Three Months Ended ------------------------------- (000's) 3/27/2010 3/28/2009 % Change ---------- ---------- --------- Revenue: Managed Services $ 13,438 $ 11,180 20% Consulting Services 3,584 7,646 -53% ---------- ---------- --------- Services Revenue 17,022 18,826 -10% Product 2,211 12,038 -82% ---------- ---------- --------- Net Revenue 19,233 30,864 -38% Reimbursed expenses 727 944 ---------- ---------- --------- Total Revenue $ 19,960 $ 31,808 -37% ========== ========== ========= Q1 Highlights -- Signed $27.7 million of Managed Services contracts in the first quarter -- Increased Managed Services Backlog(2) 16% to $101.6 million -- Achieved 20% year over year growth in Managed Services revenue -- Grew Behavioral Analytics™ Service Subscriptions 73% year over yearSecond Quarter 2010 Guidance Based on the weaker than expected first quarter Services revenues, early in the second quarter, eLoyalty took actions to reduce its ICS Business Unit expenses by approximately $2.5 million on an annual basis. eLoyalty currently expects its Second Quarter 2010 Services revenues will be approximately $17.5 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, May 5, 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 May 19, 2010, by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 67411138. 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: $34.6m in 2010; $32.2m in 2011; $22.0m in 2012; $12.8m in 2013 and thereafter. eLoyalty Corporation CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited and in thousands, except per share data) For the Three Months Ended -------------------------- March 27, March 28, 2010 2009 ---------- ---------- Revenue: Services $ 17,022 $ 18,826 Product 2,211 12,038 ---------- ---------- Revenue before reimbursed expenses (net revenue) 19,233 30,864 Reimbursed expenses 727 944 ---------- ---------- Total revenue 19,960 31,808 Operating expenses: Cost of services 11,048 13,255 Cost of product 1,796 10,401 ---------- ---------- Cost of revenue before reimbursed expenses 12,844 23,656 Reimbursed expenses 727 944 ---------- ---------- Total cost of revenue, exclusive of depreciation and amortization shown below: 13,571 24,600 Selling, general and administrative 9,918 9,176 Severance and related costs 356 644 Depreciation and amortization 1,132 997 ---------- ---------- Total operating expenses 24,977 35,417 ---------- ---------- Operating loss (5,017) (3,609) Interest and other income (expense), net 109 (179) ---------- ---------- Loss from continuing operations before income taxes (4,908) (3,788) Income tax provision (22) (18) ---------- ---------- Loss from continuing operations (4,930) (3,806) Loss on discontinued operations (136) - ---------- ---------- Net loss (5,066) (3,806) Dividends related to Series B Stock (323) (323) ---------- ---------- Net loss available to common stockholders $ (5,389) $ (4,129) ========== ========== Per common share: Basic loss from continuing operations $ (0.37) $ (0.29) ========== ========== Basic loss from discontinued operations $ (0.01) $ - ========== ========== Basic net loss $ (0.40) $ (0.32) ========== ========== Per common share: Diluted loss from continuing operations $ (0.37) $ (0.29) ========== ========== Diluted loss from discontinued operations $ (0.01) $ - ========== ========== Diluted net loss $ (0.40) $ (0.32) ========== ========== Shares used to calculate basic net loss per share 13,458 13,086 ========== ========== Shares used to calculate diluted net loss per share 13,458 13,086 ========== ========== Stock-based compensation, primarily restricted stock, is included in individual line items above: Cost of services $ 48 $ 336 Selling, general and administrative 1,511 1,748 Severance and related costs - 248 eLoyalty Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share and per share data) March 27, December 26, 2010 2009 ---------- ---------- ASSETS: Current Assets: Cash and cash equivalents $ 26,511 $ 28,982 Restricted cash 3,745 3,745 Receivables, (net of allowances of $68 and $151) 8,081 9,313 Prepaid expenses 12,562 10,126 Other current assets 1,695 944 ---------- ---------- Total current assets 