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Executives

Kirsten F. Chapman - Managing Director and Principal

Umang Gupta - Chairman and Chief Executive Officer

Curtis H. Smith - Chief Financial Officer and Secretary

Analysts

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

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Kevin Liu - B. Riley & Co., LLC, Research Division

Michael Latimore - Northland Capital Markets, Research Division

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

Gary Spivak

Keynote Systems (KEYN) Q1 2013 Earnings Call January 29, 2013 5:00 PM ET

Operator

Welcome to the Keynote Fiscal First quarter 2013 Results Conference call. My name is Richard, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Kirsten Chapman. Ms. Chapman, you may begin.

Kirsten F. Chapman

Thank you, Richard. Good afternoon, everyone, and welcome to Keynote's conference call for the first fiscal quarter ended December 31, 2012. 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 available by telephone by dialing (888) 843-7419. The passcode is 34004609 # or via 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 might differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those in forward-looking statements are discussed in today's press release and in the company's most recent annual report and quarterly reports filed with the SEC.

Today, we have provided detailed guidance in our quarterly press release. This guidance assumes no acquisitions, no material change in interest rates or foreign exchange currency rates and no other significant or extraordinary transactions. 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 financials, I will review definitions for some metrics the company provides, which 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 provision or benefit of income taxes, cash taxes from ongoing operations, stock-based compensation expense, amortization of purchased intangibles and any unusual items. In the first quarter of 2012, the change of fair value of acquisition-related contingent consideration was considered an unusual item.

Non-GAAP net income per diluted share equals non-GAAP net income divided by the diluted weighted average shares outstanding for the period. Adjusted EBITDA is defined as earnings before interest income, taxes, depreciation, amortization of purchased intangibles, stock-based compensation and other income expense net, and any unusual items. In the first quarter of -- in the fiscal first quarter of 2012, the change in fair value of acquisition-related contingent consideration was considered an unusual item. Free cash flow is defined as cash flow from operations less the cash used to purchase property equipment and software.

During the call, Umang Gupta, Chairman and Chief Executive Officer, will review the recent accomplishments. And Curtis Smith, Chief Financial Officer, will detail the financial results. Then Umang will deliver closing remarks and open the call for questions. It's now my pleasure to welcome Umang Gupta. Please go ahead, sir.

Umang Gupta

Thank you, Kirsten, and welcome, everyone. We are pleased with our strong start to fiscal 2013. We posted record quarterly revenue of $33.9 million, including record revenue in both mobile telecommunications and Internet subscriptions. Our mobile telecommunications business exited the calendar year on a strong note, fueled by solid bookings and despite the revenue accounting headwind in the quarter. Internet subscriptions revenue continued on its growth trajectory and posted its 12th consecutive quarter of uptrend. Our Mobile Enterprise business showed signs of progress, but it is still a market in the early stages of adoption. Furthermore in addition to the accelerated dividend we paid at the end of December, the board announced an increase in our dividend to $0.07 per share to be paid next quarter in June.

Now I'll review our Internet Cloud business. Our Internet subscriptions revenue continued on its upward trajectory. Overall Internet revenues reached record levels this quarter of $16.4 million compared to $15.5 million in the first fiscal quarter of 2012. During the quarter, we won a number of Internet deals, including Adobe, Deustche Post, F5 networks, Harry and David, Intuit, NBA, Nike, Vodafone, The Sportsman Guide and the Yankee Candle company. Also during the quarter, we launched cloud Transaction Perspective, our new on-demand, easily deployable SaaS product that measures the performance of employee and partner-facing apps on secured Extranets and Intranets in the cloud. Keynote's cloud Transaction Perspective is easily, quickly and cost-effectively deployable and portable anywhere in the cloud. This differentiates it from current enterprise software-only-based solutions that are cumbersome, time-consuming and expensive to implement, especially for private clouds that span organizational boundaries.

