Three Months Ended Nine Months Ended
----------------------------- -----------------------------
(000's) 9/25/2010 9/26/2009 % Change 9/25/2010 9/26/2009 % Change
--------- --------- -------- --------- --------- --------
Revenue:
Managed
Services $ 13,577 $ 12,651 7% $ 39,432 $ 35,438 11%
Consulting
Services 4,508 7,037 -36% 12,980 24,326 -47%
--------- --------- -------- --------- --------- --------
Services Revenue 18,085 19,688 -8% 52,412 59,764 -12%
Product 4,188 1,977 112% 10,206 14,847 -31%
--------- --------- -------- --------- --------- --------
Net Revenue 22,273 21,665 3% 62,618 74,611 -16%
Reimbursed
expenses 1,075 1,033 2,667 2,996
--------- --------- -------- --------- --------- --------
Total Revenue $ 23,348 $ 22,698 3% $ 65,285 $ 77,607 -16%
--------- --------- -------- --------- --------- --------
Q3 Company Highlights
-- Signed $17.5 million of Managed Services contracts in the third quarter -- Increased Managed Services Backlog(2) to $107.0 million -- Grew Services revenues 5% sequentially -- Grew Managed Services revenues 9% sequentially -- Improved P&L sequentially to near breakeven Adjusted Earnings(1)Q3 Behavioral Analytics™ Service Business Unit Highlights
-- Signed $6.9 million in new Managed Services contracts -- Signed initial deployment with a top three Property and Casualty insurance company -- Signed two contracts for new Fraud applications -- Strengthened Managed Services pipeline for Q4 2010 and Q1 2011Q3 Integrated Contact Solutions Business Unit Highlights
-- Grew ICS Managed Services Backlog(2) to a record of $48.1 million -- Achieved significant Business Unit profitability -- Built strong visibility going into Q4 2010 and Fiscal Year 2011Fourth Quarter 2010 Guidance eLoyalty currently expects its Fourth Quarter 2010 Services revenues will be approximately $18.5 million. eLoyalty provides guidance for Services revenue only. Product revenue from the sale of third-party software and hardware can fluctuate substantially between periods and is not a primary focus of the Company's business. Conference Call Information eLoyalty management will host a conference call at 5:00 p.m. ET on Wednesday, November 3, 2010. A webcast of the conference call and slide presentation will be available live via the Internet at the Investor Relations section of eLoyalty's web site at http://www.eloyalty.com/investor/ where this press release, as well as other financial information that will be discussed on that call, is also available. For those who cannot access the live broadcast, or the continued availability on eLoyalty's website, a replay of the conference call will also be available beginning approximately two hours after the live call is completed until November 17, 2010, by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 18432584. About eLoyalty eLoyalty enables its customers to achieve breakthrough results with revolutionary analytics and implementation of advanced VoIP applications. eLoyalty's principal offerings include the Behavioral Analytics™ Service and Integrated Contact Solutions (ICS). Safe Harbor Statement This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated financial results and other matters that are not strictly historical in nature. These forward-looking statements are based on current management expectations, forecasts and assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that might cause such a difference include those described under "Forward-Looking Statements" and "Risk Factors" in eLoyalty's Form 10-K, Form 10-Q and other filings with the U.S. Securities and EXCHANGE Commission. Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions and estimates only as of the date they are made, and eLoyalty Corporation undertakes no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or circumstances or otherwise. (1) eLoyalty presents Adjusted Earnings, a non-GAAP measure that represents cash earnings performance, excluding the impact of non-cash expenses and expense reduction activities, because management believes that Adjusted Earnings provide investors with a better understanding of the results of eLoyalty's operations. Management believes that Adjusted Earnings reflect eLoyalty's resources available to invest in its business and strengthen its balance sheet. In addition, expense reduction activities can vary significantly between periods on the basis of factors that management does not believe reflect current-period operating performance. Although similar adjustments for expense reduction activities may be recorded in future periods, the size and frequency of these adjustments cannot be predicted. The Adjusted Earnings measure should be considered in addition to, not as a substitute for or superior to, operating income, cash flows or other measures of financial performance prepared in accordance with GAAP. (2) eLoyalty uses the term "backlog" to reflect the estimated future amount of Managed services revenue related to its Managed services contracts. The value of these contracts is based on anticipated usage volumes over the anticipated term of the agreement. The anticipated term of the agreement is based on the contractually agreed fixed term of the contract, plus agreed upon, but optional, extension periods. Anticipated volumes may be greater or less than anticipated. In addition, these contracts typically are cancellable without cause based on the customer making a substantial early termination payment or forfeiture of prepaid contract amounts. The reported backlog is expected to be recognized as follows: $13.7m in 2010; $42.9m in 2011; $29.7m in 2012; $20.7m in 2013 and thereafter.
