SOURCE: eLoyalty Corporation

August 06, 2008 16:45 ET

eLoyalty Announces Second Quarter 2008 Results

Company Provides Behavioral Analytics™ Update and Forecasts a 5% Sequential Services Revenue Increase in Q3 2008

LAKE FOREST, IL--(Marketwire - August 6, 2008) - eLoyalty Corporation (NASDAQ: ELOY), a leading enterprise customer relationship management (CRM) services and solutions company, today announced financial results for the second quarter ended June 28, 2008.

For the second quarter of 2008, total revenue was $22.1 million and the net loss was ($7.3) million. The net loss available to common shareholders was ($0.80) per share. eLoyalty realized an "Adjusted Earnings(1)" Loss of ($0.9) million for the second quarter of 2008. Adjusted Earnings is a non-GAAP measure. For a reconciliation of Adjusted Earnings Loss to operating loss, see the accompanying schedule.

The following is a summary of revenue by major component:

                     Three Months Ended             Six Months Ended
                ----------------------------- -----------------------------
    (000's)     6/28/2008 6/30/2007 % Change  6/28/2008 6/30/2007 % Change
                --------- --------- --------  --------- --------- --------
Revenue:
  Managed
   Services         9,433     9,664       -2%    20,204    18,495        9%
  Consulting
   Services         8,786    13,637      -36%    19,367    26,983      -28%
                --------- --------- --------  --------- --------- --------
Services
 Revenue           18,219    23,301      -22%    39,571    45,478      -13%
  Product           3,117     1,356      130%     4,895     5,763      -15%
                --------- --------- --------  --------- --------- --------
Net Revenue        21,336    24,657      -13%    44,466    51,241      -13%
  Reimbursed
   expenses           808     1,313               1,546     2,651
                --------- --------- --------  --------- --------- --------
Total Revenue      22,144    25,970      -15%    46,012    53,892      -15%
                ========= ========= ========  ========= ========= ========

Review of Q2 2008 Results

Second Quarter 2008 revenues were adversely impacted by two significant factors compared to First Quarter 2008:

    
--  $1.1 million decrease in traditional CRM Consulting revenues based on
    tight spending conditions at several of eLoyalty's longstanding clients
--  $0.7 million decrease in Behavioral Analytics™ service Subscription
    revenues based on the Contract revision at one client; Behavioral
    Analytics™ Subscription revenues are forecasted to increase by $0.4
    million sequentially at this client in the Third Quarter
    

Behavioral Analytics™ Service

eLoyalty's Behavioral Analytics™ service converts unstructured customer interaction information into actionable business insight. This Service Line generates revenues as follows:

    
--  Managed Services revenues from implementing and operating its
    Behavioral Analytics™ service for its Deployment Customers
--  Consulting revenues from Assessments projects for prospective
    Deployment Customers
    

Behavioral Analytics™ is a new, transformational business service that is in the early stages of market adoption. In order to accelerate growth of this Service Line, eLoyalty is focused on three key strategies:

--  Building its customer base
--  Growing its sales force
--  Expanding Behavioral Analytics™ service functionality
    

Key Q2 highlights include:

--  Closed 3 new Deployments (including a large Utility and a prominent
    Blue Shield Plan)
--  Signed 5 new Assessments (including a large pharmacy benefit manager
    (PBM), a Retail Bank division of a very large Insurance Company, a large
    Utility and 2 new applications at an existing large HMO client)
--  Added 4 new Sales People
--  Significantly expanded the use of customer behavioral data to improve
    call routing
    

eLoyalty's Behavioral Analytics™ service continues to gain traction. Based on eLoyalty's current Backlog and Assessment activity, the company currently expects to grow its Behavioral Analytics™ Managed Services revenues significantly in the Third Quarter (see Guidance below). In addition, eLoyalty expects to increase Behavioral Analytics™ Managed Services revenues approximately 5% to 10% sequentially in the Fourth Quarter of 2008, and between 20% and 40% on a year over year basis in 2009.

Third 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 Third Quarter 2008 outlook include:

--  $1.1 million increase in Behavioral Analytics™ Managed Services
    revenues
--  $0.2 million increase in Behavioral Analytics™ Consulting revenues
--  $0.6 million decrease in Traditional CRM Consulting revenues
    

Based on these factors, eLoyalty currently expects its Third Quarter Services revenues will increase 5% sequentially to approximately $19.1 million.

