International Business Machines Corp (IBM) 2012 Q1 法說會逐字稿

Good evening, and welcome to the Kenexa Corp first quarter 2012 earnings conference call.

At this time, all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce our host, Mr.

Don Volk, Chief Financial Officer of Kenexa Corp.

Thank you, Mr.

Volk you may begin.

Thank you, Scott.

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

Today we will review Kenexa Corp's first quarter 2012 results, followed by our current guidance for the second quarter and full-year 2012.

We will then open up the call for questions.

Before we begin, let 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's performance to vary from our current expectations are available in the Company's filings with the Securities and Exchange Commission.

I would also like to remind you that today's call may not be reproduced in any form, without the expressed written consent of Kenexa.

Finally, we may refer to certain non-GAAP financial measures on this call.

I will discuss the reconciliation of adjusted numbers to GAAP numbers.

And a reconciliation schedule showing the GAAP versus non-GAAP financial measures, is available in our press release issued after the market closed today.

This press release can be found on our website at www.kenexa.com.

I will now turn the call over to Rudy Karsan.

Thanks, Don, and thanks to all of you, for joining us on this call.

We are excited to review our first quarter results which were above our guidance, from a revenue and profitability perspective, and which represented a great start to 2012.

The clear highlight of the quarter was the strong validation of Kenexa's software-as-a-service platform, as best-in-class in the marketplace.

Last year, we spoke to the fact that Kenexa won the three largest talent management deals during the year.

Each of these were for a combination of our technology and RPO.

During the first quarter, we won a number of multi-million dollar deals that I will detail later.

And each of these deals were head-to-head wins, based on the strength and differentiation of our SaaS offering.

As Don will relay in a moment, we are increasing our guidance for 2012, based on the strength of our first-quarter results, and the ongoing momentum of our Business.

As we look ahead, we believe that Kenexa is well-positioned to realize continued market share gains.

We increasingly see HR organizations seeking a holistic solution to address their challenges, and our highly differentiated product offerings and our unparalleled content and domain expertise are resonating in the market.

Taking a look at our summary results for the first quarter, total non-GAAP revenue was $80.1 million, above our guidance and representing a year-over-year increase of 27%.

We saw a strong performance across all aspects of our Business, software, content and services.

From a profitability perspective, non-GAAP operating income was $6.8 million, and non-GAAP net income available to common shareholders was $0.19 per diluted share, both of which exceeded our guidance.

From a macro perspective, we continue to see healthy demand in the marketplace, and we have a strong pipeline of opportunities across all areas of our Business.

We believe that Kenexa is very well-positioned to capitalize on this demand, due to the differentiation of our value proposition, and foremost, in addition to the changes occurring in the competitive landscape.

Let me spend a few minutes describing several exciting customer wins that we closed during the first quarter.

These wins highlight our market share gains, as well as the best-in-class nature of our SaaS platform.

First, was the recent announcement that Kenexa was awarded a 10 year multi-million dollar contract by the United Kingdom Ministry of Defense to deliver the Recruitment Partnering Project or RPP.

As part of this transformational project, Kenexa will deliver our applicant tracking system, and assessment solutions to Capita PLC, who is the lead service provider on the deployment.

Kenexa's technology platform will ultimately underpin recruitment for the Royal Navy, Army and Royal Air Force.

We are excited and honored to work with the MoD on this project, and look forward to working with them and Capita for many years to come.

In addition, to the MoD win, we also signed three Fortune 50 companies during the first quarter, CVS Caremark, Home Depot and the Boeing Company.

There are several similarities between these deals and the MoD win that I just described.

Each was a multi-million dollar engagement.

Each was based on the strength of our technology alone.

And finally, each was for multiple solutions, with the core solution being our applicant tracking system, and complementary solutions including our assessments, competencies, interviewing and on-boarding modules.

As you might expect, there is a significant level of competition when Fortune 550 companies are selecting a strategic talent management vendor to drive their HR strategy for years ahead.

We not only beat the incumbent ERP providers, we also beat all of the usual software pure plays in each of these technology-driven deal opportunities.

And fact, in one situation, once the ERP provider realized they were out of the running, they assisted the companies they were trying to acquire to try and beat Kenexa, and we prevailed against that attempt as well.

