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| Keynote Announces Fiscal Third Quarter 2006 Results |
SAN MATEO, Calif.--(BUSINESS WIRE)--Aug. 1, 2006--Keynote Systems, Inc. (Nasdaq:KEYN):
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(R) 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(R), 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. (C) 2006 Keynote Systems, Inc.
Keynote Systems, Inc. and Subsidiaries
----------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended
Jun 30 Mar 31 Jun 30
2006 2006 2005
--------------------------------
Revenue:
Subscription services $ 11,448 $ 9,947 $ 10,043
Professional services 2,419 2,792 3,422
--------------------------------
Total revenue 13,867 12,739 13,465
Expenses:
Costs of subscription services 2,442 1,552 1,308
Costs of professional services 2,314 2,210 2,088
Research and development 2,673 2,091 1,829
Sales and marketing 4,653 4,020 3,154
Operations 1,867 1,847 1,543
General and administrative 2,443 1,702 2,352
Excess occupancy costs 38 (40) 105
Amortization of identifiable
intangible assets 798 418 591
Amortization of in-process research
and development 840 - -
--------------------------------
Total expenses 18,068 13,800 12,970
--------------------------------
Income (loss) from operations (4,201) (1,061) 495
Interest income and other, net 1,187 1,280 833
--------------------------------
Income (loss) before provision for
income taxes (3,014) 219 1,328
Benefit (provision) for income taxes 1,026 (373) (93)
--------------------------------
Net income (loss) $ (1,988) $ (154) $ 1,235
================================
Income (loss) per share:
Basic $ (0.11) $ (0.01) $ 0.06
Diluted $ (0.11) $ (0.01) $ 0.06
Weighted average common shares
outstanding used:
Basic 18,384 18,902 19,792
Diluted 18,384 18,902 20,691
Keynote Systems, Inc. and Subsidiaries
----------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
June 30, September 30,
2006 2005
---------------------------------
Assets
Current assets:
Total cash, cash equivalents and
short-term investments $ 96,661 $ 133,803
Accounts receivable, net 6,279 6,387
Inventory 1,001 -
Prepaids and other current assets 2,685 2,623
Deferred tax assets 1,459 405
----------------- --------------
Total current assets 108,085 143,218
Property and equipment, net 34,700 34,669
Goodwill, net 48,619 21,186
Identifiable intangible assets, net 10,929 3,760
Deferred tax assets 7,004 6,995
----------------- --------------
Total assets $ 209,337 $ 209,828
================= ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,678 $ 538
Accrued expenses 10,307 9,088
Current portion of capital lease
obligation 38 40
Deferred revenue 9,733 6,217
----------------- --------------
Total current liabilities 21,756 15,883
Long term portion of capital lease
obligation 56 27
Long term deferred tax liability 3,509 -
---------------- -------------
Total liabilities 25,321 15,910
---------------- -------------
Stockholders' equity:
Common stock 19 20
Treasury stock (14,531) (11,037)
Additional paid-in capital 328,505 335,350
Accumulated deficit (131,599) (130,044)
Accumulated other comprehensive
loss 1,622 (371)
---------------- -------------
Total stockholders' equity 184,016 193,918
---------------- -------------
Total liabilities and
stockholders' equity $ 209,337 $ 209,828
================= ==============
Keynote Systems, Inc. and Subsidiaries
----------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three months ended
Jun 30 Mar 31 Jun 30
2006 2006 2005
--------------------------------
Cash flows from operating activities:
Net income (loss) $ (1,988) $ (154) $ 1,235
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,064 919 861
Stock-based compensation 925 908 -
Charges to bad debt and billing
adjustment reserves 108 33 113
Amortization of intangible
assets 798 418 591
Amortization of in-process
research and development 840 - -
Amortization of debt investment
premium 70 118 598
Changes in operating assets and
liabilities, net of acquired
assets and liabilities:
Accounts receivable, net 1,215 771 (360)
Inventories (85) - -
Prepaids and other assets 369 (422) 36
Deferred tax assets (1,665) 283 -
Accounts payable and accrued
expenses 120 (1,270) 5
Deferred revenue 1,062 1,123 (291)
--------------------------------
Net cash provided by
operating activities 2,833 2,727 2,788
--------------------------------
Cash flows from investing activities:
Purchase of property, equipment and
software (792) (843) (1,019)
Purchase of businesses and assets (28,707) (247) (58)
Issuance of note receivable (300) - -
Sales / (Purchases) of short-term
investments, net 17,582 19,740 20,292
--------------------------------
Net cash provided by (used
in) investing activities (12,217) 18,650 19,215
--------------------------------
Cash flows from financing activities:
Repayment of credit facility (14) (11) (13)
Repurchase of outstanding common
stock (14,572) - (9,369)
Proceeds from issuance of common
stock and exercise of stock
options 394 1,025 1,805
--------------------------------
Net cash provided by (used
in) financing activities (14,192) 1,014 (7,577)
--------------------------------
Effect of exchange rate changes on
cash and cash equivalents 78 - -
--------------------------------
Net increase (decrease) in cash and
cash equivalents (23,498) 22,391 14,426
Cash and cash equivalents at
beginning of the period 70,042 47,651 24,520
--------------------------------
Cash and cash equivalents at end of
the period (1) $ 46,544 $ 70,042 $ 38,946
================================
(1) Excludes $50.1 million, $67.3 million, and $104.2 million of
short-term investments at June 30, 2006, March 31, 2006, and June 30,
2005, respectively.
