International Business Machines Corp (IBM) 2011 Q1 法說會逐字稿

And welcome to the Kenexa Corp first quarter 2011 earnings conference call.

(Operator instructions.)

It is now my pleasure to introduce your host, Don Volk, Chief Financial Officer for Kenexa Corp.

Thank you.

Mr.

Volk, you may begin.

Thank you.

Doug.

With me today is Rudy Karsan, our Chief Executive Officer ,and Troy Kanter, our President and Chief Operating Officer.

Today we will review Kenexa's first quarter 2011 results, followed by our current guidance for the second quarter and full year 2011.

We'll then open up the call for questions.

Before we begin, let me remind you that this presentation may contain forward-looking statements that are subject to risks and uncertainties associated with the Company's business.

These statements may contain, among other things, guidance as to future revenues and earnings, operations, transactions, prospects, intellectual property, and the development of products.

Additional information that may affect the Company's business and financial prospects, as well as factors that would cause Kenexa performance to vary from our current expectations are available in the Company's filings with the Securities and Exchange Commission.

Also I'd like to remind you that today's call may not be reproduced in any form without the express written consent of Kenexa.

We may refer to certain non-GAAP financial measures on this call.

I will discuss the reconciliation of adjusted numbers to GAAP numbers and reconciliation schedule showing the GAAP versus non-GAAP is currently available on our Company website, www.kenexa.com, with the press release issued after close of market today.

I'll now turn the call over to Rudy Karsan.

Rudy?

Thanks, Don.

And thanks to all of you for joining us on the call.

We are pleased with the Company's performance in the first quarter, which was a strong start to the new year.

In general, our business performed well, driving revenue and profitability that were above the high end of our guidance.

We believe that Kenexa is well positioned to continue benefiting from the general improvement in the economy and the hiring market.

In addition to the fact that we are seeing a growing a number of organizations looking for a strategic HR solutions provider that can help them transform their recruiting and overall talent management business processes.

Kenexa is well positioned to meet this need based on our unique combination of software, content, and services.

As Don will discuss in more detail in a moment, we are materially increasing our 2011 revenue guidance.

This is the second consecutive quarter that we've increased our guidance in such a manner, which is a reflection of Kenexa's growing momentum.

In addition, we are increasingly the 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 research and development.

Taking a look at our results for the quarter.

Total non-GAAP revenue was $63 million, which is above our guidance and represented a year-over-year increase of 59%.

From a profitability perspective non-GAAP operating income was $5 million and non-GAAP EPS was $0.15, both of which were above our guidance.

One of the reasons that we have consistently shared was that as the hiring environment improves Kenexa's business should benefit.

While many HR organizations are in a defensive mode when headcount is shrinking they are able to increasingly invest in a strategic manner when planning for headcount expansion.

This creates a more favorable buying environment for all talent management software providers.

Kenexa can further benefit as we are a total solutions provider, unlike most of our software only competitors.

And a portion of our revenue is directly tied to the hiring of new employees.

Kenexa's revenue performance over the last year supports our thesis.

Over the course of 2010 the unemployment year, unemployment rate was largely stable, beginning the year at 9.7% in January and improving slightly to 9.4% exiting the year.

In March we saw further improvement with the unemployment rate breaking through the 9% level as it declined to 8.8%.

Over the same time period Kenexa's revenue run rate has increased from the low $40 million range to the low $60 million range.

Even excluding the acquisition of Salary.com we have seen strong and consistent growth in our business and we are still only in the early stages of economic recovery on a global scale.

We also are still at the early stages of benefitting from the increased sales and marketing investments we have made in our business over the last 12 to 18 months.

While many companies reduced investments in their business during the economic recession, we took the opportunity to rebrand Kenexa, to refocus our message on our core differentiators and the reasons that our customers prefer to work with us.

We have invested in raising Kenexa's general market awareness and we have invested in expanding our global sales organization.

Our investment in sales and marketing has played an important role in Kenexa's accelerating growth and market share gains.

The software aspect of our business continued to grow at a double-digit range throughout the most challenging phase of the economic recession.

We have spoken about the fact that we have seen strong growth in pipeline activities in recent quarters, and the growth of our business and increased guidance is a reflection that our pipeline is converting more quickly.

Kenexa is much more than just a software company, however.

And it is a very important distinction.

We believe that our customers are looking for a business partner that can help them transform their HR function to become a strategic competitive advantage.

