Kenexa (Nasdaq: KNXA), a global provider of business solutions
for human resources, today announced operating results for the
second quarter, ended June 30, 2011.
For the second quarter of 2011, Kenexa reported total GAAP
revenue of $69.0 million, with non-GAAP revenue of $71.3 million
after eliminating the $2.3 million GAAP adjustment to deferred
revenue resulting from the October 2010 acquisition of Salary.com,
Inc. Non-GAAP revenue was $44.9 million for the second quarter of
2010. Within total non-GAAP revenue, subscription revenue was $52.2
million for the second quarter of 2011, an increase of 45% compared
with $36.1 million in the second quarter of 2010. Professional
services and other revenue was $19.1 million for the second quarter
of 2011, an increase of 119% compared to $8.7 million for the
second quarter of 2010.
“Kenexa’s better than expected second quarter performance was
the result of high customer interest levels, solid execution and
Kenexa’s differentiated value proposition. An increasing number of
organizations around the world are looking for a strategic HR
solutions partner, and Kenexa’s unique combination of software,
proprietary content and services is driving continued market share
gains,” said Rudy Karsan, Chief Executive Officer of Kenexa. “We
are increasing our outlook for 2011 based on our strong second
quarter results and client momentum, though we continue to monitor
the economic environment closely as macro data points remain highly
variable on a global basis.”
Non-GAAP income from operations, which excludes share-based
compensation expense, acquisition-related fees, amortization of
acquired intangibles, the purchase accounting impact to
Salary.com’s deferred revenue, a benefit related to a legal
settlement, and non-recurring litigation charges, was $6.4 million
for the three months ended June 30, 2011. This was above the
Company’s guidance of $5.4 million to $5.8 million and represented
an increase of 69% compared to non-GAAP income from operations of
$3.8 million for the three months ended June 30, 2010.
Non-GAAP net income available to common shareholders, which
excludes the items listed above and accretion associated with a
variable interest entity, was $4.7 million for the three months
ended June 30, 2011, compared to $3.1 million for the three months
ended June 30, 2010. Non-GAAP net income available to common
shareholders was $0.18 per diluted share for the quarter ended June
30, 2011, up 38% compared to $0.13 per diluted share in the second
quarter of 2010. Non-GAAP net income per diluted share for the
second quarter of 2011 was $0.01 above the Company’s guidance of
$0.16 to $0.17 and included a $0.01 negative impact from higher
shares outstanding. The Company’s follow-on offering of common
shares during the quarter was not anticipated at the time guidance
was provided.
Kenexa’s income from operations for the three months ended June
30, 2011, determined in accordance with GAAP, was $0.4 million,
compared to income from operations of $1.7 million for the same
period of 2010. GAAP net loss available to common shareholders was
approximately $1.6 million, or a loss of $0.06 per basic and
diluted shares for the three months ended June 30, 2011, compared
to net income of $1.0 million, or $0.04 per basic and diluted
share, in the same period of 2010.
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 $127.5
million at June 30, 2011, compared to $19.7 million at the end of
the prior quarter. The increase in cash was primarily related to
the company’s follow-on offering of common shares during the
quarter, which provided $91.7 million in net proceeds including the
execution of the overallotment option. The Company also generated
$16.8 million in non-GAAP cash from operations for the second
quarter.
Deferred revenue was $84.9 million at June 30, 2011, an increase
of 47% from June 30, 2010 and up from $82.2 million at the end of
the first quarter of 2011.
Other Second Quarter and Recent Highlights
- More than 50 “preferred partner”
customers were added during the quarter (defined as customers that
spend more than $50,000 annually), an increase from the over 30
preferred partner customer additions in the year ago period.
- The average annualized revenue from the
Company’s top 80 customers, or P-cubed metric, was greater than
$1.5 million, an increase from the over $1.1 million level in the
second quarter of 2010.
- On May 25, the company completed a
public offering of 3,450,000 shares of its common stock at $27.75
per share. Kenexa received net proceeds of approximately $91.7
million after taking into consideration the execution of the
overallotment option and deducting underwriting discounts and
commissions and offering expenses that are payable by Kenexa.
Business Outlook
Based on information as of today, August 2, 2011, the Company is
issuing financial guidance as follows:
Third Quarter 2011*: The Company expects GAAP revenue to
be $70.5 million to $72.5 million. Excluding the GAAP adjustment to
deferred revenue, resulting from the Salary.com acquisition, the
Company expects non-GAAP revenue to be $72.0 million to $74.0
million, and non-GAAP operating income to be $7.1 million to $7.5
million. Assuming an effective tax rate for reporting purposes of
approximately 20% and approximately 28.0 million shares
outstanding, Kenexa expects its non-GAAP net income per diluted
share to be $0.19 to $0.20.
