SOURCE: eLoyalty Corporation

May 12, 2011 16:15 ET

eLoyalty Announces First Quarter 2011 Results

LAKE FOREST, IL--(Marketwire - May 12, 2011) - eLoyalty Corporation (NASDAQ: ELOY), a leading Behavioral Analytics services and Integrated Contact Solutions company, today announced financial results for the first quarter ended April 2, 2011.

On March 17, 2011, eLoyalty Corporation signed a definitive agreement to sell its Integrated Contact Solutions ("ICS") business unit and "eLoyalty" registered trademark / trade name to a subsidiary of TeleTech Holdings, Inc. As a result, the company has classified the ICS business unit as discontinued operations and the associated results of operations, financial position, and cash flows have been separately recorded as appropriate.

The table below describes the Q1 2011 performance of each of eLoyalty's business units:

                          Behavioral
                          Analytics       ICS           Total
                        ------------- ------------- -------------
Services Revenues          $6.5m         $10.8m        $17.3m
Total Revenues             $6.6m         $13.7m        $20.3m
Business Unit Margin      ($0.8m)        $2.1m          $1.3m

The company incurred General and Administrative costs in Q1 of approximately $3.4 million, excluding stock-based compensation costs of $0.3 million. This total includes approximately $1.5 million of costs related to the ICS divestiture.

ICS Divestiture

Subject to the vote of eLoyalty's shareholders on May 19th and other customary closing conditions, eLoyalty expects to complete the ICS divestiture prior to the end of Q2 2011. The proceeds of this transaction, after adjustments for prepaid contracts and working capital, are currently expected to be approximately $34.5 million. Transaction costs and taxes associated with this divestiture are estimated to be approximately $4.2 million.

Mattersight Launch

Upon completion of the divesture of the ICS business, the remaining entity will operate under the name Mattersight Corporation. Mattersight™ will be a leader in enterprise analytics as a service. The cornerstone of the company's business is its Behavioral Analytics Service. Behavioral Analytics captures, analyzes, and creates insight from unstructured conversations, emails, and employee desktop activity.

Mattersight has the foundational building blocks in place to become a highly successful company, including:

--  Enterprise Analytics Footprint: The company applies
    millions of proprietary algorithms to previously
    unstructured and unanalyzed customer and employee
    interactions. The company's analytics are used in service,
    sales and collections calls centers. The company has also
    deployed analytics applications for Fraud; Customer
    Retention and the Back Office.

--  Analytics as a Service in the Cloud: Mattersight's
    analytics are delivered in the cloud and virtually all of the
    company's revenues are recurring.

--  Significant Returns for Our Customers: The company's
    unique analytics and delivery model generates 2x to 10x
    returns for the company's customers.

--  Impressive Customer List: The company has built an
    impressive customer list including, 3 of the top 5 HMOs; 3
    of the top 4 Property & Casualty companies; the 3rd largest
    retail bank; and 1 of the 2 largest Prescription Benefit
    Management companies.

--  Large and Sticky Customer Relationships: The company's
    average revenue per customer is in excess of $1 million per year.
    The company's typical contract is between $3 million and $20
    million and runs for an initial duration of 3 to 5 years, with a
    number of the company's earliest customers having signed
    extensions of an additional 3 to 5 years.

--  Significant Revenue Visibility: The company has Contract
    Backlog¹ of $80.1 million, and its revenue retention rate is 95%.

--  Increasing Revenue Momentum: The company signed
    approximately $42 million of contracts in the last three
    quarters and continues to have a strong pipeline.

Mattersight will operate under the "See What Matters™" tagline and will launch its new brand immediately following the closing of the ICS divestiture. Mattersight's trading symbol for its common stock on the Nasdaq Global Market will be "MATR".

Mattersight Overview and Outlook

Based on strong bookings the company achieved in the last two quarters of 2010, and its continuing strong pipeline, the company expects Mattersight to achieve a significant increase in its subscription revenues over the remainder of 2011.

The strong revenue growth over the next three quarters is expected to drive significant operating leverage. Offsetting some of this increased operating leverage, will be the investments the company expects to make to build Mattersight's sales team and develop additional product functionality.

In addition, the company expects to significantly reduce Mattersight's G&A costs. These costs, excluding stock-based compensation, are expected to decrease from $1.9 million in Q1 2011 to approximately $1.4 million in Q4 2011 (stock-based compensation is anticipated to be $0.2 million in Q4 2011).

Q2 Guidance

The company currently expects its Q2 Behavioral Analytics services revenues will be approximately $6.7 million and its Q2 ICS services revenues will be approximately $12.0 million.