In order to service such a business partner, having a broad suite of software, gets you an entry into the discussion, but you also need to have the domain expertise, proprietary content, behavioral sciences, leadership development, and range of services based solutions to fully implement the transformative talent management program.

The services component of our business was hardest hit during the economic recession.

Though we have seen continued strengthening as the unemployment rate stabilized and improved in recent quarters.

Moreover, this is an area of our business that provides up side potential as the hiring environment picks up because our RPO business, which is over 20% of our total revenues, has successfully set our base on our number of employees that are hired.

There are a few important points regarding our RPO business.

First, it provides us with a domain expertise advantage compared to our software only competitors because we are using our range of software assessment, surveys, and behavioral sciences on a day-to-day basis as we execute the recruiting function on behalf of our clients.

This is not something that can be replicated in testing labs.

This is real world, practical experience using our technology, so we better understand the challenges that our customers are dealing with.

Second, we are seeing growing interest levels for our RPO offering as the economy begins to recover, which is reflected by the fact that our RPO revenue is approximately $14 million for the first quarter, which is up approximately 50% compared to over $9 million in the year-ago period.

Finally, many of the opportunities that we are seeing today are higher quality and larger in size as compared to years ago.

Companies are increasingly focused on how they can integrate multiple products and services, including RPO, to transfer their recruiting by implementing best practices to hire and retain the best employees.

An example of this during the first quarter was a competitive win that we had with the Ford Motor Company, which was for Kenexa's applicant tracking system, assessment solution, all integrated with our RPO offering.

We competed against both software incumbents and service providers, but Kenexa was the only vendor able to deliver an end-to-end value proposition.

Industry analysts recommend the power of Kenexa's value proposition, evidenced by our being named as a major player by IDC's worldwide integrated talent management 2011 vendor analysis for the third consecutive year.

In the report IDC identified Kenexa as a major player with strengths in global reach, a force of approximately 100 Ph.D.s knowledgeable in talent and assessment, a strong consulting practice, and a large R&D organization that takes advantage of offshore resources.

These factors contributed to Kenexa having another strong quarter relative to winning competitive engagements with large enterprises across a performance management and applicant tracking businesses.

In addition to our win with Ford Motor Company, additional high profile customer wins in the quarter included [Floor], Cisco, Cap Gemini, and TD Bank, among many others.

In total we added over 50 preferred partner customers across the globe during the first quarter compared to over 30 preferred partner customers added during the year-ago period.

Our growing base of preferred partner customers not only reinforced the strength of our solutions, they also provided significant cross-sell opportunity from a long-term perspective.

We have a proven track record of growing our customer relationships over time and our P-cubed metric, which measures the average annual revenue from our top 80 customers, was over $1.4 million at the end of the first quarter, which is an increase compared to over $1.2 million at the end of 2010 and $1 million at the end of a year-ago quarter.

We are continuing to invest in our suite of solutions to expand and deepen our value relationship proposition, in addition to providing us with the capabilities to continue to grow our customer relationships.

We continue to receive very favorable commentary from customers, prospects, and industry analysts about our Kenexa 2x platform, including both our product roadmap, as well as the strength of our applicant tracking systems, unique mobile solutions, and our recently launched on boarding solution.

Recent research from Aberdeen shows that the organizations of the standard on boarding process experience 54% created a new, higher productivity, 50% created a new, higher retention, and two times the level of hire engagement.

Three of the top five Fortune 100 rely on our 2x platform to power their talent management business processes.

And customers, such as these, and many more are able to streamline their core HR processes and differentiate their employment brand with Kenexa 2x onboard.

We believe that interest level for our on boarding solutions will grow in the next 12 to 24 months as the hiring environment is just now at the early stages of recovery.

And an important suite of solutions that we're bringing to market is that for compensation management.

Salary.com was the market leader with respect to salary based compensation management, and we've recently begun to train our sales organization on our expanded solution (inaudible) capability.

We expect it will take several quarters for the training to result in incremental business.

In the meantime, our renewal rates relative to Salary.com solutions have remained at a high level since the acquisition, and new sales activity has been consistent with our expectations.

From an overall perspective we are pleased with the speed in which the integration process is occurring, as well as early customer response.

In summary, while we have consistently reiterated our long-term optimism for the Kenexa business during the economic downturn, we are becoming increasingly bullish on the near term.

All aspects of our business are performing well, and we have materially increased our revenue guidance for 2011 over the last six months.

