Three Months Ended Twelve Months Ended ------------------------------- ------------------------------ (000's) 12/27/2008 12/29/2007 % Change 12/27/2008 12/29/2007 % Change ---------- ---------- -------- ---------- ---------- -------- Revenue: Managed Services $ 11,374 $ 10,331 10% $ 42,094 $ 38,665 9% Consulting Services 8,653 9,776 -11% 35,702 49,381 -28% ---------- ---------- -------- ---------- ---------- -------- Services Revenue 20,027 20,107 0% 77,796 88,046 -12% Product 3,926 513 665% 9,777 9,185 6% ---------- ---------- -------- ---------- ---------- -------- Net Revenue 23,953 20,620 16% 87,573 97,231 -10% Reimbursed expenses 1,137 980 3,624 4,874 ---------- ---------- -------- ---------- ---------- -------- Total Revenue $ 25,090 $ 21,600 16% $ 91,197 $ 102,105 -11% ========== ========== ======== ========== ========== ========Q4 2008 Highlights Fourth Quarter 2008 highlights include:
-- 10% sequential increase in Services revenues -- 25% sequential increase in total revenues before reimbursed expenses -- $842 thousand of Adjusted Earnings (a $2 million sequential improvement) -- Record $11.4 million Managed Services revenues (an 8% sequential increase) -- Record $73.9 million Managed Services Backlog(2) -- $9.9 million of Behavioral Analytics Service deployment bookings -- 23% sequential increase in ICS Consulting revenues -- Record $14.8 million of revenues from primary Service Lines (ICS and the Behavioral Analytics Service) -- $3 million annual reduction in operating expenses as compared to the fourth quarter 2008 run rateFirst Quarter 2009 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. Based on these factors, eLoyalty currently expects its First Quarter 2009 Services revenues will be approximately $19.5 million. Conference Call Information eLoyalty management will host a conference call at 5:00 p.m. ET on Thursday, February 12, 2009. 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 February 26, 2009 by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 79895951. 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 Twelve Months Ended ---------------------- ---------------------- Dec. 27, Dec. 29, Dec. 27, Dec. 29, 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Revenue: Services $ 20,027 $ 20,107 $ 77,796 $ 88,046 Product 3,926 513 9,777 9,185 ---------- ---------- ---------- ---------- Revenue before reimbursed expenses (net revenue) 23,953 20,620 87,573 97,231 Reimbursed expenses 1,137 980 3,624 4,874 ---------- ---------- ---------- ---------- Total revenue 25,090 21,600 91,197 102,105 Operating expenses: Cost of services 13,015 13,590 51,613 58,496 Cost of product 3,080 392 7,945 6,993 ---------- ---------- ---------- ---------- Cost of revenue before reimbursed expenses 16,095 13,982 59,558 65,489 Reimbursed expenses 1,137 980 3,624 4,874 ---------- ---------- ---------- ---------- Total cost of revenue, exclusive of depreciation and amortization shown below: 17,232 14,962 63,182 70,363 Selling, general and administrative 9,870 10,589 43,155 47,075 Severance and related costs 497 1,328 1,635 1,333 Depreciation 927 912 3,845 3,186 Amortization of intangibles 109 63 340 423 ---------- ---------- ---------- ---------- Total operating expenses 28,635 27,854 112,157 122,380 ---------- ---------- ---------- ---------- Operating loss (3,545) (6,254) (20,960) (20,275) Interest and other income (expense), net 83 285 70 1,484 ---------- ---------- ---------- ---------- Loss from continuing operations before income taxes (3,462) (5,969) (20,890) (18,791) Income tax benefit (provision) 61 61 (15) 53 ---------- ---------- ---------- ---------- Loss from continuing operations (3,401) (5,908) (20,905) (18,738) Loss on liquidation of subsidiary (748) (748) ---------- ---------- ---------- ---------- Net loss (4,149) (5,908) (21,653) (18,738) Dividends related to Series B preferred stock (323) (335) (1,296) (1,405) ---------- ---------- ---------- ---------- Net loss available to common stockholders $ (4,472) $ (6,243) $ (22,949) $ (20,143) ========== ========== ========== ========== Basic loss from continuing operations per common share $ (0.27) $ (0.67) $ (2.02) $ (2.23) ========== ========== ========== ========== Basic net loss per common share $ (0.35) $ (0.71) $ (2.21) $ (2.40) ========== ========== ========== ========== Diluted loss from continuing operations per common share $ (0.27) $ (0.67) $ (2.02) $ (2.23) ========== ========== ========== ========== Diluted net loss per common share $ (0.35) $ (0.71) $ (2.21) $ (2.40) ========== ========== ========== ========== Shares used to calculate basic net loss per share 12,772 8,778 10,365 8,399 ========== ========== ========== ========== Shares used to calculate diluted net loss per share 12,772 8,778 10,365 8,399 ========== ========== ========== ========== Stock-based compensation, primarily restricted stock, included in individual line items above: Cost of services $ 663 $ 261 $ 3,345 $ 1,004 Selling, general and administrative 2,191 1,872 11,335 9,444 Severance