ValueEngine(TM) Drops Mattersight From “Sell” — To “STRONG Sell.” Ouch.

I’ll only say that I don’t follow ValueEngine at all, but the outift is 100 per cent right, on this call:

“….Mattersight Corporation was downgraded by stock analysts at ValuEngine from a “sell” rating to a “strong sell” rating in a research report issued to clients and investors on Friday, September 1, 2017.

Separately, Zacks Investment Research lowered Mattersight Corporation from a “hold” rating to a “sell” rating in a research report on Saturday, August 19th….”

Now you know. Be careful out there, Mr. Singer. Q3 2017 is about 17 business days away from ending, and there are no buy-side catalysts for this stock. None at all. You’ve been amply warned. It is likely a sub-$2 stock after we learn Q3 results.

Advertisements

What Has Happened To Unterberg Capital’s Position, Just Since February 2017?

As of the time of the proxy filing, in February of this year — Unterberg Capital entities held 2,179,103 shares of Mattersight. That was up a bit from earlier filings, on an absolute number of shares held basis.

And… that was, at the time, about 6.7 per cent of the company.

As of August 8, 2017, Unterberg and its affiliates had filed a Schedule 13F, in which it was disclosed that they then only owned 627,100 shares, or about two thirds less than at year end, 2017.

Did Mr. Singer buy most of those shares?

No way to know. Now Unterberg is below 5 per cent. It goes… dark. [Regular readers will recall that Unterberg assumed the old Diker Management stake, as the graphic indicates, as of year end 2015.]

Onward.

But $2.00 looks rich for this company, at this juncture.

[U] What Makes A “Peer”, A Peer? Additional Observations, From “Bob”…

Without any additional wind-up, then… here’s the pitch — and a link to his last one on this topic (click the image to enlarge):

“…Gartner apparently doesn’t rank Mattersight anymore.

In 2015, Mattersight eagerly announced they were listed in Gartner’s “Hype-Cycle” for Call Center Infrastructure for 2015 report.  Since that time, any new recognition by Gartner for Mattersight as a player in their market seems to have gone dormant.

Since that time, Gartner has released a new “Magic Quadrant” for vendors in Mattersight’s space.  In the 2017 “Magic Quadrant for Workforce Engagement Management”, both Nice and Verint are featured in the upper right quadrant, the primo position reserved for “leaders” and “visionaries” with high marks for “ability to execute” and “completeness of vision”. 

Not only is Mattersight not listed on the Magic Quadrant, but they aren’t mentioned in the report at all and I can’t seem to find Mattersight listed in any of the call center related Gartner publications for 2017.

Peers?  I don’t think Nice or Verint consider them a peer.

Peers? If the kid that gets stuck in right field in grade school pickup baseball games is a peer of Bryce Harper, then, well, yeah….”

[Editorial Note: The graphic at above right is derived from Gartner’s 2017 “Magic Quadrant for Workforce Engagement Management” — fair use claimed for the purpose of identification of Mattersight’s  true “peers”. So see the lower left quadrant of the included chart.]

Now you know — and we had speculated in 2014 that Gatner might be receiving discounted product from Mattersight… we were never able to confirm that… but, Mattersight is clearly NOT “the ghost with the most, here, babe!…”

Onward — and be careful out there. 

Updated — 2:30 PM CDT: it looks like we are seeing a dead cat bounce, late today, on below average NASDAQ volume….

Is Viex Capital buying some more? Who knows… seriously… who cares?

 

Bob’s “Peer Group” Explainer: I Don’t Think THIS Is Quite What The SEC Had In Mind, When It Adopted The Rule…

Ahem. I am old enough to remember when the SEC first proposed — and then, with substantial modifications — adopted the so called “Peer Group” (vs. independent third party constructed index) annual reporting/proxy statement disclosure rule modifications. [Gosh — it seems like yesterday. Smile.]

Wisely assuming that most companies had very honest leadership, the SEC left quite great leeway to the companies themselves — to define their “peer groups”, for comparison performance metric purposes. Many use a very broad peer group, often with dozens of “peers”. Mattersight uses only three. The SEC figured that — since companies would have to live through good and bad years at the self-constructed “peer group,” as well as internally, the notion of which to include would be largely self-regulating.

