Kenexa (Nasdaq: KNXA), a global provider of business solutions
for human resources, today announced operating results for the
second quarter ended June 30, 2010.
For the second quarter of 2010, Kenexa reported total revenue of
$44.9 million, an increase of 14% compared to $39.5 million for the
second quarter of 2009. Within total revenue, subscription revenue
was $36.1 million for the second quarter of 2010, an increase of 6%
compared with $34.0 million in the second quarter of 2009.
Professional services and other revenue was $8.8 million for the
second quarter of 2010, an increase of 61% compared to $5.5 million
for the second quarter of 2009.
“We are pleased with the company’s performance in the second
quarter, which was highlighted by accelerated revenue growth that
exceeded our guidance, continued strong growth in deferred revenue
and cash from operations that materially exceeded our reported
profitability,” said Rudy Karsan, Chief Executive Officer of
Kenexa.
Karsan added, “The pace of economic recovery remains uncertain,
however, our longer-term confidence continues to grow. Kenexa is
competing for and winning opportunities with a growing number of
the largest Global 5,000 organizations. In addition, we believe our
competitive position is growing stronger as a result of our
technology innovation and increased investments to raise awareness
relative to Kenexa’s unique end-to-end, integrated HR value
proposition. As a result, we are increasing the company’s full year
revenue growth target to approach or exceed double digit levels in
2010, and we are continuing to invest in sales and R&D to
position Kenexa for market share gains as the economy and IT
spending environment improve.”
Non-GAAP income from operations, which excludes share-based
compensation expense and amortization of acquired intangibles was
$3.8 million for the three months ended June 30, 2010, compared to
$4.4 million for the three months ended June 30, 2009. Non-GAAP net
income available to common shareholders which excludes the items
listed above was $3.1 million for the three months ended June 30,
2010, compared to $4.1 million for the three months ended June 30,
2009, which also excludes one-time charges related to the
retirement of a line of credit facility. Non-GAAP net income
available to common shareholders was $0.13 per diluted share for
the quarter ended June 30, 2010, compared to $0.18 per diluted
share in the second quarter of 2009.
Kenexa’s income from operations for the three months ended June
30, 2010, determined in accordance with GAAP, was $1.7 million,
compared to $1.9 million for the same period of 2009. GAAP net
income allocable to common shareholders was $1.0 million, or $0.04
per diluted share for the three months ended June 30, 2010,
compared to net income of $1.3 million, or $0.06 per diluted share
in the same period of 2009.
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 $65.5
million at June 30, 2010, an increase from $62.6 million at the end
of the prior quarter. The Company generated cash from operations of
$7.2 million during the second quarter, which was partially offset
by capital expenditures. Deferred revenue was $57.8 million at June
30, 2010, an increase of $3.3 million compared to the end of the
first quarter 2010 and an increase of 37% from June 30, 2009.
Other Second Quarter and Recent Highlights
- On July 26, 2010, Kenexa
announced the acquisition of The Centre for High Performance
Development (Holdings) Limited (CHPD). CHPD’s extensive research on
leadership development and training will add to Kenexa’s existing
research and content portfolio.
- 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 $1.1 million, an
increase from the over $1.0 million level in recent quarters.
- John Nies was elected as the
company’s lead independent director, reinforcing Kenexa’s
commitment to best practices in the area of corporate governance.
Mr. Nies has been a member of Kenexa’s board of directors since
2002 and is currently a Managing Director of JMH Capital, LLC, a
private equity investment firm.
Business Outlook
Based on information as of today, August 3, 2010, the Company is
issuing guidance for the third quarter and full year 2010 as
follows:
Third Quarter 2010*: The Company expects revenue to be
$45 million to $47 million, and non-GAAP operating income to be
$3.4 million to $3.6 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 $177.5
million to $181.5 million, and non-GAAP operating income to be
$14.5 million to $16.5 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 $0.59.
*includes the anticipated contribution from the acquisition of
Centre for High Performance Development (CHPD). Management
currently expects CHPD to contribute approximately $1.0 million and
$2.5 million to Kenexa’s revenue for the third quarter and full
year 2010, respectively. The acquisition is not expected to have a
material impact on Kenexa’s non-GAAP operating income or non-GAAP
net income per diluted share.
Conference Call Information
Kenexa will host a conference call today, August 3, 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 August 10, 2010, at 877-660-6853 (domestic) or 201-612-7415
(international). The replay account number is 3055 and the passcode
is 353439. 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 judgment 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.
We have not provided a reconciliation of forward-looking
non-GAAP financial measures to the directly comparable GAAP
measures because, due primarily to variability and difficulty in
making accurate forecasts and projections, not all of the
information necessary for a quantitative reconciliation is
available to us without unreasonable efforts.
