Prospectus Summary
You should read this summary together with the entire prospectus, including the more detailed information in our financial statements and accompanying notes appearing elsewhere in this prospectus.
Keynote Systems, Inc.
Keynote provides Internet performance measurement and diagnostic services that enable electronic commerce, or e-commerce, companies to measure, assure and improve the quality of service of their web sites. E-commerce web sites face a different set of competitive challenges than those faced by conventional "bricks and mortar" stores. In order to discourage customers from "clicking away" to competing web sites, e-commerce web sites must deliver fast page downloads, efficient transactions and high reliability of access. According to a 1999 study by Zona Research, approximately $4.4 billion per year in e- commerce sales in the United States may be lost due to unacceptable download speeds and the resulting user abandonment of online transactions.
Our Services
We currently offer three primary services, Keynote Perspective, Keynote Consumer Perspective and Keynote Lifeline. These services measure web-site performance and availability, including the time it takes for a user to download web pages.
We first introduced Keynote Perspective in April 1997 and recently introduced a new version in December 1999. This version included our My Keynote service, which offers our customers the ability to personalize their service. We introduced Keynote Consumer Perspective in December 1999. Keynote Perspective and Keynote Consumer Perspective are targeted for e-commerce web sites with heavy levels of traffic. These services measure the performance and availability of web sites by measuring the time it takes for pages and page components to be downloaded to a user's personal computer. Keynote Perspective is designed to measure a user's experience through the connections commonly used to access the Internet from the workplace. Keynote Perspective also measures the time it takes to complete a customer transaction on an e-commerce web site. With this service, measurements can be taken from multiple geographic locations around the world and from three-minute to four-hour intervals. Keynote Consumer Perspective is designed to measure a user's experience with various other Internet access methods typically used in homes, such as dial-up connections, cable modems and digital subscriber lines. With this service, measurements can be taken from specified locations in 10 metropolitan areas and from 10-minute to one-hour intervals.
Our Keynote Lifeline service, which was introduced in July 1999, is targeted for regionally oriented web sites and web sites with lower traffic levels. This lower-priced service measures the time it takes to download web pages to one or two locations in the United States. Measurements can be taken every 10 minutes or once per hour.
In January 1999, we introduced our Competitive Audit and Diagnostic Audit professional services offerings. With Competitive Audit, we measure the performance of a customer's web site and evaluate its performance against other web sites in the customer's industry. We also identify any bottlenecks or stress points in the customer's web site or its connections to the Internet. In our Diagnostic Audit, our consultants work with our customers to further evaluate quality of service issues and provide specific recommendations to them as to how they can improve their web site's quality of service.
The foundation of our services is an extensive network of strategically located measurement computers connected to the major Internet backbones in dozens of metropolitan areas worldwide. We also have an operations center for collecting, analyzing and disseminating Internet performance and availability data. We believe our customers can use our services to measure the performance of their web sites and to ensure that their e-commerce web sites are not experiencing performance problems such as outages, slow web page download speeds or slow transaction processing times. With this information, we believe the web sites can improve their customer satisfaction and reduce support costs. In addition, it is easy for customers to begin using our services. With only a web browser, customers can try, purchase and immediately use our services.
We market and sell our services primarily through a direct telesales force in the United States. We also market our services through Network Solutions and VeriSign, which are companies that provide services complementary to ours. Our customers currently include over 700 leading e-commerce companies. Our 10 largest customers, based on revenues for the quarter ended December 31, 1999, consist of Akamai, American Express, Charles Schwab, Digex, Digital Island, Flycast, GlobalCenter, Microsoft, Sandpiper Networks and VeriSign.
Our Strategy
Our growth strategy is to expand our leadership in providing Internet performance measurement and diagnostic services to e-commerce web sites.
To achieve this goal we intend to:
. increase awareness of Keynote as "The Internet Performance Authority(TM)" through marketing programs;
. pursue marketing relationships with companies that sell products or services complementary to our services;
. offer new features and services in order make our customers continually aware of the importance of Keynote's services for measuring and ensuring the quality of service of their web sites;
. expand our operations internationally; and . expand our services to measure other aspects of quality of service and other new Internet technologies.
We Have Incurred Significant Losses and We May Not Become Profitable We have incurred losses of $12.7 million since we were formed in June 1995. In addition, we had a net loss of $7.1 million for the fiscal year ended September 30, 1999 and a net loss of $2.9 million for the 1998 fiscal year. We expect to incur net losses for the foreseeable future. The market for Internet- related products and services is highly competitive and we could face intense competition in the future. Therefore, we may not achieve or sustain profitability.
Unless otherwise indicated, all information contained in this prospectus assumes:
. no exercise of the underwriters' over-allotment option;
. no exercise of outstanding options to purchase shares of our common stock; and . the exercise of warrants to purchase 163,529 shares of our common stock prior to the completion of the offering.
The Offering
Common stock offered by Keynote.................... 1,000,000 shares Common stock offered by selling shareholders....... 3,650,000 shares Common stock to be outstanding after the offering.. 24,772,285 shares Use of proceeds.................................... For general corporate purposes, capital expenditures and working capital. See "Use of Proceeds." Nasdaq National Market symbol...................... KEYN The number of shares of our common stock to be outstanding immediately after the offering is based on the number of shares outstanding as of December 31, 1999. This number does not include 2,057,862 shares of our common stock subject to options and 7,273 shares issuable upon exercise of warrants outstanding as of December 31, 1999.
Summary Financial Data (in thousands, except per share data) Fiscal Year Ended September 30, 1996 1997 1998 1999
Statement of Operations Data: Revenues................................ $ 30 $ 81 $ 1,539 $ 7,272 Loss from operations.................... (628) (2,018) (2,957) (7,015) Net loss................................ (622) (2,049) (2,918) (7,110) Net Loss Per Share: Basic and diluted....................... $(0.23) $ (0.84) $ (1.10) $ (1.54) Weighted average shares--basic and diluted............................... 2,733 2,434 2,649 4,622
September 30, 1999 Actual As Adjusted
Balance Sheet Data: Cash and cash equivalents.............................. $64,647 $137,626 Working capital........................................ 62,288 135,267 Total assets........................................... 71,071 144,050 Notes payable, less current portion.................... 2,591 2,591 Total shareholders' equity ............................ 63,242 136,221
See note 2 to our financial statements for a description of the method that we used to compute our basic and diluted net loss per share.
The as adjusted balance sheet data give effect to the sale of the 1,000,000 shares of common stock that Keynote is offering under this prospectus at an assumed public offering price of $77.00 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses, and the exercise of warrants to purchase 163,529 shares of our common stock prior to the completion of this offering. See "Capitalization."
Recent Developments
On January 13, 2000, we announced results of operations for the three months ended December 31, 1999, the first quarter of our 2000 fiscal year. Our total revenues were $4.8 million for the first quarter of fiscal 2000, compared to total revenues of $889,000 million for the first quarter of fiscal 1999. Our revenues increased primarily due to the increase in both the number of new customers and the increase in revenue from existing customers. Net loss for the first quarter of fiscal 2000 was $2.0 million, or $0.09 per share, compared to a net loss of $798,000 million, or $0.27 per share, for the first quarter of fiscal 1999.
Keynote Systems, Inc. was incorporated in California in June 1995. Our principal offices are located at 2855 Campus Drive, San Mateo, California 94403. Our telephone numbers at this location are (650) 522-1000 and 1-800- KEYNOTE. The information on our web site does not constitute a part of this prospectus.