Mattersight Announces Second Quarter 2014 Results

CHICAGO, IL--(Marketwired - Aug 6, 2014) - Mattersight Corporation (NASDAQ: MATR) today announced financial results for the second quarter ended June 30, 2014. 

Mattersight's total services revenue was $7.3 million, including $6.2 million of subscription revenue. The Company realized an "Adjusted Earnings¹" loss of $1.5 million for the second quarter of 2014. 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 $3.3 million in the second quarter of 2014. 

Q2 Highlights

• Q2 Revenue of $7.3 million was up 5% sequentially and up 14% year over year excluding Vangent / GDIT contract
• Q2 Incremental ACV bookings were $3.8 million and rolling four quarter ACV bookings were $13.0 million, up 55% year over year
• Q2 ending Book of Business was $8.7 million, up 9% sequentially
• 21 new pilots, including 20 routing pilots; 17 of these pilots are with new logo customers
• Ending the quarter with a record 79 pilots having a record follow-on ACV of ~$39 million

Conference Call Information

Mattersight management will host a conference call at 5:00 p.m. ET on Wednesday, August 6, 2014. 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: 33607326. 

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 September 6, 2014, by dialing 855.859.2056 (domestic) or 404.537.3406 (international), conference ID: 33607326.  

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® Behavioral Analytics captures and analyzes customer and employee interactions, employee desktop data and other contextual information to optimally route customers to the best available employee, 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 solutions are used by leading companies in Healthcare, Insurance, Financial Services, Telecommunications, Cable, Utilities, Education, Hospitality and Government. See What Matters^™ by visiting www.Mattersight.com.

1. 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.

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
				For the Three Months								For the Six Months
				Ended								Ended
				June 30,				June 30,				June 30,				June 30,
				2014				2013				2014				2013
Revenue:
	Behavioral Analytics revenue			$	7,068			$	7,566			$	13,817			$	15,760
	Other revenue				240				349				472				671
		Total services revenue			7,308				7,915				14,289				16,431
	Reimbursed expenses				32				49				64				131
Total revenue					7,340				7,964				14,353				16,562
Operating expenses:
	Cost of Behavioral Analytics revenue				2,171				2,514				4,269				5,237
	Cost of Other revenue				106				198				209				354
		Cost of services			2,277				2,712				4,478				5,591
	Reimbursed expenses				32				49				64				131
Total cost of revenue, exclusive of depreciation and amortization
shown below:					2,309				2,761				4,542				5,722
	Sales, marketing and development				5,409				5,394				10,630				11,624
	General and administrative				2,281				2,113				4,531				4,384
	Depreciation and amortization				737				913				1,480				1,879
Total operating expenses					10,736				11,181				21,183				23,609
Operating loss					(3,396	)			(3,217	)			(6,830	)			(7,047	)
Interest and other expense, net					(160	)			(97	)			(310	)			(188	)
Change in fair value of warrant liability					284				--				(86	)			--
Loss before income taxes					(3,272	)			(3,314	)			(7,226	)			(7,235	)
Income tax (provision) benefit					(8	)			(9	)			(17	)			239
Net loss					(3,280	)			(3,323	)			(7,243	)			(6,996	)
Dividends related to Series B Stock					(147	)			(147	)			(294	)			(294	)
Net loss available to Common Stock holders				$	(3,427	)		$	(3,470	)		$	(7,537	)		$	(7,290	)
Per share of Common Stock:
Basic net loss available to Common Stock holders				$	(0.18	)		$	(0.21	)		$	(0.41	)		$	(0.44	)
Diluted net loss available to Common Stock holders				$	(0.18	)		$	(0.21	)		$	(0.41	)		$	(0.44	)
Shares used to calculate basic net loss per share					18,679				16,469				18,591				16,394
Shares used to calculate diluted net loss per share					18,679				16,469				18,591				16,394
Stock-based compensation, primarily restricted stock, is included in individual line items above:
	Cost of Behavioral Analytics revenue			$	46			$	55			$	102			$	59
	Sales, marketing and development				572				1,302				1,162				2,151
	General and administrative				531				539				973				1,057

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited and in thousands)
		For the Three Months								For the Six Months
		Ended								Ended
		June 30,				June 30,				June 30,				June 30,
		2014				2013				2014				2013
Net loss		$	(3,280	)		$	(3,323	)		$	(7,243	)		$	(6,996	)
Other comprehensive loss:
Effect of currency translation			(2	)			3				3				(5	)
Comprehensive net loss		$	(3,282	)		$	(3,320	)		$	(7,240	)		$	(7,001	)

