MARCH/APRILVOLUME 01 NUMBER 03

IGITALORTUNES

PG. 06WHEN ROBOTS COLLIDE...WE PROFIT

PG. 02DIGITAL MATCHMAKER

DEMOLISHES CONSUMERS’ WORST NIGHTMARE

PG. 08HOW TO PROFIT FROM “SUPER-MOMENTUM” STOCKS

DIGITAL FORTUNES TEAM

Louis Basenese CHIEF TECHNOLOGY ANALYST

Greg Miller SENIOR TECHNOLOGY ANALYST

EXECUTIVE COMMITTEE

Robert Williams PUBLISHER, FOUNDER

Jay Livingston ASSOCIATE PUBLISHER

Justin Fritz EXECUTIVE EDITOR

Martin Denholm EDITOR-IN-CHIEF, TECHNOLOGY

Marie Haughey COPY CHIEF

MARCH/APRIL VOL. 01 | NO. 03

CALL CENTER TECHNOLOGY

2

250 million.

That’s how many phone calls American companies receive from existing and potential new customers. Every day!

Handling that incredible volume of enquiries takes over six million human workers, spread across 60,000 call centers, according to market research firm Gartner.

For consumers, these calls can rank as the most frustrating experiences in life. I mean, when was the last time you called a company and raved about the discussion afterwards?

The two-part purgatory first involves endless automated prompts to ensure you’re routed to the correct department. And when you finally get in touch with a living, breathing person, the process is often anything but efficient or enjoyable. In fact, it’s usually a total nightmare.

Corporate America has got it seriously wrong here.

These calls are a huge opportunity for companies to increase customer satisfaction, improve retention rates, and generate additional sales. But

instead, the calls typically end up costing companies money. Lots of money.

Global spending on call center services tops $300 billion per year, according to the latest estimates from the Everest Group.

If there was ever an area long overdue for disruption and innovation, it’s the call center industry. And this month, we’ve uncovered the small-cap company positioned to make it happen.

Sales of its proprietary, patented technology are rising strongly. But due to misunderstood accounting conventions, many investors haven’t figured it out yet. Rest assured, this disconnect won’t last forever – which is why now is the time to get ourselves positioned.

DIAL “M” FOR “MADDENING”So why is the call center experience often so infuriating for consumers?

In short, the current low-tech approach triggers frustration immediately.

After you’ve pushed numerous buttons to get to the right department, you inevitably get put on hold. Even then, you simply wait for the first available agent.

It’s a totally random assignment. No consideration is given to each customer’s behavioral characteristics. Or an agent’s particular strengths, for that matter. Let’s face it… Regardless of training, some people are just better than others at interpersonal communication and handling irate callers.

But what if a company could automatically match every caller with an agent who’s uniquely qualified to handle his or her personality type and communication style? Do you think the outcome would be better? Absolutely!

A recent study shows that personality-based call routing is capable of driving an immediate 10% to 50% improvement in costs, sales, attrition rates, resolution rates, and customer satisfaction.

And that’s where Chicago-based Mattersight Corp. (MATR) comes in…

Dear Reader,

DIGITAL MATCHMAKER DEMOLISHES CONSUMERS’ WORST NIGHTMARE

by LOUIS BASENESE

MARCH/APRIL VOL. 01 | NO. 03

CALL CENTER TECHNOLOGY

3

WELCOME TO YOUR DIGITAL MATCHMAKERFormed in 2011, Mattersight has analyzed over one billion call center interactions. It’s spent over $75 million to develop revolutionary and patent-protected “smart routing” call software.

Specifically, the program starts by capturing a myriad of unstructured data – previous call transcripts, emails, chat logs, website visits, mobile applications, and other information. It then processes and analyzes all of that data to form insights and create optimal matches between individual callers and agents.

Mattersight calls its approach Predictive Behavioral Routing (PBR). The beauty of PBR is three-fold:

• Infrastructure Agnostic: PBR can be integrated with all leading contact center systems.

• Easy to Implement: PBR doesn’t require additional employees or processes.

• Fast Acting: PBR performs matching calculations in a matter of milliseconds.

Such a unique solution to a major problem should be a no-brainer purchase, right?

Well, yes. The difficulty is getting companies to believe it’s not too good to be true.

To be fair, this is always the

challenge with truly disruptive technologies. Either companies are too reluctant to disrupt the status quo with a new solution. Or they want other companies to prove that it works first.

