SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-27241
KEYNOTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3226488 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 777 Mariners Island Blvd., San Mateo, CA | 94404 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (650) 403-2400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ¨ NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class |
Shares outstanding at July 31, 2004 | |
| Common Stock, $.001 par value |
19,655,118 |
TABLE OF CONTENTS
| Page | ||||
| PART I—FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements | 3 | ||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
| Item 3. |
Qualitative and Quantitative Disclosures about Market Risk | 28 | ||
| Item 4. |
Controls and Procedures | 28 | ||
| PART II—OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 28 | ||
| Item 2. |
Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | 28 | ||
| Item 3. |
Defaults Upon Senior Securities | 28 | ||
| Item 4. |
Submission of Matters for a Vote of Security Holders | 28 | ||
| Item 5. |
Other Information | 28 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 29 | ||
| 30 | ||||
2
PART I—FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
Index to Unaudited Condensed Consolidated Financial Statements
3
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
| June 30, 2004 |
September 30, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 18,704 | $ | 23,242 | ||||
| Short-term investments |
150,716 | 136,972 | ||||||
| Total cash, cash equivalents, and short-term investments |
169,420 | 160,214 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $886 and $1,048 as of June 30, 2004 and September 30, 2003, respectively |
4,673 | 4,349 | ||||||
| Prepaid and other current assets |
1,143 | 1,506 | ||||||
| Total current assets |
175,236 | 166,069 | ||||||
| Property and equipment, net |
32,951 | 33,928 | ||||||
| Goodwill |
4,595 | 195 | ||||||
| Identifiable intangible assets, net |
1,787 | 2,176 | ||||||
| Total assets |
$ | 214,569 | $ | 202,368 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
660 | 654 | ||||||
| Accrued expenses |
8,836 | 7,077 | ||||||
| Deferred revenue |
6,227 | 4,357 | ||||||
| Total current liabilities |
15,723 | 12,088 | ||||||
| Total liabilities |
15,723 | 12,088 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
19 | 19 | ||||||
| Treasury stock |
(29 | ) | (29 | ) | ||||
| Additional paid-in capital |
338,181 | 331,912 | ||||||
| Accumulated deficit |
(138,726 | ) | (142,056 | ) | ||||
| Accumulated other comprehensive income (loss) |
(599 | ) | 434 | |||||
| Total stockholders’ equity |
198,846 | 190,280 | ||||||
| Total liabilities and stockholders’ equity |
$ | 214,569 | $ | 202,368 | ||||
See accompanying notes to the condensed consolidated financial statements
4
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Three months ended June 30, |
Nine months ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Subscription services |
$ | 9,512 | $ | 8,691 | $ | 26,986 | $ | 26,099 | ||||||||
| Consulting and support services |
1,202 | 741 | 3,270 | 2,649 | ||||||||||||
| Total revenue |
10,714 | 9,432 | 30,256 | 28,748 | ||||||||||||
| Expenses: |
||||||||||||||||
| Costs of subscription services |
1,251 | 1,873 | 4,055 | 6,618 | ||||||||||||
| Costs of consulting and support services |
1,069 | 1,047 | 2,763 | 2,917 | ||||||||||||
| Research and development |
1,829 | 1,744 | 5,087 | 5,979 | ||||||||||||
| Sales and marketing |
2,636 | 3,083 | 7,623 | 11,561 | ||||||||||||
| Operations |
1,196 | 1,651 | 3,685 | 5,057 | ||||||||||||
| General and administrative |
1,206 | 1,602 | 3,591 | 4,718 | ||||||||||||
| Excess occupancy costs |
164 | 284 | 684 | 862 | ||||||||||||
| Amortization of identifiable intangible assets and stock-based compensation |
420 | 413 | 1,154 | 1,240 | ||||||||||||
| Total expenses |
9,771 | 11,697 | 28,642 | 38,952 | ||||||||||||
| Income (Loss) from operations |
943 | (2,265 | ) | 1,614 | (10,204 | ) | ||||||||||
| Interest income and other, net |
681 | 1,002 | 2,006 | 4,827 | ||||||||||||
| Income (Loss) before provision for income taxes |
1,624 | (1,263 | ) | 3,620 | (5,377 | ) | ||||||||||
| Provision for income taxes |
(130 | ) | — | (290 | ) | — | ||||||||||
| Net income (loss) |
$ | 1,494 | $ | (1,263 | ) | $ | 3,330 | $ | (5,377 | ) | ||||||
| Net income (loss) per share: |
||||||||||||||||
| Basic |
$ | 0.08 | $ | (0.06 | ) | $ | 0.17 | $ | (0.23 | ) | ||||||
| Diluted |
$ | 0.07 | $ | (0.06 | ) | $ | 0.16 | $ | (0.23 | ) | ||||||
| Shares used in computing basic and diluted net income (loss) per share: |
||||||||||||||||
| Basic |
19,504 | 20,831 | 19,290 | 23,217 | ||||||||||||
| Diluted |
20,982 | 20,831 | 20,756 | 23,217 | ||||||||||||
See accompanying notes to the condensed consolidated financial statements
5
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 3,330 | $ | (5,377 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization of property and equipment |
2,778 | 4,824 | ||||||
| Amortization of debt investment premium |
2,772 | 1,210 | ||||||
| Amortization of identifiable intangible assets |
1,154 | 2,961 | ||||||
| Amortization of deferred stock-based compensation |
— | 30 | ||||||
| Changes in operating assets and liabilities, net of acquired assets and liabilities: |
||||||||
| Accounts receivable, net |
(116 | ) | 360 | |||||
| Prepaids and other current assets |
466 | 1,619 | ||||||
| Accounts payable and accrued expenses |
431 | (1,309 | ) | |||||
| Deferred revenue |
1,332 | (442 | ) | |||||
| Net cash provided by operating activities |
12,147 | 3,876 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(1,681 | ) | (1,602 | ) | ||||
| Proceeds from (purchase of) businesses and assets, net |
(3,659 | ) | 75 | |||||
| Sale of short-term investments |
56,526 | 165,846 | ||||||
| Purchases of short-term investments |
(74,075 | ) | (98,028 | ) | ||||
| Net cash provided by (used in) investing activities |
(22,889 | ) | 66,291 | |||||
| Cash flows from financing activities: |
||||||||
| Repayment of credit facility |
(65 | ) | — | |||||
| Proceeds from issuance of common stock and exercise of stock options |
6,269 | 2,888 | ||||||
| Repurchase of outstanding common stock |
— | (79,170 | ) | |||||
| Net cash provided by (used in) financing activities |
6,204 | (76,282 | ) | |||||
| Net decrease in cash and cash equivalents |
(4,538 | ) | (6,115 | ) | ||||
| Cash and cash equivalents at beginning of the period |
23,242 | 20,874 | ||||||
| Cash and cash equivalents at end of the period |
$ | 18,704 | $ | 14,759 | ||||