Keynote Reports First Fiscal Quarter 2013 Results

  Keynote Reports First Fiscal Quarter 2013 Results

  *Reports Record Quarterly Revenue of $33.9 Million
  *Delivers Record Mobile Telecommunications Revenue
  *Exceeds Revenue and Non-GAAP EPS Guidance
  *Board of Directors Raises Dividend to $0.07 per Share and Approves for
    June Quarter

Business Wire

SAN MATEO, Calif. -- January 29, 2013

Keynote (NASDAQ: KEYN), the global leader in mobile and web cloud testing &
monitoring, reported financial results for its first fiscal quarter ended
December 31, 2012.

Umang Gupta, Chairman and CEO of Keynote, said: "Our first fiscal quarter of
2013 results were better than expected. Our Internet subscriptions revenue
continued on its upward trajectory and our mobile telecom business delivered
record revenue. Additionally, we continued to make progress with our mobile
enterprise business. Today, we have the strongest product offering in our
growing market segments and solid go-to-market strategies. We are optimistic
about our future prospects.”

Quarter Ended December 31, 2012 Compared to Quarter Ended December 31, 2011

Revenue was $33.9 million for the first fiscal quarter of 2013, compared to
$33.1 million in the first fiscal quarter of 2012. Total Internet revenue was
$16.4 million, up from $15.5 million a year ago. Total mobile revenue was
$17.5 million, compared to $17.6 million a year ago. The revenue accounting
headwind in the quarter was $1.2 million, which equals the decrease in mobile
ratable licenses revenue from $1.6 million a year ago to $397,000 in the first
fiscal quarter of 2013.

Total costs and expenses for the quarter were $29.7 million, compared to $27.6
million in the same quarter a year ago. Net income for the first fiscal
quarter of 2013 was $1.9 million, or $0.11 per diluted share, compared to net
income of $4.1 million, or $0.22 per diluted share, for the same period last
fiscal year. Non-GAAP net income for the first fiscal quarter of 2013 was $6.0
million, or $0.33 per diluted share, compared to $6.0 million, or $0.32 per
diluted share, for the same period last fiscal year. The company defines
non-GAAP net income as GAAP net income adjusted for the provision for income
taxes, cash taxes from on-going operations, stock-based compensation expense,
amortization of purchased intangibles, and any unusual items. Non-GAAP net
income per diluted share equals non-GAAP net income divided by the diluted
weighted average shares outstanding for the period.

Adjusted EBITDA was $7.9 million for the first fiscal quarter of 2013, or 23%
of revenue, compared to $7.4 million, or 22% of revenue, for the same period
last fiscal year. The company defines Adjusted EBITDA as earnings before
interest income, taxes, depreciation, amortization of purchased intangibles,
stock-based compensation, other income (expense), net, and any unusual items.

Cash provided by operating activities was $3.8 million for the first fiscal
quarter of 2013, compared to $1.5 million for the same period last fiscal
year. Keynote defines free cash flow as cash flow from operations less cash
used to purchase property, equipment and software. The company generated free
cash flow of $2.4 million for the first fiscal quarter of 2013, compared to
using $98,000 in the first fiscal quarter of 2012.

Balance Sheet

At December 31, 2012, Keynote had $51.2 million in cash, cash equivalents, and
short-term investments, compared to $49.9 million at September 30, 2012. Net
deferred revenue was $15.6 million at December 31, 2012, compared to $16.7
million at September 30, 2012. The total shares outstanding at December 31,
2012 were 18.2 million, compared to 17.9 million at September 30, 2012.

Quarterly Cash Dividend

On December 11, 2012, the board of directors announced a cash dividend of
$0.06 per common share to common stockholders of record as of the close of
business on December 21, 2012, which was paid on or about December 31, 2012.
This accelerated dividend was in lieu of any quarterly dividend to be declared
in January 2013.

In addition to the accelerated cash dividend paid last quarter, the board of
directors approved an increase in the quarterly cash dividend to $0.07 per
common share, to be paid next quarter on June 15, 2013 to common stockholders
of record at the close of business on June 1, 2013.

Expectations for the Second Fiscal Quarter of 2013

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 second fiscal quarter of 2013:

  *Total revenue is expected to be between $30.0 million and $32.0 million.
  *GAAP net income per diluted share is expected to be between $0.02 and
    $0.10.
  *Non-GAAP net income per diluted share is expected to be between $0.15 and
    $0.23.

