Keynote Reports Second Fiscal Quarter 2012 Results

Keynote® Systems, the global leader in Internet and mobile cloud testing & monitoring, reported financial results for its second fiscal quarter ended March 31, 2012.

Umang Gupta, Chairman and CEO of Keynote, said: "We are pleased with our second quarter results, especially with the 13% growth in our Internet business compared to a year ago and with our Keynote SIGOS performance, where quarterly earnings grew from a year ago in spite of revenue accounting and foreign exchange headwinds. As well, we are making steady progress integrating Keynote DeviceAnywhere into our operations and have started to see early examples of sales synergies among our product lines."

Revenue was $30.6 million for second fiscal quarter of 2012, compared to $24.1 million in the second fiscal quarter of 2011. Total Internet revenue was $14.4 million, up from $12.8 million a year ago; and total mobile revenue was $16.2 million, increasing from $11.4 million a year ago. Keynote DeviceAnywhere contributed $4.1 million in revenue, which excluded $700,000 of deferred revenue that was reduced for acquisition related adjustments.

Total costs and expenses for the quarter were $29.8 million, compared to $20.7 million in the same quarter a year ago. Of this increase, $6.2 million was due to expenses associated with Keynote DeviceAnywhere, which included $1.4 million of amortization of purchased intangibles and stock-based compensation. The remaining increase occurred as a result of investments in products and sales and marketing for both our Internet business and Keynote SIGOS. Operating income was $765,000, compared to an operating income of $3.4 million.

Useful measure of operations

Management as well believes non-GAAP Adjusted EBITDA provides a useful measure of operations. The company defines Adjusted EBITDA as earnings previously interest income, taxes, depreciation, amortization of purchased intangibles, stock-based compensation, other income, net and any unusual items. Adjusted EBITDA was $5.2 million for the second fiscal quarter of 2012, or 17% of revenue, compared to $5.7 million, or 24% of revenue, for the same period last fiscal year.

Revenue for the six months ended March 31, 2012 was $63.7 million, compared to $48.9 million in the same period a year ago. Keynote DeviceAnywhere contributed $8.2 million in revenue. Operating income for the first six months of fiscal year 2012 was $6.2 million, compared to $7.0 million in the first six months of fiscal year 2011. Net income for the six months ended March 31, 2012 was $4.5 million, or $0.24 per diluted share, compared to $7.0 million, or $0.42 per diluted share, in the same period a year ago. Non-GAAP net income for the first six months of fiscal year 2012 was $9.9 million, or $0.53 per diluted share, compared to non-GAAP net income of $10.1 million, or $0.61 per diluted share, in the same period a year ago.

Cash provided by operating activities for the first six months of fiscal year 2012 was $6.1 million, compared to $9.0 million in the same period last year. For the six months ended March 31, 2012, Adjusted EBITDA was $12.5 million, or 20% of revenue, compared to $11.8 million, or 24% of revenue, for the same period a year ago.

At March 31, 2012, Keynote had $43.6 million in cash, cash equivalents, and short-term investments, compared to $101.4 million at September 30, 2011. Net deferred revenue was $17.6 million at March 31, 2012, compared to $18.5 million at September 30, 2011. The total shares outstanding at March 31, 2012 were 17.5 million, compared to 17.3 million at September 30, 2011.

The board of directors approved a quarterly cash dividend of $0.06 per common share, payable June 15, 2012 to common stockholders of record at the close of business on June 1, 2012.

Conference call

Keynote will host a conference call and simultaneous Webcast at 2:00 pm today, May 1, 2012. To access the call in the U.S., please dial 588-4973, and for international callers dial 230-5643. Callers may provide the following confirmation number 32155335 to access the call more quickly, and are encouraged to dial into the call 10 to 15 minutes prior to the start to prevent any delay in joining. The webcast can be accessed at www.keynote.com and is available for replay for 90 days. Should the contingency arise, a replay of the call will be available via telephone for two business days, beginning two hours afterwards the call. To listen to the telephone replay in the U.S., please dial 843-7419, and for international callers dial 652-3042 and enter access code 32155335#.

