eLoyalty Reports Second Quarter 2007 Results

LAKE FOREST, Ill., Aug. 8 -- eLoyalty Corporation (Nasdaq: ELOY), a leading enterprise CRM services and solutions company, today announced financial results for the second quarter ended June 30, 2007.

For the second quarter of 2007, total revenue was $26.0 million and the net loss was $3.9 million. The net loss available to common shareholders was $0.52 per share. eLoyalty realized an "Adjusted Earnings(1)" loss of $1.1 million for the second quarter of 2007, a $2.8 million improvement over the prior year period. Adjusted Earnings is a non-GAAP measure.

(Revenue tables available at http://www.eloyalty.com/investor/)

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 second quarter of 2007 include:

* Increased Services revenue 49% year over year and 5% sequentially
* Grew CIPCC Services revenue 55% and Behavioral Analytics(TM) revenue

656% year over year, setting record levels for these service lines
* Posted a record $9.7 million of Managed services revenue
* Served a record number of Managed services customers (75) and CIPCC Managed services customers (58)
* Improved Adjusted Earnings by $2.8 million year over year
* Signed three new Behavioral Analytics(TM) assessments and closed one new deployment contract

Deferred Revenue
eLoyalty deferred revenue of $1.0 million during the second quarter of 2007 related to Behavioral Analytics(TM) contracts and CIPCC multi-element contracts. The Company recognized $0.9 million of previously deferred revenue during the quarter.

As of June 30, 2007, the Company had deferred revenue of $8.1 million related to Behavioral Analytics(TM) contracts and CIPCC multi-element contracts. It is anticipated that $3.9 million of this deferred revenue will be recognized over the next twelve months.

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(TM) service line. The changes, which will be reflected prospectively in our Income Statement, are as follows:

* Costs associated with Behavioral Analytics(TM) 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 second quarter of 2007 decreased Cost of Services and, correspondingly, increased Selling, General, and Administrative expense by $4.8 million.

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 third quarter of 2007 is to achieve Services revenue in the range of $23.0 million to $24.0 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, August 8, 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 August 22, 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 6877606.

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 www.eloyalty.com or call 877-2ELOYAL.

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.

(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.