The above guidance is based on the following assumptions:

  *Expected seasonal decrease in sequential revenue.
  *Total stock-based compensation expense and amortization of purchased
    intangibles is expected to be approximately $1.9 million.
  *Depreciation is expected to be approximately $1.5 million.
  *Interest income and other, net is expected to be $50,000 assuming no
    material changes in interest rates, foreign exchange rates and currently
    planned uses of cash.
  *Cash taxes paid from on-going operations is expected to be approximately
    $200,000.
  *Diluted weighted average shares outstanding are expected to be
    approximately 18.5 million shares, assuming some additional issuances of
    equity or equity-related securities and no significant changes in the
    company’s stock price.

Conference Call

Keynote will host a conference call and simultaneous Webcast at 2:00 pm (PDT)
today, January 29, 2013. To access the call in the U.S., please dial (800)
588-4973, and for international callers dial (847) 230-5643. Callers may
provide the following confirmation number 34004609 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. In addition, a replay
of the call will be available via telephone for two business days, beginning
two hours after the call. To listen to the telephone replay in the U.S.,
please dial (888) 843-7419, and for international callers dial (630) 652-3042
and enter access code 34004609#.

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,
future prospects, forecasts concerning Keynote’s expected revenue, GAAP and
Non-GAAP earnings per share and other results, and the related underlying
assumptions in calculating those amounts including foreign exchange rates, the
seasonal nature of revenues, 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 risks related to Keynote’s ability to successfully
market and sell its services to new or existing customers, especially mobile
enterprise customers, the uncertain impact global economic conditions,
particularly in Europe, will have on Keynote’s business or the businesses of
current or potential 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, 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, 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 well 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 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, 2012, 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 statements or
reasons why results might differ.

Non-GAAP Measures

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 generally
accepted accounting principles (“GAAP”) and are not necessarily comparable to
similar measures presented by other companies. Non-GAAP net income is
calculated by adjusting GAAP net income (loss) for the provision (benefit) 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 before interest
income, taxes, depreciation, amortization of purchased intangibles,
stock-based compensation, other income (expense), 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 in accordance with GAAP, and because these amounts are not
determined in accordance with GAAP, they should not be used exclusively in
evaluating the company’s business and operations. Accordingly, 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 also 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 in accordance with GAAP and, therefore, should not
be used exclusively in evaluating its business and operations.

About Keynote

Keynote® (NASDAQ:KEYN) is the global leader in Internet and mobile cloud
testing & 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 continuously improve the
online and mobile experience. Known as ‘The Mobile and Internet Performance
Authority™,’ Keynote offers three market-leading product platforms:

Keynote Perspective® provides on-demand performance monitoring for enterprise
Web and mobile sites including online portals, e-commerce sites and B2B sites.
Over 2,000 customers rely on Keynote Perspective services to know precisely
how their websites, content, and applications perform on actual browsers,
networks, and mobile devices.

Keynote DeviceAnywhere® is an enterprise-class, cloud-based, mobile
application lifecycle management (ALM) testing & quality assurance platform.
It is used by over 1,000 mobile developers and enterprises to deliver mobile
applications, content and services faster while reducing downtime and testing
costs.

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

Keynote's 4,000 customers represent top Internet and mobile companies and
include American Express, AT&T, Disney, eBay, E*TRADE, Expedia, Google,
Microsoft, SonyEricsson, T-Mobile and Vodafone. Keynote Systems, Inc. is
headquartered in San Mateo, California and can be reached at
http://www.keynote.com/ or by phone in the U.S. at 1-800-KEYNOTE.

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


Keynote Systems, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

                                  Three Months Ended
                                   December 31,  September 30,  December 31,
                                   2012          2012           2011
Net revenue:                       $  33,912      $  30,392       $  33,079
Costs and expenses:
Costs of revenue:
Direct costs of revenue               9,091          8,819           8,594
Development                           4,838          4,801           4,379
Operations                            2,749          2,739           2,496
Amortization of intangible           525         525          465     
assets - software
Total costs of revenue                17,203         16,884          15,934
Sales and marketing                   9,021          9,156           9,138
General and administrative            3,651          3,298           4,108
Change in fair value of
acquisition-related contingent        —              —               (2,000  )
consideration
Excess occupancy income, net          (516    )      (505    )       (350    )
Amortization of intangible           298         963          810     
assets - other
Total costs and expenses             29,657      29,796       27,640  
Income from operations                4,255          596             5,439
Interest income and other, net       (139    )    (7      )     60      
Income before provision for           4,116          589             5,499
income taxes
Provision for income taxes           (2,172  )    (363    )     (1,378  )
Net income                         $  1,944     $  226        $  4,121   
                                                                  
