10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-27975

Mattersight Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	36-4304577
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

200 W. Madison Street, Suite 3100

Chicago, Illinois 60606

(Address of Registrant’s Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (877) 235-6925

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if a small reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

The aggregate market value of Common Stock held by non-affiliates of the registrant, based upon the closing price per share of registrant’s Common Stock on June 30, 2017, as reported by The NASDAQ Stock Market LLC, is approximately $59,458,238.

The number of shares of the registrant’s Common Stock outstanding as of March 2, 2018 was 33,218,345.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Mattersight’s Proxy Statement for its 2018 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of Mattersight’s fiscal year, are incorporated herein by reference into Part III where indicated; provided, that if such Proxy Statement is not filed with the Securities and Exchange Commission within 120 days after the fiscal year end covered by this Annual Report on Form 10-K, an amendment to this Annual Report on Form 10-K shall be filed no later than the end of such 120-day period.

TABLE OF CONTENTS

PART I

Item		Page
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Mine Safety Disclosures	11
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	53
Item 9A.	Controls and Procedures	53
Item 9B.	Other Information	53
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	54
Item 11.	Executive Compensation	55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	55
Item 13.	Certain Relationships and Related Transactions, and Director Independence	56
Item 14.	Principal Accounting Fees and Services	56
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	57
Exhibits		58
Signatures		61

PART I

Forward-Looking Statements

Statements in this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). A reader can identify these forward-looking statements, because they are not limited to historical fact or they use words such as “scheduled,” “will,” “anticipate,” “project,” “estimate,” “forecast,” “goal,” “objective,” “committed,” “intend,” “continue,” “plan,” “may,” “might,” “believe,” “expect,” “intend,” “could,” “would,” “should,” or “will likely result,” and other similar expressions, and terms of similar meaning, in connection with any discussion of our prospects, financial statements, business, financial condition, revenues, results of operations, or liquidity, involving risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to other factors and matters contained or incorporated in this document, important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, without limitation, those noted under Risk Factors included in Part I Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2017, including the following:

• Uncertainties associated with the attraction of, and the ability to execute contracts with, new clients, the continuation of existing, and execution of new, engagements with existing clients, the conversion of free pilots to paid subscription contracts, and the timing of related client commitments;

• Reliance on a relatively small number of clients for a significant percentage of our revenue;

• Risks involving the variability and predictability of the number, size, scope, cost, and duration of, and revenue from, client engagements;

• Management of the other risks associated with complex client projects and new service offerings, including execution risk;

• Cyber-attacks or other privacy or data security incidents, and failure to comply with privacy and data security regulations and

• Management of growth and development of, and introduction of, new service offerings.

We cannot guarantee any future results, levels of activity, performance, or achievements. The statements made in this Annual Report on Form 10-K represent our views as of the date of this report, and it should not be assumed that the statements made in this Report remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements, except as may be required by law. In light of Regulation FD, it is our policy not to comment on earnings, financial guidance, or operations other than through press releases, publicly announced conference calls, or other means that will constitute public disclosure for purposes of Regulation FD.

Item 1. Business

Overview

Mattersight Corporation and its subsidiaries (collectively, we, us, or ours) is a leader in behavioral analytics and a pioneer in personality-based software products. Using a stack of innovative, patented applications, including predictive behavioral routing, performance management, quality assurance, and predictive analytics (collectively, Behavioral Analytics), we analyze and predict customer behavior based on the language exchanged between agents and customers during brand interactions. These insights are then used to facilitate more effective and effortless customer conversations, which, in turn, drive increased customer satisfaction and retention, employee engagement, and operating efficiency. Our analytics are based on millions of proprietary algorithms and the application of unique behavioral models. Our solutions have influenced hundreds of millions of shorter, more satisfying customer interactions for leading companies in the healthcare, insurance, financial services, technology, telecommunications, cable, utilities, education, hospitality, and government industries.

Mattersight Corporation (formerly known as eLoyalty Corporation), a corporation organized under State of Delaware law, was incorporated May 11, 1999, as a spin-out from TSC/ECM Inc.

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Our multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, our Behavioral Analytics offerings enable our clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through our Behavioral Analytics offerings, we help clients:

• Identify optimal customer/employee behavioral pairing for call routing;

• Identify and understand customer personality;

• Automatically measure customer satisfaction and agent performance on every analyzed call;

• Improve rapport between agent and customer;

• Reduce call handle times while improving customer satisfaction;

• Identify opportunities to improve self-service applications;

• Improve cross-sell and up-sell success rates;

• Improve the efficiency and effectiveness of collection efforts;

• Measure and improve supervisor effectiveness and coaching;

• Improve agent effectiveness by analyzing key attributes of desktop usage;

• Predict likelihood of customer attrition;

• Predict customer satisfaction and Net Promoter Scores® without customer surveys;

• Predict likelihood of debt repayment;

• Predict likelihood of a sale or cross-sell; and

• Identify fraudulent callers and improve authentication processes.

Our mission is to help brands have more effective and effortless conversations with their customers. Using a suite of innovative personality-based software applications, we can analyze and predict customer behavior based on the language exchanged during service and sales interactions. We operate a highly scalable, flexible, and adaptive application platform to enable clients to implement and operate these applications.

Types of Revenue

Through the sale of our services featuring these applications, we generate the following types of revenue:

Subscription Revenue

Subscription revenue consists of revenue derived from Mattersight’s Behavioral Analytics service offerings, including predictive behavioral routing, performance management, quality assurance, predictive analytics, and marketing managed services revenue derived from the performance of services on a continual basis.

Subscription revenue is based on a number of factors, such as the number of users to whom we provide one or more of our Behavioral Analytics offerings, the type and number of Behavioral Analytics offerings deployed to the client, and in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. Subscription periods generally range from one to three years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. This revenue is recognized over the applicable subscription period as the service is performed for the client.

Other Revenue

Other revenue consists of deployment revenue, professional services revenue, and reimbursed expenses revenue.

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Deployment revenue consists of planning, deployment, and training fees derived from Behavioral Analytics contracts. These fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the applicable subscription or pilot period. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in prepaid expenses and other long-term assets. Such costs are amortized over the subscription period. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

Professional services revenue primarily consists of fees charged to our clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training, as well as fees generated from our operational consulting services. The professional services are performed for our clients on a fixed-fee or time-and-materials basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared with the total estimated hours over the entire term of the contract.

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for our clients. An equivalent amount of reimbursable expenses is included in total cost of other revenue.

Business Segments

We operate in a single business segment, focused primarily on Behavioral Analytics. Financial information concerning our business segment is included in Financial Statements and Supplementary Data Part II, Item 8 of this Annual Report on Form 10-K.

International Operations

Our services are currently delivered to clients in the United States, however prior to November 2015, we had also delivered services to a client in the United Kingdom. Our revenue is and has been recognized in our U.S. entity. Our long-lived assets are and have been predominately located in the United States and consist of equipment, software, furniture and fixtures, and leasehold improvements (net of accumulated depreciation and amortization).

Methods of Distribution

Subscription and other revenues are generated by direct contractual relationships with clients.

Intellectual Property Rights

General

Our ability to protect our software, methodologies, and other intellectual property is important to our success and our competitive position. We view as proprietary the software (including source code), algorithms, analyses, and other ideas, concepts, and developments that we create in order to provide, improve, and enhance our service offerings, as well as the work product we create in the course of providing services for clients. We seek to protect our intellectual property rights in these developments and work product by relying on a combination of patent, copyright, trademark, and trade secret law, and confidentiality and non-disclosure agreements with our employees and third parties.

Patents

As of December 31, 2017, we held forty-five U.S. patents and one European patent and have applied for over twenty patents. These patents cover a broad range of our analytics capabilities, including methods for analyzing language to assess customer personality, routing customers based on personality in real time, optimizing routing to improve agent performance, and analyzing data to improve employee performance. Our issued patents will expire between 2025 and 2036.

Trademarks

We have obtained U.S. federal trademark registration for the MATTERSIGHT word mark and our tagline “The Chemistry of Conversation”. We believe that the registration of the MATTERSIGHT word mark and tagline in the United States is material to our operations.

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Licenses

A majority of our clients require that we grant to them licenses in and to the intellectual property rights associated with the work product we create in the course of providing services. In some cases, our clients require assignment of ownership in the intellectual property rights to such work product, typically where such work product incorporates their confidential information or would provide them some competitive advantage in their industry. Absent an agreement to the contrary, each assignment of ownership in intellectual property rights would result in our inability to reuse the relevant work product with other clients. As a result, it is our practice to retain the rights in the underlying core intellectual property on which such work product is based, including methodologies, workplans, and software, as well as residual know-how. If we are unable to retain such rights, it is our policy to obtain from our clients a broad license to sell service offerings using such work product to other clients.

Seasonality

We typically experience modest increases in revenue and earnings from our healthcare clients during the fourth quarter due to annual healthcare enrollment periods and increased claims processing at year-end.  We also see increases in revenue from our retail clients due to the peak shopping season during the fourth quarter. Any other seasonal impact to our revenue and earnings is limited, as a significant portion of our revenue is earned through our Behavioral Analytics subscription services, which is of a recurring nature.

Clients

Highest Revenue Generating Clients:

	(Percentage of Total Revenue)
	2017			2016			2015
Top 5 Clients		71	%		73	%		73	%
Top 10 Clients		86	%		87	%		89	%

Clients Accounting for 10% or More of Total Revenue:

	(Percentage of Total Revenue)
	2017			2016			2015
United HealthCare Services, Inc.		28	%		33	%		31	%
CVS Caremark Corporation		16	%		15	%		13	%
TriWest Healthcare Alliance Corp		14	%		9	%		2	%
Progressive Casualty Insurance Company		8	%		11	%		15	%

Clients Accounting for $1 Million or More of Total Revenue:

Year	Clients
2017		11
2016		10
2015		9

See Note Two—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Competition

Although we believe the manner in which we provide Behavioral Analytics, and our benefits, to be unique, we nonetheless operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services that may be viewed as similar to ours. These competitive organizations include data analytics solutions providers, voice recording and voice analytic services providers and software licensors, call routing solution providers, and strategic consulting firms.  We believe few competitors offer the full range and depth of services that we can provide, but they may compete with us on individual factors such as expertise, price, or capacity.

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Many of our competitors have longer operating histories, more clients, longer relationships with their clients, greater brand or name recognition, and significantly greater financial, technical, marketing, and public relations resources than we do. As a result, our competitors may be in a better position to respond quickly to new or emerging technologies and changes in client requirements. They may also develop and promote their products and services more effectively than we do. New market entrants also pose a threat to our business. Existing or future competitors may develop or offer solutions that are comparable or superior to ours at a lower price.

Environmental Issues

There are no known material issues regarding our compliance with any Federal, state, or local environmental regulations.

Employees

As of December 31, 2017, we employed 281 persons, none of whom is represented by a union. We consider our employee relations to be good.

Available Information and Other

Our principal internet address is www.Mattersight.com. Our Annual, Quarterly, and Current Reports on Forms 10-K, 10-Q, and 8-K, and any amendments thereto, as well as the Forms 3, 4, and 5 beneficial ownership reports filed with respect to our stock, are made available free of charge on our website as soon as reasonably practicable after the reports have been filed with, or furnished to, the Securities and Exchange Commission (SEC). However, the information found on our website is not part of this or any other report filed by us with the SEC. These reports may also be obtained at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding SEC registrants, including Mattersight.

Our executive office is currently located at 200 W. Madison Street, Suite 3100, Chicago, Illinois 60606 and our main telephone number is (877) 235-6925.

Item 1A. Risk Factors

There are a number of risks and uncertainties that could adversely affect our business and our overall financial performance. In addition to the matters discussed elsewhere in this Annual Report on Form 10-K, we believe the more significant of such risks and uncertainties include the following:

We have not realized an operating profit in eighteen years and there is no guarantee that we will realize an operating profit in the foreseeable future.

As of December 31, 2017, we had an accumulated deficit of $279.4 million. We expect to continue to use cash and incur operating expenses to support our growth, including costs associated with recruiting, training, and managing our sales force, costs to develop and acquire new technology, and promotional costs associated with reaching new clients. These investments, which typically are made in advance of revenue, may not yield an offsetting increase in revenue. As a result of these factors, our future revenue and income potential is uncertain. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress our value and could impair our ability to raise capital, expand our business, maintain our product development efforts, diversify our product offerings, or continue our operations. A decline in our value could also cause you to lose all or part of your investment.

Our financial results are subject to significant fluctuations because of many factors, any of which could adversely affect our stock price.

In some future periods, our operating results may be below the expectations of public market analysts and investors. In this event, the price of our publicly-traded securities may fall. Our revenue and operating results may vary significantly due to a number of factors, many of which are not in our control. We may incur an impairment of goodwill and long-lived assets if our financial results are adversely impacted by these factors and we continue to incur financial losses or our stock price declines. These factors include:

• Our ability to continue to grow our revenue and meet anticipated growth targets;

• Our ability to maintain our current relationships, and develop new relationships, with clients, service providers, and business partners;

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• Unanticipated cancellations or deferrals of, or reductions in the scope of, our major Behavioral Analytics contracts;

• The length of the sales cycle associated with our solutions;

• Our ability to successfully introduce new, and upgrade our existing, service offerings for clients;

• Our ability to respond effectively to competition;

• The mix of our service offerings sold in any period;

• The cost and potential outcomes of litigation, which could have a material adverse effect on our business;

• Future accounting pronouncements or changes in our accounting policies; and

• General economic conditions.

If we are unable to address these risks, our business, results of operations, and prospects could suffer.

We depend on a limited number of clients for a significant portion of our revenue, and the loss of a significant client or a substantial decline in the size or scope of deployments for a significant client, could have a material adverse effect on our business.

We derive, and expect to continue to derive for the foreseeable future, a significant portion of our total revenue from a limited number of clients. See Clients in Part I Item 1 and 2017 Compared to 2016 included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 of this Annual Report on Form 10-K for more information on the portion of our total revenue derived from these clients. To the extent that any significant client uses less of our services or terminates its relationship with us, as may occur as clients respond to conditions affecting their own businesses, our total revenue could decline substantially and that could significantly harm our business. United HealthCare Services, Inc., our largest customer in 2017, has expressed an intent to use less of our services in 2018, which could have a material impact on revenue. In addition, because a high percentage of our revenue is dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash, which in turn may cause fluctuation in our Days Sales Outstanding.

We depend on good relations with our clients, and any harm to these good relations may materially and adversely affect our business and our ability to compete effectively.

To attract and retain clients, we depend to a large extent on our relationships with our clients and our reputation for high quality analytics and related services. If a client is not satisfied with our services, it may be damaging to our reputation and business. Any defects or errors in our services or solutions or failure to meet our clients’ expectations could result in:

• Delayed or lost revenue;

• Obligations to provide additional services to a client at a reduced fee or at no charge;

• Negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; and

• Claims for damages against us, regardless of our responsibility for such failure.

If we fail to meet our contractual obligations with our clients, then we could be subject to legal liability or loss of clients. Although our contracts include provisions to limit our exposure to legal claims related to the services and solutions we provide, these provisions may not protect us, or protect us sufficiently, in all cases.

We must maintain our reputation and expand our name recognition to remain competitive.

We believe that establishing and maintaining a good reputation and brand name is critical for attracting and expanding our targeted client base and we are investing substantially in marketing in order to expand our name recognition in the marketplace for our services and solutions. If potential clients do not know the types of solutions we provide, or if our reputation is damaged, then we may become less competitive or lose our market share. Promotion and enhancement of our name and brand will depend largely on both the efficacy of our relatively nascent marketing efforts and our success in providing high quality services, software, and solutions, neither of which can be assured.

Our clients use our solutions for critical applications. If clients do not perceive our solutions to be effective or of higher quality than those available from our competitors, or if our solutions result in errors, defects, or other performance problems, then our brand name and reputation could be materially and adversely affected, we could lose potential sales and existing customers, including through early termination of our contracts, our ability to operate our business may be impaired, and our business may suffer.

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Our industry is very competitive and, if we fail to compete successfully, our market share and business will be adversely affected.

We operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services that may be viewed as similar to ours. These competitive organizations include data analytics solutions providers, voice recording and voice analytic service providers and software licensors, call routing solution providers, and strategic consulting firms. We compete with these organizations on factors such as expertise, price, and capacity.

Many of our competitors have longer operating histories, more clients, longer relationships with their clients, greater brand or name recognition, more registered patents, and significantly greater financial, technical, marketing, and public relations resources than we do. As a result, our competitors may be in a better position to respond quickly to new or emerging technologies and changes in client requirements. They may also develop and promote their products and services more effectively than we do. New market entrants also pose a threat to our business. Existing or future competitors may develop or offer solutions that are comparable or superior to ours at a lower price.

In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We may also lose clients that merge with or are acquired by companies using a competitor's offering or an internally-developed tool. If we cannot compete successfully against our current and future competitors, our business may be harmed.

We must keep pace with the rapid rate of innovation in our industry in order to build our business.

The data analytics market, and particularly behavioral analytics, is relatively new and rapidly evolving. Our future business depends in part upon continued growth in the acceptance and use of Behavioral Analytics by our current and prospective clients. Their acceptance and usage in turn may depend upon factors such as: the actual or perceived benefits of adoption of Behavioral Analytics and related methodologies and technologies, including the predictability of a meaningful return on investment, cost efficiencies, or other measurable economic benefits; the actual or perceived reliability, scalability, ease of use, and access to such new technologies and methodologies; and the willingness to adopt new business methods. Furthermore, our future growth depends on our continuing ability to innovate in the field of data analytics and to incorporate emerging industry standards.

We cannot assure that we will be successful in anticipating or responding to these challenges on a timely or competitive basis or at all, or that our ideas and solutions will be successful in the marketplace. In addition, new or disruptive technologies and methodologies by our competitors may make our service or solution offerings uncompetitive. Any of these circumstances could significantly harm our business and financial results.

Because our services and solutions are sophisticated, we must devote significant time and effort to our sales and installation processes, with significant risk of loss if we are not successful.

Because our services and solutions are not simple, mass-market items with which our potential clients are already familiar, it is necessary for us to devote significant time and effort to the process of educating our potential clients about the benefits and value of our services and solutions as part of the sales process. In addition, because our services and solutions are sophisticated and in most cases are not readily usable by clients without our assistance in integration and configuration, training, and/or analysis, we must devote significant time during the installation and subscription process in order to ensure that our services and solutions are successfully deployed. These efforts increase the time and difficulty of completing transactions, make it more difficult to efficiently deploy our limited resources, and create risk that we will have invested in an opportunity that ultimately does not come to fruition. If we are unable to demonstrate the benefits and value of our services and solutions to clients and efficiently convert our sales leads into successful sales and installations, our results of operations may be adversely affected.

A breach of security, disruption or failure of our information technology systems or those of our third-party service providers, including any perceived vulnerability therein could adversely impact our business, financial condition and results of operations.

We may be affected by software viruses or similar technology in the future, which could compromise our operations. Further, our information technology systems or the third-party systems that we interface with may be vulnerable to physical break-ins, hackers, improper employee or contractor access, programming errors, attacks by third parties or similar disruptive problems, resulting in the potential misappropriation of our proprietary information, or the confidential information of our clients, harm to our products or interruptions of our services. Any compromise of our security, whether as a result of our own information technology systems or third-party systems that they interface with, could substantially disrupt our operations, harm our reputation and reduce demand for our products and services, and in the case of breaches to the confidential or personally-identifiable data of the customers of our clients significant liability.

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The unauthorized disclosure of the confidential customer data that we maintain could result in a significant loss of business and subject us to substantial liability.

In providing Behavioral Analytics, we record and analyze telephone calls and other interactions between our clients’ call center and back office agents and their customers. These interactions may contain numerous references to highly sensitive confidential or personally-identifiable data of the customers of our clients, and many of our clients are required to comply with federal, state, and foreign laws concerning privacy and security, such as the Health Insurance Portability and Accountability Act of 1996 and the Gramm-Leach-Bliley Act of 1999. In addition, we have made certain contractual commitments to our clients regarding this confidential data.

In light of the highly-confidential information that we record and maintain, our clients require that we agree not to limit our liability in the event of a security breach resulting in the loss of, or unauthorized access to, personally-identifiable or other confidential data. As a result, the disclosure or loss of such data could result in the considerable diminution of our business and prospects and could subject us to substantial liability. While we have extensive security measures in place, they may be breached through third-party action, including by intentional misconduct of computer hackers, employee error or malfeasance, or otherwise and result in unauthorized access to our systems, data, proprietary information or intellectual property, or customer data.

In addition, the laws, regulations, and industry standards governing these matters are changing rapidly. It is possible that the resources we devote to comply with such laws, regulations, and industry standards, and our clients’ particular requirements, could increase materially. In our contracts, we generally agree to indemnify our clients for expenses and liabilities resulting from unauthorized access to or disclosure of confidential data, such as those arising from data breach notification requirements. These indemnity obligations are generally not subject to contractual limitations on liability. As a result, the amount of liability we could incur in connection with these indemnity obligations could exceed the revenue we receive from the client under the applicable contract.

Our financial results could be adversely affected by economic and political conditions and the effects of these conditions on our clients’ businesses and levels of business activity.

Economic and political conditions globally affect our clients’ businesses and the markets they serve. A severe and/or prolonged economic downturn or a negative or uncertain political climate could adversely affect our clients’ financial conditions and the levels of business activity of our clients and the industries we serve. This may reduce demand for our services or depress pricing of those services and have a material adverse effect on our results of operations. In addition, these economic conditions may cause our clients to delay payments for services we have provided to them, resulting in a negative impact to our cash flow. If we are unable to successfully anticipate changing economic and political conditions, then we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

We rely heavily on our senior management team for the success of our business.

Given the highly specialized nature of our services, senior management must have a thorough understanding of our service offerings as well as the skills and experience necessary to manage the organization. If one or more members of our senior management team leaves and we cannot replace them with a suitable candidate quickly, then we could experience difficulty in managing our business properly, and this could harm our business prospects, client relationships, employee morale, and results of operations.

Our ability to recruit talented professionals and retain our existing professionals is critical to the success of our business.

We believe that our success depends substantially on our ability to attract, train, motivate, and retain highly skilled management, strategic, technical, product development, data analysis, and other key professional employees. Our business straddles the information-technology and data analytics services industries, which are people-intensive and face shortages of qualified personnel, especially those with specialized skills or experience. We compete with other companies to recruit and hire from this limited pool, particularly in Austin, Texas, the location of our product development team, and in Chicago, Illinois, the location of our data science and analytics teams.

If we cannot hire and retain qualified personnel, or if a significant number of our current employees should leave, and we have difficulty replacing such persons, then we could potentially suffer the loss of client relationships or new business opportunities and our business could be seriously harmed. In addition, there is no guarantee that the employee and client non-solicitation and non-competition agreements we have entered into with our senior professionals would deter them from departing us for our competitors or that such agreements would be upheld and enforced by a court or other arbiter across all jurisdictions where we engage in business.

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We have a limited ability to protect our intellectual property rights, which are important to our success and competitive position.

Our ability to protect our software, algorithms, databases, methodologies, and other intellectual property is important to our success and our competitive position. We view as proprietary the software (including source code), algorithms, databases, analysis, and other ideas, concepts, and developments that we create in order to provide, improve, and enhance our service offerings, as well as the work product we create in the course of providing services for clients. We seek to protect our intellectual property rights in these developments and work product by applying for patents, copyrights, and trademarks, as appropriate, as well as by enforcing applicable trade secret laws and contractual restrictions on scope of use, disclosure, copying, reverse engineering, and assignment.

Despite our efforts to protect our intellectual property rights from unauthorized use or disclosure, others may attempt to disclose, obtain, or use our rights. The steps we take may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property rights. In addition, we may not detect unauthorized use of, or take timely and effective actions to enforce and protect, our intellectual property rights. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights or alleging that we infringe the counterclaimant's own intellectual property. Third parties may challenge the validity or ownership of our intellectual property, and these challenges could cause us to lose our rights, in whole or in part, to our intellectual property or narrow the scope of our rights such that they no longer provide meaningful protection.

We may be required to obtain licenses from others to refine, develop, market, and deliver current and new services and solutions. There can be no assurance that we will be able to obtain any of these licenses on commercially reasonable terms or at all, or that rights granted by these licenses ultimately will be valid and enforceable.

If we fail to meaningfully protect our intellectual property, our business, brand, operating results, and financial condition could be materially harmed.

Others could claim that our services, products, or solutions infringe upon their intellectual property rights or violate contractual protections.

We or our clients may be subject to claims that our services, products, or solutions, or the products of our software providers or other alliance partners, infringe upon the intellectual property rights of others. Any such infringement claims may result in substantial costs, divert management attention and other resources, harm our reputation, and prevent us from offering some services, products, or solutions. A successful infringement claim against us could materially and adversely affect our business.

In our contracts with clients, we agree to indemnify our clients for expenses and liabilities resulting from claimed infringement by our services, products, or solutions, in most cases excluding third-party components, of the intellectual property rights of others. In some instances, the amount of these indemnity obligations may be greater than the revenue we receive from the client under the applicable contract. In addition, we may develop work product in connection with specific projects for our clients. Although our contracts with our clients generally provide that we retain the ownership rights to our work product, it is possible that clients may assert rights to, and seek to limit our ability to resell or reuse, our work product. Furthermore, in some cases we assign to clients the copyright and, at times, other intellectual property rights, in and to some aspects of the software, documentation, or other work product developed for these clients in connection with these projects, which limits our ability to resell or reuse this intellectual property.

Increasing government regulation could cause us to lose clients or impair our business.

We are subject not only to laws and regulations applicable to businesses generally, but we are also subject to certain U.S. and foreign laws and regulations applicable to our service offerings, including, but not limited to, those related to data privacy and security, electronic commerce, and call recording. Laws and regulations enacted in the United States, both at the state and federal level, as well as significant new rules issued with respect thereto, impose substantial requirements relating to the privacy and security of personal data, as well as the reporting of breaches with respect to personal data. Legislation that may be enacted in the future may add further requirements in these and other areas. In addition, we may be affected indirectly by legislation that impacts our existing and prospective clients, who may pass along to us by contract their legal obligations in these and other areas. Any such laws and regulations therefore could affect our existing business relationships or prevent us from obtaining new clients.

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It may be difficult for us to access debt or equity markets to meet our financial needs.

In the event, for any reason, we need to raise additional funds in the future, through public or private debt or equity financings, such funds may not be available or may not be available on terms favorable to us. Additionally, the terms of the loan agreement we entered into with CIBC Bank USA f/k/a The PrivateBank and Trust Company (CIBC) on June 29, 2017 (the Loan Agreement) limits our ability to enter into a public or private debt financing. The failure by us to obtain such financing, if needed, may have a material adverse effect upon our business, financial condition, results of operations, and prospects.

The market price of our common stock is likely to be volatile and could subject us to litigation.

The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition, the trading prices of the securities of technology companies in general have been highly volatile, and the volatility in market price and trading volume of securities is often unrelated or disproportionate to the financial performance of the companies issuing the securities. In addition to the factors discussed in this Risk Factors section and elsewhere in this Annual Report on Form 10-K, factors affecting the market price of our common stock include:

• actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts; 

• price and volume fluctuations in the overall stock market from time to time;

• significant volatility in the market price and trading volume of comparable companies; 

• changes in the market perception of behavioral and personality-based software products generally or in the effectiveness of our solutions in particular; 

• announcements of technological innovations, new products, strategic alliances, or significant agreements by us or by our competitors; 

• litigation involving us;

• investors' general perception of us;

• changes in general economic, industry, and market conditions and trends; and

• recruitment or departure of key personnel.

In addition, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities class action litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of our management's attention and resources from our business.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

You should not rely on an investment in our common stock to provide dividend income. We have not declared or paid cash dividends on our common stock to date. In addition, the terms of our Loan Agreement with CIBC, and any future debt agreements may, preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.

Our operating results may be negatively affected if we are required to collect sales tax or other transaction taxes on all or a portion of sales in jurisdictions where we are currently not collecting and reporting tax.

Current economic and political conditions make sales and other transaction tax laws in many state, local, and foreign jurisdictions subject to reassessment and change.  If a taxing authority were to successfully assert that we have not properly collected sales or other transaction taxes, or if sales or other transaction tax laws or the interpretation thereof were to change, and we were unable to enforce the terms of our contracts with customers that give us the right to reimbursement for assessed sales taxes, we could incur significant tax liabilities. Increased taxability of our products and services could increase our administrative costs, discourage clients from purchasing our products and services, or otherwise substantially harm our business and results of operations.

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Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our principal physical properties employed in our business consist of our leased office facilities in Chicago, Illinois; Edina, Minnesota; and Austin, Texas. Our executive offices are located at 200 West Madison Street, Suite 3100, Chicago, Illinois 60606. The initial lease term for this property, which became effective on June 1, 2015, terminates on July 31, 2022. This lease includes one five-year renewal option. The lease term for Edina, Minnesota, which became effective on June 1, 2011, was renewed until August 31, 2024. We ended the lease at one of our facilities in Austin, Texas on May 1, 2017 and entered into a lease at a new location in Austin, which became effective on April 1, 2016 and terminates on August 31, 2023.

Our total employable space is approximately 48,000 square feet. We do not own any real estate. We believe that our leased facilities are appropriate for our current business requirements.

Item 3. Legal Proceedings.

From time to time, we have been subject to legal claims arising in connection with our business and the results of these claims, when they arise, cannot be predicted with certainty. There are no asserted claims against us that, in the opinion of management, if adversely decided, would have a material effect on our business, financial position, results of operations, or prospects.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Our common stock, par value $0.01 per share (Common Stock), is traded on the NASDAQ Global Market under the symbol MATR. The following table sets forth, for the periods indicated, the high and low sales prices of our Common Stock on a quarterly basis, as reported on the NASDAQ Global Market.

	High		Low
2017
Fourth Quarter	$	2.90	$	2.40
Third Quarter		3.00		2.10
Second Quarter		3.70		2.35
First Quarter		4.05		3.30
2016
Fourth Quarter	$	4.40	$	3.00
Third Quarter		4.65		3.50
Second Quarter		4.38		3.23
First Quarter		6.70		3.85

There were approximately 105 holders of record of Common Stock as of March 2, 2018. The last reported sale price of Common Stock on the NASDAQ Global Market on March 2, 2018 was $2.30.

See Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters included in Part III Item 12 of this Annual Report on Form 10-K for more information about securities authorized for issuance under our various compensation plans.

Sale of Unregistered Securities

On February 23, 2017, we entered into a definitive purchase agreement for the sale of 5,328,187 shares of our common stock to certain investors and certain officers and directors in a private placement. Under the terms of the agreement, we raised approximately $16.0 million in gross proceeds by selling 5,228,187 shares to certain investors at a price of $3.00 per share and by selling 100,000 shares to certain officers and directors (including certain of their affiliates) at a price of $3.45 per share. The shares represented approximately 20% of the issued and outstanding shares of common stock immediately prior to the issuance. On March 1, 2017, we received aggregate gross proceeds, net of fees, of $14.8 million. Proceeds are being used for general corporate, working capital, and debt repayment purposes. Craig-Hallum Capital Group LLC, which acted as the sole placement agent for the offering, received a commission of $1.1 million, and was reimbursed for its out-of-pocket expenses. The company’s registration statement on Form S-3 (File No. 333-217290) was filed with the SEC on April 13, 2017 and declared effective by the SEC on April 26, 2017.

The Shares were offered and will be sold to the purchasers under the purchase agreement in transactions exempt from registration under the Securities Act or state securities laws, in reliance on Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the purchasers represented that it is an accredited investor within the meaning of Rule 501(a) of Regulation D, and is acquiring its shares for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The shares were offered without any general solicitation by us or our representatives.

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Stock Performance Graph

The following graph compares the cumulative total stockholder return on Common Stock with the cumulative total return of (i) a peer group of other publicly-traded information-technology consulting companies selected by us (the Peer Group Index), and (ii) the NASDAQ Global Market Index. Cumulative total stockholder return is based on the period from January 1, 2013 through December 31, 2017. The comparison assumes that $100 was invested on January 1, 2013 in each of Mattersight Common Stock, the Peer Group Index, and the NASDAQ Global Market Index, and that any and all dividends were reinvested.

Comparative Cumulative Total Return for Mattersight Corporation,

Peer Group Index, and NASDAQ Global Market Index

	12/31/12		12/31/13		12/31/14		12/31/15		12/31/16		12/31/17
Mattersight Common Stock	$	100.00	$	96.38	$	125.75	$	131.99	$	74.45	$	51.31
Peer Group Index(1)		100.00		132.06		172.27		155.74		166.24		213.91
NASDAQ Global Market Index		100.00		141.63		162.09		173.33		187.19		242.29

(1) The Peer Group Index consists of Verint Systems, Inc. and Nice Systems Limited.

Repurchase of Equity Securities

The following table provides information relating to our repurchase of shares of our Common Stock in the fourth quarter of 2017. These repurchases reflect shares withheld upon vesting of restricted stock to satisfy tax-withholding obligations.

Period	Total Number of Shares Purchased		Average Price Paid Per Share
October 1, 2017 – October 31, 2017		—	$	—
November 1, 2017 – November 30, 2017		41,895	$	2.70
December 1, 2017 – December 31, 2017		1,572	$	2.60
Total		43,467	$	2.70

Dividends

Historically, we have not paid cash dividends on our Common Stock, and we do not expect to do so in the future. Under the terms of our certificate of designations, our 7% Series B Convertible Preferred Stock (the Series B Stock) accrues dividends at a rate of 7% per year, payable semi-annually in January and July if declared by our board of directors. If not declared, unpaid dividends are cumulative and accrue at the rate of 7% per annum. Total accrued dividends for the periods July 1, 2012 through December 31, 2017 are $3.2 million, which will continue to be accrued until they are declared by the board of directors. Payment of future dividends on the Series B Stock will be determined by our board of directors based on our outlook and macroeconomic conditions.

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The amount of each dividend accrual would decrease by any conversions of the Series B Stock into Common Stock, as Series B Stock conversions require us to pay accrued but unpaid dividends at the time of conversion. Conversions of Series B Stock became permissible at the option of the holder after June 19, 2002. For further discussion see Liquidity and Capital Resources included in Part II, Item 7 of this Annual Report on Form 10-K.

Equity Compensation Information

See Part III, Item 12 of this Annual Report on Form 10-K for information regarding shares of Common Stock that may be issued under our existing equity compensation plans.

Item 6. Selected Financial Data.

The following tables summarize our selected consolidated financial data. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and notes thereto, which are included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data in this section is not intended to replace the Consolidated Financial Statements of the Company and the notes thereto. Our historical results are not necessarily indicative of our future results.

	(In thousands, except per share data)(1)
	December 31, 2017			December 31, 2016			December 31, 2015			December 31, 2014			December 31, 2013
Total revenue	$	46,510		$	42,097		$	39,912		$	30,319		$	34,494
Loss from continuing operations	$	(16,320	)	$	(20,977	)	$	(15,681	)	$	(14,232	)	$	(11,172	)
Net loss available to common stockholders	$	(16,904	)	$	(21,563	)	$	(16,269	)	$	(14,821	)	$	(11,761	)
Basic loss from continuing operations per share	$	(0.56	)	$	(0.86	)	$	(0.70	)	$	(0.74	)	$	(0.70	)
Total assets	$	39,935		$	45,564		$	40,402		$	32,078		$	30,749
Long-term debt	$	17,056		$	20,839		$	—		$	—		$	—
Series B Stock	$	8,353		$	8,354		$	8,388		$	8,406		$	8,411
Capital leases	$	3,157		$	3,584		$	3,433		$	2,813		$	2,832

(1) See Note One—Description of Business and Note Two—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for business discussion.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Selected Financial Data and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

We are a leader in behavioral analytics and a pioneer in personality-based software products. Using a stack of innovative, patented applications,Mattersight analyzes and predicts customer behavior based on the language exchanged between agents and customers during brand interactions. These insights are then used to facilitate more effective and effortless customer conversations, which, in turn, drive increased customer satisfaction and retention, employee engagement, and operating efficiency.  

Business Metrics

We regularly review our business metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, and make strategic decisions.

ACV Bookings.We estimate annual contract value (ACV) of bookings as equal to the projected subscription and other billings for new customer contracts executed in the quarter, realized growth on existing customer accounts beyond the original booking, and committed future growth. We regularly review ACV bookings on a rolling four quarter basis and also review the percentage of ACV bookings generated by new customers. We use this to measure the effectiveness of our sales and marketing investments and as an indicator of potential future billings.  

