Keynote Announces Fiscal Year 2002 First Quarter Financial Results

Keynote Systems (Nasdaq: KEYN), The Internet Performance Authority®, today announced financial results for its fiscal year 2002 first quarter ended December 31, 2001.

Companys Results Exceed First Calls Estimates for the Quarter

   SAN MATEO, California -- January 17, 2002 -- Keynote Systems (Nasdaq: KEYN), The Internet Performance Authority®, today announced financial results for its fiscal year 2002 first quarter ended December 31, 2001.
   Revenues for the first quarter of fiscal 2002 were $9.6 million, which represented a slight increase from the previous quarter and a decrease of 26% from the corresponding quarter in fiscal 2001. The pro forma net loss for the first quarter of fiscal 2002 was $2.7 million, or $0.10 per share, compared to a pro forma net loss of $2.3 million or $0.08 per share, for the preceding quarter, and pro forma net income of $3.0 million, or $0.11 per share, for the corresponding quarter a year ago. The pro forma net loss for the first quarter of 2002 excludes stock-based compensation charges and the amortization of intangible assets of $299,000. The pro forma net loss for the fourth quarter of fiscal 2001 excluded stock-based compensation charges and the amortization of intangible assets of $511,000 and a charge of $11.0 million for excess facility costs related to the un-leased portion of the companys headquarters building. The pro forma net loss for the first quarter of fiscal 2001 excluded acquisition-related and stock-based compensation charges and the amortization of goodwill and intangible assets of $7.5 million. First quarter first call consensus estimates were a $0.15 loss per share.
   The GAAP net loss for the quarter was $3.0 million, or $0.11 per share, compared to a net loss of $13.8 million or $0.50 per share for the preceding quarter, and a net loss of $4.4 million, or $0.16 per share, for the corresponding quarter a year ago.
   Despite the difficult economic climate that existed during the quarter, I am very pleased that our revenues actually increased slightly from last quarter. In particular, our emerging application performance management and testing service lines exhibited excellent growth during the first quarter and increased to 19% of our total revenue compared to 7% for the same quarter last year," said Umang Gupta, chairman and CEO of Keynote. We continue to transform our business. Our recent acquisitions, new product introductions and the significant growth of our testing services and APM product lines provide us with a more diversified portfolio of service offering for the enterprise market."
   For the December 2001 quarter, 84% of Keynotes total revenue, up from the previous quarters 82%, was derived from U.S. corporate accounts, international resellers and consulting services. Revenue from the service--provider and dot com sector declined and amounted to 16% of total revenue in the December quarter, compared to 18% of the total revenue in the September quarter, 25% in the June quarter, and 31% in the March quarter. Service provider revenue includes revenue from content distribution companies, Web hosting companies and bandwidth providers.
   As of December 31, 2001, the Companys total worldwide customer base was approximately 2,600 companies. During the quarter, Keynote averaged a 95% monthly customer retention rate with a slight decline from last month, but consistent with historical rates of 95% or better. New customers during the quarter included companies such as Corporate Software & Technology, Experian, Sage Group (London: SGE.L), Sony UK, Stanford University, Timberland (NYSE: TBL) and Virgin Mobile.
   Keynote currently provides its services to 76% of the Media Metrix top 50 Web sites and 65 of the Fortune 100 companies. As of December 31, 2001, Keynote measured approximately 10,300 URLs, which were down from the prior quarter, primarily as a result of reductions in benchmarking URLs purchased by our customers.

Highlights for the quarter:
·   Keynote outperformed Mercury Interactive, BMC, Gomez and Exodus by winning the Best of Breed" award in Internet Weeks lab test review of Web site monitoring tools.
·   Customers declared Keynote Systems a winner with a 90% loyalty rating in the 2001 customer satisfaction survey completed by Prognostics, a leading customer research firm.
·   Announced Keynote Transaction Perspective 3.0, which simplifies Web transaction measurement and management. The new service includes a fast and easy to use self-service recorder and in-depth error diagnostics for immediate and accurate root cause analysis.
·   Announced Keynote Custom Application Performance Management (APM) Services, which allow e-businesses to better manage service level agreements, audit Web site performance and customize performance reporting.
·   Announced Keynote Advanced Technical Services for Web site performance management and advanced root-cause analysis and diagnostics to speed problem resolution.
·   Announced Wireless Perspective, a new hosted application performance benchmarking service designed to measure, monitor and diagnose problems with wireless data including wireless messaging, wireless internet and next-generation wireless services.
·   Keynote hosted its first customer advisory council meeting attended by Digital Island, IBM, Intel, Microsoft, Morgan Stanley, State Farm, UPS and Verizon.
·   Keynote co-hosted a seminar with Agilent targeted at service providers and Agilent customers on using Keynote data in service level agreements.
·   Announced three new companies joined the Keynote KeyPartner program, bringing to 53 the number of Keynote Web performance partners recommending, integrating or selling Keynote services.
·   Throughout the holiday season Keynotes Public Services division reported on the performance, availability and fulfillment of leading online shopping sites. Keynote data was cited in news reports carried on the ABC and CNN television networks and on National Public Radio. News stories containing Keynote data and quoting Keynotes Internet experts appeared in over 30 leading publications including The Wall Street Journal, The New York Times and Computerworld.
·   Public Services launched a new Keynote Government 40 Internet Performance Index, and announced Federal Computer Week as the first publication partner for the Index -- they will carry the new Index in their magazine on a weekly basis.