We believe the demand environment for HR related spend is at the early stages of improvement, and Kenexa is winning strategic engagements with the world's largest organizations as a result of our unique combination of software content and services.

As we exit the economic recession and talent management moves to the next phase we see customers looking for more than just a software provider.

They want a business partner to help them transform HR into a strategic function.

Kenexa' unique business model positions us very well to capitalize on what we see as a long-term market trend.

With that, let me turn it over to Don to review our financials in more details.

Don?

Thanks, Rudy.

Let me begin by reviewing our results for the first quarter, starting with the P&L.

On a GAAP basis, including the deferred revenue write-down of purchase accounting related to the Salary.com acquisition, our total revenue for the first quarter was $60 million.

Total non-GAAP revenue was $63 million, above our guidance of $60 million to $62 million, and up 59% compared to last year's first quarter.

Approximately $500,000 of the revenue up side was related to positive FX movement and two small acquisitions that were made during the quarter, with the other $500,000 of revenue up side driven by our core operations.

Non-GAAP subscription revenue was $49.2 million, an increase of 48% compared to last year, and it represented 78% of our first quarter total revenue.

Our services and other revenue came in at $13.8 million, up 116% compared to last year, and representing the remaining 22% of our first quarter total non-GAAP revenue.

We continue to expect our subscription revenue mix to be in the upper 70% to 80% range from a long-term perspective.

From a geographic perspective our non-GAAP revenue mix of domestic versus international revenue was 76.24% compared to 74.26% last quarter.

During the first quarter overall renewal rates for our Swedish solutions continued to improve and approximated the 90% range that we typically operated in during the pre-recession time period.

Turning to profitability, we will be providing non-GAAP measures for each first quarter 2011 expense category, which excludes the aforementioned $3 million in deferred revenue write-down related to the Salary.com acquisition, as well as $1.1 million of share base compensation charges associated with FAS 123R, $3.5 million of amortization of acquired intangibles, and $83,000 of expenses associated with closing acquisitions.

Both comparisons will be using the non-GAAP current period results.

Non-GAAP gross margin of 63% compared to 65% in year-ago period and 67% last quarter.

From an operating expense perspective non-GAAP operating expenses of $34.7 million were down about $600,000 on a sequential basis and up from $23.7 million in the year-ago quarter.

This led to non-GAAP income from operations of $5 million, above our guidance of $4.4 million to $4.8 million, and representing an 8% non-GAAP operating margin.

Non-GAAP income from operations increased 119% compared to the year-ago period.

Non-GAAP EPS was $0.15 for the first quarter of 2011, above our guidance of $0.13 to $0.14 and up 50% on a year-over-year basis.

Turning to our results on a GAAP basis the following were expense levels determined in accordance with GAAP.

Cost of revenue $23.3 million, sales and marketing $14.3 million, research and development $4.4 million, and general and administration $12.7 million.

For the first quarter GAAP loss from operations is $2.8 million.

Net loss allocable to common shareholders is $3.2 million, resulting in a $0.14 GAAP net loss per share.

The reconciliation of non-GAAP to GAAP expenses and income from operations can be found in our press release and current report on Form 8-K filed with the SEC.

Turning to our balance sheet, Kenexa has cash and cash equivalents of $19.7 million at March 31st, 2011, a decrease from $52.5 million at the end of the prior quarter.

During the quarter we used approximately $23 million in cash to pay-down the long-term debt, which had a balance of approximately $32 million at the end of the quarter.

We also used approximately $10 million as consideration for the two small acquisitions that I referred to a moment ago.

We generated non-GAAP cash flow from operations of $1.1 million, which excluded the pay-down of expenses associated with the closing of Salary.com.

As a reminder, cash from operations is typically weaker on a seasonal basis during the first quarter and there can be fluctuations on a quarter-to-quarter basis.

We continue to expect growth in our full year cash from operations based on the overall growth in our business and profitability.

In fact, we expect to generate record annual cash flow from operations in the mid $40 million range and free cash flow in the mid $20 million range for the year 2011.

Accounts receivable was $50.8 million at the end of the quarter, an increase from the $45.7 million level at the end of last quarter, due to strong sales activity in the quarter, combined with the ongoing back office integration between Salary.com and Kenexa.

We expect this integration process to be completed over the next quarter or two, which is consistent with what we have seen during other M&A integration processes.

