WAYNE, PA – November 1, 2006 -- Kenexa (Nasdaq: KNXA), a leading provider of software, services and proprietary content that enable organizations to more effectively recruit and retain employees, today announced its operating results for the third quarter ended September 30, 2006.
For the third quarter of 2006, Kenexa reported total revenue of $28.0 million, representing an increase of 63% over the $17.2 million recorded for the third quarter of 2005. Subscription revenue was $23.2 million for the third quarter of 2006, an increase of 73% compared to the third quarter of 2005, while professional services and other revenue was $4.8 million for the third quarter of 2006, an increase of 25% over the same period of 2005.
Rudy Karsan, Chief Executive Officer of Kenexa, stated, “We are very pleased with the Company’s performance in the third quarter, which was highlighted by revenue and profitability that were greater than our original expectations. Our business momentum is being fueled by a combination of strong demand in the talent management market, combined with Kenexa’s unique value proposition that includes software, proprietary content, outsourcing and professional services.”
Karsan added, “We believe our pending acquisition of BrassRing, when completed, will further extend our leadership position. We are optimistic about the combined company’s outlook for 2007, which calls for continued strong revenue growth and expansion in our non-GAAP profitability margins.”
Kenexa’s income from operations before income tax and interest income or expense, determined in accordance with generally accepted accounting principles (GAAP), was $4.8 million for the three months ended September 30, 2006, compared with income of $2.6 million for the corresponding period of 2005. GAAP net income available to common shareholders was $4.2 million or $0.20 per basic and diluted share for the quarter. This compares to GAAP net income available to common shareholders of $2.6 million, or earnings of $0.15 per basic and diluted share for the same period of 2005.
Non-GAAP income from operations before income taxes and interest expense, which excludes stock-based compensation expense and amortization of intangibles associated with recent M&A transactions, for the three months ended September 30, 2006 was $5.5 million compared with $2.7 million during the same period last year, representing a 104% increase on a year-over-year basis and a record margin of 20%.
Non-GAAP diluted earnings per share, which excludes stock-based compensation expense and amortization of intangibles associated with recent M&A transactions, were $0.24 for the quarter ended September 30, 2006, an increase of 60% compared to $0.15 for the quarter ended September 30, 2005. A reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in the press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”
Kenexa had cash and cash equivalents of $83.1 million at September 30, 2006, an increase from $76.9 million at the end of the prior quarter. The increase in cash was the result of positive cash from operations of approximately $8.8 million, partially offset by cash payments of approximately $3.4 million related to acquisitions completed during the quarter. Deferred revenue was $18.8 million at the end of the quarter, an increase of 70% on a year-over-year basis and 10% on a sequential basis.
Don Volk, Chief Financial Officer of Kenexa, stated, “In addition to strong revenue and profitability, Kenexa generated strong cash from operations and ended the quarter with a solid balance sheet. We believe the company’s business model and momentum positions it well to continue delivering highly profitable growth.”
Business Outlook
Based on information as of November 1, 2006, the Company is issuing guidance for the fourth quarter and preliminary full year 2007 as follows:
Fourth Quarter 2006: Excluding any impact related to the pending BrassRing acquisition, the Company expects revenue to be $28.9 to $29.3 million, subscription revenue to be $23.7 to $24 million and non-GAAP operating income to be $6.4 to $6.7 million. Assuming a 22% tax rate (due to Kenexa’s NOL carryforwards) and 21.2 million shares outstanding, Kenexa expects its non-GAAP diluted earnings per share to be $0.29 to $0.30. The Company currently anticipates that the BrassRing acquisition will close during the fourth quarter 2006, however, it cannot currently predict the revenue and profitability impact of the acquisition on its fourth quarter results as it does not know the precise timing of when the acquisition may close during the quarter.
Preliminary Full Year 2007: Including the anticipated impact related to the pending BrassRing acquisition, the Company expects revenue to be $177 million to $181 million and non-GAAP operating income to be $36.3 to $38.3 million. Assuming a 30% tax rate and 21.3 million shares outstanding, Kenexa expects its non-GAAP diluted earnings per share to be $1.14 to $1.19. The Company currently anticipates that the BrassRing acquisition will close during the fourth quarter 2006.