Backlog.We calculate backlog as the ACV of bookings for which we have not yet deployed our services to the customer.  We use this to measure the average time to deploy our bookings and as an indicator of potential future billings.

Gross Margin.  We calculate gross margin as the difference between our total revenue and the total cost of revenue, divided by total revenue, expressed as a percentage. We use this to measure the efficiency of our service delivery organization.

Performance Highlights

The following table presents our performance on key metrics for the periods presented:

	2017
	(In millions, except percentage data)
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
ACV bookings	3.5			2.5			5.2				2.8			14.0
Rolling four quarters ACV bookings		19.0			17.1		17.6				14.0			14.0
Backlog	14.5				13.1		14.6			8.9			8.9
Gross Margin		69	%		69	%		73	%		73	%		71	%

	2016
	(In millions, except percentage data)
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
ACV bookings	5.4			4.4			4.7				6.4			20.9
Rolling 4 quarters ACV bookings	25.1				23.7		21.5			20.9			20.9
Backlog	17.9				23.1		19.2			12.6			12.6
Gross Margin		68	%		65	%		67	%		69	%		67	%

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

The fiscal year-end dates referenced herein for 2017, 2016, and 2015, are December 31, 2017, December 31, 2016, and December 31, 2015, respectively.

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We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Subscription Revenue

Subscription revenue consists of revenue derived from Mattersight’s Behavioral Analytics service offerings, including predictive behavioral routing, performance management, quality assurance, predictive analytics, and marketing managed services revenue derived from the performance of services on a continual basis.

Subscription revenue is based on a number of factors, such as the number of users to whom we provide one or more of our Behavioral Analytics offerings, the type and number of Behavioral Analytics offerings deployed to the client, and in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. Subscription periods generally range from one to three years after the go-live date or, in cases where we contract with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. This revenue is recognized over the applicable subscription period as the service is performed for the client.

Other Revenue

Other revenue consists of deployment revenue, professional services revenue, and reimbursed expenses revenue.

Deployment revenue consists of planning, deployment, and training fees derived from Behavioral Analytics contracts. These fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the applicable subscription or pilot period. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in prepaid expenses and other long-term assets. Such costs are amortized over the subscription period. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

Professional services revenue primarily consists of fees charged to our clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training, as well as fees generated from our operational consulting services. The professional services are performed for our clients on a fixed-fee or time-and-materials basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared with the total estimated hours over the entire term of the contract.

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for our clients. An equivalent amount of reimbursable expenses is included in total cost of other revenue.

Unearned Revenue

Unearned revenue consists of billings or payments received in advance of revenue recognition for Behavioral Analytics contracts. Unearned revenue is recognized as revenue when the applicable recognition criteria are met.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from clients not paying for unpaid or disputed invoices for contractual services provided. Additional allowances may be required if the financial condition of our clients deteriorates.

Stock Warrants

In accordance with ASC 480-10, Distinguishing Liabilities from Equity, we classified certain warrants to purchase Common Stock that do not meet the requirements for classification as equity, as liabilities. Such liabilities are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on warrant liability on the consolidated statements of operations in each reporting period. See Note Eighteen — Fair Value Measurements of the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

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Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. We use historical information as the basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case for the reporting unit, we perform a detailed quantitative assessment.  First the fair value of the reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. If the carrying value exceeds the fair value, then an impairment loss equal to the difference between the carrying and fair value will be recorded. We currently operate in a single business segment or reporting unit.

Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, marketing managed services customer relationships, and the purchase of certain intellectual property rights. The costs related to patent and trademark applications and the purchase of certain intellectual property are amortized over 120 months. The other intangible assets are fully amortized.

Income Taxes

We have recorded income tax valuation allowances on our net deferred tax assets to account for the unpredictability surrounding the timing of realization of our U.S. and non-U.S. net deferred tax assets due to continuing operating losses. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to or achieving predictable levels of profitability.

We use an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards.

We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit.

Other Significant Accounting Policies

For a description of our other significant accounting policies, see Note Two—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Business Outlook

Based on research from third-party analysts, we believe the call center industry is ripe for disruption and innovation. We believe what the call center was designed to accomplish and how it was measured are parts of an outdated mode of business that is disconnected from the needs of today’s consumer. In fact, research from the Corporate Executive Board suggests that any call center interaction is four times more likely to drive customer disloyalty than increased loyalty. Given a rise in self-service, these interactions are only becoming more complex and fraught with greater risk.

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Through our product offerings, we seek to provide our clients with personality-based software applications that mitigate the complexity and reduce the risk of these call center interactions. According to Gartner, Inc., there were six million call center seats in North America in 2015, and less than 1% of this market is penetrated by personality-based software applications. We believe that we are uniquely positioned to capitalize on this opportunity. Our strategy to increase revenue and capture market share includes the following elements:

• Drive new bookings growth and increase operating leverage;

• Leverage a “land and expand” model, focused on personality-based routing as the catalyst for new client acquisition;

• Cross-sell coaching, quality assurance, and analytic products after delivering a routing solution;

• Continue to invest in innovative linguistic models and behavioral science;

• Expand our sales and marketing capacity; and

• Test the applicability of our proprietary personality-based software applications with clients outside of the call center industry.

Our personality-based software applications, which have been developed through substantial investment over the past decade, are deeply embedded into our clients’ infrastructure and workflows. Our long-term client relationships are made up largely of multi-year contracts with high contract renewal rates. Our aspiration is that our “land and expand” model, focused on our routing product, will continue to accelerate the acquisition of new clients.

Results of Operations

	Year Ended December 31,							Year Ended December 31,
(Dollars in millions)	2017		2016		Change			2016		2015		Change
Total revenue	$	46.5	$	42.1		10	%	$	42.1	$	39.9		6	%
Total cost of revenue, exclusive of depreciation    and amortization		13.6		13.8		(2	)%	13.8		10.7			29	%
Gross margin		33.0		28.3		16	%	28.3		29.2			(3	)%
Other operating expenses		45.2		47.1		(4	)%	47.1		44.3			6	%
Operating loss		12.2		18.8		(35	)%	18.8			15.1		25	%
Non-operating expenses		4.2		2.1		98	%	2.1		0.6			260	%
Net loss		16.3		21.0		(22	)%		21.0	15.7			34	%

Revenue

2017 Compared with 2016

Total revenue increased by $4.4 million, or 10%, when compared with 2016. The increase consisted of a $5.0 million increase in subscription revenue offset by a $0.6 million decrease in other revenue. Subscription revenue increased primarily due to $5.5 million from growth within existing client contracts and $1.0 million from new client contracts, partially offset by a decrease of $1.5 million from terminating contracts. Other revenue decreased primarily due to reduced recognition of deployment fees. Deployment fees are deferred and recognized over the contract’s subscription period beginning on the go-live date. If a contract terminates early, remaining deferred deployment revenue is recognized upon termination.

Highest Revenue Generating Clients:

	(Percentage of Total Revenue)
	2017			2016
Top 5 Clients		71	%		73	%
Top 10 Clients		86	%		87	%

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Clients Accounting for 10% or More of Total Revenue:

	(Percentage of Total Revenue)
	2017			2016
United HealthCare Services, Inc.		28	%		33	%
CVS Caremark Corporation		16	%		15	%
TriWest Healthcare Alliance Corp		14	%		9	%
Progressive Casualty Insurance Company		8	%		11	%

A substantial portion of our revenue comes from a limited number of clients. Higher concentration of revenue with a single client or a limited group of clients creates increased revenue risk if one of these clients significantly reduces its demand for our services. United HealthCare Services, Inc., our largest customer in 2017, has expressed an intent to use less of our services in 2018, which could have a material impact on revenue.

2016 Compared with 2015

Total revenue increased by $2.2 million, or 6%, when compared with 2015. The increase consisted of a $2.6 million increase in subscription revenue offset by a $0.4 million decrease in other revenue. Subscription revenue increased primarily due to $6.0 million from new client contracts, partially offset by a decrease of $3.4 million from terminating contracts. Other revenue decreased primarily due to reduced recognition of deployment fees. Deployment fees are deferred and recognized over the contract’s subscription period beginning on the go-live date. If a contract terminates early, remaining deferred deployment revenue is recognized upon termination.

Highest Revenue Generating Clients:

	(Percentage of Total Revenue)
	2016			2015
Top 5 Clients		73	%		73	%
Top 10 Clients		87	%		89	%

Clients Accounting for 10% or More of Total Revenue:

	(Percentage of Total Revenue)
	2016			2015
United HealthCare Services, Inc.		33	%		31	%
CVS Caremark Corporation		15	%		13	%
Progressive Casualty Insurance Company		11	%		15	%

Higher concentration of revenue with a single client or a limited group of clients creates increased revenue risk if one of these clients significantly reduces its demand for our services.

Total Cost of Revenue, Exclusive of Depreciation and Amortization

2017 Compared with 2016

Total costs of revenue consisted of $10.2 million of subscription revenue costs and $3.4 million of other revenue costs. Cost of subscription revenue was $10.2 million, or 23% of subscription revenue, in 2017, when compared with $10.4 million, or 27% of subscription revenue, in 2016. The $0.2 million decrease in cost was primarily due to a decrease in maintenance costs, partially offset by incremental personnel costs.

2016 Compared with 2015

Total costs of revenue consisted of $10.4 million of subscription revenue costs and $3.4 million of other revenue costs. Cost of subscription revenue was $10.4 million, or 27% of subscription revenue, in 2016, when compared with $8.1 million, or 22% of subscription revenue, in 2015. The $2.3 million increase in cost was primarily due to incremental personnel costs.

19

Other Operating Expenses

2017 Compared with 2016

Other operating expenses include product development, sales and marketing, general and administrative, and depreciation and amortization. Other operating expenses decreased in 2017 when compared with 2016 primarily as a result of a $3.5 million decrease in sales and marketing expenses, partially offset by a $0.8 million increase in product development expenses and a $0.4 million increase in depreciation and amortization.

Sales and marketing expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, and marketing. Sales and marketing expenses decreased $3.5 million in 2017 when compared with 2016. The decrease was primarily due to one-time severance costs incurred in 2016, as well as decreased compensation costs related to a reduction in headcount.

Product development expenses increased $0.8 million in 2017 when compared with 2016 due to increased technology expenses, partially offset by decreased third-party product development costs.

Depreciation and amortization increased $0.4 million in 2017 when compared with 2016. The rise in expense resulted primarily from increased investments in technology, as well as the build out of our new Austin office in the first half of 2017.

2016 Compared with 2015

Other operating expenses include product development, sales and marketing, general and administrative, and depreciation and amortization. Other operating expenses increased in 2016 when compared with 2015 primarily as a result of a $3.1 million increase in sales and marketing expenses, and a $1.0 million increase in depreciation and amortization, partially offset by a $1.4 million decrease in product development expenses.

Sales and marketing expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, and marketing. Sales and marketing expenses increased $3.1 million in 2016 when compared with 2015. The increase was primarily due to one-time severance costs, as well as increased compensation costs related to the expansion of our sales and marketing teams.

Depreciation and amortization increased $1.0 million in 2016 when compared with 2015. The rise in expense resulted primarily from increased investments in technology, as well as the build out of our new Chicago office in late 2015.

Product development expenses decreased $1.4 million in 2016 when compared with 2015, primarily due to decreased compensation costs.

Non-Operating Expenses

2017 Compared with 2016

Non-operating expenses consist primarily of interest and other borrowing costs, loss on early extinguishment of debt, changes in the fair value of the warrant liability and other non-operating income. Non-operating expenses increased by $2.1 million in 2017 when compared with 2016.

Interest and other borrowing costs increased by $0.5 million in 2017 when compared with 2016. The increase is a result of interest on Hercules debt that was outstanding for the first half of 2017 and interest on the CIBC Bank USA f/k/a The PrivateBank and Trust Company (CIBC) line of credit draws outstanding for the remainder of the year.

The loss on the early extinguishment of Hercules debt totaled $1.8 million at June 29, 2017. It consisted of a prepayment charge of $0.7 million, acceleration of unaccreted debt discount of $0.6 million, and acceleration of unamortized deferred debt costs of $0.5 million.

Concurrent with issuance of the Hercules debt, the company issued a warrant that gives Hercules the right to purchase 357,142 shares of common stock at $3.50 per share. The warrant expires August 1, 2023. The warrant is accounted for as a liability and carried at fair market value using the Black-Scholes model. The change in fair value of the warrant liability increased $0.2 million in 2017 when compared with 2016 due to fluctuations in our stock price.

20

2016 Compared with 2015

Non-operating expenses consist primarily of interest and other borrowing costs, changes in the fair value of the warrant liability and other non-operating income.

Interest and other borrowing costs increased $1.7 million in 2016 when compared with 2015, primarily as a result of a new term loan with Hercules, which originated on August 1, 2016.

Income Tax Provision

Net deferred tax assets consist primarily of U.S. and non-U.S. net operating losses. Due to uncertainty in predicting when we will achieve the profitability required to utilize our operating losses, we have recognized a valuation allowance for the full amount of our net deferred tax assets.

2017 Compared with 2016

The income tax benefit was $0.1 million in 2017 and the income tax provision was $0.1 million in 2016. As of December 31, 2017 and 2016, total net deferred tax assets of approximately $58.1 million and $83.8 million, respectively, were fully offset by a valuation allowance.

2016 Compared with 2015

The income tax provision was $0.1 million and less than $0.1 million in 2016 and 2015, respectively. As of December 31, 2016 and 2015, total net deferred tax assets of approximately $83.8 million and $75.8 million, respectively, were fully offset by a valuation allowance.

Liquidity and Capital Resources

Sources and Uses of Cash  

Our principal capital requirements are to fund working capital needs, capital expenditures for Behavioral Analytics and infrastructure requirements, and other revenue generation and growth investments. Our principal capital resources consisted of cash and cash equivalents of $9.0 million and $12.5 million at December 31, 2017 and December 31, 2016, respectively.

Net cash used in operating activities decreased by $8.0 million in 2017 when compared with 2016. The $4.7 million decrease in net loss, largely attributable to growth in customer base and a decrease in operating expenses in 2017, contributed to this decrease in net cash used in operating activities. Cash provided by collections on accounts receivable improved by $5.8 million and from unearned revenue increased by $0.5 million when compared with 2016. Cash used in investing activities decreased by $0.8 million in 2017 when compared with 2016 due to fewer fixed asset purchases. Net cash provided by financing activities decreased by $15.2 million in 2017 when compared with 2016, primarily as a result of $23.8 million of cash used to repay in full the principal balance and accrued and unpaid interest outstanding under the term loan with Hercules, partially offset by net $16.9 million of proceeds drawn on our credit line with CIBC (see Credit Facility below) and $14.8 million, net of fees received from the sale of 5,328,187 shares of common stock pursuant to a private placement of common stock.

Historically, we have not paid cash dividends on our common stock, and we do not expect to do so in the future. Our Series B stock accrues dividends at a rate of 7% per year, payable semi-annually in January and July if declared by our board of directors. If not declared, unpaid dividends are cumulative and accrue at the rate of 7% per year. Our board of directors has not declared a dividend payment on the Series B stock, which has been accrued, from July 1, 2012 through December 31, 2017 (the aggregate amount of these dividends was approximately $3.2 million). Payment of future dividends on the Series B stock will be determined by the board of directors based on our business outlook and macroeconomic conditions and may not exceed $0.2 million in the aggregate in any calendar year, as per our loan agreement with CIBC. The amount of each dividend accrual will be decreased by any conversions of the Series B stock into common stock, as such conversions require us to pay accrued but unpaid dividends at the time of conversion. Conversions of Series B stock are at the option of the holder.

Liquidity

As of December 31, 2017, our near-term capital resources consisted of our current cash balance, together with anticipated future cash flows, financing from capital leases, and borrowing capacity (see Credit Facility below). Our balance of cash and cash equivalents was $9.0 million as of December 31, 2017. Restricted cash of $2.7 million was used as collateral for letters of credit issued to support our equipment leasing activities.

21

We anticipate that our current unrestricted cash resources, together with operating revenue, capital lease financing, and borrowing capacity, should be sufficient to satisfy our short-term working capital and capital expenditure needs for the next twelve months. Management will continue to assess opportunities to maximize cash resources by actively managing our cost structure and closely monitoring the collection of our accounts receivable. If, however, our operating activities, capital expenditure requirements, or net cash needs differ materially from current expectations due to uncertainties surrounding the current capital market, credit and general economic conditions, competition, or the termination of a large client contract, then there is no assurance that we would have access to additional external capital resources on acceptable terms.

Credit Facility

On June 29, 2017, we entered into the loan agreement with CIBC. The loan agreement provides for a revolving line of credit to us with a maximum credit limit of $20.0 million, which matures on June 29, 2020 (the credit facility). The credit facility is secured by a security interest in the company’s assets. We, subject to certain limits and restrictions, may from time to time request the issuance of letters of credit under the loan agreement.

The principal amount outstanding under the credit facility will accrue interest at a floating annual rate equal to 1 month, 2 month or 3 month LIBOR (as selected by us) plus 4.50%, payable monthly. In addition, we will pay a non-use fee on the credit facility of 25 basis points (0.25%) per annum of the average unused portion of the credit facility.  The amount we may borrow under the credit facility is limited to five times our monthly recurring revenue (as determined in accordance with the terms and conditions set forth in the loan agreement), multiplied by a dynamic churn factor that is based upon the ratio of recurring revenue retained in the prior twelve month period relative to the total amount of recurring revenue at the beginning of the period.

The loan agreement imposes various restrictions on us, including usual and customary limitations on our ability to incur debt and to grant liens upon our assets, increasing restrictions based on thresholds, prohibits certain consolidations, mergers, and sales and transfers of assets by us and requires us to comply with a trailing twelve months of total revenue and quarterly EBITDA (as adjusted in accordance with the loan agreement) targets. The loan agreement includes usual and customary events of default (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the loan agreement may be accelerated and/or the lender’s commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the loan agreement will automatically become immediately due and payable, and the lender’s commitments will automatically terminate.  

Prior to entering into the loan agreement with CIBC, we were party to a loan agreement with Hercules. On June 29, 2017, we drew $13.5 million on the credit facility to repay the principal balance of $22.5 million, $0.7 million of prepayment charges, and $0.6 million of accrued and unpaid interest under our prior credit facility with Hercules. Upon effectiveness of the loan agreement and repayment of the Hercules credit facility, we terminated our loan agreement with Hercules. 

See Note Eleven—Debt of the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Accounts Receivable Customer Concentration

As of December 31, 2017, three clients, United HealthCare Services, Inc., CVS Caremark Corporation and Progressive Casualty Insurance Company accounted for 29%, 13% and 13% of total gross accounts receivable, respectively. Of these amounts, we have collected 100% from United HealthCare Services, Inc., 100% from CVS Pharmacy, Inc., and 100% from Progressive Casualty Insurance Company through March 7, 2018. Of the total December 31, 2017 gross accounts receivable, we have collected 87% as of March 7, 2018. Because we have a high percentage of our revenue dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash.

Capital Lease Obligations

We are a party to capital lease agreements with leasing companies to fund our ongoing equipment requirements. Capital lease obligations were $3.2 million as of December 31, 2017 and $3.6 million as of December 31, 2016. We expect to incur new capital lease obligations of approximately $1.9 million for 2018 as we continue to expand our investment in the infrastructure for Behavioral Analytics.

22

Contractual Obligations

Cash will be required for operating leases and non-cancellable purchase obligations, as well as various commitments reflected as liabilities on our balance sheet as of December 31, 2017. These commitments are as follows:

(In millions) Contractual Obligations	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years
Revolving line of credit	$	16.9	$	—	$	16.9	$	—	$	—
Debt		0.3		0.1		0.2		—		—
Operating leases		4.2		0.9		2.0		0.8		0.5
Capital leases		3.5		2.2		1.3		—		—
Purchase obligations		4.9		3.6		1.3		—		—
Total	$	29.8	$	6.8	$	21.7	$	0.8	$	0.5

Leases

The amounts set forth in the chart above reflect future principal, interest, and executory costs of the leases entered into by us for technology and office equipment, as well as office and data center space. Liabilities for the principal portion of the capital lease obligations are reflected on our balance sheet as of December 31, 2017 and December 31, 2016.

Purchase Obligations

Purchase obligations under long-term non-cancellable commitments are recorded at net present value in our balance sheet.

Letters of Credit

There were $3.4 million of standby letters of credit issued as collateral for capital and operating leases as of December 31, 2017. Certain letters of credit are secured by $2.7 million of restricted cash.

Off-Balance Sheet Arrangements

During 2017 and 2016, we did not have any relationships with unconsolidated financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Historically, we have not experienced material fluctuations in our results of operations due to foreign currency exchange rate changes. We do not currently engage, nor is there any plan to engage, in hedging foreign currency risk.

We also have interest rate risk with respect to changes in variable interest rates on our revolving line of credit and other borrowings, capital leases, and cash and cash equivalents. Interest on the line of credit with CIBC is currently based on a 1 month, 2 month or 3 month LIBOR rate (as selected by the company) plus 4.50%. A change in interest rate impacts the interest and other borrowing costs and cash flows.

23

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF MATTERSIGHT CORPORATION

	Page
Financial Statements:
Report of Grant Thornton LLP Independent Registered Public Accounting Firm	25
Consolidated Balance Sheets — December 31, 2017 and December 31, 2016	27
Consolidated Statements of Operations — for the years ended 2017, 2016 and 2015	28
Consolidated Statements of Comprehensive Loss — for the years ended 2017, 2016 and 2015	29
Consolidated Statements of Cash Flows — for the years ended 2017, 2016 and 2015	30
Consolidated Statements of Changes in Stockholders’ Equity — December 31, 2017, December 31, 2016 and December 31, 2015	31
Notes to Consolidated Financial Statements	32
Financial Statement Schedule:
Schedule II-Valuation and Qualifying Accounts — December 31, 2017, December 31, 2016 and December 31,2015	52

24

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Mattersight Corporation

Opinion on the financial statements

We have audited the accompanying consolidatedbalance sheets of Mattersight Corporation (a Delaware corporation) and subsidiaries(the “Company”) as of December 31, 2017 and 2016, the related consolidatedstatements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 12, 2018 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2006.

Chicago, Illinois

March 12, 2018

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Mattersight Corporation

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Mattersight Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedfinancial statements of the Company as of and for the year ended December 31, 2017, and our report dated March 12, 2018 expressed an unqualified opinionon those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Chicago, Illinois

March 12, 2018

26

MATTERSIGHT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	December 31, 2017			December 31, 2016
ASSETS:
Current Assets:
Cash and cash equivalents	$	9,044		$	12,538
Receivables net of allowances of $41 and $311, at December 31, 2017 and    December 31, 2016, respectively		6,565			8,508
Prepaid expenses		5,805			4,440
Other current assets		65			296
Total current assets		21,479			25,782
Equipment and leasehold improvements, net of accumulated depreciation and    amortization of $24,955 and $19,748, at December 31, 2017 and December 31, 2016,    respectively		8,572			9,576
Goodwill		972			972
Intangibles assets, net of amortization of $4,357 and $3,820, respectively		2,952			3,201
Other long-term assets (includes $2,675 and $4,210 in restricted cash at December 31,    2017 and December 31, 2016, respectively)		5,960			6,033
Total assets	$	39,935		$	45,564
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	93		$	738
Accounts payable		1,474			1,835
Accrued compensation and related costs		3,312			2,302
Unearned revenue		3,032			4,911
Capital leases		1,967			1,982
Other current liabilities		3,399			3,374
Total current liabilities		13,277			15,142
Long-term debt		17,056			20,839
Long-term unearned revenue		914			757
Long-term capital leases		1,190			1,602
Other long-term liabilities		6,475			5,945
Total liabilities		38,912			44,285
Series B convertible preferred stock, $0.01 par value; 5,000,000 shares    authorized and designated; 1,637,786 and 1,637,948 shares issued and    outstanding at December 31, 2017 and December 31, 2016, respectively,    with a liquidation preference of $11,568 and $10,985 at December 31, 2017    and December 31, 2016, respectively		8,353			8,354
Stockholders’ Equity:
Preferred stock, $0.01 par value; 35,000,000 shares authorized; none    issued and outstanding		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized;   33,083,180 and 27,511,361 shares issued at December 31, 2017 and    December 31, 2016, respectively; and 33,039,713 and 26,622,706    outstanding at December 31, 2017 and December31, 2016, respectively		331			275
Additional paid-in capital		275,963			264,214
Accumulated deficit		(279,425	)		(263,062	)
Treasury stock, at cost, 43,467 and 888,655 shares at    December 31, 2017 and December 31, 2016, respectively		(117	)		(4,455	)
Accumulated other comprehensive loss		(4,082	)		(4,047	)
Total stockholders’ (deficit) equity		(7,330	)		(7,075	)
Total liabilities and stockholders’ equity	$	39,935		$	45,564

See accompanying notes to consolidated financial statements.

27

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Year Ended December 31,
	2017			2016			2015
Revenue:
Subscription revenue	$	43,712		$	38,720		$	36,091
Other revenue		2,798			3,377			3,821
Total revenue		46,510			42,097			39,912
Operating expenses:
Cost of subscription revenue		10,159			10,365			8,072
Cost of other revenue		3,394			3,423			2,604
Total cost of revenue, exclusive of depreciation and amortization		13,553			13,788			10,676
Product development		13,295			12,502			13,891
Sales and marketing		13,389			16,848			13,754
General and administrative		12,166			11,827			11,705
Depreciation and amortization		6,347			5,946			4,942
Total operating expenses		58,750			60,911			54,968
Operating loss		(12,240	)		(18,814	)		(15,056	)
Non-operating income (expense):
Interest and other borrowing costs		(2,785	)		(2,319	)		(600	)
Loss on early extinguishment of debt		(1,834	)	—			—
Change in fair value of warrant liability		377			167			3
Other non-operating income		56			39			10
Total non-operating expense		(4,186	)		(2,113	)		(587	)
Loss before income taxes		(16,426	)		(20,927	)		(15,643	)
Income tax benefit (provision)		106			(50	)		(38	)
Net loss		(16,320	)		(20,977	)		(15,681	)
Dividends related to 7% Series B convertible preferred stock		(584	)		(586	)		(588	)
Net loss available to common stockholders	$	(16,904	)	$	(21,563	)	$	(16,269	)
Per share of common stock:
Basic net loss available to common stock holders	$	(0.56	)	$	(0.86	)	$	(0.70	)
Diluted net loss available to common stock holders	$	(0.56	)	$	(0.86	)	$	(0.70	)
Shares used to calculate basic net loss per share		30,451			25,209			23,264
Shares used to calculate diluted net loss per share		30,451			25,209			23,264
Stock-based compensation expense is included in individual line    items above:
Total cost of  revenue	$	353		$	371		$	255
Product development		667			1,134			1,075
Sales and marketing		348			1,697			1,330
General and administrative		1,559			2,122			2,742

See accompanying notes to consolidated financial statements.

28

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Year Ended December 31,
	2017			2016			2015
Net loss	$	(16,320	)	$	(20,977	)	$	(15,681	)
Other comprehensive loss:
Effect of currency translation		(35	)		(20	)		(1	)
Comprehensive net loss	$	(16,355	)	$	(20,997	)	$	(15,682	)

See accompanying notes to consolidated financial statements.

29

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2017			2016			2015
Cash Flows from Operating Activities:
Net loss	$	(16,320	)	$	(20,977	)	$	(15,681	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,347			5,946			4,942
Stock-based compensation		2,927			5,324			5,402
Discount accretion and other debt-related costs		1,417			436			—
Provision for uncollectible amounts		59			287			—
Change in fair value of warrant liability		(377	)		(167	)		(3	)
Changes in assets and liabilities:
Receivables		1,884			(3,932	)		(1,403	)
Prepaid expenses		(1,089	)		71			(623	)
Other current assets		231			(62	)		(118	)
Other long-term assets		(1,257	)		595			1,028
Accounts payable		(559	)		375			(29	)
Accrued compensation and related costs		1,010			(459	)		520
Unearned revenue		(1,722	)		(2,307	)		(2,416	)
Other current liabilities		1,292			722			(1,675	)
Other long-term liabilities		633			582			3,667
Total adjustments		10,796			7,411			9,292
Net cash used in operating activities		(5,524	)		(13,566	)		(6,389	)
Cash Flows from Investing Activities:
Capital expenditures		(2,998	)		(3,714	)		(4,917	)
Investment in intangible assets		(279	)		(349	)		(171	)
Net cash used in investing activities		(3,277	)		(4,063	)		(5,088	)
Cash Flows from Financing Activities:
Proceeds from line of credit		26,900			16,246			15,000
Repayments of line of credit		(10,000	)		(16,246	)		(15,000	)
Proceeds from term loan and other borrowings	—				28,880		—
Repayments of term loan and other borrowings		(23,512	)		(6,945	)		(750	)
Debt prepayment costs		(692	)	—			—
Fees paid for issuance of term loan		(206	)		(724	)	—
Proceeds from issuance of common stock, net of costs		14,752		—				15,942
Cash paid to satisfy tax withholding upon employee vesting		(1,177	)		(440	)		(874	)
Principal payments on capital lease obligations		(2,498	)		(2,296	)		(2,116	)
7% Series B convertible preferred stock dividend	—				(10	)	—
Proceeds from exercise of stock options	—				236			241
Proceeds from employee stock purchase		240			289			212
Net cash provided by financing activities		3,807			18,990			12,655
Effect of exchange rate changes on cash and cash equivalents		(35	)		(20	)		(9	)
(Decrease) increase in cash and cash equivalents		(5,029	)		1,341			1,169
Cash and cash equivalents		12,538			15,407			14,238
Restricted cash (included in Other long-term assets on the Consolidated    Balance Sheets)		4,210		—			—
Total cash, beginning of period		16,748			15,407			14,238
Cash and cash equivalents		9,044			12,538			15,407
Restricted cash (included in Other long-term assets on the Consolidated    Balance Sheets)		2,675			4,210		—
Total cash, end of period	$	11,719		$	16,748		$	15,407
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred	$	2,071		$	2,447		$	2,737
Capital equipment purchased on credit		2,071			2,447			2,737
Financing of intellectual property purchased, at fair value	—			—				1,958
Issuance of warrant, at fair value		—			924			—
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	2,476		$	1,343		$	314

See accompanying notes to consolidated financial statements.

30

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)

	Common Stock Issued															Accumulated
	Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Other Compre- hensive Loss			Total Stock- holders’ Equity
Balance, December 31, 2014		24,046,977		$	240		$	243,282		$	(226,404	)	$	(8,879	)	$	(4,026	)	$	4,213
Proceeds from issuance of common stock, net		2,728,712			27			15,915			—			—			—			15,942
Issuance of common stock for option awards    exercised		41,750			—			282			—			—			—			282
Issuance of common stock for warrants    exercised		50,184			1			377			—			—			—			378
Issuance of common stock related to employee    stock programs		819,632			8			263			—			—			—			271
Amortization/forfeitures of unearned    compensation		(53,819	)		—			5,178			—			—			—			5,178
Restricted stock vestings tax withholding		—			—			—			—			(874	)		—			(874	)
Reissuance of treasury shares								(514	)					514						—
Series B convertible preferred stock conversions		3,417			—			17			—			—			—			17
Series B convertible preferred stock dividend		—			—			(588	)		—			—			—			(588	)
Other comprehensive loss		—			—			—			—			—			(1	)		(1	)
Net loss		—			—			—			(15,681	)		—			—			(15,681	)
Balance, December 31, 2015		27,636,853		$	276		$	264,212		$	(242,085	)	$	(9,239	)	$	(4,027	)	$	9,137
Issuance of common stock for option awards    exercised		—			—			236			—			—			—			236
Issuance of common stock related to employee    stock programs		88,282			—			383			—			—			—			383
Amortization/forfeitures of unearned    compensation		(220,594	)		(1	)		5,159			—			—			—			5,158
Restricted stock vestings tax withholding		—			—			—			—			(440	)		—			(440	)
Reissuance of treasury shares		—			—			(5,224	)		—			5,224			—			—
Series B convertible preferred stock conversions		6,820			—			34			—			—			—			34
Series B convertible preferred stock dividend		—			—			(586	)		—			—			—			(586	)
Other comprehensive loss		—			—			—			—			—			(20	)		(20	)
Net loss		—			—			—			(20,977	)		—			—			(20,977	)
Balance, December 31, 2016		27,511,361		$	275		$	264,214		$	(263,062	)	$	(4,455	)	$	(4,047	)	$	(7,075	)
Proceeds from issuance of common stock, net		5,328,187			53			14,696			—			—			—			14,749
Prior period adjustment related to adoption of    ASU 2016-09		—									(43	)								(43	)
Issuance of common stock related to employee    stock programs		428,223			4			547			—			—			—			551
Amortization/forfeitures of unearned    compensation		(184,753	)		(1	)		2,604			—			—			—			2,603
Restricted stock vestings tax withholding		—			—			—			—			(1,177	)		—			(1,177	)
Reissuance of treasury shares		—			—			(5,515	)		—			5,515			—			—
Series B convertible preferred stock conversions		162			—			1			—			—			—			1
Series B convertible preferred stock dividend		—			—			(584	)		—			—			—			(584	)
Other comprehensive loss		—			—			—			—			—			(35	)		(35	)
Net loss		—			—			—			(16,320	)		—			—			(16,320	)
Balance, December 31, 2017		33,083,180		$	331		$	275,963		$	(279,425	)	$	(117	)	$	(4,082	)	$	(7,330	)

See accompanying notes to consolidated financial statements.

31

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

Note One — Description of Business

Mattersight Corporation and its subsidiaries (collectively, Mattersight or the company) is a leader in behavioral analytics and a pioneer in personality-based software products. Using a stack of innovative, patented applications, including predictive behavioral routing, performance management, quality assurance, and predictive analytics (collectively, Behavioral Analytics), Mattersight analyzes and predicts customer behavior based on the language exchanged between agents and customers during brand interactions. These insights are then used to facilitate more effective and effortless customer conversations, which, in turn, drive increased customer satisfaction and retention, employee engagement, and operating efficiency. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. Mattersight’s solutions have influenced hundreds of millions of shorter, more satisfying customer interactions for leading companies in the healthcare, insurance, financial services, technology, telecommunications, cable, utilities, education, hospitality, and government industries.

The company’s multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, the Company’s Behavioral Analytics offerings enable its clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through its Behavioral Analytics offerings, Mattersight helps its clients:

• Identify optimal customer/employee behavioral pairing for call routing;

• Identify and understand customer personality;

• Automatically measure customer satisfaction and agent performance on every analyzed call;

• Improve rapport between agent and customer;

• Reduce call handle times while improving customer satisfaction;

• Identify opportunities to improve self-service applications;

• Improve cross-sell and up-sell success rates;

• Improve the efficiency and effectiveness of collection efforts;

• Measure and improve supervisor effectiveness and coaching;

• Improve agent effectiveness by analyzing key attributes of desktop usage;

• Predict likelihood of customer attrition;

• Predict customer satisfaction and Net Promoter Scores^® without customer surveys;

• Predict likelihood of debt repayment;

• Predict likelihood of a sale or cross-sell; and

• Identify fraudulent callers and improve authentication processes.

Mattersight’s mission is to help brands have more effective and effortless conversations with their customers. Using a suite of innovative personality-based software applications, Mattersight can analyze and predict customer behavior based on the language exchanged during service and sales interactions. The company operates a highly scalable, flexible, and adaptive application platform to enable clients to implement and operate these applications.

32

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Two — Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

Basis of Presentation

On April 1, 2017, the company adopted Accounting Standards Update (ASU) No 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses the presentation and classification of cash flows related to specific transactions. Upon adoption, the company updated the statement of cash flow for all periods presented. Certain amounts on the statement of cash flows for December 31, 2016 were reclassified in compliance with this ASU.

On January 1, 2017, the company adopted ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires that a statement of cash flows explain the change in the total of cash, cash equivalents and restricted cash. Certain amounts on the statement of cash flows for December 31, 2016 and 2015 were reclassified in compliance with this ASU.

On January 1, 2017, the company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). This update is intended to simplify the accounting for share-based payment transactions, including the income tax impacts, classification of awards as either equity or liabilities, and presentation on the statement of cash flows. Under ASU 2016-09, the company has elected to account for forfeitures as they occur rather than on an estimated basis. The standard was adopted using a modified retrospective approach which had an immaterial impact on the accumulated deficit balance on January 1, 2017.

On January 1, 2017, the company adopted ASU No. 2015-17, Income Taxes (Topic 740). This update simplifies the presentation of deferred income taxes and requires that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet. Upon adoption, all deferred tax assets and liabilities were classified as long term.