And our deferred revenue at the end of the quarter was $82.2 million, up 8% from the end of the fourth quarter and up 51% from the end of the first quarter of 2010.

I'd now like to turn to guidance starting with the full year 2011.

We are once again raising our full year 2011 guidance to reflect the strength of our business and our optimism regarding the economy and jobs market.

We expect total non-GAAP revenue to be $267 million to $273 million, which includes an expected $4 million contribution from the two small acquisitions that I referred to a moment ago.

This represents a material increase compared to our previous guidance of $248 million to $256 million.

The raised guidance also represents year-over-year growth of 34% to 37%.

On a GAAP basis we expect total revenue to be $259 million to $265 million.

We are raising our non-GAAP operating income range from $21 million to $27 million to $24 million to $27 million.

Our targeted non-GAAP operating income reflects continued investment in our growth initiatives, which we believe is appropriate at this stage of the market rebound and share focus.

Assuming an effective tax rate for reporting purposes of approximately 20% and approximately 24.4 million shares outstanding we are bringing up the low end of our previously shared non-GAAP net operating per diluted share guidance, which now is expected to be in the range of $0.70 to $0.82.

Turning to our guidance for the second quarter, we are targeting non-GAAP revenue in the range of $66 million to $68 million.

On a GAAP basis we expect total revenue of $64 million to $66 million.

We are targeting second quarter non-GAAP operating income of $5.4 million to $5.8 million.

Assuming a 20% effective tax rate for reporting purposes and 24.4 million shares outstanding we expect non-GAAP net income per diluted share to be $0.16 to $0.17 for the second quarter.

In summary, we are pleased with our performance during the first quarter and are increasingly optimistic about the Company's growth prospects for 2011 and beyond, which is reflected by our increased revenue and profitability guidance.

We'd now like to turn it over to the Operator to begin the Q&A session.

Doug?

Thank you.

(Operator instructions.)

Our first question comes from the line of Peter Goldmacher from Cowen and Company.

Please proceed with your question.

Hi, thanks, Operator.

Guys, I like your optimism.

Let me ask you just a quick question, we had spoken multiple times about the investments you guys had made in the downturn.

And I was hopeful that with some revenue up side we'd get a more dramatic improvement in margins.

Your -- it looks like -- I haven't run the model yet, but it looks like your -- there's not as much earnings up side as certainly I was hoping for.

Is it more investments back in the business because of the investments are paying off or what's going on?

Well, I guess if you think about it we've been continuing to invest in the sales and marketing, right?

Over this period of time.

Our expectations are that we brought up the lower end of our earnings, so kind of what's going on is as the business continues to grow and as we see the opportunity we're continuing to invest more and more in sales and marketing and R&D, but we're very mindful of the open income, as well.

So what we're expecting to see as the year transitions as we go to the back half of the year if the revenues continue to grow we should then be able to kind of come in at numbers where we are saying we're going to.

So I don't know, Don, if you can add anything more in terms of specificity?

No, we have a big market opportunity, and we think it's appropriate to be spending on that, to capitalize on that market opportunity right now.

Okay, and can you talk about the -- when you take the revenue numbers up you alluded to some smaller deals, can you give us any sense of the contribution from the deals?

And also when you guys are out there competing do you feel like it is starting to understand what Kenexa bring to market and the differences between Taleo?

Are you finding that competing is getting a little bit -- you spend less time about differentiating the solution?

There's a lot of questions.

First, the question around the deal, I think you're meaning the acquisition, right?

Yes.

Small acquisitions, Peter?

Yes.

Okay, that's added about $4 million to our annual guidance over the balance of the year.

Okay.

So that takes care of that.

As far as differentiation goes, in general our story is starting to allow us the ability to talk about a different offering, which makes us very competitive in a lot of situations.

So the example I gave in the prepared comments around Ford, we've seen a few of those transpire, as well, and a few of them that we're in the hunt for.

So what we're seeing is in some fairly large deals the combined software content and services from a single throat to choke, so to speak, is something that the clients are finding somewhat refreshing because we are -- they're not counting on any partnerships here.

They can get the thing done directly with us.

And then we create a series of metrics for them that allow them to become more effective and efficient, so we can bring in things like quality of hire.

We can bring in things like retention rates, and have bonuses attached to it based on our solution.

So we are definitely seeing the market more receptive, and that's also reflected in the guidance.

We've moved that up quite a bit.

Yes, I noticed that.

Okay, great.

Thanks, guys.

