SAN MATEO, California — July 18, 2002 — Keynote Systems (Nasdaq: KEYN), The Internet Performance Authority®, today announced financial results for its fiscal 2002 third quarter ended June 30, 2002.
Revenue for the third quarter of fiscal 2002 was $9.5 million, which represented a 3% increase from the previous quarter and a decrease of 14% from the corresponding quarter in fiscal 2001. The GAAP net loss for the quarter was $2.5 million, or $0.09 per share, compared to a net loss of $3.0 million, or $0.11 per share, for the preceding quarter, and a net loss of $34.4 million, or $1.24 per share, for the corresponding quarter a year ago. The GAAP net loss for the quarter includes a charge of $200,000 for in-process research and development related to the acquisition of NetMechanic, Inc. and $397,000 for the amortization of intangible assets and stock-based compensation.
As a result of the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", the Company recorded a charge of $3.2 million for the write off of goodwill associated with acquisitions completed prior to fiscal 2002. The charge was recorded as a cumulative effect of a change in accounting principle in the first quarter of fiscal 2002, and is reflected in the results for the nine months ended June 30, 2002.
The pro forma net loss for the third quarter of fiscal 2002 was $1.9 million, or $0.07 per share, which excludes a charge of $200,000 for in-process research and development and $397,000 for the amortization of intangible assets and stock-based compensation. The pro forma net loss for the preceding quarter was $2.7 million, or $0.10 per share, which excluded $307,000 for the amortization of intangible assets and stock-based compensation. The pro forma net income for the corresponding quarter a year ago was $228,000, or $0.01 per share, which excluded a $30.5 million charge for the write down of goodwill and intangible assets and $4.2 million for the amortization of goodwill, intangible assets and stock-based compensation.
"Despite the continued uncertain economic environment, our total revenue increased slightly from last quarter. Our emerging application performance management and testing service lines continued to show strong growth and represented 27% of our total third quarter revenue compared to 22% from the previous quarter and 12% for the same quarter last year," said Umang Gupta, Chairman and CEO of Keynote. "Additionally, we are pleased that our acquisition of NetMechanic during the third quarter shows that even as we successfully move into the enterprise market with our technically sophisticated benchmarking, testing and application performance management solutions, we continue to strengthen our capabilities for the small to medium size business market.
For the June 2002 quarter, as in the previous quarter, 85% of Keynote's total revenue was derived from U.S. corporate accounts, international resellers and all other accounts, whereas revenue from the service–provider and dot com sector remained constant from the previous quarter at 15% of total revenue. Service provider revenue includes revenue from content distribution companies, Web hosting companies and bandwidth providers.
As of June 30, 2002, the Company's total worldwide customer base was approximately 2,400 companies. During the quarter, Keynote averaged a 97% monthly customer retention rate, which was constant from the previous quarter and is consistent with historical rates of 95% or better. New customers during the quarter included companies such as ATI Technologies Inc. (Nasdaq: ATYT), DuPont USA, Fitch Inc., Kelley Blue Book, Inc., Lego America, Manpower Inc. (NYSE: MAN), Peugeot and Telefonica-Spain.
Keynote currently provides its services to 62% of the Media Metrix top 50 Web sites and 60 of the Fortune 100 companies. As of June 30, 2002, Keynote measured approximately 8,700 URLs, which were down from the prior quarter, primarily as a result of reductions in benchmarking URLs purchased by our customers. However, the reduced revenue related to these reductions was more than offset by growth in revenue in the application performance management and testing segments.
Highlights for the Quarter:
Expectations for the Fourth Quarter
The statements in this section of this press release are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Keynote currently expects total revenue to be between $8.8 and $9.2 million for the fourth quarter of fiscal 2002. Keynote currently expects costs of subscriptions to represent approximately 35% to 40% of subscription related revenue for the fourth quarter of fiscal 2002. Keynote currently expects costs of consulting and support services to represent approximately 75% to 80% of consulting and support services revenue for the fourth quarter of fiscal 2002. Total operating expenses, excluding costs of subscriptions and consulting and support services, and amortization of intangibles and stock-based compensation, are currently expected to be comparable to the June quarter. We expect amortization of intangible assets and stock based compensation to be approximately $500,000 for the fourth quarter of fiscal 2002, absent any additional extraordinary transactions. We expect interest income, net, to be approximately $2.6 million for the fourth quarter absent any transactions and assuming a flat interest rate environment. We would expect weighted average common shares outstanding to increase by approximately one percent in the September quarter, assuming no additional acquisitions using shares of Keynote stock as the consideration, no additional significant transactions involving Keynote's equity securities and/or common stock repurchases. Due to the Company's expected loss, loss carry-forward and tax credits, no tax provision is expected in the coming quarter. We expect capital expenditures to be approximately $1.3 million in the September quarter, absent any acquisition costs or other extraordinary transactions.