On to a review of our Mobile Cloud business. For the first fiscal quarter, total mobile revenue was $17.5 million compared to $17.6 million for the same period 1 year ago despite the revenue accounting headwind of $1.2 million, which Curtis will discuss in more detail. Total mobile enterprise revenue was $5.2 million for the quarter compared to $5.9 million from the same period 1 year ago. The reduction in the Enterprise Mobile business in the current quarter reflects the previously expected non-renewal of a large North American mobile handset manufacturers monitoring project that was based on our MDP service, Mobile Device Perspective service. While we have made progress in integrating DeviceAnywhere into our organization and are addressing the sales force execution issues that were referenced in previous quarters, Enterprise Mobile revenues also may be affected as we reduce product overlap between our respective monitoring solutions.

In addition, there is an ongoing shift in the market's needs from feature phone testing by individual developers on monthly subscriptions to smartphone-automated testing by enterprises and developers on annual contracts. While in the long run, this market shift is good for our business, in the short run, this has resulted in a reduction of our Test Center developer revenues, which have not been fully offset as yet by Test Center enterprise revenues. That said, we feel very good about the fact that we have increased our overall rollout enterprise customer count from 70 to 260 in the last 2 years. We now have a business of scale in an early adopter testing and monitoring market that we believe is poised for significant growth as the mobile revolution continues to unfold in the enterprise.

During the quarter, we won several mobile enterprise customers, including Allied Bank, American Greetings, Cummins, Dick's Sporting Goods, Fidelity, FINRA, Harry and David, Home Depot, Intuit, One Kings Lane, NBA, New York Life, Vanguard Bank (sic) [Insurance], whitepages and Zipcar. Also last week, we unveiled DeviceAnywhere Free, which gives organizations the tool they need to interactively test, spot-check, improve and monetize their mobile websites for free on real smartphones over the Internet. This is increasingly important for 2 reasons to our customers. First, maintaining a portfolio of smartphones for testing functionality is a major stumbling block for many website owners. And second, mobile device traffic continues to rise and is now estimated to be more than 20% of all web traffic.

Now moving on to our mobile telecommunications revenues. For the first fiscal quarter, record -- revenue reached record levels of $12.3 million compared to $11.6 million for the same period 1 year ago. During the quarter, our new mobile telecommunications customers included Facebook as well as various mobile operators in Afghanistan, Bosnia, Canada, Chile, Ethiopia, Germany, Guatemala, Iraq, Macedonia, Mexico, Panama, Philippines, Singapore, Spain, Thailand and Uganda. We now have almost 300 mobile telecommunications customers worldwide.

Finally, before I turn the call over to Curtis, I would like to note some executive management changes. We welcome Nick Halsey as our new Chief Marketing Officer responsible for our go-to-market strategies. A seasoned and savvy enterprise sales and marketing executive, we believe Nick will play a pivotal role in helping Keynote reach the next level in our growth. Also, we would like to thank Ren Bloom, our former Vice President of Marketing, for his 6 years of service to Keynote; and Faraz Syed, President of DeviceAnywhere, for assisting in the integration of the DeviceAnywhere business.

With that, I'd like to turn the call over to Curtis. Curtis?

Curtis H. Smith

Thank you, Umang. I will review our financial results, and then I will discuss our outlook for next quarter. For the first fiscal quarter of 2013 compared to the first fiscal quarter of 2012, total net revenue was $33.9 million compared to $33.1 million. Total Internet revenue was a record $16.4 million, up 6% compared to a seasonally strong $15.5 million 1 year ago. Web measurements subscriptions grew at a rate of 17% on a year-over-year basis and 5% sequentially, reflecting continued increased demand for our core web measurement services along with strong sales and marketing efforts. However, this increase was partially offset by a decline in our CEM engagement business, which we have taken action to address.

Total mobile revenue was $17.5 million compared to $17.6 million 1 year ago despite the revenue accounting headwind of $1.2 million this quarter, which equals the decrease in mobile ratable licenses revenue from $1.6 million 1 year ago to $397,000 in the first fiscal quarter of 2013. As a reminder, mobile ratable licenses revenue consists primarily of site license contracts signed prior to implementation of the new revenue recognition standards in fiscal year 2011. Even though the 2012 $10.8 million accounting headwind is behind us now, fiscal year 2013 will have a small headwind of approximately $2.5 million, which represents the difference between the $3.5 million of ratable licenses revenue we recorded in fiscal year 2012 and approximately $1 million in ratable licenses revenue we expect to record in fiscal year 2013.

