[U] How Bob Sees The Q1 2017 Form 10-Q Concentration, And More…

But first — I will ask: how much lower is the stock headed today? Ten times normal volume yesterday, with only a few pennies’ worth of recovery off of the mid-morning plunge, to the bottom of the now-dying coral reef that is Mattersight’s future. We shall see in about a half hour (it is up a nickel, in the pre-market — at $2.80). This compares to $3.40, just two weeks ago. [Stock at $2.70, in first hour of trading…]

Now to Bob’s remarks — with which I concur, completely:

UPDATED, from Bob: “…Looking back, one could be excused if they thought Q4 numbers were optimized to perfection to achieve some very short term objectives. For the company to surprise the investment community with yesterday’s numbers, but then claim they have good visibility going forward is not a claim that can be viewed credibly….”

…Here’s what should be obvious to investors: UNH and CVS are long-time clients. They shouldn’t be a receivable problem. They should be completely implemented and happy, benefits should be flowing from the MATR solution, they should be paying on-time and MATR should be getting maximum possible profits from these income sources. That they don’t pay on time after all these years means they aren’t happy, aren’t fully implemented, and/or MATR has to spend significant money to keep them in bed — that belies the “economies of scale” the company has touted as the benefit from MATR’s SaaS/cloud/hosted model. [Author’s side note: perhaps these are among the large accounts that have negotiated the “price rebate guaranty” deals, we’ve warned about — and so, they don’t pay (aren’t required to) at all — until 45 to 60 days after the quarter’s actual savings (or lack thereof) are known, and agreed, on both sides — sort of a “quarter-by-quarterly renewal,” if you will.]

Here’s also what should be obvious to investors: MATR is not run in such a way to make a profit or provide a positive return to investors. It is run to provide above-market compensation to its CEO and executive team. It is a glide-path to their retirement. If MATR were serious about making a profit and a positive return to investors, then any cash or stock bonus to the CEO and executive team would be contingent on making a GAAP profit and increasing the stock price. That they don’t give out stock options to the CEO and executive team but gift them with “restricted” stock and base stock and cash awards on concocted internal metrics should be conclusive proof.

I don’t mean to say they are conducting a fraudulent operation or intend to defraud anyone, but MATR is an incompetent operation run by TRUE BELIEVERS. TRUE BELIEVERS should never be put in a position of fiduciary responsibility.

This relates to an experience I had when purely by chance, I met one of the executives a couple of months ago. We were both sitting around waiting for something, started talking and I asked him what he did. It went something like this: “I’m xxx and I work for a really cool company. We have a great opportunity in a new space. We’ve got blue-chip customers who get massive benefits from our hot technology and millions of algorithms…”. He went on and on like that. It was hard to get a word in edgewise or to get him to stop. I couldn’t bear to ask him hard questions — as that never ends well when a TRUE BELIEVER talks about his faith.

It’s important that you invest in a company that has a great vision about what it’s trying to do, where it’s going and how it’s going to get there. You want the management team to be committed and personally invested in making the venture a success. You have to be realistic about judging progress to that success and encourage management to be realistic, too. You need to know when enough is enough and stop throwing good money after bad. For MATR, that time is now.

I used to think that MATR had a core set of customers that generated cash that was being ill-used going after increasingly harder-to-find find customers and that they could just stop trying to get new customers, cut expenses massively and then bank some dough as they just operated the existing customers as long as those customers desired the service.

This is what an acquirer would basically do, anyway – they’d jettison management and duplicate overhead functions, not to mention inefficient tech R&D. I no longer think this is a viable option and that may be part of the reason that no acquirer that has looked at MATR has moved forward with an acquisition. The devaluation of the accumulated losses as a tax-shelter only make it harder.

The future is bleak for this company. Conway should have been canned long ago as he is the chief TRUE BELIEVER and the wrong person to be CEO or president. All under him must believe as well, performing the appropriate rituals and repeating the same words of faith. Those who fail to progress along the path or fall away from the faith by suggesting the vision may not actually be achieved — do go elsewhere….

Indeed. NASDAQ opens in 20 minutes… so, buckle up, buttercup! To be fair, CEO Conway said on the call he has increased visibility to the rest of the year’s revenue. But to be fair(er), if a large account decides to slow implementation — as one clearly did in Q1, he wouldn’t ever see that — until it had already happened.

And that puts the back half of the year in peril. We already know Q2 2017 is going to be very weak, at the sales line — he as much as said so, on the call. 

You’ve been warned.

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5 thoughts on “[U] How Bob Sees The Q1 2017 Form 10-Q Concentration, And More…”

  1. Looking back, one could be excused if they thought Q4 numbers were optimized to perfection to achieve some very short term objectives. For the company to surprise the investment community with yesterday’s numbers, but then claim they have good visibility going forward is not a claim that can be viewed credibly.

    1. Especially given the disclosure that the company is paying “refunds” — when savings don’t appear!

      Thanks man!

  2. Six months ago, or possibly more, UHG was advertising for developers who were familiar with voice recording and call center data analysis. The job descriptions reeked of a project to replace Mattersight’s offering. If this is true, talk about a nail (make that spike) in the coffin.

  3. Just looked at the conf call transcript. Q2 will evidence the low point of their seasonality and just as they’ve missed on every objective, this likely means a fairly disastrous quarter, which, as they have a difficult time throttling expenses, means a big cash burn. Since it’s now known that they adjusted the contract terms for a customer, look for other customers to ask for a similar deal, further eroding the top line.

    In Q1, they lost $5M on $11M in revenues, burning in the neighborhood of $4M in cash (all the financing txns takes more time to sort out than is worth the effort).

    In Q2, they’ll likely generate $10.2M in revenues and lose $5.8M, burning $4.8M in cash. This revenue projection could be a best case. 22 cents per share loss

    Always use GAAP numbers in evaluating a company like MATR. EBITDA is for suckers as that depreciation represents true cost of real cash money spent in the past and is only relevant for one-time events that distort the quarter to quarter comparison. Non-cash compensation is a real economic loss to existing shareholders.

    Going forward,
    – Q3: $10.6M in rev, loss of $5.5M, 19.8 cents per share loss
    – Q4: $11M in rev, loss of $5.4M, 19.3 cents per share loss

    By September, they’re going to be needing to find yet more cash to keep the party going.

  4. Surprised that investors don’t turn to Glassdoor employee reviews for the inside scoop!

    Cons (https://www.glassdoor.com/Reviews/Employee-Review-Mattersight-RVW11943284.htm)
    “Transparency is a big problem. Upper management is not in touch with the rest of the company and does not communicate well about developments and setbacks. There can be a lot of negativity. Turnover is high.”

    Cons (https://www.glassdoor.com/Reviews/Employee-Review-Mattersight-RVW14451701.htm)
    “Toxic & untrustworthy culture. Worst career experience. Leadership only cares about their own salaries and titles. No development or learning opportunities.”

    Advice to Management (https://www.glassdoor.com/Reviews/Employee-Review-Mattersight-RVW14366193.htm)
    “Invest in and communicate with your employees. Take an honest assessment of why the entire Marketing Department, many people from Service Delivery and Customer Success teams, and the smartest portion of Finance has left the company in the last 3-6 months. That should give a starting point to improving company culture and financial performance.”

    Advice to Management (https://www.glassdoor.com/Reviews/Employee-Review-Mattersight-RVW4579003.htm)
    “Sell the company already”

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