There are a few reasons that we believe Kenexa continues to gain market share, and win the most important deals in the talent management market.

First, our SaaS offerings are increasingly recognized as superior in the marketplace, particularly following the release of our 2x platform.

We have unparalleled breadth and depth of solutions in our recruiting suite, and we are offer a full end-to-end technology solution, that covers the entire lifecycle of the HR process, including recruitment, on-boarding, compensation management, learning and performance management, to name a few.

Even if we hold our proprietary content and services to the side, we increasingly hear from customers, that our technology solutions are superior to pure play SaaS competitors.

We see evidence supporting this, not only from the three Fortune 50 deals I previously discussed, but also from the significant international deals with like of Huawei, a global 500 Chinese company.

These leading global companies selected our SaaS platform during the first quarter, because it has superior security, scalability, functional completeness, and innovative capabilities.

This is the result of the continued significant investments we have made in R&D over the past few years.

And further validates our strategy of gradually expanding operating margin, rather than short -- shorter term focus of otherwise [weighting] back, to our target model.

Secondly, in addition to having a strong technology, Kenexa is the only vendor that delivers a truly complete value proposition, that includes best-in-class software, content and services.

Customers are looking for solutions to a business problem.

At Kenexa, we consider ourselves to be in the business of helping companies to transform their HR organizations into a competitive advantage.

And we do so, through the appropriate combination of solutions, across our end-to-end value proposition.

We believe this differentiated approach is driving our market share gains.

When you can combine SaaS functionality, that is viewed to be best-in-class with 25 years of domain expertise in human resources, and experts who actually understand how HR departments are run, you have a complete end-to-end offering that is difficult to beat.

We see a significant opportunity in software sales cycles to drive this point home, and our results clearly show that our message is resonating with customers.

The large customers that are highlighted, contributed to over 70 new preferred partner customers in the quarter, which is up from over 50 in the first quarter of 2011.

The continued expansion in our customer base also provides Kenexa with a growing opportunity to expand our offerings through our existing customer base.

To that point, our P-cubed metric, which measures the average annual revenue from our top 80 customers, was greater than $1.8 million for the first quarter, which was an improvement from $1.6 million at the end of 2011, and $1.4 million in the year ago period.

Before closing, it is worth commenting on the fact, that since we last spoke, the competitive environment has undergone another meaningful change, with Oracle announcing the acquisition of Taleo.

We believe that this transaction, along with SAP's acquisition of SuccessFactors, is positive for Kenexa due to the following reasons.

First, these acquisitions validate that the talent management market is a growing multi-billion dollar market opportunity.

Second, the reasons that we were gaining market share prior to these acquisitions are still the same today.

We have a highly differentiated value proposition, as we are the only market leader that combines best-in-class software with unparalleled content services and domain expertise.

Third, Kenexa is now the largest talent management vendor in the world, that is focused on dedicating 100% of our resources to addressing the challenges faced by human resource professionals.

We believe this means a lot to customers, and [it is some] of the deal opportunities referenced earlier in my remarks.

Fourth, Kenexa is a completely agnostic technology provider, that integrates seamlessly with all backend and data solutions a customer may be running.

We sell to the human resources buyer, and they are never confused about where our loyalties lie.

We have seen early promising signs that this agnostic approach will help us win, and also makes Kenexa the go-to talent management provider for other software companies to partner with.

In summary, we're off to a fantastic start in 2012.

We believe that Kenexa is as strong, from a product and competitive standpoint, as we have ever seen.

We expect to deliver stronger growth, and expanding profitability going forward, even as we invest to take advantage of the growth opportunities ahead of us.

We have shared in the past, that we believe the talent management market would support several very large companies, in the billion dollar plus category.

We believe Kenexa's position continues to improve, to become one of those ultimate winners.

With that, let me turn the call back over to Don, to review our first quarter financials, and to update you on our guidance for 2012.

Don?

Thanks, Rudy.

I will begin by reviewing our first-quarter results, starting with the P&L.

On a GAAP basis, our total revenue for the first quarter was $77.8 million.

