Monday, July 27

Market Ignores Datawatch’s Q3 Hidden Value Creation, Why?

Market price for DWCH was likely spooked after Q3 earnings release by slow sequential growth for a “growth stock”. Yet, Q3 significant company improvements and trends ignored. July 22 Datawatch reported Q3 revenue of 7.8M, slow 4% top line sequential growth, 16% decrease versus Q3 prior year expected. Software license revenue of 4.3M up 5% sequentially, maintenance revenue of $3.7 million up sequentially at 3% and flat compared to prior year. Gross margins came in at 90% for Q3 2015 compared to 86% for the prior year quarter.
The top line improvements were far below personal expectations and barely exceeded Wall Street’s aggregate public estimates. I was looking for 15% to 20% top line improvement. But a closer look and deeper analysis uncovers important value creation the market ignores.

Several reasons may explain the market’s negative reaction to Q3. The shareholder base is growth oriented with a shorter investment horizon. An impatient growth oriented institution mindlessly dumped shares after the Q3 earnings announcement. Based on the market’s reaction, zero investment thought on Q3 key wins, trends and operational improvements. Further, the general market has become volatile, risk adverse, short term oriented and less forgiving to tiny growth technology companies.

These Q3 thoughts are focused on ignored positives creating a stronger foundation for future growth and an immediate improved valuation.

Summary of Q3 POSITIVES:

OEM partner revenue near record growth; Data Discovery Platform completed for market (details below); Deal trend for quality and size significantly improved: New OEM wins yet to be fully monetized; Magnitude of future potential with Dell underestimated; Dell to resell Monarch with Statistica

OEM revenue contributed 12% of total license revenue.  An increase from prior Q3 fiscal year at 7% and up significantly from the first half results of FY 2015 at mid single digit percentage. Quarter 3 OEM revenue reported on 07/22/15 was more than the sequential Q1 and Q2 combined. The OEM partner target is 30% of total license contribution, strong progress achieved toward this important goal.

Trend in deal size and quality improved. Average deal size Q1 and Q2 were in the mid 30k range compared to Q3 56k. Quarter 3 there were ten six figure deals, seven six-figure license deals. The Q3 six figure deals equal to the total number for Q1 and Q2 of FY 2015 combined. Deal size and quality driven by people buying the complete vision and unique solution.  Expect further leverage with new product positioning, introduction of Monarch 13 Complete and Classic was available for purchase on last day of Q3.

Examples of quality Q3 deals based on uniqueness of their technology solutions. Big four public accounting (KPMG??) firm added an additional two thousand Monarch seats for auditors to acquire and prepare multi-structured data during the audit process. A classic Iot (internet of things) application was Chesapeake Energy. Selected Datawatch for an IOT application to visualize and analyze in real-time sensor data coming from wellheads, drilling and production equipment on more than 60 wells. ASG Software Solutions, a new OEM, employ Datawatch’s data preparation to analyze documents archived in enterprise content management systems. Further, automate the data acquisition, preparation and govern processes. Then data ingested directly into Datawatch Designer visualization. ASG is an example of a customer that leveraged the value of the entire Managed Analytics platform buying into the new product positioning.

The magnitude of additional potential deals with Dell has yet to be realized. Additionally, Dell will resell Monarch coupled with their OEM visualization with Statistica.

We are working very closely with Dell to make the most of this relationship for the long-term. In fact, we already closed a high profile, internal visualization deal with Dell last quarter for rolling inventory forecasting in its hardware business across 4,000 discrete parts in 40 Dell sites. We are optimistic about the potential here is that they are – even though the Dell Software business, that was a $2 billion plus business within a nearly $60 billion organization. We were able to go from competing for an opportunity with several of the largest and most well-known players in visualization and data discovery and ultimately winning that to integrating the products and getting in on a price list and getting into the field’s hands in less than six months which is nearly unheard of with a normal software company with a company that $2 billion of software revenue, it’s quite impressive. So, the opportunity I believe is quite large. We are we’ve got a big focus ourselves on making the best of this. We’ve got a growing pipeline as I mentioned, it’s into the channel late in the quarter. They closed a deal with a Fortune-50 CPG company before the end of the quarter. We’ve done an internal deal with them, a competitive deal. So, we are – we’ve got – we know that there is a good opportunity here if we go and execute properly. We are in active conversations with Dell, because there will be more need for advanced analytics or predictive….” Source Q3 conference call

