SOURCE: eLoyalty Corporation

May 05, 2010 16:15 ET

eLoyalty Announces First Quarter 2010 Results

LAKE FOREST, IL--(Marketwire - May 5, 2010) - eLoyalty Corporation (NASDAQ: ELOY), a leading Integrated Contact Solutions and Behavioral Analytics™ services company, today announced financial results for the first quarter ended March 27, 2010.

For the first quarter of 2010, total revenue was $20.0 million and the net loss was $5.1 million. The net loss available to common shareholders was $0.40 per share. eLoyalty realized an "Adjusted Earnings(1)" loss of $2.0 million for the first quarter of 2010. Adjusted Earnings is a non-GAAP measure. For a reconciliation of Adjusted Earnings to operating loss, see the accompanying schedule.

The following is a summary of revenue by major component:

                                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
      year

Second 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
    Email Contact