Three Months Ended Twelve Months Ended
--------------------- ---------------------
(000's) 12/29/2007 12/30/2006 12/29/2007 12/30/2006
---------- ---------- ---------- ----------
Revenue:
Consulting services $ 9,776 $ 11,815 $ 49,381 $ 44,332
Managed services 10,331 8,178 38,665 27,648
---------- ---------- ---------- ----------
Services revenue 20,107 19,993 88,046 71,980
Product 513 2,577 9,185 13,579
---------- ---------- ---------- ----------
Net revenue 20,620 22,570 97,231 85,559
Reimbursed expenses 980 1,165 4,874 4,269
---------- ---------- ---------- ----------
Total revenue $ 21,600 $ 23,735 $ 102,105 $ 89,828
========== ========== ========== ==========
Fourth Quarter Highlights
Highlights for the fourth quarter of 2007 include:
-- Record Behavioral Analytics™ contract signings
-- Record $10.3 million of Managed Services revenue
-- Record $72.8 million of Managed Services Backlog(2)
-- Restructured eLoyalty into two business units
-- Completed actions to reduce annual cash expenses by an estimated $9
million
Business Unit Structure
Following the restructuring in the fourth quarter of 2007, eLoyalty is now
organized into two business units: ICS/CRM and Behavioral Analytics™.
The focus of the ICS/CRM business units is as follows:
-- Take advantage of the Voice Over Internet Protocol (VoIP) wave
-- Rapidly grow Managed Services revenue
-- Optimize our consulting accounts and expertise
-- Generate significant business unit margin
The focus of the Behavioral Analytics™ business unit is as follows:
-- Rapidly grow Behavioral Analytics™
-- Develop new Behavioral Analytics™ functionality
-- Manage business unit investment
Fourth Quarter Expense Reductions
In conjunction with the restructuring in the fourth quarter of 2007,
eLoyalty reduced its cash expenses by approximately $9 million on an annual
basis. This restructuring resulted in a $1.3 million charge to cover
severance and related expenses. Primary cost reduction actions included:
-- Reducing our workforce by 41 employees
-- Reducing non-billable expenses
The impact of these reductions in the first quarter of 2008 is estimated to
be approximately $2.2 million as compared to the first quarter of 2007.
(First quarter expenses are approximately $1 million higher than the fourth
quarter based on seasonal increases in payroll taxes and vacation
accruals.)
Expense Classification Changes
In the first quarter of 2007, eLoyalty began to classify certain expenses
that had been previously reported within Cost of Services as Selling,
General, and Administrative expense. We believe this revised
classification will provide a clearer understanding of the key profit/loss
drivers and investments in our business. These changes are the result of
the ongoing evolution of our business model from Consulting to Managed
services and the investments we are making to build market share and
competitive advantage with our Behavioral Analytics™ service line. The
changes, which will be reflected prospectively in our Income Statement, are
as follows:
-- Costs associated with Behavioral Analytics™ solution development
and certain other Managed services administrative and support costs
-- Non-billable costs associated with our vertical industry teams, made
up of industry experts, account partners, and project managers
-- Costs associated with overall delivery management and administrative
support personnel
The impact of these changes in the fourth quarter of 2007 decreased
Cost of Services and, correspondingly, increased Selling, General, and
Administrative expense by $4.1 million.
The impact of these changes for fiscal year 2007 decreased Cost of
Services and, correspondingly, increased Selling, General, and
Administrative expense by $18.3 million.
Services Revenue 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.
The Company's guidance for the first quarter of 2008 is to achieve Services
revenue of $21.1 million and not to 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
Thursday, February 14, 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 February 28, 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 31349109.
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.
(2) The terms of each Managed services contract range from one to five
years. eLoyalty uses the term "backlog" with respect to its Managed
services engagements to refer to the expected revenue to be received under
the applicable contract, based on its currently contracted terms and, when
applicable, currently anticipated levels of usage and performance. Actual
usage and performance might be greater or less than anticipated. In
general, eLoyalty's Managed services contracts may be terminated by the
customer without cause, but early termination by a customer usually
requires a substantial early termination payment.
