we thought really, we could not point to a line of sight of direct result to be the pipeline generation or conversion to sales opportunities. I feel like we've got it right size at this point. And as Jim mentioned, we'll continue to invest in the sales and marketing side in line with what we expect from a revenue perspective.

David Hynes

Okay, got it. Great. Thanks for the color, guys.

Ken Tacelli



Our next question comes from Chad Bennett with Craig-Hallum. Chad, state your question?

Chad Bennett

Good morning, guys. Outstanding quarter.

Michael Morrison

Thank you.

Chad Bennett

So, just either Michael or maybe Ken, can you just kind of us give an idea on the introduction of Monarch Complete. How that if it did in fact expanded kind of the used cases for Monarch and maybe in conjunction with that expanded kind of the data sources you could pull into Monarch. And then with the Swarm, are we expanding again from the used case or addressable market perspective. Can you kind of take us through, how that evolved?

Michael Morrison

Yes, Chad its Michael. I'll start and then turn it over to Ken. I mean Classic to Complete expanded our user community and the used cases and largely Complete gave us the ability to get at the more casual business analyst user as opposed to the powering user, as well as to get at and expanded a ray of data sources.

I mean we made our mark in the world doing the dirty work, the hardest most challenging data types of formats. Monarch Complete's extended effort also made very easy to get the easy types of sources. So, we expanded our market in terms of the user community as well as the sources.

What Swarm is going to give us is the ability to get into even more used cases with the cloud version of it and collaboration. And also, again appealing to a broader user community, specifically IT, I mean there is - what's happening in data prep today is what happened is self-service analytics, five years ago with Tableau and Click where they made great strides in organizations, a lot of deployments and IT was catching up with them once it came to the forefront.

Same things as it is starting to curb data prep and Swarm gives IT the ability to manage all of these business users that want to get their hands on data and whether it's moving into an analytic tool like a Tableau or an IBM watch and analytics or Click or just improve the business process, Swarm gives the IT organization the ability to govern all that to be the data steward, so not to get in a way the business analysts but in fact support them and to make sure that everything is going along in the right course there within the organization.

So, with both of these evolutions of our platform, we open up a broader user community and a broader set of used cases. And Ken if you want to?

Ken Tacelli

So, I would just add to that. I think we continue to saw based on used cases that's we have been very successful, we have identified very specific business prompts that we know we can solve and with a repeatable ROI. That's no different whether it's Classic, Complete or Swarm, some of the functionality that Michael talked about, the folks that would use our technology on the Complete side, it does expand the - line of business users with multiple data sources.

The way we look at Swarm, Swarm is basically Monarch plus, right, so it's the next evolution of the Monarch experience should be going from a desktop experience, the ability to have everything browser based. So, now you have the ability to not only have multiple users and more users more readily available to gain access to those data sets and the models that are being used, but you now have the ability to govern it in a more centralized fashion.

So, you've got the governance and administration at the server level and at the loss with the collaboration, socialization of the end users. So, the used cases remain the same in terms of the problem that we saw, but we do strongly believe that this is going to allow us to become much more line of business and enterprise relevant.

So as opposed to solving department levels problems and solutions, right, what we believe at this point we are now going to be able to expand across an enterprise our line of business and do it in a way in which IT feels comfortable with it.

The other thing from a used perspective or a used case perspective, we are starting to see a trend moving from trying to solve problems on specific data sets and now a lot of our customers are starting to ask around, how do I solve problems specific to my systems, how do I align as an example, by CRM system with my marketing systems and or my HR systems which are desperate.

How can the pull all these systems together and be able to generate data sets that the business can use? So, we really do believe once again that this is the evolution of what was already seeing from a data prep perspective.

Chad Bennett

Very good. Thanks. And can you talk a little about the competitive environment and maybe again with the expanded used cases that you guys described very well. And I am thinking comparable to maybe an Alteryx kind of - is your market opportunity noticeably different than theirs and is there any reason why we should believe kind of your potential growth rate longer-term obviously, we have to be cognizant of making money and everything should be noticeably different than maybe an Alteryx or someone else that you might want to sight in the market.

Michael Morrison

So, Chad on the competitive front, and this is Michael again. When we're selling into our base, we don't run it to anybody and that's not suppressing, right. So, it's - the cross-sell upsell and even when we're outselling outside of our base, I think half the time that we're doing that they are not competitive either. And interestingly, and conversations, I've had with CEOs of other players in this space, they all see the same thing and I'd like to think that that's a positive indicator that this market is quite large and expensive.

