Kenexa (Nasdaq: KNXA), a global provider of business solutions
for human resources, today announced operating results for the
third quarter ended September 30, 2010.
For the third quarter of 2010, Kenexa reported total revenue of
$50.8 million, an increase of 26% compared to $40.3 million for the
third quarter of 2009. Within total revenue, subscription revenue
was $39.8 million for the third quarter of 2010, an increase of 20%
compared with $33.2 million in the third quarter of 2009.
Professional services and other revenue was $11.0 million for the
third quarter of 2010, an increase of 55% compared to $7.1 million
for the third quarter of 2009.
“Kenexa’s growing business momentum continued in the third
quarter, leading to revenue and profitability that were ahead of
our expectations. Each area of our business delivered a solid
performance, including our software, content and RPO business,”
said Rudy Karsan, Chief Executive Officer of Kenexa. “While we
continue to have a cautious stance on the pace of economic
recovery, we are encouraged by Kenexa’s growing success with the
world’s largest organizations. Customer interest levels remain high
and we saw a significant increase in attendance at our World
Conference in September, the combination of which provides us with
optimism regarding Kenexa’s outlook.”
Karsan added, “We are excited to have successfully completed the
cash tender process related to the acquisition of Salary.com, which
establishes Kenexa as the leading provider of on-demand
compensation management solutions. Kenexa is already highly
differentiated based on our unique business model focused on
delivering a broad range of best-in-class solutions, proprietary
content, services and RPO. The addition of Salary.com’s software
and content is highly synergistic with Kenexa’s existing suite of
solutions and further differentiates our value proposition to
large, global organizations.”
Non-GAAP income from operations, which excludes share-based
compensation expense, amortization of acquired intangibles and fees
related to our acquisitions was $4.2 million for the three months
ended September 30, 2010, above the Company’s guidance of $3.4
million to $3.6 million and compared to $4.3 million for the three
months ended September 30, 2009. Non-GAAP net income available to
common shareholders, which excludes the items listed above, was
$3.7 million for the three months ended September 30, 2010,
compared to $4.0 million for the three months ended September 30,
2009. Non-GAAP net income available to common shareholders was
$0.16 per diluted share for the quarter ended September 30, 2010,
above the Company’s guidance of $0.12 to $0.13 and compared to
$0.18 per diluted share in the third quarter of 2009.
Kenexa’s income from operations for the three months ended
September 30, 2010, determined in accordance with GAAP, was $1.5
million, compared to $1.9 million for the same period of 2009. GAAP
net income allocable to common shareholders was approximately
$150,000, or $0.01 per diluted share for the three months ended
September 30, 2010, compared to net income of $1.6 million, or
$0.07 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 $90.4
million at September 30, 2010, an increase from $65.5 million at
the end of the prior quarter. The increase in cash was primarily
the result of drawing $25 million against a line of credit to
partially fund the acquisition of Salary.com shortly after the
close of the quarter. The Company also generated cash from
operations of $6.6 million during the third quarter, which was
partially offset by capital expenditures and the purchase of CHPD.
Deferred revenue was $58.7 million at September 30, 2010, an
increase of 33% from September 30, 2009.
On October 1, 2010, Kenexa announced the completion of the
acquisition of Salary.com. In consideration of the acquisition,
Kenexa used approximately $55 million of cash and approximately $25
million of long-term debt. The Company’s fourth quarter 2010
balance sheet will reflect the consideration used for the
Salary.com acquisition.
Other Third Quarter and Recent Highlights
- More than 40 “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 $1.2 million, an
increase from the over $1.1 million level in the prior
quarter.
- Kenexa 2x Mobile™ was recognized as a
Top HR Product of the Year by Human Resource Executive® magazine.
Winners were determined based on several factors: how innovative
the product is, how much value it adds to the HR function, ease of
use, and whether the product delivers on its promises.
- Kenexa hosted its 2010 Kenexa World
Conference in Philadelphia during September. The Company had record
attendance for its annual users group meeting, with participation
up at 2.5 times on a year-over-year basis.