On January 1, 2017, to better align expenses, the company changed the caption on the Consolidated Statements of Operations from Research and development to Product development. The company believes the revised presentation provides a clearer understanding of the business expenses in this caption. There was no change to the expense classification and the current period is comparable to the prior period.

Revenue Recognition

Subscription Revenue

Subscription revenue consists of revenue derived from Mattersight’s Behavioral Analytics service offerings, including predictive behavioral routing, performance management, quality assurance, predictive analytics, and marketing managed services revenue derived from the performance of services on a continual basis.

Subscription revenue is based on a number of factors, such as the number of users to whom the Company provides one or more of its Behavioral Analytics offerings, the type and number of Behavioral Analytics offerings deployed to the client, and in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. Subscription periods generally range from one to three years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. This revenue is recognized over the applicable subscription period, as the service is performed for the client.

33

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Revenue

Other revenue consists of deployment revenue, professional services revenue, and reimbursed expenses revenue.

Deployment revenue consists of planning, deployment, and training fees derived from Behavioral Analytics contracts. These fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the applicable subscription or pilot period. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in prepaid expenses and other long-term assets. Such costs are amortized over the subscription period. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

Professional services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training, as well as fees generated from the Company’s operational consulting services. Professional services are performed for the Company’s clients on a fixed-fee or time-and-materials basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared with the total estimated hours over the entire term of the contract.

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for the Company’s clients. An equivalent amount of reimbursable expenses is included in total cost of other revenue.

Total Cost of Revenue, Exclusive of Depreciation and Amortization

Total cost of revenue primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other client-related third-party outside services. Total cost of revenue excludes depreciation and amortization.

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Product Development

Product development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for product development personnel. The personnel costs included in this item are net of any labor costs directly related to the generation of revenue, which are represented in total cost of revenue.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, and marketing.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for the Company’s corporate technology infrastructure and applications.

Loss Per Common Share

The per common share basic net loss available to holders of the Company’s Common Stock, par value $0.01 per share (Common Stock), has been computed by dividing the net loss available to holders of Common Stock for each period presented by the weighted average shares outstanding. The per common share diluted loss available to holders of Common Stock has been computed by dividing the net loss available to holders of Common Stock by the weighted average shares outstanding plus the dilutive effect of Common Stock equivalents, which is primarily related to our 7% Series B Convertible Preferred Stock (Series B Stock), using the treasury stock method. In periods in which there was a loss, the dilutive effect of Common Stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

34

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value Measurements

Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, which includes foreign bank accounts, and receivables. Cash and cash equivalents consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2017, the Company had non-interest-bearing cash and interest-bearing money market balances in excess of federally insured limits by $11.2 million. The Company’s receivables are derived from billings to clients located primarily in the United States and are denominated in U.S. dollars.

Clients Accounting for 10% or More of Total Revenue:

	2017			2016			2015
United HealthCare Services, Inc.		28	%		33	%		31	%
CVS Caremark Corporation		16	%		15	%		13	%
TriWest Healthcare Alliance Corp		14	%		9	%		2	%
Progressive Casualty Insurance Company		8	%		11	%		15	%

Clients Accounting for 10% or More of Accounts Receivable:

	2017			2016
United HealthCare Services, Inc.		29	%		41	%
CVS Caremark Corporation		13	%		27	%
Progressive Casualty Insurance Company		13	%		—

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is between one and three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is only reviewed if a triggering event occurs to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, Intangibles – Goodwill and Other, which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

35

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the lesser of the amount financed and present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of twenty-four, thirty, or thirty-six months.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing the annual impairment test, a qualitative assessment is performed to determine whether the carrying amount exceeds the reporting unit’s fair value.  If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. The Company currently operates in a single business segment or reporting unit.

In 2017, after completing its annual qualitative review, the company concluded that it was not more likely than not that the carrying value of our reporting unit exceeded its fair value. Accordingly, the company concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

Intangible Assets

Intangible assets subject to amortization are assessed for impairment at least annually or when indicated by a change in economic or operational circumstances. The impairment assessment of these assets requires management to first compare the book value of the amortizing asset to undiscounted cash flows only if there are indicators of a change in circumstances. If the book value exceeds the undiscounted cash flows, management is then required to estimate the fair value of the assets and record an impairment loss for the excess of the carrying value over the fair value and annually challenge the useful lives.

Income Taxes

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards.

The Company has recorded income tax valuation allowances on its net deferred tax assets to account for the unpredictability surrounding the timing of realization of its U.S. and non-U.S. net deferred tax assets due to continuing operating losses. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to or achieving predictable levels of profitability.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit.

Unearned Revenue

Unearned revenue consists of billings or payments received in advance of revenue recognition for Behavioral Analytics contracts. Unearned revenue is recognized as revenue when the applicable recognition criteria are met.

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock outstanding as of December 31, 2017 and 2016 are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

36

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive loss. Income and expense items are translated at average exchange rates prevailing during the period.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Stock Warrants

In accordance with ASC 480-10, Distinguishing Liabilities from Equity, the Company classified certain warrants to purchase Common Stock as liabilities that do not meet the requirements for classification as equity. Such liabilities are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on warrant liability on the consolidated statements of operations in each reporting period. Fair value of the warrants was measured using a Black-Scholes model. See Note Eighteen—Fair Value Measurements.

Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics.

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-11—Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exceptionto address narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. Part I of the update changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Part II of the update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception. Part II does not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The company is currently evaluating the impact of this update on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective for reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The company is currently evaluating the impact of this update on its consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other, simplifying the test for goodwill impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this update, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is needed. This ASU is effective for reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The company is evaluating the standard and does not expect a change in value of goodwill when the standard is adopted.

37

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments. This update broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The update is effective for annual periods beginning after December 15, 2019. The company is currently evaluating the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update is intended to improve financial reporting of leasing transactions. The ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This update is effective for periods beginning after December 15, 2018. The company is currently evaluating the impact of this update on its consolidated financial statements. Certain operating leases the company is party to are expected to be recognized as assets and liabilities as a result of adopting this standard.

In May 2014, FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606). This update sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. The underlying principle of the new standard is that an organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The company is continuing to assess the impact of adopting ASU 2014-09. The company has completed its assessment of material contracts and management does not expect a significant change in revenue recognition or operating cash flows when ASU 2014-09 is adopted. The accounting for the incremental costs of obtaining and fulfilling a contract is not expected to change, as the company already defers these costs and amortizes them over the anticipated period of benefit. Additional processes and internal controls have been implemented to enable and maintain compliance with ASU 2014-09’s disclosure requirements. Some significant effects on the balance sheet are expected as a result of the guidance regarding contract balances. The company has elected to adopt the modified retrospective transition method. The company expects the cumulative adjustment to beginning retained earnings as a result of adoption of ASU 2014-09 to be immaterial.

Note Three — Receivables

Receivables consist of the following:

	December 31, 2017		December 31, 2016
Amounts billed to clients	$	6.6	$	8.8
Allowances for doubtful accounts		—		0.3
Receivables, net	$	6.6	$	8.5

Amounts billed to clients represent fees and reimbursable project-related expenses. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments and clients indicating their intention to dispute their obligation to pay for contractual services provided by us. If the financial condition of the Company’s clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Note Four — Current Prepaid Expenses

Current prepaid expenses primarily consist of deferred deployment costs, prepaid technology maintenance costs and prepaid commissions related to Behavioral Analytics contracts. These costs are recognized over the subscription periods of the respective contracts generally one to three years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. Costs included in current prepaid expenses will be recognized within the next twelve months.

38

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Current prepaid expenses consisted of the following:

	December 31, 2017		December 31, 2016
Prepaid technology maintenance costs	$	2.0	$	0.8
Deferred deployment costs		1.9		1.7
Prepaid commissions		1.1		1.2
Other		0.8		0.7
Total	$	5.8	$	4.4

Note Five — Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

	December 31, 2017			December 31, 2016
Computers and software	$	28.8		$	24.3
Leasehold improvements		4.0			4.3
Furniture and equipment		0.8			0.7
Equipment and leasehold improvements, gross		33.6			29.3
Accumulated depreciation and amortization		(25.0	)		(19.7	)
Equipment and leasehold improvements, net	$	8.6		$	9.6

Depreciation and amortization expense was $5.8 million, $5.5 million, and $4.4 million, for 2017, 2016, and 2015, respectively. Assets acquired under capital leases were $2.1 million, $2.4 million, and $2.7 million, in 2017, 2016, and 2015, respectively. Depreciation and amortization expense on capital lease assets was $2.5 million, $2.0 million, and $2.2 million, in 2017, 2016, and 2015, respectively.

The carrying value of equipment and leasehold improvements is only reviewed if a triggering event occurs to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value. There was a triggering event as of December 31, 2017 and December 31, 2016; however no impairment was required to be recognized.  

Note Six — Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, marketing managed services customer relationships and the purchase of certain intellectual property rights. The costs related to patent and trademark applications and the purchase of certain intellectual property are amortized over 120 months. The other intangible assets are fully amortized. Currently, amortization expense of intangible assets is expected to be $0.4 million annually.

	December 31, 2017			December 31, 2016
Patents and trademarks	$	4.0		$	3.7
Intellectual property		3.3			3.3
Gross intangible assets		7.3			7.0
Accumulated amortization of intangible assets		(4.3	)		(3.8	)
Total	$	3.0		$	3.2

39

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Seven — Other Long-Term Assets

Other long-term assets includes the long-term portion of restricted cash, prepaid technology and maintenance support, deferred deployment costs, and prepaid commissions related to Behavioral Analytics.  Restricted cash represents cash used to collateralize certain letters of credit issued to support the company’s equipment leasing activities. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months. Other long-term assets consisted of the following:

	December 31, 2017		December 31, 2016
Restricted cash	$	2.7	$	4.2
Prepaid technology and maintenance support		1.9		0.6
Deferred deployment costs		1.2		0.6
Prepaid commissions		—		0.5
Other		0.2		0.1
Total	$	6.0	$	6.0

Note Eight — Employee Benefit Plans

The Company’s U.S. employees are eligible to participate in the Mattersight Corporation 401(k) Plan (the Plan) on the first day of the month coinciding with or following their date of hire. The Plan allows employees to contribute up to 30% of their eligible compensation and up to 100% of their bonus compensation, subject to IRS statutory limits. For 2017, 2016 and 2015, the employer match contribution was $0.5 million, $0.5 million and $0.4 million, respectively.

Note Nine — Other Current Liabilities

	December 31, 2017		December 31, 2016
Accrued vendor payable	$	1.9	$	1.9
Deferred rent liability		0.5		0.4
Warrant liability		0.4		0.8
Other		0.6		0.3
Total	$	3.4	$	3.4

On August 1, 2016, the company issued a warrant to Hercules Capital, Inc., (Hercules) that gives Hercules the right to purchase shares of the company’s common stock at $3.50 per share. The warrant is exercisable for 357,142 shares of common stock and expires on August 1, 2023. The warrant is accounted for as a liability and carried at fair market value using the Black-Scholes model. Changes in the warrant’s fair market value are recognized in non-operating income (expense) in the consolidated statements of operations.

Note Ten — Leases

Capital Leases

Assets under capital leases consist of computer hardware and related equipment. The gross amount of assets recorded under capital leases was $7.3 million and $6.5 million at December 31, 2017 and December 31, 2016, respectively. Depreciation expense related to assets under capital leases is included in depreciation and amortization expense on the consolidated statements of operations.

40

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2017, the future minimum lease payments due under capital leases are expected to be as follows:

(In millions)
Year	Amount
2018	$	2.2
2019		1.1
2020		0.2
Total minimum lease payments	$	3.5
Less: estimated executory costs		—
Net minimum lease payments	$	3.5
Less: amount representing interest		(0.3	)
Present value of minimum lease payments	$	3.2

Assets acquired under capital leases included in equipment and leasehold improvements (see Note Five—Equipment and Leasehold Improvements):

	December 31, 2017			December 31, 2016
Computers and software	$	7.3		$	6.5
Accumulated depreciation and amortization		(4.1	)		(2.9	)
Computers and software, net	$	3.2		$	3.6

Operating Leases

The Company leases various office facilities under leases expiring at various dates through August 31, 2024. Additionally, the Company leases various property and office equipment under operating leases, generally under three year terms, expiring at various dates. Certain lease agreements contain escalating rent clauses, which require higher rent payments in future years. The Company expenses rent on a straight-line basis over the term of the lease, including any rent-free periods. In addition, the Company received certain leasehold improvement incentives, and recorded these incentives as deferred rent, which is amortized as a reduction of rent expense over the life of the lease. Net deferred rent on the consolidated balance sheet as of December 31, 2017, 2016, and 2015 was $2.4 million, $2.6 million, and $2.0 million, respectively. Rental expense for all operating leases approximated $1.5 million, $1.3 million, and $1.7 million, for 2017, 2016, and 2015, respectively.

In 2017, the Company extended its operating lease for the Edina facility.  The initial lease began June 1, 2011 and terminates August 31, 2024.  In 2016, the Company entered into an operating lease to relocate its Austin facility. The initial lease term, which became effective on April 1, 2016, terminates on August 31, 2023. In 2015, the Company entered into an operating lease to relocate its corporate headquarters to Chicago, Illinois. The initial lease term, which became effective on July 1, 2015, terminates on July 31, 2022. The leases include one five-year renewal option.

Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year are as follows: (in millions)

Year	Amount
2018	$	0.9
2019		0.7
2020		0.6
2021		0.7
2022		0.8
Thereafter		0.5
Total minimum payments required	$	4.2

41

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Eleven — Debt

On June 29, 2017, the company entered into a loan agreement with CIBC Bank USA f/k/a The PrivateBank and Trust Company (CIBC). The loan agreement provides for a revolving line of credit to the company with a maximum credit limit of $20.0 million, which matures on June 29, 2020 (the credit facility). The credit facility is secured by a security interest in the company’s assets. The company, subject to certain limits and restrictions, may from time to time request the issuance of letters of credit under the loan agreement.

The principal amount outstanding under the credit facility will accrue interest at a floating annual rate equal to 1 month, 2 month or 3 month LIBOR (as selected by the company) plus 4.50%, payable monthly. In addition, the company will pay a non-use fee on the credit facility of 25 basis points (0.25%) per annum of the average unused portion of the credit facility.  The amount the company may borrow under the credit facility is limited to five times the company’s monthly recurring revenue (as determined in accordance with the terms and conditions set forth in the loan agreement), multiplied by a dynamic churn factor that is based upon the ratio of recurring revenue retained in the prior twelve month period relative to the total amount of recurring revenue at the beginning of the period.

The loan agreement imposes various restrictions on the company, including usual and customary limitations on the ability of the company to incur debt and to grant liens upon its assets, increasing restrictions based on thresholds, prohibits certain consolidations, mergers, and sales and transfers of assets by the company and requires the company to comply with a trailing twelve months of total revenue and quarterly EBITDA (as adjusted in accordance with the loan agreement) targets. The loan agreement includes usual and customary events of default (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the loan agreement may be accelerated and/or the lender’s commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the loan agreement will automatically become immediately due and payable, and the lender’s commitments will automatically terminate.  

On June 29, 2017, the company drew $13.5 million on the revolving line of credit. The proceeds were used to repay the principal balance of $22.5 million under the company’s prior credit facility with Hercules. Upon repayment, the company terminated its loan agreement with Hercules. The loss on the early extinguishment of Hercules debt totaled $1.8 million. It consisted of a prepayment charge of $0.7 million, acceleration of unaccreted debt discount of $0.6 million, and acceleration of unamortized deferred debt costs of $0.5 million. The average outstanding balance on the revolving line of credit during for 2017 was $10.3 million.  At December 31, 2017, $16.9 million remains outstanding on the revolving line of credit with the ability to draw an additional $1.8 million. There was also $0.7 million in letters of credit issued by CIBC against the line of credit. During January and February 2018, the company repaid $7.5 million of principal on the revolving line of credit.

Debt consisted of the following at December 31, 2017:

	December 31, 2017		December 31, 2016
CIBC loan due June 29, 2020, effective borrowing rate of 5.93% at December 31, 2017	$	16.9	$	—
Hercules loan effective rate of 14.50% at December 31, 2016		—		22.5
Furniture loan due May 2021, effective rate of 9.10%		0.1		0.1
Furniture loan due May 2021, effective rate of 9.55%		0.1		0.1
Furniture loan due July 2019, effective rate of 13.98%		0.1		0.1
Total debt(1)	$	17.2	$	22.8

(1) Total debt of $17.2 million at December 31, 2017 includes the current portion of the furniture loans of $0.1 million. As of December 31, 2016, short-term debt was $0.7 million, consisting of $0.6 million related to the current portion of the secured loan with Hercules and $0.1 million related to the current portion of the furniture loans.

42

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Debt maturities were as follows as of December 31, 2017:

(In millions)
Year	Amount
2018	$	0.1
2019		0.1
2020		16.9
2021		0.1
2022		—

Letters of Credit

The Company has standby letters of credit outstanding in the amount of $3.4 million at December 31, 2017. Letters of credit are expected to expire from 2018 through 2023.

Note Twelve — Other Long-Term Liabilities

	December 31, 2017		December 31, 2016
7% Series B convertible preferred stock dividend payable	$	3.2	$	2.6
Deferred rent liability		1.9		2.2
Technology service liability		1.2		—
Deferred income tax liability		0.2		0.3
Intellectual property purchase liability		—		0.8
Total	$	6.5	$	5.9

Note Thirteen — Income Taxes

Loss before income taxes consisted of the following:

	2017			2016			2015
United States	$	(16.4	)	$	(20.9	)	$	(15.5	)
Foreign		—			—			(0.1	)
Total	$	(16.4	)	$	(20.9	)	$	(15.6	)

The income tax benefit (provision) consists of the following:

	2017		2016			2015
Current:
Federal	$	—	$	(0.1	)	$	—
State		—		—			—
Foreign		—		—			—
Total current		—		(0.1	)		—
Deferred:
Federal		0.1		—			—
State		—		—			—
Foreign		—		—			—
Total deferred		0.1		—			—
Income tax benefit (provision)	$	0.1	$	(0.1	)	$	—

43

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Total income tax benefit differed from the amount computed by applying the federal statutory income tax rate due to the following:

	2017			2016			2015
Valuation allowance	$	25.7		$	(7.7	)	$	(4.9	)
Federal tax benefit, at statutory rate		5.7			7.2			5.5
Stock-based compensation		3.1			—			—
Deferrals		0.7			—			—
State tax benefit, net of federal benefit		0.5			0.6			0.4
Tax reform(1)		(32.2	)		—			—
Expiration of state NOLs		(1.7	)		—			—
Expiration of vested stock options		(1.4	)		—			—
Nondeductible expenses		(0.3	)		(0.3	)		0.1
Other		—			0.1			(1.1	)
Income tax benefit (provision)	$	0.1		$	(0.1	)	$	—

(1) On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was signed into law. The Company has completed its accounting for tax reform under the Tax Cuts and Jobs Act as of December 31, 2017. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings.  We did not recognize a liability for the tax on accumulated unremitted non-U.S. earnings because we have an accumulated foreign loss. At December 31, 2017, we recognized a tax benefit of $0.1 million from revaluing U.S. net deferred tax liabilities.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit.

A reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year are as follows:

	2017		2016		2015
Balance at beginning of year	$	12.7	$	12.7	$	12.7
Additions based on tax positions related to the current year		—		—		—
Additions for tax positions of prior years		—		—		—
Reductions for tax positions of prior years		—		—		—
Reductions for tax positions as a result of lapse of statute		—		—		—
Settlements		—		—		—
Balance at end of year	$	12.7	$	12.7	$	12.7

Due to the Company’s net operating loss carryforward position, these unrecognized tax benefits will not impact the Company’s effective tax rate, if recognized. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to result in a significant impact on the results of operations or the financial position of the Company.

Due to the Company’s net operating loss carryforward position, accrued interest and penalties associated with uncertain tax positions as of December 31, 2017 are not material. Interest and penalties associated with uncertain tax positions are recorded as part of income tax expense.

The statutes of limitation for the Company’s income tax returns after 2001 effectively remain open for examination by the IRS because the net operating loss carryforward from those years can be examined by the IRS for a period of three years after filing the tax return for the year the loss is used.

Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company and its subsidiaries may have various state and foreign income tax returns for immaterial jurisdictions in the process of examination throughout the reporting period.

44

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets and liabilities comprised the following:

	December 31, 2017			December 31, 2016
Deferred tax assets:
Net operating loss carryforwards	$	53.9		$	75.2
Other accruals		4.0			8.8
Depreciation and amortization, including goodwill		0.7			0.8
Tax credit carryforward		0.5			0.5
Valuation allowance		(58.1	)		(83.8	)
Total deferred tax assets		1.0			1.5
Deferred tax liabilities:
Prepaid expenses		(1.1	)		(1.7	)
Total deferred tax liabilities		(1.1	)		(1.7	)
Net deferred tax liability	$	(0.1	)	$	(0.2	)

Deferred income taxes are not provided on certain undistributed earnings of foreign subsidiaries because such foreign subsidiaries are in an accumulated foreign loss position.

During 2002, the Company established a valuation allowance related to deferred tax assets for the U.S. This was in addition to the valuation allowance established in 2001 for non-U.S. deferred tax assets. The Company continues to provide a valuation allowance on significantly all domestic and foreign deferred tax assets as the Company has determined that it is more likely than not that the deferred tax assets in these jurisdictions will not be realized. As of December 31, 2017, net deferred tax assets of $58.1 million were fully offset by a valuation allowance. The Company’s U.S. federal net operating losses (NOLs) of $260.5 million and U.S. state NOLs of $108.9 million will expire beginning in 2022 and 2018, respectively. The Company’s non-U.S. NOLs of $0.8 million are subject to various expiration dates beginning in 2029. The Company also carries $0.5 million in research and development credit carryforwards that will expire beginning in 2020.

The Company’s ability to utilize its NOLs could become subject to significant limitations under Section 382 of the Internal Revenue Code if the Company were to undergo an ownership change. An ownership change would occur if the stockholders who own or have owned, directly or indirectly, 5% or more of the Company’s Common Stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder, increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL carryforwards. The Company has undergone a Section 382 analysis and does not believe there is currently a limitation on the use of NOLs under Section 382; however, due to ongoing ownership changes, the Company may be subject to significant limitations in the future. If a change in ownership is deemed to have occurred during the past three years, then it may be possible that the Company’s NOL carryforward could be subject to limitation under Section 382 for tax return purposes. However, since its NOL carryforward is fully reserved with a valuation allowance, there would be no impact for financial statement purposes from a Section 382 limitation.

Note Fourteen — Litigation and Other Contingencies

The Company is a party to various agreements, including all client contracts, under which it may be obligated to indemnify the other party with respect to certain matters, including, but not limited to, indemnification against third-party claims of infringement of intellectual property rights with respect to services, software, and other deliverables provided by the Company. These obligations may be subject to various limitations on the remedies available to the other party, including, without limitation, limits on the amounts recoverable and the time during which claims may be made, and may be supported by indemnities given to the Company by applicable third parties. Payment by the Company under these indemnification clauses is generally subject to the other party making a claim that is subject to challenge by the Company. Historically, the Company has not been obligated to pay any claim for indemnification under its agreements, and management is not aware of future indemnification payments that it would be obligated to make.

45

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under its By-Laws, subject to certain exceptions, the Company has agreed to indemnify its corporate officers and directors for certain events or occurrences while the corporate officer or director is, or was, serving at its request in such capacity or in certain related capacities. The Company has separate indemnification agreements with each of its directors and corporate officers that requires it, subject to certain exceptions, to indemnify them to the fullest extent authorized or permitted by its By-Laws and the Delaware General Corporation Law. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer liability insurance policy that limits its exposure and enables it to recover a portion of any amounts paid under these indemnification agreements. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company had no liabilities recorded for these agreements as of December 31, 2017.

The Company’s products may be subject to sales tax in certain jurisdictions. If a taxing authority were to successfully assert that we have not properly collected sales or other transaction taxes, or if sales or other transaction tax laws or the interpretation thereof were to change, and we were unable to enforce the terms of our contracts with customers that give us the right to reimbursement for assessed sales taxes, we could incur tax liabilities in amounts that could be material. The Company has considered the changing nature of tax laws, the terms of its customer contracts and its recent audit experience in assessing its exposure to possible and probable sales tax liabilities. Based on its assessment, the company has recorded a sales tax liability of $0.1 million at December 31, 2017.

Note Fifteen — Capital Stock and Series B Stock

Under the terms of its Certificate of Incorporation, as amended, the Company’s authorized capital stock consists of (i) 50,000,000 shares of Common Stock, and (ii) 40,000,000 shares of preferred stock (Preferred Stock). Under the terms of the Certificate of Designations of 7% Series B Convertible Preferred Stock, the Company designated 5,000,000 shares of the 40,000,000 shares of Preferred Stock as its Series B Stock. 1,637,786 and 1,637,948 shares of Series B Stock were issued and outstanding as of December 31, 2017 and December 31, 2016, respectively.

On February 23, 2017, the company entered into a definitive purchase agreement for the sale of 5,328,187 shares of its common stock to certain investors and certain officers and directors in a private placement. Under the terms of the agreement, the company raised approximately $16.0 million in gross proceeds by selling 5,228,187 shares to certain investors at a price of $3.00 per share and by selling 100,000 shares to certain officers and directors (including certain of their affiliates) at a price of $3.45 per share. The shares represented approximately 20% of the issued and outstanding shares of common stock immediately prior to the issuance. On March 1, 2017, the company received aggregate gross proceeds, net of fees, of $14.8 million. Proceeds are being used for general corporate, working capital, and debt repayment purposes.  Craig-Hallum Capital Group LLC, which acted as the sole placement agent for the offering, received a commission of $1.1 million, and was reimbursed for its out-of-pocket expenses. The company’s registration statement on Form S-3 (File No. 333-217290) was filed with the SEC on April 13, 2017 and declared effective by the SEC on April 26, 2017.

On July 22, 2015, the Company signed a definitive Common Stock Purchase Agreement (the 2015 Purchase Agreement) to raise approximately $16.2 million in gross proceeds in a registered direct offering. Under the terms of the 2015 Purchase Agreement, the Company sold 2,728,712 shares of Common Stock (the Shares). Of the aggregate 2,728,712 Shares, 2,563,238 were sold to certain investors at a price of $5.93 per share and 165,474 were sold to certain officers and directors (including certain of their affiliates) at a price of $6.11 per share.  The Shares represented approximately 12% of the issued and outstanding shares of Common Stock immediately prior to the execution of the 2015 Purchase Agreement. The offering closed on July 23, 2015. The aggregate proceeds that the Company received from the offering, net of fees, were approximately $15.9 million. Proceeds from the offering are being used for general corporate and working capital purposes. Craig-Hallum Capital Group LLC, which acted as the Company’s financial advisor for the offering, received a fee of $0.2 million. The Shares were sold pursuant to a prospectus supplement dated as of July 22, 2015, in connection with a takedown from the Company’s effective shelf registration statement on Form S-3 (File No. 333-202744), which was filed with the SEC on March 13, 2015 and declared effective by the SEC on April 8, 2015.

The Series B Stock accrues dividends at a rate of 7% per annum, is entitled to a preference upon liquidation, and is convertible on a one-for-one basis into shares of Common Stock, subject to adjustment for stock splits, stock dividends, and similar actions. The Series B Stock generally votes on a one-for-one basis with the Common Stock, subject to adjustment for certain actions and specified matters as to which the Series B Stock is entitled to a separate class vote.

Note Sixteen — Stock-Based Compensation

The Company has two stock-based compensation plans: the Mattersight Corporation 1999 Stock Incentive Plan (the 1999 Plan) and the Mattersight Corporation Employee Stock Purchase Plan (the ESPP).

46

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under the 1999 Plan, awards of restricted stock, salary replacement, commissions, stock options, and stock appreciation rights may be granted to directors, officers, employees, consultants, independent contractors, and agents of the Company and its subsidiaries. Awards granted under the 1999 Plan are made at the discretion of the Compensation Committee of the Company’s Board of Directors (the Compensation Committee). If shares or options awarded under the 1999 Plan are not issued due to cancellation of unvested or unexercised options or shares, then those shares or options again become available for issuance under the 1999 Plan. Under the 1999 Plan, on the first day of each year, the aggregate number of shares available for issuance under the 1999 Plan is automatically increased by an amount equal to 5% of the total number of shares of Common Stock that are outstanding. At the 2008 Annual Meeting of Stockholders, stockholders approved the amendment and restatement of the 1999 Plan to increase the number of shares available for issuance under the 1999 Plan by 1,500,000. Stockholders approved at the 2017 Annual Meeting, to increase the number of shares available for issuance under the ESPP by 250,000.

Stock-based compensation expense was $2.9 million, $5.3 million, and $5.4 million, for 2017, 2016, and 2015, respectively. The Company recognizes stock compensation expense ratably over the vesting period. The Company does not recognize the windfall tax benefit related to the excess tax deduction because the Company currently does not anticipate realizing the tax savings associated with this deduction. See Note Thirteen—Income Taxes.

As of December 31, 2017, there were a total of 3,331,957 shares of Common Stock available for future grants under the 1999 Plan and from treasury stock. The Company’s Common Stock is traded on the NASDAQ Global Market under the symbol MATR.

Restricted Stock

Restricted stock awards are shares of Common Stock granted to an individual that do not immediately vest but rather vest over a period of time. During the vesting period, the holder of granted restricted stock receives all of the benefits of ownership (right to dividends, voting rights, etc.), other than the right to sell or otherwise transfer any interest in the stock. In addition to the Annual Grant (as defined under the section titled Stock Options below), each non-employee director receives 10,000 shares of restricted stock annually, the day after the Company’s annual stockholders’ meeting, which vest 25% at the end of the month in which awarded and the remaining balance vests over the following three quarters.

Restricted stock award activity was as follows for the years presented:

	Shares			Weighted Average Price
Nonvested balance at December 31, 2014		556,194		$	5.76
Granted		825,120		$	6.78
Vested		(493,270	)	$	6.18
Forfeited		(53,819	)	$	6.15
Nonvested balance at December 31, 2015		834,225		$	6.49
Granted		950,340		$	3.89
Vested		(380,218	)	$	5.34
Forfeited		(220,594	)	$	5.98
Nonvested balance at December 31, 2016		1,183,753		$	4.87
Granted		1,530,192		$	3.30
Vested		(1,163,992	)	$	4.20
Forfeited		(184,753	)	$	4.98
Nonvested balance at December 31, 2017		1,365,200		$	3.65

	2017		2016		2015
Total fair value of restricted stock awards vested	$	3.8	$	1.6	$	3.3
Compensation expense related to restricted stock awards	$	2.3	$	4.0	$	2.3

As of December 31, 2017, there remains $3.5 million of unrecognized compensation expense related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 1.7 years. Under ASU No. 2016-09, in 2017 the Company elected to no longer apply a forfeiture rate but to account for forfeitures as incurred. The Company estimated the forfeiture rate at 3% for 2016 and 2015.

47

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Options

Stock option awards may be in the form of incentive or non-qualified options. Stock options are granted with an exercise price per share equal to the fair market value of a share of the common stock on the date of grant, and have a maximum term of 10 years. The stock option terms are set by the Compensation Committee and generally become exercisable over a period of four years. The vesting can begin in equal monthly or quarterly increments over the vesting period.

Each non-employee director, upon commencing service, receives a non-qualified stock option to purchase 50,000 shares of Common Stock that vests ratably over a period of 48 months. Additionally, each non-employee director receives a non-qualified stock option to purchase 10,000 shares of Common Stock, granted annually the day after the Company’s annual stockholders’ meeting (the Annual Grant). Stock options granted to non-employee directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, and are exercisable for up to 10 years.

Option activity was as follows for the years presented:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 31, 2014		2,636,596		$	7.42		6.8
Exercisable as of December 31, 2014		1,582,165		$	8.70		5.6
Granted		222,625		$	6.57			$	3.55
Exercised		(59,638	)	$	4.76
Forfeited		(192,166	)	$	7.47
Outstanding as of December 31, 2015		2,607,417		$	7.41		6.0
Exercisable as of December 31, 2015		1,967,825		$	7.97		5.2
Outstanding intrinsic value at December 31, 2015	$	2.4
Exercisable intrinsic value at December 31, 2015	$	1.8
Granted		115,000		$	3.82			$	1.85
Exercised		(56,250	)	$	4.20
Forfeited		(74,026	)	$	6.13
Outstanding as of December 31, 2016		2,592,141		$	7.36		4.9
Exercisable as of December 31, 2016		2,282,476		$	7.61		4.5
Outstanding intrinsic value at December 31, 2016	$	—
Exercisable intrinsic value at December 31, 2016	$	—
Granted		60,000		$	2.55			$	1.27
Exercised	—			$	—
Forfeited		(576,740	)	$	11.15
Outstanding as of December 31, 2017		2,075,401		$	6.16		4.4
Exercisable as of December 31, 2017		2,006,878		$	6.21		4.3
Outstanding intrinsic value at December 31, 2017	$	—
Exercisable intrinsic value at December 31, 2017	$	—

	2017		2016		2015
Compensation expense related to option awards	$	0.5	$	1.1	$	1.7

	2017		2016		2015
Total fair value of stock options vested	$	0.6	$	1.1	$	1.7
Intrinsic value of stock options exercised		—		—		0.1
Proceeds received from option exercises		—		0.2		0.3

48

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2017, there remained $0.2 million of unrecognized compensation expense related to stock options. These costs are expected to be recognized over a weighted average period of 1.1 years. The Company did not apply a forfeiture rate in 2016 or 2015 asthe impact was negligible.

The following table summarizes the stock options granted during 2017, 2016, and 2015 by range of exercise price:

	2017		2016		2015
Options granted		60,000		115,000		222,625
Range of exercise price	$	2.55	$3.57 - $4.40		$6.13 - $6.90

The vesting schedule for options granted is one of the following: (1) vesting 6.25% quarterly, with the balance vesting ratably over the following 15 quarters, (2) vesting 25% at the end of the month in which awarded and the remaining balance vesting over the following 12 quarters (3) vesting 25% at the end of the month in which awarded and the remaining balance vesting over the following 3 quarters.

The fair value for options granted during 2017, 2016, and 2015 was estimated on the date of grant using a Black Scholes option-pricing model. The Company used the following weighted average assumptions:

	2017			2016			2015
Risk-free interest rates		1.52	%		0.81	%		1.03	%
Expected dividend yield		—			—			—
Expected volatility		54	%		54	%		58	%
Expected lives	5.5 years			5.5 years			6.0 years

Historical Company information is the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Employee Stock Purchase Plan

The ESPP is intended to qualify as an employee stock purchase plan under section 423 of the Internal Revenue Code. We adopted the ESPP in 1999 and amended and restated the ESPP in May 2007 and February 2016. Under the ESPP, eligible employees are permitted to purchase shares of Common Stock at below-market prices. The purchase period opens on the first day and ends on the last business day of each calendar quarter. As of December 31, 2017, there remains 234,389 shares available for issuance under ESPP. The shares of Common Stock issued in respect of employee purchases under the ESPP during 2017, 2016, and 2015, were as follows:

	2017		2016		2015
Shares of common stock issued		101,393		88,282		41,026
Expense related to ESPP (in thousands)	$	92	$	95	$	61

The fair value for ESPP purchases during 2017, 2016, and 2015, was estimated using a Black Scholes model. The Company used the following weighted average assumptions:

	2017			2016			2015
Risk-free interest rates		0.86	%		0.25	%		0.01	%
Expected dividend yield		—			—			—
Expected volatility		53	%		48	%		37	%
Expected lives	0.25 years			0.25 years			0.25 years

49

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Seventeen — Loss Per Share

The following table sets forth the loss per share calculation for the periods presented:

	2017			2016			2015
Net loss	$	(16.3	)	$	(21.0	)	$	(15.7	)
Dividends related to Series B convertible preferred    stock(1)		(0.6	)		(0.6	)		(0.6	)
Net loss available to common stockholders	$	(16.9	)	$	(21.6	)	$	(16.3	)
Per share of Common Stock
Basic/diluted net loss available to common stockholders	$	(0.56	)	$	(0.86	)	$	(0.70	)
Weighted average shares outstanding (basic and diluted)    (in millions)		30.45			25.21			23.26
Currently anti-dilutive common stock equivalents(2)    (in millions)		1.56			1.73			2.21

(1) Dividends on 7% Series B convertible preferred stock (Series B stock) are cumulative and have been accrued from July 1, 2012 to December 31, 2017. The total accrued dividends are $3.2 million as of December 31, 2017, which will continue to be accrued until they are declared by the board of directors. Dividends related to Series B convertible preferred stock were accrued but not paid during 2017, 2016 and 2015.

