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SAN MATEO, California — October 28, 2002 — Keynote SystemsTM (Nasdaq:KEYN), today announced financial results for its fourth quarter and fiscal year ended September 30, 2002.
Revenue for the fourth quarter of fiscal year 2002 was $9.7 million, which represented a 2% increase from the previous quarter, and a 2% increase from the corresponding quarter in fiscal 2001. The GAAP net loss for the fourth quarter of fiscal 2002 was $53.9 million, or $1.93 per share, compared to a net loss of $2.5 million, or $0.09 per share, for the preceding quarter, and a net loss of $13.8 million, or $0.50 per share, for the corresponding quarter a year ago. As a result of the Company's decision to exercise its obligation to purchase its headquarters building before the expiration of the lease term, the GAAP net loss for the fourth quarter includes an impairment charge of approximately $52 million to write-down the Company's headquarters facility to its current fair value of approximately $25 million.
Revenue for fiscal 2002 was $37.9 million, a 17% decrease from fiscal 2001. The GAAP net loss for fiscal 2002, which includes the $52 million charge related to the Company's headquarters building, was $65.5 million, or $2.35 per share, compared to a net loss of $ 56.4 million, or $2.04 per share, for fiscal 2001. The prior year GAAP loss included a charge of approximately $48 million due to acquisition related impairment charges and $11 million related to excess facility costs.
The proforma net loss for the fourth quarter was $1.3 million, or $0.05 per share, which excludes the impairment charge of $52 million relating to the Company's headquarters facility, and $524,000 for the amortization of intangible assets and stock-based compensation. The pro forma net loss for the preceding quarter was $1.9 million, or $0.07 per share, which excludes $597,000 for the amortization of intangible assets and stock-based compensation. The pro forma net loss for the corresponding quarter a year ago was $2.3 million, or $0.08 per share, which excluded $512,000 for the amortization of intangible assets and stock-based compensation and approximately $11 million related to excess facility costs.
"Our 'Total Performance Management' strategy introduced in June is gaining momentum in the market. We continue to make significant progress in our ability to deliver enterprise-class solutions to our customers despite the continued decline, that began nearly a year ago, in the service provider and dot com sectors of our business," said Umang Gupta, Chairman and CEO of Keynote. "Our application performance management and testing businesses have increased to 31% of total revenue from 14% for the corresponding quarter a year ago and 27% last quarter. Our recent acquisition of Enviz at the beginning of October, and our many new product introductions made over the last five months have positioned us to capture a more significant portion of the larger and more rapidly growing testing and APM market, while we continue to refine and expand our core benchmarking offerings."
For the September quarter, 86% of Keynote's total revenue was derived from U.S. corporate accounts, international resellers and all other accounts, up slightly from 85% for the previous quarter. Revenue from the service-provider and dot-com sector declined slightly and amounted to less than 14% of total revenue, compared to 15% for the June 2002 quarter. Service provider revenue includes revenue from content distribution companies, web hosting companies and bandwidth providers.
As of September 30, 2002, the Company's total worldwide customer base was approximately 2,350 companies. During the quarter, Keynote averaged a 98% monthly customer retention rate, which was up slightly from last quarter's rate, and consistent with historical rates of 95% or better. New customers in the United States during the quarter included companies such as Brylane E-Commerce Group, CharityUSA.com, Clearblue Technologies, Comtex News Network, FASTNET Corporation (Nasdaq: FSST), HBK Investments, LendingTree (Nasdaq: TREE), Logitech (Nasdaq: LOGI), Micron Technologies (NYSE: MU), Rockford Corporation (Nasdaq: ROFO), Sempra Energy (NYSE: SRE), Software House International, Trifecta, and Weider Health and Fitness.
Keynote currently provides its services to 62% of the Media Metrix top 50 Web sites and 62 of the Fortune 100 companies. As of September 30, 2002, Keynote measured approximately 8,150 URLs, which was down approximately 6% from the prior quarter, primarily as a result of reductions in the number of benchmarking URLs purchased by our customers. However, the revenue growth from the application performance management and testing service lines offset the revenue decrease related to the benchmarking URL reductions.
