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Keynote Systems Inc. Reports Operating Results (10-Q)

February 07, 2011 | About:
10qk

10qk

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Keynote Systems Inc. (KEYN) filed Quarterly Report for the period ended 2010-12-31.

Keynote Systems Inc. has a market cap of $261.16 million; its shares were traded at around $17.75 with a P/E ratio of 47.14 and P/S ratio of 3.27. The dividend yield of Keynote Systems Inc. stocks is 1.38%.Hedge Fund Gurus that owns KEYN: Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Our net revenue increased by $4.1 million, or 20%, from $20.7 million for the three months ended December 31, 2009 to $24.8 million for the three months ended December 31, 2010. Our net income increased by $2.6 million, or 270%, from $1.0 million for the three months ended December 31, 2009 to $3.6 million for the three months ended December 31, 2010. The increase in net income is primarily attributable to a $3.6 million increase in Mobile net revenue and $0.5 million increase to Internet net revenue for the three months ended December 31, 2010 compared to the three months ended December 31, 2009. A portion of this increase was due to the adoption of the new accounting guidance described below. Total costs and expenses increased $1.6 million from $19.6 million for the three months ended December 31, 2009 to $21.2 million for the three months ended December 31, 2010.

prospectively applied its provisions to arrangements entered into or materially modified after October 1, 2010. As a result of adopting the new accounting guidance, we recognized $2.0 million of net revenue and $0.2 million of related direct costs of revenue in the first fiscal quarter of 2011 that would otherwise have been recognized in subsequent periods under the previous guidance.

Internet Net Revenue. Internet net revenue increased by $0.5 million for the three months ended December 31, 2010 compared to the three months ended December 31, 2009. Internet net revenue represented 52% and 60% of total net revenue for the three months ended December 31, 2010 and 2009, respectively. The increase in Internet net revenue for the three months ended December 31, 2010 was mainly attributable to an increase of $1.1 million in our Internet Web Measurement Subscriptions due primarily to an increase in the number of measurements that our customers are performing to test their Web sites, offset by a decrease of $0.2 million in our Internet Subscriptions Other and a decrease of $0.4 million from our engagements (also referred to as professional services) due primarily to a large Loadpro engagement in the first fiscal quarter of 2010 that did not recur in the first fiscal quarter of 2011.

Mobile Net Revenue. Mobile net revenue increased by $3.6 million for the three months ended December 31, 2010 compared to the three months ended December 31, 2009. Mobile net revenue represented 48% and 40% of total net revenue for the three months ended December 31, 2010 and 2009, respectively. The increase in Mobile net revenue for the three months ended December 31, 2010 was attributable mainly to an increase of $2.8 million in SITE systems, of which $2.0 million was due to the adoption of new revenue accounting guidance discussed below, and an increase of $0.8 million due to increased demand for mobile subscriptions.

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting guidance for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the products essential functionality from the scope of industry specific software revenue recognition guidance. We adopted this accounting guidance and prospectively applied its provisions to arrangements entered into or materially modified on or after October 1, 2010 (the beginning of our fiscal year). The adoption of the new revenue accounting guidance had the primary effect of recognizing SITE systems revenue, excluding maintenance, at the time of acceptance rather than ratably over the contract term. SITE orders received after fiscal year 2010 are reported as System licenses for the hardware and software that works with the hardware to deliver the essential functionality of the hardware (essential software), and as Maintenance and Support for the remaining elements. SITE orders received prior to the beginning of fiscal year 2011 continue to be recognized ratably and are reported as Ratable license revenue because vendor specific objective evidence of fair value, or VSOE, does not exist for the undelivered elements of the arrangement, typically maintenance. As a result of adopting the new accounting guidance, we recognized $2.0 million of net revenue and $0.2 million of related direct costs of revenue in the first fiscal quarter of 2011 that would have been recognized in subsequent periods under the previous guidance. If the new accounting guidance had not been adopted, we would have reported $6.7 million of ratable license revenue, no system license revenue, no maintenance and support revenue and total net revenue of $22.8 million for the three months ended December 31, 2010. See Note 3 to condensed consolidated financial statements.

Sales and marketing expenses consist primarily of salaries, benefits, commissions and bonuses earned by sales and marketing personnel, stock-based compensation, lead-referral fees, marketing programs and travel expenses. Sales and marketing expenses increased by $0.9 million for the quarter ended December 31, 2010 as compared to the quarter ended December 31, 2009. The increase was primarily attributable to an increase of $0.5 million for external marketing expenses partially related to our Mobile User Conference in Beijing and a $0.3 million increased in personnel costs to grow Mobile revenues.

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