Forward-looking statements in this release include, nevertheless are not limited to, forecasts concerning Keynote's future growth and acquisition synergies, expected revenue, GAAP and Non-GAAP revenues per share and other results, and the related underlying assumptions in calculating those amounts including foreign exchange rates, the impact of the recent acquisition 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 just as risks related to the integration of the acquisition, including retaining clients and employees, the uncertain impact global economic conditions, particularly in Europe, will have on Keynote's business or the businesses of current or potential clients, Keynote's ability to successfully market and sell its current and recently acquired services to new or existing clients, 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, the risk that Keynote's recent revenue growth may not be sustained, the extent to which existing customers renew their subscriptions and purchase additional services, particularly enterprise customers, Keynote's ability to attract and retain new customers, Keynote's ability to operate its international operations and manage related costs successfully, Keynote's ability to retain key employees, pricing pressure with respect to Keynote's services, unforeseen expenses, competition in Keynote's markets, costs associated with any future acquisitions, unforeseen expenses or liabilities associated with Keynote's recent acquisition, the effect of acquisitions by competitors in Keynote's target markets, Keynote's ability to keep pace with changes in the mobile and Internet infrastructure as so then as other technological changes, the impact of changes in foreign exchange rates, which can be significant, and the success of Keynote's international operations. Readers should as well 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, 2011, and its quarterly reports on Form 10-Q and any current reports on Form 8-K filed while the fiscal year.

This press release includes information on Non-GAAP net income, Non-GAAP net income per share, Adjusted EBITDA and free cash flow. These measures are not based on any standardized methodology prescribed by United States usually accepted accounting principles and are not necessarily comparable to similar measures presented by other companies. Non-GAAP net income is calculated by adjusting GAAP net income for the provision for income taxes, cash taxes from on-going operations, stock-based compensation expense, amortization of purchased intangibles, and any unusual items. In the first fiscal quarter of 2012, the change in fair value of acquisition-related contingent consideration was considered an unusual item. Non-GAAP net income per share is calculated by dividing Non-GAAP net income by the weighted average number of diluted shares outstanding for the period. Free cash flow is defined as cash flow from operations less cash used to purchase property, equipment and software. Adjusted EBITDA is defined as earnings previously interest income, taxes, depreciation, amortization of purchased intangibles, stock-based compensation, other income, net, and any unusual items. In the first fiscal quarter of 2012, the change in fair value of acquisition-related contingent consideration was considered an unusual item. These measures should not be considered in isolation or as a substitute for measures prepared under GAAP, and because these amounts are not determined under GAAP, they should not be used exclusively in evaluating the Company's business and operations. Consequently, the Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company's operating performance, when reviewed in conjunction with the Company's GAAP financial statements. Management as well uses this information as an additional means for measuring the performance of the Company. The Company compensates for these limitations by realizing that these amounts are not determined under GAAP and, in short, should not be used exclusively in evaluating its business and operations.

Keynote® Systems, Inc., is the global leader in Internet and mobile cloud testing and monitoring. Keynote maintains the world's largest on-demand performance monitoring and testing infrastructure for Web and mobile sites comprised of over 7,000 measurement computers and mobile devices in over 275 locations around the world that enable companies to indiscriminately improve the online and mobile experience. Known as 'The Mobile and Internet Performance Authority?,' Keynote offers three market-leading product platforms:

Keynote SIGOS offers active end-to-end Quality of Service testing and monitoring solutions for mobile, fixed and VoIP (Voice over Internet Protocol) communications. Its SITE and Global Roamer products are used by over 200 network operators, content providers, carriers and regulators in over 100 countries worldwide.

The trademarks or registered trademarks of Keynote Systems, Inc. in the United States and other countries include Keynote®, Data Pulse®, CustomerScope®, Customer Experience Rankings®, Perspective®, Keynote Red Alert®, WebEffective®, The Internet Performance Authority®, MyKeynote®, SIGOS®, SITE®, The Mobile & Internet Performance Authority®, FlexUse®, DeviceAnywhere® DemoAnywhere®, DeviceAnywhere Proof Center®, DeviceAnywhere Test Center®, MonitorAnywhere®, and all other related trademarks, trade names, logos, characters, design and trade dress and may not be used without written permission. All other trademarks are the property of their respective owners. © 2012 Keynote Systems, Inc.