ELOY Eloyalty Corp. (MM)

eLoyalty Reports 26% Year over Year Increase in Services Revenue LAKE FOREST, Ill., Feb. 14 /PRNewswire-FirstCall/ -- eLoyalty Corporation (NASDAQ:ELOY), a leading enterprise Customer Relationship Management services and solutions company, today announced fourth quarter financial results for the period ended December 30, 2006. For the fourth quarter of 2006, total revenue was $23.7 million and the net loss was $2.6 million. The net loss available to common shareholders was $0.42 per share. eLoyalty realized an "Adjusted Earnings(1)" loss of $0.6 million for the fourth quarter of 2006, a $0.3 million improvement over the prior year period. Adjusted Earnings is a non-GAAP measure. For a reconciliation of Adjusted Earnings loss to operating loss, see the accompanying schedule. The following is a summary of revenue by major component: Three Months Ended Twelve Months Ended (000's) 12/30/2006 12/31/2005 12/30/2006 12/31/2005 Revenue: Consulting services $11,815 $10,818 $44,332 $46,013 Managed services 8,178 4,987 27,648 19,543 Services revenue 19,993 15,805 71,980 65,556 Product 2,577 1,896 13,579 9,710 Reimbursed expenses 1,165 897 4,269 3,742 Total revenue $23,735 $18,598 $89,828 $79,008 Highlights eLoyalty focuses on two emerging market niches: Behavioral Analytics(TM) and Cisco's Converged IP for Contact Centers ("CIPCC"). The Company's significant achievements in the fourth quarter of 2006 include: -- Increased Services revenue 26% year over year -- Grew CIPCC revenue 36% year over year -- Increased CIPCC Managed Services Backlog(2) 20% sequentially -- Achieved 297% year over year increase in Behavioral Analytics(TM) revenue -- Closed 4 new Behavioral Analytics(TM) assessments -- Completed $18 million Rights Offering Deferred Revenue eLoyalty deferred revenue of $1.2 million during the fourth quarter of 2006 related to Behavioral Analytics(TM) contracts and CIPCC multi-element contracts. The Company recognized $0.8 million of previously deferred revenue during the quarter. As of December 30, 2006, the Company had deferred revenue of $7.6 million related to Behavioral Analytics(TM) contracts and CIPCC multi-element contracts. It is anticipated that $2.6 million of this deferred revenue will be recognized over the next twelve months. Current Business Outlook eLoyalty provides guidance for Services revenue only, as 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 2007 is to achieve Services revenue in the range of $21.8 million to $22.8 million. The Company's objective is to achieve the mid-point of this range, and not to exceed or fall below the range by more than 5%. Conference Call Information eLoyalty management will host a conference call at 5:00 p.m. ET on Wednesday, February 14, 2007. 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, 2007 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 6048066. About eLoyalty eLoyalty is a leading management consulting, systems integration, and managed services company focused on optimizing customer interactions. With professionals throughout North America and an additional presence in Europe, eLoyalty offers a broad range of enterprise CRM services and solutions that include creating customer strategies; defining technical architectures; improving sales, service and marketing processes; and selecting, implementing, integrating, supporting and hosting best-of-breed CRM and analytics software applications. eLoyalty is focused on growing and developing its business through two primary Service Lines: Behavioral Analytics(TM) and Converged Internet Protocol Contact Center Solutions. For more information about eLoyalty, visit http://www.eloyalty.com/ or call 877-2ELOYAL. (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 term of each Managed services contract ranges from six months 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. Safe Harbor Statement Safe Harbor Statement under the Private Securities Act of 1995: Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning specific factors described in eLoyalty's Form 10-K and other filings with the U.S. Securities and Exchange Commission. Such information contained herein represents management's best judgment as of the date hereof based on information currently available. eLoyalty does not intend to update this information and disclaims any legal obligation to the contrary. Historical information is not necessarily indicative of future performance. 