Kenexa Corp. (KNXA, Financial) filed Quarterly Report for the period ended 2009-03-31.
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 $176.8 million; its shares were traded at around $7.85 with a P/E ratio of 7.5 and P/S ratio of 0.9.
Over the past six months, as a result of the deteriorating financial conditions, growth levels of the global economy have slowed to near historic lows as measured by most indices. Unemployment in the United States was at a 20 year high of 8.5% in March 2009. As the economy continues to deteriorate, economists have increased their joblessness estimates from 9.3% to over 10% nationwide by late 2009 or early 2010. During the first quarter of 2009, gross domestic product contracted at an annualized 6.1% rate, a rate not experienced in the United States since the 1982 recession, and much faster than previous government forecasts. Globally, the outlook was similar as the Organization for Economic Cooperation and Development's leading indicator edged closer to lows recorded during the oil shock of the early 1970s. Taken together, all of these factors (i.e. high unemployment, slower domestic growth and global recession) will likely adversely affect our business in 2009 and perhaps beyond. However, 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 clients will likely translate into slower growth, or contraction, for us, since a substantial portion of our business is dependent upon our clients 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 stronger and more efficient operating model.
Although our compound annual growth of revenue for the three year period ending December 31, 2008 was 45.9% and our clients have historically renewed their subscriptions at an approximately 90% rate 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 waiting to purchase our products and are otherwise 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 75% and as a result we have forecasted lower business levels for 2009.
Our clients 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 clients have the right to terminate their contracts for cause if we fail to provide the agreed upon services or otherwise breach the agreement. A client 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 March 31, 2009 lower than expected 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 approximately 90%. We expect this trend to continue through the end of 2009. Consistent with our historical practices, revenue derived from subscription fees is recognized ratably over the term of the subscription agreement. We generally invoice our clients in advance in monthly or quarterly installments and typical payment terms provide that our clients pay us within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable prior to the receipt of payment and in deferred revenue to the extent revenue recognition criteria have not been met. As a result of cyclical annual subscription renewals and the addition of one large customer payment during the first quarter of 2009, the amount of deferred revenue on our balance sheet has increased. As of March 31, 2009, deferred revenue increased to $41.4 million from $38.6 million at December 31, 2008. We generally price our solutions based on the number of software applications and services included and the number of client employees. Accordingly, subscription fees are generally greater for larger organizations and for those that subscribe for a broader array of software applications and services.
For the quarter ended March 31, 2009, approximately 83.7% of our total revenue was derived from sales in the United States. Revenue that we generated from clients in United Kingdom, Germany, and Netherlands was approximately 5.8%, 2.4%, 1.2%, respectively, for the quarter ended March 31, 2009. Revenue for all other countries amounted to an aggregate of 6.9%. Other than the countries listed, no other country represented more than 2.0% of our total revenue for the quarter ended March 31, 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 provide 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 85.7%, due to a decrease in other revenue, we expect that the percentage of subscription revenue will be in the range of 78% to 82% of our total revenues for the year ended 2009.
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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 $176.8 million; its shares were traded at around $7.85 with a P/E ratio of 7.5 and P/S ratio of 0.9.
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 three months ended March 31, 2009 and 2008, revenue from these subscriptions comprised approximately 85.7% and 81.2%, 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.Over the past six months, as a result of the deteriorating financial conditions, growth levels of the global economy have slowed to near historic lows as measured by most indices. Unemployment in the United States was at a 20 year high of 8.5% in March 2009. As the economy continues to deteriorate, economists have increased their joblessness estimates from 9.3% to over 10% nationwide by late 2009 or early 2010. During the first quarter of 2009, gross domestic product contracted at an annualized 6.1% rate, a rate not experienced in the United States since the 1982 recession, and much faster than previous government forecasts. Globally, the outlook was similar as the Organization for Economic Cooperation and Development's leading indicator edged closer to lows recorded during the oil shock of the early 1970s. Taken together, all of these factors (i.e. high unemployment, slower domestic growth and global recession) will likely adversely affect our business in 2009 and perhaps beyond. However, 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 clients will likely translate into slower growth, or contraction, for us, since a substantial portion of our business is dependent upon our clients 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 stronger and more efficient operating model.
Although our compound annual growth of revenue for the three year period ending December 31, 2008 was 45.9% and our clients have historically renewed their subscriptions at an approximately 90% rate 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 waiting to purchase our products and are otherwise 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 75% and as a result we have forecasted lower business levels for 2009.
Our clients 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 clients have the right to terminate their contracts for cause if we fail to provide the agreed upon services or otherwise breach the agreement. A client 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 March 31, 2009 lower than expected 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 approximately 90%. We expect this trend to continue through the end of 2009. Consistent with our historical practices, revenue derived from subscription fees is recognized ratably over the term of the subscription agreement. We generally invoice our clients in advance in monthly or quarterly installments and typical payment terms provide that our clients pay us within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable prior to the receipt of payment and in deferred revenue to the extent revenue recognition criteria have not been met. As a result of cyclical annual subscription renewals and the addition of one large customer payment during the first quarter of 2009, the amount of deferred revenue on our balance sheet has increased. As of March 31, 2009, deferred revenue increased to $41.4 million from $38.6 million at December 31, 2008. We generally price our solutions based on the number of software applications and services included and the number of client employees. Accordingly, subscription fees are generally greater for larger organizations and for those that subscribe for a broader array of software applications and services.
For the quarter ended March 31, 2009, approximately 83.7% of our total revenue was derived from sales in the United States. Revenue that we generated from clients in United Kingdom, Germany, and Netherlands was approximately 5.8%, 2.4%, 1.2%, respectively, for the quarter ended March 31, 2009. Revenue for all other countries amounted to an aggregate of 6.9%. Other than the countries listed, no other country represented more than 2.0% of our total revenue for the quarter ended March 31, 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 provide 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 85.7%, due to a decrease in other revenue, we expect that the percentage of subscription revenue will be in the range of 78% to 82% of our total revenues for the year ended 2009.
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