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Mattersight (NASDAQ:MATR)

Q1 2013 Earnings Call

May 08, 2013 5:00 pm ET

Executives

Kelly D. Conway - Chief Executive Officer, President and Director

Mark Andrew Iserloth - Chief Financial Officer and Vice President

Analysts

Jonathan Ho - William Blair & Company L.L.C., Research Division

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Peter D. Schleider - Peninsula Capital Management, Inc.

Operator

Good afternoon. My name is Adrian, and I will be your conference operator today. At this time, I would like to welcome everyone to Mattersight's First Quarter Conference Call. [Operator Instructions] Mr. Kelly Conway, CEO of Mattersight. You may begin your conference.

Kelly D. Conway

Thank you for joining us for our Q1 2013 conference call. Joining me on the call today is Mark Iserloth, our Chief Financial Officer. Before we start the call, Mark I'd like you to review the Safe Harbor language.

Mark Andrew Iserloth

Thanks, Kelly. During today's call, we will be making both historical and forward-looking statements in order to help you better understand our business. These forward-looking statements include references to our plans, intentions, expectations, beliefs, strategies and objectives. Any forward-looking statements speak only as of today's date. In addition, these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied by the forward-looking statements.

The risks and uncertainties associated with our business are highlighted in our filings with the SEC, including our Annual Report filed on Form 10-K for the year ended December 31, 2012, our quarterly reports on Form 10-Q, as well as our press release issued earlier today. Mattersight Corporation undertakes no obligation to publicly update or revise any forward-looking statements in this call. Also, please be advised that this call is being recorded and is copyrighted by Mattersight Corporation. Kelly?

Kelly D. Conway

Thanks, Mark. I'd like to first start with a summary of the significant items in our business with Q1, in a little bit and where we've had some good news with Q2, which we'll review in further detail during the call but let's just start with the summary. We're very pleased that we converted 2 significant pilots in Q1 and Mark will talk more about those in the next slide. We also signed 3 new pilots in Q1, including 1 with 1 of the world's 3 largest technology companies. And we're very excited to be on the ground there. We off to a good start in Q2. We signed 4 pilots today to date in Q2, which includes 2 routing pilots, by the way, and we currently have a record 23 pilots in progress. Our Predictive Routing is very hot. We issued a press release today talking about the initial results we're seeing from our first 3 deployments. The growth in our pipeline as well as the very encouraging progress we're making building a channel with our Predictive Routing. Mark will also discuss the very significant progress we've made to control and reduce our expenses and, the fact that we had record gross margins in the first quarter, which is already also very encouraging. One of the other items of significance we've discussed for several quarters is the impending Affordable Care Act project. The -- which we'll talk about in more detail but there have been delays in the government getting their award and that has impacted the -- our current revenue outlook and we'll discuss that as well. And finally, I want to reinforce that we continue to expect that we will achieve adjusted EBITDA profitability by Q4. So with that summary, Mark, I'd like to turn it over to you to talk about the Q1 highlights in more detail.

Mark Andrew Iserloth

Thanks, Kelly. As Kelly mentioned, we had 2 significant pilot conversions in the first quarter. One was DeVry. We issued a press release on that 1 earlier. But they're using our Behavioral Analytics offering to enhance their student experience by connecting conversations online and via the class interactions to result in better outcomes for their student body. The second 1 was an existing insurance client convert a pilot to enhance their customer experience set and both predict and improve on the NPS or Net Promoter Score of each call. We're excited about those and they are ramping up right now at the beginning of the second quarter.

On revenue, which you've seen, subscription revenue is up 4% sequentially from Q4 and overall revenue is down 1% from Q4, primarily due to lower deployment revenue. It is worth mentioning that in the first quarter, we had a one-time success fee associated with 1 of the conversions that rolled through the subscription line, without which, revenue would be approximately flat. We also had record gross margins in the first quarter, primarily a result of efficiency in mix and not of any sort of cost containment actions. Overall, gross margin was 66%, up 500 basis points from Q4 sequentially and Q1 subscription gross margin was 74%, also up 500 basis points sequentially from Q4. We're very excited about that and look to continue that as the year goes on.

On our backlog and bookings, which we have in the Q, backlog decreased to approximately $79.5 million from $89 million in Q4. We had a partial cancellation of a contract that was received early in June and the cancellation was due to budget constraints. Aside from that, we're pretty pleased with the bookings in the quarter as we added $6.7 million in the total contract value and $2.4 million in annual contract value or ACV in incremental contracts. In fact, that $2.4 million of ACV was the highest new ACV, being incremental ACV in 7 quarters.

