Mattersight Announces Fourth Quarter 2012 Results

CHICAGO, IL--(Marketwire - Feb 13, 2013) - Mattersight Corporation (NASDAQ: MATR) today announced financial results for the fourth quarter ended December 31, 2012. 

Mattersight's total services revenue was $8.6 million, including $6.9 million of subscription revenues. The Company realized an "Adjusted Earnings¹" loss of $2.8 million for the fourth 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 $4.6 million in the fourth quarter of 2012 and its operating loss from continuing operations² was $4.7 million. 

Q4 Highlights

• Increased subscription revenues by 6% sequentially
• Increased total services revenues by 8% sequentially
• Recorded managed services bookings of $4.1 million
• Signed five new pilots with two new logos

Full Year Highlights

• Grew subscription revenues by 24%, to $27.3 million
• Increased total services revenues by 16%, to $33.4 million
• Increased gross margins by over 700 bps
• Signed 7 new logos as compared to 1 in 2011
• Ended the year with managed services backlog³ of $89.1 million
• Signed 18 total pilots as compared to 6 in 2011

Q1 Guidance

Mattersight currently expects its total subscription revenues will be approximately flat in the first quarter of 2013.

Conference Call Information

Mattersight management will host a conference call at 5:00 p.m. ET on Wednesday, February 13, 2013. 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: 95215703. 

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 March 13, 2013, by dialing 855.859.2056 (domestic) or 404.537.3406 (international), conference ID: 95215703.  

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, 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.

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 term of the agreement. The anticipated term of the agreement is based on the contractually agreed fixed term of the contract, plus agreed upon, but optional, extension periods. Anticipated volumes may be greater or less than anticipated. In addition, these contracts typically are cancellable without cause based on the customer making a substantial early termination payment or forfeiture of prepaid contract amounts. 

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,				Dec. 31,				Dec. 31,				Dec. 31,
				2012				2011				2012				2011
Revenue:
	Behavioral Analytics revenue			$	8,343			$	8,260			$	32,138			$	27,257
	Other revenue				285				309				1,314				1,519
		Total services revenue			8,628				8,569				33,452				28,776
	Reimbursed expenses				97				79				411				319
Total revenue					8,725				8,648				33,863				29,095
Operating expenses:
	Cost of Behavioral Analytics revenue				3,211				3,503				12,174				12,188
	Cost of other revenue				156				200				702				1,000
		Cost of services			3,367				3,703				12,876				13,188
	Reimbursed expenses				97				79				411				319
Total cost of revenue, exclusive of depreciation and amortization:					3,464				3,782				13,287				13,507
	Sales, marketing and development				6,560				5,195				23,131				19,954
	General and administrative				2,341				1,791				8,255				9,144
	Severance and related costs				--				40				693				(336	)
	Depreciation				915				875				3,419				3,218
Amortization of intangibles					17				26				81				177
Total operating expenses					13,297				11,709				48,866				45,664
Operating loss					(4,572	)			(3,061	)			(15,003	)			(16,569	)
Interest and other (expense) income, net					(81	)			(56	)			(384	)			125
Loss from continuing operations before income taxes					(4,653	)			(3,117	)			(15,387	)			(16,444	)
Income tax (provision) benefit					(8	)			604				(38	)			5,884
Loss from continuing operations					(4,661	)			(2,513	)			(15,425	)			(10,560	)
Income from discontinued operations, net of tax					21				1,210				249				28,920
Net (loss) income					(4,640	)			(1,303	)			(15,176	)			18,360
Series B Stock fair value over stated value					--				(6,555	)			(69	)			(6,555	)
Dividends related to Series B Stock					(147	)			(302	)			(591	)			(1,252	)
Net (loss) income available to Common Stock holders				$	(4,787	)		$	(8,160	)		$	(15,836	)		$	10,553
Per share of Common Stock:
Basic loss from continuing operations				$	(0.30	)		$	(0.64	)		$	(1.01	)		$	(1.29	)
Basic income from discontinued operations				$	--			$	0.08			$	0.02			$	2.03
Basic net (loss) income available to Common Stock holders				$	(0.30	)		$	(0.56	)		$	(0.99	)		$	0.74
Per share of Common Stock:
Diluted loss from continuing operations				$	(0.30	)		$	(0.64	)		$	(1.01	)		$	(1.29	)
Diluted income from discontinued operations				$	--			$	0.08			$	0.02			$	2.03
Diluted net (loss) income available to Common Stock holders				$	(0.30	)		$	(0.56	)		$	(0.99	)		$	0.74
Shares used to calculate basic net (loss) income per share					16,223				14,538				16,002				14,225
Shares used to calculate diluted net (loss) income per share					16,223				14,538				16,002				14,225
Stock-based compensation, primarily restricted stock, is included in individual line items above:
	Cost of Behavioral Analytics revenue			$	2			$	3			$	16			$	20
	Sales, marketing and development				530				787				2,308				3,387
	General and administrative				349				345				1,405				2,013
	Severance and related costs				--				--				268				--
	Discontinued operations				--				(393	)			�--				1,175

MATTERSIGHT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited and in thousands)
		For the								For the
		Three Months Ended								Twelve Months Ended
		Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
		2012				2011				2012				2011
Net (loss) income		$	(4,640	)		$	(1,303	)		$	(15,176	)		$	18,360
Other comprehensive loss:
Effect of currency translation			2				�(10	)			(1	)			(350	)
Comprehensive net (loss) income		$	(4,638	)		$	(1,313	)		$	(15,177	)		$	18,010

