eLoyalty Reports Improved First Quarter 2008 Results

Strong Business Delivery and Expense Focus Contributed to $0.7 Million Adjusted Earnings


LAKE FOREST, IL--(Marketwire - May 7, 2008) - eLoyalty Corporation (NASDAQ: ELOY), a leading enterprise customer relationship management (CRM) services and solutions company, today announced financial results for the first quarter ended March 29, 2008.

For the first quarter of 2008, total revenue was $23.9 million and the net loss was $4.2 million. The net loss available to common shareholders was $0.49 per share. eLoyalty realized "Adjusted Earnings(1)" of $0.7 million for the first quarter of 2008. Adjusted Earnings is a non-GAAP measure. For a reconciliation of Adjusted Earnings income to operating loss, see the accompanying schedule.

The following is a summary of revenue by major component:

                                 Three Months Ended
                                 ------------------
   (000's)                     3/29/2008    3/31/2007
                              ----------   ----------
Revenue:
  Consulting services         $   10,581   $   13,346
  Managed services                10,771        8,831
                              ----------   ----------
Services revenue                  21,352       22,177
  Product                          1,778        4,407
                              ----------   ----------
Net revenue                       23,130       26,584
  Reimbursed expenses                738        1,338
                              ----------   ----------
Total revenue                 $   23,868   $   27,922
                              ==========   ==========

First Quarter Highlights

Highlights for the first quarter of 2008 include:

--  6% sequential increase in Services Revenue
--  11% sequential increase in Total Revenue
--  $719 thousand of Adjusted Earnings
--  $2.5 million sequential improvement in Adjusted Earnings
--  Record $10.8 million of Managed Services Revenue
    

As compared to Q4, Adjusted Earnings were positively impacted by an incremental $342 thousand from the expanded Salary Replacement Program.

Outlook

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.

During the second quarter, the Company expects lower CRM consulting revenue due to budget pressures at several large consulting accounts and to experience the one-time impact of a contract modification on one of its Behavioral Analytics™ contracts. Based on these factors, the Company currently expects to achieve second quarter Services revenue of $19.0 million and not exceed or fall below the target by more than 5%.

Conference Call Information

eLoyalty management will host a conference call at 5:00 p.m. ET on Wednesday, May 7, 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 May 21, 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 of 42181474.

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 Behavioral Analytics™, Integrated Contact Solutions and Consulting Services, aligned to enable 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
                                                    Three Months Ended
                                                    ------------------
                                                 March 29,       March 31,
                                                   2008            2007
                                            --------------  --------------
Revenue:
  Services                                  $       21,352  $       22,177
  Product                                            1,778           4,407
                                            --------------  --------------
    Revenue before reimbursed
     expenses (net revenue)                         23,130          26,584
    Reimbursed expenses                                738           1,338
                                            --------------  --------------
Total revenue                                       23,868          27,922

Operating expenses:
  Cost of services                                  13,349          14,737
  Cost of product                                    1,401           3,514
                                            --------------  --------------
    Cost of revenue before reimbursed
     expenses                                       14,750          18,251
  Reimbursed expenses                                  738           1,338
                                            --------------  --------------
Total cost of revenue, exclusive of
 depreciation and amortization shown
 below:                                             15,488          19,589
  Selling, general and administrative               11,443          12,438
  Severance and related costs                          169               -
  Depreciation and amortization                        963             773
                                            --------------  --------------
Total operating expenses                            28,063          32,800
                                            --------------  --------------
Operating loss                                      (4,195)         (4,878)
Interest and other income (expense), net                78             327
                                            --------------  --------------
Loss before income taxes                            (4,117)         (4,551)
Income tax (provision) benefit                         (33)              4
                                            --------------  --------------
Net loss                                            (4,150)         (4,547)
Dividends related to Series B
 preferred stock                                      (324)           (366)
                                            --------------  --------------
Net loss available to common stockholders   $       (4,474) $       (4,913)
                                            ==============  ==============

Basic net loss per common share             $        (0.49) $        (0.61)
                                            ==============  ==============
Diluted net loss per common share           $        (0.49) $        (0.61)
                                            ==============  ==============

Shares used to calculate basic net
 loss per share                                      9,062           8,035
                                            ==============  ==============
Shares used to calculate diluted
 net loss per share                                  9,062           8,035
                                            ==============  ==============


Stock-based compensation, primarily
 restricted stock, included in individual
 line items above:
  Cost of services                          $          360  $          296
  Selling, general and administrative                3,422           3,311
  Severance and related costs                           45               -



