SOURCE: Mattersight Corporation

Mattersight Corporation

February 15, 2012 16:40 ET

Mattersight Announces Fourth Quarter 2011 Results

CHICAGO, IL--(Marketwire - Feb 15, 2012) - Mattersight Corporation (NASDAQ: MATR) today announced financial results for the fourth quarter ended December 31, 2011.

Mattersight's total services revenue was $8.6 million, including $6.7 million1 of subscription revenues. The Company realized an "Adjusted Earnings2" loss of $1.0 million for the fourth quarter of 2011. Adjusted Earnings is a non-GAAP measure. For a reconciliation of operating loss to Adjusted Earnings, see the accompanying schedule. Mattersight's net loss was $1.3 million in the fourth quarter of 2011 and its operating loss from continuing operations3 was $3.1 million.

Q4 Highlights

  • Increased subscription revenues by 22% sequentially, and 30% year over year, to a record $6.7 million
  • Grew total service revenues by 22% sequentially to $8.6 million
  • Expanded gross margins by 300 basis points sequentially
  • Improved operating performance by 1,800 basis points sequentially
  • Closed three new pilots in Q4
  • Resolved the arbitration with TCV
  • Closed a financing with a new, strategic investor, Investor Growth Capital
  • Generated $1.8 million in cash, net of TCV and IGC transactions

Q4 Guidance
Mattersight currently expects its Q1 subscription revenues will increase approximately 6%, sequentially and its total services revenues will increase approximately 5%, sequentially.

Conference Call Information
Mattersight management will host a conference call at 5:00 p.m. ET on Wednesday, February 15, 2012. The conference call and slide presentation will be available at the Investment Community section of Mattersight's website at http://www.mattersight.com/investment/. To listen to the conference call via telephone, please call 800.952.4789 (domestic) or 404.665.9579 (international), conference ID: 46920226.

For those who cannot access the live broadcast, a replay of the conference call will be available beginning approximately two hours after the live call is completed until February 29, 2012, by dialing 855.859.2056 (domestic) or 404.537.3406 (international), conference ID: 46920226.

Safe Harbor for Forward-Looking Statements
Statements in this press release that are not historical facts are "forward-looking statements" that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements, which may be identified by use of words such as "plan," "may," "might," "believe," "expect," "intend," "could," "would," "should," and other words and terms of similar meaning, involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to other factors and matters contained or incorporated in this document, important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, among other things, the risks detailed from time to time in Mattersight's SEC filings. You can locate these filings on the Investor Relations page of Mattersight's website, www.mattersight.com. Statements included or incorporated by reference into this press release are based upon information known to Mattersight as of the date of this press release, and the company assumes no obligation to publicly revise or update any forward-looking statement for any reason.

About Mattersight
Mattersight is a leader in enterprise analytics focused on customer and employee interactions and behaviors. Mattersight's Behavioral Analytics service captures and analyzes customer and employee interactions, employee desktop data, and other contextual information to improve operational performance and predict future customer and employee outcomes. Mattersight's analytics are based on millions of proprietary algorithms and the application of unique behavioral models. The company's SaaS+ delivery model combines analytics in the cloud with deep customer partnerships to drive significant business value. Mattersight's applications are used by leading companies in Healthcare, Insurance, Financial Services, Telecommunications, Cable, Utilities and Government. See What Matters™ by visiting www.Mattersight.com.

1 Mattersight changed the revenue classification of a specific contract from Other revenue to subscription revenue in the fourth quarter to better reflect the type of services provided under this contract. The impact in the fourth quarter was $0.3 million. Revenue for this specific contract has been reclassified in all historical periods.

2 Mattersight presents Adjusted Earnings, a non-GAAP measure that represents cash earnings performance, excluding the impact of non-cash expenses and expense reduction activities, because management believes that Adjusted Earnings provide investors with a better understanding of the results of Mattersight's operations. Management believes that Adjusted Earnings reflect Mattersight's resources available to invest in its business and strengthen its balance sheet. In addition, expense reduction activities can vary significantly between periods on the basis of factors that management does not believe reflect current-period operating performance. Although similar adjustments for expense reduction activities may be recorded in future periods, the size and frequency of these adjustments cannot be predicted. The Adjusted Earnings measure should be considered in addition to, not as a substitute for or superior to, operating income, cash flows or other measures of financial performance prepared in accordance with GAAP.

