eLoyalty Corporation (NASDAQ: ELOY), a leading Behavioral Analytics
services and Integrated Contact Solutions company, today announced
financial results for the first quarter ended April 2, 2011.
On March 17, 2011, eLoyalty Corporation signed a definitive
agreement to sell its Integrated Contact Solutions ("ICS") business
unit and "eLoyalty" registered trademark / trade name to a
subsidiary of TeleTech Holdings, Inc. As a result, the company has
classified the ICS business unit as discontinued operations and the
associated results of operations, financial position, and cash
flows have been separately recorded as appropriate.
The table below describes the Q1 2011 performance of each of
eLoyalty's business units:
Behavioral
Analytics ICS Total
------------- ------------- -------------
Services Revenues $6.5m $10.8m $17.3m
Total Revenues $6.6m $13.7m $20.3m
Business Unit Margin ($0.8m) $2.1m $1.3m
The company incurred General and Administrative costs in Q1 of
approximately $3.4 million, excluding stock-based compensation
costs of $0.3 million. This total includes approximately $1.5
million of costs related to the ICS divestiture.
ICS Divestiture
Subject to the vote of eLoyalty's shareholders on May 19th and
other customary closing conditions, eLoyalty expects to complete
the ICS divestiture prior to the end of Q2 2011. The proceeds of
this transaction, after adjustments for prepaid contracts and
working capital, are currently expected to be approximately $34.5
million. Transaction costs and taxes associated with this
divestiture are estimated to be approximately $4.2 million.
Mattersight Launch
Upon completion of the divesture of the ICS business, the
remaining entity will operate under the name Mattersight
Corporation. Mattersight™ will be a leader in enterprise analytics
as a service. The cornerstone of the company's business is its
Behavioral Analytics Service. Behavioral Analytics captures,
analyzes, and creates insight from unstructured conversations,
emails, and employee desktop activity.
Mattersight has the foundational building blocks in place to
become a highly successful company, including:
-- Enterprise Analytics Footprint: The company applies
millions of proprietary algorithms to previously
unstructured and unanalyzed customer and employee
interactions. The company's analytics are used in service,
sales and collections calls centers. The company has also
deployed analytics applications for Fraud; Customer
Retention and the Back Office.
-- Analytics as a Service in the Cloud: Mattersight's
analytics are delivered in the cloud and virtually all of the
company's revenues are recurring.
-- Significant Returns for Our Customers: The company's
unique analytics and delivery model generates 2x to 10x
returns for the company's customers.
-- Impressive Customer List: The company has built an
impressive customer list including, 3 of the top 5 HMOs; 3
of the top 4 Property & Casualty companies; the 3rd largest
retail bank; and 1 of the 2 largest Prescription Benefit
Management companies.
-- Large and Sticky Customer Relationships: The company's
average revenue per customer is in excess of $1 million per year.
The company's typical contract is between $3 million and $20
million and runs for an initial duration of 3 to 5 years, with a
number of the company's earliest customers having signed
extensions of an additional 3 to 5 years.
-- Significant Revenue Visibility: The company has Contract
Backlog¹ of $80.1 million, and its revenue retention rate is 95%.
-- Increasing Revenue Momentum: The company signed
approximately $42 million of contracts in the last three
quarters and continues to have a strong pipeline.
Mattersight will operate under the "See What Matters™" tagline
and will launch its new brand immediately following the closing of
the ICS divestiture. Mattersight's trading symbol for its common
stock on the Nasdaq Global Market will be "MATR".
Mattersight Overview and Outlook
Based on strong bookings the company achieved in the last two
quarters of 2010, and its continuing strong pipeline, the company
expects Mattersight to achieve a significant increase in its
subscription revenues over the remainder of 2011.
The strong revenue growth over the next three quarters is
expected to drive significant operating leverage. Offsetting some
of this increased operating leverage, will be the investments the
company expects to make to build Mattersight's sales team and
develop additional product functionality.
In addition, the company expects to significantly reduce
Mattersight's G&A costs. These costs, excluding stock-based
compensation, are expected to decrease from $1.9 million in Q1 2011
to approximately $1.4 million in Q4 2011 (stock-based compensation
is anticipated to be $0.2 million in Q4 2011).