Conference Call Information

eLoyalty management will host a conference call at 5:00 p.m. ET on Thursday, May 12, 2011. 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 26, 2011, by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 59884355.

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.

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: $19.6m in 2011; $27.0m in 2012; $19.4m in 2013; $14.1m in 2014 and thereafter.



                      eLoyalty Corporation
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
        (Unaudited and in thousands, except per share data)

                                                          For the
                                                     Three Months Ended
                                                  ------------------------
                                                    April 2,    March 27,
                                                      2011        2010
                                                  -----------  -----------
Revenue:
  Services revenue                                $     6,547 $      7,997
  Reimbursed expenses                                      77          199
                                                  -----------  -----------
Total revenue                                           6,624        8,196
Operating expenses:
  Cost of services                                      3,104        4,372
  Reimbursed expenses                                      77          199
                                                  -----------  -----------
Total cost of revenue, exclusive of depreciation
 and amortization shown below:                          3,181        4,571
  Sales, marketing and development                      5,358        5,123
  General and administrative                            2,263        2,154
  Severance and related costs                               4           70
  Depreciation and amortization                           775          980
                                                  -----------  -----------
Total operating expenses                               11,581       12,898
                                                  -----------  -----------

Operating loss                                         (4,957)      (4,702)
Interest and other income, net                            131          109
                                                  -----------  -----------
Loss from continuing operations before income
 taxes                                                 (4,826)      (4,593)
Income tax benefit (provision)                             65          (21)
                                                  -----------  -----------
Loss from continuing operations                        (4,761)      (4,614)
Income (loss) on discontinued operations, net of
 tax of $91                                               122         (452)
                                                  -----------  -----------
Net loss                                               (4,639)      (5,066)
Dividends related to Series B Stock                      (317)        (323)
                                                  -----------  -----------
Net loss available to common stockholders         $    (4,956) $    (5,389)
                                                  ===========  ===========

Per common share:
Basic loss from continuing operations             $     (0.34) $     (0.34)
Basic income (loss) from discontinued operations  $      0.01  $     (0.03)
                                                  ===========  ===========
Basic net loss available to common stockholders   $     (0.36) $     (0.40)
                                                  ===========  ===========
Per common share:
Diluted loss from continuing operations           $     (0.34) $     (0.34)
                                                  ===========  ===========
Diluted income (loss) from discontinued
 operations                                       $      0.01  $     (0.03)
                                                  ===========  ===========
Diluted net loss available to common stockholders $     (0.36) $     (0.40)
                                                  ===========  ===========

Shares used to calculate basic net loss per share      13,953       13,458
                                                  ===========  ===========
Shares used to calculate diluted net loss per
 share                                                 13,953       13,458
                                                  ===========  ===========

Stock-based compensation, primarily restricted
 stock, is included in individual line items
 above:
  Cost of services                                $         7  $        28
  Sales, marketing and development                      1,100          774
  General and administrative                              322          293
  Discontinued operations                                  77          464




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

                                                    April 2,    January 1,
                                                      2011        2011
                                                  -----------  -----------
                            ASSETS:
Current Assets:
  Cash and cash equivalents                       $    17,941  $    20,872
  Restricted cash                                       2,460        2,460
  Receivables (net of allowances of $9 and $10)         1,781        2,041
  Prepaid expenses                                      4,536        4,303
  Other current assets                                    307          296
  Current assets held for sale                         25,334       26,946
                                                  -----------  -----------
      Total current assets                             52,359       56,918
Equipment and leasehold improvements, net               4,465        4,397
Goodwill                                                  972          972
Intangibles, net                                          319          323
Other long-term assets                                  4,859        3,582
                                                  -----------  -----------
Total assets                                      $    62,974  $    66,192
                                                  ===========  ===========

            LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities:
  Accounts payable                                $     1,852  $       372
  Accrued compensation and related costs                1,842        2,048
  Unearned revenue                                      9,801        7,884
  Other current liabilities                             4,839        4,262
  Current liabilities held for sale                    28,172       31,433
                                                  -----------  -----------
      Total current liabilities                        46,506       45,999
Long-term unearned revenue                              4,740        4,686
Other long-term liabilities                             1,612        1,561
                                                  -----------  -----------
      Total liabilities                                52,858       52,246
                                                  -----------  -----------