I supsect had Mattersight defined a much broader peer group, here some 17 years on, it would look MUCH worse, by comparison. But as it is — it looks pretty darn God-awful.

And so, with that lead-in, here is Bob’s excellent contribution for the day:

“…How are we to properly assess Mattersight’s performance beyond their own dismal numbers? Is their whole industry like them?

Fortunately we have a very convenient way. In Mattersight’s annual report, they illustrate their stock performance against a “peer group” and the whole broad stock average. I don’t know how this group is determined, but the annual report suggest there are only two companies against which they believe are their peers, Nice Systems, an Israeli company that trades American Depository Shares and Verint Systems, a US company. Both companies are approximately 50 times larger than Mattersight, stretching the term peer a bit, but they offer similar solutions for call centers (routing, performance analytics, etc).

Unfortunately, over the past five complete reported fiscal years, both of NICE and Verint have been profitable. NICE averaged a 12.5% profit and Verint averaged a 2.5% profit. Verint’s only recent loss was a 2.5% loss in the last complete year.

On a stand-alone basis, Mattersight’s performance was terrible, and in comparison to their own selected peer group, it’s confirmed….”

Confirmed in spades — indeed.

Namaste, one and all — I am off-grid until Tuesday night, traveling to — and taking part in — goofy eclipse festivities well south of here (likely in Music City, depending on cloud cover, on the actual morning). [Say a prayer for Barcelona, and Charlottesville. ]

As The Stock Touches $2.10 Today… And Winston & Strawn Repeatedly Visits…

…I wanted to make Bob’s latest comments (in the bottom of the prior post) an entirely new post. [And yes, $2.10 is a new all time record NASDAQ low intraday price — on significant volume, too.]

What Bob is lining out, here — day by day — is that this board of directors egregiously overpays (in highly dilutive equity, to boot — vis a vis all the public shareholders) for increasingly awful performance.

Month after month… Quarter after quarter; year after year. Decade (now almost) upon decade…. And the pilfering is accelerating, over the last 20 quarters.

The details are below; the summary is at right — but any sentient board would have ended this, long ago.

Now it seems the shareholders will have to do so. [Click to enlarge:]

Bob writes:

“…Not only did MATR’s rate of loss mushroom relative to ELOY from -18.27% to -44.48%, a 2.4x increase, but when you look at non-cash compensation (stock/option awards) awarded for performance as a percent of revenue, it also mushroomed from 5.2% of revenues to 14.1%, a 2.7x increase.

The compensation committee of the board of directors, that is supposed to operate in the best interests of the shareholders, concluded that for dramatically worse performance, the management and employees of the company deserved a massive increase in stock awards, relative to revenues?

WTF is going on here?…”

What, indeed?! Time to lawyer up, Mr. Conway.

Bob — On Increasingly Tenuous Performance — From eLoyalty, To Today…

I am crazed at the office (thus please forgive the poor formatting; I’ll clean it up tonight) — in the mean time… Bob has kindly offered this excellent background/perspective piece, on how current Mattersight compares to its historical cousin, then called eLoyalty:

“…As I’m going to project MATR earnings going forward using GAAP results as a percentage of revenues, I thought it would be useful to go back and calculate the company historical performance on this basis.

The following table contains numbers from the SEC filed 10-K forms starting with 2000 when ELOY/MATR became a public company. I’ve separated the results into the eLoyalty years and the Mattersight years. Remember, Mr. Conway sold off certain operations including the eLoyalty name to “reboot” under the Mattersight name. I also included the weighted share count to illustrate how those have expanded.

