Mattersight's CFO -- Bill Noon -- Gets A New Contract? Why Now?

And one with a tin parachute (six months severance), to boot!

I found the following changes -- especially the beefed-up requirement to cooperate in litigation -- noteworthy, given the recent restatement of (material increases in) three years worth of GAAP operating losses per share (new language in bold):

. . .Assistance in Litigation. Employee shall upon reasonable notice and without compulsion of law (e.g., subpoena), furnish all accurate and complete information and other assistance to eLoyalty as eLoyaltythe Company as the Company may reasonably require in connection with any litigation, proceeding, or dispute to which eLoyaltythe Company is, or may become, a party, or in which it may otherwise become involved, either during or after Employee’s employment; provided, if such assistance shall occur after termination of Employee’s employment, the Company shall reimburse Employee for his reasonable expenses incurred in connection with such assistance, including, without limitation, as relevant transportation, meals and lodging, and shall also pay Employee a consulting fee of $200 per hour, as compensation for his inconvenience and the disruption of his other endeavors. . . .

Well -- that's odd.

In any event, the company made no separate mention of this change, and summarized his new deal, as follows -- in an after hours SEC filing, on Form 8-K, tonight:

. . . .Effective May 23, 2012, Mattersight Corporation entered into an executive employment agreement (the “Agreement”) with William B. Noon, its Vice President and Chief Financial Officer. The Agreement replaces Mr. Noon’s prior employment agreement. The material components of Mr. Noon’s compensation package under the Agreement are as follows: (a) an annual base salary of $200,000, less standard payroll deductions and withholdings; (b) a target annual bonus of $80,000; (c) severance benefits payable on termination by the company without Cause and by Mr. Noon for Good Reason equal to six months’ salary, 50% of the average of his current year’s estimated bonus and prior year’s actual bonus, six months’ continuation of health benefits, and six months’ additional vesting of his stock awards; and (d) severance benefits payable on death or Disability equal to 12 months’ salary, 100% of the average of his current year’s estimated bonus and prior year’s actual bonus, 12 months’ continuation of health benefits, and 12 months’ additional vesting of his stock awards. Under the Agreement, Mr. Noon is also subject to certain non-competition and non-solicitation restrictions for one year following his termination of employment. . . .

Here's the new one; here's the old one.

Separately, Mr. Conway touted (via press release, after hours) a new contract signing with an HMO he says is among the top five in the nation. Yawn.

Me? I see a concentration of revenue/over-reliance on a small number of customers problem, here highlighted. Again, at best. . . a yawn.

Mattersight's "Stock Overhang" Problem -- Pictured. . .

With its shiny new resale S-3 effective, the IGC Fund IV may unload up to 2.36 million MATR shares into the open markets, or in private transactions or off-market blocks without any restriction at law.

The occurence of this sort of an event is called an "overhang" event, and the graphic at right (click it ot enlarge) depicts visually why the event carries the name it does. The average daily trading volume of around 40,000 shares is shown in blue, on the bottom -- with the more than 2.36 million IGC owned shares shown in orange, "overhanging" the daily volume of all other sellers and buyers. Even if IGC sells 40,000 shares every day, it will take nearly 60 trading days to liquidate the "overhang".

But the reality is that it will perhaps take a year or two, if the seller(s) don't want to unduly injure MATR's NASDAQ trading price on any given day.

So -- with CEO Conway's mention of slowing sales momentum in Q2 2012, I see very little chance of any surprise upside catalyst in this stock for perhaps a year or more -- and, in the mean time, I see widening GAAP losses per share. Ouch.

The Mattersight Resale S-3 Registration Statement Declared Effective: SEC

So -- as of 8:30 AM EDT this morning, all or any of the 2.36 million MATR shares owned by IGC Fund VI, L.P. may be resold immediately. No word on whether the institutional investor(s) will begin selling on Tuesday after the holiday -- or sit on the sidelines -- for weeks, or months, even.

Here is the effectiveness order -- and here is the final prospectus, listing the resale shares.

The company will receive no proceeds from these shares -- and we should expect that the sales, once they begin, will act as a cap on the market price of MATR shares.

Each Director Was Just Granted A 5,000 Share Stock Option, At $7.70?!

