Human Resources: Kronos(R) Reports Fourth-Quarter and Fiscal 2006 Results

CHELMSFORD, Mass.--(BUSINESS WIRE)--Oct. 30, 2006--Kronos(R) Incorporated (Nasdaq: KRON) today reported the following results for the fourth quarter and Fiscal 2006:

Fourth-Quarter Fiscal 2006:

Total revenue increased to $165.4 million from $149.8 million for the same period a year ago.
GAAP net income was $15.0 million, or $0.47 per diluted share, compared to $19.4 million, or $0.60 per diluted share for the same period a year ago. In the fourth quarter of Fiscal 2006, amortization and interest related to the company's acquisition of Unicru, Inc. decreased GAAP net income by $0.06 per diluted share.
GAAP results for the fourth quarter of Fiscal 2006 include the following items:

A non-cash pre-tax charge of $4.2 million, or $0.09 per diluted share, for stock-based compensation;
A non-cash pre-tax charge of $3.6 million, or $0.07 per diluted share, for amortization of acquired intangibles; compared to $0.03 per diluted share in the fourth quarter of the prior year; and

A one-time tax charge of $296,000, or $0.01 per diluted share, for the repatriation of foreign earnings.

In total, these items reduced net income for the fourth quarter of Fiscal 2006 by $5.5 million, or $0.17 per diluted share on an after- tax basis.

Fiscal 2006:

Total revenue increased to $578.2 million from $518.7 million for the same period a year ago.
GAAP net income was $41.4 million, or $1.29 per diluted share, compared to $53.9 million, or $1.65 per diluted share in the previous year. In Fiscal 2006, amortization and interest related to the company's acquisition of Unicru decreased GAAP net income by $0.06 per diluted share.
GAAP results for Fiscal 2006 include the following items:

A non-cash pre-tax charge of $16.8 million, or $0.36 per diluted share, for stock-based compensation;

A non-cash pre-tax charge of $9.0 million, or $0.18 per diluted share, for amortization of acquired intangibles, compared to $0.11 for Fiscal 2005; and

A one-time tax charge of $296,000, or $0.01 per diluted share, for the repatriation of foreign earnings.

In total, these items reduced net income for Fiscal 2006 by $17.7 million, or $0.55 per diluted share on an after-tax basis.

"Q4 culminated an important year for Kronos in which we grew the company while making strategic investments to expand our business over the long-term. Excluding non-cash charges, we increased our net income year-over-year for the full year, demonstrating the earnings strength of our company. In particular, we generated strong cash flow from operations, with results in Q4 and Fiscal 2006 which were significantly higher than the comparable periods last year," said Kronos Chief Executive Officer Aron Ain. "During Fiscal 2006, we continued to execute on our growth strategy by increasing our global presence and entering the talent management market with the acquisition of Unicru -- a move that we believe extends our value proposition and addressable market. In Fiscal 2007, we plan to capitalize on customers' increasing focus on the value of optimizing their workforce, and the expansion of large multi-nationals into fast-growing economies such as China, India, and Southeast Asia. With our market-leading workforce productivity solutions and global delivery capabilities, we believe that Kronos is well-positioned for sustained growth."

Total deferred maintenance, professional services, and product revenue on the balance sheet at the end of Fiscal 2006 totaled $156.6 million. In addition to this deferred revenue, Kronos has a backlog of professional services engagements of approximately $63.0 million.

Cash flow from operations was $26.5 million in the fourth quarter and $102.7 million in Fiscal 2006, compared to $20.3 million and $78.2 million for the comparable periods last year. In the fourth quarter, Kronos repurchased 322,025 shares of common stock for $10.0 million, and repurchased 825,882 shares of common stock for $30.6 million during Fiscal 2006. The company made payments on acquisitions of $164.7 million for the full year, $151.5 million of which was in the fourth quarter. Kronos exited Fiscal 2006 with $116.6 million in cash and investments and a revolving loan balance of $80.8 million.