When we do compete, the player we see most is Alteryx and look, we've got a lot of respect for them and Dean Stoker [ph] has done a great job there. Three years ago, they were a company about the size that we are right now and I think they've done a great job to building awareness for the data prep market, I mean there is a large reason why it's on the radar screen with a lot of organization today.

When we do get engage with them and competitive deals sometimes there are head-to-head competes and I'd like to think we do quite well against them. And sometimes, there are actually opportunities where we complement what they do, I mean we do a lot of the same things, but we do something that they don't, and they do some things that we don't. So, there is a number of instances or competes if you will where we are being looked at to complement an Alteryx implementation and there is in my opinion, I think there is a lot of opportunity for that as we look forward to next couple of years.

Chad Bennett

Okay. And then last one for me, again maybe for Ken or Michael. I think Ken talked about sales productivity improvement and something like a 75% improvement over the time period he sighted.

If we - I mean growth rate especially on the license side has accelerated significantly over the last couple quarters, if again my words, not yours, if we're on a 25%, 30% license growth trajectory over the next year, year and a half, how much productivity headroom do we have left? Where do we get to the point where we - and do we have to materially add to quarter carrying headcount and anything around that? Is there a breaking point there or do we still have a lot of runway? And then I'll jump off, thanks.

Ken Tacelli

It's a great question, so yes, we had significant I was actually 76% and which is significant uptick as you can imagine. A lot of that was based on like I've talked about over the last couple earnings call, right, focus and discipline, aligning territories correctly, repeatability and used cases, aligning people to specific verticals versus multiple verticals on a given territory.

So, a lot of that has contributed. We've obviously established a very disciplined approach to how we look at pipeline conversion deals et cetera. But you will eventually have dimension returns on that and we so we look at that pretty closely. We've already started to look at where we might add additional heads.

Once we've proven that we understand the particular vertical or used case and we think that there is a growth in a particular territories and example, I'll look to add headcount in a very discriminating way, so we're not going to do it too far advance of revenue, where I think there is probably some immediate upside for us is the continued advancement of our relationships with partners and our partner network. So, we're going to continue to put some emphasis on that.

And I also think that we have potential upside in our near markets for growth. So, really, I would say those are the three things, partners and the continued investment in some of territories that I think at this point we have right-sized and a producing in a rate in which they haven't done before.

Chad Bennett

Perfect, thanks. Nice job.

Ken Tacelli

Thank you.

Michael Morrison

Thanks Chad.


And our next question comes from Ilya Grozovsky from National Securities. Ilya state your question.

Ilya Grozovsky

All right, thank you. Can you just kind of elaborate a little bit on how you guys plan on increasing the amount of customers on the subscription side? I know you in the past said that anything below I think five units funnel for subscription. Are you moving that number up at all and kind of in order to move more customers to that subscription sale? Thanks.

Ken Tacelli

This is Ken, so, it's actually Ken so our kind of threshold is 10 or above, we would allow customers who is Classic, our perpetual customer and continue to buy perpetually. The market trend, we've actually looked at that and we're tracking that pretty closely in terms of should we move it to 15, is 10 the right number.

From a growth perspective on subscription, there is a couple of things we're doing. We've seen significant uptick in our subscription volume on the partner side. More than half of our partner related deals are subscription. So, as I mentioned on the previous question, as we invest and grow in the partner side do expect that to continue to be more of a subscription based model than a perpetual model.

And on the direct side, we have certain incentives with our reps around understanding how to lead with subscription versus perpetual. But once again, as Michael noted at the beginning of the call, the customer wants to continue to buy perpetually, then we're going to allow them to continue to do that. We do want to start to migrate more and more of our customers to subscriptions. We think Swarm by offering that primarily as a subscription model will start to move our customers and towards that mindset, once again keeping the customer journey in place, Classic to Complete to Swarm.

Ilya Grozovsky



And there are appears to be no further questions. Michael?

Michael Morrison

Julie, thank you, and thanks, everybody for joining us this morning. And as always, if you have any questions post this call, please reach out. Just one point of note, later this quarter we are going to be participating in the Cowen TMT Conference in New York City. So, any of you are planning to be there, we'd be very happy to meet with you when we're there. So, thank you for your time this morning and we'll talk to you next quarter.


Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.

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