It bears noting here (click image at right, to enlarge) that these entirely discretionary 5,000 stock option allotments were each granted at the May 18, 2012 NASDAQ closing price for MATR. I am pretty sure that Mr. Conway would argue (and in fact is so-arguing, through his corporate investor relations representatives) to so-called "buy-side" analysts that -- at the $7.70 price -- MATR was significantly under-valued. [I might suggest otherwise, but that doesn't matter in the analysis of conflicted transactions, under the law, below.]

Remember that about ten days earlier, it was trading at $9.45. Also remember that Mr. Conway told the world -- on May 10, 2012 -- that the restatement would not affect future results, and would only affect one line, on the historical income statements. He plainly minimized the $0.55 per share 2011 increase in GAAP losses per share, from continuing operations, on the quarterly call (that shocking jump in GAAP Loss Per Share for 2011 wasn't disclosed until effectively five days later -- May 14, 2012, after market-close).

So, I ask: how -- given Mr. Conway's supposedly-genuinely expressed views -- regarding the triviality of the GAAP losses per-share "errors" -- can it be appropriate to choose a grant date for the board of directors' stock options that transfers an unwarranted, undeserved (in Mr. Conway's own view) discounted exercise price? At $7.70, this is the moment when the directors' fiduciary duties -- to avoid engaging in conflict of interest transactions, vis-a-vis the company itself -- trump the regular incentive compensation calendar. Or, in a well-governed public corpotation, those duties ought to.

Of course, if asked, Mr. Conway and the compensation committee will likely say that they grant the options in the same week of every year -- so they are just adhering to the prior schdule. That ignores the fact that the company announced what is -- in actuality -- a major GAAP financial restatement just three days prior to these "regular" but discretionary grants of options. That created an "unwarranted windfall opportunity" for the board -- if management's rosy predictions for the future of the Mattersight businesses are to be believed. And those predictions are governed by the SEC rules of being completely truthful, and non-misleading in any way (again, if Mattersight is complying with its lawful obligations, as a public company).

In sum, Mr. Conway -- as CEO -- cannot have it both ways: it cannot be that the restatement wasn't important -- and that the stock is undervauled -- and so, he is free to make rose-tinted forward-looking projections (all on the revenue-, not net profit- line) especially where (as here) insiders are to benefit (and benefit mightily, in Mr. Conway's own view) from the supposed pricing "anomaly".

Here endeth the lesson -- in conflicted transactions, by public company insiders.

MATR 5 Day Chart: Lookin' A Lil' Like Leon Spinks'* "Teefies"...

Said another way, there are a LOT of gaps in trading over the last five days.

More importantly, it looks like at least some of the larger holders are heading for the exits -- Mattersight has traded about half its daily volume in the first hour, and has been off as much as 17 percent on the day (now recovering a bit to be off only about 13 percent -- for the day).

Is this stock's intrinsic value closer to $2 -- than it is to $8? I don't know -- but be careful out there, just the same. [Click the small chart at right to emlarge.]

<sup>~~~~~~~~~~~~~~

* If that pop culture reference offends, please feel free to substitute the name "David Letterman" for the name "Leon Spinks" above.</sup>

SEC Comments -- On Mattersight's Form S-3

Mattersight let it be known Friday night that the SEC has requested changes to the resale registration statement it filed in March 2012, to allow two of the institutional investors to sell, into the public markets, up to 2.36 million MATR shares the investors have earlier puchased in Reg. D private placements.

Two thoughts -- first, and primarily -- that free-resale will now be a significant new overhang on the MATR common stock, should the investor start lightening its position, given that at present, as privately-placed shares, their sale is pretty tightly contollled by volume and manner restrictions under applicable SEC rules.

How so? Well, even with a resale registration in effect, MATR only trades about 40,000 shares a day on the NASDAQ. At that rate, even if the newly-registered shares' investor(s) comprised all of the daily volume each day (which would certainly depress pricing), it would take over 60 trading days to clear the overhang.

So, the far more likely reality is that the investor(s) will be lightening positions -- in dribs and drabs -- over much of the next year, to year and a half. And that will almost certainly be a limit on upside movements -- if not a direct downside mover.

