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2016-07-20

Datawatch Corporation: Datawatch Announces Third Quarter Fiscal 2016 Financial Results

Company Announces Review of Strategic AlternativesBEDFORD, Mass., July 20, 2016 (GLOBE NEWSWIRE) --Datawatch
Corporation(NASDAQ-CM:DWCH), a leading global provider of self-service data
preparation and fast data analytics solutions, today announced that total
revenue for its third quarter of fiscal 2016 ended June 30, 2016 was $7.4
million, flat with revenue of $7.42 million in the second quarter of fiscal
2016, and down from total revenue of $7.8 million in the third quarter of
fiscal 2015. License revenue for the third quarter of fiscal 2016 was $3.67
million, a 1% increase from the $3.65 million recorded in the prior quarter
this fiscal year, and an 11% decline from the $4.12 million recorded in the
same quarter a year ago, which was the first quarter to reflect the company's
move to subscription license sales.

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

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

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

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

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

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

Transition to Subscription Sales

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

Third Quarter Fiscal 2016 Business Highlights

* Datawatch closed business with all four of the Big Four public accounting
firms, as well as dozens of internal audit groups at commercial
organizations, further cementing its leading position as the self-service
data preparation solution of choice.
* Datawatch and Vertex, Inc. entered into a managed analytics OEM agreement
under which Vertex will use Datawatch's Monarch solution to acquire and
prepare data for customers of Vertex's integrated tax technology solutions.

* Aetna, whose single vision is to provide improved access to quality health
care services for all Americans, selected Datawatch as its self-service
data preparation solution to acquire, enrich and blend data for its Tableau
self-service analytics users.
* Fiserv, a global provider of technology solutions to the financial world,
including banks, credit unions, securities processing organizations and
insurance companies, entered into an agreement to resell Monarch for
self-service data preparation with Fiserv's matching and account
reconciliation solution.
* Pentagon Federal Credit Union, a longstanding heritage Monarch customer,
recognized the ROI from Datawatch's next generation self-service data
preparation solution and upgraded its existing heritage licenses of Monarch
for more than 100 users.

Third Quarter Fiscal 2016 Financial Highlights

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

Review of Strategic Alternatives

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

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

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

Conference Call

Datawatch's third quarter of fiscal year 2016 earnings conference call will
take place on Thursday, July 21, 2016 at 8:30 a.m. Eastern Time. To access
the conference call, the toll-free dial in number is (877) 407-0782.
Internationally, the call may be accessed by dialing (201) 689-8567. The
conference call will be broadcast live on the Internet at:
http://www.investorcalendar.com/IC/CEPage.asp?ID=175106. It is recommended
that listeners register to participate and download any necessary audio

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