Keynote will host a conference call and simultaneous Web cast at 2:00 pm (PDT), today July 18, 2002. The web cast of the call will be available at the Investor section of our web site at www.keynote.com, and www.vcall.com. The replay will be available after the call by dialing (888) 203-1112, and the pass code is 365769. If you would like to listen to the live call, please contact Maricel Buangan at (650) 403-3314, or mbuangan@keynote.com.
Forward-Looking Statements
This press release contains forward-looking statements that are not purely historical regarding the company or management's intentions, hopes, beliefs, expectations and strategies for the future. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations.
Forward-looking statements in this release include, but are not limited to, statements regarding forecasts concerning Keynote's expected revenue, margins, operating expenses, capital expenditures, other future financial results and introduction of additional services for existing markets and new markets. It is important to note that actual outcomes and Keynote's actual results could differ materially from those in such forward-looking statements. Factors that could cause actual results to differ materially include risks and uncertainties such as Keynote's relatively short operating history with an unproven business model, which makes it difficult to evaluate its current business and future prospects; Keynote's reliance on existing customers renewing their subscriptions and purchasing additional services, particularly enterprise customers; the need to attract new customers; increased competition, which could result in pricing pressure or the adoption of a competitor's Internet performance measurement service as the industry standard for measuring the speed and reliability of websites; improvements to the Internet infrastructure, which could have the effect of reducing demand for Keynote's services; unforeseen changes in expense levels, the effect of any future acquisitions; widespread acceptance and use of the Internet as a means for business communications; Keynote's ability to develop and introduce new services in a timely manner, and customer acceptance of new services; Keynote's ability to keep pace with technological changes; Keynote's ability to successfully conduct international operations; and economic conditions in the technology and electronic commerce industries, as well as general economic conditions. Readers should also refer to the risks outlined in Keynote's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended September 30, 2001, and its quarterly reports on Form 10-Q or any current reports on Form 8-K filed during the current fiscal year.
All forward-looking statements and reasons why results might differ included in this release are made as of the date of this press release, based on information available to Keynote as of the date of this press release, and Keynote assumes no obligation to update any such forward-looking statement or reasons why results might differ.
About Keynote
Keynote Systems (Nasdaq "KEYN"), The Internet Performance Authority®, is the worldwide leader in Internet performance management services that improve the quality of e-business. Keynote's services enable corporate enterprises to benchmark, diagnose, test and manage their e-business systems both inside and outside the firewall. More than 2,400 corporate IT departments and 18,000 individual subscribers rely on the company's easy-to-use and cost-effective services to optimize revenue and reduce downtime costs without requiring additional complex and costly software implementations.
Keynote Systems, Inc. was founded in 1995 and is headquartered in San Mateo, California. The company can be reached at www.keynote.com or by phone in the U.S. at 650-403-2400.
© 2002 Keynote Systems. The Internet Performance Authority is a registered trademark of Keynote in the United States and/or other countries.
Media Relations Contacts:
Dan Berkowitz, Keynote Systems, Inc., (650) 403-3305, dberkowitz@keynote.com
Media Relations Hotline (650) 403-3254
Investor Relations Contact:
Maricel Buangan, Keynote Systems, Inc., (650) 403-3314, mbuangan@keynote.com
