Fifth Consecutive Quarter of Positive Cash Flow from Operations and Operating Loss Further Reduced
SAN MATEO, California – April 22, 2003 – Keynote Systems, Inc. (Nasdaq: KEYN), today announced financial results for its fiscal year 2003 second quarter ended March 31, 2003.
Revenue for the second quarter of fiscal year 2003 was $9.6 million, which represented a 2% decrease from the preceding quarter, but a 4% increase from the corresponding quarter in fiscal year 2002. The net loss under United States Generally Accepted Accounting Principles (GAAP) for the second quarter of fiscal year 2003 was $2.1 million, or $0.09 per share, compared to a net loss of $2.0 million, or $0.08 per share, for the preceding quarter, and a net loss of $3.0 million, or $0.11 per share, for the corresponding quarter a year ago.
On a GAAP basis, the net loss for the second quarter of fiscal year 2003 includes $424,000 for the amortization of intangible assets and stock-based compensation and $233,000 of proxy contest costs. The GAAP net loss for the preceding quarter and the corresponding quarter a year ago included $403,000 and $307,000, respectively, for the amortization of intangible assets and stock-based compensation. Excluding these charges, the net loss would have been $1.5 million, $1.6 million and $2.7 million for the quarters ended March 31, 2003, December 31, 2002, and March 31, 2002, respectively. The Company believes that net loss excluding the amortization of intangible assets and stock-based compensation and proxy contest costs is an important measure of its performance as it provides investors with an additional method for assessing the results of its operations.
On a GAAP basis, we generated cash flow from operations for the second quarter of fiscal year 2003 of $1.7 million compared to $602,000 for the preceding quarter and $2.0 million for the corresponding quarter a year ago. Cash used for capital investments totaled $860,000, $680,000 and $1.5 million for the quarters ended March 31, 2003, December 31, 2002 and March 31, 2002, respectively. We generated free cash flow, defined as cash flow from operations less cash used for capital investments, of $887,000 for the March 31, 2003 quarter compared to free cash used of $78,000 for the preceding quarter and free cash flow generated of $456,000 for the corresponding quarter a year ago. The Company believes that free cash flow is an important measure of its performance as it provides investors with an additional method for evaluating its operating performance and liquidity, and reflects the resources available for the Company to invest in acquisitions or to repurchase stock.
“We are pleased with our improved performance over the past two quarters during this period of sustained challenges in the overall economy and particularly the high technology industry,” said Umang Gupta, Chairman and CEO of Keynote. “Our application performance management and testing businesses have increased to 34% of total revenue from 33% for the preceding quarter and 22% for the corresponding quarter a year ago. Our focus on strict expense controls is reflected in our fifth consecutive quarter of positive cash flow from operations and the $887,000 of free cash flow that we generated this quarter. We continue to implement the cost reduction initiatives necessary to achieve our goal of generating a profit, excluding intangibles amortization, in our fiscal fourth quarter and maintaining positive free cash flow.”
As of March 31, 2003, Keynote’s total worldwide customer base was over 2,300 companies. During the quarter, Keynote averaged a 99% monthly customer retention rate, which was up slightly from last quarter’s rate of 98%, and consistent with historical rates of 95% or better. New customers during the quarter included Bell Canada (Toronto Stock Exchange: BC.PR.B); Covansys Corporation (Nasdaq: CVNS); DIRECTV, Inc. a unit of Hughes Electronics Corporation (NYSE: GMH); Internet Pictures Corporation (iPIX) (Nasdaq: IPIX); j2 Global Communications, Inc. (Nasdaq: JCOM); PUMA AG (PNK: PMMAF.PK); and Univision Communications Inc. (NYSE: UVN).
Keynote currently provides its services to 74% of the comScore Media Metrix top 50 Web sites and over half of the Fortune 100 companies. As of March 31, 2003, Keynote measured 7,771 URLs, which was up approximately 2% from the prior quarter.
Other Highlights:
• Keynote launched a new user forum to promote “best practices” for e-business performance management and allow IT and e-business professionals to share insights on improving Web performance.
• Keynote and OpinionLab hosted a seminar on e-Business user experience highlighting ways in which e-businesses can drive effectiveness by measuring and optimizing the user experience.
• Keynote announced that it is providing cost-effective, accurate and realistic solutions for FOXSports.com’s Load Testing LifeCycle.