New OEM Q3 wins;

Lipper in Switzerland (subsidiary of Reuters), ASG, Fincad, Flextrade, Stragey group in Malaysia

Lipper operates as subsidiary within Thomson Reuters leveraging Datawatch’s visualization to showcase the value of over 10 years of Lipper Mutual Fund data, plans to promote this solution to its more than 1000 clients. Lipper sold its first deal to UBS in Q3.


Trading at 1 times EV to sales it’s now in value territory. A deeply depressed stock price with a Gartner and industry awarded product suite. Cash burn continues to decline and likely to be cash flow positive in 3 to 4 quarters if sequential growth continues. Datawatch is balancing the goal to attain breakeven results with the need to improve products, create market awareness, hire talent  to reach an inflection point in this high growth competitive data analytic market.

Cash balance at June 30, 2015 was $36.3 million with no long term debt. Cash per share is 3.17 versus closing per share price of $5.71. “Over 80% of our AR balances as of the end of Q3 FY 2015 were in the current category, more than 20 percentage points better than Q1 of FY 2015. Furthermore, less than 10% of our receivables are over 60 days past due.” CFO Q3 call.

Additional color on , “Managed Analytics Platform for Self-Service Data Preparation and Visual Data Discovery”. Note the last day of Q3 “Monarch Complete” was offered, the platform vision is market ready.


Platform, is self service (no outside involvement) highly differentiated software.

Any Data(Dark, Real Time, Multi Structured, directly open 3rd sources such as sales force, oracle, informix,my sql,Splunk, Amazon redshift, others.

Prep  Data by enriching, create new fields(meta data), remove data, correct errors, export directly to 3rd party visualization software Tableau, Qlik, or Datawatch Designer.

Mask sensitive data for distribution and analysis.

DISCOVER with in memory visualization, real time in motion visualization


Thursday, June 25

Red Flags But Too Cheap To Ignore , Christopher & Banks (CBK)

Christopher Banks Corporation (CBK) is a retailer of women's apparel and accessories.CBK embraces an overlooked demographic, women 45 to 60 range. Stores are located in 43 states with 518 stores including 88 Christopher & Banks ("CB") stores, 75 C.J. Banks ("CJ") stores, 304 Missy, Petite, Women ("MPW") stores and 51 outlet stores. They also operate and ecommerce site at Christopher & Banks founded in 1956, headquartered in Plymouth, Minnesota.

I've been watching CBK bounce off its 52 week low (06/16 $4.00) but unable to make time to post my thoughts. Insider buying is strong over the past 3 months, 125,740 shares purchased for $569,502 or $4.52 average per share. Broken down as follows, officers (CEO, CFO) purchased 86,000 shares for $400,900 or $4.66 per share, 10% owners 17,240 shares for $71,852 or $4.16 per share and VP 22,500 shares for $96,750 or $4.30 per share.

The red flags are with slower inventory turns, days sales outstanding, cash conversion, and cash flow from operations is less than NI for several quarters. This indicates aggressive accrual accounting (poor earnings quality) further evidence from the TTM Sloan ratio of 24.63. There are many positives now trading near its 52 low not to ignore the stock.

CBK has strong financial position supported by zero long term debt, high Z score and positive cash flow from operations every year back to 2008, except 2013. Valuation is relative and historically cheap. TTM gross margins is 34.93% slightly higher than the annual average back to 2008. P/TB TTM is 1.15 versus the annual average going back to 2009 of 1.78.EV/Revenue TTM is .29 versus the average annual value of .33, 2009 to 2014.Historically the cash flows from operating activities has been sufficient with no need to access existing Well Fargo 50 million line of credit.