and related costs 196 103 196 eLoyalty Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share and per share data) December 27, December 29, 2008 2007 ------------ ------------ ASSETS: Current Assets: Cash and cash equivalents $ 27,064 $ 21,412 Restricted cash 3,655 2,455 Receivables, (net of allowances of $107 and $110) 10,005 11,322 Prepaid expenses 7,783 8,465 Other current assets 1,251 1,074 ------------ ------------ Total current assets 49,758 44,728 Equipment and leasehold improvements, net 6,424 7,391 Goodwill 2,643 2,643 Intangibles, net 611 828 Other long-term assets 4,787 4,461 ------------ ------------ Total assets $ 64,223 $ 60,051 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 3,904 $ 2,997 Accrued compensation and related costs 4,994 5,555 Unearned revenue 11,525 11,772 Capital leases 1,311 471 Other current liabilities 3,336 3,312 ------------ ------------ Total current liabilities 25,070 24,107 Long-term unearned revenue 5,274 7,416 Capital leases 2,280 1,020 Other long-term liabilities 292 605 ------------ ------------ Total liabilities 32,916 33,148 ------------ ------------ Redeemable Series B convertible preferred stock, $0.01 par value; 5,000,000 shares authorized and designated; 3,619,537 and 3,745,070 shares issued and outstanding with a liquidation preference of $19,107 and $19,768 at December 27, 2008 and December 29, 2007, respectively 18,460 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; 14,152,702 and 9,885,458 shares issued at December 27, 2008 and December 29, 2007; and 13,661,746 and 9,735,492 outstanding at December 27, 2008 and December 29, 2007, respectively 142 99 Additional paid-in capital 198,853 172,483 Accumulated deficit (180,201) (158,548) Treasury stock, at cost, 490,956 and 149,966 shares at December 27, 2008 and December 29, 2007 (2,457) (2,731) Accumulated other comprehensive loss (3,490) (3,500) ------------ ------------ Total stockholders' equity 12,847 7,803 ------------ ------------ Total liabilities and stockholders' equity $ 64,223 $ 60,051 ============ ============ eLoyalty Corporation CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) For the Twelve Months Ended ---------------------- Dec. 27, Dec. 29, 2008 2007 ---------- ---------- Cash Flows from Operating Activities: Net loss $ (21,653) $ (18,738) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 4,185 3,609 Stock-based compensation 14,680 10,448 Loss on liquidation of subsidiary 748 Provision for uncollectible amounts 18 168 Severance and related costs 293 Deferred income taxes (2) (129) Changes in assets and liabilities: Receivables 1,140 1,466 Prepaid expenses 1,305 (3,533) Other assets (523) 1,622 Accounts payable 919 (1,271) Accrued compensation and related costs (296) 2,057 Unearned revenue (2,362) 6,233 Other liabilities 112 (550) ---------- ---------- Net cash (used in) provided by operating activities (1,436) 1,382 ---------- ---------- Cash Flows from Investing Activities: Capital expenditures and other (698) (4,520) ---------- ---------- Net cash used in investing activities (698) (4,520) ---------- ---------- Cash Flows from Financing Activities: Proceeds from rights offering, net 14,845 24 Acquisition of treasury stock (3,741) (3,637) Increase in restricted cash (1,200) (2,172) Payment of Series B dividends (1,317) (1,468) Proceeds from stock compensation and employee stock purchase plans, net 343 422 Principal payments under capital lease obligations (748) (27) ---------- ---------- Net cash provided by (used in) financing activities 8,182 (6,858) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents (396) (237) ---------- ---------- Increase (decrease) in cash and cash equivalents 5,652 (10,233) Cash and cash equivalents, beginning of period 21,412 31,645 ---------- ---------- Cash and cash equivalents, end of period $ 27,064 $ 21,412 ========== ========== Non-Cash Investing and Financing Transactions: Capital lease obligations incurred $ 2,429 $ 1,518 Capital equipment purchased on credit 2,429 1,518 Change in net unrealized security gain (343) 451 Supplemental Disclosures of Cash Flow Information: Cash refunded for income taxes, net $ $ 1,192 Interest paid (536) (97) eLoyalty Corporation CALCULATION OF ADJUSTED EARNINGS MEASURE (Unaudited and in thousands) For the For the Three Months Ended Twelve Months Ended -------------------- -------------------- Dec. 27, Dec. 29, Dec. 27, Dec. 29, 2008 2007 2008 2007 --------- --------- --------- --------- GAAP - Operating loss $ (3,545) $ (6,254) $ (20,960) $ (20,275) Add back (reduce) the effect of: -------------------------------- Stock-based compensation 2,854 2,133 14,680 10,448 Severance and related costs 497 1,328 1,635 1,333 Depreciation and amortization 1,036 975 4,185 3,609 --------- --------- --------- --------- Adjusted earnings measure - income (loss) $ 842 $ (1,818) $ (460) $ (4,885) ========= ========= ========= =========
Contact Information: Contact: eLoyalty Corporation Bill Noon Vice President, Chief Financial Officer (847) 582-7019