Kenexa (Nasdaq: KNXA), a global provider of business solutions
for human resources, today announced operating results for the
third quarter, ended September 30, 2011.
For the third quarter of 2011, Kenexa reported total GAAP
revenue of $75.7 million, with non-GAAP revenue of $77.2 million
after eliminating the $1.5 million GAAP adjustment to deferred
revenue resulting from the October 2010 acquisition of Salary.com,
Inc. Non-GAAP revenue was $50.8 million for the third quarter of
2010. Within total non-GAAP revenue, subscription revenue was $55.0
million for the third quarter of 2011, an increase of 38% compared
with $39.8 million in the third quarter of 2010. Professional
services and other revenue was $22.2 million for the third quarter
of 2011, an increase of 102% compared to $11.0 million for the
third quarter of 2010.
“Our third quarter financial results were above our expectations
and reflect the building momentum of Kenexa’s unique value
proposition in the market place. The combination of our software
and content continue to drive the majority of our revenue, while
our RPO business experienced a record quarterly performance and
included the two largest customer wins in the history of our
company,” said Rudy Karsan, Chief Executive Officer of Kenexa.
“While we continue to watch the global economy carefully, our
confidence regarding Kenexa’s long-term market position has never
been greater and we are increasing our 2011 outlook based on our
strong third quarter performance and continued market share
gains.”
Non-GAAP income from operations, which excludes share-based
compensation expense, amortization of acquired intangibles and the
purchase accounting impact to Salary.com’s deferred revenue, was
$8.3 million for the three months ended September 30, 2011. This
was above the Company’s guidance of $7.1 million to $7.5 million
and represented an increase of 98% compared to non-GAAP income from
operations of $4.2 million for the three months ended September 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 $6.3 million for the three months
ended September 30, 2011, compared to $3.7 million for the three
months ended September 30, 2010. Non-GAAP net income available to
common shareholders was $0.23 per diluted share for the quarter
ended September 30, 2011, up 44% compared to $0.16 per diluted
share in the third quarter of 2010. Non-GAAP net income per diluted
share for the third quarter of 2011 was $0.03 above the high-end of
the Company’s guidance of $0.19 to $0.20.
Kenexa’s income from operations for the three months ended
September 30, 2011, determined in accordance with GAAP, was $1.3
million, compared to income from operations of $1.5 million for the
same period of 2010. GAAP net loss available to common shareholders
was approximately $3.1 million, or a loss of $0.12 per basic and
diluted shares for the three months ended September 30, 2011,
compared to net income of $0.2 million, or $0.01 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 $124.9
million at September 30, 2011, compared to $127.5 million at the
end of the prior quarter. The decrease in cash was primarily
related to $4.2 million used to pay down long-term debt and $1.8
million used to settle legacy shareholder lawsuits for Salary.com.
The Company also generated $10.9 million in cash from operations
for the third quarter.
Deferred revenue was $87.3 million at September 30, 2011, an
increase of 49% from September 30, 2010 and up from $84.9 million
at the end of the second quarter of 2011.
Other Third Quarter and Recent Highlights
- More than 60 “preferred partner”
customers were added during the quarter (defined as customers that
spend more than $50,000 annually), an increase from the over 40
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
$1.6 million, an increase from the over $1.2 million level in the
third quarter of 2010.
- Announced the launch of Kenexa 2x
Perform™, which offers integrated, enterprise-class performance
management, succession and compensation planning tools to drive
organizational alignment and ensure top performers are retained and
engaged.
- Announced an alliance with SkillSoft, a
leading SaaS provider of e-learning content, technology and
services, to integrate and market Kenexa’s Global Talent Management
solutions with SkillSoft’s learning content and platform
technology.
Business Outlook
Based on information as of today, November 1, 2011, the Company
is issuing financial guidance as follows:
Fourth Quarter 2011*: The Company expects GAAP revenue to
be $74.7 million to $76.7 million. Excluding the GAAP adjustment to
deferred revenue, resulting from the Salary.com acquisition, the
Company expects non-GAAP revenue to be $76.0 million to $78.0
million, and non-GAAP operating income to be $9.2 million to $9.6
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 $0.25 to $0.26.