Price on 07/01/15 = $3.92

Market Cap:151.05M (versus prior 6 year average MC of 201.03M)
Enterprise Value: 120.72M(versus prior 6 year average EV of 147.32M)
Price/Book (mrq): 1.16
EV/Revenue (ttm):0.29(versus prior 6 year average EV/Rev of .333)
EV/EBITDA(ttm):7.39 (versus prior 6 year average EV/EBITDA of 18.34)
ROA(ttm): 25.39% (versus prior 6 year average ROA of 11.71)
Return on Equity (ttm): 38.21%
Revenue (ttm): 406.84M , Revenue Per Share (ttm):11.01
Qtrly Revenue Growth (yoy): -11.40%
Gross Profit (ttm): 147.79M
EBITDA (ttm): 15.94M , Net Income Avl to Common (ttm): 42.92M

Total Cash (mrq):36.28M  Total Cash Per Share (mrq): 0.98
Total Debt (mrq):  0.00  Total Debt/Equity (mrq):   N/A
Current Ratio (mrq):   2.39 , Book Value Per Share (mrq):3.63
CFFO(ttm): 21.69M , Free Cash Flow (ttm):-11.54M

52-Week Change:-53.49%
52-Week High (Sep 8, 2014):$11.22,52-Week Low(Jun 16, 2015):$4.00
Shares Outstanding:37.20M , Float: 34.23M
% Held by Insiders:2.33% ,% Held by Institutions: 87.60%
Short % of Float (as of Jun 15, 2015): 6.20%

Relative Valuation

CBK ranking within the Apparel industry;  Number 1 for financial strength, Number 1 for the largest price discount to its Graham number and Earnings Power Value, weakest 4 week stock price return, top 4 for Price/NCAV.


Additional insider buying reported today(07/02/15), 10,000 shares purchased by two directors at $4.00 per share.

Target of Macellum Capital a successful activist in apparel retail industry that now owns about a 5.2% .

MD&A management optimistically wrote, "second half of the year, we expect sales growth to significantly improve due to a number of factors".

Value based mean reversion can push the stock higher as it moves towards historical valuations for sales, book, and industry.

Target market is women 45 to 60, overlooked less competitive demographic.   

Long CBK

Monday, June 8

Cheap and Safe, Computer Task Group (CTG)

Computer Task Group is an international IT staffing and services company. Employee count is 3,900 with geographically diversified operations in North America and Europe. CTG has a large presence in the fast growing healthcare market, implementing electronic health records and health information exchanges. Proprietary software is available  to support healthcare providers and clinical systems integration.  Founded in 1966, besides the health care sector CTG serves technology providers, financial services, energy , and general markets.


Computer Task Group is a simple story trading at historically and  relative cheap valuations, P/B, P/S and market value near 5 year low. CTG is consistently profitable,  TTM dividend yield of 3.20% and an oversold (-51.30%) negative 52 week price change.

The table below compares the enterprise value to non cash assets, gross profit, revenue, EBITDA, and EBIT for the annual periods 2009 to TTM. Valuation discounts are significant across all line items of the financial statements. The current price trades at only 1.45 times annual gross profit and 7.90 EV/EBIT.

The table below shows the increase in per share value for revenue, GP, book value, and dividends. These intrinsic value improvements  contrast to the average per share market value declining over the same period. CTG trades at half the prior year's market value.

CTG has a consistent diversified international revenue stream. The break down by region is 81.80% North America and 18.20% Europe. Multiple sectors are served;  healthcare, financial services, energy and general markets. Revenue by vertical markets as a percentage of total revenue for the quarters ended April 3, 2015 are Technology services providers 28.50%, Healthcare 24.10%, Financial services 7.00%, Energy 5.60%, and General markets 34.80%.Further, a strong balance sheet with zero long term debt and 2.23 per share in cash. Z score (5.90), M score(-2.56), and a sloan ratio(-.45) all indicate a safe financial operation.    

Ownership: According to Yahoo, insider ownership is 32.95%. But,  reviewing the latest proxy there are 12 officers, directors that own 11.40%.Value investing institution Royce owns 12.50% along with other value shops, Heartland, Robeco, Minerva Advisors, Teton and others. Insider activity for 2015, directors acquired 26,555 shares for $231,815 at an average price of $8.72.CEO received 67,000 shares. Note that share count has remained stable from 2008 and prior years had positive insider buying at higher prices.