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 December December December December 30, 31, 30, 31, 2006 2005 2006 2005 Revenue: Services $19,993 $15,805 $71,980 $65,556 Product 2,577 1,896 13,579 9,710 Revenue before reimbursed expenses (net revenue) 22,570 17,701 85,559 75,266 Reimbursed expenses 1,165 897 4,269 3,742 Total revenue 23,735 18,598 89,828 79,008 Operating Expenses: Cost of services 15,740 12,636 58,604 49,477 Cost of product 2,259 1,709 10,183 7,331 Cost of revenue before reimbursed expenses 17,999 14,345 68,787 56,808 Reimbursed expenses 1,165 897 4,269 3,742 Total cost of revenue, exclusive of depreciation and amortization shown below: 19,164 15,242 73,056 60,550 Selling, general and administrative 6,567 4,889 25,328 20,385 Severance and related costs 7 - 737 411 Depreciation 667 804 2,095 5,151 Amortization of intangibles 80 106 370 532 Total operating expenses 26,485 21,041 101,586 87,029 Operating loss (2,750) (2,443) (11,758) (8,021) Interest income (expense) and other, net 198 121 681 374 Loss before income taxes (2,552) (2,322) (11,077) (7,647) Income tax (provision) benefit (14) 6 (71) 17 Net loss (2,566) (2,316) (11,148) (7,630) Dividends related to Series B preferred stock (366) (366) (1,464) (1,471) Net loss available to common stockholders $(2,932) $(2,682) $(12,612) $(9,101) Basic net loss per common share $(0.42) $(0.41) $(1.86) $(1.43) Diluted net loss per common share $(0.42) $(0.41) $(1.86) $(1.43) Shares used to calculate basic net loss per share 6,995 6,504 6,769 6,359 Shares used to calculate diluted net loss per share 6,995 6,504 6,769 6,359 Noncash compensation included in individual line items above: Cost of services $581 $287 $ 1,632 $1,154 Selling, general and administrative 825 323 2,386 1,462 Severance and related costs - - - (25) Total noncash compensation $1,406 $610 $4,018 $2,591 eLoyalty Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share and per share data) December 30, December 31, 2006 2005 ASSETS: Current Assets: Cash and cash equivalents $31,645 $17,851 Restricted cash 283 524 Short-term investments - 4,000 Receivables (net of allowances of $93 and $188) 12,816 10,801 Prepaid expenses 5,352 3,661 Other current assets 2,125 202 Total current assets 52,221 37,039 Equipment and leasehold improvements, net 4,793 3,131 Goodwill 2,643 2,643 Intangibles, net 1,034 1,181 Other long-term assets 3,877 1,234 Total assets $64,568 $45,228 LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable $4,247 $1,974 Accrued compensation and related costs 3,479 3,102 Unearned revenue 7,435 3,576 Other current liabilities 4,420 3,046 Total current liabilities 19,581 11,698 Long-term unearned revenue 5,411 864 Other long-term liabilities 60 281 Total liabilities 25,052 12,843 Commitments and contingencies Redeemable Series B convertible preferred stock, $0.01 par value; 5,000,000 shares authorized and designated; 4,098,369 and 4,099,968 shares issued and outstanding with a liquidation preference of $21,633 and $21,642 at December 30, 2006 and December 31, 2005, respectively 20,902 20,910 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; 9,078,794 and 7,611,915 shares issued and outstanding, respectively 91 76 Additional paid-in capital 162,059 149,949 Accumulated deficit (139,810) (128,662) Accumulated other comprehensive loss (3,726) (3,947) Unearned compensation - (5,941) Total stockholders' equity 18,614 11,475 Total liabilities and stockholders' equity $64,568 $45,228 eLoyalty Corporation CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) For the Twelve Months Ended December 30, December 31, 2006 2005 Cash Flows from Operating Activities: Net loss $(11,148) $(7,630) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,465 5,683 Noncash compensation 4,018 2,616 Changes in assets and liabilities, net of effect of acquisition: Receivables (1,977) 344 Prepaid expenses (5,314) (319) Accounts payable 2,266 457 Accrued compensation and related costs (1,962) (1,958) Unearned revenue 8,306 (800) Other liabilities 1,113 (726) Other assets (771) 332 Net cash used in operating activities (3,004) (2,001) Cash Flows from Investing Activities: Interelate acquisition - 7 Sale of short-term investments 4,000 3,772 Purchase of short-term investments - (797) Capital expenditures and other (3,979) (1,509) Net cash provided by investing activities 21 1,473 Cash Flows from Financing Activities: Proceeds from rights offering, net 17,754 - Decrease in restricted cash 241 174 Payment of Series B dividends (1,464) (1,480) Proceeds from exercise of stock options 67 - Net cash provided by (used in) financing activities 16,598 (1,306) Effect of exchange rate changes on cash and cash equivalents 179 (410) Increase (decrease) in cash and cash equivalents 13,794 (2,244) Cash and cash equivalents, beginning of period 17,851 20,095 Cash and cash equivalents, end of period $31,645 $17,851 Supplemental Disclosures of Cash Flow Information: Cash refunded for income taxes, net $- $17 eLoyalty Corporation CALCULATION OF ADJUSTED EARNINGS MEASURE (Unaudited and in thousands) For the For the Three Months Ended Twelve Months Ended December December December December 30, 31, 30, 31, 2006 2005 2006 2005 GAAP - Operating loss $(2,750) $(2,443) $(11,758) $(8,021) Add back (reduce) the effect of: Noncash compensation 1,406 610 4,018 2,616 Severance and related costs 7 - 737 411 Depreciation and amortization 747 910 2,465 5,683 Adjusted earnings measure - (loss) income $(590) $(923) $(4,538) $689 DATASOURCE: eLoyalty Corporation CONTACT: Steven Pollema of eLoyalty Corporation, +1-847-582-7100, Web site: http://www.eloyalty.com/ http://www.eloyalty.com/investor

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