Company Adds 15 New Customers and Posts Strong Year-Over-Year Revenue Gain
LAKE FOREST, Ill., May 16 /PRNewswire-FirstCall/ -- eLoyalty Corporation
(Nasdaq: ELOY), a leading enterprise CRM services and solutions company, today
posted first quarter financial results for the period ended April 2, 2005.
For the first quarter of 2005, eLoyalty reported total revenue of
$19.5 million, an increase of 35% over the comparable period last year. The
company also announced a net loss of $1.9 million, which is favorable by $0.4
million when compared to the first quarter of 2004. The net loss available to
common shareholders was $0.37 a share, which is an improvement of $0.08 a
share compared to the first quarter of 2004. In addition, as described in
detail below, eLoyalty realized non-GAAP "Adjusted Earnings" measure income of
$0.4 million for the first quarter of 2005.
eLoyalty's first quarter 2005 highlights include:
-- Increasing Managed services revenue by 86% on a year over year basis,
-- Adding 15 new customers, bringing eLoyalty's total customer count to
86 in the first quarter,
-- Achieving positive Adjusted Earnings measure income for the fourth
straight quarter,
-- Maintaining Consulting services utilization of 71% and driving slightly
higher average billing rates compared to the prior quarter,
-- Improving customer concentration as evidenced by the decrease in the
percentage of revenue generated by our top 5, 10 and 20 customer
groupings, and
-- Maintaining favorable DSO of 51 days.
Revenue and Clients
Total revenue and Services revenue in the first quarter of 2005 increased
by 35% and 30%, respectively, compared to the first quarter of 2004.
Approximately 51% of the year-over-year Services revenue growth, and 40% of
the total revenue growth, is the result of the acquisition of the assets of
Interelate, Inc., which was completed in July of 2004. The remaining increase
was due to organic growth in our other Consulting and Managed services
offerings. First quarter 2005 Services revenue of $17.1 million represents a
decrease of 6% when compared to the fourth quarter of 2004. This sequential
decline was primarily due to a $1.9 million reduction in spending by our 4
largest customers from the fourth quarter. These four customers remain active
in the second quarter and we expect them to be active throughout 2005. The
reduced level of spending by these clients was partially offset by the revenue
generated from new clients in the quarter. The following is a summary of
revenue by major component:
Three Months Ended
(000's) 04/02/2005 03/27/2004
Revenue:
Consulting services $12,088 $10,475
Managed services 5,023 2,700
Services revenue 17,111 13,175
Product 1,388 426
Reimbursed expenses 991 823
Total revenue $19,490 $14,424
Service Lines and Strategic Initiatives
eLoyalty continued to build new business momentum through its principal
service lines: Internet Protocol Contact Center (IPCC), Behavioral Analytics,
Contact Center Optimization Solutions and Marketing Solutions.
Internet Protocol Contact Center highlights include:
-- Signing 4 new IPCC Clients,
-- Finalizing the contract and beginning work on an Enterprise IPCC and IP
Telephony engagement at one of our large financial services clients,
and
-- Being selected for two large Enterprise IPCC and IP Telephony
engagements, one with an existing client and one with a new client.
Behavioral Analytics highlights include:
-- Completing deployment of our solution and commencing multi-year
subscriptions at two of our Behavioral Analytics clients, and
-- Being selected for a pilot project at a major US health insurance
company.
Balance Sheet
The company continues to maintain a strong balance sheet, including a
total cash and short-term investment balance of approximately $24.7 million.
This compares to a total cash and short-term investment balance of $27.8
million at the end of the previous quarter. Primary uses of cash in the first
quarter include the payment of accrued non-VP bonuses for 2004 ($1.1 million),
annual pre-payment of our corporate insurance premiums ($0.7 million) and the
Series B stock dividend ($0.7 million).
During the quarter, we concluded that it was appropriate to classify
certain securities (auction rate municipal bonds and auction rate preferred
funds) as short-term investments. Previously, such investments had been
classified as cash and cash equivalents. At the end of the first quarter, we
held $4.0 million in short-term investments. A more detailed discussion of
this revised classification is included in our Form 10-Q anticipated to be
filed with the SEC on May 17, 2005.
Adjusted Earnings Measure(1)
On a non-GAAP basis, in the first quarter of 2005, eLoyalty realized
"Adjusted Earnings" measure income of $0.4 million, which is an improvement of
$1.3 million compared to the first quarter of 2004. The following table
presents the calculation of the Adjusted Earnings measure for the periods
presented below, including reconciliation to GAAP results for those periods.
See Footnote 1, below, for an explanation of the Adjusted Earnings measure
presented in this press release.
