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eLoyalty Announces Fourth Quarter 2010 Results


February 16, 2011 - Lake Forest, IL

eLoyalty Corporation (NASDAQ: ELOY), aleading Integrated Contact Solutions and Behavioral Analytics™ servicescompany, today announced financial results for the fourth quarter endedJanuary 1, 2011.

For the fourth quarter of 2010, total revenue was $22.8 million and the netloss was $2.3 million. The net loss available to common shareholders was$0.19 per share. eLoyalty realized "Adjusted Earnings(1)" income of $0.4million for the fourth quarter of 2010. Adjusted Earnings is a non-GAAPmeasure. For a reconciliation of Adjusted Earnings to operating loss, seethe accompanying schedule.

eLoyalty's normal quarterly accounting cycle is thirteen weeks. As thiscycle does not align with a calendar year, every six years a fourteenthweek is included in our fourth quarter. The impact of the fourteenth weekin the fourth quarter of 2010 is shown below:


-- Favorably impacted Managed Services revenues by $0.7 million
-- Favorably impacted Consulting Services revenues by $0.1 million
-- Adversely impacted "Adjusted Earnings¹" by $0.3 million

The following is a summary of revenue by major component:

Three Months Ended Twelve Months Ended
-------------------------- --------------------------
(000's) 1/1/2011 12/26/2009 %Change 1/1/2011 12/26/2009 %Change
-------- ---------- ------ -------- ---------- ------
Revenue:
Managed Services $ 14,664 $ 14,426 2% $ 54,096 $ 49,864 8%
Consulting
Services 4,732 5,672 -17% 17,712 29,998 -41%
-------- ---------- ------ -------- ---------- ------
Services Revenue 19,396 20,098 -3% 71,808 79,862 -10%
Product 2,375 2,933 -19% 12,581 17,780 -29%
-------- ---------- ------ -------- ---------- ------
Net Revenue 21,771 23,031 -5% 84,389 97,642 -14%
Reimbursed
expenses 1,048 975 3,715 3,971
-------- ---------- ------ -------- ---------- ------
Total Revenue $ 22,819 $ 24,006 -5% $ 88,104 $ 101,613 -13%
======== ========== ====== ======== ========== ======


Q4 Company Highlights
-- Signed $37.9 million of Managed Services contracts in the fourth quarter
-- Increased Managed Services Backlog(2) to a record $130.3 million
-- Grew Services revenues 3% on an adjusted sequential basis
-- Grew Managed Services revenues 3% on an adjusted sequential basis
-- Achieved $0.4 million of Adjusted Earnings(1)
-- Generated $5.5 million of cash

Q4 Behavioral Analytics™ Service Business Unit Highlights
-- Increased Managed Services Backlog(2) to a record $84.5 million
-- Signed $32.7 million of Managed Services contracts
-- Signed initial deployment with a leading energy retailer
-- Signed two contracts for new applications with existing customers
-- Signed two large renewals

Q4 Integrated Contact Solutions Business Unit Highlights
-- Achieved significant Business Unit profitability
-- Signed $5.2 million of Managed Services contracts
-- Grew Services revenues 3% on an adjusted sequential basis
-- Grew Managed Services revenues 6% on an adjusted sequential basis

First Quarter 2011 Guidance

eLoyalty currently expects its First Quarter 2011 Services revenues will beapproximately $17.5 million.

eLoyalty provides guidance for Services revenue only. Product revenue fromthe sale of third-party software and hardware can fluctuate substantiallybetween periods and is not a primary focus of the Company's business.

Conference Call Information

eLoyalty management will host a conference call at 5:00 p.m. ET onWednesday, February 16, 2011. A webcast of the conference call and slidepresentation will be available live via the Internet at the InvestorRelations section of eLoyalty's web site athttp://www.eloyalty.com/investor/ where this press release, as well asother financial information that will be discussed on that call, is alsoavailable. For those who cannot access the live broadcast, or thecontinued availability on eLoyalty's website, a replay of the conferencecall will also be available beginning approximately two hours after thelive call is completed until March 9, 2011, by dialing (800) 642-1687 or,for international callers, (706) 645-9291 and entering conference ID number38136094.

About eLoyalty

eLoyalty enables its customers to achieve breakthrough results withrevolutionary analytics and implementation of advanced VoIP applications.eLoyalty's principal offerings include the Behavioral Analytics™ Serviceand Integrated Contact Solutions (ICS).

Safe Harbor Statement

This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995, includingstatements regarding anticipated financial results and other matters thatare not strictly historical in nature. These forward-looking statementsare based on current management expectations, forecasts and assumptions,and are subject to risks and uncertainties that could cause actual resultsto differ materially from those expressed or implied by the forward-lookingstatements. The risks, uncertainties and other factors that might causesuch a difference include those described under "Forward-LookingStatements" and "Risk Factors" in eLoyalty's Form 10-K, Form 10-Q and otherfilings with the U.S. Securities and Exchange Commission. Readers arecautioned not to place undue reliance on forward-looking statements. Theyreflect opinions, assumptions and estimates only as of the date they aremade, and eLoyalty Corporation undertakes no obligation to publicly updateor revise any of these forward-looking statements, whether as a result ofnew information, future events or circumstances or otherwise.


