Mattersight Announces Third Quarter 2012 Results

Mattersight Announces Third Quarter 2012 Results 
CHICAGO, IL -- (Marketwire) -- 11/07/12 --  Mattersight Corporation
(NASDAQ: MATR) today announced financial results for the third
quarter ended September 29, 2012.  
Mattersight's total services revenue was $8.0 million, including $6.5
million of subscription revenues. The Company realized an "Adjusted
Earnings(1)" loss of $2.0 million for the third quarter of 2012.
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 $3.6 million in the third quarter of 2012
and its operating loss from continuing operations(2) was $3.8
million.  
Q3 Highlights 


 
--  Grew subscription revenues by 19%, year over year, to $6.5 million
--  Increased total services revenues by 14%, year over year, to $8.0
    million
--  Recorded managed services bookings of $8.6 million
--  Ended Q3 with managed services backlog(3) of $96.8 million
--  Increased Gross Margin by 200 bps sequentially
--  Signed one new pilot with a new logo in the P&C industry

  
Q4 Guidance  
Mattersight currently expects its total services revenues will
increase sequentially by 4%-6% in the fourth quarter of 2012. 
Conference Call Information  
Mattersight management will host a conference call at 5:00 p.m. ET on
Wednesday, November 7, 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: 57090694.  
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 December 7, 2012, by dialing
855.859.2056 (domestic) or 404.537.3406 (international), conference
ID: 57090694.   
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 ma
y 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, Education, Hospitality, and Government. See What
Matters(TM) 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. 
2. 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. 
3. Mattersight uses the term "backlog" to reflect the estimated
future amount of Managed services revenue related to its Managed
services contracts. The value of these contracts is based on
anticipated usage volumes over the anticipated contract term. Actual
usage volumes may be greater or less than anticipated. In addition,
actual contract terms may vary from the anticipated terms because
these contracts typically are cancellable without cause based on the
client making a substantial early termination payment or forfeiture
of prepaid contract amounts. The reported backlog is expected to be
recognized as follows: $8.3m in 2012; $27.6m in 2013; $21.3m in 2014;
$19.3m in 2015; and $20.3m in 2016 and thereafter. 


 
                                                                            
                           MATTERSIGHT CORPORATION                          
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
             (Unaudited and in thousands, except per share data)            
                                                                            
                                        For the               For the       
                                 --------------------  -------------------- 
                                  Three Months Ended     Nine Months Ended  
                                 --------------------  -------------------- 
                                 Sept. 29,   Oct. 1,   Sept. 29,   Oct. 1,  
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
Revenue:                                                                    
  Behavioral Analytics revenue   $   7,682  $   6,742  $  23,795  $  18,997 
  Other revenue                        308        291      1,029      1,210 
                                 ---------  ---------  ---------  --------- 
   
 Total services revenue           7,990      7,033     24,824     20,207 
  Reimbursed expenses                  114         87        314        240 
                                 ---------  ---------  ---------  --------- 
Total revenue                        8,104      7,120     25,138     20,447 
Operating expenses:                                                         
  Cost of Behavioral Analytics                                              
   revenue                           2,828      3,029      8,963      8,685 
  Cost of other revenue                155        204        546        800 
                                 ---------  ---------  ---------  --------- 
    Cost of services                 2,983      3,233      9,509      9,485 
  Reimbursed expenses                  114         87        314        240 
                                 ---------  ---------  ---------  --------- 
Total cost of revenue, exclusive                                            
 of depreciation and                                                        
 amortization:                       3,097      3,320      9,823      9,725 
  Sales, marketing and                                                      
   development                       5,940      5,129     16,571     14,759 
  General and administrative         1,951      1,984      5,914      7,353 
  Severance and related costs           --         54        693       (376)
  Depreciation and amortization        946        899      2,568      2,494 
                                 ---------  ---------  ---------  --------- 
Total operating expenses            11,934     11,386     35,569     33,955 
                                 ---------  ---------  ---------  --------- 
                                                                            