52,594 53,110 Equipment and leasehold improvements, net 5,954 6,194 Goodwill 2,643 2,643 Intangibles, net 396 476 Other long-term assets 10,813 8,180 ---------- ---------- Total assets $ 72,400 $ 70,603 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 4,070 $ 3,634 Accrued compensation and related costs 5,433 5,762 Unearned revenue 22,641 20,436 Other current liabilities 4,843 5,067 ---------- ---------- Total current liabilities 36,987 34,899 Long-term unearned revenue 13,955 9,526 Other long-term liabilities 1,439 1,705 ---------- ---------- Total liabilities 52,381 46,130 ---------- ---------- Redeemable Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 3,616,162 and 3,616,169 shares issued and outstanding at March 27, 2010 and December 26, 2009, respectively, with a liquidation preference of $19,411 and $19,733 at March 27, 2010 and December 26, 2009, respectively 18,442 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; 15,435,123 and 14,871,521 shares issued at March 27, 2010 and December 26, 2009, respectively; and 14,689,417 and 14,220,279 outstanding at March 27, 2010 and December 26, 2009, respectively 154 149 Additional paid-in capital 204,810 203,627 Accumulated deficit (195,887) (190,821) Treasury stock, at cost, 745,706 and 651,242 shares at March 27, 2010 and December 26, 2009, respectively (3,759) (3,295) Accumulated other comprehensive loss (3,741) (3,629) ---------- ---------- Total stockholders' equity 1,577 6,031 ---------- ---------- Total liabilities and stockholders' equity $ 72,400 $ 70,603 ========== ========== eLoyalty Corporation CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) For the Three Months Ended -------------------------- March 27, March 28, 2010 2009 ---------- ---------- Cash Flows from Operating Activities: Net loss $ (5,066) $ (3,806) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization 1,132 997 Stock-based compensation 1,559 2,084 Loss on discontinued operations 136 - Provision (reversal) for uncollectible amounts (79) 47 Severance and related costs 5 248 Changes in assets and liabilities: Receivables 1,288 (11,722) Prepaid expenses (5,166) (4,605) Other assets (750) (2,268) Accounts payable 442 6,058 Accrued compensation and related costs (324) (147) Unearned revenue 6,644 6,030 Other liabilities (3) (185) ---------- ---------- Net cash used in operating activities (182) (7,269) ---------- ---------- Cash Flows from Investing Activities: Capital expenditures and other (712) (666) ---------- ---------- Net cash used in investing activities (712) (666) ---------- ---------- Cash Flows from Financing Activities: Principal payments under capital lease obligations (399) (214) Acquisition of treasury stock (464) (433) Payment of Series B Stock dividends (646) (2) Decrease in restricted cash - 196 Proceeds from stock compensation and employee stock purchase plans, net 34 25 ---------- ---------- Net cash used in financing activities (1,475) (428) ---------- ---------- Effect of exchange rate changes on cash and cash equivalents (102) (64) ---------- ---------- Decrease in cash and cash equivalents (2,471) (8,427) Cash and cash equivalents, beginning of period 28,982 27,064 ---------- ---------- Cash and cash equivalents, end of period $ 26,511 $ 18,637 ========== ========== Non-Cash Investing and Financing Transactions: Capital lease obligations incurred $ 108 $ 579 Capital equipment purchased on credit 108 579 Change in net unrealized security loss - (9) Supplemental Disclosures of Cash Flow Information: Interest paid $ (48) $ (213) eLoyalty Corporation CALCULATION OF ADJUSTED EARNINGS MEASURE (Unaudited and in thousands) For the Three Months Ended -------------------------- March 27, March 28, 2010 2009 ---------- ---------- GAAP - Operating loss $ (5,017) $ (3,609) Add back (reduce) the effect of: Stock-based compensation 1,559 2,084 Severance and related costs 356 644 Depreciation and amortization 1,132 997 ---------- ---------- Adjusted earnings measure - (loss) income $ (1,970) $ 116 ========== ==========
Contact Information: Contact: eLoyalty Corporation Bill Noon, Vice President, Chief Financial Officer (847) 582-7019