Kenexa Announces Financial Results for First Quarter 2009

WAYNE, Pa.--(Business Wire)--
Kenexa (Nasdaq: KNXA), a global provider of talent acquisition and retention
solutions, today announced operating results for the first quarter ended March
31, 2009.

For the first quarter of 2009, Kenexa reported total revenue of $38.8 million
for the first quarter of 2009, compared to $48.2 million reported for the first
quarter of 2008. Subscription revenue was $33.3 million for the first quarter of
2009, compared to $39.2 million for the first quarter of 2008, while
professional services and other revenue was $5.6 million for the first quarter
of 2009, compared to $9.1 million for the first quarter of 2008.

Rudy Karsan, Chief Executive Officer of Kenexa, stated, "While the business
environment is challenging and we expect it to remain so for the remainder of
the year, there are a number of positive developments related to Kenexa and the
talent management market. During the first quarter, sales and renewals of
Kenexa`s talent acquisition solutions remained solid, which was a primary
contributor to the solid growth of our deferred revenue. This performance,
combined with the company`s continued focus on operational efficiency, enabled
Kenexa to generate a record level of cash flows from operations for a first
fiscal quarter, expanding its already large cash balance."

Karsan added, "We are encouraged to see a growing number of customers evaluating
talent management vendors based on their ability to provide a comprehensive,
integrated suite of solutions. We believe Kenexa is uniquely positioned to meet
this demand based on our differentiated business model, industry leading product
breadth and depth and continued global expansion, including our recently
announced entry into China. We believe these factors enable Kenexa to deliver an
unmatched value proposition to HR organizations, and they are among the reasons
we remain highly confident in Kenexa`s long-term market position."

Non-GAAP income from operations, which excludes share-based compensation
expense, amortization of intangibles associated with previous acquisitions, a
non-cash goodwill impairment charge, severance expenses and professional fees
related to our Chinese expansion, was $3.9 million for the three months ended
March 31, 2009, compared to $9.1 million for the three months ended March 31,
2008 and represented a 10% non-GAAP operating margin. Non-GAAP net income was
$3.2 million, or $0.14 per basic and diluted share, for the quarter ended March
31, 2009, compared to $7.3 million, or $0.31 per basic and diluted share in the
first quarter of 2008.

As a result of a substantial decrease in the Company`s stock price, reflecting
the very difficult market conditions of recent months and the impact on its
operations, the Company evaluated its goodwill for potential impairment as of
March 31, 2009 in accordance with accounting requirements. Based on the results
of this evaluation, the Company reported a non-cash goodwill impairment charge
of $33.3 million, on a pretax tax basis. While the impairment charge reduced
reported operating results under generally accepted accounting principles
(GAAP), it is non-cash in nature and does not affect Kenexa's liquidity or cash
flow from operations.

Kenexa`s loss from operations for the three months ended March 31, 2009,
determined in accordance with GAAP, was $33.6 million, compared with income from
operations of $6.5 million for the same period of 2008. GAAP net loss was $34.3
million, or $(1.52) per basic and diluted share, compared to net income of $4.8
million and $0.20 per basic and diluted share in the same period of 2008. The
results above include the non-cash goodwill impairment charge.

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 short and long-term investments of
$46.7 million at March 31, 2009, an increase from $42.8 million at the end of
the prior quarter. The Company generated positive cash from operations of $8.9
million and deferred revenue was $41.4 million at March 31, 2009, an increase of
$2.8 million compared to $38.6 million at the end of the fourth quarter 2008.

Business Outlook

Based on information as of today, May 11, 2009, the Company is issuing guidance
for the second quarter 2009 as follows:

Second Quarter 2009: The Company expects revenue to be $36 million to $39
million, non-GAAP operating income to be $3.6 million to $4.6 million. Assuming
a 23% effective tax rate for reporting purposes and 22.7 million shares
outstanding, Kenexa expects its non-GAAP net income per diluted share to be
$0.13 to $0.16.

Conference Call Information

Kenexa will host a conference call today, May 11, 2009, at 5:00 pm (Eastern
Time) to discuss the Company's financial results. To access this call, dial
888-218-8032 (domestic) or 913-981-5549 (international). A replay of this
conference call will be available through May 18, 2009, at 888-203-1112
(domestic) or 719-457-0820 (international). The replay passcode is 4827689. 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 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. 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; non-GAAP
basic and diluted net income per share; and non-GAAP effective tax as described
below. The Company`s non-GAAP financial measures exclude share-based
compensation, amortization of acquired intangible assets related to the
Company`s acquisitions, goodwill impairment charge, severance expenses and
professional fees related to our Chinese expansion.

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
$1.2 million for the three months ended March 31, 2009 and $ 1.7 million for the
three months ended March 31, 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 $1.1 million for the three months ended March 31, 2009,
and $0.8 million for the three months ended March 31, 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.

