Three Months Ended Six Months Ended
--------------------------- ---------------------------
% %
(000's) 6/27/2009 6/28/2008 Change 6/27/2009 6/28/2008 Change
--------- --------- ------ --------- --------- ------
Revenue:
Managed Services $ 11,607 $ 9,433 23% $ 22,787 $ 20,204 13%
Consulting
Services 9,643 8,786 10% 17,289 19,367 -11%
--------- --------- ------ --------- --------- ------
Services Revenue 21,250 18,219 17% 40,076 39,571 1%
Product 832 3,117 -73% 12,870 4,895 163%
--------- --------- ------ --------- --------- ------
Net Revenue 22,082 21,336 3% 52,946 44,466 19%
Reimbursed
expenses 1,019 808 1,963 1,546
--------- --------- ------ --------- --------- ------
Total Revenue $ 23,101 $ 22,144 4% $ 54,909 $ 46,012 19%
--------- --------- ------ --------- --------- ------
Q2 2009 Highlights
-- 13% sequential Services revenue growth
-- Record $16.7 million of combined ICS and Behavioral Analytics™
Service revenues
-- Record $11.6 million of Managed Services revenues
-- Record $108.9 million Managed Services Backlog(2)
-- 14% sequential gross margin expansion
-- Achieved $879 thousand of Adjusted Earnings(1)
-- Increased total cash balance by $9.1 million
Third Quarter 2009 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.
eLoyalty currently expects its Third Quarter 2009 Services revenues will be
approximately $19.5 million.
Conference Call Information
eLoyalty management will host a conference call at 5:00 p.m. ET on
Wednesday, August 5, 2009. 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 August 19, 2009 by dialing (800) 642-1687 or,
for international callers, (706) 645-9291 and entering conference ID number
20745677.
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 lesser 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: $23.8m in 2009;
$34.3m in 2010; $24.3m in 2011; $26.5m in 2012 and thereafter.
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 27, June 28, June 27, June 28,
2009 2008 2009 2008
-------- -------- -------- --------
Revenue:
Services $ 21,250 $ 18,219 $ 40,076 $ 39,571
Product 832 3,117 12,870 4,895
-------- -------- -------- --------
Revenue before reimbursed
expenses (net revenue) 22,082 21,336 52,946 44,466
Reimbursed expenses 1,019 808 1,963 1,546
-------- -------- -------- --------
Total revenue 23,101 22,144 54,909 46,012
Operating expenses:
Cost of services 12,791 13,576 25,520 26,925
Cost of product 716 2,423 11,117 3,824
-------- -------- -------- --------
Cost of revenue before
reimbursed expenses 13,507 15,999 36,637 30,749
Reimbursed expenses 1,019 808 1,963 1,546
-------- -------- -------- --------
Total cost of revenue, exclusive of
depreciation and amortization
shown below: 14,526 16,807 38,600 32,295
Selling, general and
administrative 9,037 11,234 18,739 22,677
Severance and related costs 108 283 752 452
Depreciation and amortization 1,262 1,092 2,259 2,055
-------- -------- -------- --------
Total operating expenses 24,933 29,416 60,350 57,479
-------- -------- -------- --------
Operating loss (1,832) (7,272) (5,441) (11,467)
Interest and other (expense)
income, net (15) 4 (194) 82
-------- -------- -------- --------
Loss before income taxes (1,847) (7,268) (5,635) (11,385)
Income tax provision (16) (16) (34) (49)
-------- -------- -------- --------
Net loss (1,863) (7,284) (5,669) (11,434)
Dividends related to Series B
convertible preferred stock (324) (325) (647) (649)
-------- -------- -------- --------
Net loss available to common
stockholders $ (2,187) $ (7,609) $ (6,316) $(12,083)
======== ======== ======== ========
Basic net loss per common share $ (0.17) $ (0.80) $ (0.48) $ (1.31)
======== ======== ======== ========
Diluted net loss per common share $ (0.17) $ (0.80) $ (0.48) $ (1.31)
======== ======== ======== ========
Shares used to calculate basic
net loss per share 13,250 9,454 13,168 9,258
======== ======== ======== ========
Shares used to calculate diluted
net loss per share 13,250 9,454 13,168 9,258
======== ======== ======== ========
Stock-based compensation, primarily
restricted stock, is included in
individual line items above:
Cost of services $ 49 $ 1,640 $ 385 $ 2,000
Selling, general and
administrative 1,292 3,346 3,040 6,768
Severance and related costs — — 248 45
eLoyalty Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
June 27, December 27,
2009 2008
-------- --------
ASSETS:
Current Assets:
Cash and cash equivalents $ 27,409 $ 27,064
