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.