SOURCE: eLoyalty Corporation

February 16, 2011 16:15 ET

eLoyalty Announces Fourth Quarter 2010 Results

LAKE FOREST, IL--(Marketwire - February 16, 2011) - eLoyalty Corporation (NASDAQ: ELOY), a leading Integrated Contact Solutions and Behavioral Analytics™ services company, today announced financial results for the fourth quarter ended January 1, 2011.

For the fourth quarter of 2010, total revenue was $22.8 million and the net loss was $2.3 million. The net loss available to common shareholders was $0.19 per share. eLoyalty realized "Adjusted Earnings(1)" income of $0.4 million for the fourth quarter of 2010. Adjusted Earnings is a non-GAAP measure. For a reconciliation of Adjusted Earnings to operating loss, see the accompanying schedule.

eLoyalty's normal quarterly accounting cycle is thirteen weeks. As this cycle does not align with a calendar year, every six years a fourteenth week is included in our fourth quarter. The impact of the fourteenth week in the fourth quarter of 2010 is shown below:

-- Favorably impacted Managed Services revenues by $0.7 million
-- Favorably impacted Consulting Services revenues by $0.1 million
-- Adversely impacted "Adjusted Earnings¹" by $0.3 million

The following is a summary of revenue by major component:

                        Three Months Ended          Twelve Months Ended
                    --------------------------  --------------------------
          (000's)   1/1/2011 12/26/2009 %Change 1/1/2011 12/26/2009 %Change
                    -------- ---------- ------  -------- ---------- ------
Revenue:
  Managed Services  $ 14,664 $   14,426      2% $ 54,096 $   49,864      8%
  Consulting
   Services            4,732      5,672    -17%   17,712     29,998    -41%
                    -------- ---------- ------  -------- ---------- ------
Services Revenue      19,396     20,098     -3%   71,808     79,862    -10%
  Product              2,375      2,933    -19%   12,581     17,780    -29%
                    -------- ---------- ------  -------- ---------- ------
Net Revenue           21,771     23,031     -5%   84,389     97,642    -14%
  Reimbursed
   expenses            1,048        975            3,715      3,971
                    -------- ---------- ------  -------- ---------- ------
Total Revenue       $ 22,819 $   24,006     -5% $ 88,104 $  101,613    -13%
                    ======== ========== ======  ======== ========== ======


Q4 Company Highlights
-- Signed $37.9 million of Managed Services contracts in the fourth quarter
-- Increased Managed Services Backlog(2) to a record $130.3 million
-- Grew Services revenues 3% on an adjusted sequential basis
-- Grew Managed Services revenues 3% on an adjusted sequential basis
-- Achieved $0.4 million of Adjusted Earnings(1)
-- Generated $5.5 million of cash

Q4 Behavioral Analytics™ Service Business Unit Highlights
-- Increased Managed Services Backlog(2) to a record $84.5 million
-- Signed $32.7 million of Managed Services contracts
-- Signed initial deployment with a leading energy retailer
-- Signed two contracts for new applications with existing customers
-- Signed two large renewals

Q4 Integrated Contact Solutions Business Unit Highlights
-- Achieved significant Business Unit profitability
-- Signed $5.2 million of Managed Services contracts
-- Grew Services revenues 3% on an adjusted sequential basis
-- Grew Managed Services revenues 6% on an adjusted sequential basis

First Quarter 2011 Guidance

eLoyalty currently expects its First Quarter 2011 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, February 16, 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 March 9, 2011, by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 38136094.

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: $50.6m in 2011; $39.2m in 2012; $23.9m in 2013; $16.6m in 2014 and thereafter.