Our next question comes from the line of Michael Nemeroff with Wedbush.

Please proceed with your question.

Hi, guys.

Nice quarter.

Thanks for taking my questions.

Just, first, if I can ask for an update on the Taleo lawsuit and, or the [V] lawsuit, and how that's progressing and whether you think the trial date, which I think you had said previously would be sometime around the middle of the year, if that's still on?

And how much you're continuing to spend on that?

And then, also, if I could just drill-down into the RPO business, if you can maybe just give us an update on the number of customers, qualitatively what the pipeline looks like?

It seems like that part of the business is really starting to come back pretty quickly.

If you can just give us some more detail on that, that'd be great?

Thanks.

Well, a really smart analyst I think a couple of days ago said that we wouldn't be giving a lot more information on the lawsuit.

But, Don, maybe you could?

So, Mike, we really can't comment on ongoing lawsuits.

The one item that I can comment on is that the trial is still scheduled for the end of June, because that's public knowledge.

We've talked about spending 200 basis points of revenue before, that is -- it's probably less than that as our revenue numbers are increasing.

So, again, we expect that to go through the end of the year, and then you never know when a trial is going to be held or not held.

So is it fair to say that if the lawsuit or if the trial does start sometime in the middle of the year as it is currently scheduled then a good amount of expenses associated with it would go away over the next -- in the back half of the year?

If the trial ends, yes.

If it continues, no.

Okay.

And then, Troy, you want to take the RPO?

Sure, Michael.

On RPO, no, it's -- the pipeline is quite robust, and the good news about the quality of the deals that are in the pipeline, it's a different makeup than the run-up that we had in '06 and '07.

Whereas, the questions that the buyers were asking back then were I need 200 programmers or I need 150 sales reps, and I need them in the next 30 days, it was much more focused on speed of hire.

Whereas, now the questions have -- of course there are those ramp-up meets, but the questions are so much more sophisticated.

They're more about the transformation of the quality of their hires, thinking through the entire recruiting infrastructure, not only the automation of that but the metrics around that, drawing the relationships between quality of hire and the business outcomes, being able to quantify what is the value of the recruiting department to the opportunity side of the income statement.

And as the questions changed to that, our win rates really dramatically increase.

And we're optimistic that the stickiness of those kinds of deals are there compared to where they had been in the past, again, in the run-up in '06 and '07.

If I may as a follow-up, are the types of companies that you're winning these deals with are they new companies that are new to RPO in general and just don't want to staff their recruiting departments as they have maybe in the past and, or are these just customers that went away for the last couple of years and are now just coming back?

Three types, those that have sort of dialed down to their minimums but now are coming back online.

The second type are those that really took out a lot of headcount during the downturn in their shared services and HR Department, and are reluctant to build that up, sort of see the business value of finding a strategic partner for that.

And then the third kind is what I had touched on on my last comments, where the executive committee is asking very different business questions of their HR Department.

Sure speed and cost reduction is always important no matter what business you're in or what shared service that you run, but there is a new level of scrutiny and accountability within HR Departments in the big global corporations around the world that they have historically not run with the same kind of business rigor and measurement and accountability that exists in supply chain or marketing or finance.

Those types of questions are now being asked of the heads of HR.

When those types of accountability and measurement questions get asked, those are really ideal clients or ideal prospects for Kenexa.

Again, when those questions are being asked of the HR Department the win rates for Kenexa really spike.

So those are really the three types of buyers that we're finding in the RPO business.

Current customers that have dialed down that are now accelerating their hires, those strategic customers that I spoke about, and then those that also are looking at just the pure cost and business benefit of not trying to rebuild their staffing departments on the way back up.

Great, thanks, very helpful.

Our next company, our next caller is Scott Berg with Feltl & Company.

Please proceed with your question.

Hi, guys.

Very strong quarter here.

A couple quick questions.

One, a follow-up to Michael.

Rudy, and it might be more appropriate for Troy, but taking your comments on the RPO business, Rudy, you talked about a large deal in the quarter obviously with Ford and other kind of large deals in the pipeline, but as I look at the press release from about six months ago or, excuse me, six weeks ago, talk about -- you talk about your ZOOMRecruit product.

And then if I look back towards last year you had talked about deals being more numerous but slightly smaller deals than before the recession.

Are we really starting to see kind of like almost like an explosion of demand across RPO in all the different segments of opportunities?

