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