Bestselling author and marketer Geoffrey Moore describes this challenge as “crossing the chasm.” That is, creating enough momentum via sales to visionary companies (early adopters) to get pragmatic companies (the early majority) to adopt it, too.

If successful, the new technology is destined to become the de facto standard.

And as the numbers above demonstrate, Mattersight is well on its way. But it’s only because management had the foresight to recognize the adoption challenge and took two definitive steps to conquer it…

TRY IT BEFORE YOU BUY IT (ALL)Mattersight employs a software-as-a-service (SaaS) business model. It charges companies on a subscription basis – anywhere from $100 to $200 per agent, per month. The average subscription period runs for three to five years.

“This sounded too good to be true. How could you shave off 5% of call time just by applying tech? But [Mattersight’s PBR] is like changing a [regular] light bulb for an LED bulb.”

– MARKETING DIRECTOR, LARGE U.S. SOFTWARE FIRM

CALLS MEAN CASHRolling Four-Quarter Annual Contract Value of New Customers

7.5

5.0

2.5

0Q4 ‘13 Q1 ‘14 Q2 ‘14 Q3 ‘14 Q4 ‘14

$0.8M $1.1M$1.9M $2.1M

$4.6M

Q4 ‘14D

olla

rs (m

illio

ns)

Up 475% year over year

MARCH/APRIL VOL. 01 | NO. 03

CALL CENTER TECHNOLOGY

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Now, obviously, that’s a sizeable commitment. For example, if a company has 500 agents, it works out to an annual cost of $600,000 to $1.2 million.

That’s why Mattersight wisely started offering pilot programs to accelerate adoption. With this approach, a company can set up the service and try it for a shorter period (three to 12 months) before committing to a longer-term contract.

Clearly, the tactic is working. Mattersight has converted an impressive 80% of pilot customers into long-term clients.

But it’s not just because of the “try before you buy” incentive…

MONEY TALKSMattersight recently commissioned Forrester Consulting (a division of the world-renowned Forrester Research) to quantify why so many pilot customers upgrade to long-term subscriptions.

Specifically, Mattersight tasked Forrester with examining the potential return on investment (ROI) that companies could realize by deploying PBR technology.

Even if we take the results with a big, fat grain of sea salt, since this was a paid study, the findings speak volumes…

After interviewing four of Mattersight’s major customers –

with call centers ranging from 500 to 8,000 agents – Forrester found that the average three-year ROI is 344%.

Not only that, the payback period (how long it takes for the technology to pay for itself) is less than one month!

No doubt, the Forrester study makes for a compelling sales pitch to encourage additional adopters.

Most important to me, though, is the fact that the underlying business results confirm both Forrester’s findings and the value of Mattersight’s disruptive technology.

THE NUMBERS SPEAK VOLUMESIn early February, Mattersight reported its quarterly and full-year results. To most ordinary investors, they look unimpressive. Top line revenue actually decreased. But to the trained eye, the growth is evident…

You see, accounting rules dictate that Mattersight can’t realize revenue until it officially implements PBR, which can take up to six months. Even then, the revenue is amortized over the subscription period.

Long story short, reported revenue is actually six months behind actual sales or bookings.

In addition, reported results don’t fully reflect the annual revenue that Mattersight’s book of business will eventually generate. (Over time, recognized revenue will converge with the book of business.)

I’ll let the table on pg. 5 do the

A QUICK LOOK UNDER

THE HOODFrom a fundamental perspective, Mattersight boasts everything we want to see in a software-as-a-service (SaaS) company:

• An Underpenetrated Multi-Billion-Dollar Market: The U.S. market potential for Mattersight’s PBR tops $5 billion per year. And yet, the company estimates that less than 5% of the market is penetrated.

• High Gross Margins of 70%.

• High Retention Rates of 97%.

• Recurring Revenue of 86% – up From 82% in 2013.

• Cross-Selling Opportunities: PBR isn’t Mattersight’s only product offering. But it represents a “beachhead” into companies, allowing for upsell opportunities. It’s doing just that, too. In Q3 2014, Mattersight signed a customer to a $500,000 annual contract. Two quarters later, that customer had upgraded services, boosting the annual value of the contract to over $2.5 million.

• Strong Pipeline: In addition to 91 active pilots at the end of 2014, Mattersight has “numerous deals” in the pipeline worth more than $1.5 million.