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
For the For the
Three Months Ended Twelve Months Ended
------------------ ------------------
Dec. 29, Dec. 30, Dec. 29, Dec. 30,
2007 2006 2007 2006
-------- -------- -------- --------
Revenue:
Services $ 20,107 $ 19,993 $ 88,046 $ 71,980
Product 513 2,577 9,185 13,579
-------- -------- -------- --------
Revenue before reimbursed
expenses (net revenue) 20,620 22,570 97,231 85,559
Reimbursed expenses 980 1,165 4,874 4,269
-------- -------- -------- --------
Total revenue 21,600 23,735 102,105 89,828
Operating expenses:
Cost of services 13,590 15,740 58,496 58,604
Cost of product 392 2,259 6,993 10,183
-------- -------- -------- --------
Cost of revenue before
reimbursed expenses 13,982 17,999 65,489 68,787
Reimbursed expenses 980 1,165 4,874 4,269
-------- -------- -------- --------
Total cost of revenue, exclusive
of depreciation and amortization
shown below: 14,962 19,164 70,363 73,056
Selling, general and
administrative 10,589 6,567 47,075 25,328
Severance and related costs 1,328 7 1,333 737
Depreciation 912 667 3,186 2,095
Amortization of intangibles 63 80 423 370
-------- -------- -------- --------
Total operating expenses 27,854 26,485 122,380 101,586
-------- -------- -------- --------
Operating loss (6,254) (2,750) (20,275) (11,758)
Interest and other income (expense),
net 285 198 1,484 681
-------- -------- -------- --------
(Loss) income before income taxes (5,969) (2,552) (18,791) (11,077)
Income tax benefit (provision) 61 (14) 53 (71)
-------- -------- -------- --------
Net loss (5,908) (2,566) (18,738) (11,148)
Dividends related to Series B
preferred stock (335) (366) (1,405) (1,464)
-------- -------- -------- --------
Net loss available to common
stockholders $ (6,243) $ (2,932) $(20,143) $(12,612)
======== ======== ======== ========
Basic net loss per common share $ (0.71) $ (0.42) $ (2.40) $ (1.86)
======== ======== ======== ========
Diluted net loss per common share $ (0.71) $ (0.42) $ (2.40) $ (1.86)
======== ======== ======== ========
Shares used to calculate basic net
loss per share 8,778 6,995 8,399 6,769
======== ======== ======== ========
Shares used to calculate diluted
net loss per share 8,778 6,995 8,399 6,769
======== ======== ======== ========
Non-cash compensation, primarily restricted stock, included in individual
line items above:
Cost of services $ 261 $ 581 $ 1,004 $ 1,632
-------- -------- -------- --------
Selling, general and
administrative 1,872 825 9,444 2,386
Severance and related costs 196 - 196 -
eLoyalty Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
December 29, December 30,
2007 2006
------------ ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 21,412 $ 31,645
Restricted cash 2,455 283
Receivables, (net of allowances of $110 and
$93) 11,322 12,816
Prepaid expenses 8,465 5,352
Other current assets 1,074 2,125
------------ ------------
Total current assets 44,728 52,221
Equipment and leasehold improvements, net 7,391 4,793
Goodwill 2,643 2,643
Intangibles, net 828 1,034
Deferred income taxes 129 -
Other long-term assets 4,332 3,877
------------ ------------
Total assets $ 60,051 $ 64,568
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 2,997 $ 4,247
Accrued compensation and related costs 5,555 3,479
Unearned revenue 11,772 7,435
Other current liabilities 3,783 4,420
------------ ------------
Total current liabilities 24,107 19,581
Long-term unearned revenue 7,416 5,411
Other long-term liabilities 1,625 60
------------ ------------
Total liabilities 33,148 25,052
------------ ------------
Redeemable Series B convertible preferred stock,
$0.01 par value; 5,000,000 shares authorized