(1) eLoyalty presents Adjusted Earnings, a non-GAAP measure that representscash earnings performance, excluding the impact of non-cash expenses andexpense reduction activities, because management believes that AdjustedEarnings provide investors with a better understanding of the results ofeLoyalty's operations. Management believes that Adjusted Earnings reflecteLoyalty's resources available to invest in its business and strengthen itsbalance sheet. In addition, expense reduction activities can varysignificantly between periods on the basis of factors that management doesnot believe reflect current-period operating performance. Although similaradjustments for expense reduction activities may be recorded in futureperiods, the size and frequency of these adjustments cannot be predicted.The Adjusted Earnings measure should be considered in addition to, not as asubstitute for or superior to, operating income, cash flows or othermeasures of financial performance prepared in accordance with GAAP.

(2) eLoyalty uses the term "backlog" to reflect the estimated future amountof Managed services revenue related to its Managed services contracts. Thevalue of these contracts is based on anticipated usage volumes over theanticipated term of the agreement. The anticipated term of the agreementis based on the contractually agreed fixed term of the contract, plusagreed upon, but optional, extension periods. Anticipated volumes may begreater or less than anticipated. In addition, these contracts typicallyare cancellable without cause based on the customer making a substantialearly termination payment or forfeiture of prepaid contract amounts. Thereported backlog is expected to be recognized as follows: $50.6m in 2011;$39.2m in 2012; $23.9m in 2013; $16.6m in 2014 and thereafter.