(2) In periods in which there was a loss, the effect of common stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

Note Eighteen — Fair Value Measurements

The company uses a three-level classification hierarchy of fair value measurements to report certain assets and liabilities at fair value. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses observable market data, such as quoted market prices for similar assets and liabilities in active markets, or inputs other than quoted prices that are directly observable. Level 3 uses entity-specific inputs or unobservable inputs that are derived and cannot be corroborated by market data.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table presents financial instruments measured at fair value measured on a recurring basis:

	December 31, 2017
	Carrying value		Level 1		Level 2		Level 3
Cash and cash equivalents - money market fund	$	0.5	$	0.5	$	—	$	—
Warrant liability		0.4		—		—		0.4

	December 31, 2016
	Carrying value		Level 1		Level 2		Level 3
Cash and cash equivalents - money market fund	$	12.1	$	12.1	$	—	$	—
Warrant liability		0.8		—		—		0.8

50

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table represents the activity in the Company’s Level 3 warrants during the years ended:

(In millions)	Amount
Level 3 warrants, ending balance at December 31, 2014	$	0.4
Change in fair value of warrant liability		—
Warrant exercise		(0.4	)
Level 3 warrants, ending balance at December 31, 2015		—
Addition - Hercules warrants, initial fair value		0.9
Change in fair value of warrant liability		(0.1	)
Level 3 warrants, ending balance at December 31, 2016		0.8
Change in fair value of warrant liability		(0.4	)
Level 3 warrants, ending balance at December 31, 2017	$	0.4

The carrying values of other cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximated their fair values as of December 31, 2017 and December 31, 2016 due to the short-term nature of these instruments.

The company determined the fair value of the liability for the warrant issued to Hercules, considered a Level 3 liability, using the Black-Scholes model. At December 31, 2017, management used a risk free rate of 2.24%, expected volatility of 53%, and an expected term of 5.59 years. Significant increases or decreases in any of these inputs in isolation would result in a significantly different fair value (see Note Nine –Other Current Liabilities).

The fair value of long-term debt was estimated to be $17.1 million at December 31, 2017.

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 during 2017. There were no assets or liabilities valued at fair value on a nonrecurring basis during 2017.

Note Nineteen — Quarterly Data (Unaudited)

	2017
	1st			2nd			3rd			4th			Year
Total revenue	$	11.0		$	10.6		$	11.3		$	13.6		$	46.5
Gross margin	$	7.5		$	7.2		$	8.2		$	10.1		$	33.0
Operating loss	$	(4.0	)	$	(4.2	)	$	(2.7	)	$	(1.3	)	$	(12.2	)
Loss before income taxes	$	(4.9	)	$	(6.8	)	$	(3.0	)	$	(1.7	)	$	(16.4	)
Net loss available to common stockholders	$	(5.1	)	$	(6.9	)	$	(3.2	)	$	(1.7	)	$	(16.9	)
Per share of common stock:
Basic net loss available to common stockholders	$	(0.19	)	$	(0.22	)	$	(0.10	)	$	(0.05	)	$	(0.56	)
Diluted net loss available to common stockholders	$	(0.19	)	$	(0.22	)	$	(0.10	)	$	(0.05	)	$	(0.56	)

	2016
	1st			2nd			3rd			4th			Year
Total revenue	$	10.0		$	9.1		$	10.4		$	12.6		$	42.1
Gross margin	$	6.8		$	5.9		$	7.0		$	8.6		$	28.3
Operating loss	$	(5.6	)	$	(6.0	)	$	(5.0	)	$	(2.2	)	$	(18.8	)
Loss before income taxes	$	(5.8	)	$	(6.2	)	$	(5.8	)	$	(3.1	)	$	(20.9	)
Net loss available to common stockholders	$	(6.0	)	$	(6.3	)	$	(6.0	)	$	(3.3	)	$	(21.6	)
Per share of common stock:
Basic net loss available to common stockholders	$	(0.24	)	$	(0.25	)	$	(0.24	)	$	(0.13	)	$	(0.86	)
Diluted net loss available to common stockholders	$	(0.24	)	$	(0.25	)	$	(0.24	)	$	(0.13	)	$	(0.86	)

51

MATTERSIGHT CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Description of Allowance and Reserves	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Additions Charged to Other Accounts		Deductions			Balance at End of Period
Valuation allowance for doubtful accounts:
December 31, 2017	$	0.3		—		—		(0.3	)	$	—
December 31, 2016	$	—		0.3		—		—		$	0.3
December 31, 2015	$	—		—		—		—		$	—
Valuation allowance for deferred tax assets:
December 31, 2017	$	83.8		—		—		(25.7	)	$	58.1
December 31, 2016	$	75.8		8.0		—		—		$	83.8
December 31, 2015	$	71.0		4.8		—		—		$	75.8

52

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Based on their evaluation for the period covered by this Annual Report on Form 10-K, Mattersight’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2017, the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Mattersight’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this Form 10-K.

(c) Attestation Report of the Registered Public Accounting Firm

Grant Thornton LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein, on the effectiveness of our internal control over financial reporting. See Report of Grant Thornton LLP Independent Registered Public Accounting Firm on page 25, which is incorporated herein by reference.

(d) Changes in Internal Control over Financial Reporting

There has been no change in Mattersight’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter of 2017 that has materially affected, or is reasonably likely to materially affect, Mattersight’s internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

53

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

For information about our corporate Directors and the committees of our Board of Directors, see the captions Election of Directors and Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement to be filed by Mattersight for its 2018 Annual Meeting of Stockholders, which is incorporated herein by reference in response to this item.

The following table includes the name, age (as of March 2, 2018), and current position of each of our executive officers.

Name	Age	Current Position
Kelly D. Conway*	61	President and Chief Executive Officer
Christopher J. Danson	50	Executive Vice President and Chief Technology Officer
David R. Gustafson	40	Executive Vice President and Chief Operating Officer
David B. Mullen*	67	Senior Vice President and Chief Financial Officer

* Member of the Board of Directors

Except as required by individual employment agreements between executive officers and the Company, there exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her removal or resignation.

The principal business experience of the executive officers for at least the last five years is as follows:

Kelly D. Conway has served as the President and Chief Executive Officer and a Director of the Company, since its incorporation in May 1999 as a subsidiary of Technology Solutions Company (TSC). Mr. Conway joined TSC in November 1993 as Senior Vice President, assumed the position of Executive Vice President in July 1995, and became Group President in October 1998. Prior to joining TSC, Mr. Conway served as a Partner in the management consulting firm of Spencer, Shenk and Capers and also held various positions, including President and Chief Executive Officer, with Telcom Technologies, a manufacturer of automatic call distribution equipment.

Christopher J. Danson has been Executive Vice President and Chief Technology Officer since August 2015, prior to which he served as Executive Vice President of Delivery since February 2012 and Vice President of Delivery since June 2011. Prior to these roles, Mr. Danson served as Vice President of ICS and CRM Delivery since January 2005. His responsibilities over at least the past five years have included executive leadership of the business and technical delivery functions, which encompasses product development, rules and analytics development/tuning, data centers, security, training and adoption, service delivery management, support operations and business intelligence. In total, Mr. Danson has spent over 20 years with the Company, having spent the first seven years of his tenure with TSC.

David R. Gustafson has served as the Company’s Executive Vice President and Chief Operating Officer since August 2015 (during which period he also served as interim Chief Financial Officer from June 2016 through December 2016). Mr. Gustafson was Executive Vice President of Products and Marketing during the period from July 2013 through August 2015 (during which period he served as interim Chief Financial Officer from March 2015 to July 2015), Executive Vice President of Product and Customer Operations during the period from May 2012 to June 2013, and Vice President of Marketing and Product Management during the period from February 2012 through May 2012. Mr. Gustafson also served as Vice President of BA Business Delivery during the period from September 2008 through May 2012. Mr. Gustafson has responsibility for product management, product delivery, implementation services, service delivery, customer success, and the Company’s behavioral and data science teams. In total, Mr. Gustafson has spent over 15 years at Mattersight.

David Mullen has served as Mattersight’s Senior Vice President and Chief Financial Officer since January 2017 and as a member of the Company’s board of directors since March 2009. Prior to joining the Company as its Senior Vice President and Chief Financial Officer, Mr. Mullen acted as an independent consultant until December 2016. Mr. Mullen is the former Executive Vice President and Chief Financial Officer of Navteq Corporation, having held that position from December 2002 to January 2010. Navteq was acquired by Nokia Corporation (NYSE: NOK) in July 2008. Mr. Mullen served as a director and Audit Committee member of Avid Technology, Inc. (NASDAQ: AVID) until October 2014. Mr Mullen served as a director and Audit Committee member of Angie’s List, Inc. (NASDAQ: ANGI), between July 2014 and September 2017.

54

The Company maintains a code of ethical business conduct (the Code of Conduct) applicable to all of our directors, officers, and other employees, including our Chief Executive Officer and Chief Financial Officer (who serves as our principal financial officer) and Vice President and Controller (who serves as our Principal Accounting Officer). The Code of Conduct addresses ethical conduct, SEC disclosure, legal compliance, and other matters as contemplated by Section 406 of the Sarbanes-Oxley Act of 2002. A copy of the Code of Conduct is available on our website at www.Mattersight.com. We will make a copy of it available to any person, without charge, upon written request to Mattersight Corporation, 200 W. Madison Street, Suite 3100, Chicago, Illinois 60606, Attn: Legal Department. To the extent permitted by applicable rules of the NASDAQ Global Market, we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to or waivers of the Code of Conduct for our Chief Executive Officer or Chief Financial Officer by posting such information on our website.

Item 11. Executive Compensation.

The information under Executive Compensation, and Director Compensation in the Proxy Statement to be filed by the Company for its 2018 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under the heading Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement to be filed by the Company for its 2018 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

The following table shows, as of December 31, 2017, information regarding outstanding awards under all compensation plans of the Company (including individual compensation arrangements) under which equity securities of the Company may be delivered:

Plan Category	Shares of Common Stock to be Issued Upon Exercise of Outstanding Options and Rights(1)		Weighted Average Exercise Price of Outstanding Options and Rights		Shares of Common Stock Remaining Available for Future Issuance Under Compensation Plans (excluding securities reflected in column(2)
Equity compensation plans approved by security holders		2,075,401	$	6.16		3,566,346	(3)
Equity compensation plans not approved by security    holders(4)		—		—		—
Total		2,075,401	$	6.16		3,566,346	(5)

(1) Excludes purchase rights currently accruing under the ESPP. Purchase periods under the ESPP are three-month periods, beginning on the first business day of and ending on the last business day of each quarter. Eligible employees may purchase shares of our Common Stock at a price equal to 85% of the lower of (i) the fair market value of our Common Stock on the first day of a purchase period or (ii) the fair market value of our Common Stock on the last day of a purchase period.

(2) All of the securities available for future issuance listed herein may be issued other than upon the exercise of outstanding options, or similar rights. All of these shares are available for an award in the form of restricted stock, bonus stock, or similar awards under the Company’s applicable equity compensation plans.

(3) Consists of 3,331,957 shares of Common Stock reserved for issuance under the 1999 Plan and 234,389 shares of Common Stock reserved for issuance under the ESPP. The Company’s 1999 Plan and ESPP have both been approved by the Company’s stockholders. The 1999 Plan includes an automatic increase feature whereby, as of the first day of each fiscal year, the number of shares of Common Stock available for awards, other than incentive stock options, automatically increases by an amount equal to 5% of the number of shares of Common Stock then outstanding.

(4) There are currently no equity compensation plans that have not been approved by the Company’s stockholders.

(5) Does not include shares of restricted Common Stock held by employees, of which 1,365,200 shares were issued and outstanding as of December 31, 2017, which are included in the amount of issued and outstanding shares.

55

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information under the heading Board Leadership and Corporate Governance—Transactions with Related Persons in the Proxy Statement to be filed by Mattersight for its 2018 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

Item 14. Principal Accounting Fees and Services.

The information under the caption Principal Accounting Fees and Services in the Proxy Statement to be filed by the Company for its 2018 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

56

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Documents filed as part of this report:

(1) Financial Statements.

The consolidated financial statements filed as part of this report are listed and indexed under Item 8 of this Annual Report on Form 10-K and such list is incorporated herein by reference.

(2) Financial Statement Schedule.

The financial statement schedule filed as part of this report is listed and indexed under Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. We have omitted financial statement schedules other than that listed under Item 8 because such schedules are not required or applicable.

(3) Exhibits.

See (b) Exhibits below.

57

(b) EXHIBITS

We are including as exhibits to this Annual Report on Form 10-K certain documents that we have previously filed with the SEC as exhibits, and we are incorporating such documents as exhibits herein by reference from the respective filings identified in parentheses below. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10-K pursuant to Item 15(a)(3) are those listed below as Exhibits and noted by an asterisk. Unless otherwise indicated below, all items incorporated by reference were filed with the SEC under File No. 000-27975.

Exhibit No.	Description of Exhibit
3(i).1	Certificate of Incorporation of Mattersight Corporation, as amended (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to Mattersight Corporation’s Registration Statement on Form S-1 (File No. 333-94293) filed with the SEC on February 1, 2000 (the “S-1”)).
3(i).2	Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective December 19, 2001 (incorporated by reference to Exhibit 3.3 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001 filed with the SEC on March 28, 2002).
3(i).3	Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective December 19, 2001 (incorporated by reference to Exhibit 3.4 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001 filed with the SEC on March 28, 2002).
3(i).4	Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective May 31, 2011 (incorporated by reference to Exhibit 3.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on May 31, 2011).
3(ii).1	By-Laws of Mattersight Corporation (incorporated by reference to Exhibit 3.2 to the S-1).
3(ii).2	Amendment to By-Laws of Mattersight Corporation (incorporated by reference to Exhibit 3.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on November 16, 2007).
4.1	Certificate of Designations of Series A Junior Participating Preferred Stock of Mattersight Corporation (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to Mattersight Corporation’s Registration Statement on Form 8-A filed with the SEC on March 24, 2000).
4.2	Certificate of Increase of Series A Junior Participating Preferred Stock of Mattersight Corporation, filed December 19, 2001 (incorporated by reference to Exhibit 3.5 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001 filed with the SEC on March 28, 2002).
4.3	Certificate of Designations of 7% Series B Convertible Preferred Stock of Mattersight Corporation, filed December 19, 2001 (incorporated by reference to Exhibit 3.6 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001 filed with the SEC on March 28, 2002).
4.4	Certificate of Adjustment dated January 10, 2002 (incorporated by reference to Exhibit 4.3 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001 filed with the SEC on March 28, 2002).
4.5	Current Form of Common Stock Certificate (adopted as of December 3, 2013) (incorporated by reference to Exhibit 4.6 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2013 filed with the SEC on March 13, 2014).
10.1*	Mattersight Corporation 1999 Stock Incentive Plan (Conformed Copy as Amended through November 5, 2014) (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 12, 2015).
10.2*	Mattersight Corporation 1999 Employee Stock Purchase Plan (as Amended and Restated effective February 16, 2016) (incorporated by reference to Exhibit 10.2 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 11, 2016).
10.3*	Form of Restricted Stock Award Agreement between applicable participant and Mattersight Corporation (incorporated by reference to Exhibit 10.23 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended January 1, 2005 filed with the SEC on March 25, 2005).

58

Exhibit No.	Description of Exhibit
10.4*	Current Form of Restricted Stock Award Agreement between applicable participant and Mattersight Corporation (incorporated by reference to Exhibit 10.4 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 11, 2016).
10.5*	Form of Installment Stock Award Agreement between applicable participant and Mattersight Corporation (incorporated by reference to Exhibit 10.24 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended January 1, 2005 filed with the SEC on March 25, 2005).
10.6*	Form of Option Award Agreement between applicable participant and Mattersight Corporation (incorporated by reference to Exhibit 10.8 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2006 filed with the SEC on March 13, 2007).
10.7*	Current Form of Option Award Agreement between applicable participant and Mattersight Corporation (incorporated by reference to Exhibit 10.7 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 11, 2016).
10.8*	Loan and Security Agreement between Mattersight Corporation and Hercules Capital, Inc., dated August 1, 2016  (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on August 5, 2016).
10.9*	Loan and Security Agreement, dated June 29, 2017, between Mattersight Corporation and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 30, 2017).
10.10*	Warrant Agreement between Mattersight Corporation and Hercules Capital, Inc., dated August 1, 2016 (incorporated by reference to Exhibit 10.2 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on August 5, 2016).
10.11	Form of Common Stock Purchase Agreement dated July 23, 2014 by and between Mattersight Corporation and the purchasers named therein (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on July 24, 2014).
10.12*	Form of Purchase Agreement dated July 22, 2015 by and between Mattersight Corporation and the purchasers named therein (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on July 23, 2015).
10.13*	Form of Common Stock Purchase Agreement, dated February 23, 2017, by and between Mattersight Corporation and the purchasers named therein (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 24, 2017).
10.14*	Form of Indemnification Agreement entered into between Mattersight Corporation and participant (incorporated by reference to Exhibit 10.12 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013).
10.15*	Second Amended and Restated Employment Agreement, effective as of April 19, 2011 between Kelly D. Conway and Mattersight Corporation (incorporated by reference to Exhibit 10.3 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 filed with the SEC on May 12, 2011).
10.16*	First Amendment to Second Amended and Restated Employment Agreement, dated March 17, 2015, between Kelly D. Conway and Mattersight Corporation (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed with the SEC on May 7, 2015).
10.17*	Amended and Restated Executive Employment Agreement, effective as of September 8, 2008, between Christopher J. Danson and Mattersight Corporation (incorporated by reference to Exhibit 10.31 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 27, 2008 filed with the SEC on March 11, 2009).
10.18*	Executive Employment Agreement, effective as of May 23, 2012, between David R. Gustafson and Mattersight Corporation (incorporated by reference to Exhibit 10.22 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 14, 2013).
10.19*	First Amendment to Executive Employment Agreement, dated July 1, 2013, between David R. Gustafson and Mattersight Corporation (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on July 3, 2013).

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Exhibit No.	Description of Exhibit
10.20*	Second Amendment to Executive Employment Agreement, dated August 8, 2013, between David R. Gustafson and Mattersight Corporation (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K filed on August 13, 2013).
10.21+	Executive Employment Agreement, effective as of January 8, 2015, between Jason Wesbecher and Mattersight Corporation.
10.22+	Separation Agreement between Jason Wesbecher and Mattersight Corporation dated January 22, 2017.
10.23*	Executive Employment Agreement, effective as of January 3, 2017, between David B. Mullen and Mattersight Corporation (incorporated by reference to Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K filed with the SEC on January 3, 2017).
10.24*	Lease Agreement, effective as of March 20, 2015, between MEPT 200 WEST MADISON LLC and Mattersight Corporation (filed as Exhibit 10.22 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2015).
10.25+	Summary of Director Compensation.
10.26+	Summary of 2018 Executive Officer Compensation.
21.1+	Subsidiaries of Mattersight Corporation.
23.1+	Consent of Grant Thornton LLP.
24.1+	Power of Attorney from Tench Coxe, Director.
24.2+	Power of Attorney from Philip R. Dur, Director.
24.3+	Power of Attorney from Henry J. Feinberg, Director.
24.4+	Power of Attorney from John T. Kohler, Director.
24.5+	Power of Attorney from Michael J. Murray, Director.
24.6+	Power of Attorney from John C. Staley, Director.
31.1+	Certification of Kelly D. Conway under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+	Certification of David B. Mullen under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+	Certification of Kelly D. Conway and David B. Mullen under Section 906 of the Sarbanes-Oxley Act of 2002.
101+**	The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, is formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016; (ii) Consolidated Statements of Operations for the years ended December 31, 2017, December 31, 2016, and December 31, 2015; (iii) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017, December 31, 2016, and December 31, 2015; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2017, December 31, 2016, and December 31, 2015; (v) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, December 31, 2016, and December 31, 2015; (vi) notes to the Consolidated Financial Statements; and (vii) Financial Statement Schedule II.

+ Filed herewith.

* Represents a management contract or compensatory plan or arrangement.

** The XBRL information is filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 12, 2018.

MATTERSIGHT CORPORATION
By	/S/ KELLY D. CONWAY
	Kelly D. Conway
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 12, 2018.

Name	Capacity
/S/ KELLY D. CONWAY	Director, President and Chief Executive Officer (Principal Executive Officer)
Kelly D. Conway
*	Chairman of the Board and Director
Tench Coxe
*	Director
Philip R. Dur
*	Director
Henry J. Feinberg
*	Director
John T. Kohler
*	Director
Michael J. Murray
*	Director
John C. Staley
/s/ DAVID B. MULLEN	Director, Senior Vice President and Chief Financial Officer (Principal Financial Officer)
David B. Mullen
/S/ ROSE CAMMARATA	Vice President and Controller (Principal Accounting Officer)
Rose Cammarata

*By:	/S/ DAVID B. MULLEN
	David B. Mullen, Attorney-in-Fact

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EX-10.21

Exhibit 10.21

EXECUTIVE EMPLOYMENT AGREEMENT

Mattersight Corporation (the “Company”), and Jason Wesbecher, an individual (“Employee”), enter into this Executive Employment Agreement (“Agreement”) as of January 8, 2015 (the “Effective Date”).

Whereas, the Company desires to employ Employee to provide personal services to the Company and to provide Employee with certain compensation and benefits in return for his services; and

Whereas, Employee wishes to be employed by the Company and to provide personal services to the Company in return for certain compensation and benefits.

Now, Therefore, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows:

1.Duties. The Company shall employ Employee as its Executive Vice President and Chief Marketing Officer, reporting directly to the Company’s President and Chief Executive Officer, and Employee accepts such employment upon the terms and conditions herein. Employee shall have such responsibilities, duties, and authority in all material respects as are assigned to Employee as of the date hereof and such other responsibilities, duties, and authority as the President and Chief Executive Officer may reasonably designate and are customarily associated with this position.

(a)Outside Activities. During the term of employment, Employee shall perform faithfully the duties assigned to him to the best of his ability, and Employee shall devote his full and undivided business time and attention to the transaction of the Company’s business. Except in conformity with the requirements of the Company’s then-effective Code of Ethical Business Conduct, Employee will not during the term of this Agreement undertake or engage (other than as a passive investor) in any other employment, occupation, or business enterprise, whether as an agent, partner, proprietor, officer, director, employee, consultant, contractor, or otherwise, whether during or outside the business hours of the Company. Employee may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of his duties hereunder.

(b)No Adverse Interests. Except as permitted by Section 9(c), during the term of employment, Employee agrees not to acquire, assume, or participate in, directly or indirectly, any position, investment, or interest that is known or should be known by him to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise.

2.Term of Employment; Termination.

(a)At-Will Relationship. Employee’s employment relationship is at-will. Either Employee or the Company may terminate the employment relationship at any time, for any reason or no reason, with or without Cause or advance notice.

(b)Termination by the Company without Cause; Termination by Employee with Good Reason.

(i)Cause Definition. For purposes of this Agreement, “Cause” shall mean any of the following:  (i) conviction, including a plea of guilty or no contest, of any felony or any crime involving moral turpitude or dishonesty; (ii) fraud upon the Company (or an affiliate), embezzlement or misappropriation of corporate funds; (iii) willful acts of dishonesty materially harmful to the Company; (iv) activities materially harmful to the Company’s reputation; (v) Employee’s willful misconduct, willful refusal to perform his duties, or substantial willful disregard of his duties, provided that the Company first provides Employee with written notice of such conduct and thirty (30) days to cure such conduct, if such conduct is reasonably susceptible to cure; or (vi) material breach of this Agreement, any other agreement with the Company, any policy of the Company, or any statutory duty or common law duty of loyalty owed to the Company that causes material harm to the Company; provided, no act or omission on Employee’s part shall be considered “willful” unless it is done by Employee without reasonable belief that the Employee’s action was in the best interests of the Company.

(ii)Good Reason Definition. For the purposes of this Agreement, “Good Reason” shall mean: (A) a reduction of Employee’s base salary below the amount set forth in Section 3 of this Agreement, or a reduction in the “Target Bonus” defined in Section 4 of this Agreement, if any, unless such reduction is shared proportionally by the three most highly-salaried officers of the Company in addition to Employee; (B) an involuntary relocation of Employee’s place of work to any location outside of the metropolitan area in which his primary office is located immediately prior to the relocation, excluding temporary periods of thirty (30) days or less and ordinary course business travel; (C) a significant diminution by the Company in Employee’s position (including offices, titles, and reporting relationships), authority, duties, or responsibilities (excluding diminutions resulting in the ordinary course from the Company becoming, pursuant to a Change of Control, (x) part of a larger organization in which Employee directly reports to the Chief Executive Officer of such organization; or (y) a subsidiary or equivalent separate functional business unit of a larger organization); (D) a material breach by the Company of this Agreement; or (E) failure by the Company to assign this Agreement to a successor upon a Change of Control. No Good Reason shall exist where: (1) Employee consents to the event that forms the basis for the Good Reason resignation; (2) Employee does not provide the Company’s President and Chief Executive Officer with written notice describing in detail the Good Reason within thirty (30) days after its occurrence; or (3) the Company cures the Good Reason within thirty (30) days after its receipt of such notice, if such conduct is reasonably susceptible to cure.

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(iii)Severance Benefits. In the event that Employee’s employment is terminated without Cause by the Company or is terminated by Employee with Good Reason, Employee shall receive the following as hissole and exclusive severance benefits (collectively, the “Severance Benefits”):  

(1)Severance Pay. Employee will receive a lump sum payment, within seven (7) days following the effective date of termination, equal to six (6) months of his then‑current base salary, less standard payroll deductions and withholdings.

(2)Severance Bonus. Employee will be paid a bonus, within seven (7) days following the effective date of termination, equal to 50% of the average of (A) the annual bonus he was paid for the year immediately preceding the termination and (B) his Target Bonus under the Company’s then-current bonus plan, if any, less standard payroll deductions and withholdings.

(3)Severance Health Premium Reimbursements. If Employee timely elects to continue his Company-provided group health insurance coverage pursuant to the federal COBRA law, the Company will reimburse Employee for the cost of such COBRA premiums to continue health insurance coverage at the same level of coverage for Employee and his dependents (if applicable) in effect as of the termination date, through the end of six (6) months or until such time as Employee qualifies for health insurance benefits through a new employer, whichever occurs first. Employee shall notify the Company in writing of such new employment not later than five (5) business days after securing it.

(4)Severance Vesting. The vesting of the Equity Award (as defined in Section 6) and of all restricted stock or stock option or other equity grants that Employee may in the future receive from the Company, shall be accelerated so that, as of the date of the termination, such restricted stock and stock option grants shall vest as to the number of shares that would have vested had Employee provided an additional six (6) months of continuous service to the Company;provided, however, that if Employee is terminated without Cause within six (6) months following a Change in Control (as defined in Section 6.8(b) of the Company’s 1999 Stock Incentive Plan), Employee terminates his employment for Good Reason within six (6) months following a Change in Control, or Employee terminates his employment for the Good Reason described in clause (E) of Section 2(b)(ii), then such restricted stock and stock option grants shall vest as to the number of shares that would have vested had Employee provided an additional twelve (12) months of continuous service to the Company.

(iv)Severance Conditions. As a condition of and prior to the receipt of all or any of the Severance Benefits, Employee must execute and allow to become effective a general release of claims in the form attached hereto as Exhibit A within sixty (60) days after the effective date of termination and must comply with the terms of this Agreement. Upon any termination of Employee’s employment by the Company without Cause or by Employee for Good Reason, the Company and its affiliates (by and through their respective directors and senior executive officers) and Executive agree not to disparage the other party.

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(c)Termination for Cause; Voluntary or Mutual Termination.

(i)No Severance. In the event Employee’s employment is terminated by the Company at any time for Cause, or Employee terminates his employment without Good Reason, or the parties mutually terminate their employment relationship, Employee will not be entitled to any Severance Benefits, pay in lieu of notice, or any other severance, compensation, benefits, equity, acceleration, or any other amounts, with the exception of any benefit to which Employee has a vested right under a written benefit plan.

(ii)Resignation. Employee may voluntarily terminate his employment with the Company at any time, without liability therefor. Employee agrees to use good faith to give the Company reasonable notice of any such voluntary termination. Upon receipt of any termination notice from Employee, the Company, at its election, may require Employee to resign his employment prior to the occurrence of any requested termination date.

(d)Termination for Death or Disability.

(i)Termination. Employee’s employment will terminate upon his death or Disability.

(ii)Disability Definition. For the purposes of this Agreement, “Disability” shall have the meaning set forth in the Company’s then-current long-term disability benefit program or, if no such program is then in effect, shall mean a permanent disability rendering Employee unable to perform his duties for the Company for ninety (90) consecutive days or one hundred eighty (180) days in any twelve (12) month period, which determination shall be made after the period of disability, unless an earlier determination can be made, by an independent physician appointed by the Board.

(iii)Death or Disability Benefit. Following the death or Disability of Employee while employed by the Company, the Company will provide Employee (or, in the case of death, Employee’s estate) a lump sum amount payable within thirty (30) days thereafter, equal to:  (A) Employee’s salary for twelve (12) months; (B) an amount equal to 100% of the average of (x) the annual bonus he was paid for the year immediately preceding the termination and (y) his Target Bonus under the Company’s then-current bonus plan, if any, less standard payroll deductions and withholdings; plus (C) the cost of such COBRA premiums to continue health insurance coverage at the same level of coverage for Employee and his dependents (if applicable) in effect as of the termination date, through the end of twelve (12) months. All restricted stock and stock option grants that Employee has then received from the Company or may in the future receive from the Company shall be vested as to half of the unvested shares (or such greater amount, if any, as is provided for in the agreement for the applicable grant), and all such stock options shall, notwithstanding any lesser period, if any, provided for in the agreement for the applicable grant, be exercisable for one (1) year following such termination (but not exceeding the term of such option).

(iv)Severance Conditions. As a condition of and prior to the receipt of all or any of the Severance Benefits provided for upon death or Disability, Employee (or, in the case of death, Employee’s estate) must execute and allow to become effective a general release of claims in the form attached hereto as Exhibit A within sixty (60) days of termination and must comply with the terms of this Agreement. Upon any termination of Employee’s employment for death or Disability, the Company and its affiliates (by and through their respective directors and senior executive officers) and Executive (or, in the case of death, Employee’s estate) agree not to disparage the other party.

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(e)No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the Severance Benefits payable to Employee, and such amounts (other than as provided at Section 2(b)(iii)(2)) shall not be reduced whether or not the Employee obtains other employment.

(f)Accrued Obligations. Not later than ten (10) days after termination of Employee’s employment, the Company shall pay Employee:  (i) his accrued and unpaid base salary at the rate in effect at the time of notice of termination; (ii) any previous year’s earned but unpaid bonus and other earned and unpaid incentive cash compensation; and (iii) accrued and unused vacation time, unpaid expense reimbursements, and other unpaid cash entitlements earned by Employee as of the date of termination pursuant to the terms of the applicable Company plan or program.

3.Salary. For services rendered hereunder, the Company shall pay Employee a base salary at the per annum rate of $275,000, less standard payroll deductions and withholdings, and payable in accordance with the Company’s regular payroll schedule. Employee’s base salary (as well as his eligibility for incentive equity grants) shall be subject to annual review and his base salary may, at the discretion of the Company’s Board of Directors, be increased from time to time.

4.Target Bonus. Employeewill be offered the opportunity to participate in the Company’sthen-current bonus plan. Subject to and in accordance with the terms and conditions of such plan and this Section, upon achievement of all bonus-related goals and objectives set by the Board of Directors and/or the Chief Executive Officer for the Company and for Employee (the “Bonus Objectives”), Employee shall receive a cash bonus equal to or greater than $275,000 (“Target Bonus”), less standard payroll deductions and withholding as are applicable to similarly situated employees. The Company agrees that, in respect of the bonus payable in 2016 with respect to 2015 performance, Employee shall be paid $100,000 (the “Bonus Advance”) as soon as administratively practicable after the Effective Date, less standard payroll deductions and withholding as are applicable to similarly situated employees.  The Bonus Advance shall be applied to reduce the total bonus amount payable in 2016 with respect to 2015 performance.  The Company shall have the sole discretion to (i) change or eliminate bonus plans or programs at any time (provided, however, that after the bonus plan and Target Bonus objectives have been established by the Board and/or the Chief Executive Officer for a given year, neither the Board nor the Chief Executive Officer shall later materially change the bonus plan or Bonus Objectives for such year to Employee’s detriment without Employee’s consent), (ii) determine whether the Bonus Objectives for a given year have been achieved, and (iii) determine (in accordance with this Section and such Bonus Objectives and bonus plan) the amount of bonus earned by Employee, if any. Bonuses are intended to retain valuable Company employees, and if Employee is not employed for any reason on the last day of the bonus year, he will not have earned the bonus and, except as expressly provided herein with respect to the Severance Bonus, no partial or pro-rata bonus will be paid. Any bonus paid pursuant to this Section 4 shall be paid net of standard payroll deductions and withholdings. The target payment date for any bonus measured on the basis of a calendar year shall be between January 1 and April 15 of the calendar year following the end of the performance period; provided, however, that such bonus shall be paid no later than April 15 of such calendar year following the end of the performance period.

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5.Recovery of Bonus Advance.  In the event of a termination of Employee’s employment within twelve (12) months after the Effective Date (the “Bonus Period”) either (i) by the Company for Cause or (ii) by Employee for any reason other than Good Reason or his death or Disability, Employee shall reimburse the Company a pro rata portion of the Bonus Advance equal to the full amount of the Bonus Advance multiplied by a fraction (not to exceed one (1)), the numerator of which shall be the number of full months remaining between the date of termination and the last day of the Bonus Period, and the denominator of which shall be twelve (12) (i.e., the number of months in the Bonus Period).

6.Employee Benefits. Employee shall be entitled to participate in such employee benefit plans, including the Company’s 401(k) plan, life insurance, and medical benefits plans, and shall receive all other fringe benefits, as the Company may make available generally to its senior executive employees generally, for which Employee is eligible under the terms and conditions of such plans, in each case subject to the requirements, rules and regulations from time to time applicable thereto. Details about these benefits are set forth in summary plan descriptions and other materials.

7.Equity Awards. Subject to the formal approval of the Company’s Board of Directors, the Company shall grant to Employee an award of 80,000 shares of restricted Company common stock and options to purchase 80,000 shares of Company common stock (the “Equity Award”). The Equity Award will vest over 16 equal quarterly increments of 6.25% per quarter, commencing February 28, 2015. Regular vesting dates are the last business day of February, May, August, and November of each year. In addition, Employee may be eligible for other future awards under any Company equity incentive plan as may be approved by the Board of Directors and in effect from time to time. The specific terms and conditions of any grant made pursuant to this Section 6 shall be governed by any applicable plan document and any such grant agreement as Employee may be required to sign as a condition of grant.

8.Parachute Tax. Notwithstanding anything in the foregoing to the contrary, if any of the payments to Employee (prior to any reduction below)provided for in this Agreement, together with any other payments which Employee has the right to receive from the Company or any corporation which is a member of an “affiliated group” as defined in Section 1504(a) of the Internal Revenue Code of 1986, as amended (“Code”), without regard to Section 1504(b) of the Code, of which the Company is a member (the “Payments”) would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), and if the Safe Harbor Amount is greater than the Taxed Amount, then the total amount of such Payments shall be reduced to the Safe Harbor Amount. The “Safe Harbor Amount” is the largest portion of the Payments that would result in no portion of the Payments being subject to the excise tax set forth at Section 4999 of the Code (“Excise Tax”). The “Taxed Amount” is the total amount of the Payments (prior to any reduction, above) notwithstanding that all or some portion of the Payments may be subject to the Excise Tax. Solely for the purpose of comparing which of the Safe Harbor Amount and the Taxed Amount is greater, the determination of each such amountshall be made on an after-tax basis, taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (allof which shall be computed at the highest applicable marginal rate). If a reduction of the Payments to the SafeHarbor Amount is necessary, thenthe reduction shall occur in the following order:  reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Employee’s participant’s stock awards.

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9.Business Expenses. The Company shall reimburse Employee for all reasonable and necessary business expenses incurred by Employee in performing Employee’s duties that are submitted in compliance with the Company’s then-current policy on such business expense reimbursement. Employee shall provide the Company with supporting documentation sufficient to satisfy reporting requirements of such policy and the Internal Revenue Service. The Company’s determinations as to reasonableness and necessity shall be final.