• Keynote announced the immediate availability of eight new vertical market Web performance indices that provide industry-specific competitive intelligence, and allow site operators to compare, contrast and improve their performance relative to others in their industry.
• Keynote commenced an issuer tender offer for 7.5 million shares, or approximately 33.0%, of its outstanding common stock, at a purchase price of $9.50 per share in cash expiring on May 9, 2003.
• Eastern Bank, the largest, full-service independent bank in New England, selected Keynote as its end-to-end Web site monitoring solution.
• Keynote announced that it would issue a regular “Iraq War Internet Performance Report” that provides data and analysis regarding the performance of major Internet backbones and important government, commercial and media Web sites.
• Keynote announced that of the most commonly visited sites associated with income tax submission or tax-related information, most Web sites performed well in speed and availability during higher volume of traffic associated with last minute online tax filers during the tax season.
• Keynote announced that Cable & Wireless (NYSE: CWP) would resell Keynote’s performance measurement, management, diagnostic and testing services to Cable & Wireless customers.
Expectations for the Third Quarter of Fiscal Year 2003
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 total revenue to be between $9.2 and $9.6 million, for the third quarter of fiscal 2003 ending June 30, 2003. Keynote currently expects costs of subscriptions to represent approximately 25% - 30% of subscription related revenue for the third quarter of fiscal 2003. Keynote currently expects costs of consulting and support services to represent approximately 90% - 95% of consulting and support services revenue for the third quarter of fiscal 2003. Total expenses for research and development, sales and marketing, operations, general and administrative, and excess occupancy costs are currently expected to decrease by approximately 15% as compared to the March 2003 quarter. Keynote expects amortization of identifiable intangible assets and stock based compensation to be approximately $430,000 for the third quarter of fiscal 2003, absent any additional acquisitions or other extraordinary transactions. Keynote expects interest income, net to be approximately $800,000 for the third quarter of fiscal 2003, assuming all 7.5 million shares are repurchased in the currently pending tender offer, absent any additional transactions, and assuming no material changes in interest rates. Keynote expects weighted average shares outstanding for the June quarter to decrease to approximately 17.7 million shares, assuming Keynote repurchases 7.5 million shares in the currently pending tender offer, no additional acquisitions using shares of Keynote stock as the consideration and no other significant transactions involving Keynote’s equity securities. Due to the Company’s expected loss, loss carry-forward and tax credits, no tax provision is expected in the coming quarter. Keynote expects capital expenditures to be approximately $600,000 for the June quarter of fiscal 2003, absent any acquisition costs or other extraordinary transactions.
Keynote will host a conference call and simultaneous Web cast at 2:00 pm (PDT), today April 22, 2003. The web cast of the call will be available at the Investor section of our web site at www.keynote.com, www.vcall.com, and www.streetevents.com. The replay will be available after the call by telephone by dialing (888) 203-1112, and the pass code is 545591 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 revenues, operating expenses, margins and other financial results and statements regarding Keynote’s ability to generate profit and the anticipated timing of such profitability. 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 develop and introduce new services in a timely manner and customer acceptance of new services, the extent to which demand for Keynote’s benchmarking 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, pricing pressure with respect to Keynote’s services, competition in Keynote’s market, integration of acquired companies and costs associated with any future acquisitions, Keynote’s ability to keep pace with changes in the Internet infrastructure as well as other technological changes, and Keynote’s ability to successfully operate 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, 2002, and its quarterly reports on Form 10-Q and 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, Inc. (Nasdaq "KEYN"), The Internet Performance Authority®, is the global leader in Internet performance management and testing services that improve the quality of e-business. Keynote’s services enable corporate enterprises to benchmark, diagnose, test and manage their e-business systems both inside and outside the firewall. Over 2,300 corporate IT departments and approximately 16,000 individual subscribers rely on the Company’s easy-to-use and cost-effective services to optimize revenue and reduce downtime costs without requiring additional complex and costly software implementations.
Keynote Systems, Inc. was founded in 1995 and is headquartered in San Mateo, California. The company can be reached at www.keynote.com or by phone in the U.S. at 650-403-2400.
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© 2003 Keynote Systems, Inc. The Internet Performance Authority and Keynote are registered trademarks of Keynote Systems, Inc.
Contacts:
Public Relations
Dan Berkowitz, Keynote Systems, Inc., (650) 403-3305,
dberkowitz@keynote.com
Investor Relations
Erin Kasenchak, Keynote Systems, Inc., (650) 403-3314,
erin.kasenchak@keynote.com
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