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

                                        For the              For the
                                  Three Months Ended   Twelve Months Ended
                                  ------------------  --------------------
                                  Jan. 1,   Dec. 26,   Jan. 1,   Dec. 26,
                                    2011      2009       2011      2009
                                  --------  --------  ---------  ---------
Revenue:
    Services                      $ 19,396  $ 20,098  $  71,808  $  79,862
    Product                          2,375     2,933     12,581     17,780
                                  --------  --------  ---------  ---------
      Revenue before reimbursed
       expenses (net revenue)       21,771    23,031     84,389     97,642
    Reimbursed expenses              1,048       975      3,715      3,971
                                  --------  --------  ---------  ---------
Total revenue                       22,819    24,006     88,104    101,613
Operating expenses:
    Cost of services                11,067    12,828     43,333     52,442
    Cost of product                  1,844     2,344     10,360     14,814
                                  --------  --------  ---------  ---------
      Cost of revenue before
       reimbursed expenses          12,911    15,172     53,693     67,256
    Reimbursed expenses              1,048       975      3,715      3,971
Total cost of revenue, exclusive
 of depreciation and amortization
 shown below:                       13,959    16,147     57,408     71,227
    Selling, general and
     administrative                  9,730     9,141     38,793     35,163
    Severance and related costs        244       313      1,180      1,341
    Depreciation                     1,069     1,055      4,074      4,242
    Amortization of intangibles         15        37        144        223
                                  --------  --------  ---------  ---------
Total operating expenses            25,017    26,693    101,599    112,196
                                  --------  --------  ---------  ---------

Operating loss                      (2,198)   (2,687)   (13,495)   (10,583)
Interest and other (expense)
 income, net                           (55)      (40)      (120)        53
                                  --------  --------  ---------  ---------
Loss from continuing operations
 before income taxes                (2,253)   (2,727)   (13,615)   (10,530)
Income tax provision                   (35)      (28)       (93)       (44)
                                  --------  --------  ---------  ---------
Loss from continuing operations     (2,288)   (2,755)   (13,708)   (10,574)
Loss on discontinued operations          -       (46)      (136)       (46)
                                  --------  --------  ---------  ---------
Net loss                            (2,288)   (2,801)   (13,844)   (10,620)
Dividends related to Series B Stock   (317)     (323)    (1,273)    (1,292)
                                  --------  --------  ---------  ---------
Net loss available to common
 stockholders                     $ (2,605) $ (3,124) $ (15,117) $ (11,912)
                                  ========  ========  =========  =========
Per common share:
Basic loss from continuing
 operations                       $  (0.16) $  (0.21) $   (1.00) $   (0.80)
Basic loss from discontinued
 operations                       $      -  $      -  $   (0.01) $       -
                                  ========  ========  =========  =========
Basic net loss available to
 common stockholders              $  (0.19) $  (0.23) $   (1.10) $   (0.90)
                                  ========  ========  =========  =========

Per common share:
Diluted loss from continuing
 operations                       $  (0.16) $  (0.21) $   (1.00) $   (0.80)
                                  ========  ========  =========  =========
Diluted loss from discontinued
 operations                       $      -  $      -  $   (0.01) $       -
                                  ========  ========  =========  =========
Diluted net loss available to
 common stockholders              $  (0.19) $  (0.23) $   (1.10) $   (0.90)
                                  ========  ========  =========  =========

Shares used to calculate basic
 net loss per share                 13,874    13,365     13,701     13,255
                                  ========  ========  =========  =========
Shares used to calculate diluted
 net loss per share                 13,874    13,365     13,701     13,255
                                  ========  ========  =========  =========

Stock-based compensation,
 primarily restricted stock, is
 included in individual line
 items above:
    Cost of services              $     11  $     85  $     106  $     504
    Selling, general and
     administrative                  1,283     1,531      5,622      5,793
    Severance and related costs          -         -         76        248





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

                                                      January 1,  December
                                                        2011      26, 2009
                                                      ---------  ---------
                        ASSETS:
Current Assets:
    Cash and cash equivalents                         $  20,872  $  28,982
    Restricted cash                                       2,460      3,745
    Receivables, (net of allowances of $85 and $151)      8,613      9,313
    Prepaid expenses                                     13,746     10,126
    Other current assets                                    892        944
    Total current assets                                 46,583     53,110
Equipment and leasehold improvements, net                 5,867      6,194
Goodwill                                                  2,643      2,643
Intangibles, net                                            428        476
Other long-term assets                                   10,671      8,180
    Total assets                                      $  66,192  $  70,603

    LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current Liabilities:
    Accounts payable                                  $   2,498  $   3,634
    Accrued compensation and related costs                3,033      5,762
    Unearned revenue                                     24,212     20,436
    Other current liabilities                             4,983      5,067
    Total current liabilities                            34,726     34,899
Long-term unearned revenue                               15,928      9,526
Other long-term liabilities                               1,592      1,705
    Total liabilities                                    52,246     46,130