Price = $7.71 on 06/07/15

Annual Growth Rates:
Revenue 10yrs = 5.30%, 5yrs = 6.40%, 12 months = .60%
Free cash flow 5 yr growth rate = 31.80%
Book value growth rates 10yrs = 9.30%, 5yrs 9.80%, 12 months 13.70%

Market Cap: 144.31M,Enterprise Value:82.67M
Revenue(ttm):392.83M,Revenue Per Share:25.87
Qtrly Revenue Growth (yoy):-0.40% ,

Gross Profit(ttm):79.34M(compares favorably to current MC of 144.31M)

EBITDA (ttm):16.92M
Total Cash(mrq):34.42M or 30% of Market Cap
Total Cash Per Share (mrq):2.23
Total Debt (mrq): 0.00 ,
CFFO(ttm):11.57M or ,FCF (ttm):10.44M
52-Week Change:-51.30%
52-Week High:17.47 , 52-Week Low:7.27
Shares Outstanding:  18.72M , Float:  11.35M
% Held by Insiders: 32.95%,
% Held by Institutions:58.10%
Short % of Float: 6.10%
Annual Dividend Yield: 3.30% 


Conclusion: CTG is a simple story that's safe and cheap. Their strong international presence in health care IT coupled with trend to use non permanent project based workers offers significant growth opportunities. Valuations are near the market's best with a 3.20% dividend yield supported by ample free cash flow. Lastly the trend toward using temporary based employees continues to grow.

No Position

Monday, June 1

2 Deep Value Nano Caps < 10M Market Cap

Blonder Tongue Laboratories Inc.(BDR): Blonder Tongue Laboratories offers television signal encoding, transcoding, digital transport, and broadband products to the media industry. The company was founded in 1950, headquartered in Old Bridge, New Jersey.

This deep value is partially driven by its discount to the fair market value of its tangible assets coupled with its market size in relation to revenue and gross profit. Book value is 12,380,000 or 1.98 per share versus price of $.77 or market cap of 4.82M . Real estate likely worth near or more than current market capitalization. BDR owns 20 acres of land in Old Bridge NJ + facilities of 130,000 square feet.

Last week Insider purchased 15,108 shares for $10,313 or .682 per share.
Market Cap: 4.82M ,Price $.77,  Enterprise Value: 10.25M
Enterprise Value/Revenue (ttm): 0.36, Revenue (ttm): 28.29M
Gross Profit (ttm): 10.96M , 52-Week Change: -17.20%
% Held by Insiders: 45.73% , Price/Book (mrq): 0.36
Sector: Technology, Industry: Communication Equipment Full Time Employees: 162

Note : BDR on 06/01/15 reported additional insider buying for 60,000 shares at $45,359 or $.76 per share.

International Baler Corp. (IBAL): International Baler Corp is a manufacturer of baling equipment. Technical, hydraulic and electrical mechanisms are used to compress a materials into bales for easier handling, shipping, disposal, storage, and recycling.

Insider purchases have been significant relative to number of shares in float. Directors purchased 904,128 shares for $2,259,940 for an average price of $2.49 over the past 2 months. Beneficial owner purchased 5,000 shares for $10,175 at an average price of $2.03.

Market Cap:  9.95M , Price $1.92, Enterprise Value:   7.23M
Enterprise Value/Revenue (ttm):    0.38 , Enterprise Value/EBITDA (ttm): 5.74
Gross Profit (ttm):     4.21M , EBITDA (ttm):  1.26M
52-Week Change:    -6.34% , Insider ownership:; 15%
IBAL trades at a deep valuation discount to its sector.