Full Year 2011*: The Company expects GAAP revenue to be
$271.0 million to $275.0 million. Excluding the GAAP adjustment to
deferred revenue, the Company expects non-GAAP revenue to be $279.0
million to $283.0 million, and non-GAAP operating income to be
$27.5 million to $28.5 million. Assuming an effective tax rate for
reporting purposes of approximately 20% and approximately 26.5
million shares outstanding, Kenexa expects its non-GAAP net income
per diluted share to be $0.77 to $0.80.
* Kenexa’s non-GAAP results excludes stock based compensation
expense, amortization of acquired intangibles, acquisition-related
fees, the purchase accounting reduction for Salary.com’s revenue, a
benefit related to a legal settlement, non-recurring litigation
charges and accretion associated with a variable interest
entity.
Conference Call Information
Kenexa will host a conference call today, August 2, 2011, at
5:00 p.m. (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 9, 2011, at 877-870-5176 (domestic) or
858-384-5517 (international). The replay passcode is 375410. 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 revenue; non-GAAP cash from
operations; non-GAAP income from operations; non-GAAP net income
allocable to common shareholders’; non-GAAP gross profit; 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:
Non-GAAP revenue. Non-GAAP revenue
consists of GAAP revenue and the effect of the write down of the
deferred revenue associated with purchase accounting for the
Salary.com acquisition. This effect during the three months ended
June 30, 2011 was $2.3 million and is added back since the Company
believes its inclusion provides a more accurate depiction of total
revenue.
Non-GAAP cash from operations.
Non-GAAP cash from operations consists of GAAP cash from operations
adjusted for non-recurring payments from Taleo to Kenexa related to
our litigation settlement and other legal fees associated with our
acquisitions and litigation totaling $3.2 million. These exclusions
are made to GAAP cash from operations to facilitate a consistent
and more meaningful comparison to the prior year period as their
effect was not included in our second quarter 2010 results.
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 $1.7 million for the three months
ended June 30, 2011 and $1.3 million for the three months ended
June 30, 2010. 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 $3.6 million for the three months ended June
30, 2011, and $0.8 million for the three months ended June 30,
2010. 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
$0.1 million for the three months ended June 30, 2011 include
legal, travel, and other fees not expected to reoccur from the
acquisitions. 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.
Taleo settlement and nonrecurring
litigation charges. Settlement proceeds and nonrecurring
litigation fees totaling $3.0 million and $1.4 million respectively
are excluded from the Company’s non-GAAP income from operations and
non-GAAP net income allocable to common shareholders due to their
infrequent and or unusual nature. The Company believes that
excluding these amounts 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.
Accretion of variable interest
entity. In accordance with ASC 810, Variable Interest
Entities, the Chinese joint venture is subject to periodic
adjustment in its value. The accretion of the variable interest
entity of $0.7 million for the three months ended June 30, 2011 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.
Non-GAAP tax. Non-GAAP tax is an
estimated tax applied to the non-GAAP net income for purposes of
determining the non-GAAP income allocable to common shareholders.