There are very, very few big deals, and there's a bifurcation in the marketplace.

So the earlier definition that Troy gave is kind of type one, type two, type three.

The ZOOMRecruit is kind of used for that -- those organizations that don't want to build-up their staff or for the smaller companies.

The massive transformation deals that Tory was talking about, the example was we used at Ford, those aren't -- there aren't that many in the pipeline because it's pretty large.

So we would probably see maybe one or two a year of those kinds of deals.

Okay, very good.

And can you comment on who the two acquisitions during the first quarter were?

And I assume they were more on the services side, but what products or talents they bring?

They are two small companies that are both focused in the content side of the business.

One is content specific to our pre-employment assessment business, and the other is content specifically on the performance management and retention side of the business.

Okay, that's all I have.

Thanks for the questions or thanks for the call.

Our next question comes from the line of [Brian Schwartz] with ThinkEquity.

Please proceed with your question.

Yes, thank you for taking my questions here.

Just a couple questions.

First, just wanted to dive in a little bit on the potential sales productivity improvements that you see ahead?

Don, is it possible to give us anything quantitatively on maybe how many new sales reps you've hired over the last two quarters or maybe what percentage of the sales force is new to the team, and when they should start contributing?

We've kind of not -- we're not going to disclose our quota carrying salespeople.

We have increased our sales and marketing spend, and we're increasing it throughout 2011.

We have hired a significant amount of salespeople, but I think if you look at our sales and marketing spend from Q4 to Q1 it's gone down because we had to, you know, we paid some commission kickers in Q4, but that's also an indication that we didn't hire any new.

But in our guidance going forward we are continuing to spend on sales and marketing.

Okay, and then just following up on the strength in the RPO business, I had actually had that declining sequentially here in Q1, which is typical historically for the model.

So I guess that goes back to the pipeline question really with Troy, you know, at these levels typically it tends to dip sequentially in Q1 and then tends to increase sequentially throughout the rest of the year.

Is it possible to handicap or looking at what you have from a pipeline standpoint is that trend potentially achievable here?

Well, again, we've factored that business showing growth into our guidance.

I think part of what you're seeing is it's tough to compare the economic environment of Q1 '11 to Q1 of '10.

We're just playing in a much more robust market, so I think that's why the comps on that are a little tougher in this moment in time.

Okay, and then just last question, just around kind of the linearity of the business that you saw in the quarter, it looks like on the balance sheet that your DSOs really shot-up here at the end of the quarter.

I think with our work we saw a large [debt] function, the number of job postings in the month of March, as well as continuing here in April.

Is that a fair way of thinking of how the business went here in Q1, that it just continued to get better month to month?

Thanks.

The business continued to get better.

The DSO increase was a result of two things -- strong sales activity in the quarter, but also the integration effort with Salary.com and Kenexa on the collection side.

We saw the same phenomena in DSO increase when we merged with BrassRing back in 2006, and I believe throughout the year we'll have that corrected by the end of 2011.

And that's one of the reasons why we gave some free cash flow and operating cash flow direction.

Thanks.

And thanks for taking my questions this afternoon.

You're welcome.

Our next question comes from the line of Steve Koenig with Longbow Research.

Please proceed with your question.

Hi, guys.

Thanks for taking my questions.

I wonder if I could start with and maybe do one follow-up, can you all comment on the color and composition on your software sales, how they're growing, what's doing particularly well, what are you seeing competitively?

Sure.

The software continues to be robust for us.

The pipelines look really good.

Our win rates with the large global institutions are outstanding.

They drop a little bit with the mid market.

Let's see, the -- if I could add -- let's see, I'm trying to think of some color to give you on that.

All right, how about particular categories?

Performance, the [QX] is not out yet, right?

But how is QX recruit doing, BrassRing?

What's leading the growth right now?

BrassRing is 2xB, that's doing exceptionally well.

Our 2xR product is doing well.

Our legacy performance product is doing well.

I think the big differentiator there is when you bundle in the content on both the retention and recruiting side that also tends to be a really significant differentiator for us, as well.

So there's really, you know, we're in a good spot.

There's not any single product category that is not growing, growing well, and has a strong funnel behind it.

So, again, all businesses are really performing well at this moment.

The 2x onboard --

I'm sorry, Rudy?

The 2x onboard --

Yes.

-- totally being successfully implemented in a Fortune 20 company --

Yes.

Great.

And then if I may ask one follow-up?