Operating loss                      (3,830)    (4,266)   (10,431)   (13,508)
Interest and other (expense)                                                
 income, net                           (88)       103       (303)       181 
                                 ---------  ---------  ---------  --------- 
Loss from continuing operations                                             
 before income taxes                (3,918)    (4,163)   (10,734)   (13,327)
Income tax (provision) benefit          (9)     1,652        (30)     5,280 
                                 ---------  ---------  ---------  --------- 
Loss from continuing operations     (3,927)    (2,511)   (10,764)    (8,047)
Income (loss) from discontinued                                             
 operations, net of tax                332       (477)       228     27,710 
                                 ---------  ---------  ---------  --------- 
Net (loss) income                   (3,595)    (2,988)   (10,536)    19,663 
Series B Stock fair value over                                              
 stated value                           --         --        (69)        -- 
Dividends related to Series B                                               
 Stock                                (147)      (316)      (444)      (950)
                                 ---------  ---------  ---------  --------- 
Net (loss) income available to                                              
 Common Stock holders            $  (3,742) $  (3,304) $ (11,049) $  18,713 
                                 =========  =========  =========  ========= 
                                                                            
Per share of Common Stock:                                                  
Basic loss from continuing                                                  
 operations                      $   (0.25) $   (0.20) $   (0.71) $   (0.64)
                                 =========  =========  =========  ========= 
Basic income (loss) from                                                    
 discontinued operations         $    0.02  $   (0.03) $    0.01  $    1.96 
                                 =========  =========  =========  ========= 
Basic net (loss) income                                                     
 available to Common Stock                                                  
 holders                         $   (0.23) $   (0.23) $   (0.69) $    1.33 
                                 =========  =========  =========  ========= 
Per share of Common Stock:                                                  
Diluted loss from continuing                                                
 operations                      $   (0.25) $   (0.20) $   (0.71) $   (0.64)
                                 =========  =========  =========  ========= 
Diluted income (loss) from                                                  
 discontinued operations         $    0.02  $   (0.03) $    0.01  $    1.96 
                                 =========  =========  =========  ========= 
Diluted net (loss) income                                                   
 available to Common Stock                                                  
 holders                         $   (0.23) $   (0.23) $   (0.69) $    1.33 
                                 =========  =========  =========  ========= 
                                                                            
Shares used to calculate basic                                              
 net (loss) income per share        16,069     14,297     15,928     14,121 
                                 =========  =========  =========  ========= 
Shares used to calculate diluted                                            
 net (loss) income per share        16,069     14,297     15,928     14,121 
                                 =========  =========  =========  ========= 
Stock-based compensation, primarily restricted stock, is                    
 included in individual line items above:                                   
  Cost of Behavioral Analytics                                              
   revenue                       $       3  $       3  $      14  $      17 
  Sales, marketing and                                                      
   development                         524        829      1,778      2,600 
  General and administrative           342        438      1,056      1,668 
  Severance and related costs           --         --        268         -- 
  Discontinued operations               --         --        --      
1,568 
                                                                            
                                                                            
                          MATTERSIGHT CORPORATION                           
      CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME      
                        (Unaudited and in thousands)                        
                                                                            
                                        For the               For the       
                                 --------------------  -------------------- 
                                  Three Months Ended     Nine Months Ended  
                                 --------------------  -------------------- 
                                 Sept. 29,   Oct. 1,   Sept. 29,   Oct. 1,  
                                    2012       2011       2012       2011   
                              
   ---------  ---------  ---------  --------- 
Net (loss) income                $  (3,595) $  (2,988) $ (10,536) $  19,663 
Other comprehensive loss:                                                   
Effect of currency translation          (1)     (224)        (3)      
(340)
                                 ---------  ---------  ---------  --------- 
Comprehensive net (loss) income  $  (3,596) $  (3,212) $ (10,539) $  19,323 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                           MATTERSIGHT CORPORATION                          
                    CONDENSED CONSOLIDATED BALANCE SHEETS                   
        (Unaudited and in thousands, except share and per share data)       
                                                                            