Kelly D. Conway

Thanks, Mark. I'd now like to talk about -- update our pilots, our Predictive Routing, our partner channel and the Affordable Care Act project. So I mentioned, we signed 3 pilots in Q1 including a pilot with one of the 3 largest technology companies. So far, Q2 to date, we've signed 4 new pilots, including 2 routing pilots and as I mentioned, we have a record 23 active pilots in progress. We estimate the initial conversion value, and I underscore the initial conversion value, of these pilots will create annual incremental contract value of approximately $10 million to $12 million. Now, let's talk about our Predictive Routing application. We're very pleased with the progress of that, really in all fronts. First of all, our pipeline grew by approximately 4x in the first quarter from about 50 -- 15 opportunities or individual companies that we're talking to approximately 60 at the end of Q1. That has continued to increase. It is probably up about 10% in the first month of the quarter -- over where it ended the last quarter. We're also very pleased and probably this is the most important metric that we've looked at, is the initial results from our first 3 deployments. We add in 1 deployment, an 18% decrease in talk time for an HMO. At another HMO, calls routed by our application were 1 minute or 11% shorter than calls that were not routed by our application. And finally, recently, we put in our application at a large pharmaceutical rate, our company and they increased their sales conversion rate by 14%.

Now, I want to point out that one of the really powerful things about this application is it didn't require any change in people, process or technology in any of those accounts. They just had to look up their routing infrastructure, the RI data, to capture these results. So we are extremely pleased with those and are obviously out talking to them, talking about these results with everybody that is in our pipeline and the reception is very, very encouraging. It's also been a great lever to sign up partners. The routing message strongly resonates with the call-center systems integration, partner ecosystem. We've initially really focused on Cisco and we signed 3 partners to date. Those 3 partners have, we estimate approximately 150 to 170 installed call-center accounts that they've sold or are servicing. We expect to have 5 to 6 total partners signed up by the end of Q2. We have a very active pipeline of additional people that have contracts in process, which will create, we estimate a total installed base of about 300 accounts that we can start working. And in fact, one of the really positive indicators already is in the first month that we were working with these 3 partners, they registered 12 leads for us in the first 30 days that we're starting to work. So again on really all accounts, the receptivity of our own pilot uptake, the very impressive results and the reseller channel, we're very pleased with the progress of Predictive Routing and we think, frankly, it's a killer application at this data, and again, just really pleased with that.

Now, I want to turn to the Affordable Care Act project which we talked about for several quarters. As has been noted, our partner was selected to provide the Affordable Care Act customers care and service and they are currently in discussions with the government on their bid award and their contract. And pending those contract discussions, we expect to get clarity on this, on what our role would be and given the discussions between our partner and the government, we really can't comment on the state of those negotiations because their contract have not been finalized at this point. Mark, I'm going to turn it over to you to talk about the impressive work you've done to help manage our expenses and create financial leverage for us going forward.

Mark Andrew Iserloth

So, as Kelly mentioned, we have been taking a look at our expense base and we touched on that, I believe, during the last quarter's conference call. We've taken actions that within inside Q1, that will reduce expenses -- total expenses by approximately 10% to 12%. That will be visible in the Q2 financial results as the actions took place over the course of the quarter, but primarily at the end. Ongoing action and cost-containment efforts during -- underway right now will result in further reduction of 4% to 5% sequentially by Q3, so approximately 14% to 17% reduction off of the Q1 run rate. As Kelly mentioned, these -- we're pleased with the reductions in that it both drives significant leverage at the bottom line. We had a couple of tough calls to make but in the long run, it was the right decision to take and we're encouraged by the results that we see so far.

Looking forward to, on the revenue side. Our Q2 revenues are going to be impacted by the previously discussed reductions in backlog. We touched on some, in past quarters, we had a client who lost their contract that ended at the end of Q1. And then we had the adjustment to backlog that I mentioned a few minutes earlier that will impact Q2. So that our guidance for Q2, we expect Q2 subscription revenues to be approximately 10% lower than the reported subscription revenue in Q1. And then we think we turned and we think in Q3 and Q4 our forecast is for sequential growth between 8% and 10%, separate from anything that happens with the work around the Affordable Care Act, each quarter after that. Kelly?

