I’m Very Tardy, In Posting This: Bob’s Year End 2017 Take — On Matters… Mattersight

Bob writes: Soon, I’m going to offer up an annual performance review for Kelly Conway in advance of official Q4 numbers and reviewing his published performance goals from the annual report.

However, now that we have massive changes to tax law, I think it’s important to look at how some of this will affect MATR.

1. Corporate tax rate drops from 35% to 21%. A 40% reduction. Not that MATR makes a taxable profit, but it reduces the value of the accumulated deficit by 40% to a potential buyer. This is a $40M hit to MATR’s market value which should be reflected in the stock price in coming weeks.

2. Short-lived capital assets (most of what MATR capitalizes) can now be fully deducted in the year the asset is acquired. Residual depreciation of such assets still on the books can be deducted in year 2018. What I think this means is that the pathetic dodge of touting EBITDA every quarter is moot. A company like MATR is now operating/reporting on a cash-flow basis.

3. Accumulated deficits can only be used to shelter up to 80% of income. This reduces the value of MATR’s accumulated deficit a little bit more to a potential acquirer as the time value of money deflates the real value of the accumulated deficit. It’s not like the accumulated deficit is cash in the bank being invested. Its a nominal value that doesn’t change over time (except when a company adds more deficit to it or reduces it, by making a profit – not likely in MATR’s case).

4. Profitable companies are offering raises and bonuses to their employers because their taxes are going down. How will Mattersight compete?

Author/Condor here: I concur, completely.

And I’d note then that $2.40 on the NASDAQ OTC seems quite a bit more than  fully valued, in view of all of this.

Well played, Bob. Well-played. Onward — with a friendly wave to Proskauer, here; and at the RIOT Blockchain site — smile.

 

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3 thoughts on “I’m Very Tardy, In Posting This: Bob’s Year End 2017 Take — On Matters… Mattersight”

  1. Yahoo Finance compiled a list of 81 companies (so far) that have announced raises and bonuses because of the tax cuts.

    https://finance.yahoo.com/news/81-companies-announce-wage-hikes-bonuses-afterglow-trump-tax-reform-171148283.html

    Perhaps MATR employees can help their management understand the importance of making a profit. The board of directors and the lavish cash and stock rewards to executives for losing hundreds of millions of dollars hasn’t done the trick.

  2. Interesting stock price movements in MATR. Last Friday, it reached $3.05 before tanking to $2.70 before closing at $2.85. Today, I see it at $2.675 another healthy drop. Could it be that financial results of Q4 have been finalized and have been “socializing”?

  3. A note on intellectual property protection that may be relevant to Mattersight’s much publicized patents:

    Patents are important, but for works like software, it’s essential that you also file for copyright protection. Each subsequent version of copyrighted software also needs to be separately copyrighted. To date, Mattersight has filed for 22 copyrights. 21 filed in 2014 and 1 in 2016 . Predecessor firm, eLoyalty, filed for 16 copyrights in varying dates from 2006 through 2011. While eLoyalty had filed for copyrights for successive versions of software, Mattersight has has only filed copyrights for original versions of software modules.

    While copyright protection exists from the moment of creation, in order to protect your work in litigation, however, you must register it. A “poor man’s copyright” (sending it to yourself via email) is not true copyright registry.

    This brings up a number of questions regarding Mattersight management’s efforts to protect their hard work (and investor’s money):

    1. Given Mattersight has likely had multiple versions of it’s software over the years, why have they not registered multiple versions of the sofware as had been the practice under the eLoyalty banner?

    2. With “Workstyle” being the last copyrighted work from Mattersight, have their been no new versions of their important core software in over 3 years? What does “R&D” actually do? How much of it’s time (and money) is spent on customer implementations? Are there costs embedded in R&D that should be more appropriately attributed to the cost of sales or ongoing operational support of customer implementations?

    2. Why are there fewer copyrights than patents (38 copyrights vs 45 patents)? Is it because there is no “development” of some of the patents and they likely only represent ideas? This would be considered very lightweight “research”. I think investors would be more reassured if the head of Mattersight’s R&D has performed some true research to determine if the claims of the patents had some verifiable research behind them to support these claims as efficacious.

    3. Does Mattersight have appropriate counsel advising them on their intellectual property protection?

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