Keynote Posts $53.9 Million Net Loss

Net loss largely due to real estate investment; company saw revenues rise 2 percent.

Keynote Systems Inc. late Monday reported that its revenues increased 2 percent to $9.7 million for its fourth fiscal quarter, ended September 30, but that it recorded a larger than expected net loss of $53.9 million or $1.93 per share.

Although the San Mateo, Calif., Internet performance management testing provider had expected to record a loss of 10 cents a share for the quarter, the companys management opted to purchase its headquarters building prior to the expiration of its lease, which caused an impairment charge of $52 million. Excluding those charges and the amortization of intangible assets, the net loss would have been $1.3 million or five cents a share. For the same year-ago quarter, Keynote reported a net loss of $13.8 million or 50 cents a share.

Keynote separately announced plans to purchase 10 million shares, or some 37 percent of its outstanding common stock, in a modified Dutch auction tender offer. The stock purchase price is set between $7.00 to $8.00 per share, and Keynote will offer cash for the stock.

For the full 2002 fiscal year, revenue was down 17 percent at $37.9 million and net loss for the year was $65.5 million or $2.35 per share, which included the $52 million impairment charge. Keynote recorded a net loss of $56.4 million or $2.04 per share for fiscal 2001.

For its first fiscal quarter of 2003, Keynote expects to post revenues of between $9 million and $9.4 million. Company officials anticipate that the costs of subscriptions will represent 32 percent to 36 percent of its subscription-related revenues in the first quarter, and costs of consulting are expected to represent about 65 percent to 70 percent of consulting revenue. Overall operating expenses are expected to decrease two percent compared to the fourth quarter.

Keynote has worked to transform its business from a heavy reliance on dot-com customers and a high volume of testing to serving Fortune 1000 customers by offering a wide range of testing and application performance management services. "Keynote has accomplished a successful transformation. We have a lot of momentum in large enterprise accounts," said Umang Gupta, the companys CEO, on the earnings call this afternoon.

Among new customers that signed on to Keynotes subscription services in the fourth quarter are LendingTree, Logitech, Micron Technologies, Rockford Corporation, Sempra Energy and Software House International.

Keynote also recently instituted a price increase for its subscription services. "The goal is not to get a huge volume with every Web site to do measurements with us, but to get the top 1000 Web site customers.

We added value to the system at the same time (they instituted the price increase)," said Gupta, who characterized the increase as a "judicious" way to "flush out really weaker value proposition customers and hold onto our stronger customers." The price per URL for its services increased from $250 to $271.

"We are very pleased with our fourth-quarter numbers. This substantially strengthens our position as the leader in Internet performance management. The value proposition for Keynote is a strong one," concluded Gupta.