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Keynote Systems, Inc. (KEYN)

F2Q08 Earnings Call

April 29, 2008 5:00 pm ET

Executives

Kristen Chapman – Lipper/Heilshorn & Associates

Umang Gupta – Chairman of the Board & Chief Executive Officer

Andrew Hamer – Chief Financial Officer & Vice President Finance

Analysts

Kevin Lui – B. Riley & Company, Inc.

Derrick Wood – Pacific Growth Equities

[Brian Kenspointer]

[Matt Hewitt]

Presentation

Operator

Welcome to Keynote’s conference call for the second quarter fiscal year 2008. (Operator Instructions) At this time I would like to turn this call over to Kristen Chapman, of Lippert/Heilshorn & Associates for opening remarks and instructions.

Kristen Chapman

Good afternoon everyone and welcome to Keynote’s conference call for the second quarter fiscal year 2008 ending March 31, 2008. I am 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 will 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 on our website at www.Keynote.com. The replay of this call will be available by telephone by dialing 800-642-1687. The pass code is 42596169. Or by webcast at the investor relations section of our website.

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 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 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 and quarterly reports filed with the SEC.

We’ve provided detail guidance in our earnings release today as we have in prior quarters. This guidance assumes no additional acquisitions or other significant or other extraordinary transactions other than those described in the earnings release.

We will not comment on this guidance during the quarter but may provide an update to this guidance in the event of material changes during the quarter. Before the company reviews the financial I will review definitions for some metrics which are not in accordance with generally accepted account principals commonly known as GAAP.

The company defines non-GAAP net income or loss as net income or loss adjusted for a provision of income tax less cash tax expense, stock-based compensation expense and amortization of purchased intangibles. Non-GAAP net income per share equals non-GAAP net income divided by the weighted diluted share count as of that period end.

Non-GAAP net loss per share equals non-GAAP net loss divided by the weighted basic share count as of that period end. Net deferred revenue represents deferred revenue balance as recorded on the consolidated balance sheet and gross deferred revenue represents net deferred revenue plus the unpaid deferred revenue that has an associated accounts receivable balance as of the balance sheet date.

Now, I’d like to introduce Umang Gupta, Chairman and Chief Executive Officer.

Umang Gupta

Our second quarter fiscal 2008 revenue was $17.6 million meeting our guidance and improving from the $16.7 million in the second quarter of 2007. Our net deferred revenues continued to grow reaching $25.2 million up from $22.3 million at December 31, 2007. The growth was again fueled by strong bookings and new orders for our mobile test and measurement products.

I will review performance by product category. First our mobile test and measurements that’s MTM. For the quarter mobile revenue was $6.3 million, up 45% compared to the same period last year driven primarily by Keynote SIGOS and supported by solid subscription revenue growth. Keynote SIGOS mobile recently signed a long anticipated GlobalRoamer deal with T-Mobile in the United States.

I’m pleased to say that all North American GSM operators are now Keynote customers. Important new deals for Site or GlobalRoamer closed in the quarter included Intel, CTI Argentina, [inaudible], VMS, [Cutta] Telecom, Nova, [Roshan] and TBC Denmark. Now, our total Keynote SIGOS customer count is up to 130.

Key mobile content service deals in the quarter included a number of innovative young startups including [Mocha], Cellfire, [Sendme] Mobile, [Clickatell] and [Mblogs] all of whom will be using either our mobile application perspective or mobile device perspective services. Also during the quarter we received the acceptance of a significant Keynote SIGOS deal with a major telecom operator in Europe that we had alluded to on last quarter’s conference call. While the associated revenues did not have any impact on the second quarter, as the project was accepted at the end of the quarter, it will have a significant impact on revenues in future periods.

We remind you that our expected third quarter 2008 revenues are expected to be in the range of $18.5 to $19 million which is almost a million dollars higher than the second quarter revenues. Also at CTI held in early April in Las Vegas we launched the first of its kind SMS common short code monitoring services.

As you may be aware SMS common short codes enable enterprises to communicate directly with consumers via text messaging to buy mobile content, participate in polls and complete mobile commerce transactions. The nations market for SMS short codes is growing rapidly and our cracking hundreds of enterprises that are beginning to employ it for revenue generating or marketing purposes. Our mobile applications perspective monitoring services offer a cost efficient means to ensure the SMS short codes of getting to the intended audiences, identify transmission problems and recommend solutions that can lead to improved quality.

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