10.Proprietary Information and Inventions; Restrictive Covenants. Employee acknowledges that the successful development, marketing, sale, and performance of the Company’s products and services require substantial time and expense. Such efforts generate for the Company valuable private, confidential, and proprietary information of the Company and its clients (whether current, former, or prospective), business partners, vendors, suppliers, and licensors (“Confidential Information”), including without limitation any and all (a) trade secrets, (b) financial information and pricing, (c) business strategies, plans, and proposals, (d) information relating to clients, including the terms of the Company’s agreements with clients, the discussions, negotiations, and proposals related to any such agreement, and the names of clients or prospective clients, (e) human resources information, including employee lists and personal employee information, and (f) technical information, including research and development, methodologies, training materials, software, documents, models, source code, designs, flowcharts and listings and any and all notes, analyses, compilations, studies,in each case in whatever form, whether oral, written, graphic, recorded, photographic, machine readable or otherwise, and whether or not marked or otherwise labeled “confidential” or specifically indicated as being confidential and/or proprietary in nature. The term “Confidential Information” also includes all notes, analyses, compilations, studies, interpretations or other materials to the extent such materials contain or are based on other Confidential Information. Employee acknowledges that, during his employment, he will obtain knowledge of such Confidential Information. Employee agrees to undertake the following obligations, which he acknowledges to be reasonably designed to protect the Company’s legitimate business interests (including its Confidential Information and its relationships with customers and other third parties) without unnecessarily or unreasonably restricting Employee’s post-employment opportunities:

(a)Confidentiality. During the term of employment and at all times thereafter, Employee (i) shall treat all Confidential Information as highly confidential, (ii) shall not access or attempt to access any Confidential Information or use any Confidential Information except as is necessary to carry out Employee’s duties as an employee of the Company, (iii) shall not make copies of documents containing Confidential Information except as is necessary to carry out Employee’s duties as an employee of the Company, (iv) shall not reverse engineer, disassemble, decompile, translate, or attempt to discover any software, algorithms, or underlying ideas which embody Confidential Information, (v) shall not disclose, and will take all reasonable and necessary steps to prevent the disclosure of, any Confidential Information to any third party, or any other employee, agent, or representative of the Company, as applicable, except as is necessary to carry out Employee’s duties as an employee of the Company, and (vi) shall not use any Confidential Information in any manner that may cause injury or loss, or may be calculated to cause injury or loss, whether directly or indirectly, to the Company or its clients, business partners, vendors, suppliers, and licensors.

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(b)Proprietary Information. During the term of employment, Employee shall disclose immediately to the Company all ideas, inventions, and business plans that Employee makes, conceives, discovers, develops, or reduces to practice at any time during the course of Employee’s employment with the Company,either alone or jointly with others, including but not limited to any including, but not limited to, anyinventions, ideas, improvements, discoveries, methods, developments, designs, software, processes, products, and procedures (whether or not protectable upon application by patent, copyright, trademark, trade secret, or other proprietary rights) (collectively, “Work Product”), that (i) relate directly or indirectly to the Company’s business or the business of any client or supplier of the Company or any of the products or services being developed, manufactured, sold, or otherwise provided by the Company or that may be used in relation therewith, or (ii) result from any tasks assigned to Employee by the Company, or (iii) result from the use of the premises or personal property (whether tangible or intangible) owned, leased, licensed, or otherwise contracted for by the Company. Employee agrees that any Work Product shall be the exclusive property of the Company and, if subject to copyright, shall be “work made for hire” under the meaning of the U.S. Copyright Act of 1976, as amended (the “Act”). If and to the extent the Work Product is found as a matter of law not to be “work made for hire” within the meaning of the Act, Employee hereby expressly assigns to the Company or its subsidiaries, as appropriate, its successors, assign, or nominees, Employee’s entire right, title, and interest in and to any Work Product, and all copies thereof and all intellectual property rights therein without further consideration, free from any claim, lien for balance due, or rights of retention thereto on the part of Employee. Employee shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details, and data pertaining to the Work Product. Whether during the term of this Agreement or after, Employee will, at the Company’s request and expense (including reimbursement of Employee’s expenses and, if Employee is no longer in the employ of the Company, reasonable perdiem compensation to Employee), fully cooperate with the Company and its authorized agents in securing, enforcing, and otherwise protecting throughout the world the Company’s interests in such Work Product, including, without limitation, by (A) executing such documents evidencing the Company’s ownership and Employee’s assignment of the foregoing rights, as may be deemed necessary by the Company to grant or evidence such ownership and rights and (B) assisting in defending any opposition proceedings, petitions for revocation, or applications for similar revocation in respect of any such rights.

(c)Non-Competition

(i)With Competitors. While employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee will not, directly or indirectly, whether as a stockholder, agent, partner, proprietor, officer, director, employee, consultant, contractor, or in any capacity whatsoever, engage in, become financially interested in, be employed by, or have any business connection with any other person, corporation, firm, partnership, or other entity whatsoever known by him to compete directly with the Company, anywhere throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company. Notwithstanding the foregoing, during the term of his employment, Employee may own, as a passive investor, public securities of any competitor corporation, so long as his direct holdings in any one such corporation shall not in the aggregate constitute more than one percent (1%) of the voting stock of such corporation. This provision shall not be interpreted to limit Employee’s stock ownership in any way after the termination of his employment.

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(ii)With Prohibited Clients. Without the prior written consent of the President and Chief Executive Officer or the authorized designee thereof, Employee shall not in any capacity, whether for himself or as an officer, director, partner, employee, agent of independent contractor of any person, firm, corporation or other entity, for a period of twelve (12) months following termination ofhisemployment with the Company and all affiliates for any reason, perform services of the type performed by Employee during the term of employment, or any services substantially similar thereto, for any Prohibited Client (as defined below) in any country in which the Company has performed services (whether or not such services were performed in such country for the Prohibited Client) or sold products during the preceding three (3) years. The term “Prohibited Client” shall mean any client or prospective client of the Company to or for whom Employee directly or indirectly performed services, or prospect to whom Employee submitted, or assisted or participated in any way in the submission, of a proposal, during the two (2) year period preceding termination of Employee’semployment with the Company.

(d)Non-Solicitation. While employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee shall not induce or assist in the inducement of any employee away from the Company’s employ or from the faithful discharge of such employee’s contractual and fiduciary obligations to serve the Company’s interests with undivided loyalty. Furthermore, while employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee shall not, directly or indirectly, on behalf of Employee or any other person or entity, solicit any Client to become a client and/or customer of Employee or of any person or entity other than the Company. For purposes of this Agreement, a “Client” is a person, firm, company, corporation, or other entity to whom Employee was first introduced by the Company and is, becomes, or is known to be, an actual or potential client or customer of the Company.

(e)Return of Materials. Upon termination of the term of employment for any reason or upon the Company’s earlier request, Employee shall deliver to the Company all Confidential Information and other materials in his possession or delivered to him by the Company, including but not limited to computer programs, files, notes, records, memoranda, reports, lists, drawings, sketches, specifications, data, charts, and other documents, materials and things (“Materials”), whether or not containing Confidential Information, it being agreed that all Materials shall be and remain the sole and exclusive property of the Company. After return, Employee shall keep no copies, in any form of media, of any Materials or Confidential Information.

(f)Reasonable Alteration. In the event that a court or other adjudicative body should decline to enforce the provisions of any part of this Section 9, whether because of scope, duration or otherwise, Employee and the Company agree that the provisions shall be modified to restrict Employee’s competition with the Company to the maximum extent enforceable under applicable law.

11.Remedies. Employee recognizes and agrees that a breach of any or all of the provisions of Section 10 will cause immediate and irreparable harm to the Company’s business advantage, including but not limited to the Company’s valuable business relations, for which damages cannot be readily calculated and for which damages are an inadequate remedy. Accordingly, Employee acknowledges that the Company shall therefore be entitled to an order enjoining any further breaches by the Employee, without the necessity of posting a bond.

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12.Assistance in Litigation. Employee shall upon reasonable notice and without compulsion of law (e.g., subpoena), furnish accurate and complete information and other assistance to the Company as the Company may reasonably require in connection with any litigation, proceeding, or dispute to which the Company is, or may become, a party, or in which it may otherwise become involved, either during or after Employee’s employment; provided, if such assistance shall occur after termination of Employee’s employment, the Company shall reimburse Employee for hisreasonable expenses incurred in connection with such assistance, including, without limitation, as relevant transportation, meals and lodging, and shall also pay Employee a consulting fee of $200 per hour, as compensation for hisinconvenience and the disruption of hisother endeavors.

13.Indemnification. Employee’s rights to indemnification will be as provided in the Indemnification Agreement between Employee and the Company, effective as of the date of this Agreement.

14.Successors and Assigns. This Agreement is intended to bind and inure to the benefit of, and be enforceable by, Employee and the Company, and their respective successors, assigns, heirs, executors, and administrators. Employee acknowledges that the services to be rendered pursuant to this Agreement are unique and personal. Accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. The Company may assign its rights, duties or obligations under this Agreement to a subsidiary or affiliated company of the Company or purchaser or transferee of a majority of the Company’s outstanding capital stock or a purchaser of all, or substantially all, of the assets of the Company; provided, however, that such assignee shall be adequately capitalized and able to fulfill its financial obligations hereunder.

15.Notices. All notices required by this Agreement shall be in writing. Notices intended for the Company shall be sent by certified mail or nationally recognized overnight courier service, addressed to it at 200 S. Wacker Drive, Suite 820, Chicago, Illinois  60606, Attention:  General Counsel, or its then-current principal office, and notices intended for Employee shall be either delivered personally to Employee or sent by certified mail or nationally recognized overnight courier service addressed to Employee at his address as listed on the Company’s payroll. Notices sent by certified mail in accordance with the foregoing shall be deemed given three (3) business days following delivery to the United States Postal Service, postage prepaid, and notices sent by overnight courier service in accordance with the foregoing shall be deemed given one (1) business day following delivery to such courier, delivery fees for overnight delivery prepaid.

16.Entire Agreement. This Agreement constitutes the complete, final, and exclusive embodiment of the entire agreement between Employee and the Company with regard to the subject matter hereof and supersedes all prior agreements or understandings whether written or oral. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a written instrument signed by Employee and a duly authorized officer or director of the Company.

17.Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

18.Applicable Law. This Agreement, and all questions concerning the construction, validity, and interpretation hereof, shall be governed by and construed in accordance with the laws of the State of Illinois without reference to its conflicts of law principles, to the extent such principles would result in the application of another state’s laws.

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19.Mediation of Disputes. Neither party shall initiate arbitration or other legal proceedings (except for any claim under Section 9 of this Agreement), against the other party, or, in the case of Company, any of its directors, officers, employees, agents, or representatives, relating in any way to this Agreement, to Employee’s employment with Company, the termination of Employee’s employment or any or all other claims that one party might have against the other party until 30 days after the party against whom the claim is made (“Respondent”) receives written notice from the claiming party of the specific nature of any purported claim and the amount of any purported damages. Employee and Company further agree that if Respondent submits the claiming party’s claim to JAMS/Endispute, for nonbinding mediation, in Chicago, Illinois, prior to the expiration of such 30-day period, the claiming party may not institute arbitration or other legal proceedings against Respondent until the earlier of (i) the completion of nonbinding mediation efforts, or (ii) 90 days after the date on which Respondent received written notice of the claimant’s claim.

20.Binding Arbitration. Subject to Section 18, Employee and Company agree that all claims or disputes relating to Employee’s employment with Company or the termination of such employment, and any and all other claims that Employee might have against Company, any Company director, officer, employee, agent, or representative, and any and all claims or disputes that Company might have against Employee (except for any claims under Section 9 of this Agreement) shall be resolved under the Expedited Commercial Rules of the American Arbitration Association in Illinois. If either party pursues a claim and such claim results in an arbitrator’s decision, both parties agree to accept such decision as final and binding. Company and Employee agree that any litigation under Section 9 of this Agreement shall be brought in the Circuit Court for Cook County, Illinois.

21.Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal, and enforceable consistent with the general intent of the parties insofar as possible.

22.Right to Work. As required by law, this Agreement is subject to satisfactory proof of Employee’s right to work in the United States.

23.Section 409A. The provisions of this Agreement are intended either (i) to be exempt from Section 409A of the Code under the short-term deferral exception, the separation pay exception, or such other exceptions that may be available under Section 409A of the Code and applicable authority or guidance promulgated thereunder or (ii) to comply with Section 409A of the Code, and shall be administered in a manner consistent with such intent. Notwithstanding any provision to the contrary, to the extent Employee is considered a specified employee under Section 409A of the Code and would be entitled during the six (6) month period beginning on his date of termination to a payment that is not otherwise excluded under Section 409A of the Code, such payment will not be made to Employee until the earlier of the six (6) month anniversary of his date of termination or his death. For purposes of Section 409A, each payment under this Agreement (including, but not limited to, those in Section 2(b)) shall be considered a separate payment.

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24.Attorneys’ Fees. If the Company refuses to provide the Severance Benefits after a written demand by Employee and Employee substantially prevails in any dispute involving such Severance Benefits, then the Company shall pay or reimburse Employee for all reasonable legal fees and expenses incurred in such dispute.

Employee acknowledges that he has read, understood, and accepts the provisions of this agreement.

Mattersight Corporation (“Company”)		Jason Wesbecher (“Employee”)
By:	/s/ CHRISTINE R. CARSEN	/s/ JASON WESBECHER
Christine R. Carsen		Jason Wesbecher
Title:	VP, General Counsel, and Corporate Secretary

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Exhibit A

GENERAL RELEASE OF CLAIMS

1.General Release. Pursuant to this General Release of Claims (this “Agreement”), Employee, for himself, his heirs, administrators, representatives, executors, successors and assigns (each a “Releasor”) hereby irrevocably and unconditionally releases, acquits and forever discharges Mattersight Corporation (“Company”) and its direct or indirect subsidiaries, divisions, affiliates and related companies or entities, regardless of its or their form of business organization (the “Company Entities”), any predecessors, successors, joint ventures, and parents of any Company Entity, and any and all of their respective past or present shareholders, partners, directors, officers, employees, consultants, independent contractors, trustees, administrators, insurers, agents, attorneys, representatives and fiduciaries, including without limitation all persons acting by, through, under or in concert with any of them (all, collectively, the “Release Parties”) from any and all manner of actions, causes of actions, demands, claims, agreements, promises, debts, lawsuits, liabilities, rights, dues, controversies, charges, complaints, obligations, remedies, suits, losses, costs, expenses and fees whatever (including without limitation attorneys’ fees and costs), arising out of or relating to his employment relationship with the Company, its predecessors, successors or affiliates and the termination thereof, of any nature whatsoever, whether arising in contract, tort, or any other theory of action, whether arising in law or equity, whether known or unknown, choate or inchoate, mature or unmatured, contingent or fixed, liquidated or unliquidated, accrued or unaccrued, asserted or unasserted, whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, age (including the Age Discrimination in Employment Act of 1967), national origin, religion, disability, or any other unlawful criterion or circumstance, which Employee and any Releasor had, now have, or may have in the future against each or any of the Released Parties from the beginning of time until the date of this Agreement (individually, “Claim,” and collectively, “Claims”); provided, that this Agreement shall not apply to, nor release the Company from, any obligation of the Company contained in Employee’s Executive Employment Agreement dated as of [insert date] (as amended or supplemented from time to time, the “Employment Agreement”) that arises due to Employee’s termination of employment with the Company. The consideration offered in the Employment Agreement is accepted by Employee as being in full accord, satisfaction, compromise and settlement of any and all claims or potential claims, and Employee expressly agrees that he is not entitled to, and shall not receive, any further recovery of any kind from the Company or any of the other Release Parties, and that in the event of any further proceedings whatsoever based upon any matter released herein, neither the Company nor any of the other Release Parties shall have any further monetary or other obligation of any kind to Employee, including any obligation for any costs, expenses or attorneys’ fees incurred by or on behalf of Employee. Employee agrees that he has no present or future right to employment with the Company or any of the other Release Parties and that he will not apply for or otherwise seek employment with any of them.

2.Release of Known and Unknown Claims. Employee acknowledges that the release of Claims under this Agreement covers any and all rights and benefits Employee has or may have in the future, whether known or unknown, and Employee waives any and all rights under the laws of any state. Employee may hereafter discover facts in addition to or different from those which Employee now knows or believes to be true with respect to the subject matter of the Claims, but Employee, upon execution and non-revocation of this Agreement (pursuant to Section 4 hereof), shall be deemed to have fully, finally, and forever settled and released any and all Claims, known or unknown, suspected or unsuspected, contingent or noncontingent, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts.

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3.Release of Discrimination Claims. Without in any way limiting the generality of the foregoing, this Agreement constitutes a full release and disclaimer of any and all Claims arising out of or relating in any way to Employee’s employment, continued employment, retirement, resignation, or termination of employment with the Company Entities whether arising under or out of a statute including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 1981, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Americans With Disabilities Act, any county, municipal, and any other federal, state or local statute, ordinance or regulation, all as may be amended from time to time, or common law claims or causes of action relating to alleged discrimination, breach of contract or public policy, wrongful or retaliatory discharge, and, to the extent arising out of or relating to Employee’s employment relationship with the Company, its predecessors, successors or affiliates and the termination thereof, tortious action, inaction, or interference of any sort, defamation, libel, slander, personal or business injury, including without limitation attorneys’ fees and costs. Employee has specifically waivedhis right to recover in hisown lawsuit as well as the right to recover in a suit brought by any other person or entity on Employee’s behalf or on behalf of a class of persons in which Employee is or could be considered a member.

4.Employee’s Right to Revoke. The parties acknowledge that Employee shall have the right to revoke and cancel this Agreement if Employee, at any time within the seven-day period following its execution, revokes it. If Employee desires to revoke and cancel this Agreement, he must do so in writing and he shall return this document to the Company’s Chief Executive Officer, and all terms of the Agreement shall be void and of no effect.

5.Employee’s Right to Consult Attorney/21 Days to Consider. Employee is advised and encouraged by Company to consult with an attorney before signing this Agreement. Employee affirms that he has carefully read and fully understands this Agreement, has had sufficient time to consider it, has had an opportunity to ask questions and have it explained, and is entering into this Agreement freely and voluntarily, with an understanding that the general release will have the effect of waiving any action or recovery he might pursue for any claims arising on or prior to the date of the execution of this Agreement. Employee acknowledges that he received valuable consideration to which he was not otherwise entitled in exchange for entering this Agreement. This Agreement was given to Employee on [Insert Date]. Employee had until [Insert Date], a period in excess of twenty-one (21) days to consider it.

6.Governing Law. This Agreement shall be deemed to have been executed and delivered within the State of Illinois and the rights and obligations of the parties shall be construed and enforced in accordance with, and governed by, the laws of the State of Illinois without regard to any state’s rules regarding conflict of laws.

EMPLOYEE

/s/ JASON WESBECHER

Jason Wesbecher

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EX-10.22

Exhibit 10.22

January18,2017

JasonWesbecherMattersightCorporation

200W.Madison,Suite3100

Chicago,IL60606

DearJason:

Per our discussion, this letter sets forth the substance of the separation agreement (the “Agreement”)thatMattersightCorporation(the“Company”)isofferingtoyouinconnectionwithyourresignation.

1.Separation. Your last day of work with the Company and your employment termination date will be February 1, 2017 (the “Separation Date”). Up to and including the Separation Date, you are expected to provide transitional assistance as reasonably requested by the Company.

2.Accrued Salary, Expenses, and Bonuses. On the Separation Date, the Company will pay you all accrued salary, subject to standard payroll deductions and withholdings. Additionally, as your 2015 bonus, you were granted 32,659 shares of restricted Company stock, which are scheduled to vest on February 28, 2017; in accordance with the terms of the applicable restricted stock award agreement, however, these shares shall be fully vested on the Separation Date.  Finally, the Compensation Committee of the Company’s Board of Directors will approve a 2016 bonus for you in the amount of $165,000, or 44,000 shares of Company common stock (based on the closing stock price of $3.75 on January 18, 2017) (the “2016 Bonus Shares”). The 2016 Bonus Shares, less the number shares necessary to be withheld by the Company for payment of applicable taxes (“tax shares”), shall be deposited into your E*TRADE account not later than the Separation Date. In the event that the closing stock price of the Company common stock on February 10, 2017 (i.e., the grant date for the 2016 bonus grants for the other members of executive management) is not $3.75, then the number of shares to which you are entitled as your 2016 Bonus Shares shall be recalculated based on the actual closing price on February 10th and, (i) if the number of shares based on such recalculation is greater than 44,000, then the difference between the recalculated amount and 44,000, less applicable tax shares, shall be deposited into your E*TRADE account as soon as administratively practical thereafter or (ii) if the number of shares based on such recalculation is less than 44,000, then you shall remit to the Company, as soon as administratively practical thereafter, a number of shares equal to the difference between 44,000 and the recalculated amount, adjusted as appropriate to reflect the number of tax shares withheld from the original deposit of shares.

3.Severance Payment. Although the Company has no obligation to do so, if you sign this Agreement, allow it to become effective, and comply with your obligations under this Agreement, then the Company will pay you, as severance, the equivalent of one (1) month of your base salary in effect as of the Separation Date ($22,916.67), subject to standard payroll deductions and withholdings. This amount will be paid in a lump sum within ten (10) days after the Effective Date (as defined in Section 12(c)).

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4.Health Insurance. The Company will continue your group health insurance benefits at the same level of coverage for you and your dependents (if applicable) in effect as of the Separation Date through February 14, 2017. The Company will notify you of the applicable insurance premiums for such period and shall deduct such premiums in accordance with its normal payroll procedures from either your final paycheck or the lump sum payable to you under Section 3 hereof.

5.Stock and Stock Options. Under the terms of your restricted stock and stock option award agreements and the applicable plan documents, vesting of your restricted stock awards and stock options will cease as of the Separation Date. However, as an additional benefit under this Agreement, if you sign this Agreement, allow it to become effective, and comply with your obligations under this Agreement, then the Company will accelerate the vesting of your restricted stock and stock option grants such that you will be deemed vested in those shares and options that would otherwise have vested had you remained employed through February 28, 2017 (which consists of 5,000 shares related to your 2015 LTIP grant, and 20,000 stock options) and such shares, less the applicable tax shares, and stock options shall be deposited into your E*TRADE account not later than the Separation Date. All rights and obligations with respect to your restricted stock grants will be as set forth in the governing agreements and plan documents.

6.Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you have not earned and will not receive from the Company any additional compensation (including base salary, bonus, incentive compensation, or equity), severance, or benefits before or after the Separation Date, with the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or any vested options. You expressly acknowledge and agree that you are not entitled to any severance benefits from the Company under the terms of your Executive Employment Agreement with the Company.

7.Return of Company Property. By the close of business on the Separation Date, you agree to return to the Company all Company documents (and all copies thereof) and other Company property which you have in your possession or control, including, but not limited to, Company files, notes, drawings, records, plans, forecasts, reports, studies, analyses, proposals, agreements, financial information, research and development information, sales and marketing information, customer lists, prospect information, pipeline reports, sales reports, operational and personnel information, specifications, code, software, databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, facsimile machines, mobile telephones, servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree that you will make a diligent search to locate any such documents, property and information by the close of business on the Separation Date.   If you have used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, within fifteen (15) business days after the Separation Date, you shall provide the Company with a computer-useable copy of such information and then permanently delete and expunge such Company confidential or proprietary information from those systems. Your timely compliance with this paragraph is a condition precedent to your receipt of the severance benefits provided under this Agreement.

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8.Proprietary Information Obligations. You acknowledge and reaffirm your continuing obligations to the Company under Section 9 of your Executive Employment Agreement. The Company acknowledges and agrees that it shall not be deemed to be a violation of your obligations under Section 9(d) (Non-Solicitation) if any current Company employee voluntarily chooses to leave the employ of the Company in order to take an advertised or posted position with the company with which you will be employed after the Separation Date.

9.Nondisparagement. You agree not to disparage the Company and its officers, directors, employees, shareholders, and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation, and the Company agrees (through its officers and directors) not to disparage you in any manner likely to be harmful to your personal or business reputations; provided that both you and the Company shall respond accurately and fully to any question, inquiry or request for information when required by legal process. Nothing in this provision is intended to prohibit or restrain you in any manner from making disclosures that are protected under the whistleblower provisions of federal law or regulation or under other applicable law or regulation.

10.No Admissions. You understand and agree that the promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by the Company to you or to any other person, and that the Company makes no such admission.

11.Your Release of Claims.

a.General Release. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (b) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act (“ADEA”) and the Illinois Human Rights Act.

b.Exclusions. Notwithstanding the foregoing, you are not releasing the Company hereby from any obligation to indemnify you pursuant to the Articles and Bylaws of the Company, any valid fully executed indemnification agreement with the Company, applicable law, or applicable directors and officers’ liability insurance. Also, excluded from this Agreement are any claims that cannot be waived by law.

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c.ADEA Release. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you have under the ADEA, and that the consideration given for the waiver and releases you have given in this Agreement is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised, as required by the ADEA, that: (a) your waiver and release does not apply to any rights or claims that arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (c) you have twenty- one (21) days to consider this Agreement (although you may choose voluntarily to sign it sooner); (d) you have seven (7) days following the date you sign this Agreement to revoke this Agreement (in a written revocation sent to me); and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement provided that you do not revoke it (the “Effective Date”).

12.Protected Rights. You understand that nothing in this Agreement limits your ability to file a charge or complaint with the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Occupational Safety and Health Administration, the California Department of Fair Employment and Housing, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). You further understand this Agreement does not limit your ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. While this Agreement does not limit your right to receive an award for information provided to the Securities and Exchange Commission, you understand and agree that, to maximum extent permitted by law, you are otherwise waiving any and all rights you may have to individual relief based on any claims that you have released and any rights you have waived by signing this Agreement.

13.Company Release. The Company hereby generally and completely releases you from any and all claims, liabilities, and obligations of every kind and nature, both known or unknown, arising out of, or in any way related to, events, acts, conduct, or omissions that occurred prior to or on the date the Company signs this agreement; provided, however, that this release shall not extend to claims arising at any time from your contractual and statutory obligations to refrain from the unauthorized use or disclosure of proprietary or trade secret information belonging to the Company.

14.Representations. You hereby represent that you  have  been  paid  all compensation owed and for all hours worked, have received all the leave and leave benefits and protections for which you are eligible pursuant to the Family and Medical Leave Act or otherwise, and have not suffered any on-the-job injury for which you have not already filed a workers' compensation claim.

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15.Miscellaneous. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of Illinois without regard to conflict of laws principles. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. This Agreement may be executed in counterparts and facsimile signatures will suffice as original signatures.

IfthisAgreementisacceptabletoyou,pleasesignbelowandreturntheoriginaltome.You havetwenty-one(21)calendardaystodecidewhetheryouwouldliketoacceptthisAgreement, andtheCompany‘'soffercontainedherein willautomaticallyexpireifyoudonotsignandreturn itwithinthistimeframe.

Wewishyouthebestinyourfutureendeavors.

Sincerely,

By:
	DavidMullen CFO

IHAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:

JasonWesbecher
	01I22I2017
Date

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EX-10.25

Exhibit 10.25

Summary of Director Compensation

Directors who are not employees of Mattersight or any of its subsidiaries (“Non-Employee Directors”) receive a fixed annual fee for their contributions to the board of directors, the amount of which is calculated for each director based on the following assumptions:

• $1,500 per board meeting (assuming four per year) plus an additional $500 per meeting for the Chairman of Board;

• $2,000 per Audit Committee meeting (assuming eight per year) plus an additional $500 per meeting for the Audit Committee chairman;

• $2,000 per Compensation Committee meeting (assuming four per year) plus an additional $500 per meeting for the Compensation Committee chairman; and

• $2,000 per Nominating and Corporate Governance Committee meeting (assuming three per year) plus an additional $500 per meeting for the Nominating and Corporate Governance Committee chairman.

The Company also reimburses directors for their travel-related expenses incurred in attending meetings of the board of directors and its committees; however, Mattersight has adopted the practice of holding meetings of the board of directors and its committees by video conference, thereby minimizing the need to reimburse for these expenses.

In addition to meeting attendance fees, Non-Employee Directors are eligible to receive, under the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”):  (i) an option to purchase 50,000 shares of Mattersight Common Stock, $.01 par value (“Common Stock”) upon commencement of service as a director (an “Initial Grant”); and (ii) an option to purchase 10,000shares of Common Stock on the day after each annual meeting of stockholders during which such service continues (an “Annual Grant”).

Stock options granted to Non-Employee Directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date and a maximum term of ten years.  Each Initial Grant vests ratably over a period of 48 months from the end of the month following the grant date.  Each Annual Grant will vest 25% on May 31^st of the year following the grant date, with the remaining balance vesting over the following three quarters.

In addition to the foregoing options, at its February 2009 meeting, as ratified by Unanimous Written Consent, the board of directors agreed to an additional grant of stock options under the 1999 Plan.  Each Non-Employee Director received an option to purchase 50,000 shares of Common Stock.  These stock options have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, which was February 18, 2009, and a maximum term of ten years. These options are fully vested.

By unanimous written consent effective September 11, 2014, each of the Company’s Board of Directors received 10,000 shares of restricted Common Stock, which are fully vested. Commencing in 2015, in addition to the Annual Grant, each non-employee director will receive 10,000 shares of restricted Common Stock annually, the day after the Company’s annual stockholders’ meeting, which will vest in equal quarterly increments over four quarters.

EX-10.26

Exhibit 10.26

Summary of 2018 Executive Officer Compensation

The following shows the 2018 annual salary for each of Mattersight’s current executive officers:

Kelly D. Conway, President and Chief Executive Officer:	$	425,000
Christopher J. Danson, Executive Vice President and Chief Technology Officer:	$	320,000
David R. Gustafson, Executive Vice President and Chief Operating Officer:	$	325,000
David B. Mullen, Senior Vice President and Chief Financial Officer:	$	325,000

Each of these executive officers have target bonus percentages as set forth in their employment agreements with Mattersight and modified with approval of the Compensation Committee of our Board of Directors from time to time.  Additional information concerning the compensation of these executive officers is set forth in the Proxy Statement on Schedule 14A filed by Mattersight Corporation with the Securities and Exchange Commission.

EX-21.1

Exhibit 21.1

MATTERSIGHT SUBSIDIARIES

Name of Company	Jurisdiction of Incorporation
Mattersight Europe Holding Corporation	Delaware
Mattersight International Holding, Inc.	Illinois
Mattersight (Netherlands) B.V.	Netherlands
Mattersight (Canada) Corporation	Canada
Mattersight (Deutschland) GmbH	Germany
Mattersight (UK) Limited	England & Wales
Mattersight Corporation (Australia) Pty. Ltd.	Australia

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 12, 2018, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Mattersight Corporation on Form 10-K for the year ended December 31, 2017. We consent to the incorporation by reference of said reports in the Registration Statements of Mattersight Corporation on Forms S-3 (File No. 333-180153,  File No. 333-193146, File No. 333-198091, File No. 333-202744, and File No. 333-217290) and Forms S-8 (File No. 333-96473, File No. 333-30374, File No. 333-68540, File No. 333-101031, File No. 333-143114, File No. 333-150671, File No. 333-172187, File No. 333-194543 and File No. 333-222308).

/s/ GRANT THORNTON LLP

Chicago, Illinois

March 12, 2018

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly Conway, David Gustafson, and David Mullen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 8th day of February 2018.

/s/ Tench Coxe

Signature

Tench Coxe

Printed Name

EX-24.2

Exhibit 24.2

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly Conway, David Gustafson, and David Mullen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 8^th day of February 2018.

/s/ Philip Dur

Signature

Philip Dur

Printed Name

EX-24.3

Exhibit 24.3

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly Conway, David Gustafson, and David Mullen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 8^th day of February 2018.

/s/ Henry Feinberg

Signature

Henry Feinberg

Printed Name

EX-24.4

Exhibit 24.4

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly Conway, David Gustafson, and David Mullen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 8^th day of February 2018.

/s/ John Kohler

Signature

John Kohler

Printed Name

EX-24.5

Exhibit 24.5

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly Conway, David Gustafson, and David Mullen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 8^th day of February 2018.

/s/ Michael J. Murray

Signature

Michael J. Murray

Printed Name

EX-24.6

Exhibit 24.6

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly Conway, David Gustafson, and David Mullen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 8^th day of February 2018.