MATTERSIGHT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
				December 31,				December 31,
				2012				2011
ASSETS:
Current Assets:
	Cash and cash equivalents			$	14,419			$	29,408
	Restricted cash				--				1,500
	Receivables (net of allowances of $12 and $13)				2,395				2,540
	Prepaid expenses				4,404				5,302
	Other current assets				305				288
		Total current assets			21,523				39,038
Equipment and leasehold improvements, net					4,727				4,271
Goodwill					972				972
Intangibles, net					236				238
Other long-term assets					3,776				4,746
		Total assets		$	31,234			$	49,265
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
	Short-term debt			$	3,703			$	3,567
	Accounts payable				781				812
	Accrued compensation and related costs				1,335				1,382
	Unearned revenue				5,680				9,783
	Other current liabilities				2,889				3,673
		Total current liabilities			14,388				19,217
Long-term unearned revenue					2,374				3,036
Other long-term liabilities					1,231				1,401
		Total liabilities			17,993				23,654
Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,649,201 and 1,670,696 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively, with a liquidation preference of $8,705 and $8,819 at December 31, 2012 and December 31, 2011, respectively					8,411				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; 18,407,848 and 18,037,552 shares issued at December 31, 2012, and at December 31, 2011, respectively; and 17,114,880 and 16,935,204 outstanding at December 31, 2012 and December 31, 2011, respectively				184				180
	Additional paid-in capital				216,667				212,618
	Accumulated deficit				(200,955	)			(185,779	)
	Treasury stock, at cost, 1,292,968 and 1,102,348 shares at December 31, 2012 and December 31, 2011, respectively				(7,027	)			(5,891	)
	Accumulated other comprehensive loss				(4,039	)			(4,038	)
		Total stockholders' equity			4,830				17,090
		Total liabilities and stockholders' equity		$	31,234			$	49,265

MATTERSIGHT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
						For the Twelve Months Ended
						Dec. 31,				Dec 31,
						2012				2011
Cash Flows from Operating Activities:
	Net (loss) income					$	(15,176	)		$	18,360
	Less: net income from discontinued operations						249				28,920
	Net loss from continuing operations						(15,425	)			(10,560	)
	Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
		Depreciation and amortization					3,500				3,395
		Stock-based compensation					3,729				5,420
		Severance and related costs					268				--
		Other					2				14
	Changes in assets and liabilities:
		Receivables					146				(554	)
		Prepaid expenses					1,834				(2,254	)
		Other assets					(50	)			128
		Accounts payable					(31	)			445
		Accrued compensation and related costs					(47	)			(264	)
		Unearned revenue					(4,765	)			275
		Other liabilities					(177	)			(6,554	)
			Total adjustments				4,409				51
				Net cash used in continuing operations			(11,016	)			(10,509	)
				Net cash provided by (used in) discontinued operations			24				(5,787	)
				Net cash used in operating activities			(10,992	)			(16,296	)
Cash Flows from Investing Activities:
	Capital expenditures and other						(2,160	)			(833	)
				Net cash used in continuing investing activities			(2,160	)			(833	)
				Net cash provided by discontinued investing activities			--				37,427
				Net cash (used in) provided by investing activities			(2,160	)			36,594
Cash Flows from Financing Activities:
	Proceeds from line of credit						3,691				--
	Decrease in restricted cash						1,500				960
	Proceeds from stock compensation and employee stock purchase plans, net						802				126
	Purchase of shares of Series B Stock						(3,743	)			(12,547	)
	Principal payments under capital lease obligations						(2,311	)			(1,862	)
	Acquisition of treasury stock						(1,136	)			(1,008	)
	Payment of Series B Stock dividends						(595	)			(2,221	)
	(Fees) proceeds from issuance of Common Stock						(49	)			6,000
				Net cash used in continuing financing activities			(1,841	)			(10,552	)
				Net cash used in discontinued financing activities			--				(678	)
				Net cash used in financing activities			(1,841	)			(11,230	)
Effect of exchange rate changes on cash and cash equivalents by continuing operations							4				(299	)
Effect of exchange rate changes on cash and cash equivalents by discontinued operations							--				(233	)
Effect of exchange rate changes on cash and cash equivalents							4				(532	)
(Decrease) increase in cash and cash equivalents							(14,989	)			8,536
Cash and cash equivalents, beginning of period							29,408				20,872
Cash and cash equivalents of continuing operations, end of period.						$	14,419			$	29,408
Non-Cash Investing and Financing Transactions:
	Capital lease obligations incurred					$	1,793			$	2,517
	Capital equipment purchased on credit						1,793				2,517
Supplemental Disclosures of Cash Flow Information:
	Interest paid					$	371			$	187

MATTERSIGHT CORPORATION
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
		For the								For the
		Three Months Ended								Twelve Months Ended
		Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
		2012				2011				2012				2011
GAAP -- Operating loss		$	(4,572	)		$	(3,061	)		$	(15,003	)		$	(16,569	)
Add back (reduce) the effect of:
Stock-based compensation			881				1,135				3,729				5,420
Severance and related costs			--				40				693				(336	)
Depreciation and amortization			932				901				3,500				3,395
Adjusted earnings measure -- (loss)		$	(2,759	)		$	(985	)		$	(7,081	)		$	(8,090	)