Press Room: 2007

Keynote Announces Fiscal Third Quarter 2007 Results

• Total Revenue of $17.4 Million Increased 25% Compared to Fiscal Third Quarter 2006
• Recorded GAAP Net Loss of $1.5 Million, or $0.09 per Share, Including a $1.3 Million Provision for Estimated Income Taxes
• Achieved Non-GAAP Net Income of $1.3 Million or $0.07 per Share
• Delivered $5.9 Million in Cash from Operations and $3.8 Million in Free Cash Flow
• Third Quarter Results Exceeded Company’s Previous Revenue and Cash Flow Guidance and Met Non-GAAP Earnings Guidance

SAN MATEO, Calif., — July 31, 2007 — Keynote Systems (Nasdaq: KEYN), the global leader in Internet and mobile test and measurement services, today announced financial results for its fiscal third quarter ended June 30, 2007.

Umang Gupta, chairman and CEO of Keynote, said: “In the third quarter, our team once again delivered strong financial results. Our Mobile Test and Measurement (MTM) business continued to exceed our expectations. Our other two business units, Internet Test and Measurement and Customer Experience Test and Measurement, also performed well and were within expectations.”

Gupta continued, “We were especially gratified by the significant cash flows generated this quarter. In fact, for the past nine months, Keynote delivered total cash from operations of $17.4 million and free cash flow of $13.3 million, which have been greater than those for any twelve-month period in its history. These cash flows were largely driven by Keynote SIGOS and demonstrate that our GAAP revenue and earnings do not as yet fully reflect the cash generation performance of this important business unit.”

Third Quarter 2007 Financial Summary

Revenue for the third quarter of fiscal year 2007 was $17.4 million, a four percent increase compared to the preceding quarter and a 25 percent increase compared to the third quarter of fiscal year 2006. Net loss for the third quarter of fiscal year 2007, which included a $1.3 million charge for estimated income tax expense, $1.1 million in stock-based compensation expenses, and a $713,000 charge for amortization of intangible assets required under generally accepted accounting principles (GAAP), was $1.5 million, or $0.09 per share. This compared to net income of $30,000, or $0.00 per diluted share, for the preceding quarter, and net loss of $2.0 million, or $0.11 per share, for the third quarter a year ago.

The non-GAAP net income for the quarter was $1.3 million, or $0.07 per diluted share, compared to non-GAAP net income of $1.4 million, or $0.08 per diluted share, for the preceding quarter, and non-GAAP net loss of $1.1 million, or $0.06 per share, for the third quarter a year ago. The company defines non-GAAP net income or loss as net income or loss adjusted for provision for income tax, stock based compensation expense, and amortization of purchased intangibles less cash tax expense. Non-GAAP net income per share equals non-GAAP net income divided by the weighted diluted share count as of the period end. Non-GAAP net loss per share equals non-GAAP net loss divided by the weighted basic share count as of the period end.

Cash, Free Cash Flow and Deferred Revenue Summary

Keynote SIGOS’ revenue recognition policy under GAAP requires the amortization of most of Keynote SIGOS’ software license revenue over a 12-month to 36-month period depending on the length of a contract. As such, until Keynote SIGOS’ revenue normalizes with quarterly billings, management believes cash provided by operating activities, free cash flow and deferred revenue are also important metrics to measure and manage Keynote’s financial performance.

For the quarter, cash provided by operating activities was $5.9 million, compared to $6.9 million in the prior quarter and $2.9 million in the third quarter of 2006. Cash used for purchases of property, equipment and software totaled $2.1 million for the third quarter of 2007, compared to $1.4 million in the prior quarter and $792,000 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 $3.8 million for the quarter, compared to $5.5 million in the prior quarter and $2.1 million for the same period last year.

Keynote’s net deferred revenue was $24.1 million at June 30, 2007, up 24 percent compared to $19.5 million at March 31, 2007 and up 148 percent from $9.7 million at June 30, 2006.

The company had $103.1 million in total cash, cash equivalents and short-term investments as of June 30, 2007.

Operational Metrics Summary

As of June 30, 2007, Keynote’s total worldwide customer base was approximately 2,650 companies, up from approximately 2,600 companies 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 June 30, 2007, Keynote measured approximately 11,100 Internet pages, as compared to 9,600 Internet pages in the same quarter a year ago.

