Mattersight's Revenue Ramp Begins: Harvesting The Pilots

| About: Mattersight Corporation (MATR)

The Mattersight (NASDAQ:MATR) "Go to Market" strategy has been refined as the company brings in a new executive vice president of sales (Richard Dresden). Richard is previously from Savvis where he ran a $300 million revenue practice. The mandate is to shift the sales organization focus to converting existing pilots to contractual customers.

The company reported slightly better than the positive pre-announcement. Margins were better than modeled.

Despite the fact the company lost the GDIT contract (as expected, 21% of revenue), the company is committed to achieve 30% revenue growth with greater gross margin opportunities in the new PBR product cycle.

The current pipeline of pilot opportunity is 3x as large as the 2013 pipeline and new pilot activity that is up 5x.

Now its execution time. The focus is on pilot conversion to customers. Although we still maintain this as a second half story, the Company has accelerated its timetable to conversion. We would now expect to see a contractual customer in Q1, and a sequential ramp of customer conversion into the end of the year. It's time to begin harvesting the plantings.

The Company has an SaaS based model with recurring revenues of 80% that gives the company reasonable visibility into each quarter. The model is highly scalable, with expanding margins.

Although currently there is little Street research coverage, this makes the opportunity even better as we would expect additional coverage would only enhance shareholder value. We are modeling Gross Margin for the year at 71% for 2014 and Operating Margins at (15%). We are looking for positive EBIDTA margin.

Its "Show Me" time. We reiterate our $9 price target of 5X revenues, in line with other small cap SaaS model software.

Disclosure: I am long MATR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.