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Mattersight Announces Fourth Quarter 2012 Results


February 13, 2013 - Chicago, IL

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 Earnings(1)" 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 operations(2) 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 backlog(3) 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)
========= ========= ========= =========

Mark Iserloth
Vice President and Chief Financial Officer
312.454.3613
ir@mattersight.com

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