Goodwill impairment charge. The company recorded a non-cash goodwill impairment
charge as a result of the impact of the unprecedented turmoil in world economies
and the resultant impact on business conditions and the broad-based downward
pressure on equity share values in the amount of $33.3 million.

Severance expenses. The company incurred charges in the amount of $1.2 million
in relation to additional severance expenses in the first quarter of 2009.

Professional fees related to our Chinese expansion. The company incurred
professional fees in connection with its Chinese expansion in the amount of $0.7
million during the first quarter of 2009. Under previous accounting guidance,
these charges would have previously been recorded as part of the investment
amount and excluded from the statement of operations. 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 (NASDAQ:KNXA) is a global leader in building the world`s greatest
workforces using a combination of software, employee research science and
business process optimization. Kenexa`s global solutions include applicant
tracking, onboarding, recruitment process outsourcing, employment branding,
skills and behavioral assessments, structured interviews, performance
management, multi-rater feedback surveys, employee engagement surveys and HR
Analytics. Kenexa is headquartered in Wayne, PA. (outside Philadelphia).
Additional information about Kenexa and its global products and services can be
accessed at www.kenexa.com.

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.

Kenexa Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

March 31, December 31,
2009 2008
Assets (unaudited)

Current assets
Cash and cash equivalents $ 27,045 $ 21,742
Short-term investments 4,142 4,512
Accounts receivable, net of allowance for doubtful accounts of $3,627 and $3,755, 26,779 33,518
respectively
Unbilled receivables 7,077 5,849
Income tax receivable 1,201 1,238
Deferred income taxes 4,770 4,615
Prepaid expenses and other current assets 4,822 3,745
Total current assets 75,836 75,219

Long-term investments 15,473 16,513
Property and equipment, net of accumulated depreciation 27,537 27,360
Software, net of accumulated amortization 4,356 3,840
Goodwill - 32,366
Intangible assets, net of accumulated amortization 10,919 13,414
Deferred income taxes, non-current 39,465 39,465
Deferred financing costs, net of accumulated amortization 289 364
Other long-term assets 10,545 9,924
Total assets $ 184,420 $ 218,465

Liabilities and Shareholders' equity

Current liabilities
Accounts payable $ 5,649 $ 6,448
Notes payable, current 41 40
Commissions payable 380 559
Accrued compensation and benefits 3,741 4,010
Other accrued liabilities 10,584 10,090
Deferred revenue 41,427 38,638
Capital lease obligations 101 143
Total current liabilities 61,923 59,928

Capital lease obligations, less current portion 91 108
Notes payable, less current portion 33 41
Deferred income taxes 1,119 1,789
Other liabilities 64 63
Total liabilities 63,230 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; 22,522,844 and 22,504,924 225 225
shares issued and outstanding, respectively
Additional paid-in capital 270,688 269,365
Accumulated other comprehensive loss (4,808 ) (2,421 )
Accumulated deficit (144,915 ) (110,633 )
Total shareholders' equity 121,190 156,536

Total liabilities and shareholders' equity $ 184,420 $ 218,465

Kenexa Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share data)

Three Months Ended March 31,
2009 2008
(unaudited) (unaudited)
Revenue:
Subscription $ 33,265 $ 39,156
Other 5,566 9,051
Total revenues 38,831 48,207
Cost of revenues 13,696 13,105
Gross profit 25,135 35,102

Operating expenses:
Sales and marketing 8,705 9,889
General and administrative 10,873 11,993
Research and development 2,568 4,542
Depreciation and amortization 3,228 2,151
Goodwill impairment charge 33,329 -
Total operating expenses 58,703 28,575

(Loss) income from operations (33,568 ) 6,527
Interest income, net 63 641
Loss on change in fair market value of ARS (295 ) -
and put option, net
(Loss) income before income taxes (33,800 ) 7,168
Income tax expense 482 2,394
Net (loss) income $ (34,282 ) $ 4,774

Basic net (loss) income per share $ (1.52 ) $ 0.20

Weighted average shares used to compute 22,509,304 23,413,071
net (loss) income per share - basic

Diluted net (loss) income per share $ (1.52 ) $ 0.20

Weighted average shares used to compute 22,509,304 23,649,027
net (loss) income per share - diluted

Non-GAAP income from operations and non-GAAP net income excludes share-based compensation, amortization of intangibles,
non-cash goodwill impairment charge, severance expense and professional fees for joint ventures.
Three Months Ended
March 31,
2009 2008
(unaudited) (unaudited)
Non-GAAP income from operations reconciliation:

(Loss) Income from operations $ (33,568 ) $ 6,527
Add back:
Share-based compensation expense 1,245 1,714
Amortization of intangibles associated with acquisitions 1,083 842
Goodwill Impairment charge 33,329 -
Severance expense 1,156 -
Professional fees re to Chinese expansion 687 -
Non-GAAP income from operations $ 3,932 $ 9,083
Non-GAAP income from operations as a percentage of total revenue 10 % 19 %