Excluding the deferred revenue write down of purchase accounting, related to certain acquisitions, total non-GAAP revenue was $80.1 million, which exceeded our guidance of $78 million to $79 million, and represented a 27% increase compared to the first quarter of 2011.

Non-GAAP subscription revenue was $57.6 million, an increase of 17% compared to last year, and it represented 72% of our total first quarter revenue.

Services and other revenue was $22.5 million, up 63% compared to last year, and representing the remaining 28% of our total first quarter non-GAAP revenue.

The growth in our other revenue continues to be driven by the momentum in our RPO business.

We generated approximately $20 million in RPO revenue in the first quarter, which was up 49% from the year ago period.

The strength of our RPO business is further evidenced by the fact that it's revenue was roughly flat sequentially, even though one of our larger RPO customers brought their recruiting function back in-house after a transition in leadership, as we discussed on our last call.

Looking at our revenue from a geographic perspective, our non-GAAP revenue mix of domestic versus international revenue was 75%, 25% versus 76%, 24% in the first quarter of 2011.

During the quarter, currency positively impacted our total current -- our total revenue by approximately $200,000.

Our renewal rates, across our suite of solutions continue to approach the 90% range, consistent with recent quarters.

Turning to profitability, we will be providing non-GAAP measures for each first quarter 2012 expense category, which excludes $1.9 million of share-based compensation expense associated with FAS 123R, $5.4 million of amortization of acquired intangibles, and $300,000 of fees related to acquisitions.

And, it also includes the previously mentioned $2.3 million in deferred revenue write down.

Comparisons will be made using the non-GAAP results for both periods.

Non-GAAP gross margin was 60% for the first quarter, consistent with last quarter, and compared to 63% in the year-ago period.

Our non-GAAP gross margins have been in the lower 60% range in recent quarters due to the strong growth in our other revenue, which has largely been driven by our RPO business, including the ramp of several large programs that we announced last year.

Other things being equal, we expect that we will see gross margins begin to expand from current levels in the back half of the year, as we move beyond the early implementation phase in these programs.

Looking at operating expenses, non-GAAP operating expense was $41.1 million.

As expected, this was up seasonally from $37.5 million in the fourth quarter of 2011, and it is up 18%, from $34.7 million in the year-ago period.

Non-GAAP income from operations of $6.8 million was above our guidance of $6.1 million to $6.5 million.

This represented an 8.5 -- an 8.5% non-GAAP operating margin, which is a slight increase from an 8% operating margin a year ago.

Non-GAAP income from operations increased 36% compared to the year ago period, which led to non-GAAP diluted EPS of $0.19 for the first quarter of 2012, which also exceeded our guidance of $0.15 to $0.17.

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

Cost of revenue, $32.3 million, sales and marketing, $17.5 million, R&D, $6.4 million, and G&A, $14.1 million.

For the first quarter, GAAP loss from operations was $3 million.

Net loss allocable to common shareholders was $2.5 million, resulting in a $0.09 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, we had cash, cash equivalents and investments of $83 million at March 31, 2012 which compares to $129 million at the end of 2011.

The decrease in cash was primarily a result of the $41.1 million paid for the acquisition of OutStart.

From a cash flow perspective, we generated cash from operations of $1.7 million during the quarter.

This compared to $600,000 in the year ago period.

As a reminder, our first quarter is typically weaker from a cash flow perspective, due to payout of prior year incentive compensation.

In addition to the fact, that the first quarter is seasonally lower from a profitability perspective.

Free cash flow was a negative $5.4 million for the first quarter of 2012, compared to a negative $6 million in the year-ago period.

For the full-year 2012, we continue to expect to generate strong cash flow, just as we generated record cash flow in 2011, following a slower seasonal first quarter performance.

We are currently targeting free cash flow of approximate $40 million.

This will be up from $31.8 million in free cash flow for the year 2011.

Our accounts receivable DSO was 70 days at the end of the first quarter, compared to 76 days in the year- ago period.

Deferred revenue at quarter-end was $96.6 million, an 18% increase from $82.2 million in year-ago period.

I would now like to turn guidance, starting with the second quarter.

We are targeting GAAP revenue of $84 million to $86 million, and non-GAAP revenue in the range of $86 million to $88 million, an increase of 21% to 23% on a year-over-year basis.