Other Quarter Highlights
- More than 30 “preferred partner” customers were added during the quarter (defined as customers that spend more than $50,000 annually).
- The average annual revenue from the Company’s top 80 customers was greater than $800,000, an increase from the $700,000 level in the prior quarter and $550,000 at the end of 2005.
- Revenue during the third quarter was diverse across the customer base, with no customers accounting for more than 10% of quarterly revenue and the top 5 customers representing less than 25% of revenue.
Kenexa will host a conference call today, November 1, 2006, at 5:00 pm (EDT) to discuss the Company's financial results and financial guidance. To access this call, dial 800-289-0533 (domestic) or 913-981-5525 (international). A replay of this conference call will be available through November 8, 2006, at 888-203-1112 (domestic) or 719-457-0820 (international). The replay passcode is 4471513. 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 concern, among other things, guidance as to future revenue and earnings, operations, expected benefits from the BrassRing transaction, 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 (including BrassRing). 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.
About Kenexa
Kenexa (www.kenexa.com) provides software, services and proprietary content that enable organizations to more effectively recruit and retain employees. Kenexa solutions include applicant tracking, onboarding, employment process outsourcing, phone screening, skills and behavioral assessments, structured interviews, performance management, multi-rater feedback surveys, employee engagement surveys and HR Analytics. Kenexa is headquartered in Wayne, Pa. More information about Kenexa and its global locations can be accessed at www.kenexa.com.
Non-GAAP Financial Measures
This press release includes the non-GAAP financial measure of non-GAAP income from operations before income taxes and interest expense which excludes stock based compensation and amortization of intangibles associated with recent M&A transactions and is reconciled to income from operations before income taxes and interest expense which we believe is the most comparable GAAP measure. The non-GAAP income from operations is disclosed in tabular form to present the data used in the calculation of the per share data. Additionally this release includes non-GAAP net income available to common shareholders which excludes stock based compensation and amortization of intangibles associated with recent M&A transactions and is reconciled to net income available to common shareholders which we believe is the most comparable GAAP measure. The non-GAAP net income available to common shareholders per share is disclosed in tabular form to present the data used in the calculation of the per share data. We use these non-GAAP financial measures for internal managerial purposes as a means to evaluate period-to-period comparisons. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, income from operations before income taxes and interest expense, calculated in accordance with generally accepted accounting principles.
Note to Editors: Kenexa is a registered trademark of Kenexa Corporation. Other product or service names mentioned herein remain the property of their respective owners.
Contact
MEDIA CONTACT:
INVESTOR CONTACT:
Kori Doherty
Integrated Corporate Relations
617) 217-2084
kdoherty@icrinc.com
Kenexa Corporation and Subsidiaries
Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share data)
September 30, December 31,
2006 2005
--------------------------
Assets
Current assets
Cash and cash equivalents $ 83,109 $ 43,499
Accounts receivable, net of allowance
for doubtful accounts of $590 and $447 16,237 10,306
Unbilled receivables 1,945 312
Deferred income taxes 6,628 2,519
Prepaid expenses and other current
assets 2,459 2,134
--------------------------
Total current assets 110,378 58,770
--------------------------
Property and equipment, net of
accumulated depreciation 5,900 4,737
Software, net of accumulated
amortization 2,324 850
Goodwill 48,826 8,815
Intangible assets, net of accumulated
amortization 1,973 125
Deferred financing costs, net of
accumulated amortization 98 50
Other assets 932 552
--------------------------
Total assets $ 170,431 $ 73,899
==========================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 3,520 $ 2,306
Notes payable, current 479 95
Commissions payable 1,137 834