Furthermore, eLoyalty expects to make significant progress transforming its revenue and business model in the Third Quarter of 2008, as evidenced by the following:

--  Approximately 55% of Services revenues are expected to come from
    Managed Services, up from 44% in the third quarter of 2007
--  Approximately 70% of Services revenues are expected to come from
    Behavioral Analytics™ and ICS Service Lines, up from 60% in the third
    quarter of 2007
    

Conference Call Information

eLoyalty management will host a conference call at 5:00 p.m. ET on Wednesday, August 6, 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 call is completed until August 20, 2008, by dialing (800) 642-1687 or, for international callers, (706) 645-9291. To access the replay, participants will be required to enter the Conference ID 55184433.

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.

                           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 28,  June 30,    June 28,  June 30,
                                    2008      2007        2008      2007
                                  --------  --------    --------  --------
Revenue:
  Services                        $ 18,219  $ 23,301    $ 39,571  $ 45,478
  Product                            3,117     1,356       4,895     5,763
                                  --------  --------    --------  --------
    Revenue before reimbursed
     expenses (net revenue)         21,336    24,657      44,466    51,241
  Reimbursed expenses                  808     1,313       1,546     2,651
                                  --------  --------    --------  --------
Total revenue                       22,144    25,970      46,012    53,892

Operating expenses:
  Cost of services                  13,576    15,224      26,925    29,961
  Cost of product                    2,423       918       3,824     4,432
                                  --------  --------    --------  --------
Cost of revenue before reimbursed
 expenses                           15,999    16,142      30,749    34,393
  Reimbursed expenses                  808     1,313       1,546     2,651
                                  --------  --------    --------  --------
Total cost of revenue, exclusive
 of depreciation and amortization
 shown below:                       16,807    17,455      32,295    37,044
  Selling, general and
   administrative                   11,234    12,089      22,677    24,527
  Severance and related costs          283        --         452        --
  Depreciation and amortization      1,092       948       2,055     1,721
                                  --------  --------    --------  --------
Total operating expenses            29,416    30,492      57,479    63,292
                                  --------  --------    --------  --------

Operating loss                      (7,272)   (4,522)    (11,467)   (9,400)
Interest and other income
 (expense), net                          4       591          82       918
                                  --------  --------    --------  --------
Loss before income taxes            (7,268)   (3,931)    (11,385)   (8,482)
Income tax provision                   (16)       (6)        (49)       (2)
                                  --------  --------    --------  --------
Net loss                            (7,284)   (3,937)    (11,434)   (8,484)
Dividends related to Series B
 preferred stock                      (325)     (363)       (649)     (729)
                                  --------  --------    --------  --------
Net loss available to common
 stockholders                     $ (7,609) $ (4,300)   $(12,083) $ (9,213)
                                  ========  ========    ========  ========

Basic net loss per common share   $  (0.80) $  (0.52)   $  (1.31) $  (1.13)
                                  ========  ========    ========  ========
Diluted net loss per common share $  (0.80) $  (0.52)   $  (1.31) $  (1.13)
                                  ========  ========    ========  ========

Shares used to calculate basic
 net loss per share                  9,454     8,203       9,258     8,119
                                  ========  ========    ========  ========
Shares used to calculate diluted
 net loss per share                  9,454     8,203       9,258     8,119
                                  ========  ========    ========  ========


Stock-based compensation,
 primarily restricted stock,
 included in individual line
 items above:
  Cost of services                $  1,640  $    260    $  2,000  $    556
  Selling, general and
   administrative                    3,346     2,195       6,768     5,506
  Severance and related costs           --        --          45        --





                           eLoyalty Corporation
                  CONDENSED CONSOLIDATED BALANCE SHEETS
       (Unaudited and in thousands, except share and per share data)

                                                    June 28,   December 29,
                                                      2008         2007
                                                   ----------   ----------
                                  ASSETS:
Current Assets:
  Cash and cash equivalents                        $   13,507   $   21,412
  Restricted cash                                       3,655        2,455
  Receivables, (net of allowances of $82 and
   $110)                                               11,975       11,322
  Prepaid expenses                                     10,587        8,465
  Other current assets                                  1,278        1,074
                                                   ----------   ----------
    Total current assets                               41,002       44,728
Equipment and leasehold improvements, net               7,321        7,391
Goodwill                                                2,643        2,643
Intangibles, net                                          764          828
Other long-term assets                                  4,007        4,461
                                                   ----------   ----------
    Total assets                                   $   55,737   $   60,051
                                                   ==========   ==========

                   LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
  Accounts payable                                 $    4,720   $    2,997
  Accrued compensation and related costs                4,005        5,555
  Unearned revenue                                     13,701       11,772
  Other current liabilities                             3,866        3,783
                                                   ----------   ----------
    Total current liabilities                          26,292       24,107
Long-term unearned revenue                              5,321        7,416
Other long-term liabilities                             2,267        1,625
                                                   ----------   ----------
    Total liabilities                                  33,880       33,148
                                                   ----------   ----------

