Kenexa (KNXA) 8-K Kenexa Announces Financial Results for Third Quarter 2009

EXHIBIT 99.1

Kenexa Announces Financial Results for Third Quarter 2009

WAYNE, Pa. – November 3, 2009 – Kenexa (Nasdaq: KNXA), a global provider of business solutions for human resources, today announced operating results for the third quarter ended September 30, 2009.  

For the third quarter of 2009, Kenexa reported total revenues of $40.3 million, a sequential increase compared to $39.5 million for the second quarter of 2009 and compared to $54.0 million for the third quarter of 2008.  Subscription revenue was $33.2 million for the third quarter of 2009, compared to $43.0 million for the third quarter of 2008, while professional services and other revenue was $7.1 million for the third quarter of 2009, compared to $11.0 million for the third quarter of 2008.    

Rudy Karsan, Chief Executive Officer of Kenexa, stated, “We are pleased with the company’s financial results for the third quarter, which were consistent with or better than our expectations.  We are encouraged that our total revenue grew slightly on a sequential basis, deferred revenue grew 20% on a year-over-year basis and cash flows from operations were again solid with $6 million generated in the quarter.”  

Karsan added, “From a macro perspective, we expect to continue facing headwinds until the unemployment rate stabilizes.  We believe that Kenexa has weathered the most difficult stage of the economic challenges, and the company is well positioned when the spending environment ultimately improves.  Customers are increasingly engaging in strategic evaluations, and the power of Kenexa’s end-to-end value proposition is evidenced by a number of highly competitive wins for global, multi-element solutions during the third quarter.”  

Non-GAAP income from operations, which excludes share-based compensation expense and amortization of intangibles associated with previous acquisitions, was $4.3 million for the three months ended September 30, 2009, compared to $10.3 million for the three months ended September 30, 2008.  Non-GAAP net income, which excludes the above mentioned items, was $4.0 million.  Non-GAAP net income was $0.18 per basic and diluted share for the quarter ended September 30, 2009, which was above the company’s guidance of $0.13 to $0.16 as a result of a $0.02 per share contribution from a lower-than-expected tax rate.  Non-GAAP net income was $0.36 per basic and diluted share in the third quarter of 2008.

Kenexa’s income from operations for the three months ended September 30, 2009, determined in accordance with GAAP, was $1.9 million, compared with income from operations of $7.5 million for the same period of 2008. GAAP net income was $1.6 million, or $0.07 per basic and diluted share, compared to net income of $5.4 million and $0.24 per basic and diluted share in the same period of 2008.

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 and investments of $50.2 million at September 30, 2009, an increase from $47.2 million at the end of the prior quarter.  The Company generated positive cash from operations of $6.1 million during the third quarter, which was partially offset by capital expenditures.  Deferred revenue was $44.2 million at September 30, 2009, an increase of approximately $2.0 million compared to the end of the second quarter 2009 and an increase of 20% from the end of the year ago period.  

Business Outlook

Based on information as of today, November 3, 2009, the Company is issuing guidance for the fourth quarter 2009 as follows:  

Fourth Quarter 2009: The Company expects revenue to be $38 million to $40 million, and non-GAAP operating income to be $3.3 million to $3.9 million. Assuming a 15% effective tax rate for reporting purposes and 22.9 million shares outstanding, Kenexa expects its non-GAAP net income per diluted share to be $0.13 to $0.15.  

Conference Call Information

Kenexa will host a conference call today, November 3, 2009, 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 10, 2009, at 877-660-6853 (domestic) or 201-612-7415 (international). The replay passcode is 334743. 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 se t 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 judgments 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.

Kenexa presents the following non-GAAP financial measures in this press release: non-GAAP income from operations before income taxes and interest income; non-GAAP net income; non-GAAP sales and marketing expense; non-GAAP general and administrative expense; non-GAAP research and development expense; and non-GAAP basic and diluted net income per share as described below. The Company’s non-GAAP financial measures exclude share-based compensation and amortization of acquired intangible assets related to the Company’s acquisitions.

Share-based compensation. Share-based compensation consists of expenses for stock options and stock awards that the Company began recording in accordance with SFAS 123(R) during the first quarter of 2006. Share-based compensation was $1.4 million for the three months ended September 30, 2009 compared to $1.3 million for the three months ended September 30, 2008. 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 $1.0 million for the three months ended September 30, 2009, and $1.5 million for the three months ended September 30, 2008. 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.