Redeemable Series B Stock, $0.01 par value; 5,000,000
 shares authorized and designated; 3,549,078 and
 3,616,169 shares issued and outstanding at January
 1, 2011 and December 26, 2009, respectively, with a
 liquidation preference of $19,367 and $19,733 at
 January 1, 2011 and December 26, 2009, respectively     18,100     18,442

Stockholders' (Deficit) 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; 15,642,822 and 14,871,521 shares issued
     at January 1, 2011, and December 26, 2009,
     respectively; and 14,786,005 and 14,220,279
     outstanding at January 1, 2011 and December 26,
     2009, respectively                                     156        149
    Additional paid-in capital                          208,511    203,627
    Accumulated deficit                                (204,665)  (190,821)
    Treasury stock, at cost, 856,817 and 651,242
     shares at January 1, 2011 and December 26,
     2009, respectively                                  (4,468)    (3,295)
    Accumulated other comprehensive loss                 (3,688)    (3,629)
                                                      ---------  ---------
    Total stockholders' (deficit) equity                 (4,154)     6,031
                                                      ---------  ---------
    Total liabilities and stockholders' (deficit)
     equity                                           $  66,192  $  70,603
                                                      =========  =========


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

                                                              For the
                                                       Twelve Months Ended
                                                        ------------------
                                                       January 1, December
                                                         2011     26, 2009
                                                        --------  --------
Cash Flows from Operating Activities:
    Net loss                                            $(13,844) $(10,620)
    Adjustments to reconcile net loss to net cash (used
     in) provided by operating activities:
        Depreciation and amortization                      4,218     4,465
        Stock-based compensation                           5,728     6,297
        Loss on discontinued operations                      136        46
        (Reversal) provision for uncollectible amounts       (78)       82
        Severance and related costs                           94       270
        Deferred income taxes                                  1         7
    Changes in assets and liabilities:
        Receivables                                          750       668
        Prepaid expenses                                  (6,311)   (6,395)
        Other assets                                          54       (60)
        Accounts payable                                  (1,136)     (273)
        Accrued compensation and related costs            (2,728)      737
        Unearned revenue                                  10,200    13,145
        Other liabilities                                    (95)     (626)
                                                        --------  --------
            Net cash (used in) provided by operating
             activities                                   (3,011)    7,743
                                                        --------  --------

Cash Flows from Investing Activities:
    Capital expenditures and other                        (2,812)   (3,327)
    Proceeds from sale/leaseback of assets                   423         -
    Sale of short-term investments                             -       337
                                                        --------  --------
            Net cash used in investing activities         (2,389)   (2,990)
                                                        --------  --------

Cash Flows from Financing Activities:
    Principal payments under capital lease obligations    (1,688)   (1,384)
    Payment of Series B Stock dividends                   (1,297)     (649)
    Acquisition of treasury stock                         (1,173)     (838)
    Decrease (increase) in restricted cash                 1,285       (90)
    Proceeds from stock compensation and employee stock
     purchase plans, net                                     202       141
                                                        --------  --------
            Net cash used in financing activities         (2,671)   (2,820)
                                                        --------  --------

Effect of exchange rate changes on cash and cash
 equivalents                                                 (39)      (15)
                                                        --------  --------
(Decrease) increase in cash and cash equivalents          (8,110)    1,918
Cash and cash equivalents, beginning of period            28,982    27,064
                                                        --------  --------
Cash and cash equivalents, end of period                $ 20,872  $ 28,982
                                                        ========  ========

Non-Cash Investing and Financing Transactions:
    Capital lease obligations incurred                  $  1,398  $    869
    Capital equipment purchased on credit                  1,398       869
    Change in net unrealized security loss                     -      (108)

Supplemental Disclosures of Cash Flow Information:
    Interest paid                                       $   (157) $   (356)




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

                                           For the            For the
                                     Three Months Ended Twelve Months Ended
                                      ----------------  ------------------
                                       Jan. 1, Dec. 26,  Jan. 1,  Dec. 26,
                                        2011     2009      2011     2009
                                      -------  -------  --------  --------
GAAP - Operating loss                 $(2,198) $(2,687) $(13,495) $(10,583)

    Add back (reduce) the effect of:
Stock-based compensation                1,294    1,616     5,728     6,297
Severance and related costs               244      313     1,180     1,341
Depreciation and amortization           1,084    1,092     4,218     4,465
                                      -------  -------  --------  --------
Adjusted earnings measure - income
 (loss)                               $   424  $   334  $ (2,369) $  1,520

Contact Information

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