ELOY/MATR historical performance (numbers in 000s)
Year | Revenue | Earnings | Earnings as percent of revenue | Weighted Shares
2000 | $211,603 | ($424) | -0.20% | 4,823
2001 | $146,729 | ($57,237) | -39.01% | 5,011
2002 | $86,698 | ($40,775) | -47.03% | 5,190
2003 | $62,580 | ($19,779) | -31.61% | 5,689
2004 | $72,673 | ($7,366) | -10.14% | 6,023
2005 | $79,008 | ($9,101) | -11.52% | 6,359
2006 | $89,828 | ($12,612) | -14.04% | 6,769
2007 | $102,105 | ($10,143) | -9.93% | 8,399
2008 | $91,197 | ($22,949) | -25.16% | 10,365
2009 | $101,613 | ($11,912) | -11.72% | 13,255
2010 | $88,104 | ($14,591) | -16.56% | 13,701

ELOY total $1,132,138 ($206,889) -18.27%

2011 | $29,095 | ($10,533) | -36.20% | 14,225
2012 | $33,863 | ($15,881) | -46.90% | 16,002
2013 | $34,494 | ($11,761) | -34.10% | 16,722
2014 | $30,319 | ($14,821) | -48.88% | 19,923
2015 | $39,912 | ($16,269) | -40.76% | 23,264
2016 | $42,097 | ($21,563) | -51.22% | 25,209
2017 | $21,517 | ($12,047) | -55.99% | 29,379

MATR total $231,297 ($102,875) -44.48%

Look at this and let it sink in. As the days, weeks, quarters and years go on, you can lose sight of the big picture, but I think the table brings it into focus.

It is obvious that MATR is performing vastly poorer than ELOY, yet ELOY existed during 3 separate crises that severely impacted corporate business and the stock market (dot-com crash, 9/11 and the 2008 financial crisis) while MATR has existed during a time of relative calm.

Share count has increased over 6x as the company sold shares to raise money and gave away shares to reward/incent executives and employees. Neither of these activities has led to profitability. Unless something significant changes, continuing to sell shares and give them away as a reward and to align behavior is a classic example of doing the same thing over and over expecting a different result….”

Absolutely. Thanks man!

Well, The Private Bank Lending Is Not 90 Days Old Yet… And Q3/Q4 WAIVER Likely Needed.

I won’t unduly belabor this — except to say that it is additional proof that this company has never been able to, and cannot at present forecast (or equally likely, so deeply drinks its own Kool-Aid!), that it is forever (metaphorically) engaged in a self-loathing series of “one-night stands” with predatory (and some occasionally good-natured)… lenders. Crazy. Cra-cra-crazy.

Private Bank is at least the fourth replaced lender in just over five years. As each of the recent lenders leave, in the gray early morning light — they take about $1.8 million in cash, as an exit fee, off the dresser — for these metaphorical one-nighters.

So it is likely to be, with Private Bank. As Bob pointed out just yesterday morning, Mattersight is likely to show net losses, on a GAAP basis of $4.7 million in Q3 — and $4.6 million in Q4. Owing to the fact that the company may need to issue shares in one or both of these quarters, it makes little sense to convert the losses to a per share number, as the ever increasing denominator tends to obscure the severity of the trend.

For example, in Q2 the company lost $6.8 million on a GAAP basis (that. on sales of $10.5 million). We expect some improvement in the back half of the year, but on a GAAP basis it is still likely to lose about another $9.3 to $9.4 million overall.

Meanwhile, it has promised Private Bank that “Adjusted EBITDA” will come in no worse than $1.25 million in Q3, and be… Zero, in Q4 2017. See page 53 of that SEC filed link.

Private Bank will extract a waiver fee, for these misses. And they will occur — to a near certainty. [How on Earth will the CFO save his way to an additional $300,000 per quarter — while paying $600,000 per quarter in third party tech fees, that he “didn’t expect/plan for”?]

Note also that it was only by re-valuing the warrant liability that the company avoided blowing the covenant, in Q2 2017 — adding back $260,000 to get under the promised $2 million top end, on EBITDA losses under the shiny new Private Bank covenant.

Bob is right: at a company like this (one that is bleeding cash — and constantly hitting the public equity bailout button), it makes no sense at all to look at any EBITDA loss level, at least not one the company may “adjust” at will. [As it just did, in Q2 2017.]

The good news is that the Private Bank lending tests EBITDA pretty tightly, and so… Mattersight is likely to have to leave some money on the dresser, in the morning, for its nightly visitor — as she leaves.

It has always been so. Will Mr. Singer put an end to all this nonsense?

We shall see.

But I now think this is a sub-$2 per share NASDAQ stock — for the foreseeable future.

[I am not now, nor have I ever been — nor will I ever be — long or short this stock.]