Definition and Calculation of Adjusted Earnings Measure
Three Months Ended
(000's) 04/02/2005 03/27/2004
GAAP - Operating Loss $(2,009) $ (2,344)
Add back (reduce) the effect of:
Noncash compensation 693 530
Severance and related costs - (234)
Depreciation and amortization 1,694 1,156
Adjusted Earnings Measure - Income (Loss) $378 $(892)
Current Business Outlook
The company remains optimistic that the positive trends that have emerged
over the past year will continue to drive gradual improvement in eLoyalty's
business results. The company's planning assumptions for the second quarter
of 2005 include:
-- Continuing transition of the revenue portfolio to reduce customer
concentration and increase the percentage of Managed services revenue,
-- Increasing size and complexity of new Managed services and IPCC
engagements, leading to longer durations to complete contracts and
begin revenue recognition,
-- Increasing the amount of Product revenue (third-party hardware and
software), principally related to our IPCC service line,
-- Continuing gross margin pressure, principally for consulting services,
and
-- Continuing tight control of all discretionary expenditures.
Given these factors, eLoyalty's current outlook for the second quarter of
2005 is as follows:
-- Achieving Services revenue in the range of $16.5 million to
$18.0 million,
-- Achieving Total revenue in the range of $19.0 million to $22.0 million,
and
-- Adding 6 to 10 new clients.
Conference Call Information
eLoyalty management will host a conference call at 8:30 a.m. eastern time
on Tuesday, May 17, 2005. A webcast of the conference call 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. It is recommended that participants using the Web access the site
at least fifteen minutes before the webcast begins, in order to download and
install any necessary audio software. 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 two hours after the call
is completed until May 24, 2005 by dialing (866) 518-1010 or, for
international callers, (416) 695-5275. There is no passcode for the replay.
About eLoyalty
eLoyalty is a leading management consulting, systems integration, and
managed services company focused on optimizing customer interactions. With
professionals in offices throughout North America and Europe, eLoyalty's broad
range of enterprise Customer Relationship Management (CRM) related services
and solutions include creating customer strategies; defining technical
architectures; selecting, implementing and integrating best-of-breed CRM
software applications; and providing ongoing support for multivendor systems.
The combination of eLoyalty's methodologies and technical expertise enables
eLoyalty to deliver the tangible economic benefits of customer loyalty for its
Global 2000 and government clients. For more information about eLoyalty,
visit http://www.eloyalty.com or call 877-2ELOYAL.
ASSUMPTIONS UNDERLYING FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY
AFFECT FUTURE RESULTS
This news release contains forward-looking statements, including
references to plans, strategies, objectives and anticipated future performance
and other statements not strictly historical in nature, which are based on
current management expectations, forecasts and assumptions. These forward-
looking statements are subject to risks and uncertainties that could cause
actual events or results to differ materially from those expressed or implied
by the forward-looking statements. Such risks, uncertainties and other factors
that might cause such a difference include, among others: the ability to
attract new clients and continuation of existing and new business from
existing clients; reliance on major clients and suppliers, increasing client
concentration and maintenance of good relations with key business partners;
risks involving the variability and predictability of the number, size, scope,
cost and duration of, and revenues from, client engagements, including
unanticipated deferrals or cancellations of engagements due to changes in
customers' requirements or preferences for the company's services (because the
company's business is relationship based, substantially all of the company's
customers retain the right to defer or cancel the company's engagement,
regardless of whether there is a written contract); management of other risks
associated with increasingly complex client projects and new services
offerings, including risks involving collection of billed amounts, shifts from
time and materials to alternative or value-based pricing and variable employee
utilization rates, project personnel costs and project requirements;
maintenance of the company's reputation and financial strength to remain
competitive; the company's ability to execute its strategy of reducing costs,
achieving benefits from cost reduction activities and maintaining a lower cost
structure; management of growth and expansion of business with new services
offerings and into new markets; continued access to capital resources to meet
eLoyalty's operating and financial needs; implementation of appropriate
infrastructure in a timely and cost-effective manner; the ability to attract
and retain highly skilled employees in a competitive information technology
labor market; demand for CRM services and software generally and continuing
intense competition in the information technology services industry generally
and particularly in the provision of CRM services and software; the rapid pace
of technological innovation in the information technology services industry
and the ongoing challenge of creating innovative solutions that meet client
expectations; risks associated with eLoyalty's global operations; future
legislative, regulatory or legal actions affecting the information technology
services industry or the protection of eLoyalty's intellectual property
rights; the uncertain extent of the current economic recovery and its impact
on eLoyalty's financial results; eLoyalty's ability to integrate acquired
operations into its business in the manner anticipated; and other general
business, capital market and economic conditions and volatility. For further
information about these and other risks, see eLoyalty's recent SEC filings,
including, without limitation, its most recent annual report on Form 10-K and
quarterly reports on Form 10-Q, as well as those identified under "Risk
Factors" in the Registration Statement on Form S-3 filed on September 24,
2002.
(1) eLoyalty presents the above reconciliation of GAAP (generally accepted
accounting principles) results to non-GAAP "Adjusted Earnings" results
because management believes the Adjusted Earnings measure allows
investors a better understanding of the results of eLoyalty's
operational activities by focusing on cash earnings performance,
exclusive of the financial impact of decisions made with the intention
of improving the company's operating performance through expense
reduction activities. Further, management believes that it is useful
to analyze the company's performance excluding the impact of severance
and related costs, since the amount of these costs varies
significantly between periods on the basis of factors that management
does not believe reflect current-period operating performance.