Second, i'll offer a rather technical thought: SEC Form S-3, or short form registration, is available only to companies that keep their '34 Act periodic filings current. In that regard, thus far at least, Mattersight has not indicated that the SEC staffers have agreed with Mr. Conway and Ms. Carsen that the "unreasonable hardship and expense" exemption was available under the recent restatement circumstances (see page three of this very helpful Paul Hastings law firm generated memo -- PDF backgrounder).

So -- it could still turn out that the SEC will say dividing six numbers, and reporting the resulting quotients, is not the stuff from which "undue hardship" is reasonably made.

If that occurs, then MATR will need to convert the SEC Form S-3 to an S-1 -- and will incur significant additional expenses -- in that long-form registration process. Chief among these will be the denial of subsequent incorporation by reference.

That would mean amending the registration statement manually, for each 8-K, 10-Q or 10-K -- a painful and cumbersome process. It would also be highly-embarrassing for a company with 12 years of SEC-reporting history. [But I guess not reading "Accounting for Dividends" -- under GAAP -- is also pretty embarrassing.]

In short, Mr. Conway is hoping that the SEC will agree that dividing six numbers makes for very tough sledding.

It should be remembered that S-3 short form registration was created for companies that repeatedly demonstrate their competence in filing accurate and timely SEC reports. That may not describe s company that forgets (for three years!) to charge dividend obligations against continuing operations (loss) earnings per share, under GAAP, and thus materially understates its GAAP losses per share for three years.

As ever -- we shall see. Could be a bit of a bumpy road, from here.

Starting to Look "Bubblicious"?

The chart below is derived -- and transformed -- from a great interactive in this morning's New York Times -- do go click around on it, there.

I thought it would be useful to put the legacy eLoyalty Corp./Mattersight spinoff history into the perspective of the rest of the "e-" bubble of 2000 -- and along with the Times, update it for Groupon, et al. -- so I ginned up the below in Photoshop. Enjoy (click it to enlarge):



Where will Facebook land, three years from now? Who knows. But it is certain that at 100 times eLoyalty's cap as it goes out -- it has a better chance of showing GAAP EPS from its operations. Be careful out there, just the same.

Mattersight Falling On NASDAQ Today...

The stock is essentially losing today whatever it was able to recoup yesterday (which is about where it was last on Monday), but today's down trading is on significantly heavier volume, and earlier, than yesterday's move.

Oddly -- I noticed that both Yahoo! Finance and E-Trade show an afternoon gap in the chart data, yesterday. [Click image at right to enlarge it.]

Was there a trading halt? Who knows. In any event, it seems the bigs are sitting on the sidelines, this week.

Be careful out there.

An Ironic Object Lesson -- At Mattersight...

In an ironic way, the board of directors of Mattersight has re-taught the investing world an unintended lesson here. A lesson learned over at least one full year, and perhaps almost two and a half years, now.

It is often said that -- at public companies -- "you will get the behaviors you measure, reward and/or punish. . ."

I know that much is true. What is puzzling to me -- looking at all of this through the lens of an unaffiliated investor in Mattersight's equity securities -- is why no one was being rewarded (or even measured!) on whether Mattersight ever reported a quarter's worth of continuing operations fully-diluted GAAP earnings per share.

Why does the board allow Conway & Co. to be bonused for things like "not breaking the securities laws" and finding "new logos" (on loss-producing "test-pilot" engagements, no less!) -- to the implicit exclusion of GAAP EPS acheivement? Why?

Well, I suspect that it is because a goodly portion of the board represents only its own narrow institutional-investor-driven interest, rather than the common stockholders at large, as the applicable law of fiduciary duties plainly requires them to. That is, when the MATR NASDAQ-OTC common stock price can be effectively (allegedly) pushed up by "accounting errors" -- and then the institutions are able to unload partions of their investment -- by management's not correcting these same "errors" for either one full year, or about two and a half years, then the game as they say, is well-afoot. The duration of the game, in turn, depends on whether the "Series B dividend error" was first made in the 2010 (for the year ended 2009) SEC Form 10-K's diluted loss per share figures attributable to continuing operations (see page 56), as well as the later SEC filings -- or whether the "error" first began when Mattersight filed the first Form 10-Q (see page 2 -- it certainly was in error, by Q1 2011), after announcing the sale of the ICS businesses to TeleTech Holdings.

