Press Room: 2006

Keynote Announces Fiscal Second Quarter 2006 Results

• Reported Total Revenue of $12.7 Million
• Grew Subscription Services Revenue to $9.9 Million
• Delivered $2.6 Million in Cash from Operations and $1.8 Million in Free Cash Flow
• Recorded GAAP Net Loss of $58,000 or $0.00 per Share and Non-GAAP Net Income of $1.5 Million or $0.07 per Share

SAN MATEO, Calif., - May 02, 2006 - Keynote Systems, Inc., (Nasdaq: KEYN), The Internet Performance Authority®, today announced financial results for its second quarter of fiscal year 2006, which ended March 31, 2006.

Umang Gupta, chairman and CEO of Keynote, said: "While our second quarter total revenue was disappointing primarily due to a shortfall in our customer experience management (CEM) engagements, our service level management (SLM) subscriptions grew sequentially this quarter, albeit modestly. Additionally, we generated $2.6 million in cash from operations and $1.8 million in free cash flow."

"As previously announced, we recently made some significant organizational changes to increase overall sales growth, especially in the CEM business, and to establish greater predictability in revenue forecasting. Also, we acquired SIGOS, a German based technology leader in mobile data network testing and active service monitoring, with more than 55 customers including many major mobile operators in Europe."

Total revenue for the quarter was $12.7 million. Subscription services revenue increased to $9.9 million, up three percent compared to the second quarter of 2005, reflecting an increased demand for transaction, broadband and mobile monitoring services and a reduction in single-page and single-device Internet monitoring services. Professional services revenue was $2.8 million, a 21 percent decrease compared to the quarter a year ago, primarily due to a reduction of CEM engagements. For the second quarter of fiscal year 2006, the net loss was $58,000, or $0.00 per share, which included $812,000 in stock-based compensation expenses, required under generally accepted accounting principles (GAAP). For the second quarter of fiscal year 2005, the net income was $1.0 million, or $0.05 per share. The non-GAAP net income for the quarter was $1.5 million, or $0.07 per diluted share, compared to non-GAAP net income of $1.6 million, or $0.08 per diluted share, for the same quarter a year ago. The company defines non-GAAP net income as net income adjusted for provision for income taxes less cash tax expense, stock-based compensation expense, and amortization of purchased intangibles. Non-GAAP net income per diluted share equals non-GAAP net income divided by the weighted diluted share count as of that period end.

For the quarter, cash provided by operating activities was $2.6 million, compared to $1.8 million for the same period last year. Cash used for purchases of property, equipment and software totaled $843,000 for the second quarter of 2006, compared to $724,000 for the same period last year. Keynote generated free cash flow, defined as cash flow from operations less cash used for purchases of property, equipment, and software, of $1.8 million for the quarter, compared to $1.1 million for the second quarter of 2005.

As a result of the recent acquisition of SIGOS and the requirement to amortize most of SIGOS' software license revenues over a twelve-month period, the company believes for the next three quarters both GAAP and non-GAAP income will be negatively impacted. Therefore, cash provided by operating activities and free cash flow will be important metrics to measure Keynote's financial performance during that period.

As of March 31, 2006, Keynote's total worldwide customer base was approximately 2,400 companies, up from approximately 2,200 customers in the same quarter a year ago. Keynote currently provides its services to 70 percent of the comScore Media Metrix's top 50 Web sites and approximately half of the Fortune 100 companies. As of March 31, 2006, Keynote measured 9,269 Internet URLs and 6,904 Internet-connected devices through its Red Alert services, as compared 8,302 Internet URLs and 7,719 devices in the same quarter a year ago. Currently, Keynote captures over 94 million Internet performance measurements daily.

Expectations for the Third Quarter of Fiscal Year 2006
The following company outlook for the third quarter of fiscal 2006 also includes expectations for Keynote SIGOS, acquired on April 3, 2006. Keynote will consolidate SIGOS' financial reporting under U.S. GAAP rules starting in its current fiscal quarter ending June 30, 2006. Because the SIGOS' financial statements will be presented in U.S. GAAP, rather that German GAAP, SIGOS' system license revenue will be required to be ratably recognized over the initial duration of each customer contract, which is usually twelve months.

As a result of the aforementioned accounting change, Keynote will be able to recognize as revenues only a fraction of SIGOS sales during the remainder of fiscal 2006. Accordingly, the acquisition will be dilutive to Keynote's U.S. GAAP net income for the three quarters after the acquisition, although cash flow from operations is expected to be positive throughout.

