Mr. Conway's Q2 2012 Outlook: Desktop Analytics Are Unexpectedly Tough To Deploy -- Pipe Ambiguous

Having now returned to the country, I've taken an hour to listen to Mr. Conway's Q2 2012 GAAP Loss Per Share call.

Before I get into a detailed analysis here, perhaps the most-astonishing, and disconcerting, moment on the call came when Mr. Conway said he "did not know how many" of the 17 pilots were new logos, and new to this quarter. That seems to evince a lack of attention to basic blocking and tackling -- he should know this, in his sleep. I suspect he does, because he said five or six were new logos in Q1 2012. But as to any new pilots to Q2 2012, I suspect the number is. . . zero -- new this quarter.

And that, in turn, points to the larger object lesson from the Q2 call: once again, we are supposed to trust that his vaunted pipeline of new deals will save the ever-increasing expense line he runs. It's been nearly 13 years -- and not once has revenue, on a GAAP, continuing operations basis, fully covered all GAAP expenses and capital items -- Mr. Conway deployed in the process of generating that revenue. Not once.

Why should we trust him now -- especially when he is admitting to "new difficulties" in deploying the desktop analytics -- and he is admitting to a lower conversion rate, now at 75 percent, from pilot opportunities to implemented contractual revenue (finally now disclosing the internal management expectations, on that score). In the past, Mattersight had said that it expected over 80 percent would convert to revenue.

In addition, expenses are ramping up, even though headcount was three FTEs lighter in Q2 2012, from Q1 2012 -- 212, compared to 215 in Q1.

In sum, each of the core metrics are heading in the wrong direction at the moment: (a) sales revenue is flat to down for the next few quarters; (b) the conversion rate from pilot investment to revenue is now down -- at 75 percent; (c) and the expenses lines related to those sales, are up, quarter over quarter -- even though (d) headcount is down marginally.

This one is looking pretty darn ugly -- for at least the next year.

I'll be back later with more -- but The downgrades -- and the $5 price tell the bulk of the rest of the story.

This dip below $5 a share is no anomaly -- it is the new world.