However, adjustments similar to the ones reflected above have been
recorded in earlier periods, and similar types of adjustments may be
recorded in future periods. The Adjusted Earnings measure also
reflects the company's resources available to invest in the business,
strengthen the balance sheet and fund any future cost reduction
initiatives. Using only the non-GAAP earnings measure to analyze
earnings would have material limitations because its calculation is
based on the subjective determinations of management regarding the
nature and classification of events and circumstances that investors
may find material. Management compensates for these limitations by
utilizing both the GAAP and non-GAAP measures reflected above to
understand and analyze the results of its business. The Adjusted
Earnings measure should be considered in addition to, not as a
substitute 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
April 2, March 27,
2005 2004
Revenue $19,490 $14,424
Operating Expenses:
Cost of services 14,718 11,093
Selling, general and administrative 5,087 4,753
Severance and related costs - (234)
Depreciation and amortization 1,694 1,156
Total operating expenses 21,499 16,768
Operating loss (2,009) (2,344)
Interest income (expense) and other, net 77 43
Loss before income taxes (1,932) (2,301)
Income tax benefit - -
Net loss (1,932) (2,301)
Dividends related to Series B preferred stock (369) (387)
Net loss available to common stockholders $(2,301) $(2,688)
Basic net loss per common share $(0.37) $(0.45)
Diluted net loss per common share $(0.37) $(0.45)
Shares used to calculate basic net
loss per share 6,224 5,927
Shares used to calculate diluted net
loss per share 6,224 5,927
Noncash compensation included in individual
line items above:
Cost of services $283 $148
Selling, general and administrative 410 382
Total noncash compensation $693 $530
eLoyalty Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
April 2, January 1,
2005 2005
ASSETS:
Current Assets:
Cash and cash equivalents $20,066 $20,095
Restricted cash 664 698
Short-term investments 3,972 6,975
Receivables (net of allowances of $389
and $389) 11,034 11,187
Prepaid expenses 4,023 2,829
Other current assets 296 578
Total current assets 40,055 42,362
Equipment and leasehold improvements, net 5,337 6,779
Goodwill 2,646 2,650
Intangibles, net 1,556 1,713
Long-term receivables and other 1,600 1,863
Total assets $51,194 $55,367
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $1,998 $1,528
Accrued compensation and related costs 3,475 4,165
Unearned revenue 3,865 4,466
Other current liabilities 2,822 3,638
Total current liabilities 12,160 13,797
Long-term unearned revenue 361 774
Other long-term liabilities 567 664
Total liabilities 13,088 15,235
Commitments and contingencies
Redeemable Series B convertible preferred
stock, $0.01 par value; 5,000,000 shares
authorized and designated; 4,127,602 and
4,150,803 shares issued and outstanding with
a liquidation preference of $21,419 and
$21,910 at April 2, 2005 and January 1, 2005,
respectively 21,051 21,169
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; 7,407,005 and 7,407,065
shares issued and outstanding, respectively 74 74
Additional paid-in capital 150,118 150,659
Accumulated deficit (122,964) (121,032)
Accumulated other comprehensive loss (3,667) (3,451)
Unearned compensation (6,506) (7,287)
Total stockholders' equity 17,055 18,963
Total liabilities and stockholders' equity $51,194 $55,367
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the
Three Months Ended
April 2, March 27,
2005 2004
Cash Flows from Operating Activities:
Net loss $(1,932) $(2,301)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, amortization and noncash
compensation 2,387 1,686
Changes in assets and liabilities, net of
effect of acquisition:
Receivables 97 (1,386)
Prepaids and other current assets (922) (1,774)
Accounts payable 474 (834)
Accrued compensation and related costs (949) (383)
Unearned revenue (1,014) 3,354
Other liabilities (432) (105)
Long-term receivables and other 209 (1,099)
Net cash used in operating activities (2,082) (2,842)
Cash Flows from Investing Activities:
Interelate acquisition 4 -
Sale (purchase) of short-term investments 3,003 (1,025)
Capital expenditures and other (75) (38)
Net cash provided by (used in) investing
activities 2,932 (1,063)
Cash Flows from Financing Activities:
Decrease in restricted cash 34 221
Payment of Series B dividends (742) (742)
Net cash used in financing activities (708) (521)
Effect of exchange rate changes on cash and
cash equivalents (171) (108)
Decrease in cash and cash equivalents (29) (4,534)
Cash and cash equivalents, beginning of period 20,095 27,103
Cash and cash equivalents, end of period $20,066 $22,569
Supplemental Disclosures of Cash Flow Information:
Cash (paid) refunded for income taxes, net $(4) $(41)
SOURCE eLoyalty Corporation
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Related links:
http://www.eloyalty.com
CONTACT:
Steven Pollema of eLoyalty Corporation,
+1-847-582-7100, ir@eloyalty.com
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