Keynote Systems, Inc. ---------------------------------------------------------------------- STATEMENTS OF OPERATIONS, CONSOLIDATED (In thousands, except Three months Nine months per share data) ended June 30, ended June 30, ---------------------------------------------------------------------- 2002 2001 2002 2001 (Unaudited) (Unaudited) Revenue: Subscription services $ 8,516 $ 10,376 $ 25,869 $ 34,484 Consulting and support services 958 693 2,403 1,630 -------- -------- -------- -------- Total revenue 9,474 11,069 28,272 36,114 Expenses Cost of subscription services 2,721 3,375 8,970 9,629 Cost of consulting and support services 742 739 2,631 2,223 Research and development 2,140 1,575 6,420 5,400 Sales and Marketing 4,709 4,992 14,434 16,578 Operations 1,909 1,832 6,036 5,539 General and administrative 2,071 1,776 6,133 5,265 Restructuring costs -- 271 -- 271 Acquisition-related charges, impairment and amortization of intangible assets, and stock-based compensation 597 34,676 1,203 47,906 -------- -------- -------- -------- Total expenses 14,889 49,236 45,827 92,811 -------- -------- -------- -------- Loss from operations (5,415) (38,167) (17,555) (56,697) Interest income, net 2,916 3,869 9,064 14,578 -------- -------- -------- -------- Loss before provision for income taxes and the cumulative effect of a change in accounting principle (2,499) (34,298) (8,491) (42,119) Provision for income taxes -- 150 -- 450 -------- -------- -------- -------- Net loss before cumulative effect of change in accounting principle (2,499) (34,448) (8,491) (42,569) Cumulative effect of a change in accounting principle -- -- (3,160) -- -------- -------- -------- -------- Net loss $ (2,499) $(34,448) $(11,651) $(42,569) ======== ======== ======== ======== Loss per share: Basic and fully diluted $ (0.09) $ (1.24) $ (0.42) $ (1.54) Weighted average common shares outstanding used: Basic and fully diluted 27,999 27,784 27,928 27,663 Keynote Systems, Inc. ---------------------------------------------------------------------- PRO FORMA STATEMENTS OF OPERATIONS, CONSOLIDATED (In thousands, except Three months Nine months per share data) ended June 30, ended June 30, ---------------------------------------------------------------------- 2002 2001 2002 2001 (Unaudited) (Unaudited) Revenue: Subscription services $ 8,516 $ 10,376 $ 25,869 $ 34,484 Consulting and support services 958 693 2,403 1,630 -------- -------- -------- -------- Total revenue 9,474 11,069 28,272 36,114 Expenses Cost of subscription services 2,721 3,375 8,970 9,629 Cost of consulting and support services 742 739 2,631 2,223 Research and development 2,140 1,575 6,420 5,400 Sales and Marketing 4,709 4,992 14,434 16,578 Operations 1,909 1,832 6,036 5,539 Restructuring costs -- 271 -- 271 General and administrative 2,071 1,776 6,133 5,265 -------- -------- -------- -------- Total expenses 14,292 14,560 44,624 44,905 -------- -------- -------- -------- Loss from operations (4,818) (3,491) (16,352) (8,791) Interest income, net 2,916 3,869 9,064 14,578 -------- -------- -------- -------- Pro forma net income (loss) before provision for income taxes (1,902) 378 (7,288) 5,787 Provision for income taxes -- 150 -- 450 -------- -------- -------- -------- Pro forma net income (loss) $ (1,902) $ 228 $ (7,288) $ 5,337 ======== ======== ======== ======== Pro forma income (loss) per share: Basic $ (0.07) $ 0.01 $ (0.26) $ 0.19 Fully diluted $ (0.07) $ 0.01 $ (0.26) $ 0.19 Weighted average common shares outstanding used: Basic 27,999 27,784 27,928 27,663 Fully diluted 27,999 28,286 27,928 28,442 Note: The above pro forma consolidated unaudited statements of operations exclude acquisition-related charges, impairment and amortization of intangible assets, and stock-based compensation of $0.6 million and $34.7 million for the quarters ended June 30, 2002 and 2001, respectively. The nine months ended June 30, 2002 and 2001 exclude acquisition-related charges, impairment and amortization of intangible assets, and stock-based compensation of $1.2 million and $47.9 million. The nine months ended June 30, 2002 also excludes the cumulative effect of a change in accounting principle of $3.2 million for the write off of goodwill. Keynote Systems, Inc. ---------------------------------------------------------------------- BALANCE SHEETS, CONSOLIDATED (In thousands) June 30, 2002 Sept. 30, 2001 ---------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash and short-term investments $ 243,939 $ 251,696 Accounts Receivable, net 5,348 7,862 Prepaid and other current assets 3,103 4,649 --------- --------- Total current assets 252,390 264,207 Restricted cash 85,000 85,000 Property and equipment, net 14,248 17,208 Goodwill and other intangibles 3,215 4,497 Other assets 385 1,752 --------- --------- Total assets $ 355,238 $ 372,664 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Current portion of notes payable and capital lease obligation $ 37 $ 830 Accounts payable 757 2,385 Accrued expenses 8,740 10,626 Accrued excess facility costs 8,854 10,303 Deferred revenue 5,658 5,401 --------- --------- Total current liabilities 24,046 29,545 --------- --------- Total liabilities 24,046 29,545 Shareholders' equity: Common stock 28 28 Treasury stock (1,600) (1,086) Additional paid-in capital 413,971 413,966 Deferred compensation (197) (452) Accumulated deficit (83,457) (71,804) Accumulated other comprehensive loss 2,447 2,467 --------- --------- Total shareholders' equity 331,192 343,119 --------- --------- Total liabilities and shareholders' equity $ 355,238 $ 372,664 ========= =========