It also represents a solid 7% to 10% sequential increase from the first quarter of 2012, driven largely by the recognition of revenue associated with strong technology sales from recent quarters.

We are targeting second quarter non-GAAP operating income of $8.3 million to $8.7 million.

Assuming a 20% effective tax rate for reporting purposes, and 28.3 million shares outstanding, we expect non-GAAP income per diluted share to be $0.22 to $0.23 for the second quarter.

For the full-year 2012, we are raising our guidance to reflect strong first quarter results, as well as the ongoing momentum of our Business.

We expect total GAAP revenue to be $348 million to $358 million.

And after adding back the deferred revenue write down associated with certain acquisitions, non-GAAP revenue in the range of $355 million to $365 million.

This is an increase from our initial 2012 non-GAAP revenue guidance of $352 million to $362 million, and represents year-over-year growth of 22% to 25%.

We are increasing our full-year non-GAAP operating income guidance to $37 million to $41 million, an increase from our initial guidance of $36 million to $40 million.

At the midpoint of our new range, we are targeting non-GAAP operating margin of 10.8%, a modest increase from 2011 levels of 10.2%.

This assumes continued investments in our growth initiatives, which we believe is appropriate, giving our opportunities for growth, and increasingly attractive competitive positioning in the marketplace.

Assuming a 20% non-GAAP tax rate for reporting purposes, and 28.6 million shares outstanding, we are now targeting full-year 2012 non-GAAP net income per diluted share in the range of $0.98 to $1.09, up from our initial guidance of $0.95 to $1.07.

In summary, we are pleased with our performance during the first quarter, and we believe we will see continued momentum in the Business over the course of 2012.

We have a differentiated value proposition that is increasingly being embraced by customers, and we expect to be one of the long-term winners in the multi-billion-dollar talent management industry.

We would now like to turn it over to the operator to begin the Q&A session.

Scott?

Thank you.

(Operator Instructions).

Our first question is coming from the line of Mr.

Mark Murphy with Piper Jaffray.

Your line is now open, you may proceed with your question.

Hi, good afternoon.

This is Matt Coss, on for Mark Murphy.

Congratulations on closing on those three large customers, Boeing, CVS Caremark and Home Depot.

Those deals, how many products do they buy on average?

And I know you said there multi element.

And were there any compensation elements to those deals, and also, any RPO with any of those deals?

Hi, Matt.

Troy, here.

Let's see, on average there were probably, the core ATS went everywhere from two to four add-on products.

Okay.

All primarily focused on, really helping them put together the world's most comprehensive approach to really managing talent acquisition.

So all the way from the traditional applicant tracking system, with some of our high-end content, analytics, interviewing capabilities, competency capabilities and on-boarding capabilities.

And it is not only -- is also -- it's for the entire enterprise, not just corporate headquarters, but for the field as well, which is a fairly significant, and a couple of those being large retailers.

So a really nice comprehensive talent acquisition solution put in place for them.

And right off the top of my head, I'm trying to think, some of -- a couple of those are running products of Kenexa's already.

And I -- just right off the top of my head, I cannot think if comp was bundled in there or not.

Okay, very good.

And then, just one quick one for Rudy.

This quarter you didn't talk about an alarming or worse macro in Europe, has that improved, or is it kind of still the same?

I would probably downgrade it from alarming, to it is still very rocky in Europe.

Yes, we are mindful and aware of it, and have just made sure that we don't go out on a limb to do anything foolish in that area for now, until the situation resolves itself.

Great, thanks.

That's all for me.

Thank you.

Our next question is coming from the line of Peter Goldmacher with Cowen and Company.

Your line is now open, you may proceed with your question.

Hey, this is Joe for Peter here.

We were wondering -- thanks for taking our call, and congrats on the big customers signing.

The big customers, I wanted a little bit more color on the RPO that those customers signed on for.

Is -- are the minimums still lower on average for your large customers than they have been?

So does that still represent upside in the model?

And that's it, thanks.

Joe, those deals we just announced this quarter were all pure technology deals, with some of the content embedded.

There was no RPO in the Q1 deals we announced.

