SOURCE: eLoyalty Corporation

August 05, 2009 16:20 ET

eLoyalty Announces Second Quarter 2009 Results

LAKE FOREST, IL--(Marketwire - August 5, 2009) - eLoyalty Corporation (NASDAQ: ELOY), a leading Integrated Contact Solutions and Behavioral Analytics™ Service and solutions company, today announced financial results for the second quarter ended June 27, 2009.

For the second quarter of 2009, total revenue was $23.1 million and the net loss was $1.9 million. The net loss available to common shareholders was $0.17 per share. eLoyalty realized "Adjusted Earnings(1)" income of $0.9 million for the second quarter of 2009. Adjusted Earnings is a non-GAAP measure. For a reconciliation of Adjusted Earnings 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)   6/27/2009 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
    Email Contact