3 On May 28, 2011, the company divested its Integrated Contact Solutions ("ICS") business unit and "eLoyalty" registered trademark / trade name to a subsidiary of TeleTech Holdings, Inc. As a result of this divestiture, the company has classified the ICS business unit as discontinued operations and the associated results of operations, financial position, and cash flows have been separately recorded as appropriate.

MATTERSIGHT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
For the For the
Three Months Ended Twelve Months Ended
Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2011 2011 2011 2011
Revenue:
Behavioral Analytics revenue $ 8,259 $ 6,648 $ 27,257 $ 25,246
Other revenue 310 1,033 1,519 5,014
Total services revenue 8,569 7,681 28,776 30,260
Reimbursed expenses 79 144 319 625
Total revenue 8,648 7,825 29,095 30,885
Operating expenses:
Cost of Behavioral Analytics revenue 3,503 3,038 12,188 11,999
Cost of other revenue 200 616 1,000 3,511
Cost of services 3,703 3,654 13,188 15,510
Reimbursed expenses 79 144 319 625
Total cost of revenue, exclusive of depreciation and amortization shown below: 3,782 3,798 13,507 16,135
Sales, marketing and development 5,196 4,530 19,957 18,640
General and administrative 1,790 2,480 9,141 10,082
Severance and related costs 40 183 (336 ) 494
Depreciation 875 794 3,218 3,291
Amortization of intangibles 26 9 177 132
Total operating expenses 11,709 11,794 45,664 48,774
Operating loss (3,061 ) (3,969 ) (16,569 ) (17,889 )
Interest and other (expense) income, net (56 ) (56 ) 125 (121 )
Loss from continuing operations before income taxes (3,117 ) (4,025 ) (16,444 ) (18,010 )
Income tax benefit (provision) 835 (37 ) 6,115 (93 )
Loss from continuing operations (2,282 ) (4,062 ) (10,329 ) (18,103 )
Income from discontinued operations, net of tax 979 2,300 28,689 4,785
Net (loss) income (1,303 ) (1,762 ) 18,360 (13,318 )
Series B Stock fair value over stated value (6,555 ) - (6,555 ) -
Dividends related to Series B Stock (302 ) (317 ) (1,252 ) (1,273 )
Net (loss) income available to common stockholders $ (8,160 ) $ (2,079 ) $ 10,553 $ (14,591 )
Per common share:
Basic loss from continuing operations $ (0.16 ) $ (0.29 ) $ (0.73 ) $ (1.32 )
Basic income from discontinued operations $ 0.07 $ 0.17 $ 2.02 $ 0.35
Basic net (loss) income available to common stockholders $ (0.56 ) $ (0.15 ) $ 0.74 $ (1.06 )
Per common share:
Diluted loss from continuing operations $ (0.16 ) $ (0.29 ) $ (0.73 ) $ (1.32 )
Diluted income from discontinued operations $ 0.07 $ 0.17 $ 2.02 $ 0.35
Diluted net (loss) income available to common stockholders $ (0.56 ) $ (0.15 ) $ 0.74 $ (1.06 )
Shares used to calculate basic net (loss) income per share 14,538 13,874 14,225 13,701
Shares used to calculate diluted net (loss) income per share 14,538 13,874 14,225 13,701

Stock-based compensation, primarily restricted stock, is included in individual line items above:

Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2011 2011 2011 2011
Cost of Behavioral Analytics revenue $ 3 $ 9 $ 20 $ 68
Sales, marketing and development 788 601 3,388 2,484
General and administrative 344 449 2,012 1,840
Discontinued operations (393 ) (291 ) 1,175 809
MATTERSIGHT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
December 31, January 1,
2011 2011
ASSETS:
Current Assets:
Cash and cash equivalents $ 29,408 $ 20,872
Restricted cash 1,500 2,460
Receivables (net of allowances of $13 and $10) 2,540 2,041
Prepaid expenses 5,302 4,303
Other current assets 288 296
Current assets held for sale - 26,946
Total current assets 39,038 56,918
Equipment and leasehold improvements, net 4,271 4,397
Goodwill 972 972
Intangibles, net 238 323
Other long-term assets 4,746 3,582
Total assets $ 49,265 $ 66,192
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Short-term debt $ 3,567 $ -
Accounts payable 812 372
Accrued compensation and related costs 1,382 2,048
Unearned revenue 9,783 7,884
Other current liabilities 3,673 4,262
Current liabilities held for sale - 31,433
Total current liabilities 19,217 45,999
Long-term unearned revenue 3,036 4,686
Other long-term liabilities 1,401 1,561
Total liabilities 23,654 52,246
Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,670,696 and 3,549,078 shares issued and outstanding at December 31, 2011 and January 1, 2011, respectively, with a liquidation preference of $8,819 and $19,367 at December 31, 2011 and January 1, 2011, respectively 8,521 18,100
Stockholders' Equity (Deficit):
Preferred stock, $0.01 par value; 35,000,000 shares authorized; none issued and outstanding - -
Common stock, $0.01 par value; 50,000,000 shares authorized; 18,037,552 and 15,642,822 shares issued at December 31, 2011, and at January 1, 2011, respectively; and 16,935,204 and 14,786,005 outstanding at December 31, 2011 and January 1, 2011, respectively 180 156
Additional paid-in capital 212,618 207,985
Accumulated deficit (185,779 ) (204,139 )
Treasury stock, at cost, 1,102,348 and 856,817 shares at December 31, 2011 and January 1, 2011, respectively (5,891 ) (4,468 )
Accumulated other comprehensive loss (4,038 ) (3,688 )
Total stockholders' equity (deficit) 17,090 (4,154 )
Total liabilities and stockholders' equity (deficit) $ 49,265 $ 66,192
MATTERSIGHT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the Twelve Months Ended
Dec. 31, Jan. 01,
2011 2011
Cash Flows from Operating Activities:
Net income (loss) $ 18,360 $ (13,318 )
Less: net income from discontinued operations 28,689 4,785
Net loss from continuing operations (10,329 ) (18,103 )
Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities:
Depreciation and amortization 3,394 3,422
Stock-based compensation 5,420 4,392
Other 14 16
Changes in assets and liabilities:
Receivables (554 ) 1,422
Prepaid expenses (2,254 ) 985
Other assets 128 (19 )
Accounts payable 445 (575 )
Accrued compensation and related costs (264 ) (1,311 )
Unearned revenue 275 (1,641 )
Other liabilities (6,784 ) 2
Total adjustments (180 ) 6,693
Net cash used in continuing operations (10,509 ) (11,410 )
Net cash (used in) provided by discontinued operations (5,787 ) 8,399
Net cash used in operating activities (16,296 ) (3,011 )
Cash Flows from Investing Activities:
Capital expenditures and other (833 ) (1,219 )
Proceeds from sale/leaseback of assets - 423
Net cash used in continuing investing activities (833 ) (796 )
Net cash provided by (used in) discontinued investing activities 37,427 (1,593 )
Net cash provided by (used in) investing activities 36,594 (2,389 )
Cash Flows from Financing Activities:
Repurchase Series B shares (12,547 ) -
Proceeds from issuance of common stock 6,000 -
Payment of Series B Stock dividends (2,221 ) (1,297 )
Acquisition of treasury stock (1,008 ) (1,173 )
Principal payments under capital lease obligations (1,862 ) (1,578 )
Decrease in restricted cash 960 1,285
Proceeds from stock compensation and employee stock purchase plans, net 126 202
Net cash used in continuing financing activities (10,552 ) (2,561 )
Net cash used in discontinued financing activities (678 ) (110 )
Net cash used in financing activities (11,230 ) (2,671 )
Effect of exchange rate changes on cash and cash equivalents by continuing operations (299 ) (65 )
Effect of exchange rate changes on cash and cash equivalents by discontinued operations (233 ) 26
Effect of exchange rate changes on cash and cash equivalents (532 ) (39 )
Increase (decrease) in cash and cash equivalents 8,536 (8,110 )
Cash and cash equivalents, beginning of period 20,872 28,982
Cash and cash equivalents of continuing operations, end of period $ 29,408 $ 20,872
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred $ 2,517 $ 1,385
Capital equipment purchased on credit 2,517 1,385
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 187 $ 157
MATTERSIGHT CORPORATION
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
For the For the
Three Months Ended Twelve Months Ended
Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2011 2011 2011 2011
GAAP - Operating loss $ (3,061 ) $ (3,969 ) $ (16,569 ) $ (17,889 )
Add back (reduce) the effect of:
Stock-based compensation 1,135 1,059 5,420 4,392
Severance and related costs 40 183 (336 ) 494
Depreciation and amortization 901 803 3,395 3,423
Adjusted earnings measure - (loss) $ (985 ) $ (1,924 ) $ (8,090 ) $ (9,580 )

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