Net income per share:
Basic                              $  0.11        $  0.01         $  0.24
Diluted                            $  0.11        $  0.01         $  0.22
Weighted average common shares outstanding:
Basic                                 17,965         17,843          17,294
Diluted                               18,397         18,172          18,518
                                                                             


Keynote Systems, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

                                       December 31, 2012  September 30, 2012
                                                          
Assets
Current assets:
Cash, cash equivalents and short-term   $   51,212          $    49,939
investments
Accounts receivable, net                    21,073               17,395
Other current assets                        2,972                2,776
Inventories                                 2,206                1,980
Deferred tax assets                        4,608             6,076     
Total current assets                        82,071               78,166
Property and equipment, net                 35,091               35,165
Goodwill                                    111,184              110,253
Identifiable intangible assets, net         8,237                9,060
Deferred tax assets                         32,825               33,392
Other long-term assets                     1,015             929       
Total assets                            $   270,423       $    266,965   
                                                            
                                                            
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable                        $   2,332           $    2,393
Accrued expenses                            12,341               11,301
Deferred revenue                           14,327            15,626    
Total current liabilities                   29,000               29,320
Other long term liabilities                 4,038                3,824
Long-term deferred revenue                 1,317             1,093     
Total liabilities                          34,355            34,237    
                                                            
Stockholders’ equity:
Common stock                                18                   18
Additional paid-in capital                  316,129              316,125
Accumulated deficit                         (80,414   )          (82,358   )
Accumulated other comprehensive            335               (1,057    )
income (loss)
Total stockholders’ equity                 236,068           232,728   
Total liabilities and stockholders’     $   270,423       $    266,965   
equity
                                                                           


Keynote Systems, Inc. and Subsidiaries

GAAP TO NON-GAAP RECONCILIATION
(in thousands, except per share data)
(unaudited)

                                  Three Months Ended
                                   December 31,  September 30,  December 31,
                                   2012          2012           2011
Non-GAAP Net Income
GAAP net income                    $  1,944       $  226          $  4,121
Provision for income taxes            2,172          363             1,378
Stock-based compensation*             1,339          977             1,328
Amortization of intangible            525            525             465
assets - software
Amortization of intangible            298            963             810
assets - other
Change in fair value of
acquisition-related contingent       —           —            (2,000  )
consideration
Non-GAAP income before income         6,278          3,054           6,102
tax
Cash taxes from on-going             (257    )    (179    )     (86     )
operations
Non-GAAP net income                $  6,021     $  2,875      $  6,016   
Weighted average diluted common       18,397         18,172          18,518
shares outstanding
Non-GAAP net income per share      $  0.33        $  0.16         $  0.32
                                                                  
Adjusted EBITDA
GAAP net income                    $  1,944       $  226          $  4,121
Provision for income taxes            2,172          363             1,378
Interest income and other, net        139            7               (60     )
Stock-based compensation*             1,339          977             1,328
Amortization of intangible            525            525             465
assets - software
Amortization of intangible            298            963             810
assets - other
Depreciation                          1,478          1,504           1,334
Change in fair value of
acquisition-related contingent       —           —            (2,000  )
consideration
Adjusted EBITDA                    $  7,895     $  4,565      $  7,376   
                                                                  
* Stock-based compensation by
category
Direct costs of revenue            $  76          $  162          $  166
Development                           272            322             305
Operations                            128            154             143
Sales and marketing                   457            260             431
General and administrative           406         79           283     
                                   $  1,339     $  977        $  1,328   
                                                                  


Keynote Systems, Inc. and Subsidiaries

REVENUE DETAIL
(in thousands)
(unaudited)

                     Three Months Ended                            Year
                                                                     Ended
                      December    March 31  June 30   September   September
                      31                                 30          30
FY 2013
Internet:
Web measurement       $  9,518     $ —        $ —        $  —       $ 9,518
subscriptions
Other subscriptions      4,120       —          —           —          4,120
Engagements             2,763      —         —          —         2,763
Internet net             16,401      —          —           —          16,401
revenue
Mobile:
Subscriptions            5,646       —          —           —          5,646
Ratable licenses         397         —          —           —          397
System licenses          5,319       —          —           —          5,319
Maintenance and         6,149      —         —          —         6,149
support
Mobile net revenue      17,511     —         —          —         17,511
Net revenue           $  33,912    $ —        $ —        $  —        $ 33,912
                                                                     
Mobile net revenue
by customer type
Enterprise            $  5,249     $ —        $ —        $  —        $ 5,249
Telecommunications      12,262     —         —          —         12,262
Mobile net revenue    $  17,511    $ —        $ —        $  —        $ 17,511
                                                                     