• Blue-Chip Client List: For a $150-million-market-cap company, Mattersight has built an impressive client list. It includes two of America’s top five HMOs, three of the top four property and casualty companies, one of the three largest retail banks, and one of the two largest prescription benefit management companies.

• Long-Lasting, High-Value Customers: On average, Mattersight generates more than $1 million per year from each customer. A typical subscription period lasts three to five years, but some adopters are so impressed, they’ve already signed three- to five-year extensions.

MARCH/APRIL VOL. 01 | NO. 03

CALL CENTER TECHNOLOGY

5

DF

talking. It proves that major growth is underway for Mattersight. Perhaps most telling of all is the rolling four-quarter average of newly executed customer incremental annual contract value (IACV). It’s up a staggering 475%.

THE FUTURE OF CALL CENTER TECHNOLOGYAs one sell-side analyst who covers Mattersight said in June 2014, “The company is on the cusp of reaping the rewards of its substantial investment, as it begins converting pilots to new subscription clients.” He added that there’s the potential for “explosive growth.”

He’s absolutely right. He was just a bit premature with his call.

Based on Mattersight’s latest results, however, the company’s explosive growth is upon us now.

This year, I estimate the company will grow its subscription revenue by up to 40%, with a noticeable acceleration

in the second half of the year.

Now, I must say, an investment in Mattersight does involve above-average risk. For one thing, the company suffers from customer concentration. Last year, its five and 10 largest clients accounted for 75% and 91% of total revenue, respectively.

Plus, Mattersight is still unprofitable and will likely need to raise more money to fund its rapid growth. But after digging in, I’m confident that the

potential rewards will make up for it.

That being said, let’s position ourselves to profit by only entering a half position right now. We’ll keep some powder dry to buy more on any unjustified dips.

Action to Take: Buy a 50% position in Mattersight Corp. (MATR) under $7. We’ll look to enter the second half at a later date. Please note: This is a more speculative investment and may not be suitable for all investors.

THE GROWTH SPIKE HAS OFFICIALLY BEGUNMattersight Adding – And Converting – New Customers at an Impressive Rate

IACV Total Bookings

IACV New Accounts

Annualized Book of Business

Active Pilots

$11.9M

$0.8M

$29.3M

54

$17.4M

$4.6M

$42.8M

91

46%

475%

46%

69%

Measurement2013Total

2014Total

2014Change

“The company is on the cusp of reaping the rewards of its substantial investment, as it begins converting pilots to new subscription clients.”

MARCH/APRIL VOL. 01 | NO. 03

INDUSTRIAL AND MOBILE ROBOTICS

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When we recommended the Robo-Stox Global Robotics & Automation ETF (ROBO) in the January issue, I noted the three broad categories within the robotics industry: pure-play robotics firms, robot component makers, and industrial giants that implement robotics and change the way business and manufacturing are done.

I also highlighted some of the main companies in each area, and promised, “As we identify future investments for you in this rapidly growing area, we’ll primarily be looking for companies in the first two categories. Those are the more-direct plays and will consequently benefit most from the growth.”

Well, consider it done.

Adept Technology (ADEP) specializes in both industrial robots and mobile robots.

The largest opportunity for Adept lies in the convergence of these two areas. And the company has some new products that will allow it to grab more than its current share of the second robot revolution – which is imminent.

So let’s break down these two areas as they apply to Adept’s business…

#1: INDUSTRIAL ROBOTSIndustrial robotics is a massive $1.5-billion market.

We’re talking about robots that are fixed to the floor or some other surface, and manipulate parts in the way that unskilled laborers did in years past.

Adept makes two-thirds of its revenue from these types of machines.

Now, Adept is a small player here. It boasts an $84-million market cap, owns just 2% of the market, and is grouped in with global giants like Siemens (SIEGY).

But I believe the company has a leadership position in some key, niche markets. Indeed, Siemens is actually a customer!

I also believe that Adept is poised to grow quicker than the already-fast-growing market.

Why?

Because as the market grows, smaller companies and facilities will adopt robotics – and that suits Adept’s strategy of marketing through integrators and other partners. In the early days of robotics growth, this strategy would have been a poor one, since very large companies want a

single party to deal with, as well as overarching, uniform solutions.

As smaller companies want industrial robots, though, their needs will be more specific.

That suits Adept perfectly, as its robots can address these sub-markets more easily than a large company.

In turn, by serving specialized markets, Adept will finally have an edge over its larger competitors.