Keynote also announced that its Board of Directors has adopted a stockholder rights plan. The plan is designed to protect the long-term value of the Company for its stockholders during any future unsolicited acquisition attempt. Adoption of the plan was not made in response to any specific attempt to acquire Keynote or its shares, and Keynote is not aware of any current efforts to do so. The rights will become exercisable only upon the occurrence of certain events specified in the plan, including the acquisition of 15% of Keynote's outstanding common stock by a person or group. The details of the plan will be outlined more fully in a letter that will be mailed to Keynote's stockholders of record as of October 29, 2002, as well as in Keynote's filings with the Securities and Exchange Commission.
Other Highlights:
Expectations for the First Quarter of Fiscal Year 2003
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 revenues to be between $9.0 and $9.4 million, for the first quarter of fiscal 2003. Keynote currently expects costs of subscriptions to represent approximately 32% - 36% of subscription related revenues for the first quarter of fiscal 2002. Keynote currently expects costs of consulting to represent approximately 65%-70% of consulting revenue for the first quarter of fiscal 2003. Total operating expenses, excluding costs of subscriptions and consulting, amortization of intangible assets and stock-based compensation are currently expected to decrease by approximately 2% as compared to the September quarter. We expect amortization of intangible assets and stock based compensation to be approximately $500,000 for the first quarter of fiscal 2003, absent any additional acquisitions or other extraordinary transactions. We expect interest income, net to be approximately $1.3 million for the first quarter absent any additional transactions, and assuming no material changes in interest rates. We expect weighted average shares outstanding for the December quarter to decrease to approximately 24 million shares, assuming Keynote repurchases 10 million shares, no additional acquisitions using shares of Keynote stock as the consideration and no other significant transactions involving Keynote's equity securities. 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 $1.5 million in the December quarter, absent any acquisition costs or other extraordinary transactions.
Keynote will host a conference call and simultaneous Web cast at 2:00 pm (PST), today October 28, 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 269381.
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 revenues, operating expenses and margins. 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 ability to develop and introduce new services in a timely manner, and customer acceptance of the new services described in this release, as well as any other new services, the extent to which demand for Keynote's benchmarking services fluctuates and the extent to which other service lines can continue to increase as a percentage of total revenue, Keynote's 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, pricing pressure with respect to Keynote's services, competition in Keynote's market, which could result in 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, Keynote's experience with assimilating its acquisitions and costs associated with any future acquisitions, unforeseen changes in expense levels, widespread adoption of the Internet by businesses and consumers for e-business and communications, Keynote's ability to successfully complete its recently announced tender offer, Keynote's ability to keep pace with technological changes, and Keynote's ability to successfully operate international operations. Readers should also refer to the risk 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 and current reports on Form 8-K filed during the 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 2,300 corporate IT departments and 16,000 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. Transaction Perspective and KeyPartners are trademarks of Keynote in the United States and/or other countries. Other trademarks are the property of their respective owners.
Contacts:
Dan Berkowitz, 650/403-3305 (Public Relations) or 415/518-7870 (cell) dberkowitz@keynote.com
Media-relations Hotline: 650/522-1234
Sally Bishop, 650/403-3314 (Investor Relations) sbishop@keynote.com