Global subscriptions revenue was $5.6 million compared to $5.6 million 1 year ago. Mobile systems licenses revenue and maintenance and support revenue were $5.3 million and $6.1 million compared to $5.8 million and $4.6 million, respectively, reflecting strong maintenance and support renewals in our SITE telecom mobile business. Mobile telecommunications revenue was a record $12.3 million compared to $11.6 million in the same quarter 1 year ago. Mobile enterprise revenue was $5.2 million compared to $5.9 million in the same quarter 1 year ago.

For the first fiscal quarter of 2013, our total costs and expenses were $29.7 million compared to $27.6 million. The increase this quarter principally is due to the $2 million onetime benefit relating to the change in estimate of the acquisition contingent consideration recorded 1 year ago. GAAP net income was $1.9 million or $0.11 per diluted share compared to $4.1 million or $0.22 per diluted share 1 year ago.

The provision for income taxes was 53% of pretax income, which is higher than the expected annual rate of approximately 40% due to a couple of reasons. The first was a 2-day gap in the expiration of the old tax laws and enactment of the new tax laws after the end of the quarter. Since the new tax laws were enacted on January 2, 2013, they will not be reflected in our provision until next quarter. The second was related to recording the effects of Section 162(m) limitations on RSUs that vested and should have been recorded in prior quarters.

Non-GAAP net income was $6 million or $0.33 per diluted share compared to $6 million or $0.32 per diluted share. Adjusted EBITDA was $7.9 million or 23% of revenue compared to $7.4 million or 22% of revenue. In the first fiscal quarter of 2013, cash provided by operating activities was $3.8 million compared to $1.5 million 1 year ago. We generated $2.4 million in free cash flow compared to using $98,000 in the first fiscal quarter of 2012.

Now on to the review of our balance sheet. Our cash and short-term investments were $51.2 million at December 31, 2012, compared to $49.9 million at September 30, 2012, reflecting 2 dividends paid in the quarter. Net deferred revenue was $15.6 million at December 31, 2012, compared to $16.7 million at September 30, 2012, reflecting acceptance of calendar year and Internet engagement projects.

Total shares outstanding were 18.2 million at December 31, 2012, compared to 17.9 million at September 30, 2012. On December 11, 2012, the Board of Directors announced a cash dividend of $0.06 per common share to common stockholders of record as of the close of business on December 21, 2012, which was paid on or about December 31, 2012. This accelerated dividend was in lieu of any quarterly dividend to be declared in January 2013. In addition to the accelerated cash dividend paid last quarter, the Board of Directors approved an increase in the quarterly cash dividend to $0.07 per common share to be paid next quarter on June 15, 2013 to common stockholders of record at the close of business on June 1, 2013.

Now for our guidance for the second fiscal quarter of 2013. Total revenue is expected to range from $30 million to $32 million. GAAP net income per diluted share is expected to range from $0.02 to $0.10. Non-GAAP net income per diluted share is expected to range from $0.15 to $0.23. This guidance assumes the following: expected seasonal decrease in sequential revenue; total stock-based compensation expense and amortization of purchased intangibles is expected to be approximately $1.9 million; depreciation is expected to be approximately $1.5 million; interest income and other net is expected to be $50,000, assuming no material changes in interest rates for foreign exchange rates and currently planned uses of cash. Cash taxes paid from ongoing operations is expected to be approximately $200,000; diluted weighted average shares outstanding are expected to be approximately 18.5 million shares, assuming some additional issuances of equity or equity related securities and no significant changes in the company's stock price.

With that, I would like to return the call to Umang.

Umang Gupta

Thank you, Curtis. We began fiscal year 2013 stronger than anticipated, and we feel good about the overall direction of our business. The continued growth of our Internet mobile telecommunications businesses enables us to focus on realizing the full potential of the mobile enterprise. We agree with industry analysts who note that Internet growth remains robust and rapid mobile adoption is still in the early stages. We believe market trends are running in our favor. I would like now to open up the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mr. Chad Bennett from Craig-Hallum.

