Kenexa (Nasdaq: KNXA), a global provider of business solutions
for human resources, today announced operating results for the
first quarter ended March 31, 2010.
For the first quarter of 2010, Kenexa reported total revenue of
$39.7 million, compared to $38.8 million for the first quarter of
2009. Within total revenue, subscription revenue was $33.3 million
for the first quarter of 2010, consistent with the first quarter of
2009. Professional services and other revenue was $6.4 million for
the first quarter of 2010, compared to $5.6 million for the first
quarter and $5.7 million for the fourth quarter of 2009.
“Our first quarter results were consistent with our expectations
and are highlighted by a return to positive year-over-year revenue
growth and cash flow that materially exceeded our reported
profitability,” said Rudy Karsan, Chief Executive Officer of
Kenexa. “The underlying momentum of Kenexa’s business is evidenced
by continued growth of our deferred revenue, combined with another
strong quarter of competitive wins with large, global
organizations. Customer and industry analyst response to Kenexa’s
technology and product roadmap continues to be very favorable, and
we are able to offer the Global 5,000 a unique value proposition
based on an end-to-end product suite and industry leading domain
expertise.”
Karsan concluded, “While we remain somewhat cautious from a
near-term perspective, our longer-term optimism continues to grow.
We expect recent sales activity and improved renewal rates to drive
sequential revenue growth in the second quarter, and we will
continue to execute against our sales and marketing investment
strategy to position Kenexa for market share gains as the economic
environment and jobs market eventually improve.”
Non-GAAP income from operations, which excludes share-based
compensation expense and amortization of acquired intangibles, was
$2.3 million for the three months ended March 31, 2010. For the
three months ended March 31, 2009, non-GAAP income from operations,
which excludes share-based compensation expense, amortization of
acquired intangibles, a non-cash goodwill impairment charge,
severance expenses and professional fees associated with our
variable interest entity, was $3.9 million. Non-GAAP net income
available to common shareholders was $2.2 million for the three
months ended March 31, 2010. Non-GAAP net income available to
common shareholders was $0.10 per diluted share for the quarter
ended March 31, 2010, compared to $0.14 per diluted share in the
first quarter of 2009.
Kenexa’s income from operations for the three months ended March
31, 2010, determined in accordance with GAAP, was $62,000, compared
with loss from operations of $33.6 million for the same period of
2009. GAAP net loss allocable to common shareholders was $18,000,
or $0.00 per diluted share for the three months ended March 31,
2010, compared to a net loss of $34.3 million and a loss of $1.52
per diluted share in the same period of 2009. GAAP loss from
operations, net loss and net loss per share in the first quarter of
2009 included the impact of a $33.3 million non-cash goodwill
impairment charge.
A reconciliation of GAAP to non-GAAP results has been provided
in the financial statement tables included at the end of this press
release. An explanation of these measures is also included below
under the heading “Non-GAAP Financial Measures.”
Kenexa had cash, cash equivalents and investments of $62.6
million at March 31, 2010, an increase from $58.8 million at the
end of the prior quarter. The Company generated cash from
operations of $8.8 million during the first quarter, which was
partially offset by capital expenditures. Deferred revenue was
$54.5 million at March 31, 2010, an increase of approximately $4.5
million compared to the end of the fourth quarter 2009 and an
increase of 32% from the end of the year ago period.
Other First Quarter Highlights
- More than 30 “preferred partner”
customers were added during the quarter (defined as customers that
spend more than $50,000 annually).
- The average annual revenue from
the Company’s top 80 customers was greater than $1.0 million,
consistent with the end of the prior quarter.
- Kenexa was named a major player
in the IDC MarketScape: Worldwide Integrated Talent Management 2010
Vendor Analysis for the second consecutive year. Kenexa was judged
a major player based on the strength of its global talent
management capabilities and strategies.
- Kenexa Recruiter BrassRing was
selected as a finalist for the prestigious CODiE Awards in the Best
Human Capital Management Solution category.