We've seen that you're advertising for up to 80 recruiters, and significant hiring clearly to put these folks to work I'm sure there's a lot of demand already there, but it looks like it would take over the course of 12 months about 40% to 50% growth in RPO to put those folks to work, some of which you've already seen and you may have holes to fill.

But what gives you the confidence that you can kind of recruit at that rate and at this sort of growth rate that we're seeing?

It looks like it can be sustained awhile?

So our hiring is pretty, it's just-in-time hiring, so what we do is we create -- the same thing we recommend to our clients is we create recruiting banks, so we begin the interview process but we don't do the actual hire and deploy until the contract is signed and we're ready to go.

So we will use up resources to create the recruiting banks, and we're very transparent with the individuals that we're talking to, explaining to them the situation that we're in, and then we execute once the contract is signed.

So I think from a confidence standpoint because it's just-in-time it only happens once we get the contract signed, so we're not overly concerned about a negative impact on our earnings because of that.

Okay, and I guess the last caller, that would be how long do you think you can sustain consulting RPO growth rate above 20%?

Is that normal or do you expect those sorts of growth rates to downshift over time?

I think for the balance of the year we are talking about some pretty decent changes in our overall numbers, and I don't think we'll see a material change in terms of the composition of Kenexa.

So I guess the question is for the balance of the year can we see a 20% plus growth in RPO?

Yes, Q1 came in at 50, so can we see 50 from between now and the balance of the year, I don't know about that.

But we're reasonably optimistic that we can see at least a 20% RPO growth between now and the end of the year.

How about on consulting?

Consulting is a little bit more volatile, so I would say the level of confidence in being able to make that statement would be a little lower, so that would be kind of where we sit that might be more of a pleasant up side if that does happen.

So we haven't baked in as big an increase on the consulting side because it's just really volatile.

Okay, great.

Thanks a lot, guys.

Appreciate it.

Our next question comes from the line of David Hilal from FBR Capital Markets.

Please proceed with your question.

Hi, this is [Sumad].

I'm here for David.

I was going to ask a question if we could get some more color on Salary.com.

Last quarter you all had given an update on revenue expectations relative to your original thoughts, and thought it was above trajectory for that.

Could you give us an update on that and if you think that you're still on pace to do better than what you had originally expected?

Yes, overall across the board in terms of salary we have kind of over performed on the sales side on the bookings or billing side, and we're selling kind of more software than we expected.

We had, and we mentioned to the Street that we were expecting a dip in Q1 because we were going to be integrating that, and looking at ways to reduce some of the businesses that Salary was in.

Most of that stuff has now been completed, so going forward we don't expect to see any headwinds associated with salaries, revenue, kind of either flat or slightly deteriorating.

So, all in all, I would say that we are probably as happy about the integration as we would have expected.

If I could ask a follow-up to that, is there a way you'd give us some sort of metric we can track?

Like is there a percentage of Kenexa customers that have added a Salary.com module or if there's some sort of tangible -- just any metric you could provide that we could track to see how it's going from our end?

We'll look at it and see if we can come-up with something for next quarter.

Okay.

Thank you.

(Operator instructions.)

Our next question comes from the line of [Justin Firbe] from William Blair & Company.

Please proceed with your question.

Hi, guys.

This is Justin in for Laura.

Thanks for taking my questions, and congrats on the quarter.

I guess following up on a few questions ago, Don, you had kind of qualitatively talked to kind of growth, or maybe it was Troy, growth across all your software segments.

Is there any way to kind of drill-down a little bit more and give a feel?

If you look at revenue or if you look at bookings what percentage is performance versus onboarding versus -- if you look across your product base, any feel for the contribution from each of those products?

Would be helpful.

Yes, it's really hard for us to answer that question because we do sell it as an integrated suite, and we really don't break-out different product categories.

Okay, and then I guess if you -- I think at your Analyst Day last -- towards the end of last year you talked about plans to come-out with a new learning solution by I think first half of 2012.

Is that still on the plans?

And I guess if you think about the deal environment is that something that's becoming more and more important?

Is that something that prospects are asking about?

Or do you guys feel okay with where you sit with your current LMS?

Our current LMS is okay.

It's not great, it's not bad, it's okay.

We do expect 2xL to kind of hit in the first half of the next year.

We are seeing a slight increase in inbound RFPs that do include learn, and there are a couple of companies out in the marketplace with whom we are looking to partner with.

So we're not all really concerned about a landscape change yet.