Redeemable Series B convertible preferred stock,
 $0.01 par value; 5,000,000 shares authorized and
 designated; 3,631,547 and 3,745,070 shares issued
 and outstanding with a liquidation preference of
 $19,169 and $19,768 at June 28, 2008 and December
 29, 2007, respectively                                18,521       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; 10,640,381 and 9,885,458 shares
   issued at June 28, 2008 and December 29, 2007;
   and 10,485,348 and 9,735,492 outstanding at
   June 28, 2008 and December 29, 2007,
   respectively                                           106           99
  Additional paid-in capital                          178,056      172,483
  Accumulated deficit                                (169,982)    (158,548)
  Treasury stock, at cost, 155,033 and 149,966
   shares at June 28, 2008 and December 29, 2007       (1,174)      (2,731)
  Accumulated other comprehensive loss                 (3,670)      (3,500)
                                                   ----------   ----------
    Total stockholders' equity                          3,336        7,803
                                                   ----------   ----------
Total liabilities and stockholders' equity         $   55,737   $   60,051
                                                   ==========   ==========


                     eLoyalty Corporation
       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (Unaudited and in thousands)

                                                        For the
                                                    Six Months Ended
                                               --------------------------
                                                 June 28,       June 30,
                                                  2008            2007
                                               -----------     ----------
Cash Flows from Operating Activities:
  Net loss                                     $   (11,434)    $   (8,484)
  Adjustments to reconcile net loss to net
   cash (used in) provided by operating
   activities:
    Depreciation and amortization                    2,055          1,721
    Stock-based compensation                         8,813          6,062
    Provision for uncollectible amounts                (10)           152
  Changes in assets and liabilities:
    Receivables                                       (647)        (1,492)
    Prepaid expenses                                (1,099)        (3,720)
    Other assets                                      (343)           635
    Accounts payable                                 1,706          2,049
    Accrued compensation and related costs          (1,386)           722
    Unearned revenue                                  (209)         6,765
    Other liabilities                                 (488)          (693)
                                               -----------     ----------
      Net cash (used in) provided by operating
       activities                                   (3,042)         3,717
                                               -----------     ----------

Cash Flows from Investing Activities:
    Capital expenditures and other                    (435)        (2,191)
                                               -----------     ----------
      Net cash used in investing activities           (435)        (2,191)
                                               -----------     ----------

Cash Flows from Financing Activities:
  Acquisition of treasury stock                     (2,459)        (2,307)
  Increase in restricted cash                       (1,200)           (14)
  Payment of Series B dividends                       (669)          (737)
  Proceeds from stock compensation and employee
   stock purchase plans                                211            214
  Principal payments under capital lease
   obligations                                        (332)             -
  Other                                                  -             24
                                               -----------     ----------
    Net cash used in financing activities           (4,449)        (2,820)
                                               -----------     ----------

Effect of exchange rate changes on cash and
 cash equivalents                                       21           (164)
                                               -----------     ----------
Decrease in cash and cash equivalents               (7,905)        (1,458)
Cash and cash equivalents, beginning of period      21,412         31,645
                                               -----------     ----------
Cash and cash equivalents, end of period       $    13,507     $   30,187
                                               ===========     ==========

Non-Cash Investing and Financing Transactions:
  Capital lease obligations incurred           $     1,487     $        -
  Capital equipment purchased on credit              1,487              -
  Change in net unrealized security gain              (142)             -

Supplemental Disclosures of Cash Flow
 Information:
  Cash refunded for income taxes, net          $         -     $    1,155
  Interest paid                                       (241)             -



                          eLoyalty Corporation
               CALCULATION OF ADJUSTED EARNINGS MEASURE
                      (Unaudited and in thousands)

                                      For the                 For the
                                 Three Months Ended      Six Months Ended
                               ---------------------  --------------------
                                June 28,    June 30,   June 28,   June 30,
                                  2008        2007       2008       2007
                               ----------  ---------  ---------  ---------
GAAP - Operating loss          $   (7,272) $  (4,522) $ (11,467) $  (9,400)

  Add back (reduce) the effect
   of:
Stock-based compensation            4,986      2,455      8,768      6,062
Severance and related costs           283          -        452          -
Depreciation and amortization       1,092        948      2,055      1,721
                               ----------  ---------  ---------  ---------
Adjusted earnings measure -
 income (loss)                 $     (911) $  (1,119) $    (192) $  (1,617)
                               ==========  =========  =========  =========

Contact Information

  • Contact:
    eLoyalty Corporation
    Chris Min
    Vice President and Chief Financial Officer
    (847) 582-7222
    Email Contact