Fourth-Quarter Highlights

Continued record of growth -- Kronos' fourth-quarter results mark the company's 107th consecutive quarter of year-over-year revenue growth and 78th consecutive quarter of profitability, continuing one of the longest records of growth in the software industry. (Note 1).
Notable customer wins across target markets -- Notable wins during the quarter included:

Heinen's Fine Foods Stores, an existing Kronos mid-market customer, purchased the company's on-demand talent management solution, Workforce Acquisition(TM), to reduce turnover and streamline the process for selecting and hiring the highest quality employees. Kronos won the deal based on the proven success of its leading talent management solution in the grocery industry.

Solectron Corporation, a leading global provider of electronics manufacturing services and integrated supply chain solutions with more than 50,000 employees, signed a large follow-on agreement for the Workforce Central(R) time and labor application. Solectron plans to deploy Kronos' centralized solution across all locations in Asia, Europe, and the Americas to help increase workforce productivity and ensure compliance.

New York-Presbyterian Hospital, one of the most comprehensive university hospitals in the world, signed a deal for 20,000 licenses of Workforce Central. This enterprise healthcare provider purchased absence management, analytics, time and labor, and scheduling to help reduce labor costs while optimizing productivity, employee satisfaction, and patient care with a skilled workforce.

Fiscal 2006 Highlights

Expansion into talent management -- In August 2006, Kronos completed the acquisition of Unicru, a leading provider of talent management solutions. Upon closing the deal, the company formed the Kronos Talent Management Division, based in Beaverton, Oregon. Kronos plans to continue to enhance and expand its newly acquired base of talent management products as part of its growing portfolio of workforce management and human capital management solutions.
Growing global presence -- Kronos moved forward with its global expansion initiative, appointing a vice president of international operations and establishing a dedicated international management team responsible for strategy, sales, marketing, and product development. The company also announced its expansion into China, with headquarters in Beijing, and appointed a local general manager for this operation. As planned, Kronos intensified its focus on the Global 2000 and closed a number of key multi-national wins. Also contributing to international growth in Fiscal 2006 was strong performance by the company's subsidiaries in Australia and the UK.
Market and technology leadership -- Leveraging a strong cash position to extend its market leadership in workforce management, Kronos completed the acquisitions of workforce analytics vendor, ClarityMatters; workforce management vendor, SmartTime; TimeWorks, a provider of time and labor solutions to the gaming industry; and certain assets of Compu-Cash Systems, a Kronos distributor based in Las Vegas. Finally, with the launch of Workforce Central 5.2 in Fiscal 2006, Kronos further extended its leadership in workforce management. Version 5.2 features dozens of significant enhancements to all products in the suite, as well as the introduction of new modules such as Workforce Analytics(TM) and Workforce Operations Planner(TM).
Industry analyst recognition -- Gartner, Inc. rated Kronos the highest possible rating in its research report, MarketScope for Retail Time and Labor Applications 2H05, published on Jan. 20, 2006. Gartner also positioned Kronos in the "Market Forces" category in "The U.S. Healthcare ERP Market Looks for Innovation" written by John-David Lovelock, Chad Eschinger, and Vi Shaffer and published on April 18, 2006. According to Gartner, "Market force vendors are typically companies that have more than 10 percent of market share. Vendors in this space have an established healthcare reputation and market penetration."

Outlook

"We believe that Fiscal 2006 was a pivotal period for Kronos during which we laid the foundation for our next leg of growth. We made major investments that should significantly benefit our customers and shareholders and enhance our market position and earnings power," said Ain. "In Fiscal 2007, we must continue to invest for the future in order to achieve our goal of becoming the first $1 billion software company focused exclusively on meeting the human capital management needs of organizations on a worldwide basis. While these investments are costly on a near-term basis, we believe they are necessary to help ensure continued growth in earnings and revenue for years to come."