/s/ John Staley

Signature

John Staley

Printed Name

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Kelly D. Conway, certify that:

1. I have reviewed this Annual Report on Form 10-K of Mattersight Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2018
By	/s/ KELLY D. CONWAY
	Kelly D. Conway
	President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, David B. Mullen, certify that:

1. I have reviewed this Annual Report on Form 10-K of Mattersight Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2018
By	/s/ DAVID B. MULLEN
	David B. Mullen
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Mattersight Corporation (the “Company”) for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kelly D. Conway, as Chief Executive Officer of the Company, and David B. Mullen, as Chief Financial Officer of the Company, hereby certify, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 12, 2018

/s/ KELLY D. CONWAY

Kelly D. Conway

President & Chief Executive Officer

/s/ DAVID B. MULLEN

David B. Mullen

Senior Vice President and Chief Financial Officer

This certification shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. In addition, this certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2017	Mar. 02, 2018	Jun. 30, 2017
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Trading Symbol	MATR
Entity Registrant Name	Mattersight Corp
Entity Central Index Key	0001094348
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		33,218,345
Entity Public Float			$ 59,458,238

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Current Assets:
Cash and cash equivalents	$ 9,044	$ 12,538
Receivables net of allowances of $41 and $311, at December 31, 2017 and December 31, 2016, respectively	6,565	8,508
Prepaid expenses	5,805	4,440
Other current assets	65	296
Total current assets	21,479	25,782
Equipment and leasehold improvements, net of accumulated depreciation and amortization of $24,955 and $19,748, at December 31, 2017 and December 31, 2016, respectively	8,572	9,576
Goodwill	972	972
Intangibles assets, net of amortization of $4,357 and $3,820, respectively	2,952	3,201
Other long-term assets (includes $2,675 and $4,210 in restricted cash at December 31, 2017 and December 31, 2016, respectively)	5,960	6,033
Total assets	39,935	45,564
Current Liabilities:
Short-term debt	93	738
Accounts payable	1,474	1,835
Accrued compensation and related costs	3,312	2,302
Unearned revenue	3,032	4,911
Capital leases	1,967	1,982
Other current liabilities	3,399	3,374
Total current liabilities	13,277	15,142
Long-term debt	17,056	20,839
Long-term unearned revenue	914	757
Long-term capital leases	1,190	1,602
Other long-term liabilities	6,475	5,945
Total liabilities	38,912	44,285
Series B convertible preferred stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,637,786 and 1,637,948 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively, with a liquidation preference of $11,568 and $10,985 at December 31, 2017 and December 31, 2016, respectively	8,353	8,354
Stockholders’ Equity:
Preferred stock, $0.01 par value; 35,000,000 shares authorized; none issued and outstanding
Common stock, $0.01 par value; 50,000,000 shares authorized; 33,083,180 and 27,511,361 shares issued at December 31, 2017 and December 31, 2016, respectively; and 33,039,713 and 26,622,706 outstanding at December 31, 2017 and December 31, 2016, respectively	331	275
Additional paid-in capital	275,963	264,214
Accumulated deficit	(279,425)	(263,062)
Treasury stock, at cost, 43,467 and 888,655 shares at December 31, 2017 and December 31, 2016, respectively	(117)	(4,455)
Accumulated other comprehensive loss	(4,082)	(4,047)
Total stockholders’ (deficit) equity	(7,330)	(7,075)
Total liabilities and stockholders’ equity	$ 39,935	$ 45,564

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Allowances for receivables	$ 41	$ 311
Accumulated depreciation and amortization of equipment and leasehold improvements	24,955	19,748
Amortization of intangibles	4,357	3,820
Restricted cash	$ 2,675	$ 4,210
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	35,000,000	35,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	33,083,180	27,511,361
Common stock, shares outstanding	33,039,713	26,622,706
Treasury stock, shares	43,467	888,655
Series B Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	1,637,786	1,637,948
Preferred stock, shares outstanding	1,637,786	1,637,948
Liquidation preference	$ 11,568	$ 10,985

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Revenue:
Subscription revenue	$ 43,712	$ 38,720	$ 36,091
Other revenue	2,798	3,377	3,821
Total revenue	46,510	42,097	39,912
Operating expenses:
Cost of subscription revenue	10,159	10,365	8,072
Cost of other revenue	3,394	3,423	2,604
Total cost of revenue, exclusive of depreciation and amortization	13,553	13,788	10,676
Product development	13,295	12,502	13,891
Sales and marketing	13,389	16,848	13,754
General and administrative	12,166	11,827	11,705
Depreciation and amortization	6,347	5,946	4,942
Total operating expenses	58,750	60,911	54,968
Operating loss	(12,240)	(18,814)	(15,056)
Non-operating income (expense):
Interest and other borrowing costs	(2,785)	(2,319)	(600)
Loss on early extinguishment of debt	(1,834)
Change in fair value of warrant liability	377	167	3
Other non-operating income	56	39	10
Total non-operating expense	(4,186)	(2,113)	(587)
Loss before income taxes	(16,426)	(20,927)	(15,643)
Income tax benefit (provision)	106	(50)	(38)
Net loss	(16,320)	(20,977)	(15,681)
Dividends related to 7% Series B convertible preferred stock	(584)	(586)	(588)
Net loss available to common stockholders	$ (16,904)	$ (21,563)	$ (16,269)
Per share of common stock:
Basic net loss available to common stock holders	$ (0.56)	$ (0.86)	$ (0.70)
Diluted net loss available to common stock holders	$ (0.56)	$ (0.86)	$ (0.70)
Shares used to calculate basic net loss per share	30,451	25,209	23,264
Shares used to calculate diluted net loss per share	30,451	25,209	23,264
Total Cost of Revenue [Member]
Stock-based compensation expense is included in individual line items above:
Stock-based compensation expense	$ 353	$ 371	$ 255
Product Development [Member]
Stock-based compensation expense is included in individual line items above:
Stock-based compensation expense	667	1,134	1,075
Sales and Marketing [Member]
Stock-based compensation expense is included in individual line items above:
Stock-based compensation expense	348	1,697	1,330
General and Administrative [Member]
Stock-based compensation expense is included in individual line items above:
Stock-based compensation expense	$ 1,559	$ 2,122	$ 2,742

XML

Consolidated Statements of Operations (Parenthetical)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Series B Convertible Preferred Stock [Member]
Convertible preferred stock interest rate	7.00%	7.00%	7.00%

XML

Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ (16,320)	$ (20,977)	$ (15,681)
Other comprehensive loss:
Effect of currency translation	(35)	(20)	(1)
Comprehensive net loss	$ (16,355)	$ (20,997)	$ (15,682)

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities:
Net loss	$ (16,320)	$ (20,977)	$ (15,681)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,347	5,946	4,942
Stock-based compensation	2,927	5,324	5,402
Discount accretion and other debt-related costs	1,417	436
Provision for uncollectible amounts	59	287
Change in fair value of warrant liability	(377)	(167)	(3)
Changes in assets and liabilities:
Receivables	1,884	(3,932)	(1,403)
Prepaid expenses	(1,089)	71	(623)
Other current assets	231	(62)	(118)
Other long-term assets	(1,257)	595	1,028
Accounts payable	(559)	375	(29)
Accrued compensation and related costs	1,010	(459)	520
Unearned revenue	(1,722)	(2,307)	(2,416)
Other current liabilities	1,292	722	(1,675)
Other long-term liabilities	633	582	3,667
Total adjustments	10,796	7,411	9,292
Net cash used in operating activities	(5,524)	(13,566)	(6,389)
Cash Flows from Investing Activities:
Capital expenditures	(2,998)	(3,714)	(4,917)
Investment in intangible assets	(279)	(349)	(171)
Net cash used in investing activities	(3,277)	(4,063)	(5,088)
Cash Flows from Financing Activities:
Proceeds from line of credit	26,900	16,246	15,000
Repayments of line of credit	(10,000)	(16,246)	(15,000)
Proceeds from term loan and other borrowings		28,880
Repayments of term loan and other borrowings	(23,512)	(6,945)	(750)
Debt prepayment costs	(692)
Fees paid for issuance of term loan	(206)	(724)
Proceeds from issuance of common stock, net of costs	14,752		15,942
Cash paid to satisfy tax withholding upon employee vesting	(1,177)	(440)	(874)
Principal payments on capital lease obligations	(2,498)	(2,296)	(2,116)
7% Series B convertible preferred stock dividend		(10)
Proceeds from exercise of stock options		236	241
Proceeds from employee stock purchase	240	289	212
Net cash provided by financing activities	3,807	18,990	12,655
Effect of exchange rate changes on cash and cash equivalents	(35)	(20)	(9)
(Decrease) increase in cash and cash equivalents	(5,029)	1,341	1,169
Cash and cash equivalents	12,538	15,407	14,238
Restricted cash (included in Other long-term assets on the Consolidated Balance Sheets)	4,210
Total cash, beginning of period	16,748	15,407	14,238
Cash and cash equivalents	9,044	12,538	15,407
Restricted cash (included in Other long-term assets on the Consolidated Balance Sheets)	2,675	4,210
Total cash, end of period	11,719	16,748	15,407
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred	2,071	2,447	2,737
Capital equipment purchased on credit	2,071	2,447	2,737
Financing of intellectual property purchased, at fair value			1,958
Issuance of warrant, at fair value		924
Supplemental Disclosures of Cash Flow Information:
Interest paid	$ 2,476	$ 1,343	$ 314

XML

Consolidated Statements of Cash Flows (Parenthetical)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Series B Convertible Preferred Stock [Member]
Convertible preferred stock interest rate	7.00%	7.00%	7.00%

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock Issued [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Loss [Member]
Beginning balance at Dec. 31, 2014	$ 4,213	$ 240	$ 243,282	$ (226,404)	$ (8,879)	$ (4,026)
Beginning balance, shares at Dec. 31, 2014		24,046,977
Proceeds from issuance of common stock, net	15,942	$ 27	15,915
Proceeds from issuance of Common Stock, shares		2,728,712
Issuance of common stock for option awards exercised	$ 282		282
Issuance of common stock for option awards exercised, shares	59,638	41,750
Issuance of Common Stock for warrants exercised	$ 378	$ 1	377
Issuance of Common Stock for warrants exercised, shares		50,184
Issuance of Common Stock related to employee stock programs	271	$ 8	263
Issuance of Common Stock related to employee stock programs, shares		819,632
Amortization/forfeitures of unearned compensation	5,178		5,178
Amortization/forfeitures of unearned compensation, shares		(53,819)
Restricted stock vestings tax withholding	(874)				(874)
Reissuance of treasury shares			(514)		514
Series B convertible preferred stock conversions	17		17
Series B convertible preferred stock conversions, shares		3,417
Series B convertible preferred stock dividend	(588)		(588)
Other comprehensive loss	(1)					(1)
Net loss	(15,681)			(15,681)
Ending balance at Dec. 31, 2015	9,137	$ 276	264,212	(242,085)	(9,239)	(4,027)
Ending balance, shares at Dec. 31, 2015		27,636,853
Issuance of common stock for option awards exercised	$ 236		236
Issuance of common stock for option awards exercised, shares	56,250
Issuance of Common Stock related to employee stock programs	$ 383		383
Issuance of Common Stock related to employee stock programs, shares		88,282
Amortization/forfeitures of unearned compensation	5,158	$ (1)	5,159
Amortization/forfeitures of unearned compensation, shares		(220,594)
Restricted stock vestings tax withholding	(440)				(440)
Reissuance of treasury shares			(5,224)		5,224
Series B convertible preferred stock conversions	34		34
Series B convertible preferred stock conversions, shares		6,820
Series B convertible preferred stock dividend	(586)		(586)
Other comprehensive loss	(20)					(20)
Net loss	(20,977)			(20,977)
Ending balance at Dec. 31, 2016	(7,075)	$ 275	264,214	(263,062)	(4,455)	(4,047)
Ending balance, shares at Dec. 31, 2016		27,511,361
Proceeds from issuance of common stock, net	14,749	$ 53	14,696
Proceeds from issuance of Common Stock, shares		5,328,187
Prior period adjustment related to adoption of ASU 2016-09	(43)			(43)
Issuance of Common Stock related to employee stock programs	551	$ 4	547
Issuance of Common Stock related to employee stock programs, shares		428,223
Amortization/forfeitures of unearned compensation	2,603	$ (1)	2,604
Amortization/forfeitures of unearned compensation, shares		(184,753)
Restricted stock vestings tax withholding	(1,177)				(1,177)
Reissuance of treasury shares			(5,515)		5,515
Series B convertible preferred stock conversions	1		1
Series B convertible preferred stock conversions, shares		162
Series B convertible preferred stock dividend	(584)		(584)
Other comprehensive loss	(35)					(35)
Net loss	(16,320)			(16,320)
Ending balance at Dec. 31, 2017	$ (7,330)	$ 331	$ 275,963	$ (279,425)	$ (117)	$ (4,082)
Ending balance, shares at Dec. 31, 2017		33,083,180

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Description of Business

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Description of Business

Note One — Description of Business

Mattersight Corporation and its subsidiaries (collectively, Mattersight or the company) is a leader in behavioral analytics and a pioneer in personality-based software products. Using a stack of innovative, patented applications, including predictive behavioral routing, performance management, quality assurance, and predictive analytics (collectively, Behavioral Analytics), Mattersight analyzes and predicts customer behavior based on the language exchanged between agents and customers during brand interactions. These insights are then used to facilitate more effective and effortless customer conversations, which, in turn, drive increased customer satisfaction and retention, employee engagement, and operating efficiency. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. Mattersight’s solutions have influenced hundreds of millions of shorter, more satisfying customer interactions for leading companies in the healthcare, insurance, financial services, technology, telecommunications, cable, utilities, education, hospitality, and government industries.

The company’s multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, the Company’s Behavioral Analytics offerings enable its clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through its Behavioral Analytics offerings, Mattersight helps its clients:

• Identify optimal customer/employee behavioral pairing for call routing;

• Identify and understand customer personality;

• Automatically measure customer satisfaction and agent performance on every analyzed call;

• Improve rapport between agent and customer;

• Reduce call handle times while improving customer satisfaction;

• Identify opportunities to improve self-service applications;

• Improve cross-sell and up-sell success rates;

• Improve the efficiency and effectiveness of collection efforts;

• Measure and improve supervisor effectiveness and coaching;

• Improve agent effectiveness by analyzing key attributes of desktop usage;

• Predict likelihood of customer attrition;

• Predict customer satisfaction and Net Promoter Scores^® without customer surveys;

• Predict likelihood of debt repayment;

• Predict likelihood of a sale or cross-sell; and

• Identify fraudulent callers and improve authentication processes.

Mattersight’s mission is to help brands have more effective and effortless conversations with their customers. Using a suite of innovative personality-based software applications, Mattersight can analyze and predict customer behavior based on the language exchanged during service and sales interactions. The company operates a highly scalable, flexible, and adaptive application platform to enable clients to implement and operate these applications.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note Two — Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

Basis of Presentation

On April 1, 2017, the company adopted Accounting Standards Update (ASU) No 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses the presentation and classification of cash flows related to specific transactions. Upon adoption, the company updated the statement of cash flow for all periods presented. Certain amounts on the statement of cash flows for December 31, 2016 were reclassified in compliance with this ASU.

On January 1, 2017, the company adopted ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires that a statement of cash flows explain the change in the total of cash, cash equivalents and restricted cash. Certain amounts on the statement of cash flows for December 31, 2016 and 2015 were reclassified in compliance with this ASU.

On January 1, 2017, the company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). This update is intended to simplify the accounting for share-based payment transactions, including the income tax impacts, classification of awards as either equity or liabilities, and presentation on the statement of cash flows. Under ASU 2016-09, the company has elected to account for forfeitures as they occur rather than on an estimated basis. The standard was adopted using a modified retrospective approach which had an immaterial impact on the accumulated deficit balance on January 1, 2017.

On January 1, 2017, the company adopted ASU No. 2015-17, Income Taxes (Topic 740). This update simplifies the presentation of deferred income taxes and requires that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet. Upon adoption, all deferred tax assets and liabilities were classified as long term.

On January 1, 2017, to better align expenses, the company changed the caption on the Consolidated Statements of Operations from Research and development to Product development. The company believes the revised presentation provides a clearer understanding of the business expenses in this caption. There was no change to the expense classification and the current period is comparable to the prior period.

Revenue Recognition

Subscription Revenue

Subscription revenue consists of revenue derived from Mattersight’s Behavioral Analytics service offerings, including predictive behavioral routing, performance management, quality assurance, predictive analytics, and marketing managed services revenue derived from the performance of services on a continual basis.

Subscription revenue is based on a number of factors, such as the number of users to whom the Company provides one or more of its Behavioral Analytics offerings, the type and number of Behavioral Analytics offerings deployed to the client, and in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. Subscription periods generally range from one to three years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. This revenue is recognized over the applicable subscription period, as the service is performed for the client.

Other Revenue

Other revenue consists of deployment revenue, professional services revenue, and reimbursed expenses revenue.

Deployment revenue consists of planning, deployment, and training fees derived from Behavioral Analytics contracts. These fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the applicable subscription or pilot period. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in prepaid expenses and other long-term assets. Such costs are amortized over the subscription period. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

Professional services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training, as well as fees generated from the Company’s operational consulting services. Professional services are performed for the Company’s clients on a fixed-fee or time-and-materials basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared with the total estimated hours over the entire term of the contract.

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for the Company’s clients. An equivalent amount of reimbursable expenses is included in total cost of other revenue.

Total Cost of Revenue, Exclusive of Depreciation and Amortization

Total cost of revenue primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other client-related third-party outside services. Total cost of revenue excludes depreciation and amortization.

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Product Development

Product development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for product development personnel. The personnel costs included in this item are net of any labor costs directly related to the generation of revenue, which are represented in total cost of revenue.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, and marketing.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for the Company’s corporate technology infrastructure and applications.

Loss Per Common Share

The per common share basic net loss available to holders of the Company’s Common Stock, par value $0.01 per share (Common Stock), has been computed by dividing the net loss available to holders of Common Stock for each period presented by the weighted average shares outstanding. The per common share diluted loss available to holders of Common Stock has been computed by dividing the net loss available to holders of Common Stock by the weighted average shares outstanding plus the dilutive effect of Common Stock equivalents, which is primarily related to our 7% Series B Convertible Preferred Stock (Series B Stock), using the treasury stock method. In periods in which there was a loss, the dilutive effect of Common Stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

Fair Value Measurements

Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, which includes foreign bank accounts, and receivables. Cash and cash equivalents consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2017, the Company had non-interest-bearing cash and interest-bearing money market balances in excess of federally insured limits by $11.2 million. The Company’s receivables are derived from billings to clients located primarily in the United States and are denominated in U.S. dollars.

Clients Accounting for 10% or More of Total Revenue:

	2017			2016			2015
United HealthCare Services, Inc.		28	%		33	%		31	%
CVS Caremark Corporation		16	%		15	%		13	%
TriWest Healthcare Alliance Corp		14	%		9	%		2	%
Progressive Casualty Insurance Company		8	%		11	%		15	%

Clients Accounting for 10% or More of Accounts Receivable:

	2017			2016
United HealthCare Services, Inc.		29	%		41	%
CVS Caremark Corporation		13	%		27	%
Progressive Casualty Insurance Company		13	%		—

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is between one and three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is only reviewed if a triggering event occurs to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, Intangibles – Goodwill and Other, which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the lesser of the amount financed and present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of twenty-four, thirty, or thirty-six months.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing the annual impairment test, a qualitative assessment is performed to determine whether the carrying amount exceeds the reporting unit’s fair value.  If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. The Company currently operates in a single business segment or reporting unit.

In 2017, after completing its annual qualitative review, the company concluded that it was not more likely than not that the carrying value of our reporting unit exceeded its fair value. Accordingly, the company concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

Intangible Assets

Intangible assets subject to amortization are assessed for impairment at least annually or when indicated by a change in economic or operational circumstances. The impairment assessment of these assets requires management to first compare the book value of the amortizing asset to undiscounted cash flows only if there are indicators of a change in circumstances. If the book value exceeds the undiscounted cash flows, management is then required to estimate the fair value of the assets and record an impairment loss for the excess of the carrying value over the fair value and annually challenge the useful lives.

Income Taxes

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards.

The Company has recorded income tax valuation allowances on its net deferred tax assets to account for the unpredictability surrounding the timing of realization of its U.S. and non-U.S. net deferred tax assets due to continuing operating losses. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to or achieving predictable levels of profitability.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit.

Unearned Revenue

Unearned revenue consists of billings or payments received in advance of revenue recognition for Behavioral Analytics contracts. Unearned revenue is recognized as revenue when the applicable recognition criteria are met.

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock outstanding as of December 31, 2017 and 2016 are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive loss. Income and expense items are translated at average exchange rates prevailing during the period.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Stock Warrants

In accordance with ASC 480-10, Distinguishing Liabilities from Equity, the Company classified certain warrants to purchase Common Stock as liabilities that do not meet the requirements for classification as equity. Such liabilities are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on warrant liability on the consolidated statements of operations in each reporting period. Fair value of the warrants was measured using a Black-Scholes model. See Note Eighteen—Fair Value Measurements.

Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics.

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-11—Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exceptionto address narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. Part I of the update changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Part II of the update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception. Part II does not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The company is currently evaluating the impact of this update on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective for reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The company is currently evaluating the impact of this update on its consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other, simplifying the test for goodwill impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this update, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is needed. This ASU is effective for reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The company is evaluating the standard and does not expect a change in value of goodwill when the standard is adopted.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments. This update broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The update is effective for annual periods beginning after December 15, 2019. The company is currently evaluating the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update is intended to improve financial reporting of leasing transactions. The ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This update is effective for periods beginning after December 15, 2018. The company is currently evaluating the impact of this update on its consolidated financial statements. Certain operating leases the company is party to are expected to be recognized as assets and liabilities as a result of adopting this standard.

In May 2014, FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606). This update sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. The underlying principle of the new standard is that an organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The company is continuing to assess the impact of adopting ASU 2014-09. The company has completed its assessment of material contracts and management does not expect a significant change in revenue recognition or operating cash flows when ASU 2014-09 is adopted. The accounting for the incremental costs of obtaining and fulfilling a contract is not expected to change, as the company already defers these costs and amortizes them over the anticipated period of benefit. Additional processes and internal controls have been implemented to enable and maintain compliance with ASU 2014-09’s disclosure requirements. Some significant effects on the balance sheet are expected as a result of the guidance regarding contract balances. The company has elected to adopt the modified retrospective transition method. The company expects the cumulative adjustment to beginning retained earnings as a result of adoption of ASU 2014-09 to be immaterial.

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Receivables

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Receivables

Note Three — Receivables

Receivables consist of the following:

	December 31, 2017		December 31, 2016
Amounts billed to clients	$	6.6	$	8.8
Allowances for doubtful accounts		—		0.3
Receivables, net	$	6.6	$	8.5

Amounts billed to clients represent fees and reimbursable project-related expenses. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments and clients indicating their intention to dispute their obligation to pay for contractual services provided by us. If the financial condition of the Company’s clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Current Prepaid Expenses

12 Months Ended

Dec. 31, 2017

Prepaid Expenses Disclosure [Abstract]

Current Prepaid Expenses

Note Four — Current Prepaid Expenses

Current prepaid expenses primarily consist of deferred deployment costs, prepaid technology maintenance costs and prepaid commissions related to Behavioral Analytics contracts. These costs are recognized over the subscription periods of the respective contracts generally one to three years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. Costs included in current prepaid expenses will be recognized within the next twelve months.

Current prepaid expenses consisted of the following:

	December 31, 2017		December 31, 2016
Prepaid technology maintenance costs	$	2.0	$	0.8
Deferred deployment costs		1.9		1.7
Prepaid commissions		1.1		1.2
Other		0.8		0.7
Total	$	5.8	$	4.4

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Equipment and Leasehold Improvements

12 Months Ended

Dec. 31, 2017

Property Plant And Equipment [Abstract]

Equipment and Leasehold Improvements

Note Five — Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

	December 31, 2017			December 31, 2016
Computers and software	$	28.8		$	24.3
Leasehold improvements		4.0			4.3
Furniture and equipment		0.8			0.7
Equipment and leasehold improvements, gross		33.6			29.3
Accumulated depreciation and amortization		(25.0	)		(19.7	)
Equipment and leasehold improvements, net	$	8.6		$	9.6

Depreciation and amortization expense was $5.8 million, $5.5 million, and $4.4 million, for 2017, 2016, and 2015, respectively. Assets acquired under capital leases were $2.1 million, $2.4 million, and $2.7 million, in 2017, 2016, and 2015, respectively. Depreciation and amortization expense on capital lease assets was $2.5 million, $2.0 million, and $2.2 million, in 2017, 2016, and 2015, respectively.

The carrying value of equipment and leasehold improvements is only reviewed if a triggering event occurs to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value. There was a triggering event as of December 31, 2017 and December 31, 2016; however no impairment was required to be recognized.  

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Intangible Assets

12 Months Ended

Dec. 31, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

Note Six — Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, marketing managed services customer relationships and the purchase of certain intellectual property rights. The costs related to patent and trademark applications and the purchase of certain intellectual property are amortized over 120 months. The other intangible assets are fully amortized. Currently, amortization expense of intangible assets is expected to be $0.4 million annually.

	December 31, 2017			December 31, 2016
Patents and trademarks	$	4.0		$	3.7
Intellectual property		3.3			3.3
Gross intangible assets		7.3			7.0
Accumulated amortization of intangible assets		(4.3	)		(3.8	)
Total	$	3.0		$	3.2

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Other Long-Term Assets

12 Months Ended

Dec. 31, 2017

Investments All Other Investments [Abstract]

Other Long-Term Assets

Note Seven — Other Long-Term Assets

Other long-term assets includes the long-term portion of restricted cash, prepaid technology and maintenance support, deferred deployment costs, and prepaid commissions related to Behavioral Analytics.  Restricted cash represents cash used to collateralize certain letters of credit issued to support the company’s equipment leasing activities. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months. Other long-term assets consisted of the following:

	December 31, 2017		December 31, 2016
Restricted cash	$	2.7	$	4.2
Prepaid technology and maintenance support		1.9		0.6
Deferred deployment costs		1.2		0.6
Prepaid commissions		—		0.5
Other		0.2		0.1
Total	$	6.0	$	6.0

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2017

Postemployment Benefits [Abstract]

Employee Benefit Plans

Note Eight — Employee Benefit Plans

The Company’s U.S. employees are eligible to participate in the Mattersight Corporation 401(k) Plan (the Plan) on the first day of the month coinciding with or following their date of hire. The Plan allows employees to contribute up to 30% of their eligible compensation and up to 100% of their bonus compensation, subject to IRS statutory limits. For 2017, 2016 and 2015, the employer match contribution was $0.5 million, $0.5 million and $0.4 million, respectively.

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Other Current Liabilities

12 Months Ended

Dec. 31, 2017

Other Liabilities Disclosure [Abstract]

Other Current Liabilities

Note Nine — Other Current Liabilities

	December 31, 2017		December 31, 2016
Accrued vendor payable	$	1.9	$	1.9
Deferred rent liability		0.5		0.4
Warrant liability		0.4		0.8
Other		0.6		0.3
Total	$	3.4	$	3.4

On August 1, 2016, the company issued a warrant to Hercules Capital, Inc., (Hercules) that gives Hercules the right to purchase shares of the company’s common stock at $3.50 per share. The warrant is exercisable for 357,142 shares of common stock and expires on August 1, 2023. The warrant is accounted for as a liability and carried at fair market value using the Black-Scholes model. Changes in the warrant’s fair market value are recognized in non-operating income (expense) in the consolidated statements of operations.

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Leases

12 Months Ended

Dec. 31, 2017

Leases [Abstract]

Leases

Note Ten — Leases

Capital Leases

Assets under capital leases consist of computer hardware and related equipment. The gross amount of assets recorded under capital leases was $7.3 million and $6.5 million at December 31, 2017 and December 31, 2016, respectively. Depreciation expense related to assets under capital leases is included in depreciation and amortization expense on the consolidated statements of operations.

As of December 31, 2017, the future minimum lease payments due under capital leases are expected to be as follows:

(In millions)
Year	Amount
2018	$	2.2
2019		1.1
2020		0.2
Total minimum lease payments	$	3.5
Less: estimated executory costs		—
Net minimum lease payments	$	3.5
Less: amount representing interest		(0.3	)
Present value of minimum lease payments	$	3.2

Assets acquired under capital leases included in equipment and leasehold improvements (see Note Five—Equipment and Leasehold Improvements):

	December 31, 2017			December 31, 2016
Computers and software	$	7.3		$	6.5
Accumulated depreciation and amortization		(4.1	)		(2.9	)
Computers and software, net	$	3.2		$	3.6

Operating Leases

The Company leases various office facilities under leases expiring at various dates through August 31, 2024. Additionally, the Company leases various property and office equipment under operating leases, generally under three year terms, expiring at various dates. Certain lease agreements contain escalating rent clauses, which require higher rent payments in future years. The Company expenses rent on a straight-line basis over the term of the lease, including any rent-free periods. In addition, the Company received certain leasehold improvement incentives, and recorded these incentives as deferred rent, which is amortized as a reduction of rent expense over the life of the lease. Net deferred rent on the consolidated balance sheet as of December 31, 2017, 2016, and 2015 was $2.4 million, $2.6 million, and $2.0 million, respectively. Rental expense for all operating leases approximated $1.5 million, $1.3 million, and $1.7 million, for 2017, 2016, and 2015, respectively.

In 2017, the Company extended its operating lease for the Edina facility.  The initial lease began June 1, 2011 and terminates August 31, 2024.  In 2016, the Company entered into an operating lease to relocate its Austin facility. The initial lease term, which became effective on April 1, 2016, terminates on August 31, 2023. In 2015, the Company entered into an operating lease to relocate its corporate headquarters to Chicago, Illinois. The initial lease term, which became effective on July 1, 2015, terminates on July 31, 2022. The leases include one five-year renewal option.

Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year are as follows: (in millions)

Year	Amount
2018	$	0.9
2019		0.7
2020		0.6
2021		0.7
2022		0.8
Thereafter		0.5
Total minimum payments required	$	4.2

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Debt

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Debt

Note Eleven — Debt

On June 29, 2017, the company entered into a loan agreement with CIBC Bank USA f/k/a The PrivateBank and Trust Company (CIBC). The loan agreement provides for a revolving line of credit to the company with a maximum credit limit of $20.0 million, which matures on June 29, 2020 (the credit facility). The credit facility is secured by a security interest in the company’s assets. The company, subject to certain limits and restrictions, may from time to time request the issuance of letters of credit under the loan agreement.

The principal amount outstanding under the credit facility will accrue interest at a floating annual rate equal to 1 month, 2 month or 3 month LIBOR (as selected by the company) plus 4.50%, payable monthly. In addition, the company will pay a non-use fee on the credit facility of 25 basis points (0.25%) per annum of the average unused portion of the credit facility.  The amount the company may borrow under the credit facility is limited to five times the company’s monthly recurring revenue (as determined in accordance with the terms and conditions set forth in the loan agreement), multiplied by a dynamic churn factor that is based upon the ratio of recurring revenue retained in the prior twelve month period relative to the total amount of recurring revenue at the beginning of the period.

The loan agreement imposes various restrictions on the company, including usual and customary limitations on the ability of the company to incur debt and to grant liens upon its assets, increasing restrictions based on thresholds, prohibits certain consolidations, mergers, and sales and transfers of assets by the company and requires the company to comply with a trailing twelve months of total revenue and quarterly EBITDA (as adjusted in accordance with the loan agreement) targets. The loan agreement includes usual and customary events of default (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the loan agreement may be accelerated and/or the lender’s commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the loan agreement will automatically become immediately due and payable, and the lender’s commitments will automatically terminate.  

On June 29, 2017, the company drew $13.5 million on the revolving line of credit. The proceeds were used to repay the principal balance of $22.5 million under the company’s prior credit facility with Hercules. Upon repayment, the company terminated its loan agreement with Hercules. The loss on the early extinguishment of Hercules debt totaled $1.8 million. It consisted of a prepayment charge of $0.7 million, acceleration of unaccreted debt discount of $0.6 million, and acceleration of unamortized deferred debt costs of $0.5 million. The average outstanding balance on the revolving line of credit during for 2017 was $10.3 million.  At December 31, 2017, $16.9 million remains outstanding on the revolving line of credit with the ability to draw an additional $1.8 million. There was also $0.7 million in letters of credit issued by CIBC against the line of credit. During January and February 2018, the company repaid $7.5 million of principal on the revolving line of credit.

Debt consisted of the following at December 31, 2017:

	December 31, 2017		December 31, 2016
CIBC loan due June 29, 2020, effective borrowing rate of 5.93% at December 31, 2017	$	16.9	$	—
Hercules loan effective rate of 14.50% at December 31, 2016		—		22.5
Furniture loan due May 2021, effective rate of 9.10%		0.1		0.1
Furniture loan due May 2021, effective rate of 9.55%		0.1		0.1
Furniture loan due July 2019, effective rate of 13.98%		0.1		0.1
Total debt(1)	$	17.2	$	22.8

(1) Total debt of $17.2 million at December 31, 2017 includes the current portion of the furniture loans of $0.1 million. As of December 31, 2016, short-term debt was $0.7 million, consisting of $0.6 million related to the current portion of the secured loan with Hercules and $0.1 million related to the current portion of the furniture loans.

Debt maturities were as follows as of December 31, 2017:

(In millions)
Year	Amount
2018	$	0.1
2019		0.1
2020		16.9
2021		0.1
2022		—

Letters of Credit

The Company has standby letters of credit outstanding in the amount of $3.4 million at December 31, 2017. Letters of credit are expected to expire from 2018 through 2023.

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Other Long-Term Liabilities

12 Months Ended

Dec. 31, 2017

Payables And Accruals [Abstract]

Other Long-Term Liabilities

Note Twelve — Other Long-Term Liabilities

	December 31, 2017		December 31, 2016
7% Series B convertible preferred stock dividend payable	$	3.2	$	2.6
Deferred rent liability		1.9		2.2
Technology service liability		1.2		—
Deferred income tax liability		0.2		0.3
Intellectual property purchase liability		—		0.8
Total	$	6.5	$	5.9

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Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Note Thirteen — Income Taxes

Loss before income taxes consisted of the following:

	2017			2016			2015
United States	$	(16.4	)	$	(20.9	)	$	(15.5	)
Foreign		—			—			(0.1	)
Total	$	(16.4	)	$	(20.9	)	$	(15.6	)

The income tax benefit (provision) consists of the following:

	2017		2016			2015
Current:
Federal	$	—	$	(0.1	)	$	—
State		—		—			—
Foreign		—		—			—
Total current		—		(0.1	)		—
Deferred:
Federal		0.1		—			—
State		—		—			—
Foreign		—		—			—
Total deferred		0.1		—			—
Income tax benefit (provision)	$	0.1	$	(0.1	)	$	—

Total income tax benefit differed from the amount computed by applying the federal statutory income tax rate due to the following:

	2017			2016			2015
Valuation allowance	$	25.7		$	(7.7	)	$	(4.9	)
Federal tax benefit, at statutory rate		5.7			7.2			5.5
Stock-based compensation		3.1			—			—
Deferrals		0.7			—			—
State tax benefit, net of federal benefit		0.5			0.6			0.4
Tax reform(1)		(32.2	)		—			—
Expiration of state NOLs		(1.7	)		—			—
Expiration of vested stock options		(1.4	)		—			—
Nondeductible expenses		(0.3	)		(0.3	)		0.1
Other		—			0.1			(1.1	)
Income tax benefit (provision)	$	0.1		$	(0.1	)	$	—

(1) On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was signed into law. The Company has completed its accounting for tax reform under the Tax Cuts and Jobs Act as of December 31, 2017. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings.  We did not recognize a liability for the tax on accumulated unremitted non-U.S. earnings because we have an accumulated foreign loss. At December 31, 2017, we recognized a tax benefit of $0.1 million from revaluing U.S. net deferred tax liabilities.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit.

A reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year are as follows:

	2017		2016		2015
Balance at beginning of year	$	12.7	$	12.7	$	12.7
Additions based on tax positions related to the current year		—		—		—
Additions for tax positions of prior years		—		—		—
Reductions for tax positions of prior years		—		—		—
Reductions for tax positions as a result of lapse of statute		—		—		—
Settlements		—		—		—
Balance at end of year	$	12.7	$	12.7	$	12.7

Due to the Company’s net operating loss carryforward position, these unrecognized tax benefits will not impact the Company’s effective tax rate, if recognized. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to result in a significant impact on the results of operations or the financial position of the Company.

Due to the Company’s net operating loss carryforward position, accrued interest and penalties associated with uncertain tax positions as of December 31, 2017 are not material. Interest and penalties associated with uncertain tax positions are recorded as part of income tax expense.

The statutes of limitation for the Company’s income tax returns after 2001 effectively remain open for examination by the IRS because the net operating loss carryforward from those years can be examined by the IRS for a period of three years after filing the tax return for the year the loss is used.

Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company and its subsidiaries may have various state and foreign income tax returns for immaterial jurisdictions in the process of examination throughout the reporting period.

Deferred tax assets and liabilities comprised the following:

	December 31, 2017			December 31, 2016
Deferred tax assets:
Net operating loss carryforwards	$	53.9		$	75.2
Other accruals		4.0			8.8
Depreciation and amortization, including goodwill		0.7			0.8
Tax credit carryforward		0.5			0.5
Valuation allowance		(58.1	)		(83.8	)
Total deferred tax assets		1.0			1.5
Deferred tax liabilities:
Prepaid expenses		(1.1	)		(1.7	)
Total deferred tax liabilities		(1.1	)		(1.7	)
Net deferred tax liability	$	(0.1	)	$	(0.2	)

Deferred income taxes are not provided on certain undistributed earnings of foreign subsidiaries because such foreign subsidiaries are in an accumulated foreign loss position.

During 2002, the Company established a valuation allowance related to deferred tax assets for the U.S. This was in addition to the valuation allowance established in 2001 for non-U.S. deferred tax assets. The Company continues to provide a valuation allowance on significantly all domestic and foreign deferred tax assets as the Company has determined that it is more likely than not that the deferred tax assets in these jurisdictions will not be realized. As of December 31, 2017, net deferred tax assets of $58.1 million were fully offset by a valuation allowance. The Company’s U.S. federal net operating losses (NOLs) of $260.5 million and U.S. state NOLs of $108.9 million will expire beginning in 2022 and 2018, respectively. The Company’s non-U.S. NOLs of $0.8 million are subject to various expiration dates beginning in 2029. The Company also carries $0.5 million in research and development credit carryforwards that will expire beginning in 2020.

The Company’s ability to utilize its NOLs could become subject to significant limitations under Section 382 of the Internal Revenue Code if the Company were to undergo an ownership change. An ownership change would occur if the stockholders who own or have owned, directly or indirectly, 5% or more of the Company’s Common Stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder, increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL carryforwards. The Company has undergone a Section 382 analysis and does not believe there is currently a limitation on the use of NOLs under Section 382; however, due to ongoing ownership changes, the Company may be subject to significant limitations in the future. If a change in ownership is deemed to have occurred during the past three years, then it may be possible that the Company’s NOL carryforward could be subject to limitation under Section 382 for tax return purposes. However, since its NOL carryforward is fully reserved with a valuation allowance, there would be no impact for financial statement purposes from a Section 382 limitation.

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Litigation and Other Contingencies

12 Months Ended

Dec. 31, 2017

Commitments And Contingencies Disclosure [Abstract]

Litigation and Other Contingencies

Note Fourteen — Litigation and Other Contingencies

The Company is a party to various agreements, including all client contracts, under which it may be obligated to indemnify the other party with respect to certain matters, including, but not limited to, indemnification against third-party claims of infringement of intellectual property rights with respect to services, software, and other deliverables provided by the Company. These obligations may be subject to various limitations on the remedies available to the other party, including, without limitation, limits on the amounts recoverable and the time during which claims may be made, and may be supported by indemnities given to the Company by applicable third parties. Payment by the Company under these indemnification clauses is generally subject to the other party making a claim that is subject to challenge by the Company. Historically, the Company has not been obligated to pay any claim for indemnification under its agreements, and management is not aware of future indemnification payments that it would be obligated to make.

Under its By-Laws, subject to certain exceptions, the Company has agreed to indemnify its corporate officers and directors for certain events or occurrences while the corporate officer or director is, or was, serving at its request in such capacity or in certain related capacities. The Company has separate indemnification agreements with each of its directors and corporate officers that requires it, subject to certain exceptions, to indemnify them to the fullest extent authorized or permitted by its By-Laws and the Delaware General Corporation Law. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer liability insurance policy that limits its exposure and enables it to recover a portion of any amounts paid under these indemnification agreements. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company had no liabilities recorded for these agreements as of December 31, 2017.