Keynote Systems, Inc. and Subsidiaries
(In Thousands)
(Unaudited)
Three months ended
Jun 30, Mar 31, June 30,
2006 2006 2005
-----------------------------------
Revenue categories:
SLM Subscriptions $ 8,909 $ 8,876 $ 9,160
SLM Engagements 714 905 881
----------- ---------- -----------
Subotal SLM Revenue 9,623 9,781 10,041
Mobile Subscriptions 1,949 488 442
Mobile Engagements - - -
----------- ---------- -----------
Subotal Mobile Revenue 1,949 488 442
CEM Subscriptions 590 583 441
CEM Engagements 1,705 1,887 2,541
----------- ---------- -----------
Subtotal CEM Revenue 2,295 2,470 2,982
----------- ---------- -----------
Total Revenue $ 13,867 $ 12,739 $ 13,465
=========== ========== ===========
Non-GAAP Net Income (loss) and
income (loss) per share:
GAAP Net income (loss) $ (1,988) $ (154) $ 1,235
(Benefit) provision for income
taxes (1,026) 373 93
Stock-based compensation (a) 925 908 -
Amortization of purchased
intangibles 798 418 591
Amortization of in-process
research and development 840 - -
----------- ---------- -----------
Non-GAAP income (loss) before
income tax (451) 1,545 1,919
Cash tax expense 600 80 125
----------- ---------- -----------
Non-GAAP Net income (loss) $ (1,051) $ 1,465 $ 1,794
=========== ========== ===========
Non-GAAP Weighted average common
shares outstanding (diluted) used: - 19,698 -
Weighted average common shares
outstanding (diluted) used: 18,384 - 20,691
Non-GAAP income (loss) per share $ (0.06) $ 0.07 $ 0.09
(a) Stock-based compensation by
category:
Costs of subsciption services $ 42 $ - N/A
Costs of professional services 119 161 N/A
Research and development 226 215 N/A
Sales and marketing 266 255 N/A
Operations 151 183 N/A
General and administrative 121 94 N/A
----------- ---------- -----------
(a) Total stock-based compensation
by category: $ 925 $ 908 N/A
=========== ========== ===========
Keynote Systems, Inc. and Subsidiaries
(In Thousands)
(Unaudited)
Three months ended Twelve months
ended
Dec 31 March 31 June 30 Sept 30 Sept 30
-------- -------- -------- -------- ------------
FY 2006
SLM Subscriptions $ 8,782 $ 8,876 $ 8,909
SLM Engagements 1,127 905 714
-------- -------- -------- -------- ------------
Subotal SLM Revenue 9,909 9,781 9,623
Mobile Subscriptions 539 488 1,949
CEM Subscriptions 499 583 590
CEM Engagements 2,769 1,887 1,705
-------- -------- -------- -------- ------------
Subtotal CEM Revenue 3,268 2,470 2,295
-------- -------- -------- -------- ------------
Total Revenue $ 13,716 $ 12,739 $ 13,867
======== ======== ======== ======== ============
FY 2005
SLM Subscriptions $ 8,625 $ 8,783 $ 9,160 $ 8,883 $ 35,451
SLM Engagements 822 1,082 881 1,026 3,811
-------- -------- -------- -------- ---------
Subotal SLM Revenue 9,447 9,865 10,041 9,909 39,262
Mobile Subscriptions 803 338 442 585 2,168
CEM Subscriptions 595 531 441 432 1,999
CEM Engagements 2,743 2,431 2,541 2,548 10,263
-------- -------- -------- -------- ---------
Subtotal CEM Revenue 3,338 2,962 2,982 2,980 12,262
-------- -------- -------- -------- ---------
Total Revenue $ 13,588 $ 13,165 $ 13,465 $ 13,474 $ 53,692
======== ======== ======== ======== =========
FY 2004
SLM Subscriptions $ 8,364 $ 8,416 $ 8,688 $ 8,957 $ 34,425
SLM Engagements 812 808 813 1,196 3,629
-------- -------- -------- -------- ---------
Subotal SLM Revenue 9,176 9,224 9,501 10,153 38,054
Mobile Subscriptions 358 414 555 700 2,027
CEM Subscriptions 73 111 420 518 1,122
CEM Engagements 116 70 238 776 1,200
-------- -------- -------- -------- ---------
Subtotal CEM Revenue 189 181 658 1,294 2,322
-------- -------- -------- -------- ---------
Total Revenue $ 9,723 $ 9,819 $ 10,714 $ 12,147 $ 42,403
======== ======== ======== ======== =========
FY 2003
SLM Subscriptions $ 8,824 $ 8,492 $ 8,549 $ 8,203 $ 34,068
SLM Engagements 676 662 388 873 2,599
-------- -------- -------- -------- ---------
Subotal SLM Revenue 9,500 9,154 8,937 9,076 36,667
Mobile Subscriptions 132 214 286 311 943
CEM Subscriptions 46 52 46 61 205
CEM Engagements 80 138 163 66 447
-------- -------- -------- -------- ---------
Subtotal CEM Revenue 126 190 209 127 652
-------- -------- -------- -------- ---------
Total Revenue $ 9,758 $ 9,558 $ 9,432 $ 9,514 $ 38,262
======== ======== ======== ======== =========
CONTACT: Keynote Systems, Inc. |
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