- Kenexa was included on
TrainingIndustry.com’s 2010 Leadership Training Companies “Watch
List.” Criteria for the list included: new and innovative service
offerings; a unique approach to leadership development solutions; a
commitment to thought leadership; and the quality of initial
clients.
Business Outlook
Based on information as of today, May 4, 2010, the Company is
issuing guidance for the second quarter and full year 2010 as
follows:
Second Quarter 2010: The Company expects revenue to be
$41 million to $43 million, and non-GAAP operating income to be
$3.7 million to $3.9 million. Assuming an effective tax rate for
reporting purposes of approximately 20% and approximately 23.2
million shares outstanding, Kenexa expects its non-GAAP net income
per diluted share to be $0.12 to $0.13.
Full Year 2010: The Company expects revenue to be $162
million to $169 million, and non-GAAP operating income to be $14.5
million to $18.5 million. Assuming an effective tax rate for
reporting purposes of approximately 20% and approximately 23.2
million shares outstanding, Kenexa expects its non-GAAP net income
per diluted share to be $0.52 to $0.66.
Conference Call Information
Kenexa will host a conference call today, May 4, 2010, at 5:00
pm (Eastern Time) to discuss the Company's financial results. To
access this call, dial 877-407-9039 (domestic) or 201-689-8470
(international). A replay of this conference call will be available
through May 11, 2010, at 877-660-6853 (domestic) or 201-612-7415
(international). The replay account number is 3055 and the passcode
is 348586. A live webcast of this conference call will be available
on the "Investor Relations" page of the Company's Web site,
(www.kenexa.com) and a replay will be archived on the Web site as
well.
Forward-Looking Statements
This press release includes certain “forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, but are not
limited to, plans, objectives, expectations and intentions and
other statements contained in this press release that are not
historical facts and statements identified by words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" or words of similar meaning. These statements may
contain, among other things, guidance as to future revenue and
earnings, operations, expected benefits from acquisitions,
prospects of the business generally, intellectual property and the
development of products. These statements are based on our current
beliefs or expectations and are inherently subject to various risks
and uncertainties, including those set forth under the caption
"Risk Factors" in Kenexa’s most recent Annual Report on Form 10-K
as filed with the Securities and Exchange Commission and as revised
or supplemented by Kenexa’s quarterly reports on Form 10-Q. Actual
results may differ materially from these expectations due to
changes in global political, economic, business, competitive,
market and regulatory factors, Kenexa’s ability to implement
business and acquisition strategies or to complete or integrate
acquisitions. Kenexa does not undertake any obligation to update
any forward-looking statements contained in this document as a
result of new information, future events or otherwise.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. Kenexa
believes that non-GAAP measures of financial results provide useful
information to management and investors regarding certain financial
and business trends relating to Kenexa’s financial condition and
results of operations. The Company’s management uses these non-GAAP
results to compare the Company’s performance to that of prior
periods for trend analyses, for purposes of determining executive
incentive compensation, and for budget and planning purposes. These
measures are used in monthly financial reports prepared for
management and in quarterly financial reports presented to the
Company’s Board of Directors. The Company believes that the use of
these non-GAAP financial measures provides an additional tool for
investors to use in evaluating ongoing operating results and trends
and in comparing its financial measures with other companies in the
Company’s industry, many of which present similar non-GAAP
financial measures to investors.
Management of the Company does not consider such non-GAAP
measures in isolation or as an alternative to such measures
determined in accordance with GAAP. The principal limitation of
such non-GAAP financial measures is that they exclude significant
expenses that are required by GAAP to be recorded. In addition,
they are subject to inherent limitations as they reflect the
exercise of judgments by management about which charges are
excluded from the non-GAAP financial measures.
In order to compensate for these limitations, management of the
Company presents its non-GAAP financial measures in connection with
its GAAP results. Kenexa urges investors and potential investors in
the Company’s securities to review the reconciliation of its
non-GAAP financial measures to the comparable GAAP financial
measures which it includes in press releases announcing earnings
information, including this press release, and not to rely on any
single financial measure to evaluate the Company’s business.