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

Umang, you talked about the kind of strong bookings in the mobile telco business this quarter, and obviously, pretty decent results in that business from a revenue standpoint relative to what I was thinking. Do you feel like you have improved visibility in that business, especially in Europe and kind of what's your outlook there? And should we assume that, that business kind of returns to solid growth this year?

Umang Gupta

Yes, first of all, if you factor out -- let me just start with the improved visibility question. In general, we have pretty good visibility into that business based on bookings and revenues in the sense that if you do bookings in 1 quarter, then you're pretty confident that revenues will flow in the next quarter since it takes about 90 days to kind of average delivery of systems, et cetera. And so we ended the December quarter of 2012 with the strongest bookings we've had in almost 3 years. Actually, there was 1 time I remember when we exceeded EUR 10 million. But this time, we got pretty close. We were about EUR 9.6 million, EUR 9.7 million of bookings. And so we did very well. More importantly, for the year as a whole, and I'm now talking about calendar year 2012, in just purely euros, so we factor out any foreign exchange rates and also assuming and looking at what we call German GAAP mechanisms, which are the way we pay our people internally, as opposed to U.S. GAAP, where we publish results, apples for apples, not counting any changes and counting in U.S. GAAP, just looking at German GAAP this year versus German GAAP last year, we did a little over EUR 30 million in revenue in 2000 -- in German GAAP revenues in 2012, and that compares to just about EUR 27 million 1 year ago. It also compares, by the way, to EUR 24 million in 2010 and then going all the way back to 2005, EUR 12 million. So what you're seeing here is a business that has shown consistent growth over a 5-year period, 7-year period and even a 2-year period and 1-year period. And generally speaking, that growth has ranged. In some years, it might be 10%, in some in years, it's been as much as 20%. But we feel comfortable in saying, looking at the data, factoring out all accounting issues, that it still remains a growth engine for us. And it's a growth engine that seems to have managed to give us about 14%, 15% a year of business that doubles every 5 years. So we have no reason to believe that for the next few years, that should not stay the case. I mean, the fact is that we have 300 mobile operators. There's at least 700 to 800 mobile operators in the world, so we are addressing the full market. The whole world has not moved to LTE, a very small percentage has. And in fact, the whole world hasn't even moved to 3G. So eastern emerging markets are moving from 2G to 3G, western markets are emerging -- going from 3G to 4G, and all of those trends are in our favor. So we feel pretty good about that business. And hopefully that you get a sense of that, with both the real results we provided you and also our current thinking about where we're going.

Unknown Analyst

So FX-neutral, you believe that business is a mid-teens grower for the foreseeable future?

Umang Gupta

Yes, yes. We believe that the growth rate of 14%, 15%, which we've always stated was kind of the secular growth rate, is one we feel good about for over a multiyear period going forward. I will point out that in any given year, we could end up with less. We have in the past. But in any given year, we could also end up with more. But if you want to use a range of 10 to 20, it's about where our past ranges have been, and a midpoint of 14, 15 is about where it's been.

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

Okay. And then I know we've now annualized on DA in the transaction but can you give us any insight into maybe how that performed? At least -- I'd love to know from a revenue standpoint, but at least from a kind of earnings standpoint. And then secondly, on that topic, you're mentioning some type of transition along -- I assume you're specific to DA about annualized contracts for monthly and kind of what the relative impact of that is going forward?

Umang Gupta

Yes. So yes, and I referred to that in my prepared remarks, but let me sort of delve into that a little deeper. If you sort of step back and look at our overall business of, let's say, round numbers, $125 million-plus business from last year, there's been a $40 million or so business from the telco space, which we've already just talked about, that's the SIGOS business. There's been a $60 million or so business from the Internet space, which we've historically believed that about a 10% secular growth rate is reasonable. And those 2 engines are doing fine. We feel very good about them, frankly , both of them did record revenues last quarter. The third engine which is, let's call that the enterprise mobile space, used to be kind of like a $5 million business a couple years ago. That was our mobile monitoring space. We added the DeviceAnywhere business to that, which is about a $16 million, $17 million business when we bought it. And so the total business last year was about $23 million -- and last year, meaning 2011 -- 2012 was about a $23 million or so business. It did not grow from the initial time when we had bought it at our DeviceAnywhere part. But our mobile monitoring business actually showed very nice growth last year. But overall, we were talking about a $23 million, $24 million business. Where we are today in that combined business -- and please note I'm talking about that combined business rather than DA anymore, there's a reason for it. There's a lot of stuff that we're doing where I can't tell the difference between DeviceAnywhere and mobile monitoring revenue sometime.