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
expense. Share-based compensation expense consists of
expenses for stock options and stock awards that the Company began
recording in accordance with ASC 718 during the first quarter of
2006. Share-based compensation was $1.3 million for the three
months ended June 30, 2010 and $1.5 million for the three months
ended June 30, 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 $0.8 million for the
three months ended June 30, 2010, and $1.1 million for the three
months ended June 30, 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.
Charges related to retirement of
line of credit facility. The Company terminated its secured
credit facility in May 2009 and, as a result, wrote off its
deferred financing fees of $0.3 million. Because these charges were
non-recurring in nature the Company has excluded them from its
non-GAAP income to facilitate a more meaningful comparison to the
current period’s results.
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) June 30, December
31, 2010 2009
Assets (unaudited)
Current assets Cash
and cash equivalents $ 47,466 $ 29,221 Short-term investments
18,040 29,570
Accounts receivable, net of
allowance for doubtful accounts of $2,097 and$2,090
31,022 26,782 Unbilled receivables 3,001 4,457 Income tax
receivable 201 1,704 Deferred income taxes 7,758 8,685 Prepaid
expenses and other current assets 9,550 8,428
Total current assets 117,038
108,847 Property and equipment, net of accumulated
depreciation 18,541 19,530 Software, net of accumulated
amortization 19,804 17,337 Goodwill 3,878 3,204 Intangible assets,
net of accumulated amortization 6,851 9,143 Deferred income taxes,
non-current 35,489 34,879 Other long-term assets 9,909
9,403
Total assets $ 211,510 $
202,343
Liabilities and Shareholders' equity
Current liabilities Accounts payable $ 8,129 $ 5,727 Notes
payable, current 5 16 Commissions payable 1,098 671 Accrued
compensation and benefits 2,566 4,820 Other accrued liabilities
6,436 6,376 Deferred revenue 57,844 49,964 Capital lease
obligations 206 211
Total current
liabilities 76,284 67,785
Capital lease obligations, less current portion 158 259 Deferred
income taxes 487 850 Other non-current liabilities 1,891
1,981
Total liabilities 78,820
70,875
Commitments and
Contingencies Temporary equity Noncontrolling
interest 1,549 1,330
Shareholders' equity
Preferred stock, par value $0.01;
10,000,000 shares authorized; noshares issued or outstanding
- -
Class A common stock, $0.01 par
value; 100,000,000 shares authorized;and 22,629,190 and 22,561,883
shares issued, respectively
226 226 Additional paid-in capital 278,115 275,127 Accumulated
deficit (140,754 ) (141,712 ) Accumulated other comprehensive loss
(6,446 ) (3,503 )
Total shareholders' equity
131,141 130,138
Total liabilities and shareholders'
equity $ 211,510 $ 202,343
Kenexa Corporation and Subsidiaries Consolidated
Statements of Operations (In thousands, except share and per share
data) Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009 (unaudited) (unaudited) (unaudited) (unaudited)
Revenue: Subscription $ 36,120 $ 34,041 $ 69,372 $ 67,306
Other 8,745 5,424 15,157
10,990 Total revenues 44,865 39,465 84,529 78,296
Cost of revenues 15,060 13,637
28,871 27,333
Gross profit
29,805 25,828 55,658
50,963
Operating expenses: Sales and marketing
11,258 8,241 20,898 16,946 General and administrative 10,627 9,917
20,458 20,790 Research and development 2,132 2,536 4,416 5,104
Depreciation and amortization 4,080 3,274 8,116 6,502 Goodwill
impairment charge - - -
33,329 Total operating expenses 28,097
23,968 53,888 82,671
Income (loss) from operations 1,708 1,860 1,770 (31,708 )
Interest income (expense) 137 (221 ) 283 (158 )
Income (loss) on change in fair
market value ofARS and put option, net
34 247 3 (48 )
Income (loss) before income taxes 1,879 1,886 2,056 (31,914 )
Income tax expense 747 575 880
1,057
Net income (loss) $ 1,132
$ 1,311 $ 1,176 $ (32,971 ) Income (loss) allocated
to noncontrolling interests (156 ) 0
(218 ) 0
Net Income (loss) allocable to common
shareholders' $ 976 $ 1,311 $ 958 $
(32,971 )
Basic income (loss) per share $
0.04 $ 0.06 $ 0.04 $ (1.46 )
Weighted average shares used to
compute netincome (loss) allocable to common shareholders per share
- basic
22,603,079 22,526,075 22,590,244 22,517,737