Kelly D. Conway

Operator, we'd now like to turn the call open to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jonathan Ho.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Just starting out with the contract that was lost. I just want to understand a little bit better in a sort of what happened there and what was the size of the contract that came out of the backlog and are there other contracts that are potentially, are in this situation, relative to your backlog at this point?

Mark Andrew Iserloth

So, it's Mark, Jonathan. The contract that we lost was a 5-year contract that was worth approximately $7 million. It was a partial component of a larger contract that was executed in Q2 of last year. So that was a renewal that did not take place, such that part of the contract ended and we'll see the results at the end of Q1, so we'll see the full impact in Q2, and we got notice in Q1. We don't have -- if you look at the expected book of business for this year, we have effectively 2 minor renewals later on this year, the rest of the business is all going to be incremental and new. So there shouldn't be anything in the near-term like this that we can see. We have the normal ups and downs and counts as folks versus seasonality in some of our clients, for example, which I believe you know about. But there's nothing else like this, that we see on the horizon right now because there's no renewal like this on the horizon until we get into 2014.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Okay. And then relative to the sequential growth that you're expecting for Q3 and Q4, what gives you the confidence or what provides the visibility that reacceleration's going to take place? Do you have to win new business or is this already in the backlog?

Mark Andrew Iserloth

It's a little bit of both. We had -- this is certainly, one of the 2 conversions that we had in Q1 that are rolling out in Q2. We'll be ramping up throughout this quarter and then get full-on traction in Q3. We have our largest pipeline to date for activity within Q2 and Q3. So -- and that's a mix of both pilots, conversions and with existing and new clients. Kelly touched on that with the pilot side so that we do have to close business to get there but it's not 100% new business in order to achieve that growth rate.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Got it. And just regarding the ACA contract. I know there's not a lot that you could say but relative to your prior quarter expectations that you talked about, have you seen that move up or move down or shift at all?

Kelly D. Conway

I think at this point, there's just not a lot of clarity that can be had until our partner gets clarity on their contract.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Got it.

Kelly D. Conway

As you can imagine, we're dealing with a -- an enormous project and we're a small part of it. It's important to us, of course, but we're just a small part of it. And it's just really hard to -- it just -- it wouldn't be, I don't think it would be reasonable to speculate and probably not appropriate given the state of what our partners discussions are with the government.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Understood. One final one. Just in terms of the Predictive Routing opportunity, just wanted to get a sense from you how quickly these typically translate into revenue opportunities. What's the typical sort of conversion given that it's an automatic conversion?

Kelly D. Conway

Well, that's a great question. And Mark, is looking for a slide. One of the things is we have seen dramatically faster looking at the pilot.

So of the things that are, and I'm not going to give you the total number, Jonathan, for the obvious reasons. But I will tell you what's within our internal forecast and upside for pilots that we're going to close. Over 20% of our pipeline, we think about is either in our Q2 forecast or upside, so kind of maybe forecasting for Q2 or Q3. And I would say, the average age or the average sales cycle looks to be around 60 days. There are some -- one of those that's forecast in Q2, the sale cycle is less than 30 days. Quite a few are between 30 and 60, some between 60 and 90 and virtually, none past that. So that is a dramatically shorter sales cycle that we've ever seen with performance management and extremely encouraging. So we're both encouraged by the growth in the pipeline and how quickly they look like they're going to convert to pilots.

Operator

Your next question comes from the line of George Sutton.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

I'm wondering on your Predictive Routing business. When you look at the 60 accounts that you're currently working with. How many of those would not have had interest in your traditional solution which does require a bit more people and process change to have the impact?