[Audio Gap]

testing, rather than a real device system for testing with DeviceAnywhere. So more and more, we're putting these things together into a single unit. And therefore, I really want to talk about mobile enterprise as a whole rather than DeviceAnywhere by itself. If you take a look at mobile enterprise as a whole, this quarter, this last quarter, we did about $5.2 million. If you took a look at the last -- last page of our -- or second to the last page of our press release, you'll see the historical numbers. It's $5.2 million this last quarter in that business compared to $5.9 million. So there's a $700,000 decline in that quarter. Here's how that decline has occurred and here's what the implications might be for the future. Number one, about half that decline or close to half of it simply came out of mobile monitoring, most of it from 1 big deal. There's a large handset vendor, I can't mention their name, but they are having financial difficulties. It's a North American handset vendor. And they basically have a 2-year deal with us that was -- that basically stopped 1 quarter ago. And so we felt the first full effects of that this last quarter. So that in itself was sort of an event that occurred. It had nothing to do with DeviceAnywhere. It is purely the result of our mobile monitoring project ending. The second part of that decline is largely due to the developer product from DeviceAnywhere. DeviceAnywhere basically consists of professional services, which is probably maybe let's put it about $3 million or so. Developer product, which at this point, we're operating at about a $5 million run rate. That's a total of -- and then the automation, testing in both cloud and systems license, et cetera which is, I'm going to say, probably another $8 million to $10 million. So overall, our device professional services business did fine. Our PA automation and enterprise business did fine. It really did not grow. So I wouldn't say fine, but I would definitely say it didn't go down. It was in the same range as before. But our DeviceAnywhere TCD product, the developer product, has continued to see decline, and last quarter was no exception. So net-net, the big challenge for us going forward is we either meet to get our DeviceAnywhere product, mobile enterprise, going faster in order to make up for DeviceAnywhere developer going down, or -- and/or we also need to make the DeviceAnywhere developer product go up. We're working on both sides. We just announced a product called DA Free, the whole idea of DA Free is to be able to put a ramp up on the developer product. So if you get 100s or 1,000s of people using your product free of charge, then some of them will actually buy the product. And we've seen early signs of that happening. But it's too early to tell. But certainly in a couple quarters, we'll know if the DA free product line has stemmed the decline of our developer business. I hope it does. I expect it should. But that's really the #1 thing we're working on. Number two is we are working on making sure that the enterprise business continues to grow, as opposed to stays constant. And right now, there's a lot of things going on in the enterprise business, including sales execution that we're addressing by -- we may let go a few people, added a few people. And at the same time, product issues, so integration of our product with HP, QTP, with IBM Rational, so there's a lot of moving parts that are required to make this business really be fully growth-capable, and that's what we're working on this year.

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

So do you expect the mobile enterprise business to grow year-over-year?

Umang Gupta

Sitting where I'm sitting, we -- I'll tell you, I don't think so. I wish I could tell you I would -- it could happen. When I started the year, I said to you, my goal is to get it to breakeven. But we're not at breakeven this year. For us to be breakeven, we need to be running about a $24 million-a-year business. But right now at $5.2, we're operating more like a $20 million-a-year business, $21 million-a-year business. And so we're still away from breakeven. My goal is to just keep working away at it, doing what I need to do to get into that breakeven number first, and then from there, grow it. And well, 1 quarter ago, I thought I could get there this year. Right now, I'd say unlikely.

Operator

Our next question on line comes from Mark Jordan from Noble Financial.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Question relative to the Internet engagements area. You said that this was weak and that you'd initiated some actions to strengthen that sector. Could you talk about what you feel are the issues that you need to address, and how long will it take you to show improvement on that line?