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

                                                 March 29,    December 29,
                                                   2008           2007
                                            --------------  --------------
            ASSETS:
Current Assets:
  Cash and cash equivalents                 $       17,329  $       21,412
  Restricted cash                                    2,455           2,455
  Receivables, (net of allowances of
   $107 and $110)                                   12,795          11,322
  Prepaid expenses                                  10,802           8,465
  Other current assets                               1,473           1,074
                                            --------------  --------------
    Total current assets                            44,854          44,728
Equipment and leasehold improvements, net            8,021           7,391
Goodwill                                             2,643           2,643
Intangibles, net                                       773             828
Other long-term assets                               4,267           4,461
                                            --------------  --------------
    Total assets                            $       60,558  $       60,051
                                            ==============  ==============

  LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
  Accounts payable                          $       4,574   $        2,997
  Accrued compensation and related costs            4,469            5,555
  Unearned revenue                                 14,122           11,772
  Other current liabilities                         3,726            3,783
                                            --------------  --------------
    Total current liabilities                      26,891           24,107
Long-term unearned revenue                          5,848            7,416
Other long-term liabilities                         2,322            1,625
                                            --------------  --------------
    Total liabilities                              35,061           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 $18,845
 and $19,768 at March 29, 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; 10,297,040 and
   9,885,458 shares issued at March 29, 2008
   and December 29, 2007; and 10,176,169
   and 9,735,492 outstanding at March 29,
   2008 and December 29, 2007, respectively            103              99
  Additional paid-in capital                       174,430         172,483
  Accumulated deficit                             (162,698)       (158,548)
  Treasury stock, at cost, 120,871 and
   149,966 shares at March 29, 2008 and
   December 29, 2007                                (1,242)         (2,731)
  Accumulated other comprehensive loss              (3,617)         (3,500)
                                            --------------  --------------
    Total stockholders' equity                       6,976           7,803
                                            --------------  --------------
Total liabilities and stockholders' equity  $       60,558  $       60,051
                                            ==============  ==============



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

                                                         For the
                                                    Three Months Ended
                                                    ------------------
                                                  March 29,     March 31,
                                                    2008          2007
                                            --------------  --------------
Cash Flows from Operating Activities:
  Net loss                                  $       (4,150) $       (4,547)
  Adjustments to reconcile net loss to
   net cash (used in) provided by operating
   activities:
    Depreciation and amortization                      963             773
    Stock-based compensation                         3,827           3,607
    Provision for uncollectible amounts                 14               -
  Changes in assets and liabilities:
    Receivables                                     (1,483)         (3,500)
    Prepaid expenses                                (1,681)         (2,504)
    Other assets                                      (511)           (785)
    Accounts payable                                 1,563           2,049
    Accrued compensation and related costs          (1,079)            661
    Unearned revenue                                   760           5,612
    Other liabilities                                 (104)            504
                                            --------------  --------------
      Net cash (used in) provided by
       operating activities                         (1,881)          1,870
                                            --------------  --------------

Cash Flows from Investing Activities:
  Capital expenditures and other                      (337)         (1,007)
                                            --------------  --------------
      Net cash used in investing activities           (337)         (1,007)
                                            --------------  --------------

Cash Flows from Financing Activities:
  Acquisition of treasury stock                     (1,229)         (1,386)
  Payment of Series B dividends                       (669)           (732)
  Proceeds from stock compensation and
   employee stock purchase plans                       126               8
  Principal payments under capital lease
   obligations                                        (121)              -
  Other                                                  -               1
                                            --------------  --------------
    Net cash used in financing activities           (1,893)         (2,109)
                                            --------------  --------------

Effect of exchange rate changes on cash and
 cash equivalents                                       28              13
                                            --------------  --------------
Decrease in cash and cash equivalents               (4,083)         (1,233)
Cash and cash equivalents, beginning of
 period                                             21,412          31,645
                                            --------------  --------------
Cash and cash equivalents, end of period    $       17,329  $       30,412
                                            ==============  ==============

Non-Cash Investing and Financing
 Transactions:
  Capital lease obligations incurred        $        1,201  $            -
  Capital equipment purchased on credit              1,201               -
  Change in net unrealized security gain              (116)              -

Supplemental Disclosures of Cash Flow
 Information:
  Cash refunded for income taxes, net       $            -  $            -
  Interest paid                                       (161)              -


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

                                               For the
                                          Three Months Ended
                                          ------------------
                                       March 29,        March 31,
                                         2008             2007
                                      ------------   ------------
GAAP - Operating loss                 $     (4,195)  $     (4,878)

  Add back (reduce) the effect of:
Stock-based compensation                     3,782          3,607
Severance and related costs                    169             -
Depreciation and amortization                  963            773
                                      ------------   ------------
Adjusted earnings measure -
 income (loss)                        $        719   $       (498)
                                      ============   ============

Contact Information: Contact: eLoyalty Corporation Chris Min, Vice President and Chief Financial Officer (847) 582-7222