Oh.

Including the three Fortune 50s, the MoD announcement, as well as the major deal we won in China, those are all pure tech deals.

Okay.

So no services at all.

And if they do sign on any services, is it possible that they do sign on services, and that is upside to the model?

We are optimistic and hopeful that every customer add services.

So yes, that would all be upside, Joe.

Okay, thank you so much.

Thank you.

Our next question is coming from the line of Terry Tillman with Raymond James.

Your line is now open, you may proceed with your question.

Yes, good afternoon, and thanks for taking my questions.

I just had two questions.

Well, I guess actually three questions, one is a two-part question.

Anyways, the RPO business, what drove the upside?

I know you did have that headwind, and you called it out.

Yet you still had the sequentially flat business.

So was it just a couple of programs that were driving the upside?

Or was there something more broad-based, across the whole mix of customers, is the first part of the question?

The first part of the question is -- the answer is, it was broad-based, and we did pick up a couple of smaller wins that we did not announce.

And so that also helped on the upside.

Okay.

All right, thanks, Rudy.

And then in terms of, I guess looking forward, under the scenario whereby maybe you win additional large business on the RPO front, what can you do, or what can you put in place to avoid maybe the initial hit like you had with the three large deals in 2011?

On the margin side, I should say?

So, if we signed three large deals again, the organization is now 30% larger.

So the impact of an equivalent sized deal would be 30% less.

So that's kind of -- the magnitude of the organization itself would help the drag on gross margins, from one or two, or even if we got all three deals.

The second is, we are looking to price it a little tighter up front, in order to make sure that that drag does not happen.

Competitive procurement situations may not allow that, but we will do our best.

Okay.

And then Don, maybe a question as it relates to the full-year revenue -- with the guidance.

I mean, any update on how we should think even just generally speaking, of the split between subscription and services and other?

Thanks.

I think that our target model is 78% to 82% subscription, but I don't think that we are going to hit that this year.

I think that middle 70s in subscription is about where we are going to come in.

Thank you.

Our next question is coming from the line of Pat Walravens with JMP.

Your line is now open, you may proceed with your question.

Great.

Thank you.

Don, I guess can I start -- when you were talking about how gross margins could go up in the second half of the year, what range are we talking about?

We are talking an improvement into the middle 60s.

And Rudy, this is probably for you, can you just share with us, if you are seeing it, what sort of changes you've seen in the go -to-market behavior of SuccessFactors and Taleo, since they have been [wrapped] into these larger companies?

I will comment on it a little bit, and then Troy can also comment on it.

Basically, we haven't seen a significant change yet in the -- on the kind of ground hand-to-hand combat.

What we have seen in a larger sense, is that they are trying to change the messaging from talent management, and taking it to a complete HR suite, a la the early 2000s.

So they have kind of dusted off their old marketing tacts from 10 years ago, and are restating those back to the market.

Whether it sticks this time around or not, I don't know.

Yes, what I would add is that -- you will see customers in the market place, where the IT department says we are on this platform, and every possible app we can will be on that platform.

Now you are also starting to see some customers that, some organizations that are rejecting that.

That historically, they had loaded up a lot of different parts of their enterprise onto one application, and then felt a little held hostage with maintenance fees and licensing fees.

So you will see, a group of people breaking away from that.

As well as what is really sweet spot for Kenexa, is when the organizations are really taking a strategic approach to completely revamping their HR, and thinking entirely different about their recruiting performance and learning departments.

Our win rates are on those deals is really, really high.

And now given that we are, for all intents and purposes, really the only pure play left, I see our win rates even increasing above and beyond what they already are for those types of buyers.

Thank you.

Then last question, are there any sort of major partnerships that you're getting closer to, having with other people to accelerate the RPO business?

Does that make sense?

Yes.

So from an RPO, as well as from a software side, needless to say, now that both the other large talent management providers have entered the ERP domain, organizations like Workday, IBM, are the two biggest players out there.

And they have begun dialogue with us.

So we are in dialogue, but nothing significant announced yet on that front.

Okay.

Thank you.

Thank you.

(Operator Instructions).

Our next question is coming from the line of Laura Lederman with William Blair.

Your line is now open.