Q2 Guidance
The company currently expects its Q2 Behavioral Analytics
services revenues will be approximately $6.7 million and its Q2 ICS
services revenues will be approximately $12.0 million.
Conference Call Information
eLoyalty management will host a conference call at 5:00 p.m. ET
on Thursday, May 12, 2011. 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 live call is completed until May 26, 2011, by
dialing (800) 642-1687 or, for international callers, (706)
645-9291 and entering conference ID number 59884355.
About eLoyalty
eLoyalty enables its customers to achieve breakthrough results
with revolutionary analytics and implementation of advanced VoIP
applications. eLoyalty's principal offerings include the Behavioral
Analytics Service and Integrated Contact Solutions (ICS).
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.
eLoyalty uses the term "backlog" to reflect the estimated future
amount of Managed services revenue related to its Managed services
contracts. The value of these contracts is based on anticipated
usage volumes over the anticipated term of the agreement. The
anticipated term of the agreement is based on the contractually
agreed fixed term of the contract, plus agreed upon, but optional,
extension periods. Anticipated volumes may be greater or less than
anticipated. In addition, these contracts typically are cancellable
without cause based on the customer making a substantial early
termination payment or forfeiture of prepaid contract amounts. The
reported backlog is expected to be recognized as follows: $19.6m in
2011; $27.0m in 2012; $19.4m in 2013; $14.1m in 2014 and
thereafter.
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
For the
Three Months Ended
------------------------
April 2, March 27,
2011 2010
----------- -----------
Revenue:
Services revenue $ 6,547 $ 7,997
Reimbursed expenses 77 199
----------- -----------
Total revenue 6,624 8,196
Operating expenses:
Cost of services 3,104 4,372
Reimbursed expenses 77 199
----------- -----------
Total cost of revenue, exclusive of depreciation
and amortization shown below: 3,181 4,571
Sales, marketing and development 5,358 5,123
General and administrative 2,263 2,154
Severance and related costs 4 70
Depreciation and amortization 775 980
----------- -----------
Total operating expenses 11,581 12,898
----------- -----------
Operating loss (4,957) (4,702)
Interest and other income, net 131 109
----------- -----------
Loss from continuing operations before income
taxes (4,826) (4,593)
Income tax benefit (provision) 65 (21)
----------- -----------
Loss from continuing operations (4,761) (4,614)
Income (loss) on discontinued operations, net of
tax of $91 122 (452)
----------- -----------
Net loss (4,639) (5,066)
Dividends related to Series B Stock (317) (323)
----------- -----------
Net loss available to common stockholders $ (4,956) $ (5,389)
=========== ===========
Per common share:
Basic loss from continuing operations $ (0.34) $ (0.34)
Basic income (loss) from discontinued operations $ 0.01 $ (0.03)
=========== ===========
Basic net loss available to common stockholders $ (0.36) $ (0.40)
=========== ===========
Per common share:
Diluted loss from continuing operations $ (0.34) $ (0.34)
=========== ===========
Diluted income (loss) from discontinued
operations $ 0.01 $ (0.03)
=========== ===========
Diluted net loss available to common stockholders $ (0.36) $ (0.40)
=========== ===========
Shares used to calculate basic net loss per share 13,953 13,458
=========== ===========
Shares used to calculate diluted net loss per
share 13,953 13,458
=========== ===========
Stock-based compensation, primarily restricted
stock, is included in individual line items
above:
Cost of services $ 7 $ 28
Sales, marketing and development 1,100 774
General and administrative 322 293
Discontinued operations 77 464
eLoyalty Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
April 2, January 1,
2011 2011
----------- -----------
ASSETS:
Current Assets:
Cash and cash equivalents $ 17,941 $ 20,872
Restricted cash 2,460 2,460
Receivables (net of allowances of $9 and $10) 1,781 2,041
Prepaid expenses 4,536 4,303
Other current assets 307 296
Current assets held for sale 25,334 26,946
----------- -----------
Total current assets 52,359 56,918
Equipment and leasehold improvements, net 4,465 4,397
Goodwill 972 972
Intangibles, net 319 323
Other long-term assets 4,859 3,582