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
				June 30,				December 31,
				2014				2013
ASSETS:
Current Assets:
	Cash and cash equivalents			$	12,957			$	13,392
	Receivables (net of allowances of $12 as of June 30, 2014 and $12 as of December 31, 2013)				2,459				2,384
	Prepaid expenses				4,394				3,576
	Other current assets				410				427
		Total current assets			20,220				19,779
Equipment and leasehold improvements, net					4,854				5,158
Goodwill					972				972
Intangibles, net					494				409
Other long-term assets					4,050				4,431
		Total assets		$	30,590			$	30,749
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current Liabilities:
	Short-term debt			$	7,000			$	--
	Accounts payable				1,230				752
	Accrued compensation and related costs				1,539				1,844
	Unearned revenue				5,626				7,215
	Other current liabilities				4,165				4,098
		Total current liabilities			19,560				13,909
Long-term unearned revenue					2,774				2,866
Other long-term liabilities					1,294				1,607
		Total liabilities			23,628				18,382
Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,649,122 and 1,649,122 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively, with a liquidation preference of $9,588 and $9,294 at June 30, 2014 and December 31, 2013, respectively					8,411				8,411
Stockholders' (Deficit) Equity:
	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; 20,971,350 and 20,465,984 shares issued at June 30, 2014, and December 31, 2013, respectively; and 19,276,616 and 18,886,966 outstanding at June 30, 2014 and December 31, 2013, respectively				210				205
	Additional paid-in capital				230,513				228,038
	Accumulated deficit				(219,415	)			(212,172	)
	Treasury stock, at cost, 1,694,734 and 1,579,018 shares at June 30, 2014 and December 31, 2013, respectively				(8,727	)			(8,082	)
	Accumulated other comprehensive loss				(4,030	)			(4,033	)
		Total stockholders' (deficit) equity			(1,449	)			3,956
		Total liabilities and stockholders' (deficit) equity		$	30,590			$	30,749

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
						For the Six Months Ended
						June 30,				June 30,
						2014				2013
Cash Flows from Operating Activities:
	Net loss					$	(7,243	)		$	(6,996	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization					1,480				1,879
		Stock-based compensation					2,237				3,267
		Change in fair value of warrant liability					86				--
		Other					--				3
	Changes in assets and liabilities:
		Receivables					(75	)			(356	)
		Prepaid expenses					(512	)			137
		Other assets					17				(11	)
		Accounts payable					478				378
		Accrued compensation and related costs					(305	)			55
		Unearned revenue					(1,681	)			(1,252	)
		Other liabilities					(56	)			(367	)
			Total adjustments				1,669				3,733
				Net cash used in operating activities			(5,574	)			(3,263	)
Cash Flows from Investing Activities:
	Capital expenditures and other						(369	)			(745	)
	Patents and trademarks						(129	)			(137	)
				Net cash used in investing activities			(498	)			(882	)
Cash Flows from Financing Activities:
	Proceeds from line of credit						7,000				2,400
	Principal payments under capital lease obligations						(804	)			(1,165	)
	Acquisition of treasury stock						(645	)			(701	)
	Proceeds from stock compensation and employee stock purchase plans, net						86				81
	Fees from issuance of Common Stock						(2	)			--
				Net cash provided by financing activities			5,635				615
Effect of exchange rate changes on cash and cash equivalents							2				(14	)
Decrease in cash and cash equivalents							(435	)			(3,544	)
Cash and cash equivalents, beginning of period							13,392				14,419
Cash and cash equivalents, end of period						$	12,957			$	10,875
Non-Cash Investing and Financing Transactions:
	Capital lease obligations incurred					$	763			$	1,752
	Capital equipment purchased on credit						763				1,752
	Fair value of warrants classified as liability						342				--
Supplemental Disclosures of Cash Flow Information:
	Interest paid					$	148			$	172

MATTERSIGHT CORPORATION
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
		For the Three Months								For the Six Months
		Ended								Ended
		June 30,				June 30,				June 30,				June 30,
		2014				2013				2014				2013
GAAP -- Operating loss		$	(3,396	)		$	(3,217	)		$	(6,830	)		$	(7,047	)
Add back (reduce) the effect of:
Stock-based compensation			1,149				1,896				2,237				3,267
Depreciation and amortization			737				913				1,480				1,879
Adjusted earnings measure -- loss		$	(1,510	)		$	(408	)		$	(3,113	)		$	(1,901	)