Three Months Ended Nine Months Ended
--------------------------- ---------------------------
% %
(000's) 9/27/2008 9/29/2007 Change 9/27/2008 9/29/2007 Change
--------- --------- ------- --------- --------- -------
Revenue:
Managed
Services $ 10,516 $ 9,839 7% $ 30,720 $ 28,334 8%
Consulting
Services 7,682 12,622 -39% 27,049 39,605 -32%
--------- --------- ------- --------- --------- -------
Services Revenue 18,198 22,461 -19% 57,769 67,939 -15%
Product 956 2,909 -67% 5,851 8,672 -33%
--------- --------- ------- --------- --------- -------
Net Revenue 19,154 25,370 -25% 63,620 76,611 -17%
Reimbursed
expenses 941 1,243 2,487 3,894
--------- --------- ------- --------- --------- -------
Total Revenue $ 20,095 $ 26,613 -24% $ 66,107 $ 80,505 -18%
--------- --------- ------- --------- --------- -------
Q3 2008 Highlights
Third Quarter 2008 highlights include:
-- Increased Managed Services revenues by 11% sequentially, principally
driven by the 64% sequential increase in Behavioral Analytics™
subscription revenues
-- Closed two new large ICS contracts totaling approximately $14 million
-- Signed two new Behavioral Analytics™ Deployment contracts and one
new Assessment contract with premier customers (a new division of a Top 5
HMO, a new Top 5 HMO and a large life insurance company)
-- Raised $15 million in a fully subscribed Rights Offering
-- Ended the Third Quarter with $33.5 million in Cash
-- Reduced our cost structure approximately $3 million on an annual basis
Third quarter results were adversely impacted by the sourcing delays and
related revenue recognition issues associated with a large ICS order. This
event reduced Third Quarter Services revenues by $0.2 million and Third
Quarter Product revenues by $3.6 million. These amounts are expected to be
realized in the Fourth Quarter.
eLoyalty closed the Third Quarter with a Managed Services backlog of $69.9
million(2) (an increase from $69.5 million as compared to the end of the
Second Quarter).
In addition, early in the Fourth Quarter, the Company closed a significant
new CRM Consulting project at one of its Behavioral Analytics™ HMO
clients. The revenues from this project will help offset the continuing
declines in revenues from several of eLoyalty's traditional Consulting
clients, as well as improve the Company's revenue visibility for the Fourth
Quarter.
Fourth Quarter 2008 Guidance
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.
The major factors driving eLoyalty's Fourth Quarter 2008 outlook include:
-- Strong revenue visibility for the current quarter
-- Increased ICS Consulting revenues
-- Increased ICS Managed Services revenues
-- Increased Behavioral Analytics™ revenues
Based on these factors, eLoyalty currently expects its Fourth Quarter 2008
Services revenues will increase 7% sequentially to approximately $19.5
million.
In the Fourth Quarter, eLoyalty expects to achieve record Managed Services
revenues and record revenues from its two principal Service Lines (ICS and
Behavioral Analytics™). The growth in these areas will continue to
improve its revenue mix in the Fourth Quarter of 2008, as evidenced by the
following:
-- Approximately 56% of Services revenues is expected to come from
Managed Services, up from 51% in the fourth quarter of 2007
-- Approximately 76% of Services revenues is expected to come from
Behavioral Analytics™ and ICS Service Lines, up from 57% in the fourth
quarter of 2007
In addition, eLoyalty expects to be EBITDA (Adjusted Earnings(1))
profitable in the Fourth Quarter.
Conference Call Information
eLoyalty management will host a conference call at 5:00 p.m. ET on
Wednesday, November 5, 2008. 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 19, 2008 by dialing (800) 642-1687
or, for international callers, (706) 645-9291 and entering conference ID
number 68887529.