Umang Gupta

Sure. Our Internet engagement business historically has consisted of 2 segments: the load testing business, and let's call that the SLM consulting business, and the second business is the CEM, customer experience management usability testing business. The load testing business did quite well, but it was starting from a very high base. It can be subject to big swings, and 1 year ago for example at the same quarter, it just went through the roof because of 1 very large deal we did that I think, I'm trying to remember, in the history, it's like a $1 million or so from 1 customer during the Christmas season of 2011 or so. So given that, I think we did pretty good because compared to that very high year -- 1 year ago, we still did pretty good. We were close enough to the combination of load testing and SLM this year to where we did last year that I feel good about it. And I have no reason to believe there are -- that, that business requires any changes from us other than just continuing to do what we do to increase it year after year. The CEM business is one of those businesses where we bought it 6 years ago. And over the many years we've owned it, we have tried many different ways to make it grow. But to be honest, it's been a declining business, and we have constantly attempted to make sure that we can at least run it at slightly better than breakeven. So until about 1 quarter ago, it was running at roughly about $1 million a quarter. And at $1 million a quarter, we were comfortable that it was breakeven for us or actually slightly making some money for us. In this last quarter, it went below that $1 million number. In fact, it was closer -- it was -- there was a shortfall of about 350k there. So our goal now and has been -- as soon as that happened, we basically took actions. So we've made some changes, some personnel changes, some folks will be leaving the company. And we are comfortable that those costs will come down to roughly -- by 25%, 30%, so we'd be now back to kind of a breakeven model for this business. It's still a good business in the sense that it brings other customers. So even if it doesn't make money for us, by doing studies where we do usability studies for somebody or a customer experience study and compare 1 large bank to another, we feel -- the customers feel good about us, the customers depend upon us, and so then they buy something else from us. So it's not a business that I necessarily wanted to simply say it's not very much useful to us, but we do need to keep running breakeven. We've taken those actions and we hope to start to see the results of it starting next quarter, frankly, to at least make sure that it's running at breakeven.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Second question relative to the cash position and M&A. Obviously, the last acquisition was DeviceAnywhere over 1 year ago. Do you see the opportunity or are you looking for something that is relatively small that you could tuck in to an existing business to improve your scale and profitability? Or are -- do you think that there's nothing on the horizon from an M&A standpoint?

Umang Gupta

Yes, I just don't see anything that we need at this point to buy to tuck in at this stage, number one. The fact of the matter is that if you take a look at the business we're in, it's a pretty good scale. I mean we are a $20 million-plus enterprise mobile business. And the closest competitor to this is a small private company, an Israeli company but with a East Coast presence, that we believe is about 1/4 of our size or possibly less. But certainly in the enterprise space, that's what we believe it is. Now they may have some revenues from telcos, that's different. But at least where we compete with them, it's a sub-$5 million business, in our opinion, and 1/4 of us. And between the 2 of us, we represent the market. I don't know if there's anybody else who's making any money or making significant impact in the enterprise mobile space with real devices. So the challenge here and the opportunity is really grow the market over time, rather than kind of duke it out for a small market. And the real market potential for us will come down to how many mobile apps are built over the next decade, or 5 years to 10 years, by enterprises for enterprise use, as opposed to the 500,000 mobile apps for consumer use, how many are likely to be built by a large bank, for example, or a large insurance company, and so on and so forth? Those are the places where we're selling our product. And to sell that, it's a early adopter business. We think we're in probably the second innings of that business. And we have a long way to go to growing it. And as the market grows, and we are the market in effect, we have to grow it, that's the way to do it. And I don't see us buying a company to help us doing it. It's really doing a better job and executing on all fronts, whether it's products, market -- marketing, sales, everything.

Operator

Our next question online comes from Kevin Liu from B. Riley.

Kevin Liu - B. Riley & Co., LLC, Research Division

Two quick questions on the enterprise mobile business. One, I thought I heard some talk about product rationalization earlier in your scripts. Perhaps if you could delve into that and quantify it. And then beyond that, I just wanted to get a sense for what the product -- or the pipeline looks like on the enterprise mobile side?

