Keynote Systems, Inc. : Keynote Reports First Fiscal Quarter 2012 Results
01/31/2012 | 04:10pm
Keynote Posts $33.1 Million in Quarterly Revenue
Exceeds Revenue, GAAP EPS and Non-GAAP EPS Guidance
Quarterly Cash Dividend of $0.06 per Share
Keynote® Systems (NASDAQ:KEYN), the global leader in Internet
and mobile cloud monitoring, reported financial results for its first
fiscal quarter ended December 31, 2011, which include results from the
acquisition of DeviceAnywhere.
Umang Gupta, Chairman and CEO of Keynote, said: "We delivered strong
first quarter results across all our businesses reflecting growth
supported by positive seasonality. Secular trends, including growth in
ecommerce and cloud computing, continue to drive activity in our
Internet business, which yielded record revenue. Our Keynote-SIGOS
business grew in the quarter and benefited from some early project
acceptances. Keynote-DeviceAnywhere performed to expectations after
factoring in acquisition-related accounting adjustments, and we look
forward to opportunities we see in the enterprise mobile testing market."
Quarter Ended December 31, 2011 Compared to Quarter Ended December
31, 2010
Revenue was $33.1 million for first fiscal quarter of 2012, compared to
$24.8 million in the first fiscal quarter of 2011. Revenue from
Keynote-DeviceAnywhere was $4.1 million in the first fiscal quarter of
2012. Keynote-DeviceAnywhere deferred revenue at the date of acquisition
was reduced by approximately $2.0 million for acquisition related
adjustments, of which approximately $600,000 impacted first quarter
revenue.
Total costs and expenses for the quarter, were $27.6 million, compared
to $21.2 million. This increase was primarily due to $5.7 million of
expenses associated with the Keynote-DeviceAnywhere acquisition, which
included $1.5 million of amortization of purchased intangibles,
acquisition expenses and stock-based compensation. Also included in
operating expenses is a non-cash benefit related to an estimated $2
million earnout liability associated with the DeviceAnywhere acquisition
that was subsequently released. Operating income was $5.4 million,
compared to an operating income of $3.7 million. Net income for the
first fiscal quarter of 2012 was $4.1 million, or $0.22 per diluted
share, compared to net income of $3.6 million, or $0.23 per diluted
share. Non-GAAP net income for the first fiscal quarter of 2012 was $6.0
million, or $0.32 per diluted share, compared to $5.1 million, or $0.32
per diluted share. The company defines non-GAAP net income (loss) as
GAAP net income (loss) adjusted 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 (loss) per diluted share equals non-GAAP net
income (loss) divided by the diluted weighted average shares outstanding
for the period.
Management also believes the non-GAAP figure of Adjusted EBITDA provides
a useful measure of operations. The company defines Adjusted EBITDA as
earnings before interest income, taxes, depreciation, amortization of
purchased intangibles, stock-based compensation, other income
(expenses), 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. Adjusted EBITDA was $7.4
million for the first fiscal quarter of 2012, or 22% of revenue,
compared to $6.1 million, or 24% of revenue.
Cash provided by operating activities was $1.5 million for the first
fiscal quarter of 2012, compared to $2.3 million. Keynote defines free
cash flow as cash flow from operations less cash used to purchase
property, equipment and software. The company used free cash flow of
$98,000 for the first fiscal quarter of 2012, compared to generating
$1.9 million in the first fiscal quarter of 2011.
Balance Sheet
At December 31, 2011, Keynote had $40.0 million in cash, cash
equivalents, and short-term investments. Net deferred revenue was $17.4
million at December 31, 2011, compared to $18.5 million at September 30,
2011. The total shares outstanding at both December 31, 2011 and
September 30, 2011 were 17.3 million.
Quarterly Cash Dividend
The board of directors approved a quarterly cash dividend of $0.06 per
common share, payable March 15, 2012 to common stockholders of record at
the close of business on March 1, 2012.
Expectations for the Second Fiscal Quarter of 2012
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 2012:
Total revenue is expected to be between $29.0 million and $31.0
million.
GAAP net income per diluted share is expected to be between $(0.03)
and $0.03.
Non-GAAP net income per diluted share is expected to be between $0.12
and $0.18.
The above guidance is based on the following
assumptions:
The second fiscal quarter results are seasonally lower than other
quarters for Keynote's Internet business and, due to the revenue
recognition standards change implementation, this seasonality now
extends to Keynote-SIGOS and Keynote-DeviceAnywhere.