Yes.

Thank you for taking my question.

Nice quarter.

Can you talk a little bit about when the four big deals, be it UK, or the three large ones in the US, start to contribute?

In other words, a sense of the ramp time of both [introductions] before they become materials to revenue?

Laura, I think we are having a little bit of trouble understanding.

So could you repeat the question, if you don't mind?

Yes, let me ask it without the headset.

The four big deals you win, the UK plus the ones in the US, when do you expect them to materially contribute to revenue?

Okay.

I think what you said, is when we expect these four deals to start contributing to revenue?

Yes.

It takes a little bit of time.

We think that the MoD will start getting revenue in the back half of 2012, then the three large ATS and other product deals will start getting revenues into -- it is in our guidance.

It is going to be Q2, Q3, Q4.

Can you talk a little bit about organic growth for this year, and taking out acquisitions, what is for full year 2012?

And for the full year 2012, if you take -- if we take out OutStart, it is going to be in the -- according to our guidance, it is going to be in the high teens.

One final question.

If you look at the large deals in the US and the ATS deals, was it pretty much the usual suspects if you will, in other words Taleo?

And how did the acquisition of Taleo by Oracle impact their ability to win or not win those deals in your opinion?

In other words, was the acquisition a plus for you, do you think in the quarter?

Laura, on the multiple large deals this quarter, it was the usual suspects, in terms of those that used to be pure plays, that are now becoming part of the bigger ERP companies.

As well as, we have historically in these large Fortune 50, Fortune 100 deals, seeing the ERP players.

So it is not new to see the ERP players.

They also came in very aggressively, especially with their new acquisitions or new partnerships.

And again, I think what really differentiates, that if someone, if these companies were looking to buy an end-to-end HRIS system, well, we are not going to win that deal.

But these companies were tasked with, by their operating committees, to transform the recruiting department.

And when people start thinking about how do we dramatically transform the quality of talent in our organization, we are going to beat the ERP companies on those kinds of deals.

So I think that's the big competitive differentiator for Kenexa is that when it really is a strategic initiative, and they are really seeking a return on investment, that is just beyond faster and cheaper -- which again, regardless of what software program you put in, if you are selling B2B software, you got to deliver faster, cheaper.

But when the question moves beyond that, to return on per person productivity, of all the people that we're hiring and onboarding, does the next 2,000 we hire via Kenexa, significantly outperform the last 2,000 we hired without Kenexa?

That's -- we win those deals.

Thank you so much.

Thank you.

Our next question is coming from the line of Scott Berg with Feltl and Company.

Your line is now open, you may proceed with your question.

Hi, great quarter.

Just have a couple here.

Let's start off with, Don, can you provide any additional color on the UK MoD deal?

We know it's a 10 year deal, but maybe in terms of revenue contribution on an annual basis, once it is ramped?

Scott, we really don't disclose individual customers and how much the deals are, but other than the fact that it is a multi-million dollar deal over 10 years.

That's fine.

But it will be a significant contribution to our numbers.

Oh, that's fine.

I just hadn't heard the multi-million exact comment before.

That's fair.

And then Don, can you give us the OutStart contribution in the first quarter?

It was as expected, as we announced last quarter.

All right.

And then, I guess lastly for me, is this might be for Troy.

Troy, can you comment on the ramp of the three large RPO deals from last quarter?

Are those customers now fully ramped, I assume Ford is considering -- it has almost been year -- but Eli Lilly and Baker Hughes, are they fully ramped?

Or should -- will we still see some of those revenues ramp further here, beginning in Q2?

We should be fully ramped as we close out Q2.

That's all I have.

Thank you.

Gentlemen, our final question is coming from the line of Steve Koenig with Longbow Research.

Your line is now open, you may proceed with your question.

Hi, good afternoon.

Just a couple questions, if you don't mind.

I will make it quick here.

I wanted to ask you about, just two disconnects maybe you can help me with.

One is, you had a very good quarter here.

You had some significant wins.

You only raised EPS guidance by about the amount of the beat.

And you raised revenue by an extra $1.5 million beyond the beat.

So I'm just wondering, given those big deals, why not -- why didn't you raise guidance more -- and why isn't -- Q2 guidance skews a little below consensus?

