Mattersight Announces Second Quarter 2012 Results

CHICAGO, IL--(Marketwire - Aug 8, 2012) - Mattersight Corporation (NASDAQ: MATR) today announced financial results for the second quarter ended June 30, 2012. 

Mattersight's total services revenue was $7.9 million, including $6.6 million of subscription revenues. The Company realized an "Adjusted Earnings¹" loss of $1.8 million for the second 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 second quarter of 2012 and its operating loss from continuing operations² was $3.5 million. 

Q2 Highlights

• Grew subscription revenues by 32%, year over year, to $6.6 million
• Increased total service revenues by 20%, year over year, to $7.9 million
• Recorded managed services bookings of $19.4 million
• Ended Q2 with a record managed services backlog³ of $104.6 million
• Signed 5 new pilots, including 2 new logo customers
• Ended Q2 with a record 17 pilots
• Established a $10.0 million credit facility with Silicon Valley Bank

Q3 Guidance

Mattersight currently expects its total services revenues will be between $8.0 million and $8.3 million. Mattersight is currently 100% sold to $8.3 million.

Conference Call Information

Mattersight management will host a conference call at 5:00 p.m. ET on Wednesday, August 8, 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: 14562298. 

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 8, 2012, by dialing 855.859.2056 (domestic) or 404.537.3406 (international), conference ID: 14562298.  

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 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. The reported backlog is expected to be recognized as follows: $17.0m in 2012; $31.5m in 2013; $23.6m in 2014; $17.3m in 2015; and $15.2m 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								Six Months Ended
				June 30,				July 2,				June 30,				July 2,
				2012				2011				2012				2011
Revenue:
	Behavioral Analytics revenue			$	7,557			$	6,288			$	16,113			$	12,255
	Other revenue				376				339				721				919
		Total services revenue			7,933				6,627				16,834				13,174
	Reimbursed expenses				102				76				200				153
Total revenue					8,035				6,703				17,034				13,327
Operating expenses:
	Cost of Behavioral Analytics revenue				2,947				2,894				6,135				5,656
	Cost of other revenue				187				254				391				596
		Cost of services			3,134				3,148				6,526				6,252
	Reimbursed expenses				102				76				200				153
Total cost of revenue, exclusive of depreciation and amortization:					3,236				3,224				6,726				6,405
	Sales, marketing and development				5,447				4,764				10,631				9,630
	General and administrative				2,007				2,614				3,963				5,369
	Severance and related costs				14				(434	)			693				(430	)
	Depreciation and amortization				755				820				1,622				1,595
Total operating expenses					11,459				10,988				23,635				22,569
Operating loss					(3,424	)			(4,285	)			(6,601	)			(9,242	)
Interest and other (expense) income, net					(113	)			(53	)			(215	)			78
Loss from continuing operations before income taxes					(3,537	)			(4,338	)			(6,816	)			(9,164	)
Income tax (provision) benefit					(11	)			3,563				(21	)			3,628
Loss from continuing operations					(3,548	)			(775	)			(6,837	)			(5,536	)
(Loss) income from discontinued operations, net of tax					(23	)			28,065				(104	)			28,187
Net (loss) income					(3,571	)			27,290				(6,941	)			22,651
Dividends related to Series B Stock					(148	)			(317	)			(297	)			(634	)
Net (loss) income available to common stockholders				$	(3,719	)		$	26,973			$	(7,238	)		$	22,017
Per common share:
Basic loss from continuing operations				$	(0.23	)		$	(0.08	)		$	(0.45	)		$	(0.44	)
Basic (loss) income from discontinued operations				$	(0.00	)		$	1.99			$	(0.01	)		$	2.01
Basic net (loss) income available to common stockholders				$	(0.23	)		$	1.91			$	(0.46	)		$	1.57
Per common share:
Diluted loss from continuing operations				$	(0.23	)		$	(0.08	)		$	(0.45	)		$	(0.44	)
Diluted (loss) income from discontinued operations				$	(0.00	)		$	1.99			$	(0.01	)		$	2.01
Diluted net (loss) income available to common stockholders				$	(0.23	)		$	1.91			$	(0.46	)		$	1.57
Shares used to calculate basic net loss per share					15,966				14,111				15,858				14,032
Shares used to calculate diluted net loss per share					15,966				14,111				15,858				14,032
Stock-based compensation, primarily restricted stock, is included in individual line items above:
	Cost of Behavioral Analytics revenue			$	5			$	7			$	11			$	14
	Sales, marketing and development				557				899				1,254				1,771
	General and administrative				314				680				714				1,230
	Severance and related costs				--				--				268				--
	Discontinued operations				--				1,491				�--				1,568

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited and in thousands)
		For the								For the
		Three Months Ended								Six Months Ended
		June 30,				July 2,				June 30,				July 2,
		2012				2011				2012				2011
Net (loss) income		$	(3,571	)		$	27,290			$	(6,941	)		$	22,651
Other comprehensive loss:
Effect of currency translation			(7	)			�(24	)			(2	)			(116	)
Comprehensive net (loss) income		$	(3,578	)		$	27,266			$	(6,943	)		$	22,535