About eLoyalty
eLoyalty helps its customers achieve breakthrough results with
revolutionary analytics and advanced technologies that drive continuous
business improvement. With a long track record of delivering proven
solutions for many of the Fortune 1000, eLoyalty's offerings include the
Behavioral Analytics™ Service, Integrated Contact Solutions and
Consulting Services, each of which enables focused business transformation.
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) The terms of each Managed Services contract range from one to five
years. eLoyalty uses the term "backlog" with respect to its Managed
Services engagements to refer to the expected revenue to be received under
the applicable contract, based on its currently contracted terms and, when
applicable, currently anticipated levels of usage and performance. Actual
usage and performance might be greater or less than anticipated. In
general, eLoyalty's Managed services contracts may be terminated by the
customer without cause, but early termination by a customer usually
requires a substantial early termination payment.
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. 27, Sept. 29, Sept. 27, Sept. 29,
2008 2007 2008 2007
--------- --------- --------- ---------
Revenue:
Services $ 18,198 $ 22,461 $ 57,769 $ 67,939
Product 956 2,909 5,851 8,672
--------- --------- --------- ---------
Revenue before reimbursed
expenses (net revenue) 19,154 25,370 63,620 76,611
Reimbursed expenses 941 1,243 2,487 3,894
--------- --------- --------- ---------
Total revenue 20,095 26,613 66,107 80,505
Operating expenses:
Cost of services 11,673 14,945 38,598 44,906
Cost of product 1,041 2,169 4,865 6,601
--------- --------- --------- ---------
Cost of revenue before
reimbursed expenses 12,714 17,114 43,463 51,507
Reimbursed expenses 941 1,243 2,487 3,894
--------- --------- --------- ---------
Total cost of revenue,
exclusive of depreciation and
amortization shown below: 13,655 18,357 45,950 55,401
Selling, general and
administrative 10,608 11,959 33,285 36,486
Severance and related costs 686 5 1,138 5
Depreciation and
amortization 1,094 913 3,149 2,634
--------- --------- --------- ---------
Total operating expenses 26,043 31,234 83,522 94,526
--------- --------- --------- ---------
Operating loss (5,948) (4,621) (17,415) (14,021)
Interest and other (expense)
income, net (95) 281 (13) 1,199
--------- --------- --------- ---------
Loss before income taxes (6,043) (4,340) (17,428) (12,822)
Income tax provision (27) (6) (76) (8)
--------- --------- --------- ---------
Net loss (6,070) (4,346) (17,504) (12,830)
Dividends related to Series B
preferred stock (324) (341) (973) (1,070)
--------- --------- --------- ---------
Net loss available to common
stockholders $ (6,394) $ (4,687) $ (18,477) $ (13,900)
========= ========= ========= =========
Basic net loss per common
share $ (0.63) $ (0.55) $ (1.93) $ (1.68)
========= ========= ========= =========
Diluted net loss per common
share $ (0.63) $ (0.55) $ (1.93) $ (1.68)
========= ========= ========= =========
Shares used to calculate basic
net loss per share 10,171 8,578 9,562 8,272
========= ========= ========= =========
Shares used to calculate
diluted net loss per share 10,171 8,578 9,562 8,272
========= ========= ========= =========
Stock-based compensation,
primarily restricted stock,
included in individual line
items above:
Cost of services $ 682 $ 187 $ 2,682 $ 743
Selling, general and
administrative 2,376 2,066 9,144 7,572
Severance and related costs 58 — 103 —
eLoyalty Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
September 27, December 29,
2008 2007
------------- ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 29,851 $ 21,412
Restricted cash 3,655 2,455
Receivables, (net of allowances of
$76 and $110) 9,190 11,322
Prepaid expenses 9,316 8,465
Other current assets 3,698 1,074
------------- ------------
Total current assets 55,710 44,728
Equipment and leasehold improvements, net 6,883 7,391
Goodwill 2,643 2,643
Intangibles, net 688 828
Other long-term assets 4,509 4,461
------------- ------------
Total assets $ 70,433 $ 60,051
============= ============