Does it have anything to do the timing of the wins, or did they surprise you?

Just any commentary there would be helpful.

Well, if you look at the global situation, you've got the softness in Europe.

China is rumored to go for a hard landing, and it is kind of sloppy here in the US.

We don't have an internal need to be heroes at this time.

Okay.

So we feel like we are winning the business.

When we win it, a lot of these revenues are going to come in, as Don mentioned earlier in the back half of the year, and have been incorporated in the guidance.

And we will continue to make those decisions at the time, that we believe will be prudent, in terms of letting the street know.

Okay.

And then maybe the other little disconnect is, Don, your commentary about gross margin maybe getting into the middle 60s, approaching the end of the year -- I assume that's non-GAAP -- that -- I think that put me at much better EPS than your guidance.

I am missing -- is my math wrong here?

Or just maybe help me with that.

Well, we've got work to do, in order to get to those points.

So we haven't reached them yet.

It is a projection of --

Yes.

Other than -- I mean, it is where we want to get to.

Okay.

All right.

Great.

And then I just want to confirm what I thought I was hearing from Troy.

You are hoping to win RPO revenues on all three or four of those ATS deals that you won in Q1?

And what time frame would that be?

No, I, we were, no, the initial assignment of these companies is to automate every component of their recruiting and on-boarding, and measurements and analytics.

Okay.

I was a bit facetious, when the question is, do you hope to win services revenue.

Well, we hope to win services revenue with everyone we work with.

Okay.

So there is --

Okay.

So more of a general answer, we shouldn't be asking you every quarter, if you won those RPO deals in other words?

Exactly.

We were -- we just really wanted to emphasize again, that I think that -- and you look back at the deals we announced, just on the software side last year.

Those RPs -- those big integrated RPO deals with our technology and assessment, those were the most highest profile deals in the industry.

And I think they overshadowed a whole bunch of really important significant software wins that we had.

And we had been talking, and projecting to the market that, look, the quality of our software with the investment that we've made in these releases that we've made, we really are becoming the best-in-class SaaS provider, especially on that talent acquisition side.

So what we really wanted to make clear to the street here is, that look, the biggest, highest profile, toughest deals to win, we won all of them that we are aware of that happened in the marketplace this year.

And so again, that RPO business is doing well.

We're really excited about it.

We are even more optimistic about the things that are coming down the pike.

As we continue to transform the space with that model --

Yes.

We think there's enormous upside, as other companies start to adopt that model.

And again, all of that -- and all of that success and noise in the marketplace, again, I think has sort of trumped the really exciting news that we have, just on the pure software sales.

And so, that --

Yes.

We really wanted to make clear to you on this call, is that, just on the pure software alone, we are taking a big percentage of market share.

Okay.

And then -- (Multiple speakers).

And sorry.

I would like to also add, that I think our guidance is above consensus.

I could be wrong, but I'm just going by memory.

I'm not sure it is below consensus, but we can check on it, and get back to you.

Okay.

Well, I can check that easily as well, so no worries about that.

Great.

And then lastly, if I may, just the timing of those large deals, did they come in towards the end of the quarter or were they earlier on?

I'm just curious how they fell?

Yes, throughout the quarter.

Okay.

Great, thanks a lot.

Appreciate it.

Thank you.

Ladies and gentlemen, we have reached the end of our question and answer session.

I would like to turn the floor back to management for any closing comments.

Thanks, Scott, and thanks for your time today, and really appreciate the questions.

But before we sign off, I would like to share a new customer story with you, that was recently said to our team when they told us why they made the buy decision with Kenexa.

And this is one of the four deals that we have referred too.

He said, we wanted somebody would push back, and this would make us all better.

We wanted an organization that was committed to our initiatives, not to their own initiative.

It is, we wanted somebody who we could trust to do the right thing.

And we wanted an organization that we would enjoy working with.

When you think about it, our value prop, is to us, business is personal.

And this quote really, really expresses that.

So I just took a lot of great pride in the statement that was made by this client.

Till next quarter, have a good one.

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

You may disconnect your lines at this time.

Thank you very much for your participation, and have a wonderful evening.