----------- -----------
Total assets $ 62,974 $ 66,192
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities:
Accounts payable $ 1,852 $ 372
Accrued compensation and related costs 1,842 2,048
Unearned revenue 9,801 7,884
Other current liabilities 4,839 4,262
Current liabilities held for sale 28,172 31,433
----------- -----------
Total current liabilities 46,506 45,999
Long-term unearned revenue 4,740 4,686
Other long-term liabilities 1,612 1,561
----------- -----------
Total liabilities 52,858 52,246
----------- -----------
Series B Stock, $0.01 par value; 5,000,000 shares
authorized and designated; 3,549,078 and
3,549,078 shares issued and outstanding at
April 2, 2011 and January 1, 2011, respectively,
with a liquidation preference of $19,684 and
$19,367 at April 2, 2011 and January 1, 2011,
respectively 18,100 18,100
Stockholders' Deficit:
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; 16,520,330 and 15,642,822 shares
issued at April 2, 2011, and at January 1, 2011,
respectively; and 15,619,175 and 14,786,005
outstanding at April 2, 2011 and January 1, 2011,
respectively 165 156
Additional paid-in capital 209,179 207,985
Accumulated deficit (208,778) (204,139)
Treasury stock, at cost, 901,155 and 856,817
shares at April 2, 2011 and January 1, 2011,
respectively (4,770) (4,468)
Accumulated other comprehensive loss (3,780) (3,688)
----------- -----------
Total stockholders' deficit (7,984) (4,154)
----------- -----------
Total liabilities and stockholders' deficit $ 62,974 $ 66,192
=========== ===========
eLoyalty Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
For the
Three Months Ended
------------------------
April 2, March 27,
2011 2010
----------- -----------
Cash Flows from Operating Activities:
Net loss $ (4,639) $ (5,066)
Less: net income (loss) from discontinued
operations 122 (452)
----------- -----------
Net loss from continuing operations (4,761) (4,614)
Adjustments to reconcile net loss from
continuing operations to net cash (used in)
provided by operating activities:
Depreciation and amortization 776 980
Stock-based compensation 1,429 1,095
Reversal for uncollectible amounts (1) (2)
Severance and related costs 6 5
Other (91) -
Changes in assets and liabilities:
Receivables 266 1,458
Prepaid expenses (1,533) 476
Other assets (17) 7
Accounts payable 881 294
Accrued compensation and related costs (160) (465)
Unearned revenue 1,970 (715)
Other liabilities (105) (56)
----------- -----------
Total adjustments 3,421 3,077
----------- -----------
Net cash used in continuing operations (1,340) (1,537)
Net cash (used in) provided by
discontinued operations (378) 1,355
----------- -----------
Net cash used in operating activities (1,718) (182)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures and other (206) (76)
----------- -----------
Net cash used in continuing investing
activities (206) (76)
Net cash used in discontinued investing
activities (158) (636)
----------- -----------
Net cash used in investing activities (364) (712)
----------- -----------
Cash Flows from Financing Activities:
Principal payments under capital lease
obligations (444) (372)
Payment of Series B Stock dividends - (646)
Acquisition of treasury stock (302) (464)
Proceeds from stock compensation and employee
stock purchase plans, net 34 34
----------- -----------
Net cash used in continuing financing
activities (712) (1,448)
Net cash used in discontinued financing
activities (29) (27)
----------- -----------
Net cash used in financing activities (741) (1,475)
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents by continuing operations (86) (108)
Effect of exchange rate changes on cash and cash
equivalents by discontinued operations (22) 6
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents (108) (102)
----------- -----------
Decrease in cash and cash equivalents (2,931) (2,471)
Cash and cash equivalents, beginning of period 20,872 28,982
----------- -----------
Cash and cash equivalents of continuing
operations, end of period $ 17,941 $ 26,511
=========== ===========
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred $ 639 $ 108
Capital equipment purchased on credit 639 108
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 39 $ 48
=========== ===========
Contact: eLoyalty Corporation Bill Noon Vice President, Chief
Financial Officer (847) 582-7019 Email Contact
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