The Company’s products may be subject to sales tax in certain jurisdictions. If a taxing authority were to successfully assert that we have not properly collected sales or other transaction taxes, or if sales or other transaction tax laws or the interpretation thereof were to change, and we were unable to enforce the terms of our contracts with customers that give us the right to reimbursement for assessed sales taxes, we could incur tax liabilities in amounts that could be material. The Company has considered the changing nature of tax laws, the terms of its customer contracts and its recent audit experience in assessing its exposure to possible and probable sales tax liabilities. Based on its assessment, the company has recorded a sales tax liability of $0.1 million at December 31, 2017.

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Capital Stock and Series B Stock

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

Capital Stock and Series B Stock

Note Fifteen — Capital Stock and Series B Stock

Under the terms of its Certificate of Incorporation, as amended, the Company’s authorized capital stock consists of (i) 50,000,000 shares of Common Stock, and (ii) 40,000,000 shares of preferred stock (Preferred Stock). Under the terms of the Certificate of Designations of 7% Series B Convertible Preferred Stock, the Company designated 5,000,000 shares of the 40,000,000 shares of Preferred Stock as its Series B Stock. 1,637,786 and 1,637,948 shares of Series B Stock were issued and outstanding as of December 31, 2017 and December 31, 2016, respectively.

On February 23, 2017, the company entered into a definitive purchase agreement for the sale of 5,328,187 shares of its common stock to certain investors and certain officers and directors in a private placement. Under the terms of the agreement, the company raised approximately $16.0 million in gross proceeds by selling 5,228,187 shares to certain investors at a price of $3.00 per share and by selling 100,000 shares to certain officers and directors (including certain of their affiliates) at a price of $3.45 per share. The shares represented approximately 20% of the issued and outstanding shares of common stock immediately prior to the issuance. On March 1, 2017, the company received aggregate gross proceeds, net of fees, of $14.8 million. Proceeds are being used for general corporate, working capital, and debt repayment purposes.  Craig-Hallum Capital Group LLC, which acted as the sole placement agent for the offering, received a commission of $1.1 million, and was reimbursed for its out-of-pocket expenses. The company’s registration statement on Form S-3 (File No. 333-217290) was filed with the SEC on April 13, 2017 and declared effective by the SEC on April 26, 2017.

On July 22, 2015, the Company signed a definitive Common Stock Purchase Agreement (the 2015 Purchase Agreement) to raise approximately $16.2 million in gross proceeds in a registered direct offering. Under the terms of the 2015 Purchase Agreement, the Company sold 2,728,712 shares of Common Stock (the Shares). Of the aggregate 2,728,712 Shares, 2,563,238 were sold to certain investors at a price of $5.93 per share and 165,474 were sold to certain officers and directors (including certain of their affiliates) at a price of $6.11 per share.  The Shares represented approximately 12% of the issued and outstanding shares of Common Stock immediately prior to the execution of the 2015 Purchase Agreement. The offering closed on July 23, 2015. The aggregate proceeds that the Company received from the offering, net of fees, were approximately $15.9 million. Proceeds from the offering are being used for general corporate and working capital purposes. Craig-Hallum Capital Group LLC, which acted as the Company’s financial advisor for the offering, received a fee of $0.2 million. The Shares were sold pursuant to a prospectus supplement dated as of July 22, 2015, in connection with a takedown from the Company’s effective shelf registration statement on Form S-3 (File No. 333-202744), which was filed with the SEC on March 13, 2015 and declared effective by the SEC on April 8, 2015.

The Series B Stock accrues dividends at a rate of 7% per annum, is entitled to a preference upon liquidation, and is convertible on a one-for-one basis into shares of Common Stock, subject to adjustment for stock splits, stock dividends, and similar actions. The Series B Stock generally votes on a one-for-one basis with the Common Stock, subject to adjustment for certain actions and specified matters as to which the Series B Stock is entitled to a separate class vote.

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

Note Sixteen — Stock-Based Compensation

The Company has two stock-based compensation plans: the Mattersight Corporation 1999 Stock Incentive Plan (the 1999 Plan) and the Mattersight Corporation Employee Stock Purchase Plan (the ESPP).

Under the 1999 Plan, awards of restricted stock, salary replacement, commissions, stock options, and stock appreciation rights may be granted to directors, officers, employees, consultants, independent contractors, and agents of the Company and its subsidiaries. Awards granted under the 1999 Plan are made at the discretion of the Compensation Committee of the Company’s Board of Directors (the Compensation Committee). If shares or options awarded under the 1999 Plan are not issued due to cancellation of unvested or unexercised options or shares, then those shares or options again become available for issuance under the 1999 Plan. Under the 1999 Plan, on the first day of each year, the aggregate number of shares available for issuance under the 1999 Plan is automatically increased by an amount equal to 5% of the total number of shares of Common Stock that are outstanding. At the 2008 Annual Meeting of Stockholders, stockholders approved the amendment and restatement of the 1999 Plan to increase the number of shares available for issuance under the 1999 Plan by 1,500,000. Stockholders approved at the 2017 Annual Meeting, to increase the number of shares available for issuance under the ESPP by 250,000.

Stock-based compensation expense was $2.9 million, $5.3 million, and $5.4 million, for 2017, 2016, and 2015, respectively. The Company recognizes stock compensation expense ratably over the vesting period. The Company does not recognize the windfall tax benefit related to the excess tax deduction because the Company currently does not anticipate realizing the tax savings associated with this deduction. See Note Thirteen—Income Taxes.

As of December 31, 2017, there were a total of 3,331,957 shares of Common Stock available for future grants under the 1999 Plan and from treasury stock. The Company’s Common Stock is traded on the NASDAQ Global Market under the symbol MATR.

Restricted Stock

Restricted stock awards are shares of Common Stock granted to an individual that do not immediately vest but rather vest over a period of time. During the vesting period, the holder of granted restricted stock receives all of the benefits of ownership (right to dividends, voting rights, etc.), other than the right to sell or otherwise transfer any interest in the stock. In addition to the Annual Grant (as defined under the section titled Stock Options below), each non-employee director receives 10,000 shares of restricted stock annually, the day after the Company’s annual stockholders’ meeting, which vest 25% at the end of the month in which awarded and the remaining balance vests over the following three quarters.

Restricted stock award activity was as follows for the years presented:

	Shares			Weighted Average Price
Nonvested balance at December 31, 2014		556,194		$	5.76
Granted		825,120		$	6.78
Vested		(493,270	)	$	6.18
Forfeited		(53,819	)	$	6.15
Nonvested balance at December 31, 2015		834,225		$	6.49
Granted		950,340		$	3.89
Vested		(380,218	)	$	5.34
Forfeited		(220,594	)	$	5.98
Nonvested balance at December 31, 2016		1,183,753		$	4.87
Granted		1,530,192		$	3.30
Vested		(1,163,992	)	$	4.20
Forfeited		(184,753	)	$	4.98
Nonvested balance at December 31, 2017		1,365,200		$	3.65

	2017		2016		2015
Total fair value of restricted stock awards vested	$	3.8	$	1.6	$	3.3
Compensation expense related to restricted stock awards	$	2.3	$	4.0	$	2.3

As of December 31, 2017, there remains $3.5 million of unrecognized compensation expense related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 1.7 years. Under ASU No. 2016-09, in 2017 the Company elected to no longer apply a forfeiture rate but to account for forfeitures as incurred. The Company estimated the forfeiture rate at 3% for 2016 and 2015.

Stock Options

Stock option awards may be in the form of incentive or non-qualified options. Stock options are granted with an exercise price per share equal to the fair market value of a share of the common stock on the date of grant, and have a maximum term of 10 years. The stock option terms are set by the Compensation Committee and generally become exercisable over a period of four years. The vesting can begin in equal monthly or quarterly increments over the vesting period.

Each non-employee director, upon commencing service, receives a non-qualified stock option to purchase 50,000 shares of Common Stock that vests ratably over a period of 48 months. Additionally, each non-employee director receives a non-qualified stock option to purchase 10,000 shares of Common Stock, granted annually the day after the Company’s annual stockholders’ meeting (the Annual Grant). Stock options granted to non-employee directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, and are exercisable for up to 10 years.

Option activity was as follows for the years presented:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 31, 2014		2,636,596		$	7.42		6.8
Exercisable as of December 31, 2014		1,582,165		$	8.70		5.6
Granted		222,625		$	6.57			$	3.55
Exercised		(59,638	)	$	4.76
Forfeited		(192,166	)	$	7.47
Outstanding as of December 31, 2015		2,607,417		$	7.41		6.0
Exercisable as of December 31, 2015		1,967,825		$	7.97		5.2
Outstanding intrinsic value at December 31, 2015	$	2.4
Exercisable intrinsic value at December 31, 2015	$	1.8
Granted		115,000		$	3.82			$	1.85
Exercised		(56,250	)	$	4.20
Forfeited		(74,026	)	$	6.13
Outstanding as of December 31, 2016		2,592,141		$	7.36		4.9
Exercisable as of December 31, 2016		2,282,476		$	7.61		4.5
Outstanding intrinsic value at December 31, 2016	$	—
Exercisable intrinsic value at December 31, 2016	$	—
Granted		60,000		$	2.55			$	1.27
Exercised	—			$	—
Forfeited		(576,740	)	$	11.15
Outstanding as of December 31, 2017		2,075,401		$	6.16		4.4
Exercisable as of December 31, 2017		2,006,878		$	6.21		4.3
Outstanding intrinsic value at December 31, 2017	$	—
Exercisable intrinsic value at December 31, 2017	$	—

	2017		2016		2015
Compensation expense related to option awards	$	0.5	$	1.1	$	1.7

	2017		2016		2015
Total fair value of stock options vested	$	0.6	$	1.1	$	1.7
Intrinsic value of stock options exercised		—		—		0.1
Proceeds received from option exercises		—		0.2		0.3

As of December 31, 2017, there remained $0.2 million of unrecognized compensation expense related to stock options. These costs are expected to be recognized over a weighted average period of 1.1 years. The Company did not apply a forfeiture rate in 2016 or 2015 asthe impact was negligible.

The following table summarizes the stock options granted during 2017, 2016, and 2015 by range of exercise price:

	2017		2016		2015
Options granted		60,000		115,000		222,625
Range of exercise price	$	2.55	$3.57 - $4.40		$6.13 - $6.90

The vesting schedule for options granted is one of the following: (1) vesting 6.25% quarterly, with the balance vesting ratably over the following 15 quarters, (2) vesting 25% at the end of the month in which awarded and the remaining balance vesting over the following 12 quarters (3) vesting 25% at the end of the month in which awarded and the remaining balance vesting over the following 3 quarters.

The fair value for options granted during 2017, 2016, and 2015 was estimated on the date of grant using a Black Scholes option-pricing model. The Company used the following weighted average assumptions:

	2017			2016			2015
Risk-free interest rates		1.52	%		0.81	%		1.03	%
Expected dividend yield		—			—			—
Expected volatility		54	%		54	%		58	%
Expected lives	5.5 years			5.5 years			6.0 years

Historical Company information is the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Employee Stock Purchase Plan

The ESPP is intended to qualify as an employee stock purchase plan under section 423 of the Internal Revenue Code. We adopted the ESPP in 1999 and amended and restated the ESPP in May 2007 and February 2016. Under the ESPP, eligible employees are permitted to purchase shares of Common Stock at below-market prices. The purchase period opens on the first day and ends on the last business day of each calendar quarter. As of December 31, 2017, there remains 234,389 shares available for issuance under ESPP. The shares of Common Stock issued in respect of employee purchases under the ESPP during 2017, 2016, and 2015, were as follows:

	2017		2016		2015
Shares of common stock issued		101,393		88,282		41,026
Expense related to ESPP (in thousands)	$	92	$	95	$	61

The fair value for ESPP purchases during 2017, 2016, and 2015, was estimated using a Black Scholes model. The Company used the following weighted average assumptions:

	2017			2016			2015
Risk-free interest rates		0.86	%		0.25	%		0.01	%
Expected dividend yield		—			—			—
Expected volatility		53	%		48	%		37	%
Expected lives	0.25 years			0.25 years			0.25 years

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Loss Per Share

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Loss Per Share

Note Seventeen — Loss Per Share

The following table sets forth the loss per share calculation for the periods presented:

	2017			2016			2015
Net loss	$	(16.3	)	$	(21.0	)	$	(15.7	)
Dividends related to Series B convertible preferred    stock(1)		(0.6	)		(0.6	)		(0.6	)
Net loss available to common stockholders	$	(16.9	)	$	(21.6	)	$	(16.3	)
Per share of Common Stock
Basic/diluted net loss available to common stockholders	$	(0.56	)	$	(0.86	)	$	(0.70	)
Weighted average shares outstanding (basic and diluted)    (in millions)		30.45			25.21			23.26
Currently anti-dilutive common stock equivalents(2)    (in millions)		1.56			1.73			2.21

(1) Dividends on 7% Series B convertible preferred stock (Series B stock) are cumulative and have been accrued from July 1, 2012 to December 31, 2017. The total accrued dividends are $3.2 million as of December 31, 2017, which will continue to be accrued until they are declared by the board of directors. Dividends related to Series B convertible preferred stock were accrued but not paid during 2017, 2016 and 2015.

(2) In periods in which there was a loss, the effect of common stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note Eighteen — Fair Value Measurements

The company uses a three-level classification hierarchy of fair value measurements to report certain assets and liabilities at fair value. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses observable market data, such as quoted market prices for similar assets and liabilities in active markets, or inputs other than quoted prices that are directly observable. Level 3 uses entity-specific inputs or unobservable inputs that are derived and cannot be corroborated by market data.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table presents financial instruments measured at fair value measured on a recurring basis:

	December 31, 2017
	Carrying value		Level 1		Level 2		Level 3
Cash and cash equivalents - money market fund	$	0.5	$	0.5	$	—	$	—
Warrant liability		0.4		—		—		0.4

	December 31, 2016
	Carrying value		Level 1		Level 2		Level 3
Cash and cash equivalents - money market fund	$	12.1	$	12.1	$	—	$	—
Warrant liability		0.8		—		—		0.8

The following table represents the activity in the Company’s Level 3 warrants during the years ended:

(In millions)	Amount
Level 3 warrants, ending balance at December 31, 2014	$	0.4
Change in fair value of warrant liability		—
Warrant exercise		(0.4	)
Level 3 warrants, ending balance at December 31, 2015		—
Addition - Hercules warrants, initial fair value		0.9
Change in fair value of warrant liability		(0.1	)
Level 3 warrants, ending balance at December 31, 2016		0.8
Change in fair value of warrant liability		(0.4	)
Level 3 warrants, ending balance at December 31, 2017	$	0.4

The carrying values of other cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximated their fair values as of December 31, 2017 and December 31, 2016 due to the short-term nature of these instruments.

The company determined the fair value of the liability for the warrant issued to Hercules, considered a Level 3 liability, using the Black-Scholes model. At December 31, 2017, management used a risk free rate of 2.24%, expected volatility of 53%, and an expected term of 5.59 years. Significant increases or decreases in any of these inputs in isolation would result in a significantly different fair value (see Note Nine –Other Current Liabilities).

The fair value of long-term debt was estimated to be $17.1 million at December 31, 2017.

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 during 2017. There were no assets or liabilities valued at fair value on a nonrecurring basis during 2017.

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Quarterly Data (Unaudited)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Quarterly Data (Unaudited)

Note Nineteen — Quarterly Data (Unaudited)

	2017
	1st			2nd			3rd			4th			Year
Total revenue	$	11.0		$	10.6		$	11.3		$	13.6		$	46.5
Gross margin	$	7.5		$	7.2		$	8.2		$	10.1		$	33.0
Operating loss	$	(4.0	)	$	(4.2	)	$	(2.7	)	$	(1.3	)	$	(12.2	)
Loss before income taxes	$	(4.9	)	$	(6.8	)	$	(3.0	)	$	(1.7	)	$	(16.4	)
Net loss available to common stockholders	$	(5.1	)	$	(6.9	)	$	(3.2	)	$	(1.7	)	$	(16.9	)
Per share of common stock:
Basic net loss available to common stockholders	$	(0.19	)	$	(0.22	)	$	(0.10	)	$	(0.05	)	$	(0.56	)
Diluted net loss available to common stockholders	$	(0.19	)	$	(0.22	)	$	(0.10	)	$	(0.05	)	$	(0.56	)

	2016
	1st			2nd			3rd			4th			Year
Total revenue	$	10.0		$	9.1		$	10.4		$	12.6		$	42.1
Gross margin	$	6.8		$	5.9		$	7.0		$	8.6		$	28.3
Operating loss	$	(5.6	)	$	(6.0	)	$	(5.0	)	$	(2.2	)	$	(18.8	)
Loss before income taxes	$	(5.8	)	$	(6.2	)	$	(5.8	)	$	(3.1	)	$	(20.9	)
Net loss available to common stockholders	$	(6.0	)	$	(6.3	)	$	(6.0	)	$	(3.3	)	$	(21.6	)
Per share of common stock:
Basic net loss available to common stockholders	$	(0.24	)	$	(0.25	)	$	(0.24	)	$	(0.13	)	$	(0.86	)
Diluted net loss available to common stockholders	$	(0.24	)	$	(0.25	)	$	(0.24	)	$	(0.13	)	$	(0.86	)

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Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2017

Valuation And Qualifying Accounts [Abstract]

Valuation and Qualifying Accounts

MATTERSIGHT CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Description of Allowance and Reserves	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Additions Charged to Other Accounts		Deductions			Balance at End of Period
Valuation allowance for doubtful accounts:
December 31, 2017	$	0.3		—		—		(0.3	)	$	—
December 31, 2016	$	—		0.3		—		—		$	0.3
December 31, 2015	$	—		—		—		—		$	—
Valuation allowance for deferred tax assets:
December 31, 2017	$	83.8		—		—		(25.7	)	$	58.1
December 31, 2016	$	75.8		8.0		—		—		$	83.8
December 31, 2015	$	71.0		4.8		—		—		$	75.8

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Consolidation

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

Basis of Presentation

Basis of Presentation

On April 1, 2017, the company adopted Accounting Standards Update (ASU) No 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses the presentation and classification of cash flows related to specific transactions. Upon adoption, the company updated the statement of cash flow for all periods presented. Certain amounts on the statement of cash flows for December 31, 2016 were reclassified in compliance with this ASU.

On January 1, 2017, the company adopted ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires that a statement of cash flows explain the change in the total of cash, cash equivalents and restricted cash. Certain amounts on the statement of cash flows for December 31, 2016 and 2015 were reclassified in compliance with this ASU.

On January 1, 2017, the company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). This update is intended to simplify the accounting for share-based payment transactions, including the income tax impacts, classification of awards as either equity or liabilities, and presentation on the statement of cash flows. Under ASU 2016-09, the company has elected to account for forfeitures as they occur rather than on an estimated basis. The standard was adopted using a modified retrospective approach which had an immaterial impact on the accumulated deficit balance on January 1, 2017.

On January 1, 2017, the company adopted ASU No. 2015-17, Income Taxes (Topic 740). This update simplifies the presentation of deferred income taxes and requires that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet. Upon adoption, all deferred tax assets and liabilities were classified as long term.

On January 1, 2017, to better align expenses, the company changed the caption on the Consolidated Statements of Operations from Research and development to Product development. The company believes the revised presentation provides a clearer understanding of the business expenses in this caption. There was no change to the expense classification and the current period is comparable to the prior period.

Revenue Recognition

Revenue Recognition

Subscription Revenue

Subscription revenue consists of revenue derived from Mattersight’s Behavioral Analytics service offerings, including predictive behavioral routing, performance management, quality assurance, predictive analytics, and marketing managed services revenue derived from the performance of services on a continual basis.

Subscription revenue is based on a number of factors, such as the number of users to whom the Company provides one or more of its Behavioral Analytics offerings, the type and number of Behavioral Analytics offerings deployed to the client, and in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. Subscription periods generally range from one to three years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. This revenue is recognized over the applicable subscription period, as the service is performed for the client.

Other Revenue

Other revenue consists of deployment revenue, professional services revenue, and reimbursed expenses revenue.

Deployment revenue consists of planning, deployment, and training fees derived from Behavioral Analytics contracts. These fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the applicable subscription or pilot period. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in prepaid expenses and other long-term assets. Such costs are amortized over the subscription period. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

Professional services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training, as well as fees generated from the Company’s operational consulting services. Professional services are performed for the Company’s clients on a fixed-fee or time-and-materials basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared with the total estimated hours over the entire term of the contract.

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for the Company’s clients. An equivalent amount of reimbursable expenses is included in total cost of other revenue.

Total Cost of Revenue, Exclusive of Depreciation and Amortization

Total Cost of Revenue, Exclusive of Depreciation and Amortization

Total cost of revenue primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other client-related third-party outside services. Total cost of revenue excludes depreciation and amortization.

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Product Development

Product Development

Product development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for product development personnel. The personnel costs included in this item are net of any labor costs directly related to the generation of revenue, which are represented in total cost of revenue.

Sales and Marketing

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, and marketing.

General And Administrative

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for the Company’s corporate technology infrastructure and applications.

Loss Per Common Share

Loss Per Common Share

The per common share basic net loss available to holders of the Company’s Common Stock, par value $0.01 per share (Common Stock), has been computed by dividing the net loss available to holders of Common Stock for each period presented by the weighted average shares outstanding. The per common share diluted loss available to holders of Common Stock has been computed by dividing the net loss available to holders of Common Stock by the weighted average shares outstanding plus the dilutive effect of Common Stock equivalents, which is primarily related to our 7% Series B Convertible Preferred Stock (Series B Stock), using the treasury stock method. In periods in which there was a loss, the dilutive effect of Common Stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

Fair Value Measurements

Fair Value Measurements

Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, which includes foreign bank accounts, and receivables. Cash and cash equivalents consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2017, the Company had non-interest-bearing cash and interest-bearing money market balances in excess of federally insured limits by $11.2 million. The Company’s receivables are derived from billings to clients located primarily in the United States and are denominated in U.S. dollars.

Equipment and Leasehold Improvements

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is between one and three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is only reviewed if a triggering event occurs to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, Intangibles – Goodwill and Other, which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the lesser of the amount financed and present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of twenty-four, thirty, or thirty-six months.

Goodwill

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing the annual impairment test, a qualitative assessment is performed to determine whether the carrying amount exceeds the reporting unit’s fair value.  If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. The Company currently operates in a single business segment or reporting unit.

In 2017, after completing its annual qualitative review, the company concluded that it was not more likely than not that the carrying value of our reporting unit exceeded its fair value. Accordingly, the company concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

Intangible Assets

Intangible Assets

Intangible assets subject to amortization are assessed for impairment at least annually or when indicated by a change in economic or operational circumstances. The impairment assessment of these assets requires management to first compare the book value of the amortizing asset to undiscounted cash flows only if there are indicators of a change in circumstances. If the book value exceeds the undiscounted cash flows, management is then required to estimate the fair value of the assets and record an impairment loss for the excess of the carrying value over the fair value and annually challenge the useful lives.

Income Taxes

Income Taxes

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards.

The Company has recorded income tax valuation allowances on its net deferred tax assets to account for the unpredictability surrounding the timing of realization of its U.S. and non-U.S. net deferred tax assets due to continuing operating losses. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to or achieving predictable levels of profitability.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit.

Unearned Revenue

Unearned Revenue

Unearned revenue consists of billings or payments received in advance of revenue recognition for Behavioral Analytics contracts. Unearned revenue is recognized as revenue when the applicable recognition criteria are met.

Stockholders' Equity

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock outstanding as of December 31, 2017 and 2016 are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

Foreign Currency Translation

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive loss. Income and expense items are translated at average exchange rates prevailing during the period.

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Stock Warrants

Stock Warrants

In accordance with ASC 480-10, Distinguishing Liabilities from Equity, the Company classified certain warrants to purchase Common Stock as liabilities that do not meet the requirements for classification as equity. Such liabilities are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on warrant liability on the consolidated statements of operations in each reporting period. Fair value of the warrants was measured using a Black-Scholes model. See Note Eighteen—Fair Value Measurements.

Segments

Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-11—Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exceptionto address narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. Part I of the update changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Part II of the update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception. Part II does not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The company is currently evaluating the impact of this update on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective for reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The company is currently evaluating the impact of this update on its consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other, simplifying the test for goodwill impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this update, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is needed. This ASU is effective for reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The company is evaluating the standard and does not expect a change in value of goodwill when the standard is adopted.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments. This update broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The update is effective for annual periods beginning after December 15, 2019. The company is currently evaluating the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update is intended to improve financial reporting of leasing transactions. The ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This update is effective for periods beginning after December 15, 2018. The company is currently evaluating the impact of this update on its consolidated financial statements. Certain operating leases the company is party to are expected to be recognized as assets and liabilities as a result of adopting this standard.

In May 2014, FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606). This update sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. The underlying principle of the new standard is that an organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The company is continuing to assess the impact of adopting ASU 2014-09. The company has completed its assessment of material contracts and management does not expect a significant change in revenue recognition or operating cash flows when ASU 2014-09 is adopted. The accounting for the incremental costs of obtaining and fulfilling a contract is not expected to change, as the company already defers these costs and amortizes them over the anticipated period of benefit. Additional processes and internal controls have been implemented to enable and maintain compliance with ASU 2014-09’s disclosure requirements. Some significant effects on the balance sheet are expected as a result of the guidance regarding contract balances. The company has elected to adopt the modified retrospective transition method. The company expects the cumulative adjustment to beginning retained earnings as a result of adoption of ASU 2014-09 to be immaterial.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Schedule of Customer Concentration as Percentage of Total Revenue and AccountReceivable

Clients Accounting for 10% or More of Total Revenue:

	2017			2016			2015
United HealthCare Services, Inc.		28	%		33	%		31	%
CVS Caremark Corporation		16	%		15	%		13	%
TriWest Healthcare Alliance Corp		14	%		9	%		2	%
Progressive Casualty Insurance Company		8	%		11	%		15	%

Clients Accounting for 10% or More of Accounts Receivable:

	2017			2016
United HealthCare Services, Inc.		29	%		41	%
CVS Caremark Corporation		13	%		27	%
Progressive Casualty Insurance Company		13	%		—

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Receivables (Tables)

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Components of Receivables

Receivables consist of the following:

	December 31, 2017		December 31, 2016
Amounts billed to clients	$	6.6	$	8.8
Allowances for doubtful accounts		—		0.3
Receivables, net	$	6.6	$	8.5

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Current Prepaid Expenses (Tables)

12 Months Ended

Dec. 31, 2017

Prepaid Expenses Disclosure [Abstract]

Summary of Current Prepaid Expenses

Current prepaid expenses consisted of the following:

	December 31, 2017		December 31, 2016
Prepaid technology maintenance costs	$	2.0	$	0.8
Deferred deployment costs		1.9		1.7
Prepaid commissions		1.1		1.2
Other		0.8		0.7
Total	$	5.8	$	4.4

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Equipment and Leasehold Improvements (Tables)

12 Months Ended

Dec. 31, 2017

Property Plant And Equipment [Abstract]

Components of Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

	December 31, 2017			December 31, 2016
Computers and software	$	28.8		$	24.3
Leasehold improvements		4.0			4.3
Furniture and equipment		0.8			0.7
Equipment and leasehold improvements, gross		33.6			29.3
Accumulated depreciation and amortization		(25.0	)		(19.7	)
Equipment and leasehold improvements, net	$	8.6		$	9.6

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Summary of Intangible Assets

	December 31, 2017			December 31, 2016
Patents and trademarks	$	4.0		$	3.7
Intellectual property		3.3			3.3
Gross intangible assets		7.3			7.0
Accumulated amortization of intangible assets		(4.3	)		(3.8	)
Total	$	3.0		$	3.2

XML

Other Long-Term Assets (Tables)

12 Months Ended

Dec. 31, 2017

Investments All Other Investments [Abstract]

Other Long-Term Assets

Other long-term assets consisted of the following:

	December 31, 2017		December 31, 2016
Restricted cash	$	2.7	$	4.2
Prepaid technology and maintenance support		1.9		0.6
Deferred deployment costs		1.2		0.6
Prepaid commissions		—		0.5
Other		0.2		0.1
Total	$	6.0	$	6.0

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Other Current Liabilities (Tables)

12 Months Ended

Dec. 31, 2017

Other Liabilities Disclosure [Abstract]

Other Current Liabilities

	December 31, 2017		December 31, 2016
Accrued vendor payable	$	1.9	$	1.9
Deferred rent liability		0.5		0.4
Warrant liability		0.4		0.8
Other		0.6		0.3
Total	$	3.4	$	3.4

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Leases (Tables)

12 Months Ended

Dec. 31, 2017

Leases [Abstract]

Schedule of Future Minimum Lease Payments Under Capital Leases

As of December 31, 2017, the future minimum lease payments due under capital leases are expected to be as follows:

(In millions)
Year	Amount
2018	$	2.2
2019		1.1
2020		0.2
Total minimum lease payments	$	3.5
Less: estimated executory costs		—
Net minimum lease payments	$	3.5
Less: amount representing interest		(0.3	)
Present value of minimum lease payments	$	3.2

Summary of Capital Leases Included in Equipment and Leasehold Improvements

Assets acquired under capital leases included in equipment and leasehold improvements (see Note Five—Equipment and Leasehold Improvements):

	December 31, 2017			December 31, 2016
Computers and software	$	7.3		$	6.5
Accumulated depreciation and amortization		(4.1	)		(2.9	)
Computers and software, net	$	3.2		$	3.6

Future Minimum Rental Commitments Under Non-Cancelable Operating Leases

Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year are as follows: (in millions)

Year	Amount
2018	$	0.9
2019		0.7
2020		0.6
2021		0.7
2022		0.8
Thereafter		0.5
Total minimum payments required	$	4.2

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Debt (Tables)

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Summary of Debt

Debt consisted of the following at December 31, 2017:

	December 31, 2017		December 31, 2016
CIBC loan due June 29, 2020, effective borrowing rate of 5.93% at December 31, 2017	$	16.9	$	—
Hercules loan effective rate of 14.50% at December 31, 2016		—		22.5
Furniture loan due May 2021, effective rate of 9.10%		0.1		0.1
Furniture loan due May 2021, effective rate of 9.55%		0.1		0.1
Furniture loan due July 2019, effective rate of 13.98%		0.1		0.1
Total debt(1)	$	17.2	$	22.8

(1) Total debt of $17.2 million at December 31, 2017 includes the current portion of the furniture loans of $0.1 million. As of December 31, 2016, short-term debt was $0.7 million, consisting of $0.6 million related to the current portion of the secured loan with Hercules and $0.1 million related to the current portion of the furniture loans.

Summary of Debt Maturities

Debt maturities were as follows as of December 31, 2017:

(In millions)
Year	Amount
2018	$	0.1
2019		0.1
2020		16.9
2021		0.1
2022		—

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Other Long-Term Liabilities (Tables)

12 Months Ended

Dec. 31, 2017

Payables And Accruals [Abstract]

Summary of Other Long-Term Liabilities

	December 31, 2017		December 31, 2016
7% Series B convertible preferred stock dividend payable	$	3.2	$	2.6
Deferred rent liability		1.9		2.2
Technology service liability		1.2		—
Deferred income tax liability		0.2		0.3
Intellectual property purchase liability		—		0.8
Total	$	6.5	$	5.9

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Loss before Income Taxes

Loss before income taxes consisted of the following:

	2017			2016			2015
United States	$	(16.4	)	$	(20.9	)	$	(15.5	)
Foreign		—			—			(0.1	)
Total	$	(16.4	)	$	(20.9	)	$	(15.6	)

Income Tax (Provision) Benefit

The income tax benefit (provision) consists of the following:

	2017		2016			2015
Current:
Federal	$	—	$	(0.1	)	$	—
State		—		—			—
Foreign		—		—			—
Total current		—		(0.1	)		—
Deferred:
Federal		0.1		—			—
State		—		—			—
Foreign		—		—			—
Total deferred		0.1		—			—
Income tax benefit (provision)	$	0.1	$	(0.1	)	$	—

Total Income Tax Benefit

Total income tax benefit differed from the amount computed by applying the federal statutory income tax rate due to the following:

	2017			2016			2015
Valuation allowance	$	25.7		$	(7.7	)	$	(4.9	)
Federal tax benefit, at statutory rate		5.7			7.2			5.5
Stock-based compensation		3.1			—			—
Deferrals		0.7			—			—
State tax benefit, net of federal benefit		0.5			0.6			0.4
Tax reform(1)		(32.2	)		—			—
Expiration of state NOLs		(1.7	)		—			—
Expiration of vested stock options		(1.4	)		—			—
Nondeductible expenses		(0.3	)		(0.3	)		0.1
Other		—			0.1			(1.1	)
Income tax benefit (provision)	$	0.1		$	(0.1	)	$	—

Reconciliation of Gross Amounts of Unrecognized Tax Benefits

A reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year are as follows:

	2017		2016		2015
Balance at beginning of year	$	12.7	$	12.7	$	12.7
Additions based on tax positions related to the current year		—		—		—
Additions for tax positions of prior years		—		—		—
Reductions for tax positions of prior years		—		—		—
Reductions for tax positions as a result of lapse of statute		—		—		—
Settlements		—		—		—
Balance at end of year	$	12.7	$	12.7	$	12.7

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities comprised the following:

	December 31, 2017			December 31, 2016
Deferred tax assets:
Net operating loss carryforwards	$	53.9		$	75.2
Other accruals		4.0			8.8
Depreciation and amortization, including goodwill		0.7			0.8
Tax credit carryforward		0.5			0.5
Valuation allowance		(58.1	)		(83.8	)
Total deferred tax assets		1.0			1.5
Deferred tax liabilities:
Prepaid expenses		(1.1	)		(1.7	)
Total deferred tax liabilities		(1.1	)		(1.7	)
Net deferred tax liability	$	(0.1	)	$	(0.2	)

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Restricted Stock Award Activity

Restricted stock award activity was as follows for the years presented:

	Shares			Weighted Average Price
Nonvested balance at December 31, 2014		556,194		$	5.76
Granted		825,120		$	6.78
Vested		(493,270	)	$	6.18
Forfeited		(53,819	)	$	6.15
Nonvested balance at December 31, 2015		834,225		$	6.49
Granted		950,340		$	3.89
Vested		(380,218	)	$	5.34
Forfeited		(220,594	)	$	5.98
Nonvested balance at December 31, 2016		1,183,753		$	4.87
Granted		1,530,192		$	3.30
Vested		(1,163,992	)	$	4.20
Forfeited		(184,753	)	$	4.98
Nonvested balance at December 31, 2017		1,365,200		$	3.65

	2017		2016		2015
Total fair value of restricted stock awards vested	$	3.8	$	1.6	$	3.3
Compensation expense related to restricted stock awards	$	2.3	$	4.0	$	2.3

Stock Option Activity

Option activity was as follows for the years presented:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 31, 2014		2,636,596		$	7.42		6.8
Exercisable as of December 31, 2014		1,582,165		$	8.70		5.6
Granted		222,625		$	6.57			$	3.55
Exercised		(59,638	)	$	4.76
Forfeited		(192,166	)	$	7.47
Outstanding as of December 31, 2015		2,607,417		$	7.41		6.0
Exercisable as of December 31, 2015		1,967,825		$	7.97		5.2
Outstanding intrinsic value at December 31, 2015	$	2.4
Exercisable intrinsic value at December 31, 2015	$	1.8
Granted		115,000		$	3.82			$	1.85
Exercised		(56,250	)	$	4.20
Forfeited		(74,026	)	$	6.13
Outstanding as of December 31, 2016		2,592,141		$	7.36		4.9
Exercisable as of December 31, 2016		2,282,476		$	7.61		4.5
Outstanding intrinsic value at December 31, 2016	$	—
Exercisable intrinsic value at December 31, 2016	$	—
Granted		60,000		$	2.55			$	1.27
Exercised	—			$	—
Forfeited		(576,740	)	$	11.15
Outstanding as of December 31, 2017		2,075,401		$	6.16		4.4
Exercisable as of December 31, 2017		2,006,878		$	6.21		4.3
Outstanding intrinsic value at December 31, 2017	$	—
Exercisable intrinsic value at December 31, 2017	$	—

	2017		2016		2015
Compensation expense related to option awards	$	0.5	$	1.1	$	1.7

	2017		2016		2015
Total fair value of stock options vested	$	0.6	$	1.1	$	1.7
Intrinsic value of stock options exercised		—		—		0.1
Proceeds received from option exercises		—		0.2		0.3

Summary of Stock Options Granted by Range of Exercise Price

The following table summarizes the stock options granted during 2017, 2016, and 2015 by range of exercise price:

	2017		2016		2015
Options granted		60,000		115,000		222,625
Range of exercise price	$	2.55	$3.57 - $4.40		$6.13 - $6.90

Fair Value for Options Granted

The Company used the following weighted average assumptions:

	2017			2016			2015
Risk-free interest rates		1.52	%		0.81	%		1.03	%
Expected dividend yield		—			—			—
Expected volatility		54	%		54	%		58	%
Expected lives	5.5 years			5.5 years			6.0 years

Employee Stock Purchase Plan

As of December 31, 2017, there remains 234,389 shares available for issuance under ESPP. The shares of Common Stock issued in respect of employee purchases under the ESPP during 2017, 2016, and 2015, were as follows:

	2017		2016		2015
Shares of common stock issued		101,393		88,282		41,026
Expense related to ESPP (in thousands)	$	92	$	95	$	61

Fair Value of ESPP Purchases

The fair value for ESPP purchases during 2017, 2016, and 2015, was estimated using a Black Scholes model. The Company used the following weighted average assumptions:

	2017			2016			2015
Risk-free interest rates		0.86	%		0.25	%		0.01	%
Expected dividend yield		—			—			—
Expected volatility		53	%		48	%		37	%
Expected lives	0.25 years			0.25 years			0.25 years

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Loss Per Share (Tables)

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Calculation of Loss Per Share

The following table sets forth the loss per share calculation for the periods presented:

	2017			2016			2015
Net loss	$	(16.3	)	$	(21.0	)	$	(15.7	)
Dividends related to Series B convertible preferred    stock(1)		(0.6	)		(0.6	)		(0.6	)
Net loss available to common stockholders	$	(16.9	)	$	(21.6	)	$	(16.3	)
Per share of Common Stock
Basic/diluted net loss available to common stockholders	$	(0.56	)	$	(0.86	)	$	(0.70	)
Weighted average shares outstanding (basic and diluted)    (in millions)		30.45			25.21			23.26
Currently anti-dilutive common stock equivalents(2)    (in millions)		1.56			1.73			2.21

(1) Dividends on 7% Series B convertible preferred stock (Series B stock) are cumulative and have been accrued from July 1, 2012 to December 31, 2017. The total accrued dividends are $3.2 million as of December 31, 2017, which will continue to be accrued until they are declared by the board of directors. Dividends related to Series B convertible preferred stock were accrued but not paid during 2017, 2016 and 2015.