Accrued compensation and benefits 6,224 4,590
Other accrued liabilities 3,543 2,177
Deferred revenue 18,759 12,588
Capital lease obligations 228 219
--------------------------
Total current liabilities 33,890 22,809
--------------------------
Capital lease obligations, less current
portion 103 185
Notes payable, noncurrent 153 108
Deferred taxes 606 -
Other noncurrent liabilities 19 55
--------------------------
Total liabilities 34,771 23,157
--------------------------
Shareholders' equity
Class A common stock, $0.01 par value;
100,000,000 shares authorized;
20,596,873 and 17,459,044 shares
issued, respectively 206 174
Additional paid-in capital 170,376 97,140
Deferred stock compensation 0 (1,040)
Notes receivable for class A common
stock 0 (120)
Accumulated other comprehensive loss (257) (30)
Accumulated deficit (34,665) (45,382)
--------------------------
Total shareholders' equity 135,660 50,742
--------------------------
--------------------------
Total liabilities and shareholders' equity $ 170,431 $ 73,899
==========================
Kenexa Corporation and Subsidiaries
Consolidated Statements of Operations (unaudited)
(In thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
------------------------- ------------------------
Revenue
Subscription
revenue $ 23,185 $ 13,377 $ 60,725 $ 36,370
Other revenue 4,827 3,857 15,010 11,201
------------------------- ------------------------
Total revenue 28,012 17,234 75,735 47,571
------------------------- ------------------------
------------------------- ------------------------
Cost of revenue
(exclusive of
depreciation,
shown separately
below) 8,392 4,935 21,419 13,592
------------------------- ------------------------
------------------------- ------------------------
Gross profit 19,620 12,299 54,316 33,979
------------------------- ------------------------
Operating expenses:
Sales and
marketing 5,991 4,218 17,436 11,748
General and
administrative 5,771 4,036 16,972 10,912
Research and
development 2,218 961 5,570 3,038
Depreciation and
amortization 872 498 2,362 1,555
------------------------- ------------------------
Total operating
expenses 14,852 9,713 42,340 27,253
------------------------- ------------------------
------------------------- ------------------------
Income from
continuing
operations before
income taxes and
interest expense 4,768 2,586 11,976 6,726
------------------------- ------------------------
Interest income (764) (220) (1,566) (222)
Interest expense on
mandatory
redeemable shares 0 0 0 3,396
Income from
continuing
operations before
income tax 5,532 2,806 13,542 3,552
Income tax expense
on continuing
operations 1,373 219 2,825 477
------------------------- ------------------------
Net income 4,159 2,587 10,717 3,075
========================= ========================
------------------------- ------------------------
Accretion of
redeemable class B
common shares and
class C common
shares 0 0 0 41,488
------------------------- ------------------------
--------------------------------------------------
Net income (loss)
available to
common
shareholders $ 4,159 $ 2,587 $ 10,717 $ (38,413)
==================================================
------------------------- ------------------------
Basic net income
(loss) per
weighted average
common share
outstanding: $ 0.20 $ 0.15 $ 0.55 $ (4.02)
========================= ========================
------------------------- ------------------------
Weighted average
number of common
shares outstanding
used in
calculation of
basic net income
(loss) per share 20,407,856 17,436,026 19,626,010 9,558,486
------------------------- ------------------------
------------------------- ------------------------
Diluted net income
(loss) per
weighted average
common share
outstanding: $ 0.20 $ 0.15 $ 0.53 $ (4.02)
========================= ========================
------------------------- ------------------------
Weighted average
number of common
shares outstanding
used in
calculation of
diluted net income
(loss) per share 20,922,015 17,851,098 20,183,995 9,558,486
------------------------- ------------------------
Non-GAAP income from operations and net income available to common
shareholders excludes stock-based compensation and amortization of
intangibles:
Three Months Ended
September 30,
2006 2005
-------------------------
Non-GAAP income from operations calculation:
-------------------------
Income from operations before income taxes
and interest expense $ 4,768 $ 2,586
-------------------------
Stock-based compensation expense 605 119
