Three Months Ended Six Months Ended --------------------------- --------------------------- % % (000's) 6/27/2009 6/28/2008 Change 6/27/2009 6/28/2008 Change --------- --------- ------ --------- --------- ------ Revenue: Managed Services $ 11,607 $ 9,433 23% $ 22,787 $ 20,204 13% Consulting Services 9,643 8,786 10% 17,289 19,367 -11% --------- --------- ------ --------- --------- ------ Services Revenue 21,250 18,219 17% 40,076 39,571 1% Product 832 3,117 -73% 12,870 4,895 163% --------- --------- ------ --------- --------- ------ Net Revenue 22,082 21,336 3% 52,946 44,466 19% Reimbursed expenses 1,019 808 1,963 1,546 --------- --------- ------ --------- --------- ------ Total Revenue $ 23,101 $ 22,144 4% $ 54,909 $ 46,012 19% --------- --------- ------ --------- --------- ------Q2 2009 Highlights
-- 13% sequential Services revenue growth -- Record $16.7 million of combined ICS and Behavioral Analytics™ Service revenues -- Record $11.6 million of Managed Services revenues -- Record $108.9 million Managed Services Backlog(2) -- 14% sequential gross margin expansion -- Achieved $879 thousand of Adjusted Earnings(1) -- Increased total cash balance by $9.1 millionThird 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. eLoyalty currently expects its Third 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 Wednesday, August 5, 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 August 19, 2009 by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 20745677. 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 lesser 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: $23.8m in 2009; $34.3m in 2010; $24.3m in 2011; $26.5m in 2012 and thereafter.
eLoyalty Corporation CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited and in thousands, except per share data) For the For the Three Months Ended Six Months Ended ------------------ ------------------ June 27, June 28, June 27, June 28, 2009 2008 2009 2008 -------- -------- -------- -------- Revenue: Services $ 21,250 $ 18,219 $ 40,076 $ 39,571 Product 832 3,117 12,870 4,895 -------- -------- -------- -------- Revenue before reimbursed expenses (net revenue) 22,082 21,336 52,946 44,466 Reimbursed expenses 1,019 808 1,963 1,546 -------- -------- -------- -------- Total revenue 23,101 22,144 54,909 46,012 Operating expenses: Cost of services 12,791 13,576 25,520 26,925 Cost of product 716 2,423 11,117 3,824 -------- -------- -------- -------- Cost of revenue before reimbursed expenses 13,507 15,999 36,637 30,749 Reimbursed expenses 1,019 808 1,963 1,546 -------- -------- -------- -------- Total cost of revenue, exclusive of depreciation and amortization shown below: 14,526 16,807 38,600 32,295 Selling, general and administrative 9,037 11,234 18,739 22,677 Severance and related costs 108 283 752 452 Depreciation and amortization 1,262 1,092 2,259 2,055 -------- -------- -------- -------- Total operating expenses 24,933 29,416 60,350 57,479 -------- -------- -------- -------- Operating loss (1,832) (7,272) (5,441) (11,467) Interest and other (expense) income, net (15) 4 (194) 82 -------- -------- -------- -------- Loss before income taxes (1,847) (7,268) (5,635) (11,385) Income tax provision (16) (16) (34) (49) -------- -------- -------- -------- Net loss (1,863) (7,284) (5,669) (11,434) Dividends related to Series B convertible preferred stock (324) (325) (647) (649) -------- -------- -------- -------- Net loss available to common stockholders $ (2,187) $ (7,609) $ (6,316) $(12,083) ======== ======== ======== ======== Basic net loss per common share $ (0.17) $ (0.80) $ (0.48) $ (1.31) ======== ======== ======== ======== Diluted net loss per common share $ (0.17) $ (0.80) $ (0.48) $ (1.31) ======== ======== ======== ======== Shares used to calculate basic net loss per share 13,250 9,454 13,168 9,258 ======== ======== ======== ======== Shares used to calculate diluted net loss per share 13,250 9,454 13,168 9,258 ======== ======== ======== ======== Stock-based compensation, primarily restricted stock, is included in individual line items above: Cost of services $ 49 $ 1,640 $ 385 $ 2,000 Selling, general and administrative 1,292 3,346 3,040 6,768 Severance and related costs 248 45 eLoyalty Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share and per share data) June 27, December 27, 2009 2008 -------- -------- ASSETS: Current Assets: Cash and cash equivalents $ 27,409 $ 27,064 Restricted cash 3,759 3,655 Receivables, (net