Keynote Announces Third Quarter Fiscal Year 2005 Financial Results

Business Wire,  July 26, 2005  

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SAN MATEO, Calif. -- Keynote Systems, Inc., (Nasdaq:KEYN)

--Diluted EPS of $0.08 and Revenue of $13.5 Million Exceed High End of Range of Company's Guidance

--Earnings Before Interest, Income Taxes and Amortization of $1.5 Million or 12% of Revenue

--Revenue of $13.5 Million Up 26% Compared to the Same Quarter Last Fiscal Year

--Performance Management Solutions Revenue Up 65% Compared to Same Quarter Last Fiscal Year

--Eighth Consecutive Quarter of Profitability

--Fourteenth Consecutive Quarter of Positive Cash Flow from Operations

Keynote Systems, Inc., (Nasdaq:KEYN), The Internet Performance Authority(R), today announced financial results for its third quarter of fiscal year 2005, which ended June 30, 2005.

Revenue for the third quarter of fiscal year 2005 was $13.5 million, a 2% increase compared to the preceding quarter and a 26% increase compared to the third quarter of fiscal year 2004. Net income for the third quarter of fiscal year 2005 was $1.7 million, or $0.08 per diluted share, compared to net income of $1.0 million, or $0.05 per diluted share, for the preceding quarter, and net income of $1.5 million, or $0.07 per diluted share, for the third quarter a year ago.

Keynote recorded earnings before net interest income, income taxes and amortization of intangible assets of $1.5 million or 12% of revenue for the third quarter of fiscal year 2005, $960,000 or 7% of revenue for the preceding quarter, and $1.4 million or 13% of revenue for the third quarter a year ago. Keynote generated cash flow from operations for the third quarter of fiscal year 2005 of $2.8 million. Cash flow from operations was $1.8 million for the preceding quarter and $3.8 million for the third quarter of fiscal year 2004. Cash used for purchases of property, equipment, and software totaled $1.0 million for the third quarter of fiscal year 2005 compared to $723,000 for the preceding quarter and $745,000 for the third quarter of fiscal year 2004. The Company generated free cash flow, defined as cash flow from operations less cash used for purchases of property, equipment, and software, of $1.8 million for the third quarter of fiscal year 2005, compared to $1.1 million for the preceding quarter and $3.0 million for the third quarter of fiscal year 2004. The Company believes that earnings before net interest income, income taxes and amortization of intangible assets, as well as free cash flow are important measures of its performance as they provide investors with additional methods for evaluating its operating performance and liquidity, and measuring the resources available for the Company to invest in acquisitions or to repurchase stock.

"Our third quarter numbers represent Keynote's eighth consecutive quarter of profitability and fourteenth consecutive quarter of positive cash flow from operations. However, the most significant development this quarter, and the one for which we are most pleased, is that our Earnings Before Interest, Taxes and Amortization (EBITA) in the third quarter was $1.5 million, the highest ever recorded in our company's history, and it was 12% of revenue," said Umang Gupta, chairman and CEO of Keynote. "I want to thank all of our dedicated and hard working employees for helping us achieve this important financial milestone."

As of June 30, 2005, Keynote's total worldwide customer base was approximately 2,200 companies and approximately 14,000 individual subscribers. During the third quarter, Keynote averaged a 99% monthly customer retention rate.

Keynote currently provides its services to 78% of the comScore Media Metrix top 50 Web sites and over half of the Fortune 100 companies. As of June 30, 2005, Keynote measured 9,247 URLs through its Perspective(R) services and 7,614 Internet-connected devices through its Red Alert services. On average during the third quarter of fiscal year 2005, Keynote captured over 63 million Internet performance measurements daily.

Expectations for the Fourth Quarter of Fiscal Year 2005

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 that for the fourth fiscal quarter ending September 30, 2005:

--total revenue will be between $13.4 million and $13.7 million;

--interest income, net will be approximately $700,000, absent any additional transactions, assuming no material changes in interest rates, and assuming Keynote continues to repurchase common stock under its approved plan;

--its effective income tax rate will be approximately 7.0%;

--diluted weighted average shares outstanding will be approximately 20.0 million shares, assuming no additional acquisitions using shares of Keynote stock as the consideration, assuming Keynote continues to repurchase common stock under its approved plan, and no other significant transactions involving Keynote's equity securities;