Additional deep value ideas between 1M and 15M :

Click Stock Quotes on all stock mentioned in this post

BAB, Inc. (BABB)

Mechanical Technology, Incorporated (MKTY)

Microwave Filter Co. Inc. (MFCO)

Qualstar Corp. (QBAK)

AeroCentury Corp. (ACY)

Symbol Price 06/01/15 EV Per Share Cash Per Share Debt Per Share Book Value Per Share Revenue Per Share GP Per Share EBITDA Per Share OI Per Share 52 Week High 52 Week Low Shares in Float  * EV Per Share Shares in Float  * Price Per Share
BABB 0.65 0.58 0.08 0.01 0.00 2.49 0.32 0.07 0.07 0.83 0.58 2,778,200 3,113,500
BDR 0.74 1.64 0.02 0.88 1.98 28.29 1.75 0.07 -0.15 2.88 0.64 5,904,000 3,240,000
IBAL 1.90 1.40 0.53 0.01 0.00 19.02 0.81 0.24 0.21 2.5 1.42 727,776 1,169,640
MFCO 0.45 0.23 0.39 0.17 0.00 3.82 0.58 0.10 0.05 0.71 0.25 494,500 967,500
MKTY 1.07 0.79 0.31 0.00 0.00 9.03 1.05 0.13 0.12 1.48 0.64 3,531,300 5,140,500
QBAK 1.17 0.72 0.45 0.00 0.67 12.40 0.21 -0.18 -0.19 1.69 1.04 3,549,600 6,113,200

Tuesday, May 19

Intelligent Speculation, Datawatch (DWCH)

Company Description: Background
Datawatch develops and markets self service data analytic software solutions. Non technical users can leverage expertise by accessing difficult to reach multi structured and structured data for discovery and innovation with no outside support. The data analytic software modules are now sold separate or as a coherent complementary platform for the desktop or enterprise. Datawatch’s tag line, leverage any data at any speed. Any data includes multi structured sources such as PDF, HTML, XML, JSON, log files and structured sources. Structured sources included CSV, Excel, Access, SQL, and others. Countless sources of real time streaming data used in capital markets, energy, floor shop operations and internet of things (Iot) (sensor/machine data).

The Managed Analytics Platform (introduced April 2015) is an enhanced derivative of legacy software Monarch. Both products address a new important requirement of big data analysis. This overlooked prerequisite of big data or data discovery called data prep is now the new must have for enhanced data analysis. Datawatch Monarch is the original data prep software. Datawatch has been selling, developing and improving Monarch software for 20 years. Just over the last 6 months to 9 months Gartner recognized that over 80% of the time spent with big data, data analysis was in data preparation.Datawatch’s Monarch software ignored for years by information research and advisory services such as Gartner. That’s changed. It was long overdue. Gartner’s officially recognizes data prep critical functionality. This will drive more business to Datawatch. At the end of Fiscal year 2014, Gartner published a report “Data Preparation Is Not an Afterthought”.


Major data analytic vendors such as Informatica, Alteryx, and smaller venture capital backed start up firms recently introduced data prep solution to feed visualization or analytic software such as Tableau. This new category was introduced over the past 6 to 9 months. Datawatch has a head start with access to multi structured documents that’s not being offered by the other data prep vendors. IBM uses Datawatch’s data prep Monarch technology to access semi structured content from their award winning content management solution (CMOD).