FY 2012
Internet:
Web measurement       $  8,119     $ 8,267    $ 8,803    $  9,036    $ 34,225
subscriptions
Other subscriptions      4,295       3,269      3,032       3,970      14,566
Engagements             3,090      2,821     2,779      3,085     11,775
Internet net             15,504      14,357     14,614      16,091     60,566
revenue
Mobile:
Subscriptions            5,593       6,206      6,529       6,241      24,569
Ratable licenses         1,583       980        499         445        3,507
System licenses          5,755       4,023      4,382       2,883      17,043
Maintenance and         4,644      5,026     4,252      4,732     18,654
support
Mobile net revenue      17,575     16,235    15,662     14,301    63,773
Net revenue           $  33,079    $ 30,592   $ 30,276   $  30,392   $ 124,339
                                                                     
Mobile net revenue
by customer type
Enterprise            $  5,943     $ 5,884    $ 6,600    $  5,256    $ 23,683
Telecommunications      11,632     10,351    9,062      9,045     40,090
Mobile net revenue    $  17,575    $ 16,235   $ 15,662   $  14,301   $ 63,773
                                                                     
FY 2011
Internet:
Web measurement       $  7,275     $ 7,373    $ 7,865    $  7,981    $ 30,494
subscriptions
Other subscriptions      3,448       2,784      2,846       3,316      12,394
Engagements             2,185      2,600     2,735      2,919     10,439
Internet net             12,908      12,757     13,446      14,216     53,327
revenue
Mobile:
Subscriptions            3,195       3,234      4,149       4,180      14,758
Ratable licenses         4,571       3,687      3,426       2,594      14,278
System licenses          1,992       1,262      3,112       3,858      10,224
Maintenance and         2,167      3,167     2,453      2,656     10,443
support
Mobile net revenue      11,925     11,350    13,140     13,288    49,703
Net revenue           $  24,833    $ 24,107   $ 26,586   $  27,504   $ 103,030
                                                                     
Mobile net revenue
by customer type
Enterprise            $  1,109     $ 1,249    $ 2,035    $  1,635    $ 6,028
Telecommunications      10,816     10,101    11,105     11,653    43,675
Mobile net revenue    $  11,925    $ 11,350   $ 13,140   $  13,288   $ 49,703
                                                                     


Keynote Systems, Inc. and Subsidiaries

CASH FLOW FROM OPERATING ACTIVITIES AND FREE CASH FLOW
(in thousands)
(unaudited)

             Three Months Ended                                  Year Ended
              December 31  March 31    June 30     September    September
                                                      30           30
FY 2013
Total         $ 33,912      $ —          $ —          $ —          $ 33,912
Revenue
Cash Flow
from          $ 3,823       $ —          $ —          $ —          $ 3,823
Operations
% of            11     %      —      %     —      %     —      %     11      %
Revenue
Purchase of   $ 1,453       $ —          $ —          $ —          $ 1,453
PP&E
Free Cash     $ 2,370       $ —          $ —          $ —          $ 2,370
Flow
% of            7      %      —      %     —      %     —      %     7       %
Revenue
                                                                   
FY 2012
Total         $ 33,079      $ 30,592     $ 30,276     $ 30,392     $ 124,339
Revenue
Cash Flow
from          $ 1,510       $ 4,606      $ 5,046      $ 5,442      $ 16,604
Operations
% of            5      %      15     %     17     %     18     %     13      %
Revenue
Purchase of   $ 1,608       $ 1,639      $ 1,410      $ 1,068      $ 5,725
PP&E
Free Cash     $ (98    )    $ 2,967      $ 3,636      $ 4,374      $ 10,879
Flow
% of            (—     %)     10     %     12     %     14     %     9       %
Revenue
                                                                   
FY 2011
Total         $ 24,833      $ 24,107     $ 26,586     $ 27,504     $ 103,030
Revenue
Cash Flow
from          $ 2,324       $ 6,693      $ 4,560      $ 5,686      $ 19,263
Operations
% of            9      %      28     %     17     %     21     %     19      %
Revenue
Purchase of   $ 470         $ 1,693      $ 795        $ 1,379      $ 4,337
PP&E
Free Cash     $ 1,854       $ 5,000      $ 3,765      $ 4,307      $ 14,926
Flow
% of            7      %      21     %     14     %     16     %     14      %
Revenue
                                                                   

Contact:

Investor Relations
LHA
Kirsten Chapman or Becky Herrick, 415-433-3777
KEYNLHA@lhai.com
or
Media
Keynote
Dan Berkowitz, 650-403-3305
dberkowitz@keynote.com