Kenexa presents the following non-GAAP financial measures in
this press release: non-GAAP income from operations; non-GAAP net
income available to common shareholders’; non-GAAP gross profit;
non-GAAP sales and marketing expense; non-GAAP general and
administrative expense; non-GAAP research and development expense;
non-GAAP operating margin, and non-GAAP net income per diluted
share as described below.
The Company’s non-GAAP financial measures exclude the
following:
Share-based compensation.
Share-based compensation consists of expenses for stock options and
stock awards that the Company began recording in accordance with
SFAS 123(R) during the first quarter of 2006. Share-based
compensation was $1.3 million for the three months ended March 31,
2010 and $1.2 million for the three months ended March 31, 2009.
Share-based compensation expenses are excluded in the Company’s
non-GAAP financial measures because share-based compensation
amounts are difficult to forecast. This is due in part to the
magnitude of the charges which depends upon the volume and timing
of stock option grants, which are unpredictable and can vary
dramatically from period to period, and external factors such as
interest rates and the trading price and volatility of the
Company’s common stock. The Company believes that this exclusion
provides meaningful supplemental information regarding the
Company’s operating results because these non-GAAP financial
measures facilitate the comparison of results for future periods
with results from past periods. The dilutive effect of all
outstanding options is included in the calculation of diluted
earnings per share on both a GAAP and a non-GAAP basis.
Amortization of acquired
intangible assets. In accordance with GAAP, operating
expenses include amortization of acquired intangible assets which
are amortized over the estimated useful lives of such assets.
Amortization of acquired intangible assets was $0.9 million for the
three months ended March 31, 2010, and $1.1 million for the three
months ended March 31, 2009. Amortization of acquired intangible
assets is excluded from the Company’s non-GAAP financial measures
because the Company believes that such exclusion facilitates
comparisons to its historical operating results and to the results
of other companies in the same industry, which have their own
unique acquisition histories.
Goodwill impairment
charge. The Company recorded a non-cash goodwill impairment
charge in the first quarter of 2009 of $33.3 million as a result of
a substantial decrease in the Company’s stock price, reflecting the
impact of the unprecedented turmoil in world economies and the
resultant impact on the Company’s operations.
Severance expenses. The
company incurred charges in the amount of $1.2 million in relation
to additional severance expenses in the first quarter of 2009.
These charges were excluded from non-GAAP income to facilitate a
more meaningful comparison to the prior year’s results.
Professional fees associated with
our variable interest entity. The company incurred
professional fees in connection with its Chinese expansion in the
amount of $0.7 million during the first quarter of 2009. The
Company believes that such exclusion facilitates comparisons to its
historical operating results and to the results of other companies
in the same industry, which have their own unique acquisition
histories.
About Kenexa
Kenexa® provides business solutions for human resources. We help
global organizations multiply business success by identifying the
best individuals for every job and fostering optimal work
environments for every organization. For more than 20 years, Kenexa
has studied human behavior and team dynamics in the workplace, and
has developed the software solutions, business processes and expert
consulting that help organizations impact positive business
outcomes through HR. Kenexa is the only company that offers a
comprehensive suite of unified products and services that support
the entire employee lifecycle from pre-hire to exit. Additional
information about Kenexa and its global products and services can
be accessed at www.kenexa.com.
Note to editors: Kenexa is a registered trademark of Kenexa.
Other company names, product names and company logos mentioned
herein are the trademarks or registered trademarks of their
respective owners.