Full Year 2011*: The Company expects GAAP revenue to be
$279.4 million to $281.4 million. Excluding the GAAP adjustment to
deferred revenue, the Company expects non-GAAP revenue to be $287.4
million to $289.4 million, and non-GAAP operating income to be
$28.9 million to $29.3 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 $0.81 to $0.82.
* Kenexa’s non-GAAP results exclude 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, November 1, 2011, at
5:00 p.m. (Eastern Time) to discuss the Company's financial
results. To access this call, dial 877-705-6003 (domestic) or
201-493-6725 (international). A replay of this conference call will
be available through November 8, 2011, at 877-870-5176 (domestic)
or 858-384-5517 (international). The replay passcode is 380580. 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
September 30, 2011 was $1.5 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 legal fees associated with our
acquisitions and litigation totaling $1.8 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 third 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 $1.8 million for the three months
ended September 30, 2011 and $1.0 million for the three months
ended September 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
September 30, 2011, and $0.8 million for the three months ended
September 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
$0.9 million for the three months ended September 30, 2010, 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.
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 $2.5 million for the three months ended September 30,
2011, and $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 (NASDAQ:KNXA) helps drive HR and business outcomes
through its unique combination of technology, content and services.
Enabling organizations to optimize their workforces since 1987,
Kenexa’s integrated talent acquisition and talent management
solutions have touched the lives of more than 110 million people.
Additional information about Kenexa and its global products and
services can be accessed at www.kenexa.com. Follow Kenexa on
Twitter: @kenexa.
Note to editors: Trademarks and registered trademarks
referenced herein remain the property of their respective
owners.
Kenexa Corporation and Subsidiaries Consolidated Balance Sheets (In
thousands, except share data) September 30,
December 31, 2011 2010 (unaudited)
ASSETS Current
assets: Cash and cash equivalents $ 57,582 $ 52,455 Short-term
investments 23,608 - Accounts receivable, net of allowance for
doubtful accounts of $3,345 and $2,545 54,655 45,584 Unbilled
receivables 3,629 2,782 Income tax receivable 3,299 2,406 Deferred
income taxes 6,941 5,583 Prepaid expenses and other current assets
12,283 8,782
Total current
assets 161,997 117,592
Long-term investments 43,700 - Property and equipment, net 19,849
19,757 Software, net 25,602 21,459 Goodwill 40,556 32,935
Intangible assets, net 64,006 68,238 Deferred income taxes,
non-current 33,904 35,825 Deferred financing costs, net 407 566
Other long-term assets 7,513 11,050
Total assets $ 397,534 $ 307,422
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $ 8,739 $ 7,921 Notes payable,
current 6 92 Term loan, current 5,000 5,000 Commissions payable
3,509 3,169 Accrued compensation and benefits 14,084 9,491 Other
accrued liabilities 13,289 10,007 Deferred revenue 79,563 65,489
Capital lease obligations 472 271
Total current liabilities 124,662
101,440 Revolving credit line and term loan 26,250
54,500 Capital lease obligations, less current portion 231 146
Notes payable, less current portion - 10 Deferred revenue, less
current portion 7,768 10,563 Deferred income taxes 1,348 1,329
Other long-term liabilities 1,993 2,515
Total liabilities 162,252 170,503
Commitments and Contingencies
