eLoyalty Announces Third Quarter 2009 Results


LAKE FOREST, IL--(Marketwire - November 4, 2009) - eLoyalty Corporation (NASDAQ: ELOY), a leading Integrated Contact Solutions and Behavioral Analytics™ Service and solutions company, today announced financial results for the third quarter ended September 26, 2009.

For the third quarter of 2009, total revenue was $22.7 million and the net loss was $2.2 million. The net loss available to common shareholders was $0.19 per share. eLoyalty realized "Adjusted Earnings(1)" income of $0.2 million for the third 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          Nine Months Ended
                    --------------------------- ---------------------------
                                          %                           %
       (000's)      9/26/2009 9/27/2008 Change  9/26/2009 9/27/2008 Change
                    --------- --------- ------  --------- --------- ------
Revenue:
  Managed Services  $  12,651 $  10,516     20% $  35,438 $  30,720     15%
  Consulting
   Services             7,037     7,682     -8%    24,326    27,049    -10%
                    ========= ========= ======  ========= ========= ======
Services Revenue       19,688    18,198      8%    59,764    57,769      3%
  Product               1,977       956    107%    14,847     5,851    154%
                    --------- --------- ------  --------- --------- ------
Net Revenue            21,665    19,154     13%    74,611    63,620     17%
  Reimbursed
   expenses             1,033       941             2,996     2,487
                    --------- --------- ------  --------- --------- ------
Total Revenue       $  22,698 $  20,095     13% $  77,607 $  66,107     17%
                    --------- --------- ------  --------- --------- ------

Q3 2009 Highlights

--  Achieved record $12.7m of Managed Services Revenues
--  Realized 18% sequential growth in BA Subscriptions
--  Experienced record ICS Managed Services Revenues
--  Achieved strong year over year P&L improvement
--  Generated $2.0m Cash
--  Increased Managed Services Backlog(2) by 46% year over year
    

Fourth 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 Fourth Quarter 2009 Services revenues will be approximately $20.0 million.

Conference Call Information

eLoyalty management will host a conference call at 5:00 p.m. ET on Wednesday, November 4, 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 November 19, 2009 by dialing (800) 642-1687 or, for international callers, (706) 645-9291 and entering conference ID number 36091484.

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:  $13.1m in 2009; $36.5m in 2010;
    $24.6m in 2011; $28.0m 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  Nine Months Ended
                                    ------------------  ------------------
                                    Sept. 26, Sept. 27, Sept. 26, Sept. 27,
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Revenue:
  Services                          $ 19,688  $ 18,198  $ 59,764  $ 57,769
  Product                              1,977       956    14,847     5,851
                                    --------  --------  --------  --------
    Revenue before reimbursed
     expenses (net revenue)           21,665    19,154    74,611    63,620
  Reimbursed expenses                  1,033       941     2,996     2,487
                                    --------  --------  --------  --------
Total revenue                         22,698    20,095    77,607    66,107

Operating expenses:
  Cost of services                    12,507    11,673    38,027    38,598
  Cost of product                      1,353     1,041    12,470     4,865
                                    --------  --------  --------  --------
    Cost of revenue before
     reimbursed expenses              13,860    12,714    50,497    43,463
  Reimbursed expenses                  1,033       941     2,996     2,487
                                    --------  --------  --------  --------
Total cost of revenue, exclusive of
 depreciation and amortization
 shown below:                         14,893    13,655    53,493    45,950
  Selling, general and
   administrative                      8,870    10,608    27,609    33,285
  Severance and related costs            276       686     1,028     1,138
  Depreciation and amortization        1,114     1,094     3,373     3,149
                                    --------  --------  --------  --------
Total operating expenses              25,153    26,043    85,503    83,522
                                    --------  --------  --------  --------

Operating loss                        (2,455)   (5,948)   (7,896)  (17,415)
Interest and other income
 (expense), net                          287       (95)       93       (13)
                                    --------  --------  --------  --------
Loss before income taxes              (2,168)   (6,043)   (7,803)  (17,428)
Income tax benefit (provision)            18       (27)      (16)      (76)
                                    --------  --------  --------  --------
Net loss                              (2,150)   (6,070)   (7,819)  (17,504)
Dividends related to Series B
 convertible preferred stock            (322)     (324)     (969)     (973)
                                    --------  --------  --------  --------
Net loss available to common
 stockholders                       $ (2,472) $ (6,394) $ (8,788) $(18,477)
                                    ========  ========  ========  ========

Basic net loss per common share     $  (0.19) $  (0.63) $  (0.66) $  (1.93)
                                    ========  ========  ========  ========
Diluted net loss per common share   $  (0.19) $  (0.63) $  (0.66) $  (1.93)
                                    ========  ========  ========  ========

Shares used to calculate basic net
 loss per share                       13,317    10,171    13,218     9,562
                                    ========  ========  ========  ========
Shares used to calculate diluted
 net loss per share                   13,317    10,171    13,218     9,562
                                    ========  ========  ========  ========

Stock-based compensation, primarily
 restricted stock, is included in
 individual line items above:
  Cost of services                  $     34  $    682  $    419  $  2,682
  Selling, general and
   administrative                      1,222     2,376     4,262     9,144
  Severance and related costs              -        58       248       103