Okay, and then any update on your migration of customers on to the 2x?

I think we have at this point in time we have over 40 customers fully operational on 2x.

Yes, we have almost 40 customers fully up, and so we will continue to kind of look at the situation and make decisions as we go along, as the functionality starts to get more and more robust and make any transition decisions if we're going to probably would be for next year.

Okay, and then a last one, if I may?

On the Ford deal, can you talk about who you competed against?

And what their solution was prior to signing with you guys?

I'm not sure who their incumbent software vendor was, but I can't remember who it was.

It was a consortium -- there was an incumbent, a couple of software vendors, and there were a couple of other RPO players.

We were the ones that were able to take the whole thing.

And there was I think one assessment vendor.

So it was against a partnership of vendors, kind of looking at it all together.

Okay, thanks very much.

I appreciate it.

Our next question comes from the line of [Terry Tillman] from Raymond James.

Please proceed with your question.

Yes, good afternoon, guys.

Thanks for taking my questions.

I guess following up to the prior question on Ford, how should we think about the revenue recognition?

Are there some nuances to it or some things that are kind of tied together, thus it's going to be a period of time before we start seeing the revenue recognition or is it more immediate?

How do we think about that?

Well, the revenue recognition because it's a bundled product we break down -- we have to break down estimated sales prices, and each piece of the product gets the revenue recognition that those products get.

On RPO we go through an implementation and then we go through, once the implementation is -- well, we recognize revenue as that implementation is being done.

In applicant tracking it's the same thing, we'll go through an implementation and recognize that revenue, and then recognize the license revenue.

And then assessments we'll recognize the revenue as we give tests.

So, so far there hasn't been any revenue recognition, and it'll start to come in in the third quarter, and it's all built into our guidance.

Okay, thanks, Don.

And I guess, Rudy, in terms of highlighting onboarding, I'm not going to ask if you could segment the revenue stream from that or bookings versus performance and recruiting, but could you educate us a little bit more in terms of are there services or content attached to an onboarding deal?

Do you tend to lead with that, and, or any other perspective?

And I had thought historically you had a partnership or an OEM partner on the onboarding side?

Yes, we had inherited a couple of partners with some of our acquisitions in the past, but I think sometime in late 2009 we announced that we're going to be moving our onboarding solution.

That got done.

There was the early part of this year, and we've begun implementation on that.

We do provide the content around the forms, and it is a competitive advantage for us, and we can go global with it now.

Not totally global but there are three or four countries in which we can operate, and we're rapidly deploying on that.

So we've got, Troy, how many, like five, 14, 15 clients signed on to it?

One live and one should be coming live in about two months.

And then the balance will be coming live in the fourth quarter.

Great feedback on the product so far.

The, again, the logos that were winning are kind of a who's who, and it's a good product for the current install base as well as products that -- excuse me, as well as customers that currently aren't running any of our applications.

Okay, and I guess maybe if I could just launch a third one very quickly?

On the market share gain side, Rudy, you had talked about seeing market share gains, could you maybe segment it across the software services and content?

I mean is this ERP players, is it point solution, talent management vendors or HROs?

Could you maybe just talk a little bit more specific about where the market share gains are coming from?

Thank you.

Market share gains are coming from all those sources.

If you look at kind of the IDC data that shows software growth at about 7, we're growing double digits through the recession and are still at the double digits.

That's kind of the area in which we're coming in.

I think when we see the data coming in from analysts like [Brandon Hall] on RPO, they're talking about kind of double-digit growth, and we said in the first quarter we were looking at a plus almost 50% growth.

So there we were seeing market share.

We don't have comparable statistics for the content side of the business in terms of [independent] data, but what we do know and what we have seen is a continued growth rate that we believe exceeds the overall ATM growth rate on the assessment side.

So that's how we're making those statements.

Over and above that, our renewal rates have reached 90%, and you're starting to see kind of a pretty significant growth both in our revenue numbers, as well as you saw (inaudible) kind of climb pretty -- it was over 50% growth year-over-year.

There are no further questions in the queue.

I'd like to hand the call back over to Mr.

Karsan for closing comments.

I'd like to take this opportunity to once again thank the Street for their time and the time they've given us today and the support you've given us through the quarter.

Till next quarter, have a good one.

Ladies and gentlemen, this does conclude today's teleconference.

Thank you for your participation.

You may disconnect your lines at this time, and have a wonderful day.