(2) In periods in which there was a loss, the effect of common stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Financial Instruments Measured at Fair Value Measured on Recurring Basis

The following table presents financial instruments measured at fair value measured on a recurring basis:

	December 31, 2017
	Carrying value		Level 1		Level 2		Level 3
Cash and cash equivalents - money market fund	$	0.5	$	0.5	$	—	$	—
Warrant liability		0.4		—		—		0.4

	December 31, 2016
	Carrying value		Level 1		Level 2		Level 3
Cash and cash equivalents - money market fund	$	12.1	$	12.1	$	—	$	—
Warrant liability		0.8		—		—		0.8

Summary of Activities in Company's Level 3 Warrants

The following table represents the activity in the Company’s Level 3 warrants during the years ended:

(In millions)	Amount
Level 3 warrants, ending balance at December 31, 2014	$	0.4
Change in fair value of warrant liability		—
Warrant exercise		(0.4	)
Level 3 warrants, ending balance at December 31, 2015		—
Addition - Hercules warrants, initial fair value		0.9
Change in fair value of warrant liability		(0.1	)
Level 3 warrants, ending balance at December 31, 2016		0.8
Change in fair value of warrant liability		(0.4	)
Level 3 warrants, ending balance at December 31, 2017	$	0.4

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Quarterly Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Summary of Quarterly Data

	2017
	1st			2nd			3rd			4th			Year
Total revenue	$	11.0		$	10.6		$	11.3		$	13.6		$	46.5
Gross margin	$	7.5		$	7.2		$	8.2		$	10.1		$	33.0
Operating loss	$	(4.0	)	$	(4.2	)	$	(2.7	)	$	(1.3	)	$	(12.2	)
Loss before income taxes	$	(4.9	)	$	(6.8	)	$	(3.0	)	$	(1.7	)	$	(16.4	)
Net loss available to common stockholders	$	(5.1	)	$	(6.9	)	$	(3.2	)	$	(1.7	)	$	(16.9	)
Per share of common stock:
Basic net loss available to common stockholders	$	(0.19	)	$	(0.22	)	$	(0.10	)	$	(0.05	)	$	(0.56	)
Diluted net loss available to common stockholders	$	(0.19	)	$	(0.22	)	$	(0.10	)	$	(0.05	)	$	(0.56	)

	2016
	1st			2nd			3rd			4th			Year
Total revenue	$	10.0		$	9.1		$	10.4		$	12.6		$	42.1
Gross margin	$	6.8		$	5.9		$	7.0		$	8.6		$	28.3
Operating loss	$	(5.6	)	$	(6.0	)	$	(5.0	)	$	(2.2	)	$	(18.8	)
Loss before income taxes	$	(5.8	)	$	(6.2	)	$	(5.8	)	$	(3.1	)	$	(20.9	)
Net loss available to common stockholders	$	(6.0	)	$	(6.3	)	$	(6.0	)	$	(3.3	)	$	(21.6	)
Per share of common stock:
Basic net loss available to common stockholders	$	(0.24	)	$	(0.25	)	$	(0.24	)	$	(0.13	)	$	(0.86	)
Diluted net loss available to common stockholders	$	(0.24	)	$	(0.25	)	$	(0.24	)	$	(0.13	)	$	(0.86	)

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Summary of Significant Accounting Policies - Subscription Revenue - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2017
Short Term [Member] | Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Subscription contract period	3 months
Short Term [Member] | Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Subscription contract period	12 months
Long Term [Member] | Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Subscription contract period	1 year
Long Term [Member] | Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Subscription contract period	3 years

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Summary of Significant Accounting Policies - Loss Per Common Share - Additional Information (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Summary Of Significant Accounting Policies [Line Items]
Common Stock, par value	$ 0.01	$ 0.01
Convertible Preferred Stock [Member]
Summary Of Significant Accounting Policies [Line Items]
Convertible preferred stock interest rate	7.00%

XML

Summary of Significant Accounting Policies - Concentration of Credit Risk - Additional Information (Detail)	Dec. 31, 2017 USD ($)
Money Market Funds [Member]
Summary Of Significant Accounting Policies [Line Items]
Interest bearing money market fund	$ 11,200,000
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Federal deposit insurance corporation	$ 250,000

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Summary of Significant Accounting Policies - Concentration of Credit Risk - Schedule of Customer Concentration as Percentage of Total Revenue and AccountReceivable (Detail) - Credit Concentration Risk [Member]	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Total Revenue [Member] | United HealthCare Services Inc [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	28.00%	33.00%	31.00%
Total Revenue [Member] | CVS Caremark Corporation [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	16.00%	15.00%	13.00%
Total Revenue [Member] | TriWest Healthcare Alliance Corp [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	14.00%	9.00%	2.00%
Total Revenue [Member] | Progressive Casualty Insurance Company [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	8.00%	11.00%	15.00%
Total Gross Accounts Receivable [Member] | United HealthCare Services Inc [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	29.00%	41.00%
Total Gross Accounts Receivable [Member] | CVS Caremark Corporation [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	13.00%	27.00%
Total Gross Accounts Receivable [Member] | Progressive Casualty Insurance Company [Member]
Summary Of Significant Accounting Policies [Line Items]
Concentration risk, percentage	13.00%

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Summary of Significant Accounting Policies - Equipment and Leasehold Improvements - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2017
Summary Of Significant Accounting Policies [Line Items]
Capital leases term	twenty-four, thirty, or thirty-six months
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Computers and Software [Member] | Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	1 year
Computers and Software [Member] | Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Software [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Furniture and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	5 years

XML

Summary of Significant Accounting Policies - Income Taxes - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2017
Accounting Policies [Abstract]
Percentage of likelihood for tax benefit recognized	50.00%

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Summary of Significant Accounting Policies - Stockholders' Equity - Additional Information (Detail) - shares shares in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Accounting Policies [Abstract]
Shares exempt from permanent equity or liability	1.6	1.6

XML

Summary of Significant Accounting Policies - Segments - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2017 Segment
Accounting Policies [Abstract]
Number of operating segment	1

XML

Receivables - Components of Receivables (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Receivables [Abstract]
Amounts billed to clients	$ 6,600	$ 8,800
Allowances for doubtful accounts	41	311
Receivables, net	$ 6,565	$ 8,508

XML

Current Prepaid Expenses - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2017
Short Term [Member] | Minimum [Member]
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Line Items]
Current prepaid expense recognition period - subscription projects	3 months
Short Term [Member] | Maximum [Member]
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Line Items]
Current prepaid expense recognition period - subscription projects	12 months
Long Term [Member] | Minimum [Member]
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Line Items]
Current prepaid expense recognition period - subscription projects	1 year
Long Term [Member] | Maximum [Member]
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Line Items]
Current prepaid expense recognition period - subscription projects	3 years

XML

Current Prepaid Expenses - Summary of Current Prepaid Expenses (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Prepaid technology maintenance costs	$ 2,000	$ 800
Deferred deployment costs	1,900	1,700
Prepaid commissions	1,100	1,200
Other	800	700
Total	$ 5,805	$ 4,440

XML

Equipment and Leasehold Improvements - Components of Equipment and Leasehold Improvements (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Equipment and leasehold improvements, gross	$ 33,600	$ 29,300
Accumulated depreciation and amortization	(24,955)	(19,748)
Equipment and leasehold improvements, net	8,572	9,576
Computers and Software [Member]
Property, Plant and Equipment [Line Items]
Equipment and leasehold improvements, gross	28,800	24,300
Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Equipment and leasehold improvements, gross	800	700
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Equipment and leasehold improvements, gross	$ 4,000	$ 4,300

XML

Equipment and Leasehold Improvements - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 5,800,000	$ 5,500,000	$ 4,400,000
Impairment charges on Assets	0	0
Assets Held under Capital Leases [Member]
Property, Plant and Equipment [Line Items]
Assets acquired under capital leases	2,100,000	2,400,000	2,700,000
Depreciation expense on capital lease assets	$ 2,500,000	$ 2,000,000	$ 2,200,000

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Intangible Assets - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2017 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization period of patent and trademark and certain intellectual property	120 months
Amortization expense of intangible assets year one	$ 0.4
Amortization expense of intangible assets year two	0.4
Amortization expense of intangible assets year three	0.4
Amortization expense of intangible assets year four	0.4
Amortization expense of intangible assets year five	0.4
Amortization expense of intangible assets after five years	$ 0.4

XML

Intangible Assets - Summary of Intangible Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Finite Lived Intangible Assets [Line Items]
Gross intangible assets	$ 7,300	$ 7,000
Accumulated amortization of intangible assets	(4,357)	(3,820)
Total	2,952	3,201
Patents and Trademarks [Member]
Finite Lived Intangible Assets [Line Items]
Gross intangible assets	4,000	3,700
Intellectual Property [Member]
Finite Lived Intangible Assets [Line Items]
Gross intangible assets	$ 3,300	$ 3,300

XML

Other Long-Term Assets - Other Long-Term Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Other Assets Noncurrent Disclosure [Abstract]
Restricted cash	$ 2,675	$ 4,210
Prepaid technology and maintenance support	1,900	600
Deferred deployment costs	1,200	600
Prepaid commissions		500
Other	200	100
Total	$ 5,960	$ 6,033

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Employee Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Postemployment Benefits [Abstract]
Contribution from eligible compensation plan	30.00%
Contribution from bonus compensation plan	100.00%
Employer match contribution expensed	$ 0.5	$ 0.5	$ 0.4

XML

Other Current Liabilities - Other Current Liabilities (Detail) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Other Liabilities Current [Abstract]
Accrued vendor payable	$ 1,900	$ 1,900
Deferred rent liability	500	400
Warrant liability	400	800
Other	600	300
Other current liabilities, Total	$ 3,399	$ 3,374

XML

Other Current Liabilities - Additional Information (Detail) - Hercules Capital, Inc., [Member] - Secured Loan Agreement [Member] - $ / shares		12 Months Ended
	Aug. 01, 2016	Dec. 31, 2017
Class Of Warrant Or Right [Line Items]
Loan agreement date		Aug. 01, 2016
Common stock per share upon exercise of warrants	$ 3.50
Issuable common stock upon exercise of warrants	357,142
Warrants expiration date	Aug. 01, 2023

XML

Leases - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Capital Leased Assets [Line Items]
Gross amount of assets under capital leases	$ 7.3	$ 6.5
Net deferred rent	2.4	2.6	$ 2.0
Rental expense for all operating leases	$ 1.5	1.3	$ 1.7
Lease renewal option	5 years
Chicago, Illinois [Member]
Capital Leased Assets [Line Items]
Lease expiration date	Aug. 31, 2024
Austin, Texas [Member]
Capital Leased Assets [Line Items]
Lease expiration date	Aug. 31, 2023
Edina [Member]
Capital Leased Assets [Line Items]
Lease expiration date	Aug. 31, 2024
Capital Lease Obligations [Member] | Computer Hardware and Related Equipment [Member]
Capital Leased Assets [Line Items]
Gross amount of assets under capital leases	$ 7.3	$ 6.5

XML

Leases - Schedule of Future Minimum Lease Payments Under Capital Leases (Detail) $ in Millions	Dec. 31, 2017 USD ($)
Capital Leases Future Minimum Payments Due [Abstract]
2018	$ 2.2
2019	1.1
2020	0.2
Total minimum lease payments	3.5
Net minimum lease payments	3.5
Less: amount representing interest	(0.3)
Present value of minimum lease payments	$ 3.2

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Leases - Summary of Capital Leases Included in Equipment and Leasehold Improvements (Detail) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Leases [Abstract]
Computers and software	$ 7.3	$ 6.5
Accumulated depreciation and amortization	(4.1)	(2.9)
Computers and software, net	$ 3.2	$ 3.6

XML

Leases - Future Minimum Rental Commitments Under Non-Cancelable Operating Leases (Detail) $ in Millions	Dec. 31, 2017 USD ($)
Leases [Abstract]
2018	$ 0.9
2019	0.7
2020	0.6
2021	0.7
2022	0.8
Thereafter	0.5
Total minimum payments required	$ 4.2

XML

Debt - Additional Information (Detail) - USD ($)		2 Months Ended	12 Months Ended
	Jun. 29, 2017	Feb. 28, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Line of Credit Facility [Line Items]
Loss on early extinguishment of debt			$ (1,834,000)
Prepayment charge			692,000
Amount issued against line of credit			26,900,000	$ 16,246,000	$ 15,000,000
Repayment of principal on line of credit			10,000,000	$ 16,246,000	$ 15,000,000
Letters of credit amount			$ 3,400,000
Letters of credit, expiration year, start			2018
Letters of credit, expiration year, end			2023
CIBC [Member] | Loan Agreement [Member]
Line of Credit Facility [Line Items]
Loan agreement, initiation date			Jun. 29, 2017
Maximum credit limit under revolving line of credit	$ 20,000,000
Loan agreement, expiration date			Jun. 29, 2020
Line of credit facility, interest rate description			The principal amount outstanding under the credit facility will accrue interest at a floating annual rate equal to 1 month, 2 month or 3 month LIBOR (as selected by the company) plus 4.50%, payable monthly.
Monthly payment interest rate	4.50%
Percentage of average unused portion of credit facility	0.25%
Line of credit facility, borrowing capacity, description			The amount the company may borrow under the credit facility is limited to five times the company’s monthly recurring revenue (as determined in accordance with the terms and conditions set forth in the loan agreement), multiplied by a dynamic churn factor that is based upon the ratio of recurring revenue retained in the prior twelve month period relative to the total amount of recurring revenue at the beginning of the period.
Proceeds from line of credit	$ 13,500,000
Average outstanding balance on revolving line of credit			$ 10,300,000
Line of credit facility, outstanding amount			16,900,000
Line of credit facility, additional borrowing capacity			1,800,000
Amount issued against line of credit			$ 700,000
CIBC [Member] | Loan Agreement [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Repayment of principal on line of credit		$ 7,500,000
Hercules Capital, Inc., [Member]
Line of Credit Facility [Line Items]
Repayment of line of credit facility outstanding principal amount	22,500,000
Loss on early extinguishment of debt	1,800,000
Prepayment charge	700,000
Unaccreted debt discount	600,000
Unamortized deferred debt costs	$ 500,000

XML

Debt - Summary of Debt (Detail) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Total debt	$ 17.2	$ 22.8
CIBC loan due June 29, 2020, effective borrowing rate of 5.93% [Member] | Loan Agreement [Member]
Debt Instrument [Line Items]
Total debt	16.9
Hercules loan effective rate of 14.50% [Member]
Debt Instrument [Line Items]
Total debt		22.5
Furniture loan due May 2021, effective rate of 9.10% [Member]
Debt Instrument [Line Items]
Total debt	0.1	0.1
Furniture loan due May 2021, effective rate of 9.55% [Member]
Debt Instrument [Line Items]
Total debt	0.1	0.1
Furniture loan due July 2019, effective rate of 13.98% [Member]
Debt Instrument [Line Items]
Total debt	$ 0.1	$ 0.1

XML

Debt - Summary of Debt (Parenthetical) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Total debt	$ 17.2	$ 22.8
Short-term debt		0.7
Secured Loan Agreement [Member] | Hercules Capital, Inc., [Member]
Debt Instrument [Line Items]
Current portion of debt		$ 0.6
CIBC loan due June 29, 2020, effective borrowing rate of 5.93% [Member] | Loan Agreement [Member]
Debt Instrument [Line Items]
Loan due date	Jun. 29, 2020
Effective rate of borrowing	5.93%
Total debt	$ 16.9
Hercules loan effective rate of 14.50% [Member]
Debt Instrument [Line Items]
Effective rate of borrowing		14.50%
Total debt		$ 22.5
Furniture loan due May 2021, effective rate of 9.10% [Member]
Debt Instrument [Line Items]
Effective rate of borrowing	9.10%
Loan due date	2021-05
Total debt	$ 0.1	0.1
Furniture loan due May 2021, effective rate of 9.55% [Member]
Debt Instrument [Line Items]
Effective rate of borrowing	9.55%
Loan due date	2021-05
Total debt	$ 0.1	0.1
Furniture loan due July 2019, effective rate of 13.98% [Member]
Debt Instrument [Line Items]
Effective rate of borrowing	13.98%
Loan due date	2019-07
Total debt	$ 0.1	0.1
Furniture Loans [Member]
Debt Instrument [Line Items]
Current portion of debt	$ 0.1	$ 0.1

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Debt - Summary of Debt Maturities (Detail) $ in Millions	Dec. 31, 2017 USD ($)
Debt Disclosure [Abstract]
2018	$ 0.1
2019	0.1
2020	16.9
2021	$ 0.1

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Other Long-Term Liabilities - Summary of Other Long-Term Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Payables And Accruals [Abstract]
7% Series B convertible preferred stock dividend payable	$ 3,200	$ 2,600
Deferred rent liability	1,900	2,200
Technology service liability	1,200
Deferred income tax liability	200	300
Intellectual property purchase liability		800
Total	$ 6,475	$ 5,945

XML

Other Long-Term Liabilities - Summary of Other Long-Term Liabilities (Parenthetical) (Details)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Series B Convertible Preferred Stock [Member]
Other Long Term Liabilities [Line Items]
Convertible preferred stock interest rate	7.00%	7.00%	7.00%

XML

Income Taxes - Loss before Income Taxes (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
United States									$ (16,400)	$ (20,900)	$ (15,500)
Foreign											(100)
Loss before income taxes	$ (1,700)	$ (3,000)	$ (6,800)	$ (4,900)	$ (3,100)	$ (5,800)	$ (6,200)	$ (5,800)	$ (16,426)	$ (20,927)	$ (15,643)

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Income Taxes - Income Tax Benefit (Provision) (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Current:
Federal		$ (100)	$ 0
State	$ 0	0	0
Foreign	0	0	0
Total current		(100)	0
Deferred:
Federal	100	0	0
State	0	0	0
Foreign	0	0	0
Total deferred	100	0	0
Income tax benefit (provision)	$ 106	$ (50)	$ (38)

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Income Taxes - Total Income Tax Benefit (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Valuation allowance	$ 25,700	$ (7,700)	$ (4,900)
Federal tax benefit, at statutory rate	5,700	7,200	5,500
Stock-based compensation	3,100
Deferrals	700
State tax benefit, net of federal benefit	500	600	400
Tax reform	(32,200)
Expiration of state NOLs	(1,700)
Expiration of vested stock options	(1,400)
Nondeductible expenses	(300)	(300)	100
Other		100	(1,100)
Income tax benefit (provision)	$ 106	$ (50)	$ (38)

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Income Taxes - Total Income Tax Benefit (Parenthetical) (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Taxes [Line Items]
U.S. corporate income tax rate		35.00%
Unrecognized liability for tax on accumulated unremitted non-U.S. earnings		$ 0
Income tax benefit (provision)		$ 106,000	$ (50,000)	$ (38,000)
Scenario, Plan [Member]
Income Taxes [Line Items]
U.S. corporate income tax rate	21.00%

XML

Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Income Taxes [Line Items]
Tax benefits recognized in financial statements		50.00%
Impact of Net Operating Losses Carryforward	$ 0
Potential ownership change, testing period	3 years
State Impact of Federal Changes	Up to one year
Valuation allowance	$ 58,100,000	$ 83,800,000
Ownership of stockholders of company's common stock	50.00%
Research and Development [Member]
Income Taxes [Line Items]
Tax credit carryforwards		$ 500,000
Expiry period of tax credit carryforwards		2020
Domestic Tax Authority [Member]
Income Taxes [Line Items]
Net operating loss carryforwards		$ 260,500,000
Expiry period of net operating losses		2022
State and Local Jurisdiction [Member]
Income Taxes [Line Items]
Net operating loss carryforwards		$ 108,900,000
Expiry period of net operating losses		2018
Foreign Tax Authority [Member]
Income Taxes [Line Items]
Net operating loss carryforwards		$ 800,000
Expiry period of net operating losses		2029
Minimum [Member]
Income Taxes [Line Items]
Statutes of limitations of state jurisdictions	3 years
Minimum [Member] | Common Stock Issued [Member]
Income Taxes [Line Items]
Ownership of stockholders of company's common stock	5.00%
Maximum [Member]
Income Taxes [Line Items]
Statutes of limitations of state jurisdictions	5 years

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Income Taxes - Reconciliation of Gross Amounts of Unrecognized Tax Benefits (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Balance at beginning of year	$ 12.7	$ 12.7	$ 12.7
Additions based on tax positions related to the current year	0.0	0.0	0.0
Additions for tax positions of prior years	0.0	0.0	0.0
Reductions for tax positions of prior years	0.0	0.0	0.0
Reductions for tax positions as a result of lapse of statute	0.0	0.0	0.0
Settlements	0.0	0.0	0.0
Balance at end of year	$ 12.7	$ 12.7	$ 12.7

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Income Taxes - Deferred Tax Assets and Liabilities (Detail) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Deferred tax assets:
Net operating loss carryforwards	$ 53.9	$ 75.2
Other accruals	4.0	8.8
Depreciation and amortization, including goodwill	0.7	0.8
Tax credit carryforward	0.5	0.5
Valuation allowance	(58.1)	(83.8)
Total deferred tax assets	1.0	1.5
Deferred tax liabilities:
Prepaid expenses	(1.1)	(1.7)
Total deferred tax liabilities	(1.1)	(1.7)
Net deferred tax liability	$ (0.1)	$ (0.2)

XML

Litigation and Other Contingencies - Additional Information (Detail)	Dec. 31, 2017 USD ($)
Loss Contingencies [Line Items]
Sales tax liability	$ 100,000
Indemnification Agreement [Member]
Loss Contingencies [Line Items]
Recorded liabilities corresponding to agreements	$ 0

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Capital Stock and Series B Stock - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands				12 Months Ended
	Mar. 01, 2017	Feb. 23, 2017	Jul. 22, 2015	Dec. 31, 2017	Dec. 31, 2015	Dec. 31, 2016
Class Of Stock [Line Items]
Authorized capital stock				50,000,000		50,000,000
Preferred stock, shares authorized				35,000,000		35,000,000
Preferred stock, shares issued				0		0
Preferred stock, shares outstanding				0		0
Shares issued in private placement				33,083,180		27,511,361
Aggregate proceeds received from offering, net of fees				$ 14,752	$ 15,942
Common Stock Purchase Agreement [Member]
Class Of Stock [Line Items]
Gross proceeds in private placement		$ 16,000	$ 16,200
Shares issued in private placement		5,328,187	2,728,712
Percentage of issued and outstanding common stock to be issued as private placement		20.00%	12.00%
Aggregate proceeds received from offering, net of fees	$ 14,800		$ 15,900
Financial advisor fees			$ 200
Payment of commission to placement agent	$ 1,100
Common Stock Purchase Agreement [Member] | Officers And Directors [Member]
Class Of Stock [Line Items]
Shares issued in private placement		100,000	165,474
Common stock price		$ 3.45	$ 6.11
Common Stock Purchase Agreement [Member] | Investor [Member]
Class Of Stock [Line Items]
Shares issued in private placement		5,228,187	2,563,238
Common stock price		$ 3.00	$ 5.93
Convertible Preferred Stock [Member]
Class Of Stock [Line Items]
Rate of dividend accrued				7.00%
Series B Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred stock, shares authorized				5,000,000		5,000,000
Preferred stock, shares issued				1,637,786		1,637,948
Preferred stock, shares outstanding				1,637,786		1,637,948
Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred stock, shares authorized				40,000,000		40,000,000

XML

Stock-Based Compensation - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage increase in aggregate number of shares available for issuance	5.00%
Increase in number of shares available for issuance	1,500,000
Common stock available for grants	3,331,957
Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based Compensation Expense	$ 2.9	$ 5.3	$ 5.4
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Increase in number of shares available for issuance	250,000

XML

Stock-Based Compensation - Restricted Stock - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected weighted average period	1 year 1 month 6 days
Rate of forfeiture of shares	3.00%	3.00%	3.00%
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted shares received	1,530,192	950,340	825,120
Unrecognized compensation expense related to restricted stock awards	$ 3.5
Expected weighted average period	1 year 8 months 12 days
Restricted Stock [Member] | Non Employee Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted shares received	10,000
Restricted stock, vesting percentage	25.00%
Restricted stock, vesting period	Three quarters

XML

Stock-Based Compensation - Restricted Stock Award Activity (Detail) - Restricted Stock [Member] - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock nonvested, beginning balance	1,183,753	834,225	556,194
Restricted stock, Shares, Granted	1,530,192	950,340	825,120
Restricted stock, Shares, Vested	(1,163,992)	(380,218)	(493,270)
Restricted stock, Shares, Forfeited	(184,753)	(220,594)	(53,819)
Restricted stock nonvested, ending balance	1,365,200	1,183,753	834,225
Restricted stock nonvested, Weighted Average Price beginning balance	$ 4.87	$ 6.49	$ 5.76
Restricted stock nonvested, Weighted Average Price, Granted	3.30	3.89	6.78
Restricted stock, Weighted Average Price, Vested	4.20	5.34	6.18
Restricted stock nonvested, Weighted Average Price, Forfeited	4.98	5.98	6.15
Restricted stock nonvested, Weighted Average Price ending balance	$ 3.65	$ 4.87	$ 6.49

XML

Stock-Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Restricted Stock [Member]
Unrecognized Stock Based Compensation Expense [Line Items]
Total fair value of restricted stock awards vested	$ 3.8	$ 1.6	$ 3.3
Compensation expense related to option awards	2.3	4.0	2.3
Stock Options [Member]
Unrecognized Stock Based Compensation Expense [Line Items]
Compensation expense related to option awards	$ 0.5	$ 1.1	$ 1.7

XML

Stock-Based Compensation - Stock Options - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum term of options	10 years
Exercisable period of options	4 years
Options purchased shares, grants during the period	60,000	115,000	222,625
Unrecognized compensation expense related to stock options	$ 0.2
Expected weighted average period	1 year 1 month 6 days
Stock Options [Member] | Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Options, vesting percentage	6.25%
Stock Options, vesting period	15 quarters
Stock Options [Member] | Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Options, vesting percentage	25.00%
Stock Options, vesting period	12 quarters
Stock Options [Member] | Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Options, vesting percentage	25.00%
Stock Options, vesting period	3 quarters
Non Employee Director [Member] | Commencement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercisable period of options	48 months
Options purchased shares, grants during the period	50,000
Non Employee Director [Member] | Post Annual Meeting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum term of options	10 years
Options purchased shares, grants during the period	10,000

XML

Stock-Based Compensation - Stock Option Activity (Detail) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share Based Compensation [Abstract]
Option activity, Outstanding, Beginning balance	2,592,141	2,607,417	2,636,596
Option activity, Exercisable	2,006,878	2,282,476	1,967,825	1,582,165
Option activity shares, Granted	60,000	115,000	222,625
Option activity, Exercised		(56,250)	(59,638)
Option activity, Forfeited	(576,740)	(74,026)	(192,166)
Option activity outstanding, Ending balance	2,075,401	2,592,141	2,607,417	2,636,596
Option activity, Outstanding intrinsic value, Ending balance			$ 2.4
Option activity, Exercisable intrinsic value, Ending balance			$ 1.8
Option activity, Weighted Average Exercise Price, Outstanding, Beginning Balance	$ 7.36	$ 7.41	$ 7.42
Option activity, Weighted Average Exercise Price, Exercisable	6.21	7.61	7.97	$ 8.70
Option activity Weighted Average Exercise Price, Granted	2.55	3.82	6.57
Option activity Weighted Average Exercise Price, Exercised		4.20	4.76
Option activity Weighted Average Exercise Price, Forfeited	11.15	6.13	7.47
Option activity, Weighted Average Exercise Price, Outstanding, Ending Balance	$ 6.16	$ 7.36	$ 7.41	$ 7.42
Weighted average remaining contractual life	4 years 4 months 24 days	4 years 10 months 24 days	6 years	6 years 9 months 18 days
Weighted average remaining contractual life, Exercisable	4 years 3 months 18 days	4 years 6 months	5 years 2 months 12 days	5 years 7 months 6 days
Weighted average fair value of option grants	$ 1.27	$ 1.85	$ 3.55

XML

Stock-Based Compensation - Stock Option Activity Fair Value (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share Based Compensation [Abstract]
Total fair value of stock options vested	$ 0.6	$ 1.1	$ 1.7
Intrinsic value of stock options exercised			0.1
Proceeds received from option exercises		$ 0.2	$ 0.3

XML

Stock-Based Compensation - Summary of Stock Options Granted by Range of Exercise Price (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share Based Compensation [Abstract]
Options granted	60,000	115,000	222,625
Range of exercise price	$ 2.55
Lower range of exercise price		$ 3.57	$ 6.13
Upper range of exercise price		$ 4.40	$ 6.90

XML

Stock-Based Compensation - Fair Value Assumptions and Methodology (Detail)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
ESPP [Member]
Fair value for options granted
Risk-free interest rates	0.86%	0.25%	0.01%
Expected dividend yield	0.00%	0.00%	0.00%
Expected volatility	53.00%	48.00%	37.00%
Expected lives	3 months	3 months	3 months
Stock Options [Member]
Fair value for options granted
Risk-free interest rates	1.52%	0.81%	1.03%
Expected dividend yield	0.00%	0.00%	0.00%
Expected volatility	54.00%	54.00%	58.00%
Expected lives	5 years 6 months	5 years 6 months	6 years

XML

Stock-Based Compensation - Employee Stock Purchase Plan - Additional Information (Detail)	Dec. 31, 2017 shares
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock shares available for issuance	234,389

XML

Stock-Based Compensation - Employee Stock Purchase Plan (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share Based Compensation [Abstract]
Shares of common stock issued	101,393	88,282	41,026
Expense related to ESPP	$ 92	$ 95	$ 61

XML

Loss Per Share - Calculation of Loss Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Earnings Per Share [Abstract]
Net loss									$ (16,320)	$ (20,977)	$ (15,681)
Dividends related to 7% Series B convertible preferred stock									(600)	(600)	(600)
Net loss available to common stockholders	$ (1,700)	$ (3,200)	$ (6,900)	$ (5,100)	$ (3,300)	$ (6,000)	$ (6,300)	$ (6,000)	$ (16,904)	$ (21,563)	$ (16,269)
Per share of Common Stock
Basic/diluted net loss available to common stockholders	$ (0.05)	$ (0.10)	$ (0.22)	$ (0.19)	$ (0.13)	$ (0.24)	$ (0.25)	$ (0.24)	$ (0.56)	$ (0.86)	$ (0.70)
Weighted average shares outstanding (basic and diluted)									30,450	25,210	23,260
Currently anti-dilutive common stock equivalents									1,560	1,730	2,210

XML

Loss Per Share - Calculation of Loss Per Share (Parenthetical) (Detail) - Series B Stock [Member] - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Convertible preferred stock interest rate	7.00%	7.00%	7.00%
Suspended dividend payment	$ 3,200,000
Dividends accrued but not paid	$ 0	$ 0	$ 0

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Fair Value Measurements - Financial Instruments Measured at Fair Value Measured on Recurring Basis (Detail) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	$ 0.4	$ 0.8
Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents - money market fund	11.2
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	0.4	0.8
Fair Value, Measurements, Recurring [Member] | Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents - money market fund	0.5	12.1
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents - money market fund	0.5	12.1
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	$ 0.4	$ 0.8

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Fair Value Measurements - Summary of Activities in Company's Level 3 Warrants (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Schedule Of Changes In Fair Value Of Warrant Liability [Line Items]
Change in fair value of warrant liability	$ (377)	$ (167)	$ (3)
Level 3 [Member]
Schedule Of Changes In Fair Value Of Warrant Liability [Line Items]
Level 3 warrants, beginning of period	800		400
Addition - Hercules warrants, initial fair value		900
Change in fair value of warrant liability	(400)	(100)
Warrant exercise			$ (400)
Level 3 warrants, end of period	$ 400	$ 800

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Fair Value Measurements - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2017 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer of assets and liabilities between levels	$ 0
Assets fair value on nonrecurring basis	0
Liabilities fair value on nonrecurring basis	0
Long-Term Debt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Long-term debt	$ 17,100,000
Hercules Capital, Inc., [Member] | Secured Loan Agreement [Member] | Warrants [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Risk free rate	2.24%
Expected volatility	53.00%
Expected term	5 years 7 months 2 days

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Quarterly Data (Unaudited) - Summary of Quarterly Data (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Quarterly Financial Information Disclosure [Abstract]
Total revenue	$ 13,600	$ 11,300	$ 10,600	$ 11,000	$ 12,600	$ 10,400	$ 9,100	$ 10,000	$ 46,510	$ 42,097	$ 39,912
Gross margin	10,100	8,200	7,200	7,500	8,600	7,000	5,900	6,800	33,000	28,300
Operating loss	(1,300)	(2,700)	(4,200)	(4,000)	(2,200)	(5,000)	(6,000)	(5,600)	(12,240)	(18,814)	(15,056)
Loss before income taxes	(1,700)	(3,000)	(6,800)	(4,900)	(3,100)	(5,800)	(6,200)	(5,800)	(16,426)	(20,927)	(15,643)
Net loss available to common stockholders	$ (1,700)	$ (3,200)	$ (6,900)	$ (5,100)	$ (3,300)	$ (6,000)	$ (6,300)	$ (6,000)	$ (16,904)	$ (21,563)	$ (16,269)
Per share of common stock:
Basic net loss available to common stock holders	$ (0.05)	$ (0.10)	$ (0.22)	$ (0.19)	$ (0.13)	$ (0.24)	$ (0.25)	$ (0.24)	$ (0.56)	$ (0.86)	$ (0.70)
Diluted net loss available to common stock holders	$ (0.05)	$ (0.10)	$ (0.22)	$ (0.19)	$ (0.13)	$ (0.24)	$ (0.25)	$ (0.24)	$ (0.56)	$ (0.86)	$ (0.70)

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Valuation and Qualifying Accounts (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Valuation Allowance for Doubtful Accounts [Member]
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	$ 0.3
Additions Charged to Costs and Expenses		$ 0.3
Additions Charged to Other Accounts	0.0	0.0	$ 0.0
Deductions	(0.3)	0.0	0.0
Balance at End of Period		0.3
Valuation Allowance for Deferred Tax Assets [Member]
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	83.8	75.8	71.0
Additions Charged to Costs and Expenses		8.0	4.8
Additions Charged to Other Accounts	0.0	0.0	0.0
Deductions	(25.7)	0.0	0.0
Balance at End of Period	$ 58.1	$ 83.8	$ 75.8