SAN MATEO, Calif., - August 01, 2006 - Keynote Systems, Inc., (Nasdaq: KEYN), the worldwide leader in Internet and mobile test and measurement services, today announced financial results for its third quarter of fiscal year 2006, which ended June 30, 2006.
Umang Gupta, chairman and CEO of Keynote, said: “The combination of Keynote SIGOS and increased demand for Keynote Perspective® Services drove overall subscription services revenue to $11.4 million, an increase of 14 percent compared to the same period last year. Our service level management (SLM) consulting revenues were somewhat lower than last quarter but were offset by increases in our SLM subscriptions revenue. While the customer experience management (CEM) business was still below where it was six months ago, we are encouraged by its long-term prospects, and we are implementing measures to shift the CEM revenue mix to increase the subscriptions business portion.”
“The integration process between Keynote and the recently acquired SIGOS is progressing well; in fact, it is moving ahead faster than anticipated. We have completed the financial integration, and ahead of plan we have begun the technical, sales and marketing integration, including cross-training key staff from both companies about all products. These efforts underscore our acquisition experience and our commitment to provide the premier testing and monitoring solutions to support the growth of the mobile communications market.”
Total revenue for the quarter was $13.9 million. Subscription services revenue increased 14 percent compared to the third 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 $2.4 million, a 29 percent decrease compared to the quarter a year ago, primarily due to a reduction of CEM engagements.
For the third quarter of fiscal year 2006, the net loss was $2.0 million, or $0.11 per share, primarily attributable to the Keynote SIGOS acquisition under U.S. generally accepted accounting principles (GAAP). In addition, the loss also includes $925,000 in stock-based compensation expenses and a $840,000 charge for in-process research and development associated with the SIGOS acquisition. For the third quarter of fiscal year 2005, the net income was $1.2 million, or $0.06 per share.
The non-GAAP net loss for the quarter was $1.1 million, or $0.06 per share, compared to non-GAAP net income of $1.8 million, or $0.09 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 and for in-process research and development associated with acquisitions. Non-GAAP net income per diluted share equals non-GAAP net income divided by the weighted diluted share count as of that period end.
Keynote SIGOS’ revenue recognition policy under U.S. GAAP requires the amortization of most of Keynote SIGOS’ software license revenues over an approximate twenty-four month period. Therefore, Keynote’s consolidated GAAP and non-GAAP earnings are likely to remain negative until quarterly GAAP revenues normalize with quarterly billings. Consequently, management believes cash provided by operating activities, free cash flow and deferred revenue will be important metrics to measure Keynote’s financial performance.
For the quarter, cash provided by operating activities was $2.8 million, which is the same as the third quarter of 2005. Cash used for purchases of property, equipment and software totaled $792,000 for the third quarter of 2006, compared to $1.0 million 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 $2.0 million for the quarter, compared to $1.8 million for the same period last year.
Keynote’s deferred revenue was $9.7 million at June 30, 2006, up 37 percent compared to $7.1 million at both March 31, 2006 and at June 30, 2005. The increase results from the Keynote SIGOS revenue amortization over the life of customer contracts.
The company had $96.7 million in total cash, cash equivalents and short-term investments as of June 30, 2006. During the quarter, the company repurchased approximately 1.4 million shares for approximately $14.6 million. The total shares outstanding as of the end of June 30, 2006 was 17.6 million as compared to 19.4 million a year ago.
As of June 30, 2006, Keynote’s total worldwide customer base was approximately 2,600 companies, up from approximately 2,200 customers in the same quarter a year ago. Keynote currently provides its services to 72 percent of the comScore Media Metrix’s top 50 Web sites and approximately half of the Fortune 100 companies. As of June 30, 2006, Keynote measured 9,586 Internet pages, as compared to 8,409 Internet pages in the same quarter a year ago.
Expectations for the Fourth Quarter of Fiscal Year 2006
The following company outlook for the fourth quarter of fiscal 2006 also includes expectations for Keynote SIGOS, acquired on April 3, 2006. The company consolidated Keynote SIGOS’ financial reporting under U.S. GAAP rules beginning third fiscal quarter ending June 30, 2006. Because SIGOS’ financial statements will be presented in U.S. GAAP, rather than German GAAP, SIGOS’ system license revenue will be required to be ratably recognized over the initial duration of each customer contract, which averages approximately twenty-four months.
As a result of the aforementioned accounting change, Keynote will be able to recognize as revenues only a fraction of Keynote SIGOS sales during the fiscal 2006 and 2007. Accordingly, the acquisition will be dilutive to Keynote’s U.S. GAAP net income, although cash flow from operations is expected to be positive.
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 the following for the fourth fiscal quarter ending September 30, 2006.
Keynote will host a conference call and simultaneous Web cast at 2:00 pm (PDT), today August 1, 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 #2795186, 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 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 Internet and mobile test and measurement services. Keynote helps approximately 2,600 corporate customers and 10,000 individual subscribers become “the best of the best” online. The business premise supporting Keynote’s mission is: “Online businesses can’t manage what they don’t measure.” 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 2,100 measurement computers and mobile devices in over 120 locations and 70+ 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.
Keynote, The Internet Performance Authority and Perspective are registered trademarks of Keynote Systems, Inc. Other trademarks are the property of their respective owners. © 2006 Keynote Systems, Inc.
Contacts:
Public Relations:
Dan Berkowitz, Keynote Systems, Inc.(650) 403-3305, dberkowitz@keynote.com
Investor Relations:
Kirsten Chapman/Moriah Shilton, Keynote Systems, Inc.(415) 433-3337, moriah@lhai-sf.com