Expectations for the Fourth Quarter of Fiscal Year 2007

The following company outlook for the fourth quarter of fiscal 2007 also includes expectations for Keynote SIGOS. The company consolidated Keynote SIGOS’ financial reporting under U.S. GAAP rules starting April 3, 2006. U.S. GAAP requires Keynote SIGOS’ system license revenue to be ratably recognized over the initial duration of each customer contract, which ranges from 12 months to 36 months.

As a result of the aforementioned accounting, Keynote will be able to recognize as revenue only a fraction of Keynote SIGOS sales during fiscal 2007. Accordingly, the acquisition will be dilutive to Keynote’s U.S. GAAP net income or loss, 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, 2007:

• Total revenue is expected to be between $17.2 million and $17.7 million.
• Net loss per share is expected to be between $(0.05) and $(0.03).
• Non-GAAP earnings per share are expected to be between $0.05 and $0.08.
• Cash provided by operating activities is expected to be between $2.0 million and $2.5 million.
• Free cash flow is expected to be between $1.0 million and $1.5 million.

The above guidance was based on the following assumptions. Total stock-based compensation expense and amortization of intangible assets is currently expected to be approximately $1.2 million. Interest income, net is expected to be approximately $1.2 million, assuming no material changes in interest rates and currently planned uses of cash. Cash paid for income taxes is expected to be approximately $300,000, assuming no changes in required tax payments. Basic weighted average shares outstanding are expected to be approximately 17.7 million shares and diluted weighted average shares outstanding are expected to be approximately 18.8 million shares, assuming no additional issuances of equity or equity-related securities.

Conference Call

Keynote will host a conference call and simultaneous webcast at 2:00 pm (PST) today, July 31, 2007. To access the call in the U.S., please dial (866) 271-6228; international callers please dial (706) 679-4457, approximately 10 minutes prior to the start of the conference call. The pass code is #5582359. The webcast 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 in the U.S. and (706) 645-9291 internationally; the pass code is #5582359. The webcast is 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, GAAP and Non-GAAP earnings per share, cash flow from operations, free cash flow, income tax payments 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 increase, the extent to which existing customers renew their subscriptions and purchase additional services, particularly enterprise customers, Keynote’s ability to attract and 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 other services, and the risk that its prior organizational changes will not result in improved results, unforeseen expenses, competition in Keynote’s markets, costs associated with any future acquisitions, the effect of acquisitions by competitors in Keynote’s target markets, Keynote’s ability to manage international operations, Keynote’s ability to keep pace with changes in the mobile and 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, 2006, 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

Keynote Systems (Nasdaq “KEYN”) is the global leader in test & measurement solutions that improve mobile communications and online business performance. As an independent and trusted third-party, Keynote provides IT and marketing executives with an unbiased view into their Internet services from around the world. For over a decade, we have been providing measurement data and testing capabilities that allow companies to understand and improve their customer’s online and mobile experience. Keynote has four test and measurement businesses: Web performance, mobile quality, streaming & VoIP, and customer experience/UX. In addition, our industry analysis group called Keynote Competitive Research publishes proprietary studies measuring customer experience and service levels across a wide range of industries.

Known as The Mobile and Internet Performance Authority™, Keynote has a market-leading infrastructure of 2,400 measurement computers and mobile devices in over 240 geographic locations around the world. Keynote also maintains one of the most representative panels of online users consisting of 160,000 consumers. Our on-demand, hassle-free infrastructure allows businesses to access services they need, when they need them to pinpoint and fix mobile quality and Internet problems before they impact customers.

We help over 2,600 corporate customers become “the best of the best” by helping them improve online business performance and mobile communications quality. Our customers represent top mobile and Internet companies including American Express, BP, Caterpillar, Dell, Disney, eBay, ESPN Mobile, E*TRADE, Expedia, FedEx, Microsoft, SonyEricsson, Sprint, T-Mobile, Verizon and Vodafone.

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 and The Mobile and Internet Performance Authority is a trademark of Keynote Systems, Inc. Other trademarks are the property of their respective owners. © 2007 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) 433-3777, mshilton@lhai.com