Business Outlook
Based on information as of today, November 2, 2010, the Company
is issuing financial guidance as follows:
Fourth Quarter 2010*: The Company expects non-GAAP
revenue to be $58 million to $60 million, which includes
contribution of approximately $8 million to $9 million from
Salary.com, and non-GAAP operating income to be $6.0 million to
$6.9 million. Assuming an effective tax rate for reporting purposes
of approximately 20% and approximately 23.6 million shares
outstanding, Kenexa expects its non-GAAP net income per diluted
share to be $0.19 to $0.22.
Full Year 2010*: The Company expects non-GAAP revenue to
be $193 million to $195 million, which includes contribution of
approximately $8 million to $9 million from Salary.com, and
non-GAAP operating income to be $16.3 million to $17.2 million.
Assuming an effective tax rate for reporting purposes of
approximately 20% and approximately 23.5 million shares
outstanding, Kenexa expects its non-GAAP net income per diluted
share to be $0.55 to $0.59.
Full Year 2011*: The Company expects non-GAAP revenue to
be $235 million to $245 million, which assumes a contribution from
Salary.com in the low-to-mid $30 million range, and non-GAAP
operating income to be $19.0 million to $27.0 million. Assuming an
effective tax rate for reporting purposes of approximately 20% and
approximately 24 million shares outstanding, Kenexa expects its
non-GAAP net income per diluted share to be $0.58 to
$0.85.
* Kenexa is not providing guidance on GAAP revenue at this time
due to the uncertainty around its acquired deferred revenue
analysis. Kenexa’s non-GAAP results will exclude stock based
compensation expense, amortization of intangibles associated with
acquisitions, fees related to closing the Salary.com acquisition
and the purchase accounting reduction to Salary.com’s revenue.
Conference Call Information
Kenexa will host a conference call today, November 2, 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 November 9, 2010, at 877-870-5176 (domestic) or
858-384-5517 (international). The replay passcode is 358386. 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 $1.0 million for the three months
ended September 30, 2010 and $1.4 million for the three months
ended September 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
September 30, 2010, and $1.0 million for the three months ended
September 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.
Acquisition-related fees. In
accordance with ASC 805, Business Combinations, acquisition-related
fees including advisory, legal, accounting and other professional
fees are reported as expense in the periods in which the costs are
incurred and the services are received. Acquisition-related fees of
$0.9 million, for the three months ended September 30, 2010 include
legal, travel, and other fees not expected to reoccur from the
acquisitions of Salary.com and CHPD. Acquisition-related fees are
excluded in the 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.
Accretion of variable interest
entity. In accordance with ASC 810, Variable Interest
Entities, the Chinese joint venture is subject to periodic
adjustment in its fair market value. The accretion of the variable
interest entity of $0.8 million for the three months ended
September 30, 2010 is excluded in the 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.
