• Total Revenue Was $20.2 Million for the Third Quarter 2009, Compared to $20.5 Million in the Same Period a Year Ago
• GAAP Net Earnings Per Share Improved to $0.15 for the Third Quarter 2009, Compared to GAAP Net Loss Per Share of $0.03 a Year Ago
• Non-GAAP EPS Grew to $0.25 for the Third Quarter 2009, Compared to $0.09 a Year Ago
• Revenue, GAAP Net Income and Non-GAAP Earnings Exceeded Company’s Guidance

Keynote Systems (NASDAQ:KEYN), the global leader in on-demand mobile and Internet test & measurement solutions for continuously improving the online experience, reported financial results for its fiscal third quarter ended June 30, 2009.

Umang Gupta, chairman and CEO of Keynote, said: “We delivered strong financial performance, amidst a tough economy and comparatively lower foreign exchange rates. We generated revenue of $20.2 million in the quarter, which exceeded our guidance primarily due to the fact that we began to recognize revenue for a mobile project earlier than originally expected. Our non-GAAP earnings per diluted share for the first nine-months of 2009 have already surpassed those for the entire fiscal year 2008. In addition, based on our year-to-date performance and fourth quarter guidance, we expect our mobile business to achieve in excess of 20% year-over-year growth after factoring out any change due to the strengthening of U.S. dollar.”

Third Quarter 2009 Financial Summary

Revenue for the third quarter of fiscal year 2009 was $20.2 million, compared to $20.5 million in the third quarter of fiscal year 2008. Under generally accepted accounting principles (GAAP), net income for the third quarter of fiscal year 2009 was $2.1 million, or $0.15 per diluted share, compared to a net loss of $407,000, or $0.03 per share, for the third quarter of fiscal year 2008.

The non-GAAP net income for the third quarter of fiscal year 2009 was $3.6 million, or $0.25 per diluted share, compared to $1.3 million, or $0.09 per diluted share, for the third quarter of fiscal year 2008. The company defines non-GAAP net income as net income (loss) adjusted for provision for income taxes, stock-based compensation expense, and amortization of purchased intangibles less cash taxes from on-going operations. Non-GAAP net income (loss) per share equals non-GAAP net income divided by the diluted weighted average shares outstanding for the period.

Management also believes the non-GAAP figure of earnings before interest, taxes, depreciation and amortization (EBITDA) provides a useful measure of operations. EBITDA for the third quarter of fiscal year 2009 was $4.9 million, or 24% of revenue, compared to $2.6 million, or 13% of revenue, for the third quarter of fiscal year 2008.

Cash Flow and Deferred Revenue Summary

In the third quarter of fiscal year 2009, cash provided by operating activities was $4.2 million, compared to $1.5 million in the third quarter of fiscal year 2008. Cash used for purchases of property, equipment and software totaled $1.2 million for the third quarter of fiscal year 2009, compared to $1.6 million for the third quarter of fiscal year 2008. Keynote defines free cash flow as cash flow from operations less cash used for purchases of property, equipment, software and acquired technology. The company generated free cash flow of $3.0 million, compared to third quarter of fiscal year 2008 in which the company used $80,000 of free cash flow. At June 30, 2009, Keynote had $56.0 million in total cash, cash equivalents and short-term investments.

Gupta added, “Excluding the second quarter $4.0 million special cash payment to the German tax authority for taxes associated with prior years’ operations and IP migration, for the nine month period ending June 30, 2009, our cash from operations was $11.4 million, compared to $4.4 million for the corresponding period in fiscal year 2008.”

Keynote’s net deferred revenue was $21.4 million at June 30, 2009, compared to $24.2 million at June 30, 2008 and $21.3 million at March 31, 2009. Keynote’s gross deferred revenue, defined as the sum of net deferred revenue and unpaid deferred revenue, was $25.6 million at June 30, 2009, compared to $29.5 million at June 30, 2008 and $26.8 million at March 31, 2009. The year-over-year comparison was significantly impacted by the strengthening of the U.S. dollar to Euro.

The total shares outstanding, net of treasury shares, at June 30, 2009 was 14.4 million, compared to 13.8 million at June 30, 2008.

