Kenexa Corp. (KNXA) filed Quarterly Report for the period ended 2009-09-30.
Kenexa Corporation provides software, services and proprietary content that enable organizations to more effectively recruit and retain employees. Kenexa solutions include applicant tracking, 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. Kenexa Corp. has a market cap of $281 million; its shares were traded at around $12.47 with a P/E ratio of 12 and P/S ratio of 1.4.
Highlight of Business Operations:
Since 1999, we have focused on providing talent acquisition and employee performance management solutions on a subscription basis and currently generate a significant portion of our revenue from these subscriptions. For the nine months ended September 30, 2009 and 2008, revenue from these subscriptions comprised approximately 84.8% and 79.3%, respectively, of our total revenue. We generate the remainder of our revenue from discrete professional services that are not provided as part of an integrated solution on a subscription basis. These subscription-based solutions provide us with a recurring revenue stream and we believe represent a more compelling opportunity in terms of growth and profitability than discrete professional services. Since 2005, subscription revenue has represented approximately 80% of our total revenue; we expect that trend to continue.
As of September 2009, unemployment in the United States continued to increase and was at a 20 year high of 9.8% while gross domestic product rose at a seasonally annual adjusted rate of 3.4% during the third quarter of 2009. The extent or degree to which we may be affected by these events is extremely difficult to predict. The uncertain economic prospects being experienced by our customers will likely translate into slower growth, or contraction, for us, since a substantial portion of our business is dependent upon our customers hiring and human capital needs. However, we believe that, by optimizing our internal resources for the current business conditions, we can minimize these adverse effects and emerge from this economic crisis with a return to our historic operating margins.
Although our compound annual growth of revenue for the three year period ending December 31, 2008 was 45.9% and our historic subscription renewal rate has been approximately 90% each year, some of our customers, facing uncertainty and cost pressures in their own businesses during the current economic downturn, have indicated that they are delaying the purchase of our products and increasingly seeking purchasing terms and conditions that are less favorable to us. As a result of this trend, we experienced lower renewal rates during the second half of fiscal 2008, resulting in a renewal rate by aggregate value of multi-year subscriptions for the year ended December 31, 2008 of approximately 70% - 80% and as a result we have experienced lower business levels for 2009.
Our customers primarily purchase renewable subscriptions for our solutions. The typical term is one to three years, with some terms extending up to five years. The majority of our subscription agreements are not cancelable for convenience although our customers have the right to terminate their contracts for cause if we fail to provide the agreed upon services or otherwise breach the agreement. A customer does not generally have a right to a refund of any advance payments if the contract is cancelled. Due to the current economic slowdown, a greater number of our customers are delaying or seeking to revise the terms and conditions of our service agreements. As a result, we experienced for the quarter ended September 30, 2009 renewal rates in the range of 70% - 80% of the aggregate value of multi-year subscriptions for our on-demand talent acquisition and performance management solution contracts rather than our historical renewal rate of more than 90%. We expect this trend to continue at least through the end of 2009.
For the quarter ended September 30, 2009, approximately 76.7% of our total revenue was derived from sales in the United States. Revenue that we generated from customers in the United Kingdom, Germany and Canada was approximately 7.2%, 3.4%, and 2.7%, respectively, for the quarter ended September 30, 2009. Revenue for all other countries amounted to an aggregate of 10.0%. Other than the countries listed, no other country represented more than 2.0% of our total revenue for the quarter ended September 30, 2009.
Subscription revenue as a percentage of total revenue. Subscription revenue as a percentage of total revenue can be derived from our consolidated statements of operations. This performance indicator illustrates the evolution of our business towards subscription-based solutions, which provides us with a recurring revenue stream and which we believe to be a more compelling revenue growth and profitability opportunity. While subscription revenue as a percentage of total revenue increased to 82.4%, due to a decrease in other revenue, we expect that the percentage of subscription revenue will remain above our target range of 78% to 82% of our total revenues for the remainder of 2009.
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