Keynote Systems, Inc. --------------------------------------------------------------------- STATEMENTS OF OPERATIONS, CONSOLIDATED (In thousands, except per share data) Three months ended Year ended September 30, September 30, --------------------------------------------------------------------- 2002 2001 2002 2001 (Unaudited) (Unaudited) Revenue: Subscription services $8,311 $8,944 $34,180 $43,428 Consulting and support services 1,357 571 3,760 2,201 --------- --------- ----------- --------- Total revenues 9,668 9,515 37,940 45,629 Expenses: Cost of subscription services 2,595 3,759 11,565 13,388 Cost of consulting and support services 777 748 3,408 2,971 Research and development 2,008 1,856 8,428 7,256 Sales and marketing 4,775 5,048 19,209 21,626 Operations 1,768 2,183 7,804 7,722 General and administrative 2,004 1,783 8,137 7,048 Restructuring costs - - - 271 Excess facility costs - 11,012 - 11,012 Property impairment charge 52,028 - 52,028 - Acquisition-related charges, impairment and amortization of intangible assets, and stock-based compensation 524 512 1,727 48,418 --------- --------- ----------- --------- Total expenses 66,479 26,901 112,306 119,712 --------- --------- ----------- --------- Loss from operations (56,811) (17,386) (74,366) (74,083) Interest income, net 2,935 3,704 11,999 18,282 --------- --------- ----------- --------- Loss before provision for income taxes and the cumulative effect of a change in accounting principle (53,876) (13,682) (62,367) (55,801) Provision for income taxes - 150 - 600 --------- --------- ----------- --------- Net loss before cumulative effect of a change in accounting principle (53,876) (13,832) (62,367) (56,401) Cumulative effect of a change in accounting principle - - (3,160) - --------- --------- ----------- --------- Net loss $(53,876) $(13,832) $(65,527) $(56,401) ========= ========= =========== ========= Net loss per share: Basic and diluted $(1.93) $(0.50) $(2.35) $(2.04) Weighted average common shares outstanding used: Basic and diluted 27,896 27,864 27,864 27,713 Keynote Systems, Inc. --------------------------------------------------------------------- PRO FORMA STATEMENTS OF OPERATIONS, CONSOLIDATED (In thousands, except per share data) Three months ended Year ended September 30, September 30 --------------------------------------------------------------------- 2002 2001 2002 2001 (Unaudited) (Unaudited) Revenue: Subscription services $8,311 $8,944 $34,180 $43,428 Consulting and support services 1,357 571 3,760 2,201 ------- ------- ------- -------- Total revenues 9,668 9,515 37,940 45,629 Expenses: Costs of subscription services 2,595 3,759 11,565 13,388 Costs of consulting and support services 777 748 3,408 2,971 Research and development 2,008 1,856 8,428 7,256 Sales and marketing 4,775 5,048 19,209 21,626 Operations 1,768 2,183 7,804 7,722 General and administrative 2,004 1,783 8,137 7,048 Restructuring costs - - - 271 ------- ------- ------- -------- Total expenses 13,927 15,377 58,551 60,282 ------- ------- ------- -------- Loss from operations (4,259) (5,862) (20,611)(14,653) Interest income, net 2,935 3,704 11,999 18,282 ------- ------- ------- -------- Pro forma net income (loss) before provision for income taxes (1,324) (2,158) (8,612) 3,629 Provision for income taxes - 150 - 600 ------- ------- ------- -------- Pro forma net income (loss) $(1,324) $(2,308) $(8,612) $3,029 ======= ======= ======= ======== Pro forma income (loss) per share: Basic $(0.05) $(0.08) $(0.31) $0.11 Diluted $(0.05) $(0.08) $(0.31) $0.11 Weighted average common shares outstanding used: Basic 27,896 27,864 27,864 27,713 Diluted 27,896 27,864 27,864 28,422 Note: The above pro forma consolidated unaudited statements of operations exclude the total of excess facility costs, property impairment charge, acquisition-related charges, impairment and amortization of intangible assets, and stock-based compensation of $52.6 million and $11.5 million for the quarters ended September 30, 2002 and 2001, respectively. The fiscal 2002 and 2001 results exclude the total of excess facility costs, property impairment charge, acquisition-related charges, impairment and amortization of intangible assets, and stock-based compensation of $53.8 million and $59.4 million, respectively. The fiscal 2002 result 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) September 30, September 30, 2002 2001 --------------------------------------------------------------------- Assets Current assets: Cash and short-term investments $239,287 $254,193 Accounts receivable, net 4,820 7,862 Prepaid and other current assets 1,272 2,152 -------- -------- Total current assets 245,379 264,207 Restricted cash - 85,000 Property and equipment, net 37,468 17,208 Goodwill and other intangible assets 2,934 4,497 Other assets - 1,752 -------- -------- Total assets $285,781 $372,664 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of notes payable and capital lease obligation $- $830 Accounts payable 1,014 2,385 Accrued expenses 8,191 10,626 Accrued excess facility costs - 10,303 Deferred revenue 5,121 5,401 -------- -------- Total current liabilities 14,326 29,545 -------- -------- Total liabilities $14,326 $29,545 Stockholders' equity: Common stock $28 $28 Treasury stock (6,988) (1,086) Additional paid-in capital 413,684 413,966 Deferred compensation (31) (452) Accumulated deficit (137,333) (71,804) Accumulated other comprehensive income 2,095 2,467 -------- -------- Total stockholders' equity 271,455 343,119 -------- -------- Total liabilities and stockholders' equity $285,781 $372,664 ======== ========