Operational Metrics Summary

As of June 30, 2009, Keynote’s total worldwide customer base was approximately 2,800 companies. Keynote currently provides its services to 50 percent of the comScore Media Metrix’s top 50 Web sites and approximately 42 percent of the Fortune 100 companies. As of June 30, 2009, Keynote measured approximately 17,500 Internet pages, as compared to 13,900 Internet pages in the same quarter a year ago.

Expectations for the Fourth Quarter of Fiscal Year 2009

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, 2009:

• Total revenue is expected to be between $18.8 million and $19.3 million.
• GAAP earnings per share are expected to be between ($0.03) and $0.01.
• Non-GAAP earnings per share are expected to be between $0.05 and $0.09.

The above guidance was based on the following assumptions. Foreign exchange rates do not change materially. Total stock-based compensation expense and amortization of intangible assets is currently expected to be approximately $1.3 million. The company expects to sublease its New York office in the fourth quarter, which would reduce future rent expense, but necessitate a one-time charge of approximately $690,000 for associated costs. Depreciation is expected to be approximately $1.4 million. Interest income, net is expected to be approximately $200,000, assuming no material changes in interest rates and currently planned uses of cash. Cash paid for income taxes from on-going operations is expected to be approximately $50,000. However, the company also expects to record approximately $100,000 for a one-time, non-cash income tax benefit from the recently enacted German economic incentive laws that become effective during the fourth quarter. Basic weighted average shares outstanding are expected to be approximately 14.4 million shares and diluted weighted average shares outstanding are expected to be approximately 14.5 million shares, assuming no additional issuances of equity or equity-related securities and significant changes in the company’s stock price.

Conference Call

Keynote will host a conference call and simultaneous webcast at 2:00 pm (PST) today, July 28, 2009. To access the call in the U.S., please dial (866) 271-6228; international callers please dial (973) 638-3423, approximately 10 minutes prior to the start of the conference call. The webcast of the call will be available at the investor section of the company’s web site at www.keynote.com. The replay will be available after the call by telephone by dialing (800) 642-1687 in the U.S. and (706) 645-9291 internationally; the pass code is 16846899. The webcast is at the investor section of the company’s 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, GAAP and Non-GAAP earnings per share, and the related underlying assumptions in calculating those amounts, 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 the uncertain impact that the current global economic recession will have on Keynote’s business or the businesses of current or potential customers, 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 increase, 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 SIGOS and its other international operations 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 other 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, foreign exchange rates 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, 2008, 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.

Non-GAAP Measures

This press release includes information on Non-GAAP net income, Non-GAAP net earnings per share, EBITDA, free cash flow and gross deferred revenues. These measures are not based on any standardized methodology prescribed by U.S. 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 provision for income taxes less cash taxes from on-going operations, stock-based compensation expense and amortization of purchased intangibles. Non-GAAP earnings per share are 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 for purchases of property, equipment, and software. Gross deferred revenue is defined as the sum of net deferred revenue and unpaid deferred revenue. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. 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. Because the Company has made a number of acquisitions in the past, as well as because of the effect of SFAS 123(R), the Company’s financial statements have changed significantly from prior periods. 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 reviews 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 Systems (Nasdaq “KEYN”) is the global leader in on-demand test & measurement solutions for continuously improving the online experience. For over a decade, Keynote has been providing measurement data and testing capabilities that allow companies to understand and improve their customers’ online and mobile experience. Keynote has four test and measurement businesses: Web performance, mobile quality, streaming & VoIP, and customer experience/UX.

Known as The Mobile and Internet Performance Authority™, Keynote has a market-leading infrastructure of over 3,000 measurement computers and mobile devices in over 240 locations around the world. Keynote’s 2,800 customers represent top Internet and mobile companies including American Express, Dell, Disney, eBay, E*TRADE, Expedia, Microsoft, SonyEricsson, Sprint, T-Mobile, Verizon, Vodafone and YouTube. 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 1-800-KEYNOTE.

Keynote, The Internet Performance Authority, Perspective and WebEffective are registered trademarks and The Mobile and Internet Performance Authority, True Experience and FlexUse are trademarks of Keynote Systems, Inc. Other trademarks are the property of their respective owners. © 2009 Keynote Systems, Inc.

Keynote Systems, Inc.
Dan Berkowitz, 650-403-3305
Public Relations
dberkowitz@keynote.com
Kirsten Chapman, 415-433-3777
Investor Relations
kchapman@lhai.com