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
				June 30,				December 31,
				2012				2011
ASSETS:
Current Assets:
	Cash and cash equivalents			$	20,474			$	29,408
	Restricted cash				--				1,500
	Receivables (net of allowances of $10 and $13)				1,822				2,540
	Prepaid expenses				6,739				5,302
	Other current assets				548				288
		Total current assets			29,583				39,038
Equipment and leasehold improvements, net					4,535				4,271
Goodwill					972				972
Intangibles, net					239				238
Other long-term assets					4,328				4,746
		Total assets		$	39,657			$	49,265
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
	Short-term debt			$	3,691			$	3,567
	Accounts payable				1,520				812
	Accrued compensation and related costs				1,201				1,382
	Unearned revenue				6,381				9,783
	Other current liabilities				3,848				3,673
		Total current liabilities			16,641				19,217
Long-term unearned revenue					2,350				3,036
Other long-term liabilities					860				1,401
		Total liabilities			19,851				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 June 30, 2012 and December 31, 2011, respectively, with a liquidation preference of $8,714 and $8,819 at June 30, 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; 18,174,618 and 18,037,552 shares issued at June 30, 2012, and at December 31, 2011, respectively; and 16,945,330 and 16,935,204 outstanding at June 30, 2012 and December 31, 2011, respectively				182				180
	Additional paid-in capital				214,653				212,618
	Accumulated deficit				(192,720	)			(185,779	)
	Treasury stock, at cost, 1,229,288 and 1,102,348 shares at June 30, 2012 and December 31, 2011, respectively				(6,688	)			(5,891	)
	Accumulated other comprehensive loss				(4,040	)			(4,038	)
		Total stockholders' equity			11,387				17,090
		Total liabilities and stockholders' equity		$	39,657			$	49,265

MATTERSIGHT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
						For the Six Months Ended
						June 30,				July 2,
						2012				2011
Cash Flows from Operating Activities:
	Net (loss) income					$	(6,941	)		$	22,651
	Less: net (loss) income from discontinued operations						(104	)			28,187
	Net loss from continuing operations						(6,837	)			(5,536	)
	Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
		Depreciation and amortization					1,622				1,595
		Stock-based compensation					1,979				3,015
		Severance and related costs					268				--
		Other					(2	)			12
	Changes in assets and liabilities:
		Receivables					720				(234	)
		Prepaid expenses					(1,035	)			(2,186	)
		Other assets					(276	)			97
		Accounts payable					708				731
		Accrued compensation and related costs					(181	)			(169	)
		Unearned revenue					(4,088	)			435
		Other liabilities					(195	)			(4,227	)
			Total adjustments				(480	)			(931	)
				Net cash used in continuing operations			(7,317	)			(6,467	)
				Net cash used in discontinued operations			(179	)			(4,685	)
				Net cash used in operating activities			(7,496	)			(11,152	)
Cash Flows from Investing Activities:
	Capital expenditures and other						(900	)			(605	)
				Net cash used in continuing investing activities			(900	)			(605	)
				Net cash (used in) provided by discontinued investing activities			--				33,939
				Net cash (used in) provided by investing activities			(900	)			33,334
Cash Flows from Financing Activities:
	Proceeds from line of credit						3,691				--
	Decrease (increase) in restricted cash						1,500				(17,140	)
	Purchase of shares of Series B Stock						(3,743	)			--
	Principal payments under capital lease obligations						(1,070	)			(989	)
	Acquisition of treasury stock						(797	)			(513	)
	Payment of Series B Stock dividends						(300	)			(1,901	)
	Fees from issuance of common stock						(49	)			--
	Proceeds from stock compensation and employee stock purchase plans, net						233				62
				Net cash used in continuing financing activities			(535	)			(20,481	)
				Net cash used in discontinued financing activities			--				(678	)
				Net cash used in financing activities			(535	)			(21,159	)
Effect of exchange rate changes on cash and cash equivalents by continuing operations							(3	)			(69	)
Effect of exchange rate changes on cash and cash equivalents by discontinued operations							--				(233	)
Effect of exchange rate changes on cash and cash equivalents							(3	)			(302	)
(Decrease) increase in cash and cash equivalents							(8,934	)			721
Cash and cash equivalents, beginning of period							29,408				20,872
Cash and cash equivalents of continuing operations, end of period						$	20,474			$	21,593
Non-Cash Investing and Financing Transactions:
	Capital lease obligations incurred					$	987			$	2,081
	Capital equipment purchased on credit						987				2,081
Supplemental Disclosures of Cash Flow Information:
	Interest paid					$	214			$	87

MATTERSIGHT CORPORATION
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
		For the								For the
		Three Months Ended								Six Months Ended
		June 30,				July 2,				June 30,				July 2,
		2012				2011				2012				2011
GAAP -- Operating loss		$	(3,424	)		$	(4,285	)		$	(6,601	)		$	(9,242	)
Add back (reduce) the effect of:
Stock-based compensation			876				1,586				1,979				3,015
Severance and related costs			14				(434	)			693				(430	)
Depreciation and amortization			755				820				1,622				1,595
Adjusted earnings measure -- (loss)		$	(1,779	)		$	(2,313	)		$	(2,307	)		$	(5,062	)