The second fiscal quarter negative impact of DeviceAnywhere
acquisition related adjustments to reduce deferred revenue is expected
to be approximately $700,000 on recognized revenue.
Foreign exchange rates are expected to have a negative impact on
revenue in the second fiscal quarter, and depending on rate trends,
could also be felt in future quarters.
Cost structure in the second fiscal quarter will be approximately the
same as the cost structure in the first fiscal quarter excluding any
unusual items related to the acquisition of Keynote-DeviceAnywhere.
Total stock-based compensation expense and amortization of purchased
intangibles is expected to be approximately $3.0 million.
Depreciation is expected to be approximately $1.3 million.
Interest income and other, net is expected to be $(100,000) 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 18.7 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
(PST) today, January 31, 2012. 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 31488045 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 31488045#.
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 future growth, 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 impact of the recent acquisition 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 the integration of the acquisition, including retaining customers and
employees, 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 successfully market and
sell its current and recently acquired 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, the risk that
Keynote's recent revenue growth may not be sustained, 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, unforeseen expenses or liabilities associated with
Keynote's recent acquisition, 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, 2011, 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 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 (loss) 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 (loss) per share is calculated by dividing Non-GAAP net income
(loss) 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.
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
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®, Data Pulse®,
CustomerScope®, Customer Experience Rankings®,
Perspective®, Keynote Red Alert®, WebEffective®,
The Internet Performance Authority®, MyKeynote®,
SIGOS®, SITE®, The Mobile & Internet Performance
Authority®, FlexUse®, DeviceAnywhere® DemoAnywhere®,
DeviceAnywhere Proof Center®, DeviceAnywhere Test Center®,
MonitorAnywhere®, and all other related trademarks, trade names, logos,
characters, design and trade dress and may not be used without written
permission. All other trademarks are the property of their respective
owners.
Keynote Systems, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
Dec 31,
Sept 30,
Dec 31,
2011
2011
2010
Net revenue
$
33,079
$
27,504
$
24,833
Costs and expenses:
Costs of revenue:
Direct costs of revenue
8,594
7,159
5,843
Development
4,379
3,558
3,035
Operations
2,496
2,195
1,911
Amortization of intangible assets-software
465
419
419
Total costs of revenue
15,934
13,331
11,208
Sales and marketing
9,138
7,335
7,193
General and administrative
4,108
3,464
2,848
Change in fair value of acquisition-related contingent consideration
(2,000
)
-
-
Excess occupancy income, net
(350
)
(285
)
(246
)
Amortization of intangible assets - other
810
138
151
Total costs and expenses
27,640
23,983
21,154
Income from operations
5,439
3,521
3,679
Interest income and other, net
60
(328
)
216
Income before provision (benefit) for income taxes
5,499
3,193
3,895
Provision for income taxes
(1,378
)
(724
)
(268
)
Benefit from release of deferred tax assets valuation allowance
-
37,282
-
Net income
$
4,121
$
39,751
$
3,627
Net income per share:
Basic
$
0.24
$
2.33
$
0.24
Diluted
$
0.22
$
2.16
$
0.23
Weighted average common shares outstanding:
Basic
17,294
17,077
15,006
Diluted
18,518
18,444
15,724
Keynote Systems, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
Dec 31, 2011
Sept 30, 2011
Assets
Current assets:
Cash, cash equivalents and short-term investments
$
39,975
$
101,380
Accounts receivable, net
19,697
14,738
Prepaids, deferred costs and other current assets
3,027
3,002
Inventories
1,758
1,502