Including the amount is considered important in the determination
of non-GAAP income allocable to common shareholders since it
depicts a more meaningful measure of the Company’s non-GAAP
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,
2011 2010 (unaudited)
ASSETS
Current assets: Cash and cash equivalents $ 70,414 $ 52,455
Short-term investments 14,872 - Accounts receivable, net of
allowance for doubtful accounts of $3,435 and $2,545 46,904 45,584
Unbilled receivables 4,731 2,782 Income tax receivable 2,390 2,406
Deferred income taxes 6,838 5,583 Prepaid expenses and other
current assets 10,789 8,782
Total
current assets 156,938 117,592
Long-term investments 42,232 - Property and equipment, net
21,197 19,757 Software, net 23,922 21,459 Goodwill 39,847 34,692
Intangible assets, net 67,963 68,238 Deferred income taxes,
non-current 34,517 35,825 Deferred financing costs, net 460 566
Other long-term assets 9,561 11,050
Total assets $ 396,637 $ 309,179
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $ 9,904 $ 7,921 Notes payable,
current 20 92 Term loan, current 5,000 5,000 Commissions payable
2,908 3,169 Accrued compensation and benefits 9,693 9,491 Other
accrued liabilities 13,017 11,764 Deferred revenue 72,546 65,489
Capital lease obligations 392 271
Total current liabilities 113,480
103,197 Revolving credit line and term loan 30,500
54,500 Capital lease obligations, less current portion 244 146
Notes payable, less current portion - 10 Deferred income taxes
1,617 1,329 Deferred revenue, less current portion 12,404 10,563
Other long-term liabilities 2,343 2,515
Total liabilities 160,588 172,260
Commitments and Contingencies
Temporary equity Noncontrolling interest 4,853 4,052
Shareholders' equity Preferred stock, $0.01 par value;
authorized 10,000,000 shares; issued and outstanding: none - -
Common stock, par value $0.01; authorized
100,000,000 shares; shares issued and outstanding: 27,044,611
and 22,900,253, respectively
271 229 Additional paid-in capital 383,520 281,791 Accumulated
deficit (149,375 ) (145,271 ) Accumulated other comprehensive loss
(3,220 ) (3,882 )
Total shareholders' equity
231,196 132,867
Total
liabilities and shareholders' equity $ 396,637 $ 309,179
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, 2011 2010
2011 2010 (unaudited) (unaudited)
(unaudited) (unaudited)
Revenue: Subscription $ 49,867 $
36,120 $ 96,070 $ 69,372 Other 19,148 8,745
32,923 15,157 Total revenues
69,015 44,865 128,993 84,529 Cost of revenues 26,867
15,060 50,212 28,871
Gross profit 42,148 29,805
78,781 55,658
Operating
expenses: Sales and marketing 15,688 11,258 29,963 20,898
General and administrative 13,219 10,627 25,967 20,458 Research and
development 4,819 2,132 9,264 4,416 Depreciation and amortization
8,006 4,080 15,924
8,116 Total operating expenses 41,732
28,097 81,118 53,888 Income
(loss) from operations 416 1,708 (2,337 ) 1,770 Interest (expense)
income, net (344 ) 137 (784 ) 283 (Loss) gain on change in fair
market value of investments, net (264 ) 34
(264 ) 3 (Loss) income before income taxes
(192 ) 1,879 (3,385 ) 2,056 Income tax expense (596 )
(747 ) (570 ) (880 )
Net (loss) income
($788 ) $ 1,132 ($3,955 ) $ 1,176 Income
allocated to noncontrolling interest (149 ) (156 ) (149 ) (218 )
Accretion associated with variable interest entity (652 )
- (652 ) -
Net (loss) income
allocable to common shareholders' $ (1,589 ) $ 976 $
(4,756 ) $ 958
Basic net (loss) income per share $
(0.06 ) $ 0.04 $ (0.20 ) $ 0.04
Diluted net (loss)
income per share $ (0.06 ) $ 0.04 $ (0.20 ) $ 0.04
Weighted average common shares -
basic 24,876,801 22,603,079
23,964,869 22,590,244 Weighted average common
shares - diluted 24,876,801 23,168,751
23,964,869 23,070,947
Kenexa Corporation and Subsidiaries Reconciliation of GAAP to
Non-GAAP Financial Measures (Unaudited and in thousands, except for
per share amounts) Three
Months Ended June 30, 2011 2010
(unaudited) (unaudited)
Non-GAAP cash
from operations:
Cash from operations $ 19,984 $ 7,174 Less: Taleo settlement (3,000
) - Less: one time fees associated with acquisitions and litigation
settlement (212 ) - Non-GAAP cash from
operations $ 16,772 $ 7,174
Revenue and Gross
Profit:
GAAP subscription revenue $ 49,867 $ 36,120 Deferred revenue
associated with acquisition 2,298 -
Non-GAAP subscription revenue 52,165 36,120 Other revenue
19,148 8,745 Non-GAAP revenue $ 71,313
$ 44,865 GAAP cost of revenues $ 26,867 $ 15,060
Share-based compensation expense 72 71
Cost of revenue adjustment 72 71
Non-GAAP gross profit $ 44,518 $ 29,876
Expenses:
GAAP operating expenses $ 41,732 $ 28,097 Share-based compensation
expense (1,587 ) (1,206 ) Amortization of acquired intangibles