Monarch and now MAP (Managed Analytics Platform), acquires, enriches, prepares, cleanses, reformats, joins, and automates data from structured, multi-structured and real-time streaming data sources. Designer (Panopticon) is the next step in the data discovery process. It’s used to further visualize, explore, uncover, and solve. Important note, Designer 13 released March 2015 now has powerful data prep functionality. A distinct advantage with all Datawatch software, its self service. The non technical expert becomes productive with no outside involvement.
This self service ability to visual discovery against any data at any speed sets Datawatch apart in the data analytics, big data and visualization markets. Organizations of every size, worldwide use Datawatch products, including 93 of the Fortune 100.
Now What? The recent history of the dramatic rise and fall.
Datawatch has become a turnaround story after a busted 2014 and 2013 growth thesis. The stock had a spectacular meteoric rise. Next, February 2014 to today (05/08/15) stock price dropped as spectacular as the rise. DWCH stock price rose to the mid 30’s or around 250 million in market value. The price was stretched but reasonable. That price could be justified. Price justification based on large relative discount to other major visualization vendors.  Furthermore, their small revenue base to post mid double digit top line growth and the large user base of Monarch users coupled with a new version to feed new designer customers. The price optimism partially started after the acquisition for Swedish visualization software company Panopotion.  It was an all stock transaction calendar 2013 quarter end. Furthermore, Datawatch raised ~ +50M from a secondary, January 2014. The secondary 5 times oversubscribed selling +2 million shares for 28.50.
DWCH board member and outside investor Chris Cox was confident. He purchased 35,000 shares at $28.50 for $997,500 during the secondary. That’s in addition to prior open market buys, 6,163 shares @ 32.14 on 09/12/13, 11,000 shares at 23.11 and 1,565 shares for 22.35.Other insiders just as optimistic during 2013 aggressively purchased stock. Quarter 2 2014 a major upgrade to Modeler (Monarch) V12 released. Historically an upgrade quarter produces material market beating expectation for top and bottom line growth. Introduction of V12 never seriously marketed, a missed opportunity. The marketing focus spent time and money on the overcrowded general visualization market. None of this mattered. Q2 February 2014 Datawatch preannounced unexpected revenue miss. The stock dropped in after hours from the mid 20’s to 13 per share.
Back to the question, why did DWCH bottom at $5.32 during February 2015? The first miss Q2 2014 when Panopticon sales people left unexpectedly. Management commented the miss driven by timing issues. Close to 2 million in additional sales from Q2 expected to close next quarter due to timing misses created by the unexpected disruption from the Panopticon sales team. Then Q3 2014; sales were weak even with the expected additional sales from Q2 2014. Every subsequent quarter had excuses for less than expected 30% YOY results. This continued until Q1 2015 when there was a mea culpa. The mea culpa was to focus marketing efforts on its niche strengths and not cast a wide net within the general visualization market. The marketing focus over the prior 12 to 15 months was general visualization. This approach competed head on with the giants specializing in this over crowed market. Someone never got the memo that Panopticon is more powerful and unique in countless ways (real time, multi time series, in memory, better UI for data discovery) but the marketing focus was general visualization. Designer didn’t stack well on several general visualization strengths to out compete vendors producing prettier graphs such as Tableau, Qlik Tech, and Spotfire. Further and more importantly the heritage product Monarch ignored. During that time, internationally recognized Monarch software’s name was changed to Modeler. Gartner’s 2015 Magic Quadrant report commented on the many unhappy Monarch customers.
 . Gartner inquiries also suggest a level of dissatisfaction in the legacy Monarch installed base as Datawatch transitions it to the new integrated platform.”
Q2 2015 the name Modeler was changed back to Monarch after 1.5 years that negatively impacted the brand and lost momentum within Data Prep.  Monarch large customer base has over 40k historical customers spanning all industries. Those responsible for product positioning at Datawatch never understood or ignored Panopticon and Monarch’s niche advantages and more important DISADVANTAGE to overcrowded commoditized general visualization such as Tableau, Qlik. Last, I speculate the sales staff driven crazy (low morale) over the past 1.50 years with the rebooting of product positioning creating unnecessary sales talent turnover. Sales during this time negatively impacted.
Q1 2015 after another miss the stock broke 6 per share. During the Q1 2015 conference call CEO Morrison communicated the strategy change. There was a renewed focus on the large and loyal Monarch customer base. February Q2 2015 the turnaround became obvious. Sequential revenue up from Q1, expense reductions implemented saves the company 4 million annually. Also, announced a powerful new product derivative of Monarch for the booming big data niche, data prep. The new product called MAP, managed analytic platform. MAP offers improved ease of use data prep, data blending, enhancement, automation, enrichment and speed of thought features for structured, real time and multi structured sources. Access to multi structured reports or machine data is not a feature or strength by other self service data prep vendors.