First-Quarter Fiscal 2007:

Total revenue is expected to be in the range of $146-$150 million.
GAAP net income per diluted share is expected to be in the range of $0.12-$0.19. This reflects a decrease in GAAP net income of approximately $0.09 per diluted share related to the company's acquisition of Unicru, inclusive of amortization and interest.
GAAP net income for the first quarter of Fiscal 2007 includes the following items:

A non-cash pre-tax charge for stock-based compensation, which is expected to be approximately $0.09 per diluted share, compared to $0.08 per diluted share in the same period of the prior year;

A non-cash pre-tax charge for amortization of acquired intangibles, which is expected to be approximately $0.08 per diluted share, compared to $0.04 in the same period of the prior year.

In total, these items are expected to reduce net income for the first quarter of Fiscal 2007 by $5.5 million, or $0.17 per share.

Fiscal 2007:

Total revenue is expected to be in the range of $645-$660 million.
GAAP net income per diluted share is expected to be in the range of $1.10-$1.27. This reflects a decrease in GAAP net income of approximately $0.20 per diluted share related to the company's acquisition of Unicru, inclusive of amortization and interest.
GAAP net income for Fiscal 2007 includes the following items:

A non-cash pre-tax charge for stock-based compensation, which is expected to be approximately $0.37 per diluted share, compared to $0.36 for Fiscal 2006;

A non-cash pre-tax charge for amortization of acquired intangibles, which is expected to be approximately $0.32 per diluted share, compared to $0.18 for Fiscal 2006.

In total, these items are expected to reduce net income for Fiscal 2007 by $22.1 million, or $0.69 per diluted share.

Conference Call Webcast

Kronos senior management plans to review its fourth-quarter and Fiscal 2006 results during a conference call today beginning at 4:30 p.m. Eastern. The conference call will be webcast live at http://www.kronos.com/invest and will be available for replay purposes.

About Kronos Incorporated

Kronos Incorporated empowers organizations around the world to effectively manage their workforce. At Kronos, we are experts who are solely focused on delivering software and services that enable organizations to reduce costs, increase productivity, improve employee satisfaction, and ultimately enhance the level of service they provide. Kronos serves customers in more than 50 countries through its network of offices, subsidiaries, and distributors. Widely recognized as a market and thought leader in managing the workforce, Kronos has unrivaled reach with more than 30 million people using a Kronos solution every day. Learn more about Kronos at www.kronos.com.

Safe Harbor Statement

This press release contains statements about the business prospects and estimates of Kronos' financial results for future periods that are forward-looking statements that involve a number of risks and uncertainties, including the performance estimates and statements relating to earnings and revenue growth and profitability, Kronos' ability to realize the anticipated benefits of the Unicru acquisition, the ability to close potential product sales transactions, the ability to realize revenues from the sales pipeline and backlog, market acceptance of our new products and enhancements, including those formerly offered by Unicru and AD OPT Technologies, our ability to monitor and manage discretionary costs, growth in the market for our products and within the economy generally, and potential acquisitions. These statements are based on management's expectations of future events as of the date of this press release, and Kronos assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. Actual results could differ materially from management's expectations. Among the important factors that could cause actual operating results to differ materially from those indicated by such forward-looking statements are delays in product development, including enhancements to existing products, product performance issues, competitive pressures, general economic conditions, possible disruption in commercial activities caused by terrorist activity and armed conflict, such as changes in logistics and security arrangement and the risk factors detailed in the company's Annual Report on Form 10-K filed with the SEC on December 9, 2005 and its quarterly report on Form 10-Q filed with the SEC on August 10, 2006. The timing of the release of new products or product enhancements will take place if and when available and at the sole discretion of Kronos.

Note 1: Excluding a one-time special charge in the second quarter of Fiscal 2001.

(C) 2006 Kronos Incorporated. Kronos, Workforce Central, and the Kronos logo are registered trademarks and Workforce Acquisition, Workforce Analytics, and Workforce Operations Planner are trademarks of Kronos Incorporated or a related company. All other product and company names mentioned are used for identification purposes only and may be trademarks of their respective owners.