Temporary equity Noncontrolling interest 7,428 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: 27,057,250 and 22,900,253,
respectively 270 229 Additional paid-in capital 382,909 281,791
Accumulated deficit (149,983 ) (145,271 ) Accumulated other
comprehensive loss (5,342 ) (3,882 )
Total
shareholders' equity 227,854 132,867
Total liabilities and shareholders'
equity $ 397,534 $ 307,422 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, 2011 2010 2011 2010 (unaudited) (unaudited)
(unaudited) (unaudited)
Revenue: Subscription $ 53,462 $
39,764 $ 149,532 $ 109,136 Other 22,241 11,020
55,164 26,177 Total revenues
75,703 50,784 204,696 135,313 Cost of revenues 29,693
17,957 79,905 46,828
Gross profit 46,010 32,827
124,791 88,485
Operating
expenses: Sales and marketing 16,390 11,642 46,353 32,540
General and administrative 15,114 12,084 41,081 32,542 Research and
development 4,912 3,277 14,176 7,693 Depreciation and amortization
8,244 4,341 24,168
12,457 Total operating expenses 44,660
31,344 125,778 85,232 Income
(loss) from operations 1,350 1,483 (987 ) 3,253 Interest income
(expense), net 59 72 (725 ) 355 Loss on change in fair market value
of investments, net (127 ) (382 ) (391 )
(379 ) Income (loss) before income taxes 1,282 1,173 (2,103
) 3,229 Income tax expense (1,602 ) (26 )
(2,172 ) (906 )
Net (loss) income $ (320 ) $ 1,147
$ (4,275 ) $ 2,323 Income allocated to noncontrolling
interest (288 ) (188 ) (437 ) (406 ) Accretion associated with
variable interest entity (2,507 ) (809 )
(3,159 ) (809 )
Net (loss) income allocable to common
shareholders' $ (3,115 ) $ 150 $ (7,871 ) $ 1,108
Basic net (loss) income per share $ (0.12 ) $ 0.01 $
(0.31 ) $ 0.05
Diluted net (loss) income per share $
(0.12 ) $ 0.01 $ (0.31 ) $ 0.05
Weighted average common shares - basic 27,043,135
22,629,050 25,002,236
22,603,323 Weighted average common shares - diluted
27,043,135 23,168,553 25,002,236
23,098,070 Kenexa Corporation and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited
and in thousands, except for per share amounts) Three
Months Ended September 30, 2011 2010 (unaudited) (unaudited)
Non-GAAP cash
from operations:
Cash from operations $ 10,858 $ 6,589 Add: Settlement of Salary.com
lawsuit 1,780 - Add: Acquisition-related fees -
945 Non-GAAP cash from operations $ 12,638 $
7,534
Revenue and Gross
Profit:
GAAP subscription revenue $ 53,462 $ 39,764 Deferred revenue
associated with acquisition 1,525 -
Non-GAAP subscription revenue 54,987 39,764 Other revenue
22,241 11,020 Non-GAAP revenue $ 77,228
$ 50,784 GAAP cost of revenues $ 29,693 $ 17,957
Share-based compensation expense 69 40
Cost of revenue adjustment 69 40
Non-GAAP gross profit $ 47,604 $ 32,867
Expenses:
GAAP operating expenses $ 44,660 $ 31,344 Share-based compensation
expense (1,738 ) (970 ) Amortization of acquired intangibles (3,571
) (777 ) Acquisition-related fees - (945 )
Total operating expense adjustment (5,309 ) (2,692 )
Non-GAAP operating expenses $ 39,351 $ 28,652
Results:
GAAP income from operations $ 1,350 $ 1,483 Deferred revenue
associated with acquisition 1,525 - Cost of revenue adjustment 69
40 Operating expense adjustment 5,309 2,692
Non-GAAP Income from operations $ 8,253 $ 4,215
GAAP net (loss) income allocable to common
shareholders $ (3,115 ) $ 150 Deferred revenue associated with
acquisition 1,525 - Cost of revenue adjustment 69 40 Operating
expense adjustment 5,309 2,692 Accretion associated with variable
interest entity 2,507 809 Non-GAAP net
income allocated to common shareholders' $ 6,295 $ 3,691
GAAP basic net (loss) income per share $ (0.12
) $ 0.01 Non-GAAP basic net income per share $ 0.23 $
0.16 GAAP diluted net (loss) income per share
$ (0.12 ) $ 0.01 Non-GAAP diluted net income per share $
0.23 $ 0.16 Weighted average shares - basic