Deferred tax assets
6,278
7,582
Total current assets
70,735
128,204
Deferred costs and other long-term assets
918
810
Property and equipment, net
35,671
34,424
Goodwill
110,510
62,459
Identifiable intangible assets, net
13,538
1,653
Deferred tax assets
33,569
32,851
Total assets
$
264,941
$
260,401
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
3,456
$
2,410
Accrued expenses
11,292
9,450
Deferred revenue
15,405
16,151
Total current liabilities
30,153
28,011
Deferred rent and other long term liabilities
3,785
3,811
Long-term deferred revenue
2,002
2,388
Total liabilities
35,940
34,210
Stockholders' equity:
Common stock
17
17
Additional paid-in capital
312,423
312,057
Accumulated deficit
(82,945
)
(87,066
)
Accumulated other comprehensive income
(494
)
1,183
Total stockholders' equity
229,001
226,191
Total liabilities and stockholders' equity
$
264,941
$
260,401
Keynote Systems, Inc. and Subsidiaries
GAAP TO NON-GAAP RECONCILIATION
(in thousands, except per share data)
(unaudited)
Three Months Ended
Dec 31,
Sept 30,
Dec 31,
2011
2011
2010
GAAP net income
$
4,121
$
39,751
$
3,627
Provision for income taxes
1,378
724
268
Benefit from release of deferred tax assets valuation allowance
-
(37,282
)
-
Stock-based compensation **
1,328
1,020
795
Amortization of intangible assets - other
810
138
151
Amortization of intangible assets - software
465
419
419
Change in fair value of acquisition-related contingent consideration
(2,000
)
-
-
Non-GAAP income before income tax
6,102
4,770
5,260
Cash taxes from on-going operations
(86
)
152
(166
)
Non-GAAP net income
$
6,016
$
4,922
$
5,094
Weighted average diluted common shares outstanding
18,518
18,444
15,724
Non-GAAP net income per share
$
0.32
$
0.27
$
0.32
Adjusted EBITDA
GAAP net income
$
4,121
$
39,751
$
3,627
Provision for income taxes
1,378
724
268
Benefit from release of deferred tax assets valuation allowance
-
(37,282
)
-
Interest income and other, net
(60
)
328
(216
)
Stock-based compensation **
1,328
1,020
795
Amortization of intangible assets - other
810
138
151
Amortization of intangible assets - software
465
419
419
Depreciation
1,334
1,133
1,006
Change in fair value of acquisition-related contingent consideration
(2,000
)
-
-
Adjusted EBITDA
$
7,376
$
6,231
$
6,050
** Stock-based compensation by category
Direct costs of revenue
$
166
$
127
$
96
Development
305
230
177
Operations
143
124
107
Sales and marketing
431
386
291
General and administrative
283
153
124
$
1,328
$
1,020
$
795
Keynote Systems, Inc. and Subsidiaries
REVENUE DETAIL
(in thousands)
(unaudited)
Three Months Ended
Year Ended
Dec 31
March 31
June 30
Sept 30
Sept 30
FY 2012
Internet:
Web measurement subscriptions
$
8,119
-
-
-
$
8,119
Other subscriptions
4,295
-
-
-
4,295
Engagements
3,090
-
-
-
3,090
Internet net revenue
15,504
-
-
-
15,504
Mobile:
Subscriptions
5,593
-
-
-
5,593
Ratable licenses
1,583
-
-
-
1,583
System licenses
5,755
-
-
-
5,755
Maintenance and support
4,644
-
-
-
4,644
Mobile net revenue
17,575
-
-
-
17,575
Net revenue
$
33,079
-
-
-
$
33,079
Mobile net revenue by customer type
Enterprise
$
5,943
-
-
-
$
5,943
Telecommunications
11,632
-
-
-
11,632
Mobile net revenue
$
17,575
-
-
-
$
17,575
FY 2011
Internet:
Web measurement subscriptions
$
7,275
$
7,373
$
7,865
$
7,981
$
30,494
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 revenue
12,908
12,757
13,446
14,216
53,327
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 support
2,167
3,167
2,453
2,656
10,443
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
FY 2010
Internet:
Web measurement subscriptions
$
6,170
$
6,593
$
6,584
$
7,105
$
26,452
Other subscriptions
3,665
2,569
2,648
3,154
12,036
Engagements
2,544
1,893
2,164
2,187
8,788
Internet net revenue
12,379
11,055
11,396
12,446
47,276
Mobile:
Subscriptions
2,374
2,510
2,718
2,770
10,372
Ratable licenses
5,956
5,791
5,159
5,297
22,203
Mobile net revenue
8,330
8,301
7,877
8,067
32,575
Net revenue
$
20,709
$
19,356
$
19,273
$
20,513
$
79,851
Mobile net revenue by customer type
Enterprise
$
1,036
$
932
$
1,028
$
1,063
$
4,059
Telecommunications
7,294
7,369
6,849
7,004
28,516
Mobile net revenue
$
8,330
$
8,301
$
7,877
$
8,067
$
32,575
Keynote Systems, Inc. and Subsidiaries
CASH FLOW FROM OPERATING ACTIVITIES AND FREE CASH FLOW