Kenexa Corporation and Subsidiaries Consolidated Balance
Sheets (In thousands, except share data) March 31, December
31, 2010 2009
Assets (unaudited)
Current assets Cash
and cash equivalents $ 38,302 $ 29,221 Short-term investments
24,252 29,570
Accounts receivable, net of
allowance for doubtful accounts of$2,019 and $2,090,
respectively
26,082 26,782 Unbilled receivables 3,355 4,457 Income tax
receivable 1,630 1,704 Deferred income taxes 7,926 8,685 Prepaid
expenses and other current assets 9,844 8,428
Total current assets 111,391
108,847 Property and equipment, net of accumulated
depreciation 19,462 19,530 Software, net of accumulated
amortization 18,148 17,337 Goodwill 3,664 3,204 Intangible assets,
net of accumulated amortization 7,963 9,143 Deferred income taxes,
non-current 34,911 34,879 Other long-term assets 10,121
9,403
Total assets $ 205,660 $
202,343
Liabilities and Shareholders' equity
Current liabilities Accounts payable $ 5,644 $ 5,727 Notes
payable, current 6 16 Commissions payable 1,127 671 Accrued
compensation and benefits 3,284 4,820 Other accrued liabilities
6,192 6,376 Deferred revenue 54,504 49,964 Capital lease
obligations 208 211
Total current
liabilities 70,965 67,785
Capital lease obligations, less current portion 208 259 Deferred
income taxes 226 850 Other liabilities 1,979
1,981
Total liabilities 73,378
70,875
Commitments and Contingencies
Temporary equity Noncontrolling interest 1,393 1,330
Shareholders' equity
Preferred stock, par value $0.01;
10,000,000 shares authorized;no shares issued or outstanding
- -
Class A common stock, $0.01 par
value; 100,000,000 shares authorized; and 22,593,922and 22,561,883
shares issued, respectively
226 226 Additional paid-in capital 276,616 275,127 Accumulated
deficit (141,730 ) (141,712 ) Accumulated other comprehensive loss
(4,223 ) (3,503 )
Total shareholders' equity
130,889 130,138
Total liabilities and shareholders'
equity $ 205,660 $ 202,343 Kenexa
Corporation and Subsidiaries Consolidated Statements of Operations
(In thousands, except share and per share data) Three
Months Ended March 31, 2010 2009 (unaudited) (unaudited)
Revenues: Subscription $ 33,252 $ 33,265 Other 6,412
5,566 Total revenues 39,664 38,831 Cost of
revenues 13,811 13,696
Gross
profit 25,853 25,135
Operating expenses: Sales and marketing 9,640 8,705 General
and administrative 9,831 10,873 Research and development 2,284
2,568 Depreciation and amortization 4,036 3,228 Goodwill impairment
charge - 33,329 Total operating
expenses 25,791 58,703 Income (loss) from operations 62
(33,568 ) Interest income, net 146 63 Loss on change
in fair market value of ARS and put option, net (31 )
(295 ) Income (loss) before income taxes 177 (33,800 )
Income tax expense 133 482
Net
income (loss) $ 44 ($34,282 ) Income allocated to
noncontrolling interests (62 ) -
Net loss
allocable to common shareholders' ($18 ) ($34,282 )
Basic net loss per
share $ 0.00 ($1.52 )
Weighted average shares used to
compute net lossallocable to common shareholders’ per share –
basic
22,577,266 22,509,304
Diluted net
loss per share $ 0.00 ($1.52 )
Weighted average shares used to
compute net lossallocable to common shareholders’ per share –
diluted
22,577,266 22,509,304
Non-GAAP income from operations and
non-GAAP net income reconciliation: Three Months
Ended March 31, 2010 2009 (unaudited) (unaudited)
Non-GAAP
income from operations reconciliation: Income (loss) from
operations $ 62 $ (33,568 ) Add back: Share-based compensation
expense 1,291 1,245 Amortization of acquired intangibles 921 1,083
Severance expense - 1,156 Professional fees associated with
variable interest entity - 687 Goodwill impairment charge -
33,329 Non-GAAP income from operations $ 2,274
$ 3,932
Weighted average shares used to compute non-GAAP net income per
share - basic 22,577,266 22,509,304
