Mattersight: Recurring Revenue and Valuable Proprietary Dataset

David Barr presented his in-depth investment thesis on Mattersight (Nasdaq: MATR) at Wide-Moat Investing Summit 2017.

Mattersight provides SaaS-based behavioral analytics solutions that are deployed in enterprise call center environments. The company was founded in 2006, however its current business emerged out of a call-center consulting and solutions business sold in 2011. Using its own proprietary database of 1+ billion recorded and analyzed calls, Mattersight’s value proposition is to reduce call center times and increase sales conversion for its enterprise customers through personality-based call routing and analytics. Over 95% of the company’s revenue is recurring, with a “blue chip” Fortune 100 client base and backlog growing 20+% year over year.

Market mispricing is due to the company’s size of ~$100 million market cap, lumpy growth due to long enterprise sales cycles, and customer concentration. Looking forward Dave believes the company will operate at scale within three to four years and have the ability to generate 15+% EBITDA margins through the inherent operating leverage of the business. In Dave’s view, the company is worth nearly double the recent share price, which roughly equates to 3-4x forward revenue. This valuation is justified given Mattersight’s revenue quality, its leadership position in an emerging market, highly valuable proprietary dataset, and near-cash flow breakeven inflection point.

Note: Dave Barr discussed Mattersight in a session that also included Felix Narhi, Chief Investment Officer of Pender, discussing Baidu (Nasdaq: BIDU).

About the instructor:

David Barr is the President and CEO of Pender. He is also the Portfolio Manager of several of Pender’s funds. The Pender Small Cap Opportunities Fund, which he manages, has won a Lipper Fund Award in 2015 and 2016 for Best Canadian Small/Mid Cap Equity Fund over both three and five year performance periods. The Lipper Awards recognize consistently strong performance relative to peers. The Fund has also received a Fundata FundGrade A+ Award in each of the last five years, with the Pender Value Fund winning for the first time in 2016, its third year since inception. The A+ ranking is based on an objective rating system that tracks risk-adjusted returns.Mr. Barr holds a Bachelor of Science degree from the University of British Columbia and an MBA from the Schulich School of Business. He earned his Chartered Financial Analyst designation in 2003 and is a past President of CFA Society Vancouver, having also served on its Board of Directors for four years. He remains an active member.Mr. Barr is a regular guest on BNN’s Business Day program and has been interviewed for his opinions on small cap companies, the technology sector and value investing by the Financial Post, The Globe & Mail and other media. In December 2012 Mr. Barr was recognised as one of British Columbia’s “Top Forty Under 40” business leaders by Business in Vancouver. Mr. Barr is an advocate of value investing as well as a true contrarian. He looks for value in unpopular places to find high quality businesses at a price that includes a “margin-of-safety”. Investing in a company trading below intrinsic value decreases the risk and increases the potential for generating significant long term performance.