In either case, the larger point is that if all the board members are effectively insiders -- and know when, or whether to lighten their respective institutional holdings -- it is only the unaffiliated common shareholder who gets the shaft. Conway & Co. reap unearned bonuses (which ought now be subject to a complete clawback), the big holders move in and out of their positions, for quarterly window dressing purposes -- but the small unaffiliated holder takes it up the tail-pipe.

Thankfully, the applicable US federal securities laws provide these small investors a remedy.

More on that, shortly.

This Is One Puzzling Time-Line...

It may yet turn out to have been entirely innocent (albeit completely empty-headed!) -- but it sure seems that vast benefits were reaped -- and significant losses avoided -- during the "error" period (click to enlarge it):



It has been my hard-learned experience, though, that where there is smoke -- there is usually at least some fire. We shall see, but this is one smokin' time-line/trading chart.

Another Impertinent Question

The longer I think about it, the less plausible it becomes that this was all just an innocent error. The mistake is an obvious one -- a reckless one, in fact (if it was a mistake at all CEO Conway is a CPA afterall!) -- and it greatly affected the valuation assigned to the share-settlement arbitration outcome (click it to enlarge¹):



More in a few minutes, on timelines. . . .

<sup>~~~~~~~~~~~~~~~~~~~~~~~~~
1. Graphic corrected 05.17.12 for error in buyback price of Series B -- $8.60; not $8.20.</sup>

CEO Conway Offers His Latest "Shiny Object" -- In Response To Vastly-Increased 2011 GAAP Losses Per Share

This attempt would be disconcerting, if it weren't so transparently silly -- and thus ineffectual. After trading flat essentially all day, on below-average volume, MATR took a powder at the close -- losing almost 2 percent in the last half hour -- immediately after the below press release, from Mattersight's Chicago Loop offices hit the wires:

. . .Mattersight Corporation (NASDAQ: MATR) today announced the launch of the newest version of its transformational Performance Management application for its Behavioral Analytics service. . . .

Mattersight's Performance Management solution leverages its strong competencies and expertise managing big data. Every day, Mattersight captures over 70 trillion data attributes, applies over 2 million algorithms, executes over 250 billion computations, and processes over 350 TB of data in order to provide its customers with new and contextually accurate information to understand their customers and improve their operations. . . .

None of this will change the reversal of the trend toward smaller losses per share from continuing operations -- on a GAAP basis, from 2009 through 2012, inclusive. And CEO Conway well-knows it.

In fact -- it turns out that "improving loss per share trend" was a simple illusion. The losses only shrink if no one has to pay for the Series B dividends and redemptions. But GAAP requires that someone -- i.e., the company -- pay for those obligations, and include the same in losses per share. That is truly rudimentary financial accounting -- and shocking that through at least seven layers of review, no one noticed it.

The SEC filing averrs that Mattersight had learned of the error in the second quarter of 2012 (see Note 22, on page 34). That means that for some period of time after March 31, 2012, management knew its stock was trading on materially inaccurate information -- and it wasn't some discretionary disclosure item, like preliminary merger negotiations. No, for perhaps as long as 45 days (from April 1 to May 15, 2012) -- Mattersight sat mum about a material mistatement that they themselves had made to the world.

How does that happen, without drawing at least an informal SEC inquiry? I don't know -- but we shall see.

Will Mattersight open down, again, tomorrow? Stay tuned.

No Volume -- Essentially Flat At Open

I would guess that the few hundred shares changing hands are connected to insiders, in one way or another.

There is essentially no volume -- and essentially no movement -- in MATR, on the NASDAQ this morning.

Pre-market (in hilarious fashion!), someone was indicating an "Ask" for 100 shares at $8.75 -- clearly trying to force a higher open, from the $8 at which it closed last night, before the latest SEC filings came online. Just for completeness, I should note that the error reduced reported Q1 2011 GAAP continuing operations loss per share by $0.02. I would expect that an "additional" annual 2012 $0.10 per share of losses from continuing operations should be built into the models, irrespective of CEO Conway's forecasted sales slow-down in Q2 2012.

As ever, be careful out there.

Worth One Thousand Words, Here...

No words will suffice -- but do see my earlier posts below, anyway.