Amortization of intangibles associated with
acquisitions 149 -
-------------------------
Non-GAAP income from operations before
income taxes and interest expense $ 5,522 $ 2,705
=========================
-------------------------
Weighted average number of common shares
outstanding used in calculation of basic
net loss per share 20,407,856 17,436,026
-------------------------
Dilutive effect of options and warrants 514,159 415,072
-------------------------
Shares used in share calculation of pro
forma earnings per diluted share 20,922,015 17,851,098
-------------------------
Net Income available to common shareholders $ 4,159 $ 2,587
Stock-based compensation expense 605 119
Amortization of intangibles associated with
acquisitions 149 -
-------------------------
Non-GAAP net Income available to common
shareholders $ 4,913 $ 2,706
-------------------------
-------------------------
Non-GAAP net Income per diluted share $ 0.24 $ 0.15
-------------------------
Other Non-GAAP measures referenced on earnings call excludes stock
based compensation:
Gross profit $ 19,620 $ 12,299
Add: stock-based compensation expense 138 -
-------------------------
Non-GAAP gross profit $ 19,758 $ 12,299
-------------------------
Sales and marketing $ 5,991 $ 4,218
Less: stock-based compensation expense (195) -
-------------------------
Non-GAAP sales and marketing $ 5,796 $ 4,218
-------------------------
General and administrative $ 5,771 $ 4,036
Less: stock-based compensation expense (225) (119)
-------------------------
Non-GAAP general and administrative $ 5,546 $ 3,917
-------------------------
Research and development $ 2,218 $ 961
Less: stock-based compensation expense (47) -
-------------------------
Non-GAAP research and development $ 2,171 $ 961
-------------------------
Kenexa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Nine Months
Ended
-------------------
September 30,
-------------------
2006 2005
Cash flows from operating activities
Net Income (loss) from operations $ 10,717 $ 3,075
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,362 1,555
Non-cash interest expense 72 -
Non-cash compensation 1,946 475
Excess tax benefits from share-based payment
arrangements (1,149) -
Amortization of deferred financing costs 79 69
Bad debt expense (69) 154
Accrued Interest on mandatory redeemable
preferred stock - 3,396
Deferred taxes (1,834) (993)
Changes in assets and liabilities
Accounts and unbilled receivables (4,548) (2,994)
Prepaid expenses and other current assets 276 (896)
Other assets (112) 87
Accounts payable 561 1,107
Accrued compensation and other accrued
liabilities 1,957 1,804
Commissions payable 249 237
Deferred revenue 673 4,331
Other liabilities (35) (35)
-------------------
Net cash provided by operations 11,145 11,372
-------------------
Cash flows from investing activities
Purchases of property and equipment (3,024) (2,840)
Cash paid for intangible assets - -
Acquisitions, net of cash acquired (37,129) (164)
-------------------
Net cash used in investing activities (40,153) (3,004)
-------------------
Cash flows from financing activities
Net borrowings (repayments) under line of credit
agreement - -
Repayments of notes payable (44) (16)
Repurchases of common shares - (515)
Collections of notes receivable 120 160
Excess tax benefits from share-based payment
arrangements 1,149 -
Net Proceeds from follow-on offering of common
stock 66,282 -
Net Proceeds from initial public offering - 61,840
Redemption of series A and B preferred stock - (40,000)
Deferred financing costs (128) (16)
Net Proceeds from option exercises 1,762 -
Repayments of capital lease obligations (302) (171)
-------------------
Net cash provided (used in) by financing
activities 68,839 21,282
-------------------
Effect of exchange rate changes on cash and cash
equivalents (221) (51)
Net increase (decrease) in cash and cash
equivalents 39,610 29,599
Cash and cash equivalents at beginning of year 43,499 9,494
-------------------
Cash and cash equivalents at end of the period: $ 83,109 $ 39,093
===================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 401 $ 181
Income taxes $ 2,059 $ 360
Noncash investing and financing activities
Capital Leases $ 114 $ 92
Accrued bonus exchanged for Note receivable $ - $ 151
Accretion of redeemable class B common shares and
redeemable class C common shares to redemption
values $ - $ 41,448
Redemption and conversion of class B and class C
common shares to class A common stock $ - $ 51,351