and designated; 3,745,070 and 4,098,369 shares
issued and outstanding with a liquidation
preference of $19,768 and $21,633 at December
29, 2007 and December 30, 2006, respectively 19,100 20,902
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; 9,885,458 and 9,078,794
shares issued at December 29, 2007 and December
30, 2006; and 9,735,492 and 9,078,794
outstanding at December 29, 2007 and December
30, 2006, respectively 99 91
Additional paid-in capital 172,483 162,059
Accumulated deficit (158,548) (139,810)
Treasury stock, at cost, 149,966 shares at
December 29, 2007 (2,731) -
Accumulated other comprehensive loss (3,500) (3,726)
------------ ------------
Total stockholders' equity 7,803 18,614
------------ ------------
Total liabilities and stockholders' equity $ 60,051 $ 64,568
============ ============
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the
Twelve Months Ended
--------------------------
Dec. 29, Dec. 30,
2007 2006
------------ ------------
Cash Flows from Operating Activities:
Net loss $ (18,738) $ (11,148)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 3,609 2,465
Non-cash compensation 10,448 4,018
Provision for uncollectible amounts 168 -
Deferred income taxes (129) -
Changes in assets and liabilities:
Receivables 1,466 (1,977)
Prepaid expenses (3,533) (5,314)
Other assets 1,622 (771)
Accounts payable (1,271) 2,266
Accrued compensation and related costs 2,057 (1,962)
Unearned revenue 6,233 8,306
Other liabilities (550) 1,113
------------ ------------
Net cash provided by (used in)
operating activities 1,382 (3,004)
------------ ------------
Cash Flows from Investing Activities:
Sale of short-term investments - 4,000
Capital expenditures and other (4,520) (3,979)
------------ ------------
Net cash (used in) provided by investing
activities (4,520) 21
------------ ------------
Cash Flows from Financing Activities:
Proceeds from rights offering, net 24 17,754
Acquisition of treasury stock (3,637) -
Payment of Series B dividends (1,468) (1,464)
Proceeds from stock compensation and employee
stock purchase plans, net 422 67
Principal payments under capital lease
obligations (27) -
(Increase) decrease in restricted cash (2,172) 241
------------ ------------
Net cash (used in) provided by financing
activities (6,858) 16,598
------------ ------------
Effect of exchange rate changes on cash and cash
equivalents (237) 179
------------ ------------
(Decrease) increase in cash and cash equivalents (10,233) 13,794
Cash and cash equivalents, beginning of period 31,645 17,851
------------ ------------
Cash and cash equivalents, end of period $ 21,412 $ 31,645
============ ============
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred $ 1,518 $ -
Capital equipment purchased on credit 1,518 -
Change in net unrealized security gain 451 -
Supplemental Disclosures of Cash Flow
Information:
Cash refunded for income taxes, net $ 1,192 $ -
Interest paid (97) -
eLoyalty Corporation
CALCULATION OF ADJUSTED EARNINGS MEASURE
(Unaudited and in thousands)
For the For the
Three Months Ended Twelve Months Ended
------------------ ------------------
Dec. 29, Dec. 30, Dec. 29, Dec. 30,
2007 2006 2007 2006
-------- -------- -------- --------
GAAP - Operating loss $ (6,254) $ (2,750) $(20,275) $(11,758)
Add back (reduce) the effect of:
Non-cash compensation 2,133 1,406 10,448 4,018
Severance and related costs 1,328 7 1,333 737
Depreciation and amortization 975 747 3,609 2,465
-------- -------- -------- --------
Adjusted earnings measure - loss $ (1,818) $ (590) $ (4,885) $ (4,538)
======== ======== ======== ========
Contact Information: Contact: eLoyalty Corporation Chris Min Vice President and Chief Financial Officer (847) 582-7222