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
For the For the
Three Months Ended Nine Months Ended
-------------------- --------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
2010 2009 2010 2009
--------- --------- --------- ---------
Revenue:
Services $ 18,085 $ 19,688 $ 52,412 $ 59,764
Product 4,188 1,977 10,206 14,847
--------- --------- --------- ---------
Revenue before reimbursed
expenses (net revenue) 22,273 21,665 62,618 74,611
Reimbursed expenses 1,075 1,033 2,667 2,996
--------- --------- --------- ---------
Total revenue 23,348 22,698 65,285 77,607
Operating expenses:
Cost of services 10,608 13,034 32,266 39,614
Cost of product 3,585 1,353 8,516 12,470
--------- --------- --------- ---------
Cost of revenue before
reimbursed expenses 14,193 14,387 40,782 52,084
Reimbursed expenses 1,075 1,033 2,667 2,996
--------- --------- --------- ---------
Total cost of revenue,
exclusive of depreciation and
amortization shown below: 15,268 15,420 43,449 55,080
Selling, general and
administrative 9,670 8,343 29,063 26,022
Severance and related costs 116 276 936 1,028
Depreciation and amortization 984 1,114 3,134 3,373
--------- --------- --------- ---------
Total operating expenses 26,038 25,153 76,582 85,503
--------- --------- --------- ---------
Operating loss (2,690) (2,455) (11,297) (7,896)
Interest and other (expense)
income, net (47) 287 (65) 93
--------- --------- --------- ---------
Loss from continuing operations
before income taxes (2,737) (2,168) (11,362) (7,803)
Income tax (provision) benefit (15) 18 (58) (16)
--------- --------- --------- ---------
Loss from continuing operations (2,752) (2,150) (11,420) (7,819)
Loss on discontinued operations - - (136) -
--------- --------- --------- ---------
Net loss (2,752) (2,150) (11,556) (7,819)
Dividends related to Series B
Stock (316) (322) (956) (969)
--------- --------- --------- ---------
Net loss available to common
stockholders $ (3,068) $ (2,472) $ (12,512) $ (8,788)
========= ========= ========= =========
Per common share:
Basic loss from continuing
operations $ (0.20) $ (0.16) $ (0.84) $ (0.59)
========= ========= ========= =========
Basic loss from discontinued
operations $ - $ - $ (0.01) $ -
========= ========= ========= =========
Basic net loss available to
common stockholders $ (0.22) $ (0.19) $ (0.92) $ (0.66)
========= ========= ========= =========
Per common share:
Diluted loss from continuing
operations $ (0.20) $ (0.16) $ (0.84) $ (0.59)
========= ========= ========= =========
Diluted loss from discontinued
operations $ - $ - $ (0.01) $ -
========= ========= ========= =========
Diluted net loss available to
common stockholders $ (0.22) $ (0.19) $ (0.92) $ (0.66)
========= ========= ========= =========
Shares used to calculate
basic net loss per share 13,784 13,317 13,644 13,218
========= ========= ========= =========
Shares used to calculate
diluted net loss per share 13,784 13,317 13,644 13,218
========= ========= ========= =========
Stock-based compensation,
primarily restricted stock,
is included in individual
line items above:
Cost of services $ 23 $ 34 $ 95 $ 419
Selling, general and
administrative 1,469 1,222 4,338 4,262
Severance and related costs - - 76 248
eLoyalty Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
September 25, December 26,
2010 2009
------------ ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 14,029 $ 28,982
Restricted cash 3,745 3,745
Receivables, (net of allowances of $92
and $151) 10,149 9,313
Prepaid expenses 14,082 10,126
Other current assets 2,166 944
------------ ------------
Total current assets 44,171 53,110
Equipment and leasehold improvements, net 5,729 6,194
Goodwill 2,643 2,643
Intangibles, net 430 476
Other long-term assets 11,452 8,180
------------ ------------
Total assets $ 64,425 $ 70,603
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 4,275 $ 3,634
Accrued compensation and related costs 4,468 5,762
Unearned revenue 21,600 20,436
Other current liabilities 4,456 5,067
------------ ------------
