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 yearFourth 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