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Keynote Systems, Inc. (KEYN)

Preliminary Q2 2013 Results Conference

April 15, 2013 5:00 pm ET

Executives

Kirsten F. Chapman - Managing Director and Principal

Umang Gupta - Chairman and Chief Executive Officer

Curtis H. Smith - Chief Financial Officer and Secretary

Analysts

Matthew L. Williams - Evercore Partners Inc., Research Division

Kevin Liu - B. Riley Caris, Research Division

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Michael Latimore - Northland Capital Markets, Research Division

Presentation

Operator

Good afternoon, everyone, and thank you for joining Keynote's Preliminary Results Conference Call for the Second Quarter of Fiscal 2013. Today's conference is being recorded. At this time, I'll -- I would now like to turn the call over to Kirsten Chapman from LHA for opening remarks and instructions.

Kirsten F. Chapman

The preliminary results for the second quarter of fiscal 2013 ended March 31, 2013. I'm here today with Umang Gupta, Chairman and Chief Executive Officer; and Curtis Smith, Chief Financial Officer. Hopefully, you have seen our press release that was distributed over 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 made available by telephone by dialing (888) 843-7419. The pass code is 34686904# 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 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 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 most recent annual and quarterly reports filed with the SEC.

Today, we have provided preliminary guidance in our press release. This guidance assumes no acquisitions, no material change in interest rate or foreign currency exchange rates and no other significant or extraordinary transactions. Following this call, we will not comment on the guidance until our earnings call on April 30.

Before the company reviews the financials, I will review definitions for some metrics the company provides that are not in accordance with Generally Accepted Accounting Principles, commonly known as GAAP. Non-GAAP net income is calculated as GAAP net income or loss adjusted for the provision or benefit for income taxes, cash taxes from ongoing operations, stock-based compensation expense, amortization of purchased intangibles and any unusual items. Non-GAAP net income per diluted share equals non-GAAP income divided by the diluted weighted average shares outstanding for the period.

During the call, Umang Gupta, Chairman and CEO, will review the preliminary results for the second quarter of fiscal 2013, then we will open the call for questions.

It's my pleasure to introduce Umang Gupta. Please go ahead, sir.

Umang Gupta

Thank you, Kirsten. Ladies and gentlemen, thank you for joining us today for the call. We are speaking with you to discuss preliminary results for the second fiscal quarter of 2013. I will provide as much color as we can at this point until we deliver our final second fiscal quarter results on Tuesday, April 30.

As noted in our press release, we have lowered our guidance for financial results for the second quarter ended March 31, 2013. We now expect total revenue to be between $28.5 million and $29.5 million, primarily due to 4 contracted SITE Systems projects with revenue totaling approximately $1.6 million that were not accepted by our customers in the quarter.

It is important to note that these were systems that already had been sold in prior quarters, but project acceptance was necessary in order to achieve revenue recognition. While we are disappointed in the impact on our results, we are encouraged by the fact that the delays were not related to our product but to customer-specific factors. We are focused on getting these projects accepted in the June quarter. And while we do not expect delays to be a long-term trend, we will take into account greater project acceptance volatility in our ongoing forecasting process.

While the results are not yet final, we expect our total costs and expenses to come in lower than the prior quarter. Therefore, we expect GAAP net income per diluted share to be between $0.001 -- $0.01 and $0.03, and non-GAAP net income per diluted share to be between $0.07 and $0.09. We expect our cash in the balance sheet to increase by approximately $6 million to approximately $57 million.

Looking ahead, project acceptance volatility we experienced in our telecom mobile business plus some scope reductions we have experienced with load testing engagements as well as previously discussed bookings volatility in our enterprise mobile business may continue in the fiscal year -- in the current fiscal year. As a result, for the third quarter of fiscal 2013 ending June 30, we expect revenue and total costs and expenses to be consistent with the March quarter.

The remainder of fiscal 2013 presents some hurdles. However, we have encountered soft patches before which we will successfully overcome. I am confident we will do that same thing now. My confidence is buoyed by the knowledge that our markets will continue to grow, particularly since the e-commerce and mobile telecom markets are a long way from saturation, and the enterprise mobile market is still in the early adoption stages. The key to success is solid execution, and we are committed to driving growth and profitability in fiscal year 2014 and beyond.

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