Total current liabilities 34,799 34,899
Long-term unearned revenue 13,043 9,526
Other long-term liabilities 1,119 1,705
------------ ------------
Total liabilities 48,961 46,130
------------ ------------
Redeemable Series B Stock, $0.01 par value;
5,000,000 shares authorized and designated;
3,549,160 and 3,616,169 shares issued and
outstanding at September 25, 2010 and
December 26, 2009, respectively, with a
liquidation preference of $19,051 and
$19,733 at September 25, 2010 and
December 26, 2009, respectively 18,101 18,442
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; 15,592,431 and
14,871,521 shares issued at September 25,
2010 and December 26, 2009, respectively;
and 14,769,819 and 14,220,279 outstanding
at September 25, 2010 and December 26,
2009, respectively 156 149
Additional paid-in capital 207,494 203,627
Accumulated deficit (202,377) (190,821)
Treasury stock, at cost, 822,612 and
651,242 shares at September 25, 2010
and December 26, 2009, respectively (4,251) (3,295)
Accumulated other comprehensive loss (3,659) (3,629)
------------ ------------
Total stockholders' (deficit) equity (2,637) 6,031
------------ ------------
Total liabilities and stockholders' equity $ 64,425 $ 70,603
============ ============
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the Nine Months Ended
--------------------------
September 25, September 26,
2010 2009
------------ ------------
Cash Flows from Operating Activities:
Net loss $ (11,556) $ (7,819)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 3,134 3,373
Stock-based compensation 4,433 4,681
Loss on discontinued operations 136 -
(Reversal) provision for uncollectible
amounts (79) 10
Severance and related costs 89 248
Changes in assets and liabilities:
Receivables (779) (1,339)
Prepaid expenses (7,396) (8,323)
Other assets (1,220) (1,456)
Accounts payable 650 (270)
Accrued compensation and related costs (1,292) 957
Unearned revenue 4,695 17,678
Other liabilities 31 (502)
------------ ------------
Net cash (used in) provided by operating
activities (9,154) 7,238
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures and other (2,425) (2,987)
Sale of short-term investments - 337
------------ ------------
Net cash used in investing activities (2,425) (2,650)
------------ ------------
Cash Flows from Financing Activities:
Payment of Series B Stock dividends (1,297) (648)
Principal payments under capital lease
obligations (1,238) (994)
Acquisition of treasury stock (956) (715)
Increase in restricted cash - (91)
Proceeds from stock compensation and
employee stock purchase plans, net 133 112
------------ ------------
Net cash used in financing activities (3,358) (2,336)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents (16) 81
------------ ------------
(Decrease) increase in cash and cash equivalents (14,953) 2,333
Cash and cash equivalents, beginning of period 28,982 27,064
------------ ------------
Cash and cash equivalents, end of period $ 14,029 $ 29,397
============ ============
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred $ 215 $ 865
Capital equipment purchased on credit 215 865
Change in net unrealized security loss - (108)
Supplemental Disclosures of Cash Flow
Information:
Interest paid $ (125) $ (293)
eLoyalty Corporation
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
For the For the
Three Months Ended Nine Months Ended
-------------------- --------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
2010 2009 2010 2009
--------- --------- --------- ---------
GAAP - Operating loss $ (2,690) $ (2,455) $ (11,297) $ (7,896)
Add back (reduce) the
effect of:
Stock-based compensation 1,492 1,256 4,433 4,681
Severance and related costs 116 276 936 1,028
Depreciation and amortization 984 1,114 3,134 3,373
--------- --------- --------- ---------
Adjusted earnings measure -
(loss) income $ (98) $ 191 $ (2,794) $ 1,186
========= ========= ========= =========
Contact Information: Contact: eLoyalty Corporation Bill Noon Vice President, Chief Financial Officer (847) 582-7019