BREAKING: Late-Filed SEC Form 10-Q For Q1 Now On EDGAR

Here is the pertinent bit, from page 14:

. . .During the second quarter of 2012, the Company identified an error relating to its calculation of basic and diluted loss per share from continuing operations in its previously issued financial statements. As described in Note Thirteen “Capital Stock and Series B Stock” of the “Notes to Consolidated Financial Statements” included in our Annual Report filed on Form 10-K/A for the year ended December 31, 2011, the Company has paid periodic dividends on the Series B Stock and in 2011 repurchased certain shares of Series B Stock. Although the Company accounted for the dividends and repurchase in its consolidated financial statements, it did not deduct the dividends or in 2011, the amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock, when calculating basic and diluted loss per share from continuing operations of common stock. To correct this error, the Company has restated its previously issued Consolidated Statements of Operations as described in Note Twenty-Two “Restatement —Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in our Annual Report filed on Form 10-K/A for the year ended December 31, 2011. In accordance with Accounting Standards Codification 260, “Earnings Per Share”, the restatement deducts from such amounts dividends paid on the Series B Stock and the amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock.

The change in presentation had no effect on any other amounts or financial statement line items. . . .

So, the error added two cents of GAAP continuing operations loss per share to Q1 2011, pushing the loss to $0.36 per share. Here in Q1 2012, the loss was $0.22.

Before you jump for joy, here, though -- recall that CEO Conway is now calling for a pause in sales momentum in Q2 2012 -- so, I'd expect the continuing operations GAAP loss per share to widen appreciably from the $0.22 posted for Q1 2012.

In addition, as the upper right graphic indicates, note that the error "buried" (or hid from view) $0.55 of GAAP Losses Per Share from Continuing Operations, for the Year 2011, while Mattersight transformed from old eLoyalty -- emerging from its would-be chrysalis (but by appearances only -- it seems). No, it is still a caterpillar -- not a butterfly, at all.

More on that later. let's see where the stock opens on the NASDAQ OTC tomorrow. If it falls, expect lawsuits, as many many people bought in the $9-plus per share range, and it is (without any additional declines), now off 12.5 percent from a nine-buck handle. Maybe more, after tomorrow.

Ugly. Ugly. Be careful out there.

BREAKING: Grant Thorton Declares Material Weakness In Mattersight's Internal Financial Controls

Mattersight just filed its restated SEC Form 10-K, for last year -- with the corrected and restated losses per share from continuing operations now included. In order they were $1.29, $1.28 and $1.26 in 2011, 2010 and 2009, respectively. So, Not. Getting. Better. Getting. Worse.

In addition, Grant Thorton has just declared that it cannot opine on whether Mattersight's changes will prevent re-occurences of these sorts of errors, thus:

. . .A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management identified a material weakness in internal control related to their process and procedures used in applying appropriate accounting to basic and diluted loss per share from continuing operations. This material weakness resulted in the restatement of the annual consolidated financial statements as of and for the years ended December 26, 2009, January 1, 2011, and December 31, 2011.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Mattersight Corporation has not maintained effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by COSO.

We do not express an opinion or any other form of assurance on management’s statement referring to the change in the internal control process and procedures of the material weakness. . . ."

Ouch. More soon. The original erroneous continuing operations losses per share were $0.74, $1.19 and $1.16 in 2011, 2010 and 2009. I'll put up a new post on the magintude of these errors, shortly -- but that is eye-popping: In 2011, the loss looked to be getting much smaller ($0.74) over time, but it is now $1.29. That is the fertile fodder for securities lawsuits, friends. Mark my words.

Now we wait for the Q1 2012 Form 10-Q -- it should be filed with the SEC by close of business tomorrow.

How Many Elapsed-Days Will It Take Mattersight -- To Divide Six Numbers?

This feels a bit like a "shaggy dog story" style-bad joke -- along the lines of "How many Matttersight accountants does it take to screw in a lightbulb?"

By Mattersight's own admission¹, the corrections to all the GAAP losses per share attributable to continuing operations figures (on the bottom of Note 1, on page 5 of the SEC-filed Form 8-K, Exhibit 99.1 dated May 9, 2012) will "result in a reduction of previously reported Basic and Diluted loss per share from continuing operations of ($0.02) for the [Q1 2011] period. The change in presentation will have no effect on net loss or any other amounts for any period. . . ."