As for Adept’s other main market…

#2: MOBILE ROBOTSMobile robots essentially deliver parts to specific places on assembly lines, or move products around the factory floor.

They mostly work in areas where contamination from humans is an issue, such as medical products, semiconductor manufacturing, etc. However, any factory floor is a candidate for these robots.

At $3 billion, this is an even bigger market than industrials. As with the fixed-place task robots, Adept is a small player in this area.

But again, Adept’s strategy of partnering with integrators and other industry specialists should give the company an edge as this market grows.

WHEN ROBOTS COLLIDE...WE PROFIT SMALL-CAP GEM SET TO CAPITALIZE ON MAJOR ROBOTICS CONVERGENCE

by GREG MILLER

MARCH/APRIL VOL. 01 | NO. 03

INDUSTRIAL AND MOBILE ROBOTICS

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NAME SYMBOL OPEN DATE OPEN PRICE CURRENT PRICE RATING STOP PRICE GAIN RISK COMMENTS

Global Robotics & Automation Index

ETFROBO 01/15 $25.00 $26.66 BUY $20.00 6.64% ★ Robotics and automation

mega trend

Mobileye N.V. MBLY 02/15 $36.17 $43.03 BUY $32.57 18.98% ★ ★ ★ Self-driving cars mega trend

NVIDIA Corp. NVDA 02/15 $22.33 $22.87 BUY $17.44 2.80% ★ ★ Buy for PCs and tablets, get autos for free

Mattersight Corp. MATR 03/15 NEW BUY NEW ★ ★ ★ Big data and predictive analytics

Adept Technology ADEP 03/15 NEW BUY NEW ★ ★ ★

Convergence of mobile and task-handling robots

DIGITAL FORTUNES PORTFOLIO

NEW

NEW

Prices as of 3/18/2015 | H Moderate Risk, HH High Risk, HHH Highest Risk (for aggressive speculators only) Note: All buy prices and gains have been adjusted for income. For the absolute latest updates on the portfolio, visit our website at www.wallstreetdaily.com.

INDUSTRIAL BOTS + MOBILE BOTS = THE FUTUREAs I said, the future of robots in the factory involves the combination of mobile and industrial robots – ones that can handle complex tasks.

In this respect, Adept is the market

leader. And it’s well-positioned to take advantage of the coming convergence of these two areas.

Indeed, Adept sells the very first robot that achieves both movement and task completion.

Fittingly, its application is as high-tech as the robot itself.

Adept’s robot roams the floors of

semiconductor fabrication facilities, picking up, moving, and placing semiconductor wafers in and out of different machines as it goes.

And that’s just the beginning.

Over time, Adept will work with its industry-specialist partners to develop more mobile and complex robots for additional industries. CONTINUED ON NEXT PG...

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While the biggest profits from this combination won’t happen tomorrow, the stock market is a forward-looking entity – and we want to be in Adept shares before the market fully understands the company’s potential.

BUY NOW, PROFIT LATERRight now, Adept shares are deflated, due to the company’s revenue miss at the end of 2014 and because smaller pure-play

robotics companies in general have come under some pressure.

Far from being a deterrent, though, I believe this provides an attractive entry point for us. Over the next four to six years, Adept projects that its revenue will increase from today’s total of around $56 million up to $200 million – and with an operating profit of at least $30 million, to boot.

This would triple the share price from today’s level. That could

even be on the conservative side, as it may underestimate the growth that Adept’s markets will enjoy over that time.

Action to Take: Buy Adept Technology (ADEP) at market. While this is a small stock and prone to volatility, we’re going to give it some room to run without a specific stop loss for now. Make sure you understand the risk before you buy, and are prepared for it. DF

y HOW TO PROFIT FROM “SUPER-MOMENTUM” STOCKSSo far this year, 44 stocks have earned the “super-momentum” distinction. All 44 of them have raced higher.Simply put, they’re the fastest stocks on Earth. Ones whose gains hit such astronomical speeds that fully realized gains can occur in as little as one day. How do you find them? Mark your calendar for Monday, March 23 at 9:00 a.m. (EST). Wall Street Daily Founder and Publisher, Robert Williams, will lead a special four-day online training course to show you exactly how. The training is FREE with your subscription... if you act NOW. So please act quickly to secure your seat. The event is called How to Ride Super-Momentum Stocks to 30% Every 14 Days.

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