   
Expectations for the Second Quarter

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 revenues to be between $9.0 and $9.5 million for the second quarter of fiscal 2002. Keynote currently expects costs of subscriptions to represent approximately 40% to 45% of subscription related revenues for the second quarter of fiscal 2002. Keynote currently expects costs of consulting and support services to represent approximately 165% to 170% of consulting and support services revenue for the second quarter of fiscal 2002. Total operating expenses, excluding costs of subscriptions and consulting and support services, amortization of intangibles and stock-based compensation, and including costs associated with un-leased space, are currently expected to be comparable to the December quarter. We expect amortization of intangibles and stock based compensation to be approximately $400,000 for the second quarter of fiscal 2002, absent any additional extraordinary transactions. We expect interest income, net to be approximately $3.0 million for the second quarter absent any transactions and assuming a declining to flat interest rate environment. For determining loss per share, Keynote had 27.8 million basic shares outstanding at December 31, 2001. We would expect basic shares outstanding to increase nominally in the March quarter, assuming no additional acquisitions using shares of Keynote stock as the consideration, no additional significant transactions involving Keynotes equity securities and/or common stock repurchases. Due to the Companys expected loss, loss carry-forward and tax credits, no tax provision is expected in the coming quarter. We expect capital expenditures to be approximately $2.0 to $3.0 million in the March quarter, absent any acquisition costs or other extraordinary transactions.

Keynote will host a conference call and simultaneous Web cast at 2:00 pm (PST), today January 17, 2002. The web cast of the call will be available at the Investor section of our web site at www.keynote.com, and www.vcall.com. The replay will be available after the call by dialing (888) 203-1112, and the pass code is 769750. If you would like to listen to the live call, please contact Maricel Buangan at (650) 403-3314, or mbuangan@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 companys current expectations.

Forward-looking statements in this release include, but are not limited to, statements regarding forecasts concerning Keynotes expected revenues, operating expenses, capital expenditures, and introduction of additional services and marketing plans. It is important to note that actual outcomes and Keynotes 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 relatively short operating history with an unproven business model, which makes it difficult to evaluate its current business and future prospects, Keynotes reliance on existing customers renewing their subscriptions and purchasing additional services, particularly enterprise customers, increased competition, which could result in pricing pressure or the adoption of a competitors Internet performance measurement service as the industry standard for measuring the speed and reliability of websites, improvements to the Internet infrastructure which could have the effect of reducing demand for Keynotes services, unforeseen changes in expense levels, the effect of any future acquisitions, widespread acceptance and use of the Internet as a means for business communications, Keynotes ability to develop and introduce new services in a timely manner, and customer acceptance of new services, Keynotes ability to keep pace with technological changes, and Keynotes ability to successfully conduct international operations, economic conditions in the technology and electronic commerce industries, as well as general economic conditions. Readers should also refer to the risk outlined in Keynotes reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended September 30, 2001, and its quarterly reports on Form 10-Q or any current reports on Form 8-K filed during the current 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 (Nasdaq "KEYN"), The Internet Performance Authority®, is the worldwide leader in Internet performance services that improve the quality of e-business. Keynotes services enable corporate enterprises to benchmark, test and manage their e-business applications both inside and outside the firewall. By improving the quality of their e-business, companies reduce costs, gain operational efficiency, protect and grow revenue and stay ahead of the competition. More than 2,600 corporate IT departments, Web hosting companies and Internet service providers around the world have implemented the company's easy-to-use and cost-effective services.

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.

© 2002 Keynote Systems. The Internet Performance Authority is a registered trademark and Transaction Perspective, Custom APM Services, Advanced Technical Services, Wireless Perspective, Keynote Government 40 Internet Performance Index and KeyParter are trademarks of Keynote Systems, Inc. in the United States and/or other countries. Other trademarks are the property of their respective owners.