                                                      September   December  
                                                         29,         31,    
                                                        2012        2011    
                                                     ----------  ---------- 
                       ASSETS:                                              
Current Assets:                                                             
  Cash and cash equivalents                          $   14,461  $   29,408 
  Restricted cash                                            --       1,500 
  Receivables (net of allowances of $15 and $13)          2,959       2,540 
  Prepaid expenses                                        6,075       5,302 
  Other current assets                                      759         288 
                                                     ----------  ---------- 
    Total current assets                                 24,254      39,038 
Equipment and leasehold improvements, net                 4,807       4,271 
Goodwill                                                    972         972 
Intangibles, net                                            241         238 
Other long-term assets                                    4,292       4,746 
                                                     ----------  ---------- 
    Total assets                                     $   34,566  $   49,265 
                                                     ==========  ========== 
        LIABILITIES AND STOCKHOLDERS' EQUITY:                               
Current Liabilities:                                                        
  Short-term debt                                    $    3,703  $    3,567 
  Accounts payable                                        1,369         812 
  Accrued compensation and related costs                  1,220       1,382 
  Unearned revenue                                        4,261       9,783 
  Other current liabilities                               3,335       3,673 
                                                     ----------  ---------- 
    Total current liabilities                            13,888      19,217 
Long-term unearned revenue                                2,514       3,036 
Other long-term liabilities                               1,162       1,401 
                                                     ----------  ---------- 
    Total liabilities                                    17,564      23,654 
                                                     ----------  ---------- 
                                                                            
Series B Stock, $0.01 par value; 5,000,000 shares                           
 authorized and designated; 1,650,875 and 1,670,696                         
 shares issued and outstanding at September 29, 2012                        
 and December 31, 2011, respectively, with a                                
 liquidation preference of $8,566 and $8,819 at                             
 September 29, 2012 and December 31, 2011,                                  
 respectively                                             8,419       8,521 
                                                                            
Stockholders' 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; 18,271,019 and 18,037,552 shares                             
   issued at September 29, 2012, and at December 31,                        
   2011, respectively; and 17,015,543 and 16,935,204                        
   outstanding at September 29, 2012 and December                           
   31, 2011, respectively                                   183         180 
  Additional paid-in capital                            215,589     212,618 
  Accumulated deficit                                  (196,315)   (185,779)
  Treasury stock, at cost, 1,255,476 and 1,102,348                          
   shares at September 29, 2012 and December 31,                            
   2011, respectively                                    (6,833)     (5,891)
  Accumulated other comprehensive loss                   (4,041)     (4,038)
                                                     ----------  ---------- 
    Total stockholders' equity                            8,583      17,090 
                                                     ----------  ---------- 
    Total liabilities and stockholders' equity       $   34,566  $   49,265 
                                                     ==========  ========== 
                                                                            
                                                                            
                           MATTERSIGHT CORPORATION                          
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS              
                        (Unaudited and in thousands)                        
                                                                            
                                                        For the Nine Months 
                                                               Ended        
                                                       -------------------- 
                                                       Sept. 29,    Oct 1,  
                                                          2012       2011   
                                                       ---------  --------- 
Cash Flows from Operating Activities:                                       
  Net (loss) income                                    $ (10,536) $  19,663 
  Less: net income from discontinued operations              228     27,710 
                                                       ---------  --------- 
  Net loss from continuing operations                    (10,764)    (8,047)
  Adjustments to reconcile net loss from continuing                         
   operations to net cash used in operating                                 
   activities:                                                              
    Depreciation and amortization                          2,568      2,494 
    Stock-based compensation                               2,848      4,285 
    Severance and related costs                              268         -- 
    Other                                                      2         14 
  Changes in assets and liabilities:                                        
    Receivables                                             (421)      (684)
    Prepaid expenses                                        (344)    (2,247)
    Other assets                                            (219)        98 
    Accounts payable                                         557        (96)
    Accrued compensation and related costs                  (162)      (130)
    Unearned revenue                                      (6,044)    (2,114)
    Other liabilities                                         86     (5,623)
                                                       ---------  --------- 
      Total adjustments                                     (861)    (4,003)
                                                       ---------  --------- 
        Net cash used in continuing operations           (11,625)   (12,050)
        Net cash used in discontinued operations            (179)    (5,445)
                                                       ---------  --------- 
        Net cash used in operating activities            (11,804)   (17,495)
                                                       ---------  --------- 
Cash Flows from Investing Activities:                                       
  Capital expenditures and other                          (1,777)      (664)
                                     