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) September
30, December 31, 2010 2009
Assets (unaudited)
Current
assets Cash and cash equivalents $ 90,430 $ 29,221 Short-term
investments - 29,570
Accounts receivable, net of allowance for
doubtful accounts of $1,896 and$2,090
34,918 26,782 Unbilled receivables 5,128 4,457 Income tax
receivable 273 1,704 Deferred income taxes 6,319 8,685 Prepaid
expenses and other current assets 10,813 8,428
Total current assets 147,881
108,847 Property and equipment, net of accumulated
depreciation 18,542 19,530 Software, net of accumulated
amortization 21,060 17,337 Goodwill 5,569 3,204 Intangible assets,
net of accumulated amortization 8,602 9,143 Deferred income taxes,
non-current 36,686 34,879 Deferred financing costs, net of
accumulated amortization 81 - Other long-term assets 10,403
9,403
Total assets $ 248,824 $
202,343
Liabilities and Shareholders' equity
Current liabilities Accounts payable $ 9,352 $ 5,727 Notes
payable, current 5 16 Commissions payable 2,047 671 Accrued
compensation and benefits 6,387 4,820 Other accrued liabilities
7,042 6,376 Deferred revenue 58,708 49,964 Capital lease
obligations 229 211
Total current
liabilities 83,770 67,785
Capital lease obligations, less current portion 107 259 Revolving
credit loan 25,000 - Deferred income taxes 530 850 Other
non-current liabilities 1,892 1,981
Total liabilities 111,299 70,875
Commitments and Contingencies Temporary
equity Noncontrolling interest 2,546 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;22,708,829 and 22,561,883 shares
issued, respectively
227 226 Additional paid-in capital 279,465 275,127 Accumulated
deficit (140,604 ) (141,712 ) Accumulated other comprehensive loss
(4,109 ) (3,503 )
Total shareholders' equity
134,979 130,138
Total liabilities and shareholders'
equity $ 248,824 $ 202,343
Kenexa Corporation and Subsidiaries Consolidated
Statements of Operations (In thousands, except share and per share
data) Three Months Ended
September 30,
Nine Months Ended
September 30,
2010 2009 2010 2009 (unaudited) (unaudited) (unaudited) (unaudited)
Revenue: Subscription $ 39,764 $ 33,221 $ 109,136 $ 100,527
Other 11,020 7,093 26,177
18,083 Total revenues 50,784 40,314 135,313 118,610
Cost of revenues 17,957 13,129
46,828 40,462
Gross profit
32,827 27,185 88,485
78,148
Operating expenses: Sales and marketing
11,642 9,083 32,540 26,029 General and administrative 12,084 10,182
32,542 30,972 Research and development 3,277 2,453 7,693 7,557
Depreciation and amortization 4,341 3,582 12,457 10,084 Goodwill
impairment charge - - -
33,329 Total operating expenses 31,344
25,300 85,232 107,971
Income (loss) from operations 1,483 1,885 3,253 (29,823 )
Interest income (expense) 72 (28 ) 355 (186 )
(Loss) income on change in fair market
value ofinvestments including ARS andput option, net and municipal
bonds
(382 ) 102 (379 ) 54
Income (loss) before income tax 1,173 1,959 3,229 (29,955 ) Income
tax expense 26 361 906
1,418
Net income (loss) $ 1,147 $ 1,598
$ 2,323 $ (31,373 ) Income allocated to
noncontrolling interests (188 ) 0 (406 ) 0 Accretion of variable
interest entity (809 ) 0 (809 )
0
Net income (loss) allocable to common shareholders'
$ 150 $ 1,598 $ 1,108 $ (31,373 )
Basic income (loss) per share $ 0.01 $
0.07 $ 0.05 $ (1.39 )
Weighted average shares used to compute
netincome (loss) allocable to common shareholdersper share -
basic
22,629,050 22,539,717 22,603,323 22,525,144
Diluted income (loss) per share $ 0.01 $ 0.07
$ 0.05 $ (1.39 )
Weighted average shares used to compute
netincome (loss) allocable to common shareholdersper share -
diluted
23,168,553 22,920,935 23,098,070 22,525,144
Non-GAAP
income from operations and non-GAAP net income reconciliation:
Three Months Ended September 30, 2010 2009
(unaudited) (unaudited)
Non-GAAP income from operations
reconciliation: Income from operations $ 1,483 $ 1,885 Add
back: Share-based compensation expense 1,010 1,384 Amortization of
acquired intangibles 777 1,041 Acquisition-related fees 945
- Non-GAAP income from operations $ 4,215
$ 4,310
Weighted average shares used to compute