(3,583 ) (812 ) Acquisition-related fees (76 ) - Taleo settlement
3,000 - Nonrecurring litigation charges (1,416 ) -
Total operating expense adjustment (3,662 )
(2,018 ) Non-GAAP operating expenses $ 38,070 $ 26,079
Results:
GAAP income from operations $ 416 $ 1,708 Deferred revenue
associated with acquisition 2,298 - Cost of revenue adjustment 72
71 Operating expense adjustment 3,662 2,018
Non-GAAP Income from operations $ 6,448 $ 3,797
GAAP net (loss) income allocable to common
shareholders $ (1,589 ) $ 976 Deferred revenue associated with
acquisition 2,298 - Cost of revenue adjustment 72 71 Operating
expense adjustment 3,662 2,018 Accretion associated with variable
interest entity 652 - Non-GAAP net
income allocated to common shareholders' $ 5,095 $ 3,065
Non-GAAP estimated income tax: 19% (437 ) -
Non-GAAP net income allocated to common shareholders' $
4,658 $ 3,065 GAAP basic net (loss)
income per share $ (0.06 ) $ 0.04 Non-GAAP basic net income
per share $ 0.19 $ 0.14 GAAP diluted
net (loss) income per share $ (0.06 ) $ 0.04 Non-GAAP
diluted net income per share $ 0.18 $ 0.13
Weighted average shares - basic 24,876,801
22,603,079 Dilutive effect of options and restricted stock
962,061 565,672 Weighted average shares
- diluted 25,838,862 23,168,751
Three Months Ended June 30, 2011 2010
Classification of non-GAAP measures: (unaudited)
(unaudited) Gross profit $ 42,148 $ 29,805 Add: share-based
compensation expense 72 71 Add: deferred revenue associated with
acquisition 2,298 - Non-GAAP gross
profit $ 44,518 $ 29,876 Sales and marketing $
15,688 $ 11,258 Less: share-based compensation expense (282
) (260 ) Non-GAAP sales and marketing $ 15,406 $
10,998 General and administrative $ 13,219 10,627
Less: share-based compensation expense (1,169 ) (802 ) Less:
acquisition-related fees (76 ) - Add: net litigation settlement
1,585 - Non-GAAP general and
administrative $ 13,559 $ 9,825 Research and
development $ 4,819 $ 2,132 Less: share-based compensation expense
(136 ) (144 ) Non-GAAP research and development $
4,683 $ 1,988 Kenexa Corporation and
Subsidiaries Consolidated Statements of Cash Flows (in thousands)
For the six months ended
June 30, 2011 2010 (unaudited)
(unaudited)
Cash flows from operating activities Net (loss)
income from operations $ (3,955 ) $ 1,176 Adjustments to reconcile
net (loss) income to net cash provided by operating activities:
Depreciation and amortization 15,924 8,116 Loss on disposal of
property and equipment 81 34 Gain on change in fair market value of
ARS and put option, net - (3 ) Share-based compensation expense
2,786 2,568 Amortization of deferred financing costs 106 - Bad debt
recoveries 802 85 Deferred income tax benefit (961 ) (39 ) Changes
in assets and liabilities, net of business combinations Accounts
and unbilled receivables (3,246 ) (3,440 ) Prepaid expenses and
other current assets (1,541 ) (2,591 ) Income taxes receivable 16
1,503 Other long-term assets 1,240 (862 ) Accounts payable 1,519
2,457 Accrued compensation and other accrued liabilities (185 )
(1,379 ) Commissions payable (269 ) 437 Deferred revenue 8,389
8,011 Other liabilities (121 ) (93 )
Net cash
provided by operating activities 20,585
15,980
Cash flows from investing activities
Capitalized software and purchases of property and equipment
(12,097 ) (7,986 ) Purchases of available-for-sale securities
(57,161 ) (4,430 ) Sales of available-for-sale securities - 8,289
Sales of trading securities - 8,700 Acquisitions and variable
interest entity, net of cash acquired (9,682 ) (1,635
)
Net cash (used in) provided by investing activities
(78,940 ) 2,938
Cash flows from financing
activities Borrowings under revolving credit line 3,000 -
Repayments under revolving credit line and term loan (27,000 ) -
Repayments of notes payable (87 ) (9 ) Repayments of capital lease
obligations (351 ) (107 ) Proceeds from common stock issued through
Employee Stock Purchase Plan 236 201 Net proceeds from option
exercises 8,209 219 Net Proceeds from public offering 91,669
-
Net cash provided by financing
activities 75,676 304 Effect
of exchange rate changes on cash and cash equivalents 638 (977 )
Net increase in cash and cash equivalents 17,959 18,245 Cash
and cash equivalents at beginning of period 52,455
29,221
Cash and cash equivalents at end of
period $ 70,414 $ 47,466
Supplemental
disclosures of cash flow information Cash paid during the
period for: Interest expense $ 810 $ 6 Income taxes $ 3,448 $
524 Income taxes refunded $ - $ (1,725 )
Noncash
investing and financing activities Capital lease obligations
incurred $ 568 $ -
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