Series B Stock, $0.01 par value; 5,000,000 shares
 authorized and designated; 3,549,078 and
 3,549,078 shares issued and outstanding at
 April 2, 2011 and January 1, 2011, respectively,
 with a liquidation preference of $19,684 and
 $19,367 at April 2, 2011 and January 1, 2011,
 respectively                                          18,100       18,100

Stockholders' Deficit:
  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; 16,520,330 and 15,642,822 shares
   issued at April 2, 2011, and at January 1, 2011,
   respectively; and 15,619,175 and 14,786,005
   outstanding at April 2, 2011 and January 1, 2011,
   respectively                                           165          156
  Additional paid-in capital                          209,179      207,985
  Accumulated deficit                                (208,778)    (204,139)
  Treasury stock, at cost, 901,155 and 856,817
   shares at April 2, 2011 and January 1, 2011,
   respectively                                        (4,770)      (4,468)
  Accumulated other comprehensive loss                 (3,780)      (3,688)
                                                  -----------  -----------
      Total stockholders' deficit                      (7,984)      (4,154)
                                                  -----------  -----------
      Total liabilities and stockholders' deficit $    62,974  $    66,192
                                                  ===========  ===========



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

                                                          For the
                                                     Three Months Ended
                                                  ------------------------
                                                    April 2,    March 27,
                                                      2011        2010
                                                  -----------  -----------
Cash Flows from Operating Activities:
  Net loss                                        $    (4,639) $    (5,066)
  Less: net income (loss) from discontinued
   operations                                             122         (452)
                                                  -----------  -----------
  Net loss from continuing operations                  (4,761)      (4,614)
  Adjustments to reconcile net loss from
   continuing operations to net cash (used in)
   provided by operating activities:
      Depreciation and amortization                       776          980
      Stock-based compensation                          1,429        1,095
      Reversal for uncollectible amounts                   (1)          (2)
      Severance and related costs                           6            5
      Other                                               (91)           -
  Changes in assets and liabilities:
      Receivables                                         266        1,458
      Prepaid expenses                                 (1,533)         476
      Other assets                                        (17)           7
      Accounts payable                                    881          294
      Accrued compensation and related costs             (160)        (465)
      Unearned revenue                                  1,970         (715)
      Other liabilities                                  (105)         (56)
                                                  -----------  -----------
        Total adjustments                               3,421        3,077
                                                  -----------  -----------
           Net cash used in continuing operations      (1,340)      (1,537)
           Net cash (used in) provided by
            discontinued operations                      (378)       1,355
                                                  -----------  -----------
           Net cash used in operating activities       (1,718)        (182)
                                                  -----------  -----------

Cash Flows from Investing Activities:
  Capital expenditures and other                         (206)         (76)
                                                  -----------  -----------
           Net cash used in continuing investing
            activities                                   (206)         (76)
           Net cash used in discontinued investing
            activities                                   (158)        (636)
                                                  -----------  -----------
           Net cash used in investing activities         (364)        (712)
                                                  -----------  -----------

Cash Flows from Financing Activities:
  Principal payments under capital lease
   obligations                                           (444)        (372)
  Payment of Series B Stock dividends                       -         (646)
  Acquisition of treasury stock                          (302)        (464)
  Proceeds from stock compensation and employee
   stock purchase plans, net                               34           34
                                                  -----------  -----------
           Net cash used in continuing financing
            activities                                   (712)      (1,448)
           Net cash used in discontinued financing
            activities                                    (29)         (27)
                                                  -----------  -----------
           Net cash used in financing activities         (741)      (1,475)
                                                  -----------  -----------

Effect of exchange rate changes on cash and cash
 equivalents by continuing operations                     (86)        (108)
Effect of exchange rate changes on cash and cash
 equivalents by discontinued operations                   (22)           6
                                                  -----------  -----------
Effect of exchange rate changes on cash and cash
 equivalents                                             (108)        (102)
                                                  -----------  -----------
Decrease in cash and cash equivalents                  (2,931)      (2,471)
Cash and cash equivalents, beginning of period         20,872       28,982
                                                  -----------  -----------
Cash and cash equivalents of continuing
 operations, end of period                        $    17,941  $    26,511
                                                  ===========  ===========
Non-Cash Investing and Financing Transactions:
  Capital lease obligations incurred              $       639  $       108
  Capital equipment purchased on credit                   639          108

Supplemental Disclosures of Cash Flow Information:
  Interest paid                                   $        39  $        48
                                                  ===========  ===========

Contact Information

  • Contact:
    eLoyalty Corporation
    Bill Noon
    Vice President, Chief Financial Officer
    (847) 582-7019
    Email Contact