That is, in plain(er) English "the errors won't affect any other calculations in the GAAP financials."

So -- as I said earlier, how can it possibly take five business days to divide the six numbers, as corrected (three annual figures, and three quarterly figures), by the basic and fully-diluted share equivalalent totals -- and then hit the EDGAR submit button?

My punch-line to my own riddle, above? It seems that Mattersight's corporate reporting staff conducts its operations on the time-frame dictated by the newly-discovered Mayan calendar (See The New York Times story -- on the latest-Guatemalan find, here).

<sup>~~~~~~~~~~~~~~~~~~~~~~~~~~

Note 1. It should also be noted (for the sake of completness) that it is possible with respect to some of the periods, the GAAP Continuing Operations Loss Per Share will decrease -- i.e., get better -- not worse, depending on whether the preferred is anti-dilutive, or dilutive, at that point in time, looking backward three years. Otherwise, I would have completed the calculations myself, already. So, do be careful out there.</sup>

One Other Thought: What Kind Of A Public Company...

Okay -- so it took a bit for my coffee to kick in this afternoon (also -- kudos to commenter "Bob" for pointing me to it!), so I apologize for not making this point in the last post. . . but let's all agree that Mattersight's business is -- in the main -- not highly-regulated. It is not a pharmaceutical company, or a nuclear energy producer; it is not a tobacco company. Thus compliance with law is not an immensely complicated endeavor, if -- as all executive officers ought to be -- you are the "best and the brightest."

So, I'll ask: how on Earth can it be appropriate to pay ANY part of a bonus to executives -- a discretionary amount, for going "above and beyond," in any common-sense definition of the word "bonus" -- for. Not. Breaking. The. Law. What??? C'mon, man!

The "Governance" portion of the bonus simply requires that executives avoid breaking the laws applicable to public companies generally. That is all the executives need do to "earn" it.

Goofy me -- I would have thought that the salary covers complying with the law. Again -- when one looks at Mattersight's actual governance mechanisms, such as they are -- one feels a bit like poor old Schrödinger's cat. Click on the image, at above-right, to enlarge [derived from a Wikipedia/Creative Commons tutorial]. [Is governance dead at MATR? Or is it in a perpetual state of undead/dead/alive -- all suspended in time, until, and only if we open the box and find GAAP earnings per share from continuing operations have been reported?]

I have no idea. Not even sure whether I'm curious about it, any longer.

But a Happy Mom's Day, just the same, to all the moms out there reading this.

Mr. Conway's Team Was Provided A Bonus On 2011 "Governance" Performance!?

Along the lines of my earlier post, on the potential for an SEC-initiated Dodd-Frank or S-Ox "claw-back" of some of the executive officers' pay, I took a moment to re-read Mattersight's latest SEC-filed proxy statement, in view of yesterday's warning to place "no reliance" on GAAP continuing operations loss per share, for the last three years -- due to "errors" in calculating the same (forgetting to include the preferred dividend obligations' accrual as an addition to the loss).
At page 29 of the latest proxy statement, we learn that the Compensation Committee awarded members of Mr. Conway's team 100 percent of their targeted bonus for "Governance" in the last year. The proxy recites that ". . .'Governance', defined as the Company’s timeliness and accuracy in financial and securities reporting and filing. . . ." is to be paid out, "based upon subjective determination regarding the occurrence of Governance issues; not subject to quantification. . . ."

It then recites that "Governance met or exceeded expectations | 100% [payout]. . . .

Well, call me a crumudgeon if you like, but "timeliness and accuracy in financial and securities reporting and filing" just went out the window -- and retroactively so, for the past three years.

So all of the past three years' bonuses keyed to "Governance" (to the extent any were paid for the past three years' "performance") ought to be clawed back by the board -- in the exercise of its fiduciary duties.

In fact, Mr. Conway, and Mr. Noon and Ms. Carsen ought to promptly volunteer to return all such bonuses "earned" in those prior periods. This -- by Mattersight's own admission, today -- is a "material effect" restatement, coming.

Time to test Mattersight management's integrity, I guess. Let's see what Monday or Tuesday brings -- at the SEC's EDGAR filing window.