27,043,135 22,629,050 Dilutive effect
of options and restricted stock 815,054
539,503 Weighted average shares - diluted 27,858,189
23,168,553 Three Months Ended
September 30, 2011 2010
Classification of non-GAAP measures:
(unaudited) (unaudited) Gross profit $ 46,010 $ 32,827 Add:
share-based compensation expense 69 40 Add: deferred revenue
associated with acquisition 1,525 -
Non-GAAP gross profit $ 47,604 $ 32,867 Sales
and marketing $ 16,390 $ 11,642 Less: share-based compensation
expense (273 ) (226 ) Less: acquisition-related fees
(200 ) Non-GAAP sales and marketing $ 16,117 $ 11,216
General and administrative $ 15,114 12,084 Less: share-based
compensation expense (1,329 ) (631 ) Less: acquisition-related fees
- (745 ) Add: net litigation settlement - -
Non-GAAP general and administrative $ 13,785 $ 10,708
Research and development $ 4,912 $ 3,277 Less:
share-based compensation expense (136 ) (113 )
Non-GAAP research and development $ 4,776 $ 3,164
Kenexa Corporation and Subsidiaries Consolidated Statements
of Cash Flows (in thousands) For the nine months
ended September 30, 2011 2010 (unaudited) (unaudited)
Cash flows
from operating activities Net (loss) income from operations $
(4,275 ) $ 2,323 Adjustments to reconcile net (loss) income to net
cash provided by operating activities: Depreciation and
amortization 24,168 12,457 Loss on disposal of property and
equipment 95 48 Realized loss on available-for-sale securities 62
483 Gain on change in fair market value of ARS and put option, net
- (3 ) Share-based compensation expense 4,593 3,578 Amortization of
deferred financing costs 159 2 Bad debt expense (recoveries), net
843 (23 ) Deferred income tax benefit (1,068 ) (387 ) Changes in
assets and liabilities, net of business combinations Accounts and
unbilled receivables (10,580 ) (6,896 ) Prepaid expenses and other
current assets (3,122 ) (3,522 ) Income taxes receivable (893 )
1,432 Other long-term assets 3,368 (778 ) Accounts payable 585
1,994 Accrued compensation and other accrued liabilities 6,687
2,259 Commissions payable 339 1,380 Deferred revenue 11,037 8,501
Other liabilities (556 ) (279 )
Net cash provided
by operating activities 31,442 22,569
Cash flows from investing activities
Capitalized software and purchases of property and equipment
(17,999 ) (12,121 ) Purchases of available-for-sale securities
(86,076 ) (7,653 ) Sales of available-for-sale securities 18,330
23,054 Sales of trading securities - 15,291 Acquisitions and
variable interest entity, net of cash acquired (11,520 ) (5,736 )
Cash released from escrow for acquisitions 250
Net cash (used in) provided by investing activities
(97,265 ) 13,085
Cash flows from financing
activities Borrowings under revolving credit line 3,000 25,000
Repayments under revolving credit line and term loan (31,250 ) -
Repayments of notes payable (87 ) (9 ) Repayments of capital lease
obligations (426 ) (160 ) Deferred financing costs - (83 ) Purchase
of additional interest in variable interest entity (229 ) -
Proceeds from common stock issued through Employee Stock Purchase
Plan 391 303 Net proceeds from option exercises 8,255 458 Net
proceeds from public offering 91,432 -
Net cash provided by financing activities 71,086
25,509 Effect of exchange rate changes
on cash and cash equivalents (136 ) 46 Net increase in cash
and cash equivalents 5,127 61,209 Cash and cash equivalents at
beginning of period 52,455 29,221
Cash and cash equivalents at end of period $ 57,582 $
90,430
Supplemental disclosures of cash flow
information Cash paid during the period for: Interest
expense $ 1,168 $ 30 Income taxes $ 3,992 $ 909 Income taxes
refunded $ - $ (1,725 )
Noncash investing and financing
activities Capital lease obligations incurred $ 568 $ -
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