Datawatch is cheap. A 50% to 80% price increase is not unreasonable.
Relative Valuation:
Current Price = 6.92(05/19/15), EV= 42.41M, MC = 78.55M
EV/Sales = 1.30, EV/GP = EV(42.41M)/GP(27.72M)= 1.52
These financial statistics show a material discount to other visualization vendors. Pentaho, positioned next to Datawatch in the Magic Quadrant (see image below) was purchased by Hitachi February 2015 for 13 to 14 time’s sales. Pentaho offers the same suite of software solutions as Datawatch; ETL, visualization, data prep, and automation. Additionally, not as directly comparative but Tableau (DATA) trades at 17 times sales compared to DWCH’s EV/Sales of 1.30. Tibco went private this year at 3.5 times revenue. Actuate (BIRT) acquired by open text, Jaspersoft by Tibco at price to sales ~ +3 times sales.
Gartner published its prestigious 2015 Magic Quadrant for BI and Analytics Platforms released the end of February 2015. There was only one new entrant, Datawatch. Tiny nano capitalization Datawatch was included with other multibillion dollar vendors such as IBM, Tableau, SAP, Oracle, Microsoft, SAS and others totaling 24. Datawatch ranked in the top 24 of assessed vendors because of its differentiation in supporting emerging requirements for data discovery on streaming and multistructured data. New potential sales opportunities are being generated from the recent Feb 2015 Magic Quadrant report.
Q2 FY15 Datawatch posted market beating top line expectation after a dismal 12 months of misses. Management recognized their faulty product positioning coupled with associated costs was responsible for less than expected top line results. The sales force realigned.  That change resulted in an over 30% increases in productivity for the most recent quarter. Datawatch reduced workforce by 15%.
“The major change was the decoupling of their outside sales reps and inside sales reps which historically have worked in teams. As of April 01, the 21 outside sales reps are now enterprise named account vertically focused while the inside sales organization, of which there are 11 full time FTEs is vertically focused as well, but targeted primarily on the smaller and mid-market opportunities. The good news is that this change in the coverage model has increased sales capacity by approximately 30% without any additional headcount investment and already we see a good deal of positive energy in each of the refocus groups.” Source Q2 conference call.
Designer now has a more focused marketing spend to leverage unmatched strengths. Strengths such as the complex requirements for real time streaming, time series data in addition to multi structured for in memory data visualization. The recent changes and focus will save the company 4M annually.
April 29, 2015 Dell Software announced improvement to its Gartner awarded Statistica advanced analytics platform. Dell will OEM Datawatch’s self service complex visualization Designer with Satistica. Further, Xerox integrated Datawatch’s data prep functionality to access, blend, and filter data from multiple difficult reach sources. "Xerox's Workflow Automation Solution for Supply Chain Optimization tool, for example, targets retailers with a new way to digitize, centralize, automate and govern the manual steps involved in the product life cycle." The solution reduces labor and print costs, simplifies inventory management, and invoice reconciliation, and improves fill rates by syncing data and applying automated analytics at the store level.
An important comparison to support a significantly higher valuation for DWCH is best found in Gartner’s 2015 Magic Quadrant report on Datawatch and Pentaho. Datawatch has a current EV/Sales of 1.30 versus the price paid by Hitachi’s for Pentaho in the range of 13 to 14 times sales. Copied and pasted Gartner 2015 MQ comments from the report,
Garnter wrote on Hitachi’s interest in Pentaho .  Pentaho  had a particular emphasis on solutions for the IoT”. Versus their Datawatch IoT comments “Datawatch has a large installed base in the financial services market and is expanding into other verticals. It is particularly well positioned for the emerging requirements around streaming data for the Internet of Things (IoT).”
Pentaho’s negatives mentioned by Gartner’s magic quadrant were,
14% of reference customers report that the software quality is a limitation that prevents the expansion of use and 68% of customers (the highest percentage in the Magic Quadrant) report some type of problem with the platform. Also, 24% of the reference customers claim that the platform is unreliable and unstable, while another 24% tag it as difficult to implement.  Moreover, customers give Pentaho lower than average scores for customer experience”.
Gartner’s commentary on Datawatch ,