of allowances of $100 and $107) 12,037 10,005 Prepaid expenses 12,844 7,783 Other current assets 1,608 1,251 -------- -------- Total current assets 57,657 49,758 Equipment and leasehold improvements, net 7,316 6,424 Goodwill 2,643 2,643 Intangibles, net 509 611 Other long-term assets 8,809 4,787 -------- -------- Total assets $ 76,934 $ 64,223 ======== ======== LIABILITIES AND STOCKHOLDERS EQUITY: Current Liabilities: Accounts payable $ 4,334 $ 3,904 Accrued compensation and related costs 5,510 4,994 Unearned revenue 19,933 11,525 Other current liabilities 4,710 4,647 -------- -------- Total current liabilities 34,487 25,070 Long-term unearned revenue 12,147 5,274 Other long-term liabilities 2,322 2,572 -------- -------- Total liabilities 48,956 32,916 -------- -------- Redeemable Series B convertible preferred stock, $0.01 par value; 5,000,000 shares authorized and designated; 3,617,332 and 3,619,537 shares issued and outstanding with a liquidation preference of $19,741 and $19,107 at June 27, 2009 and December 27, 2008, respectively 18,448 18,460 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; 14,817,721 and 14,152,702 shares issued at June 27, 2009 and December 27, 2008, respectively; and 14,202,262 and 13,661,746 outstanding at June 27, 2009 and December 27, 2008, respectively 148 142 Additional paid-in capital 201,549 198,853 Accumulated deficit (185,870) (180,201) Treasury stock, at cost, 615,459 and 490,956 shares at June 27, 2009 and December 27, 2008, respectively (3,018) (2,457) Accumulated other comprehensive loss (3,279) (3,490) -------- -------- Total stockholders equity 9,530 12,847 -------- -------- Total liabilities and stockholders equity $ 76,934 $ 64,223 ======== ======== eLoyalty Corporation CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) For the Six Months Ended ---------------------- June 27, June 28, 2009 2008 ---------- ---------- Cash Flows from Operating Activities: Net loss $ (5,669) $ (11,434) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,259 2,055 Stock-based compensation 3,425 8,768 Provision for uncollectible amounts 11 (10) Severance and related costs 248 45 Changes in assets and liabilities: Receivables (2,014) (647) Prepaid expenses (9,510) (1,099) Other assets (132) (343) Accounts payable 430 1,706 Accrued compensation and related costs 502 (1,386) Unearned revenue 15,266 (209) Other liabilities (808) (488) ---------- ---------- Net cash provided by (used in) operating activities 4,008 (3,042) ---------- ---------- Cash Flows from Investing Activities: Capital expenditures and other (2,476) (435) ---------- ---------- Net cash used in investing activities (2,476) (435) ---------- ---------- Cash Flows from Financing Activities: Acquisition of treasury stock (561) (2,459) Increase in restricted cash (104) (1,200) Payment of Series B convertible preferred stock dividends (2) (669) Proceeds from stock options and employee stock purchase plans 65 211 Principal payments under capital lease obligations (627) (332) ---------- ---------- Net cash used in financing activities (1,229) (4,449) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 42 21 ---------- ---------- Increase (decrease) in cash and cash equivalents 345 (7,905) Cash and cash equivalents, beginning of period 27,064 21,412 ---------- ---------- Cash and cash equivalents, end of period $ 27,409 $ 13,507 ========== ========== Non-Cash Investing and Financing Transactions: Capital lease obligations incurred $ 617 $ 1,487 Capital equipment purchased on credit 617 1,487 Change in net unrealized security gain (loss) 181 (142) Supplemental Disclosures of Cash Flow Information: Interest paid $ (224) $ (241) eLoyalty Corporation CALCULATION OF ADJUSTED EARNINGS MEASURE (Unaudited and in thousands) For the For the Three Months Ended Six Months Ended -------------------- ------------------- June 27, June 28, June 27, June 28, 2009 2008 2009 2008 --------- --------- --------- --------- GAAP Operating loss $ (1,832) $ (7,272) $ (5,441) $ (11,467) Add back (reduce) the effect of: Stock-based compensation 1,341 4,986 3,425 8,768 Severance and related costs 108 283 752 452 Depreciation and amortization 1,262 1,092 2,259 2,055 --------- --------- --------- --------- Adjusted earnings measure income (loss) $ 879 $ (911) $ 995 $ (192) ========= ========= ========= =========
Contact Information: Contact: eLoyalty Corporation Bill Noon Vice President, Chief Financial Officer (847) 582-7019