Kenexa Announces Financial Results for First Quarter 2011…from Kenexa

HRchitect featured Kenexa in our release of The Suite Life of Integrated Talent Management and also includes them in our list of top Talent Acquisition Systems and top Talent Management Systems vendors that businesses should consider. Derek Bluestone, VP Product Marketing appeared on the HRchitect WebMingle on June 17, 2010. HRchitect’s Matt Lafata, one of the industry’s leading talent management systems analysts, attended the Kenexa Analyst Day in May, 2010 and the Kenexa World Conference in 2009 and 2010.

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Kenexa (Nasdaq: KNXA), a global provider of business solutions for human resources, today announced operating results for the first quarter, ended March 31, 2011. 

For the first quarter of 2011, Kenexa reported total GAAP revenue of $60.0 million, with non-GAAP revenue of $63.0 million after eliminating the $3.0 million GAAP adjustment to deferred revenue resulting from the October 2010 acquisition of Salary.com, Inc.  Non-GAAP revenue increased 59% compared to $39.7 million for the first quarter of 2010. Within total non-GAAP revenue, subscription revenue was $49.2 million for the first quarter of 2011, an increase of 48% compared with $33.3 million in the first quarter of 2010.  Professional services and other revenue was $13.8 million for the first quarter of 2011, an increase of 116% compared to $6.4 million for the first quarter of 2010. 

“The first quarter was a strong start to 2011, with all major areas of our business performing at or above our expectations,” said Rudy Karsan, Chief Executive Officer of Kenexa.  “With the economy improving and hiring beginning to increase, we are seeing a growing number of organizations looking for a strategic HR solutions provider that can help them transform their recruiting and overall talent management business processes.  Our unique combination of software, proprietary content and services is a key driver to Kenexa’s growing market share and success with global organizations.”

Karsan added, “For the second quarter in a row, we are materially increasing our FY11 revenue guidance reflecting what we see as Kenexa’s growing momentum.  In addition, we are increasingly optimistic about Kenexa’s long-term market position and believe the company is at the early stages of realizing the benefits from our increased investments in sales and marketing as well as R&D.”

Non-GAAP income from operations, which excludes share-based compensation expense, amortization of acquired intangibles, fees related to our acquisitions and the purchase accounting impact to Salary.com’s deferred revenue, was $5.0 million for the three months ended March 31, 2011.  This was above the Company’s guidance of $4.4 million to $4.8 million and represented an increase of 119% compared to non-GAAP income from operations of $2.3 million for the three months ended March 31, 2010. 

Non-GAAP net income available to common shareholders, which excludes the items listed above, was $3.7 million for the three months ended March 31, 2011, compared to $2.2 million for the three months ended March 31, 2010.  Non-GAAP net income available to common shareholders was $0.15 per diluted share for the quarter ended March 31, 2011, above the Company’s guidance of $0.13 to $0.14 and up 50% compared to $0.10 per diluted share in the first quarter of 2010.  

Kenexa’s loss from operations for the three months ended March 31, 2011, determined in accordance with GAAP, was $2.8 million, compared to income from operations of $62,000 for the same period of 2010. GAAP net loss available to common shareholders was approximately $3.2 million, or a loss of $0.14 per basic share for the three months ended March 31, 2011, compared to a net loss of $18,000, or $0.00 per 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 and cash equivalents of $19.7 million at March 31, 2011, compared to $52.5 million at the end of the prior quarter.  During the quarter, the company used approximately $23 million in cash to reduce its long-term debt and approximately $10 million as consideration for two small acquisitions made during the quarter.  Deferred revenue was $82.2 million at March 31, 2011, an increase of 51% from March 31, 2010 and up from $76.1 million at the end of the fourth quarter of 2010. 

Other First 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 $1.4 million, an increase from the over $1.0 million level in the first quarter of 2010.

Business Outlook

Based on information as of today, May 3, 2011, the Company is issuing financial guidance as follows: 

Second Quarter 2011*: The Company expects GAAP revenue to be $64.0 million to $66.0 million.  Excluding the GAAP adjustment to deferred revenue, resulting from the Salary.com acquisition, the Company expects non-GAAP revenue to be $66.0 million to $68.0 million, and non-GAAP operating income to be $5.4 million to $5.8 million. Assuming an effective tax rate for reporting purposes of approximately 20% and approximately 24.4 million shares outstanding, Kenexa expects its non-GAAP net income per diluted share to be $0.16 to $0.17. 

Full Year 2011*: The Company expects GAAP revenue to be $259 million to $265 million.  Excluding the GAAP adjustment to deferred revenue, the Company expects non-GAAP revenue to be $267 million to $273 million, and non-GAAP operating income to be $24.0 million to $27.0 million. Assuming an effective tax rate for reporting purposes of approximately 20% and approximately 24.4 million shares outstanding, Kenexa expects its non-GAAP net income per diluted share to be $0.70 to $0.82.

* Kenexa’s non-GAAP results  excludes stock based compensation expense, amortization of intangibles associated with acquisitions, fees related to closing acquisitions and the purchase accounting reduction to Salary.com’s revenue

For more information on Kenexa, please visit www.kenexa.com
Matt Lafata, HRchitect

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