Each of non-GAAP sales and marketing expense, non-GAAP general and administrative expense, non-GAAP research and development expense, and estimated non-GAAP effective tax rate are each components necessary to calculate non-GAAP income from operations before income taxes and interest income, non-GAAP net income and non-GAAP basic and diluted net income per share and are calculated by adjusting the corresponding GAAP measure for the applicable period by the applicable portion of share-based compensation and severance expenses.

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.

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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.

Contact

MEDIA CONTACT:

Sarah Teten

Jeanne Achille

Kenexa

The Devon Group

(800) 391-9557

(732) 224-1000, ext. 11

sarah.teten@kenexa.com

jeanne@devonpr.com

INVESTOR CONTACT:

Kori Doherty

ICR

(617) 956-6730

kdoherty@icrinc.com

KENEXA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

	September 30, 2009			December 31, 2008
		(unaudited)
Assets
Current assets
Cash and cash equivalents	$	28,224		$	21,742
Short-term investments		22,000			4,512
Accounts receivable, net of allowance for doubtful accounts of $2,235 and $3,755		29,809			33,518
Unbilled receivables		5,613			5,849
Income tax receivable		1,155			1,238
Deferred income taxes		4,778			4,615
Prepaid expenses and other current assets		7,183			3,745
Total current assets		98,762			75,219
Long-term investments		—			16,513
Property, plant and equipment, net of accumulated depreciation		19,437			20,175
Software, net of accumulated amortization		16,188			11,025
Goodwill		314			32,366
Intangible assets, net of accumulated amortization		9,392			13,414
Deferred income taxes, non-current		39,901			39,465
Deferred financing costs, net of accumulated amortization		—			364
Other long-term assets		9,835			9,924
Total assets	$	193,829		$	218,465
Liabilities and Shareholders' equity
Current liabilities
Accounts payable	$	6,922		$	6,448
Notes payable, current		12			40
Commissions payable		709			559
Accrued compensation and benefits		5,041			4,010
Other accrued liabilities		6,149			10,090
Deferred revenue		44,192			38,638
Capital lease obligations		214			143
Total current liabilities		63,239			59,928
Capital lease obligations, less current portion		310			108
Notes payable, less current portion		—			41
Deferred income taxes		1,202			1,789
Other liabilities		86			63
Total liabilities		64,837			61,929
Commitments and Contingencies
Shareholders' equity
Preferred stock, par value $0.01; 100,000 shares authorized; no shares issued or  outstanding		—			—
Common stock, par value $0.01; 100,000,000 shares authorized; 22,553,686 and 22,504,924 shares issued and outstanding, respectively		226			225
Additional paid-in capital		273,758			269,365
Accumulated deficit		(142,006	)		(110,633	)
Accumulated other comprehensive loss		(3,093	)		(2,421	)
Total shareholders' equity		128,885			156,536
Noncontrolling interest		107			—
Total liabilities and shareholders' equity	$	193,829		$	218,465

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,
	2009			2008		2009			2008
		(unaudited)			(unaudited)		(unaudited)			(unaudited)
Revenue:
Subscription	$	33,221		$	43,031	$	100,527		$	125,855
Other		7,093			10,995		18,083			32,819
Total revenues		40,314			54,026		118,610			158,674
Cost of revenues		13,129			16,461		40,462			46,739
Gross profit		27,185			37,565		78,148			111,935
Operating expenses:
Sales and marketing		9,083			10,298		26,029			31,175
General and administrative		10,182			12,649		30,972			37,487
Research and development		2,453			3,756		7,557			12,605
Depreciation and amortization		3,582			3,337		10,084			8,766
Goodwill impairment charge		—			—		33,329			—
Total operating expenses		25,300			30,040		107,971			90,033
Income (loss) from operations		1,885			7,525		(29,823	)		21,902
Interest (expense) income, net		(28	)		255		(186	)		1,216
Investment income		102			—		54			—
Income (loss) before income taxes		1,959			7,780		(29,955	)		23,118
Income tax expense		361			2,356		1,418			6,955
Net income (loss)	$	1,598		$	5,424	$	(31,373	)	$	16,163
Basic net income (loss) income per share	$	0.07		$	0.24	$	(1.39	)	$	0.71
Weighted average shares used  to compute net income (loss) income per share - basic		22,539,717			22,551,225		22,525,144			22,852,499
Diluted net income (loss) income per share	$	0.07		$	0.24	$	(1.39	)	$	0.70
Weighted average shares used  to compute net income (loss) income per share - diluted		22,920,935			22,788,468		22,525,144			23,084,524

Non-GAAP income from operations and Non-GAAP net income excludes share-based compensation and amortization of intangibles.