MATR Now Off 7.8 Percent; Nearing Triple Normal Volumes...

Today's NASDAQ-OTC trading has been "fast and furious" -- in Mattersight's common stock.

As of about 2:48 PM EDT, nearly 110,000 shares have changed hands -- nearing triple the normal average volume, and down 7.77 percent for the day.

Wow. As I warned all last -- and this -- week, do be careful out there. Mattersight is lucky that Jamie Dimon's woes are drawing swift SEC scrutiny, in the news cycle today -- as on a quieter news day, MATR might have already heard from the SEC about the dismissive way in which it has so-far handled its mis-statement (understatement, actually) of its GAAP continuing operations losses per share, for the prior three years, and the prior three consecutive quarters.

Wild.

Dodd-Frank Section 954 "Executive Compensation Clawbacks", At Mattersight?

First things first: The emerging rules implementing Dodd-Frank, as well as portions of Dodd-Frank itself, are far from clear. But Section 954 is pretty direct -- incentive pay based on metrics which are later restated in a material way. . . is subject to recoupment. [The actual teeth of it won't become effective until SEC publishes final rules, here, however.]

Even so, one provision of Dodd-Frank (Section 954) directs the SEC to create rules for the "clawback" of executive compensation in situations where material financial statement restatements occur. I will do a little more detailed research on this later today, time permitting, but this morning's Mattersight SEC notice of late filing of the 10-Q offers us this insight -- from Mattersight's own admissions:

". . .(3) Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or a portion thereof?

x Yes ¨ No. . ."

So Mattersight admits that this is a material restatement, it is about to post. Hmmmm. Clawbacks, anyone?

Mattersight has opened off almost 10 per cent (on its half of its entire daily average volume in the first hour, on the MASDAQ-OTC), this morning -- down almost 90 cents. Geez -- I hate being right all the time.

And Now, We Must Wait Up To Five Days?

According to Mattersight's Form 8-K (on page 1) this evening, it will be perhaps as long as five days before we know how much the company lost, on a GAAP basis, per share -- on continuing operations -- for the last three years. Astonishing. This is truly two operations in each period: an addition of the dividend obligation, to the continuing operations losses in each period, then a division of that resulting figure by the outstanding shares in each period. How can that be five days' work -- when the Company's shares are trading on an inaccurate EPS calculation? [Okay, okay -- actually LPS -- not EPS -- but you get the idea. Sheesh.]

I am not some unrealistic academic, here -- I mean errors happen every day, but it is particularly telling that THIS would be Mattersight's error -- with CEO Kelly Conway so relentlessly focused on everything but actual GAAP results, for 13 years now.

Personally, I think it strains credulity to imagine that the corporate reporting staff, the controller, the CFO, the audit second, the audit lead, and the responsible partner (as well as Mr. Conway, himself -- a CPA by training!) didn't even notice that THEY ALL forgot to charge-off the accrued and unpaid dividends as an additional obligation attributable SOLELY to continuing operations -- and thus they had materially understated Mattersight's losses per share from continuing operations for all the affected periods. [I suspect TeleTech will make sharp mention of this to Mr. Conway, as well. Afterall, part of the basis for the ICS deal required that the remaining operations -- the ones that became Mattersight -- be viable, so as not to be seen as a wasting transaction.]

It would all be funny -- if it weren't so sad. And on the call, Mr. Conway went on and on about how "what matters" is the number of new pilots (contracts upon which he admits he barely covers his costs), and a host of other smoke and mirror metrics which bear scant relation to GAAP results for shareholders.

It is nearly the most baffling thing I've ever seen -- don't the shareholders care? Thirteen years?! Truly curious. More -- when the amended SEC Forms 10-K and Q are filed. In the mean time, be very careful out there.

Mattersight: DON'T RELY ON OUR GAAP LOSS PER SHARE CALCULATIONS FOR THE LAST THREE YEARS

This is simply an error, in all likelihood, but it is EXTREMELY maddening, nonetheless -- as it makes for no "apples to apples" comparisions, on the only basis "that matters" -- GAAP -- until the amended SEC Forms 10-K are filed -- and even the Q1 Form 10-Q will be late, and filed on an extension. [Isn't Mr. Conway a CPA?]