Kelly D. Conway

Yes. A lot of them George, I'll just tick off some. So, we are at a large cable-like television service that has about 15,000 seats that we were never able to get into before with performance management and talking to them on routing, we started initial pilot with them in probably between 30 to 60 days. We are talking to one of the largest -- we're in contract discussions with one -- and by the way, we have signed a pilot with that cable-like company. We are in contract discussions with one of the largest private sector university companies and we had been trying to get in performance management for a couple of years and it finally resonated with them on the performance management and again, are on the routing. They have about -- we estimate in excess of 5,000 seats and again, we're in procurement discussions with them. We are in procurement discussions with one of the top 2 or 3 premier technology brands on the planet that we've been trying to get into for the last 2 or 3 years and they have asked us to send SOWs for a routing pilot. We are in discussion with a very large retailer that has about 8,000 feet that we are in early stages of contracting negotiations for a pilot. And again, we've been talking to them about performance management and just could not crack them. Furthermore, we are in discussion with a large wireless carrier and another cable carrier. Those companies have between 15,000 and 30,000 seats each. And both of them, we had not been successful in getting in with performance management. One has, if you will, given a soft verbal that they want to get started with routing and the second one, we are really just started the discussions with about 3 weeks ago and they're moving very quickly. So I think, that should give you -- hopefully, gives you a flavor that we are cracking accounts that we could not crack before and they are moving much more quickly than we've ever seen before. And the total account opportunities, size opportunities, those are significant. Of course, you're not going to take all those seats down in one swipe but they are, across those accounts that I mentioned, there's probably on the order of about 100,000 seats across the -- just those opportunities that I've talked about, George.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Got you. So, and let me ask a different question. You've obviously had some good results with your initial Predictive Routing customers. Is it -- if I'm a salesperson and I'm trying to cross sell, now that, that customer had some sense of the savings that they can achieve, are they more likely to then engage in the more significant opportunities relative to things that would have more of a people and process change? Is that the strategy?

Kelly D. Conway

Yes, that is the strategy but we want to get in with the low friction offering. Basically, what resonates with these -- there's a couple of things that resonate. Number one, everybody gets that people are different and the way they interact dramatically impact business outcomes. So everybody gets that and they resonate with that message. And they say, "We get that your algorithms can do that, that's incredibly powerful, we want to test it." Number 2, they say, "We love that we don't have to do anything. That we don't have to change any of our people, we don't have to train any of our people, we don't have to change any processes." Basically, the metaphor I would give you is we pitch fastball to fastball hitters and curveballs to curveball hitters. And by doing that, we make everybody -- we increase everybody's batting average. So it's a incredibly simple, compelling concept. And so we want to start with that and get on the ground and not really even bring up the issues that are more complicated around performance management, which do take more process change and change management, George. We want to really get fully ensconced in the account and get a strong beachhead before we would bring up those cross sell opportunities but ultimately, we would bring those cross sell opportunities into the equation.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Got you. And then, lastly for me, relative to the ACA deal, having seen the award and the amounts, was that what you were expecting when we had discussed this previously or was there anything different about that award as it was announced that surprised you?

Kelly D. Conway

Yes, it was surprising, George. As you noted, the initial award was $28 million or thereabout. That is a fraction I think of what this project will cost on an annual basis and it's our understanding that the government has provided some transitional funding to our partner, so that they can get started and start to roll things, be able to get people to be able to take phone calls later this fall. And in the interim, they're finalizing the details of their deals. So I think what people had expected was the full award would have been granted on April 15, rather than just a provisional funding. I think that's probably an evidence that the complexity of the project and the fact that there's a lot going on and needs to be done to get this up and going.

Operator

[Operator Instructions] There's another question from Jonathan Ho.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Just wanted to ask a question relative to the decision to cut some of the spending and expenses. Where are some of those cuts going to take place and does this potentially impact your ability to scale some of the growth opportunities on a faster basis? Why the decision to cut costs at this point?

Kelly D. Conway

Well, I think that we have committed to people that were going to get across this chasm this year and get to EBITDA profitability and we remain to be committed to that. And we're -- we see a very bullish business pipeline but -- and funnel. At the same time, some of these deals move slower than we would like. So we want to -- we remain committed to that goal of getting across the chasm and getting the adjusted EBITDA profitability. So as a result of that, I think we looked at where are ways that we can just do things more efficiently and we have not really cut any of our core capability. We haven't done anything in development, so our development resources stay intact. We really cut more in places like service and some in marketing and probably, a little bit on the sales side. And really not wanting to affect the core development or delivery capabilities, Jonathan. But I think it really gets back to that piece of we remain committed to the goal that we laid out, to be EBITDA profitable by sometime later this year. And so we've taken that seriously.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Got it. And just in terms of free cash flow profitability, at what point would you expect that to be free cash flow positive?

Kelly D. Conway

Well it really -- I think there's a lot of moving factors on that. Obviously, we talked about some of the uncertainty related to when and how much some of these large deals are going to be and how fast they're going to convert. So that's probably a better discussion to have with Mark about models and so forth. But our first step is to get to EBITDA profitability this year.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Perfect. And then finally just in terms of the ACA, can you give us a sense of timeline in terms of when you would expect to hear or be able to announce relative to what your expectations are around the contract?