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

                                              September 26,  December 27,
                                                   2009          2008
                                              -------------  -------------
                    ASSETS:
Current Assets:
  Cash and cash equivalents                   $      29,397  $      27,064
  Restricted cash                                     3,746          3,655
  Receivables, (net of allowances of $79
   and $107)                                         11,394         10,005
  Prepaid expenses                                   11,518          7,783
  Other current assets                                2,309          1,251
                                              -------------  -------------
    Total current assets                             58,364         49,758
Equipment and leasehold improvements, net             6,978          6,424
Goodwill                                              2,643          2,643
Intangibles, net                                        493            611
Other long-term assets                                8,905          4,787
                                              -------------  -------------
    Total assets                              $      77,383  $      64,223
                                              =============  =============

       LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
  Accounts payable                            $       3,638  $       3,904
  Accrued compensation and related costs              5,979          4,994
  Unearned revenue                                   20,981         11,525
  Other current liabilities                           4,859          4,647
                                              -------------  -------------
    Total current liabilities                        35,457         25,070
Long-term unearned revenue                           13,522          5,274
Other long-term liabilities                           2,060          2,572
                                              -------------  -------------
    Total liabilities                                51,039         32,916
                                              -------------  -------------

Redeemable Series B convertible preferred
 stock, $0.01 par value; 5,000,000 shares
 authorized and designated; 3,617,309 and
 3,619,537 shares issued and outstanding
 with a liquidation preference of $19,417
 and $19,107 at September 26, 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; 14,843,887 and
   14,152,702 shares issued at September 26,
   2009 and December 27, 2008, respectively;
   and 14,210,245 and 13,661,746 outstanding
   at September 26, 2009 and December 27,
   2008, respectively                                   148            142
  Additional paid-in capital                        202,477        198,853
  Accumulated deficit                              (188,020)      (180,201)
  Treasury stock, at cost, 633,642 and
   490,956 shares at September 26, 2009 and
   December 27, 2008, respectively                   (3,172)        (2,457)
  Accumulated other comprehensive loss               (3,537)        (3,490)
                                              -------------  -------------
    Total stockholders' equity                        7,896         12,847
                                              -------------  -------------
    Total liabilities and stockholders'
     equity                                   $      77,383  $      64,223
                                              =============  =============




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

                                                        For the
                                                  Nine Months Ended
                                              ----------------------------
                                                Sept. 26,      Sept. 27,
                                                  2009           2008
                                              -------------  -------------
Cash Flows from Operating Activities:
  Net loss                                    $      (7,819) $     (17,504)
  Adjustments to reconcile net loss to net
   cash provided by operating activities:
    Depreciation and amortization                     3,373          3,149
    Stock-based compensation                          4,681         11,826
    Provision for uncollectible amounts                  10            (16)
    Severance and related costs                         248            229
  Changes in assets and liabilities:
    Receivables                                      (1,339)         2,110
    Prepaid expenses                                 (8,323)          (325)
    Other assets                                     (1,456)        (2,836)
    Accounts payable                                   (270)         2,391
    Accrued compensation and related costs              957           (903)
    Unearned revenue                                 17,678          2,081
    Other liabilities                                  (502)             2
                                              -------------  -------------
      Net cash provided by operating
       activities                                     7,238            204
                                              -------------  -------------

Cash Flows from Investing Activities:
  Capital expenditures and other                     (2,987)          (641)
  Sale of short-term investments                        337              -
                                              -------------  -------------
      Net cash used in investing activities          (2,650)          (641)
                                              -------------  -------------

Cash Flows from Financing Activities:
  Principal payments under capital lease
   obligations                                         (994)          (538)
  Acquisition of treasury stock                        (715)        (3,123)
  Payment of Series B convertible preferred
   stock dividends                                     (648)        (1,317)
  Increase in restricted cash                           (91)        (1,200)
  Proceeds from stock options and employee
   stock purchase plans                                 112            287
  Rights offering, net                                    -         14,898
                                              -------------  -------------
      Net cash (used in) provided by financing
       activities                                    (2,336)         9,007
                                              -------------  -------------

Effect of exchange rate changes on cash and
 cash equivalents                                        81           (131)
                                              -------------  -------------
Increase in cash and cash equivalents                 2,333          8,439
Cash and cash equivalents, beginning of
 period                                              27,064         21,412
                                              -------------  -------------
Cash and cash equivalents, end of period      $      29,397  $      29,851
                                              =============  =============

Non-Cash Investing and Financing
 Transactions:
  Capital lease obligations incurred         $          865  $       1,986
  Capital equipment purchased on credit                 865          1,986
  Change in net unrealized security loss               (108)          (211)

Supplemental Disclosures of Cash Flow
 Information:
  Interest paid                              $         (293) $        (367)




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

                                         For the            For the
                                    Three Months Ended  Nine Months Ended
                                    ------------------  ------------------
                                    Sept. 26, Sept. 27, Sept. 26, Sept. 27,
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
GAAP - Operating loss               $ (2,455) $ (5,948) $ (7,896) $(17,415)

  Add back (reduce) the effect of:
Stock-based compensation               1,256     3,058     4,681    11,826
Severance and related costs              276       686     1,028     1,138
Depreciation and amortization          1,114     1,094     3,373     3,149
                                    --------  --------  --------  --------
Adjusted earnings measure -
 income (loss)                      $    191  $ (1,110) $  1,186  $ (1,302)
                                    ========  ========  ========  ========

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