net income allocable tocommon shareholders per share - basic
22,629,050 22,539,717 Dilutive effect
of options and restricted stock units 539,503
381,218
Weighted average shares used to compute
net income allocable tocommon shareholders per share - diluted
23,168,553 22,920,935
Non-GAAP income from operations as a percentage of total revenue 8
% 11 %
Non-GAAP net income reconciliation:
Net income allocable to
common shareholders $ 150 $ 1,598 Add back:
Share-based compensation expense 1,010 1,384 Amortization of
acquired intangibles 777 1,041 Acquisition-related fees 945 -
Accretion associated with variable interest entity 809
- Non-GAAP net income available to common
shareholders' $ 3,691 $ 4,023
Non-GAAP basic net income per share $ 0.16
$ 0.18 Non-GAAP diluted net income per share $ 0.16
$ 0.18
Other non-GAAP measures
referenced on earnings call: Gross profit $ 32,827 $ 27,185
Add: share-based compensation expense 40 59
Non-GAAP gross profit $ 32,867 $ 27,244
Sales and marketing $ 11,642 $ 9,083 Less: share-based compensation
expense (226 ) (286 ) Less: acquisition-related fees (200 )
- Non-GAAP sales and marketing $ 11,216 $
8,797 General and administrative $ 12,084 10,182
Less: share-based compensation expense (631 ) (902 ) Less:
acquisition-related fees (745 ) - Non-GAAP
general and administrative $ 10,708 $ 9,280
Research and development $ 3,277 $ 2,453 Less: share-based
compensation expense (113 ) (137 ) Non-GAAP research
and development $ 3,164 $ 2,316 Kenexa
Corporation and Subsidiaries Consolidated Statements of Cash Flows
(in thousands) For the nine months ended September 30, 2010
2009 (unaudited) (unaudited)
Cash flows from operating
activities Net income (loss) from operations $ 2,323 $ (31,373
) Adjustments to reconcile net income (loss) to net cash provided
by operating activities: Depreciation and amortization 12,457
10,084 Loss on disposal of property and equipment 48 - (Gain) loss
on change in fair market value of ARS and put option, net (3 ) 9
Realized Loss on available-for-sale securities 483 - Goodwill
Impairment charge - 33,329 Share-based compensation expense 3,578
4,080 Amortization of deferred financing costs 2 364 Bad debt net
of recoveries (23 ) (471 ) Deferred income tax benefit (387 )
(1,118 ) Changes in assets and liabilities Accounts and unbilled
receivables (6,896 ) 4,272 Prepaid expenses and other current
assets (3,522 ) (1,907 ) Income taxes receivable 1,432 83 Other
long-term assets (778 ) (903 ) Accounts payable 1,994 336 Accrued
compensation and other accrued liabilities 2,259 180 Commissions
payable 1,380 149 Deferred revenue 8,501 5,433 Other liabilities
(279 ) (34 )
Net cash provided by operating
activities 22,569 22,513
Cash flows from investing activities Capitalized software
and purchases of property, plant and equipment (12,121 ) (10,923 )
Purchases of available-for-sale securities (7,653 ) (4,765 ) Sales
of available-for-sale securities 23,054 2,572 Sales of trading
securities 15,291 1,650 Acquisitions and variable interest entity,
net of cash acquired (5,326 ) (4,795 ) Net cash deposited in escrow
for acquisitions (160 ) -
Net cash provided
by (used in) investing activities 13,085
(16,261 )
Cash flows from financing activities
Borrowings from revolving credit loan 25,000 - Net repayments of
notes payable (9 ) (73 ) Repayments of capital lease obligations
(160 ) (237 ) Deferred financing costs (83 ) - Proceeds from common
stock issued through Employee Stock Purchase Plan 303 244 Net
proceeds from option exercises 458 70
Net cash provided by financing activities 25,509
4 Effect of exchange rate changes on
cash and cash equivalents 46 226 Net increase in cash and
cash equivalents 61,209 6,482 Cash and cash equivalents at
beginning of period 29,221 21,742
Cash and cash equivalents at end of period: $ 90,430
$ 28,224
Supplemental disclosures of cash flow
information Cash paid during the period for: Interest
expense 6 190 Income taxes (received) paid (823 ) 4,634
Non-cash investing and financing activities: Capital Leases
- 513 Common stock issuance for earn out - 1,050
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