Kelly D. Conway

I think what we said earlier is we would expect to get resolution by the end of June is what we said earlier on the call, Jonathan.

Operator

Your next question comes from the line of Peter Schleider.

Peter D. Schleider - Peninsula Capital Management, Inc.

Curious about a couple of things. One, the Behavioral Analytics cost went down like 600,000, 500,000, 600,000 down sequentially. What's that, Mark? Why is that going down so dramatically?

Mark Andrew Iserloth

Well, a few things. If you will recall, when we did our Q4, we did take -- we had an expense that we took for a bonus accrual. We took all at once in Q4. It was a ratable expense that was expected to happen throughout 2013 and we took it in Q4. So on an apples-to-apples basis, the gap meaning like headcount is not as significant as you might see in the income statement. And then part of it is as a result of some of the efficiencies we've done, you see some improvement there. But it's distorted by the one-time effect of the bonus accrual that we took in Q4.

I'd have to go back, so I have to back and get the math on what showed up specifically on that line.

Peter D. Schleider - Peninsula Capital Management, Inc.

So you're front ending bonus accruals for this year or for last year, you were taking it?

Mark Andrew Iserloth

No. So we gave out bonuses that had effectively a claw back provision associated with them. So it got expensed over the year of the bonus which was the end of last year including 2013. And we forgave those, the claw back provision which forces -- which accounting wise, they should take the full expense at that point, which was in Q4.

Peter D. Schleider - Peninsula Capital Management, Inc.

Okay.

Mark Andrew Iserloth

So the cash went out last year and the expense was ratable between last year and this year.

Peter D. Schleider - Peninsula Capital Management, Inc.

All right. What actually happened with headcount quarter-to-quarter?

Mark Andrew Iserloth

Okay, so headcount at the end of Q1 is just over 200. At the end of Q4, it was probably a couple dozen higher than that, close to 230. 225 or so. But most of that again...

Peter D. Schleider - Peninsula Capital Management, Inc.

And then, go ahead.

Mark Andrew Iserloth

I was going to say, most of that, relative to the timing, was at the end of the quarter. Which is why you'll see the impact in Q2's numbers as opposed to Q1's.

Peter D. Schleider - Peninsula Capital Management, Inc.

All right. And then on the booking side, that number is substantially less than impressive. Last quarter was a horror show at $4 million. So when will you start to see the actual numbers?

Kelly D. Conway

Peter, actually, I don't agree with that. I think that the way to look at that is the incremental ACV of $2.4 million. So if you do $2.4 million each quarter, essentially you're creating $10 million of incremental ACV.

Peter D. Schleider - Peninsula Capital Management, Inc.

That's not the way you've done in the past though, Kelly. It's not..,[indiscernible]

Kelly D. Conway

No, I understand. But the deals are getting shorter, Pete. And so -- frankly, what matters is the incremental ACV that we booked, not the total ACV. So again, I would just go right look at the math and say, we do -- and we want to do better than $2.4 million consistently, but if you do $2.4 million times 4, you're adding $10 million to the revenue book.

Peter D. Schleider - Peninsula Capital Management, Inc.

So maybe, that's a little bit right since this is a different way of reporting it than you've done in the past, where you did the whole 2 years for solid bookings for a multiyear contract. This would -- essentially, that bookings number would be under an apples-to-apples from the way we've seen it historically, more like a $10 million number than a $6 million number.

Kelly D. Conway

Well, I think, Pete, there's a couple of things. One is what is going to -- if you think about it, what is going to create incremental revenues is new ACV, and so we've used the terms, new or incremental ACV. So that $2.4 million creates incremental revenue in the back half of the year. Okay? So if you do $2.4 million in each year, you've added, again, roughly $10 million to your run rate. There's no renewals in that number. It's just pure incremental revenue. So kind of that's a very important measure as we looked at the backlog number, Pete, frankly, some of it was, I think it could be misleading in a couple of ways. Number one, it included renewals which don't add, don't typically add to your incremental revenue book. And if you have a 5-year deal for $15 million, frankly, the impact, it sounds like a really big booking and it is a big booking, but the incremental impact of that, when you take that over 5 years, is not as significant. So I think what we're really looking at and saying, what is the incremental revenue that we are adding each quarter in ACV? I also think that's more typical of how subscription companies look at it as what's that incremental ACV and I would say, I would give on our base of business, it's a roughly $10 million -- it's roughly 30%, if we do $10 million of incremental ACV on our book of business. It's not as good as we'd like to do but I don't think that's -- I think it's pretty good. So I just ask you to think about it that way that we're really looking and in highlighting the incremental ACV, the incremental revenues that get added to the revenue book.