Weighted average shares used to compute non-GAAP net income per share - basic 22,509,304 23,413,071
Dilutive effect of options and restricted stock units 19,935 235,956
Weighted average shares used to compute non-GAAP net income per share - diluted 22,529,239 23,649,027

Non-GAAP income reconciliation:

Net (loss) income $ (34,282 ) $ 4,774

Add back:
Share-based compensation expense 1,245 1,714
Amortization of intangibles associated with acquisitions 1,083 842
Goodwill Impairment charge 33,329 -
Severance expense 1,156 -
Professional fees re to Chinese expansion 687 -
Non-GAAP net income $ 3,218 $ 7,330
Non-GAAP basic and diluted net income per share $ 0.14 $ 0.31

Non-GAAP tax rate calculation
Loss from operations before income taxes $ (33,800 )
Add back:
Share-based compensation expense 1,245
Amortization of intangibles associated with acquisitions 1,083
Goodwill Impairment charge 33,329
Severance expense: 1,156
Professional fees re to Chinese expansion 687
Loss on fair market value on ARS 295
Non-GAAP income from operations before income taxes $ 3,995

Income tax expense on operations gaap $ 482
Additional tax on non-gaap add backs $ 295
Non-gaap tax $ 777
Non-gaap tax rate 19 %

Other Non-GAAP measures referenced on earnings call excludes stock based compensation and severance expense:
Gross profit $ 25,135
Add: share-based compensation expense 110
Add: severance expense 651
Non-GAAP gross profit $ 25,896

Sales and marketing $ 8,705
Less: share-based compensation expense (239 )
Less: severance expense (202 )
Non-GAAP sales and marketing $ 8,264

General and administrative $ 10,873
Less: share-based compensation expense (808 )
Less: severance expense (165 )
Less: professional fees for joint venture (687 )
Non-GAAP general and administrative $ 9,213

Research and development $ 2,568
Less: share-based compensation expense (88 )
Less: severance expense (138 )
Non-GAAP research and development $ 2,342

Kenexa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)

For the three months ended March 31,
2009 2008
(unaudited) (unaudited)
Cash flows from operating activities
Net (loss) income from operations $ (34,282 ) $ 4,774
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 3,228 2,151
Loss on change in fair market value of ARS and put option, net 295 -
Goodwill impairment charge 33,329 -
Share-based compensation expense 1,245 1,714
Excess tax benefits from share-based payment arrangements - (132 )
Amortization of deferred financing costs 75 75
Bad debt recoveries (30 ) (475 )
Deferred income tax (benefit) expense (825 ) 1,029
Changes in assets and liabilities
Accounts and unbilled receivables 5,224 (2,707 )
Prepaid expenses and other current assets (1,083 ) (1,760 )
Income taxes receivable 36 1,091
Other long-term assets 332 (140 )
Accounts payable (715 ) (528 )
Accrued compensation and other accrued liabilities (338 ) (3,888 )
Commissions payable (180 ) (56 )
Deferred revenue 2,569 2,403
Other liabilities - 8
Net cash provided by operations 8,880 3,559

Cash flows from investing activities
Purchases of property and equipment (2,997 ) (5,619 )
Purchases of available-for-sale securities (845 ) (16,318 )
Sales of available-for-sale securities 1,203 45,105
Sales of trading securities 1,150 -
Investment in joint venture (1,357 ) -
Acquisitions, net of cash acquired (373 ) (1,248 )
Net cash (used in) provided by investing activities (3,219 ) 21,920

Cash flows from financing activities
Repayments of notes payable (8 ) (17 )
Proceeds from common stock issued through Employee Stock Purchase Plan 78 90
Repurchase of common shares - (24,607 )
Excess tax benefits from share-based payment arrangements - 132
Net Proceeds from option exercises - 219
Repayment of capital lease obligations (53 ) (42 )
Net cash provided by (used in) financing activities 17 (24,225 )

Effect of exchange rate changes on cash and cash equivalents (375 ) 92
Net increase in cash and cash equivalents 5,303 1,346
Cash and cash equivalents at beginning of period 21,742 38,032
Cash and cash equivalents at end of period $ 27,045 $ 39,378

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest expense $ 15 $ 39
Income taxes $ 925 $ 394
Income tax receivable applied against estimated tax payments $ - $ 1,091
Non-cash investing and financing activities
Stock issuance for earn out $ - $ 1,050

MEDIA CONTACT:
Kenexa
Sarah Teten, 800-391-9557
sarah.teten@kenexa.com
or
The Devon Group
Jeanne Achille, 732-224-1000, ext. 11
jeanne@devonpr.com
or
INVESTOR CONTACT:
ICR
Kori Doherty, 617-956-6730
kdoherty@icrinc.com

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