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Accounts payable $ 5,386 $ 2,997
Accrued compensation and related costs 4,454 5,555
Unearned revenue 16,489 11,772
Other current liabilities 4,288 3,783
------------- ------------
Total current liabilities 30,617 24,107
Long-term unearned revenue 4,772 7,416
Other long-term liabilities 2,330 1,625
------------- ------------
Total liabilities 37,719 33,148
------------- ------------
Redeemable Series B convertible preferred
stock, $0.01 par value; 5,000,000 shares
authorized and designated; 3,631,303 and
3,745,070 shares issued and outstanding with
a liquidation preference of $18,844 and
$19,768 at September 27, 2008 and December
29, 2007, respectively 18,520 19,100
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; 13,632,116 and 9,885,458
shares issued at September 27, 2008 and
December 29, 2007; and 13,350,235 and
9,735,492 outstanding at September 27, 2008
and December 29, 2007, respectively 136 99
Additional paid-in capital 195,790 172,483
Accumulated deficit (176,052) (158,548)
Treasury stock, at cost, 281,881 and
149,966 shares at September 27, 2008 and
December 29, 2007 (1,839) (2,731)
Accumulated other comprehensive loss (3,841) (3,500)
------------- ------------
Total stockholders’ equity 14,194 7,803
------------- ------------
Total liabilities and stockholders’ equity $ 70,433 $ 60,051
============= ============
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the
Nine Months Ended
---------------------
Sept. 27, Sept. 29,
2008 2007
--------- ---------
Cash Flows from Operating Activities:
Net loss $ (17,504) $ (12,830)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,149 2,634
Stock-based compensation 11,826 8,315
Provision for uncollectible amounts (16) 152
Severance and related costs 229 -
Changes in assets and liabilities:
Receivables 2,110 (473)
Prepaid expenses (325) (2,802)
Other assets (2,836) 922
Accounts payable 2,391 527
Accrued compensation and related costs (903) 1,078
Unearned revenue 2,081 5,051
Other liabilities 2 (1,117)
--------- ---------
Net cash provided by operating activities 204 1,457
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures and other (641) (3,384)
--------- ---------
Net cash used in investing activities (641) (3,384)
--------- ---------
Cash Flows from Financing Activities:
Rights offering, net 14,898 -
Acquisition of treasury stock (3,123) (3,069)
Increase in restricted cash (1,200) (1,000)
Payment of Series B dividends (1,317) (1,465)
Proceeds from stock compensation and employee stock
purchase plans 287 379
Principal payments under capital lease obligations (538) -
Other - 24
--------- ---------
Net cash provided by (used in) financing
activities 9,007 (5,131)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents (131) (91)
--------- ---------
Increase (decrease) in cash and cash equivalents 8,439 (7,149)
Cash and cash equivalents, beginning of period 21,412 31,645
--------- ---------
Cash and cash equivalents, end of period $ 29,851 $ 24,496
========= =========
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred $ 1,986 $ 528
Capital equipment purchased on credit 1,986 528
Change in net unrealized security gain (211) 387
Supplemental Disclosures of Cash Flow Information:
Cash refunded for income taxes, net $ - $ 1,155
Interest paid (367) -
eLoyalty Corporation
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
For the For the
Three Months Ended Nine Months Ended
-------------------- --------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
2008 2007 2008 2007
--------- --------- --------- ---------
GAAP - Operating loss $ (5,948) $ (4,621) $ (17,415) $ (14,021)
Add back (reduce) the effect
of:
Stock-based compensation 3,058 2,253 11,826 8,315
Severance and related costs 686 5 1,138 5
Depreciation and amortization 1,094 913 3,149 2,634
--------- --------- --------- ---------
Adjusted earnings measure -
income (loss) $ (1,110) $ (1,450) $ (1,302) $ (3,067)
========= ========= ========= =========
Contact Information: PRESS RELEASE Contact: eLoyalty Corporation Chris Min Vice President and Chief Financial Officer (847) 582-7222