Restricted cash 3,759 3,655
Receivables, (net of allowances of $100 and $107) 12,037 10,005
Prepaid expenses 12,844 7,783
Other current assets 1,608 1,251
-------- --------
Total current assets 57,657 49,758
Equipment and leasehold improvements, net 7,316 6,424
Goodwill 2,643 2,643
Intangibles, net 509 611
Other long-term assets 8,809 4,787
-------- --------
Total assets $ 76,934 $ 64,223
======== ========
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Accounts payable $ 4,334 $ 3,904
Accrued compensation and related costs 5,510 4,994
Unearned revenue 19,933 11,525
Other current liabilities 4,710 4,647
-------- --------
Total current liabilities 34,487 25,070
Long-term unearned revenue 12,147 5,274
Other long-term liabilities 2,322 2,572
-------- --------
Total liabilities 48,956 32,916
-------- --------
Redeemable Series B convertible preferred stock,
$0.01 par value; 5,000,000 shares authorized and
designated; 3,617,332 and 3,619,537 shares issued
and outstanding with a liquidation preference of
$19,741 and $19,107 at June 27, 2009 and December
27, 2008, respectively 18,448 18,460
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; 14,817,721 and 14,152,702 shares issued
at June 27, 2009 and December 27, 2008,
respectively; and 14,202,262 and 13,661,746
outstanding at June 27, 2009 and December 27,
2008, respectively 148 142
Additional paid-in capital 201,549 198,853
Accumulated deficit (185,870) (180,201)
Treasury stock, at cost, 615,459 and 490,956
shares at June 27, 2009 and December 27, 2008,
respectively (3,018) (2,457)
Accumulated other comprehensive loss (3,279) (3,490)
-------- --------
Total stockholders’ equity 9,530 12,847
-------- --------
Total liabilities and stockholders’ equity $ 76,934 $ 64,223
======== ========
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the
Six Months Ended
----------------------
June 27, June 28,
2009 2008
---------- ----------
Cash Flows from Operating Activities:
Net loss $ (5,669) $ (11,434)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,259 2,055
Stock-based compensation 3,425 8,768
Provision for uncollectible amounts 11 (10)
Severance and related costs 248 45
Changes in assets and liabilities:
Receivables (2,014) (647)
Prepaid expenses (9,510) (1,099)
Other assets (132) (343)
Accounts payable 430 1,706
Accrued compensation and related costs 502 (1,386)
Unearned revenue 15,266 (209)
Other liabilities (808) (488)
---------- ----------
Net cash provided by (used in) operating
activities 4,008 (3,042)
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures and other (2,476) (435)
---------- ----------
Net cash used in investing activities (2,476) (435)
---------- ----------
Cash Flows from Financing Activities:
Acquisition of treasury stock (561) (2,459)
Increase in restricted cash (104) (1,200)
Payment of Series B convertible preferred stock
dividends (2) (669)
Proceeds from stock options and employee stock
purchase plans 65 211
Principal payments under capital lease obligations (627) (332)
---------- ----------
Net cash used in financing activities (1,229) (4,449)
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents 42 21
---------- ----------
Increase (decrease) in cash and cash equivalents 345 (7,905)
Cash and cash equivalents, beginning of period 27,064 21,412
---------- ----------
Cash and cash equivalents, end of period $ 27,409 $ 13,507
========== ==========
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred $ 617 $ 1,487
Capital equipment purchased on credit 617 1,487
Change in net unrealized security gain (loss) 181 (142)
Supplemental Disclosures of Cash Flow Information:
Interest paid $ (224) $ (241)
eLoyalty Corporation
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
For the For the
Three Months Ended Six Months Ended
-------------------- -------------------
June 27, June 28, June 27, June 28,
2009 2008 2009 2008
--------- --------- --------- ---------
GAAP — Operating loss $ (1,832) $ (7,272) $ (5,441) $ (11,467)
Add back (reduce) the effect of:
Stock-based compensation 1,341 4,986 3,425 8,768
Severance and related costs 108 283 752 452
Depreciation and amortization 1,262 1,092 2,259 2,055
--------- --------- --------- ---------
Adjusted earnings measure —
income (loss) $ 879 $ (911) $ 995 $ (192)
========= ========= ========= =========
Contact Information: Contact: eLoyalty Corporation Bill Noon Vice President, Chief Financial Officer (847) 582-7019