Dilutive effect of options and restricted stock units
410,296 19,935 Weighted average shares used to
compute non-GAAP net income per share - diluted 22,987,562
22,529,239 Non-GAAP income from
operations as a percentage of total revenue 6 % 10 %
Non-GAAP income reconciliation: Net loss allocable to common
shareholders' $ (18 ) $ (34,282 ) Add back: Share-based
compensation expense 1,291 1,245 Amortization of acquired
intangibles 921 1,083 Severance expense - 1,156 Professional fees
associated with variable interest entity - 687 Goodwill impairment
charge - 33,329 Non-GAAP net income
available to common shareholders' $ 2,194 $ 3,218
Non-GAAP basic net income
per share available to common shareholders' $ 0.10 $ 0.14
Non-GAAP diluted net income per share available to common
shareholders' $ 0.10 $ 0.14
Other
non-GAAP measures referenced on earnings call: Gross profit $
25,853 $ 25,135 Add: share-based compensation expense 84 110 Add:
severance expense - 651 Non-GAAP gross
profit $ 25,937 $ 25,896 Sales and marketing $
9,640 $ 8,705 Less: share-based compensation expense (290 ) (239 )
Less: severance expense - (202 ) Non-GAAP
sales and marketing $ 9,350 $ 8,264 General
and administrative $ 9,831 $ 10,873 Less: share-based compensation
expense (820 ) (808 ) Less: severance expense - (165 ) Less:
professional fees associated with variable interest entity -
(687 ) Non-GAAP general and administrative $ 9,011
$ 9,213 Research and development $ 2,284 $
2,568 Less: share-based compensation expense (97 ) (88 ) Less:
severance expense - (138 ) Non-GAAP research
and development $ 2,187 $ 2,342
Kenexa Corporation and
Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
For the Three Months ended March
31,
2010 2009 (unaudited) (unaudited)
Cash flows from operating
activities Net income (loss) $ 44 $ (34,282 ) Adjustments to
reconcile net income (loss) to net cash provided by operating
activities: Depreciation and amortization 4,036 3,228 Loss on
disposal of property and equipment 34 - Loss on change in fair
market value of ARS and put option, net 30 295 Goodwill Impairment
charge - 33,329 Share-based compensation expense 1,291 1,245
Amortization of deferred financing costs - 75 Bad debt recoveries
(41 ) (30 ) Deferred income tax expense (benefit) 143 (825 )
Changes in assets and liabilities Accounts and unbilled receivables
1,363 5,224 Prepaid expenses and other current assets (1,859 )
(1,083 ) Income taxes receivable 74 36 Other long-term assets (821
) 332 Accounts payable (80 ) (715 ) Accrued compensation and other
accrued liabilities (523 ) (338 ) Commissions payable 460 (180 )
Deferred revenue 4,655 2,569
Net
cash provided by operations 8,806 8,880
Cash flows from investing activities
Capitalized software and purchases of property and equipment (3,581
) (2,997 ) Purchases of available-for-sale securities (730 ) (845 )
Sales of available-for-sale securities 2,255 1,203 Sales of trading
securities 4,050 1,150 Acquisitions and variable interest entity,
net of cash acquired (1,635 ) (1,730 )
Net cash
provided by (used in) investing activities 359
(3,219 )
Cash flows from financing activities
Repayments of notes payable (9 ) (8 ) Repayments of capital lease
obligations (54 ) (53 ) Proceeds from common stock issued through
Employee Stock Purchase Plan 96 78 Net proceeds from option
exercises 102 -
Net cash provided by
financing activities 135 17
Effect of exchange rate changes on cash and cash equivalents (219 )
(375 ) Net increase in cash and cash equivalents 9,081 5,303
Cash and cash equivalents at beginning of period 29,221
21,742
Cash and cash equivalents at end of
period $ 38,302 $ 27,045
Supplemental
disclosures of cash flow information Cash paid during the
period for: Interest expense $ 4 $ 15 Income taxes $ 272 $ 925
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