Diluted income (loss) per share $ 0.04 $ 0.06
$ 0.04 $ (1.46 )
Weighted average shares used to
compute netincome (loss) allocable to common shareholders per share
- diluted
23,168,751 22,743,974 23,070,947 22,517,737
Non-GAAP
income from operations and non-GAAP net income reconciliation:
Three Months Ended June 30, 2010 2009 (unaudited)
(unaudited)
Non-GAAP income from operations reconciliation:
Income (loss) from operations $ 1,708 $ 1,860 Add back: Share-based
compensation expense 1,277 1,450 Amortization of acquired
intangibles 812 1,059 Non-GAAP income
from operations $ 3,797 $ 4,369
Weighted average shares used to
compute net income (loss) allocableto common shareholders per share
- basic
22,603,079 22,526,075 Dilutive effect
of options and restricted stock units 565,672
217,899
Weighted average shares used to
compute net income (loss) allocableto common shareholders per share
- diluted
23,168,751 22,743,974
Non-GAAP income from operations as a percentage of total revenue 8
% 11 %
Non-GAAP net income reconciliation:
Net income (loss)
allocable to common shareholders $ 976 $ 1,311 Add
back: Share-based compensation expense 1,277 1,450 Amortization of
acquired intangibles 812 1,059 Write off of deferred financing
charges - 289 Non-GAAP net income
available to common shareholders' $ 3,065 $ 4,109
Non-GAAP basic net income
per share $ 0.14 $ 0.18 Non-GAAP diluted net income
per share $ 0.13 $ 0.18
Other
non-GAAP measures referenced on earnings call: Gross profit $
29,805 $ 25,828 Add: share-based compensation expense 71
112 Non-GAAP gross profit $ 29,876 $
25,940 Sales and marketing $ 11,258 $ 8,241 Less:
share-based compensation expense (260 ) (313 )
Non-GAAP sales and marketing $ 10,998 $ 7,928
General and administrative $ 10,627 9,917 Less: share-based
compensation expense (802 ) (885 ) Less: severance expense -
- Non-GAAP general and administrative $ 9,825
$ 9,032 Research and development $ 2,132 $
2,536 Less: share-based compensation expense (144 )
(140 ) Non-GAAP research and development $ 1,988 $ 2,396
Kenexa Corporation and Subsidiaries Consolidated
Statements of Cash Flows (in thousands) For the six months
ended June 30, 2010 2009 (unaudited) (unaudited)
Cash flows from
operating activities Net income (loss) $ 1,176 $ (32,971 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Depreciation and amortization 8,116 6,502
Loss on disposal of property and equipment 34 - (Gain) loss on
change in fair market value of ARS and put option, net (3 ) 112
Goodwill Impairment charge - 33,329 Share-based compensation
expense 2,568 2,695 Amortization of deferred financing costs - 364
Bad debt expense (recoveries) 85 (278 ) Deferred income tax benefit
(39 ) (1,004 ) Changes in assets and liabilities Accounts and
unbilled receivables (3,440 ) 5,672 Prepaid expenses and other
current assets (2,591 ) (1,304 ) Income taxes receivable 1,503 83
Other long-term assets (862 ) 56 Accounts payable 2,457 (838 )
Accrued compensation and other accrued liabilities (1,379 ) 582
Commissions payable 437 12 Deferred revenue 8,011 3,412 Other
liabilities (93 ) (59 )
Net cash provided by operating
activities
15,980 16,365
Cash flows from
investing activities Capitalized software and purchases of
property, plant and equipment (7,986 ) (7,361 ) Purchases of
available-for-sale securities (4,430 ) (3,805 ) Sales of
available-for-sale securities 8,289 2,316 Sales of trading
securities 8,700 1,150 Acquisitions and variable interest entity,
net of cash acquired (1,885 ) (5,094 ) Net cash received from
escrow for acquisitions 250 -
Net cash provided by (used in)
investing activities
2,938 (12,794 )
Cash flows from
financing activities Repayments of notes payable (9 ) (16 )
Repayments of capital lease obligations (107 ) (98 ) Proceeds from
common stock issued through Employee Stock Purchase Plan 201 158
Net proceeds from option exercises 219 15
Net cash provided by financing activities 304
59 Effect of exchange rate changes on
cash and cash equivalents (977 ) (4 ) Net increase in cash
and cash equivalents 18,245 3,626 Cash and cash equivalents at
beginning of period 29,221 21,742
Cash and cash equivalents at end of period: $ 47,466
$ 25,368
Supplemental disclosures of cash flow
information Cash paid during the period for: Interest
expense $ 6 $ 62 Income taxes $ 524 $ 2,727
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