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Keynote Systems (KEYN)

F4Q08 Earnings Call

November 13, 2008 5:00 pm ET

Executives

Kirsten Chapman – Investor Relations

Umang Gupta – Chairman and Chief Executive Officer

Drew Hamer – Chief Financial Officer and Vice President of Finance

Analysts

Eric Martinuzzi - Craig-Hallum Capital

Brian Kinstlinger – Sidoti & Co.

Kevin Liu - B. Riley & Company, Inc.

Derrick Wood - Pacific Growth Equities

Douglas Whitman - Whitman Capital

Presentation

Operator

Good afternoon, everyone, and welcome to the Keynote conference call for the fourth quarter fiscal year 2008. (Operator Instructions)

At this time, I would like to turn the call over to Kirsten Chapman for opening remarks and instruction.

Kirsten Chapman

Thank you, [Christian]. Good afternoon, everyone, and welcome to Keynote's conference call for the fiscal fourth quarter and year ending September 30, 2008.

I'm here today with Umang Gupta, Chairman and Chief Executive Officer, and Drew Hamer, Chief Financial Officer. Umang and Drew will review our accomplishments for the quarter and then be available to answer questions.

Hopefully by now you have seen our press release that was distributed over Business Wire and the major wire services. For your convenience, the press release has also been posted to our website at www.Keynote.com.

The replay of this call will be available by telephone by dialing 1-800-642-1687. The passcode is 67287586 or by webcast at the Investor Relations section of our website at www.Keynote.com.

I would like to remind you that statements made during the course of this call that are not purely historical are forward-looking statements regarding the company are 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 may differ materially from those projected in the forward-looking statements.

Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in today's press release and in the company's annual report for fiscal 2007 and most recent quarterly report filed with the SEC.

We've provided detailed guidance on our earnings release today as we have in prior quarters. This guidance assumes no additional acquisitions or other significant or extraordinary transactions other than those described in our earnings release. We will not comment on this guidance during the quarter, but may provide an update to this guidance in the event of a material change during the quarter.

Before the company reviews the financials, I will review definitions for some metrics which are not in accordance with generally accepted accounting principals, commonly known as GAAP.

The company defines non-GAAP net income as net income adjusted for provision for income tax, stock-based compensation expense and amortization of purchased intangibles, less cash taxes from ongoing operations.

Non-GAAP net income per share equals non-GAAP net income divided by the weight average number of diluted shares outstanding for the period end.

Net deferred revenue represents the deferred revenue balance as reported on the consolidated balance sheet and gross deferred revenue represents net deferred revenue balance plus the unpaid deferred revenue that has an associated accounts receivable balance as of the balance sheet date.

During the call, Umang Gupta, Chairman and Chief Executive Officer, will review the fiscal fourth quarter accomplishments, and Drew Hamer, CFO, will detail the financial results. Then Umang will provide vision and open the call for questions.

Now it is my pleasure to introduce to you Umang Gupta. Please go ahead, sir.

Umang Gupta

Thanks, Kirsten. Welcome, everyone, and thank you for joining us today.

We achieved a solid fourth quarter and closing a very good year of revenue growth and improved profitability. Fourth quarter 2008 revenue reached $21.1 million, exceeding our guidance and rising 18% from the fourth quarter of 2007. Full year 2008 revenue reached record $76.9 million, a 13.5% increase from 2007.

Growth was driven primarily by our mobile test and measurements business. We feel we are well positioned for the coming year, with a strong balance sheet and a diversified product portfolio.

I will now review our performance by product category. First, our mobile test and measurements business.

In the fourth quarter, mobile revenue was $8.8 million, up 61% compared to the same period last year and 5% sequentially. Full year mobile revenues reached $28.7 million, up 63% compared to 2007.

Growth was driven primarily by Keynote SIGOS for mobile operators and supported by solid mobile subscription revenue growth from enterprise customers. In the fourth quarter Keynote SIGOS added 10 GlobalRoamer and SITE customers, brining our September 30 customer count up to 149. The new customers included AFD Technologies, Alcatel-Lucent, CTI Argentina, Megaphone for [inaudible], O2UK, Taiwan Mobile, Telecom Cell Indonesia, Telecom Italia, Telefonica Spain, UMC MTS Ukraine, Utel Russia, and Wind Italy.

By the end of 2008, Keynote's mobile application device perspective services were deployed by more than 40 enterprise customers, such as Google, Yahoo!, AOL and Microsoft. Key mobile content service deals in the fourth quarter included Amazon.com, [Cojawa], LinkedIn, Telesource Engineering, and 3C Interactive.

In early September at the CTIA wireless IT and entertainment show, we officially launched Keynote Mobile Interactive Test Environment or MITE 1.0. MITE is the industry's first desktop testing tool that enables mobile developers to interactively test and validate mobile content over the Internet or over live carrier networks across more than 1,000 simulated mobile handsets in order to quickly understand and certify the end user experience. Just as we do with our KITE product, we are planning to use MITE to expand the market for our mobile software to service monitoring offerings and broaden our user base. With MITE we are targeting mainly mobile developers and quality assurance personnel, as well as our traditional IT operations customers.

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