For the upcoming three quarters, the company intends to delineate Keynote SIGOS' contribution to total revenues and net after-tax income or loss, as well as expected cash taxes to be paid in Germany. After three quarters, the company will have integrated Keynote SIGOS operations to a large extent, and the company will report consolidated revenues and net income (loss) without calling out Keynote SIGOS separately.

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 that for the third fiscal quarter ending June 30, 2006:

• Total revenue is expected to be between $13.5 million and $14.0 million, including a net revenue contribution from Keynote SIGOS of between $700,000 and $800,000.
• Total stock-based compensation expense and amortization of intangible assets is expected to be approximately $2.6 million.
• Interest income, net is expected to be approximately $1.0 million absent any additional acquisition transactions, assuming no material changes in interest rates, and assuming Keynote continues to repurchase common stock under its approved plan.
• Cash paid for income taxes is expected to be approximately $550,000 to $650,000, most of which will be due to Keynote SIGOS.
• Basic weighted average shares outstanding are expected to be approximately 18.0 million shares, and diluted weighted average shares outstanding are expected to be approximately 18.5 million shares.
• Net loss per share is expected to be between $(0.11) and $(0.13) with Keynote SIGOS contributing a loss per share between $(0.08) and $(0.10).
• Non-GAAP loss per share is expected to be between $(0.07) and $(0.09) with Keynote contributing a non-GAAP earnings per share of between $0.02 and $0.04.
• Cash provided by operating activities is expected to be between $2.0 million and $2.5 million.
• Capital expenditures will be approximately $1.0 million, absent any acquisition costs or other extraordinary transactions; therefore, free cash flow is expected to be between $1.0 million and $1.5 million.

Keynote will host a conference call and simultaneous Web cast at 2:00 pm (PDT), today May 2, 2006. The web cast of the call will be available at the Investor section of our web site at www.keynote.com.The replay will be available after the call by telephone by dialing (800) 642-1687, and the pass code is #7806076, or by Web cast at the Investor section of our web site at www.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, forecasts concerning Keynote's expected revenue, earnings per share, cash flow from operations, income tax rate, results of SIGOS and other future financial results. 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 successfully market and sell its current services to new or existing customers, Keynote's ability to develop and introduce new services in a timely manner and customer acceptance of new services, the extent to which demand for Keynote's various services fluctuates and the extent to which revenue from other service lines, can continue to increase, the extent to which existing customers renew their subscriptions and purchase additional services, particularly enterprise customers, Keynote's ability to retain customers of SIGOS, Keynote's ability to operate SIGOS and manage related costs successfully, Keynote's ability to retain key employees, pricing pressure with respect to Keynote's services, Keynote's ability to increase sales of its CEM services, and the risk that its organizational changes will not result in improved results, unforeseen expenses, competition in Keynote's markets, integration of acquired companies or technologies and costs associated with any future acquisitions, Keynote's ability to manage expanded international operations, Keynote's ability to keep pace with changes in the Internet infrastructure as well as other technological changes, and the success of Keynote's international operations. 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, 2005, and its quarterly reports on Form 10-Q and any 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
Founded in 1995, Keynote Systems (Nasdaq "KEYN") is the worldwide leader in services that improve online business performance and communications technologies. Keynote helps approximately 2,400 corporate customers and 10,000 individual subscribers become "the best of the best" online. As an independent and trusted third-party, Keynote provides IT and marketing executives with unbiased benchmarking data, competitive analysis and operational metrics from the customer perspective. This data measures service levels and customer experience of Web sites, broadband services and mobile communications.

Known as The Internet Performance Authority®, Keynote manages a market-leading infrastructure of 1,200+ measurement computers and mobile devices in over 114 locations and 66+ metropolitan areas worldwide that assess service levels and a panel of over 160,000 consumers who participate in interactive Web site tests that assess user experience. These online user experience tests capture customer attitude and behavior to answer the critical "why" behind the "what." Keynote's geographically distributed measurement services, on-site monitoring appliances, competitive intelligence and custom studies ensure that its customers outpace their competitors in online service levels and overall user experience.

Keynote Systems, Inc. is headquartered in San Mateo, California and can be reached at www.keynote.com or by phone in the U.S. at 650-403-2400.

Contacts:

Public Relations:
Dan Berkowitz, Keynote Systems, Inc.(650) 403-3305, dberkowitz@keynote.com

Investor Relations:
Jack Andrews, Keynote Systems, Inc.(650) 403-3431, jandrews@keynote.com