Datawatch scores strong for customer experience and a differentiated product and vision for data discovery on real-time and multistructured data. Customers report using the platform for more complex types of analysis than with most other vendors in this Magic Quadrant. Datawatch registered the highest percentage of customers using its platform for interactive analysis. Customers also have an above average perception of their overall customer experience particularly in the areas of support and product quality.” “Datawatch's self-service data preparation capabilities, which leverage its Monarch Technology, can access structured, semi structured and unstructured data such as JavaScript Object Notation (JSON), PDF and HTML as a data source for analysis, in addition to traditional and many big data sources. Scheduling and alerting capabilities are also more extensive than those available for Tableau”   “Datawatch also has a seasoned management team (of exCognos and TM1 executives), who have thus far positively steered its platform integration and go to market strategy toward differentiation in a growing area of the market.” Source Gartner 2015 Magic Quadrant report.
Split out the software solutions Data Prep/Access and visualization to do a sum of the parts valuation justifies a higher price for DWCH. Monarch and MAP (Managed analytic platform) is Data Prep/Access. Designer is visualization data discovery. Monarch and new data prep software (MAP) can  generate 25 million annually in revenue with around 20% recurring maintenance revenue. Monarch sold to 40,000 companies with over 500,000 copies reaching 93 of the Fortune 100. Designer’s real time data in motion analytics is embedded in Reuters, NASDAQ, KxSystmes, Blacktree, Belarus, and Euromoney. Capital market customers use Designer for complex time series real time data analysis; JPMorgan ChaseCitigroup, Citadel,BlackRock and others. Designer/Panopticon before the acquisition by Datawatch won the prestigious Cool Vendor Award from Gartner. Global alliances realized with Informatica, Perceptive and others. Datawatch paid around 35M in stock for Panopticon. DWCH current enterprise value is 44.15M. Adding a simple 3 to 3.5 multiple to sales or even gross profit for both Monarch and Designer doubles the current stock price.
Summarized investment rationale
Datawatch trades at a depressed price. EV/Revenue at 1.30, EV/GP at 1.52, enterprise value of 42M versus ratios for visualization, data prep and BI vendors trading multiple times higher. New product positioning and sales realignment has lead to a recent Q2 +30% improvement in sales productivity. Sales increased sequentially from the prior quarter. Gartner selected Datawatch for the 2015 magic quadrant, positive optimistic comments.  Datawatch was the only new entrant in the 2015 Magic Quadrant. Datawatch a tiny nano cap stock versus other Magic Quadrant entrants trading in the billions. Prior month there were technology integrations wins with Dell Software and Xerox. The sum of the parts valuation, I believe is 100% greater or more than current enterprise value, 42M. The software can uniquely support Iot (internet of things) with a highly sort after functionality recognized by Gartner’s analysis. Gartner’s multiple positives coupled with industry tailwinds and managements large investment stake are catalysts for the company’s sale at a large premium or market improving valuation. Management has a deep bench that’s experienced in BI industry with a proven successful track record from IBM, Cognos and other large BI vendors. These factors may lead to a 50 to 80% increase in the stock price and will still trade at a large discount to peers. A larger valuation realized if an offer is received at a fraction of the value received by Pentaho, Actuate, Jaspersoft, or Tibco.
Datawatch has proven technology advantages with a talented management team that had difficult year integrating Panopticon and finding its product positioning. That’s been resolved. It’s important to realize senior management created significant yet to be fully realized value over the past 3 years. Michael Morrison became the CEO ~ 3 years ago. During that time sales increased, new sales and supporting team created, recruited top proven BI talent, immediately implemented annual software maintenance, and smartly purchased Monarch's intellectual property. This intellectual property created added revenue opportunities, increased margins and created new products. Monarch’s intellectual property purchased for 8 million is now worth over 50M based on fundamentals such as gross profit and revenues. Additionally, award winning Swedish visualization software Panopticon purchased in an all stock transaction. January 2014 a secondary at 28.50 per share raised over 50M.
Multiple insider open market purchases in 2013, 2014 and 2015.  Management’s communication with shareholders is exceptionally transparent. Operational performance, financial results and strategy, both positives and negatives are shared in detail with investors. Talented board of directors includes executive chairman David Mahoney. Mahoney is the former CEO of Applix. Mahoney sold Applix to Cognos and 3 months later IBM purchased Cognos. Michael Morrison was the COO of Applix during Mahoney’s tenure at Applix. David Mahoney owns 282,983 shares around 2.5% of the shares outstanding, majority purchased in the open market, CEO Morrison owns 496,743 shares or 4.34%. Other board members own large positions; Christopher Cox 711,193 shares or 6.30%, James Wood 946,729 shares or 8.38%.  Joan McArdle has 187,500 shares or 1.66%.  Insiders own 31.29%, their personal interest aligned with public shareholders.
If you’re still interested after doing research build the position over time on days of price weakness.