 eLoyalty Corporation CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited and in thousands, except per share data) For the For the Three Months Ended Twelve Months Ended ------------------ -------------------- Jan. 1, Dec. 26, Jan. 1, Dec. 26, 2011 2009 2011 2009 -------- -------- --------- ---------Revenue: Services $ 19,396 $ 20,098 $ 71,808 $ 79,862 Product 2,375 2,933 12,581 17,780 -------- -------- --------- --------- Revenue before reimbursed expenses (net revenue) 21,771 23,031 84,389 97,642 Reimbursed expenses 1,048 975 3,715 3,971 -------- -------- --------- ---------Total revenue 22,819 24,006 88,104 101,613Operating expenses: Cost of services 11,067 12,828 43,333 52,442 Cost of product 1,844 2,344 10,360 14,814 -------- -------- --------- --------- Cost of revenue before reimbursed expenses 12,911 15,172 53,693 67,256 Reimbursed expenses 1,048 975 3,715 3,971Total cost of revenue, exclusive of depreciation and amortization shown below: 13,959 16,147 57,408 71,227 Selling, general and administrative 9,730 9,141 38,793 35,163 Severance and related costs 244 313 1,180 1,341 Depreciation 1,069 1,055 4,074 4,242 Amortization of intangibles 15 37 144 223 -------- -------- --------- ---------Total operating expenses 25,017 26,693 101,599 112,196 -------- -------- --------- --------- Operating loss (2,198) (2,687) (13,495) (10,583)Interest and other (expense) income, net (55) (40) (120) 53 -------- -------- --------- ---------Loss from continuing operations before income taxes (2,253) (2,727) (13,615) (10,530)Income tax provision (35) (28) (93) (44) -------- -------- --------- ---------Loss from continuing operations (2,288) (2,755) (13,708) (10,574)Loss on discontinued operations - (46) (136) (46) -------- -------- --------- ---------Net loss (2,288) (2,801) (13,844) (10,620)Dividends related to Series B Stock (317) (323) (1,273) (1,292) -------- -------- --------- ---------Net loss available to common stockholders $ (2,605) $ (3,124) $ (15,117) $ (11,912) ======== ======== ========= =========Per common share:Basic loss from continuing operations $ (0.16) $ (0.21) $ (1.00) $ (0.80)Basic loss from discontinued operations $ - $ - $ (0.01) $ - ======== ======== ========= =========Basic net loss available to common stockholders $ (0.19) $ (0.23) $ (1.10) $ (0.90) ======== ======== ========= ========= Per common share:Diluted loss from continuing operations $ (0.16) $ (0.21) $ (1.00) $ (0.80) ======== ======== ========= =========Diluted loss from discontinued operations $ - $ - $ (0.01) $ - ======== ======== ========= =========Diluted net loss available to common stockholders $ (0.19) $ (0.23) $ (1.10) $ (0.90) ======== ======== ========= ========= Shares used to calculate basic net loss per share 13,874 13,365 13,701 13,255 ======== ======== ========= =========Shares used to calculate diluted net loss per share 13,874 13,365 13,701 13,255 ======== ======== ========= ========= Stock-based compensation, primarily restricted stock, is included in individual line items above: Cost of services $ 11 $ 85 $ 106 $ 504 Selling, general and administrative 1,283 1,531 5,622 5,793 Severance and related costs - - 76 248 eLoyalty Corporation CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share and per share data) January 1, December 2011 26, 2009 --------- --------- ASSETS:Current Assets: Cash and cash equivalents $ 20,872 $ 28,982 Restricted cash 2,460 3,745 Receivables, (net of allowances of $85 and $151) 8,613 9,313 Prepaid expenses 13,746 10,126 Other current assets 892 944 Total current assets 46,583 53,110Equipment and leasehold improvements, net 5,867 6,194Goodwill 2,643 2,643Intangibles, net 428 476Other long-term assets 10,671 8,180 Total assets $ 66,192 $ 70,603 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:Current Liabilities: Accounts payable $ 2,498 $ 3,634 Accrued compensation and related costs 3,033 5,762 Unearned revenue 24,212 20,436 Other current liabilities 4,983 5,067 Total current liabilities 34,726 34,899Long-term unearned revenue 15,928 9,526Other long-term liabilities 1,592 1,705 Total liabilities 52,246 46,130 Redeemable Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 3,549,078 and 3,616,169 shares issued and outstanding at January 1, 2011 and December 26, 2009, respectively, with a liquidation preference of $19,367 and $19,733 at January 1, 2011 and December 26, 2009, respectively 18,100 18,442 Stockholders' (Deficit) 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; 15,642,822 and 14,871,521 shares issued at January 1, 2011, and December 26, 2009, respectively; and 14,786,005 and 14,220,279 outstanding at January 1, 2011 and December 26, 2009, respectively 156 149 Additional paid-in capital 208,511 203,627 Accumulated deficit (204,665) (190,821) Treasury stock, at cost, 856,817 and 651,242 shares at January 1, 2011 and December 26, 2009, respectively (4,468) (3,295) Accumulated other comprehensive loss (3,688) (3,629) --------- --------- Total stockholders' (deficit) equity (4,154) 6,031 --------- --------- Total liabilities and stockholders' (deficit) equity $ 66,192 $ 70,603 ========= ========= eLoyalty Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) For the Twelve Months Ended ------------------ January 1, December 2011 26, 2009 -------- --------Cash Flows from Operating Activities: Net loss $(13,844) $(10,620) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 4,218 4,465 Stock-based compensation 5,728 6,297 Loss on discontinued operations 136 46 (Reversal) provision for uncollectible amounts (78) 82 Severance and related costs 94 270 Deferred income taxes 1 7 Changes in assets and liabilities: Receivables 750 668 Prepaid expenses (6,311) (6,395) Other assets 54 (60) Accounts payable (1,136) (273) Accrued compensation and related costs (2,728) 737 Unearned revenue 10,200 13,145 Other liabilities (95) (626) -------- -------- Net cash (used in) provided by operating activities (3,011) 7,743 -------- -------- Cash Flows from Investing Activities: Capital expenditures and other (2,812) (3,327) Proceeds from sale/leaseback of assets 423 - Sale of short-term investments - 337 -------- -------- Net cash used in investing activities (2,389) (2,990) -------- -------- Cash Flows from Financing Activities: Principal payments under capital lease obligations (1,688) (1,384) Payment of Series B Stock dividends (1,297) (649) Acquisition of treasury stock (1,173) (838) Decrease (increase) in restricted cash 1,285 (90) Proceeds from stock compensation and employee stock purchase plans, net 202 141 -------- -------- Net cash used in financing activities (2,671) (2,820) -------- -------- Effect of exchange rate changes on cash and cash equivalents (39) (15) -------- --------(Decrease) increase in cash and cash equivalents (8,110) 1,918Cash and cash equivalents, beginning of period 28,982 27,064 -------- --------Cash and cash equivalents, end of period $ 20,872 $ 28,982 ======== ======== Non-Cash Investing and Financing Transactions: Capital lease obligations incurred $ 1,398 $ 869 Capital equipment purchased on credit 1,398 869 Change in net unrealized security loss - (108) Supplemental Disclosures of Cash Flow Information: Interest paid $ (157) $ (356) eLoyalty Corporation CALCULATION OF ADJUSTED EARNINGS MEASURE (Unaudited and in thousands) For the For the Three Months Ended Twelve Months Ended ---------------- ------------------ Jan. 1, Dec. 26, Jan. 1, Dec. 26, 2011 2009 2011 2009 ------- ------- -------- --------GAAP - Operating loss $(2,198) $(2,687) $(13,495) $(10,583) Add back (reduce) the effect of:Stock-based compensation 1,294 1,616 5,728 6,297Severance and related costs 244 313 1,180 1,341Depreciation and amortization 1,084 1,092 4,218 4,465 ------- ------- -------- --------Adjusted earnings measure - income (loss) $ 424 $ 334 $ (2,369) $ 1,520 

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

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