So -- we don't really know how Mattersight is doing, post sale of ICS, at all. We don't know when, or whether, it will ever become profitable. We cannot even guess, as the goalposts are being moved as I type this.

This truly is "the gang that can't shoot straight." Argh!

Mattersight's Actual Q1 2012 GAAP Results: $ 3.38 Million Loss From Continuing Operations

It seems that I was mostly right, but a little too optimistic at the EPS line -- GAAP loss per share from continuing operations was $0.22, as compared to my model's guess of $0.21.

Revenue from continuing operations was a little better than I expected, coming in at only $8.55 million for Q1 [but Q2 looks to be flat to down, according to Mr. Conway, just now].

And thus, comprehensive GAAP net loss available to common shareholders from continuing operations was $3.38 million.

On top of all of this, Mattersight now expects that revenue will be flat to down in Q2 2012 -- in continuing operations -- due to the non-renewal of a major contract. Ugh.

Finally, there will be no timely-filed SEC Form 10-Q, as Mattersight is restating its GAAP loss per share numbers for the last three years, due to management errors in calculating the same (something about not accurately reflecting dividends on the preferred). [Question: Isn't CEO Conway a CPA?] Odd.

So -- "but of course!" -- the revamped loss per share historical financials will not tie to the ones provided at the time of the ICS sale to TeleTech. What a surprise. As I say -- some things may never change.

Pre-Q1-2012-Report Stock Fade-Out: "In Full Effect", At Mattersight

Take a look at the chart at right -- click the image to enlarge it. Perhaps immodestly, I feel compelled to note that where the finger points (that peak) is the moment I called for expected Q1 2012 continuing operations losses per share, and called for increases in the level of the same, over on the Yahoo! stock chatboard related to Mattersight's common stock (NASDAQ-OTC). Shortly thereafter, I posted my model for all to see, right here.

Where do you think MATR will open on Friday, post the Q1 2012 results release?

Where will MATR close on Friday? On Monday? We will post the GAAP continuing-operations results, and our analysis, shortly after they are released by Conway & Co., tomorrow night.

So, buckle-up, buttercup!

See ya tomorrow evening. . .

My (Educated?) Guesses -- For Q1 2012 Revenue, Net Operating Losses and LPS (Est.)

UPDATED | 05.07.12 Noon: It seems that some browsers, and some versions of Excel, cannot download the .xls file I originally provided below. So, I've converted the file to a .pdf -- certainly most will be able to see that. Unfortunately, unless you download the .xls file, you won't be able to tweak the imbedded assumptions -- to see how they affect loss per share -- under various scenarios. In any event, here is the .pdf file.

Okay, let's make some fun of this -- I've attached my model, as an Excel file. [To be clear, I have no inside information whatsoever; I've simply made some guesses -- based off of Mattersight's last financial reports.]

Feel free to download it, modify it -- and submit your guesses -- in the comments. Let's see who can get closest to the actual numbers.

Me? I expect Losses Per Share From Continuing Operations to come in at around $0.21 for the quarter.

I expect revenue from continuing operations to come in around $8.3 million for the quarter.

Finally, my guess at the up-ramp in expenses will be around 18 percent, over the prior year period, on continuing operations.

So, I expect that Mattersight's net loss from continuing operations -- on a GAAP basis, for the quarter -- will be around $3.03 million.

On Thursday Night, Will Mattersight Report Any GAAP Continuing Operations-Derived EPS?

As can be seen on pages 16 to 17 of the most recent SEC-filed Form 10-K for Mattersight, all the net income from operations in the fourth quarter of 2011 came from discontinued operations -- the ICS businesses since sold to TeleTech.

So, will the Behavioral Analytics franchise -- Mattersight's central bussiness line -- show any GAAP EPS for the first quarter of 2012, when it reports Thursday night?

We shall see. At mid-week, I'll post my guesses, on a line by line basis, as to where the selected financial data will land -- for the first quarter of 2012. Hint: I am expecting a net loss from operations, though slightly lower losses than those reported in Q4 2011 for the continuing operations.

I do see a significant ramp up in cost of services and sales, though -- as the big data solution is not all that scalable. Do stay tuned.

And, as ever, be careful out there.