                  ---------  --------- 
        Net cash used in continuing investing                               
         activities                                       (1,777)      (664)
        Net cash provided by discontinued investing                         
         activities                                           --     35,842 
                                                       ---------  --------- 
        Net cash (used in) provided by investing                            
         activities                                       (1,777)    35,178 
                                                       ---------  --------- 
Cash Flows from Financing Activities:                                       
  Proceeds from line of credit                             3,691         -- 
  Decrease (increase) in restricted cash                   1,500    (17,457)
  Proceeds from stock compensation and employee stock                       
   purchase plans, net                                       455         93 
  Purchase of shares of Series B Stock                    (3,743)        -- 
  Principal payments under capital lease obligations      (1,685)    (1,360)
  Acquisition of treasury stock                             (942)      (681)
  Payment of Series B Stock dividends                       (595)    (1,901)
  Fees from issuance of Common Stock                         (49)        -- 
                                                       ---------  --------- 
        Net cash used in continuing financing                               
         activities                                       (1,368)   (21,306)
        Net cash used in discontinued financing                             
         activities                                           --       (678)
                                                       ---------  --------- 
        Net cash used in financing activities             (1,368)   (21,984)
                                                       ---------  --------- 
Effect of exchange rate changes on cash and cash                            
 equivalents by continuing operations                          2       (298)
Effect of exchange rate changes on cash and cash                            
 equivalents by discontinued operations                       --       (233)
                                                       ---------  --------- 
Effect of exchange rate changes on cash and cash                            
 equivalents                                                   2       (531)
                                                       ---------  --------- 
Decrease in cash and cash equivalents                    (14,947)    (4,832)
Cash and cash equivalents, beginning of period            29,408     20,872 
                                                       ---------  --------- 
Cash and cash equivalents of continuing operations,                         
 end of period                                         $  14,461  $  16,040 
                                                       =========  ========= 
Non-Cash Investing and Financing Transactions:                              
  Capital lease obligations incurred                   $   1,331  $   2,311 
  Capital equipment purchased on credit                    1,331      2,311 
Supplemental Disclosures of Cash Flow Information:                          
  Interest paid                                        $     294  $     139 
                                                                            
                                                                            
                           MATTERSIGHT CORPORATION                          
                   CALCULATION OF ADJUSTED EARNINGS MEASURE                 
                         (Unaudited and in thousands)                       
                                                                            
                                           For the             For the      
                                     ------------------  ------------------ 
                                     Three Months Ended   Nine Months Ended 
                                     ------------------  ------------------ 
                                       Sept.   Oct. 1,     Sept.   Oct. 1,  
                                     29, 2012    2011    29, 2012    2011   
                                     --------  --------  --------  -------- 
GAAP -- Operating loss               $ (3,830) $ (4,266) $(10,431) $(13,508)
                                                                            
Add back (reduce) the effect of:                                            
Stock-based compensation                  869     1,270     2,848     4,285 
Severance and related costs                --        54       693      (376)
Depreciation and amortization             946       899     2,568     2,494 
                                     --------  --------  --------  -------- 
Adjusted earnings measure -- (loss)  $ (2,015) $ (2,043) $ (4,322) $ (7,105)
                                     ========  ========  ========  ======== 

  
Contact
Mark Iserloth
Vice President and Chief Financial Officer
312.454.3613
ir@mattersight.com 
 
 
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