Q1 2013 Earnings Call
May 08, 2013 5:00 pm ET
Kelly D. Conway - Chief Executive Officer, President and Director
Mark Andrew Iserloth - Chief Financial Officer and Vice President
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.
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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.