Umang Gupta

Sure. On the product rationalization side, as you know, we have been historically -- I'm talking about Keynote side, has historically been a monitoring company. DeviceAnywhere was historically a testing company. Keynote had about a, you know, when we bought DeviceAnywhere, about a $5 million monitoring business for mobile. DeviceAnywhere, on the other hand, had a $17 million business that year when we bought it for their overall business. But off that $17 million, I'm just guessing, they probably had about a $3 million mobile business at that stage. So there was some amount of rationalization that we knew we had to do. But for all of last year, we deliberately chose to keep these 2 products separate and, frankly, the divisions separate. So they sold their product, Keynote salespeople sold their product and customers had a choice between 2 different monitoring technologies. We are now 1 year past in the integration stage of the organizations. And at this point, we are making some moves that were anticipated, but it's just a matter of doing them at the right time to try and get these products more rationalized. So we still expect to have a DeviceAnywhere monitoring capability, no doubt about that. We will do that, because some customers who buy testing also want to do monitoring from the same system. But we also want to make sure that the real device engine, the agents that I use for monitoring, are also the same that are used for testing, so that the scripts that you use for 1 can be used for both. Today, there are different scripting interfaces for the 2. So to make it easy for our customers, to be able to do a good job of self-service scripting on their own, be able to test and then monitor subsequently in the entire application life cycle, we are integrating, sort of amalgamating the agent infrastructure of these 2, the hardware and software agents, in such a way so that we can have a unified agent. It doesn't mean we have fewer ways to sell the product. Customer can buy to the system with DeviceAnywhere. They can buy it as a service as part of our Mobile Device Perspective, mobile perspective systems services. But the agents themselves are likely to be mashed together over time into a single agent. And that's where the rationalization is occurring.

Kevin Liu - B. Riley & Co., LLC, Research Division

And the second part of that question was just, on the DeviceAnywhere enterprise side, if you could talk a little bit about what you're seeing on the pipeline, if you're seeing going on in larger enterprises?

Umang Gupta

Yes. So overall, our bookings this last quarter were roughly comparable to our revenue. So they weren't higher than our revenues. If they were, that would be generally a good sign because that says that your next quarter should do better. On the other hand, they weren't less either. If they were, that would be a bad sign. So at this point, I would say we're holding our own on the revenue-equals-bookings situation.

Kevin Liu - B. Riley & Co., LLC, Research Division

Okay. And then just one last one, even with some of the challenges on the CEM side, this quarter you guys were comfortably ahead of the high end of your guidance. Was that just a function of pulling forward a little bit more SIGOS system license revenues or was there -- were there other drivers to that?

Umang Gupta

Clearly, SIGOS over-performed relative to our own internal expectations. Whereas in the mobile enterprise side, it underperformed relative to our own internal expectations. So yes, SIGOS doing better really helped in that context.

Operator

Our next question on line comes from Mike Latimore from Northland Capital.

Michael Latimore - Northland Capital Markets, Research Division

Just a question on the Internet monitoring business. I think the year-over-year growth kind of in total is about 5.8%. You've historically talked about it being kind of a 10% to 15% growth rate, I believe. And now it's growing sort of in the 13% range. I mean, do you think the Internet monitoring in total gets back to that 10% to 15% range over time?

Umang Gupta

Yes. Mike, please note that our Subscriptions business actually grew at a nice healthy...

Curtis H. Smith

17%.

Umang Gupta

17%.

Curtis H. Smith

Quarter over year.

Umang Gupta

Over year. And then quarter-over-quarter, it was like 15%. So the real shortfall of the reduction of overall Internet growth had nothing to do with our core Subscription business. Subscription business was record revenues this last quarter. However, it was really the CEM business. It's the engagements business that we talked about in the script and I just explained 1 minute ago, is the one that actually brought the overall Internet revenue down. And we've taken actions to address that.

Michael Latimore - Northland Capital Markets, Research Division

So I guess if you were to blend of 3 segments together you do you think you'd kind of get back into that double-digit percent range over time?

Umang Gupta

Yes, I still believe that a 10% kind of general growth, 10% to 12% growth rate for the Internet business, blended, which means engagements and subscriptions, is a reasonable expectation for us. It has been true for us for now. Ever since Gomez got bought out by Compuware and the sort of price war finished between the 2 companies, we've been able to demonstrate that.