Peter D. Schleider - Peninsula Capital Management, Inc.

Okay. And then the forecast that you're giving, the indications that you're giving for this quarter are down like $800,000 or $700,000 in revenue for subscriptions quarter-over-quarter, right? Okay. Then they go up about $600,000 in the third quarter is what you're showing.

Kelly D. Conway

Mark's going to his computer.

Mark Andrew Iserloth

Yes, that's about right.

Peter D. Schleider - Peninsula Capital Management, Inc.

All right. So we still haven't gotten into any kind of growth yet in the business. I mean we're still going down the backlog and the growth and the bookings numbers are not -- I mean, there are -- you're adjusting those so that's actually slightly better than what we see, but the forward progress, we really need to see some big hits here to make this thing really start to grow.

Kelly D. Conway

I think about what we're looking at Pete, clearly, we've taken some hits here in the last several quarters in terms of losing some seats and kind of nonrenewals of contracts. Some of those are frankly been outside of our control, in the case of -- one case where the government took away one of our customer's contracts. And what we're looking for over here is starting the sequential growth again, in Q3 and getting that growth engine. Which -- so there's a couple of things. One is getting that growth engine sequentially revved up in Q3. Secondly, we really see these -- we're optimistic about the number of pilots and the pilots that we see converting and that being kind of an engine for kind of consistent accelerating, a consistent strong sequential growth from here.

Peter D. Schleider - Peninsula Capital Management, Inc.

And so outside the ACA contract -- well, let me asked about the ACA for a second. So given the fact the government's so far behind on when they said they're going to do all this, the start date of July, it doesn't seem realistic. Does it?

Kelly D. Conway

We just can't comment on that, Pete. I don't -- It's not that I'm not telling you something. It's just very hard to get clarity on that, Pete.

Peter D. Schleider - Peninsula Capital Management, Inc.

But you can't ramp within 3 weeks to go up a lot of seats. I mean, that doesn't seem realistic.

Kelly D. Conway

Again, I just wouldn't want to comment on that. I mean, it's possible and obviously, we've been working on this in the background. It's not like we haven't been doing anything. So I just -- it's just really hard to know what exact -- what all of the parameters are thinking about there.

Peter D. Schleider - Peninsula Capital Management, Inc.

All right, and lastly,.

Kelly D. Conway

And by the way...

Peter D. Schleider - Peninsula Capital Management, Inc.

On the Predictive Routing side, can you give us a sense of these closures. You're talking about a 60 day close cycle, we should see potentially 10 or 15 deals close in the second quarter then if we have that kind of rapid close cycle, is that realistic?

Kelly D. Conway

I don't think -- I wouldn't think it would be that much, but it is the -- we've gone from basically 0 to 60 accounts in 4 months and the -- they're moving fast. Those deals are really moving fast.

Peter D. Schleider - Peninsula Capital Management, Inc.

Okay, that's great.

Kelly D. Conway

I can't comment on the 10 to 15 deals but I can tell you, here is the data that we got from 0 to 60 accounts in 4 months. Account prospects -- we're going to have partners signed up, that's kind of separate from those 60 accounts that have installed base 300 accounts and it's resonating and deals are moving much more quickly.

Operator

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to the presenters.

Kelly D. Conway

Great. Well, thank you very much. Again, I think in summary, we are -- we really believe that the addition of routing and predictive models to our core applications that has created a very unique and valuable position for us. I can't emphasize enough how much that resonates with large prospects and existing customers out there, virtually every day with them in this combination of routing, predictive models and performance management is absolutely spot on. Of course, we would like it to go faster but it is absolutely spot on. And it's resonating with both major accounts and frankly, the routing message is resonating well with SMPs as well. It appears to be shortening sales cycles and enabling us to really grow the partner channel. And we're pleased with the leverage that we're getting on expenses and gross margins and we're working our tails off to drive the revenues as fast as we can. And so that's what's on our agenda. We appreciate your support and we look forward to talking to you soon.

Operator

This concludes today's conference call. You may now disconnect.

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