	Three Months Ended September 30,
	2009			2008
		(unaudited)			(unaudited)
Non-GAAP income from operations reconciliation:
Income from operations	$	1,885		$	7,525
Add back:
Share-based compensation expense		1,384			1,256
Amortization of intangibles associated with acquisitions		1,041			1,526
Non-GAAP income from operations	$	4,310		$	10,307
Non-GAAP income from operations as a percentage of total revenue		11	%		19	%
Weighted average shares used  to compute Non-GAAP net income per share - basic		22,539,717			22,551,225
Dilutive effect of options and restricted stock units		381,218			237,243
Weighted average shares used  to compute Non-GAAP net income per share - diluted		22,920,935			22,788,468
Non-GAAP income reconciliation:
Net income	$	1,598		$	5,424
Add back:
Share-based compensation expense		1,384			1,256
Amortization of intangibles associated with acquisitions		1,041			1,526
Non-GAAP net income	$	4,023		$	8,206
Non-GAAP basic and diluted net income per share	$	0.18		$	0.36
Other Non-GAAP measures referenced on earnings call excludes stock based compensation and severance expense:
Gross profit	$	27,185		$	37,565
Add: share-based compensation expense		59			96
Non-GAAP gross profit	$	27,244		$	37,661
Sales and marketing	$	9,083		$	10,298
Less: share-based compensation expense		(286	)		(68	)
Non-GAAP sales and marketing	$	8,797		$	10,230
General and administrative	$	10,182		$	12,649
Less: share-based compensation expense		(902	)		(985	)
Non-GAAP general and administrative	$	9,280		$	11,664
Research and development	$	2,453		$	3,756
Less: share-based compensation expense		(137	)		(107	)
Non-GAAP research and development	$	2,316		$	3,649

KENEXA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	For the Nine Months Ended September 30,
	2009			2008
		(unaudited)			(unaudited)
Cash flows from operating activities
Net (loss) Income	$	(31,373	)	$	16,163
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		10,084			8,766
Loss on change in fair market value of ARS and put option, net		9			—
Goodwill Impairment Charge		33,329			—
Share-based compensation expense		4,080			4,430
Excess tax benefits from share-based payment arrangements		—			(192	)
Amortization of deferred financing costs		364			224
Bad debt (recoveries) expense		(471	)		1,293
Deferred income (benefit) taxes		(1,118	)		1,213
Changes in assets and liabilities
Accounts and unbilled receivables		4,272			(3,705	)
Prepaid expenses and other current assets		(1,907	)		(462	)
Income taxes receivable		83			—
Other long-term assets		(903	)		(2,659	)
Accounts payable		336			584
Accrued compensation and other accrued liabilities		180			(2,424	)
Commissions payable		149			(64	)
Deferred revenue		5,433			1,919
Other liabilities		(34	)		8
Net cash provided by operations		22,513			25,094
Cash flows from investing activities
Purchases of property, plant and equipment		(10,923	)		(16,609	)
Purchases of available-for-sale securities		(4,765	)		(25,195	)
Sales of available-for-sale securities		2,572			57,931
Sales of trading securities		1,650			—
Acquisitions and joint venture, net of cash acquired		(4,795	)		(29,747	)
Net cash released from escrow for acquisitions		—			(80	)
Net cash used in investing activities		(16,261	)		(13,700	)
Cash flows from financing activities
Repayments of notes payable		(73	)		(33	)
Proceeds from common stock issued through Employee Stock Purchase Plan		244			255
Repurchase of common shares		—			(29,842	)
Excess tax benefits from share-based payment arrangements		—			192
Net Proceeds from option exercises		70			366
Repayments of capital lease obligations		(237)			(174	)
Net cash provided by (used in)  financing activities		4			(29,236	)
Effect of exchange rate changes on cash and cash equivalents		226			(692	)
Net increase (decrease) in cash and cash equivalents		6,482			(18,534	)
Cash and cash equivalents at beginning of year		21,742			38,032
Cash and cash equivalents at end of period:	$	28,224		$	19,498
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	190		$	138
Income taxes	$	4,634		$	2,987
Noncash investing and financing activities
Capital Leases	$	513		$	260
Stock issuance for earn out	$	1,050		$	1,050