Michael Latimore - Northland Capital Markets, Research Division

Yes. And then on the mobile maintenance support, that really kicked up a lot sequentially and year-over-year. I guess is that -- should we think about that as kind of a new baseline in U.S. or normal seasonality from this point forward on that line? Or was there some just big events in the quarter that helped that and that we shouldn't think of that as the new baseline?

Umang Gupta

I think that the maintenance revenue that you see there in the mobile is a combination of many things. Unfortunately, the word maintenance doesn't do it full justice. It includes the annual ongoing maintenance which, one can argue, does represent a baseline. But it also includes allocated costs associated with projects for SIGOS and other things that are largely dependent on what we have sold in the previous quarter and installed in the previous quarter. So that can go up and down, and I'm not sure I would necessarily look at mobile maintenance revenues in any given quarter as representing a baseline.

Michael Latimore - Northland Capital Markets, Research Division

Okay. And then on the mobile subscription, obviously, you have a new customer rolling out. So do you think mobile subscription gets back to sort of more normalized sequential growth next quarter? Or is this -- does this big customer affect next quarter a little bit as well?

Umang Gupta

Yes, so mobile subscription consists of 2 things, one is GlobalRoamer subscriptions and the rest is the DeviceAnywhere and/or Mobile Device Perspective subscriptions. And so it's a blended number, and I'm pretty comfortable that GlobalRoamer will continue to go up. It has been going up for 7 years right now, and I fully -- I expect it will continue to go up. It's a telco business. It's the mobile enterprise subscriptions business where we are going through this process of the things I just talked about: Developer revenues going down, enterprise revenues not making up, a onetime big reduction because of one large handset manufacturer. And all those factors, I think, will take us a few more -- I mean I will tell you, I thought I sort them out last year. I clearly haven't been able to sort them out yet. And so right now, my goal is to sort them out this year. And so I would like to point you to the enterprise mobile business as the place to look at, rather than the mobile subscription business, because that one's too hard to forecast. Part of it is GlobalRoamer, part of it is enterprise. It's too hard. But if you just look at enterprise mobile, that's the one I can tell you we're working on to improve. But at this point, I would expect that to be lower this year than last year.

Operator

Our next question comes from Matt Williams from Evercore Partners.

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

You've talked a little bit about obviously DA hasn't really performed, I guess, to the degree that maybe you'd hoped, and the mobile enterprise business, seems like that's really the only sort of hiccup in the quarter. And I'm just wondering sort of -- it's at the first quarter where this has sort of popped up. And I know you guys have talked about some personnel changes and things like that, but how do you go about trying to really remedy this? And is it just a function of adding mobile customers from the Internet base? Or any update as to how that's going? But I guess more just strategically, how are you thinking about that business and how do you see sort of getting it back on a more, I guess, successful growth rate?

Umang Gupta

Sure. So strategically, here's the way I look at it, Gary. First of all -- I'm sorry, that's Matt who asked the question. Okay, so Matt, here's the way I look at it strategically. Number one, what's the size of the market I'm addressing, and am I doing all the right things for the long-term market? Remember it's an early adopter market and I've always maintained we're kind of in the second innings. And if we and our competitor together are a $25 million business, what do I really think the long-term market is likely to be in this business? And whenever we do the math on it we come down to saying, "Well, look, if you just took a look at the Mercury and HP and Rational businesses, together those businesses were almost $1 billion of revenue built up over a 10-year period in the 1990s for load -- for testing using client/server Internet, et cetera, et cetera. So in the mobile world, over a comparable 10-year period that, let's say, started in 2010, can we believe that from 2010 to 2020, half of that could be obtained with mobile testing? I believe with all my heart and my intellect that, yes, that is logical and should happen. So if I believe I'm going in for about a $500 million market over a 10-year period and we're at $25 million today, and I have no reason to believe that the market isn't going to exist over the many, many years we're going to look at it, the real question I have to ask is, so what are the things that are stopping that market from hitting the knee of the curve right now? So it's not like I have a competitor who's suddenly taking market share from us. If he were, then I'd say there's a pure execution problem. But that's not the case. So if it's not a competitive situation, what are the things that are happening that are either stopping the market from being grown by us or by anybody or that we need to do more to help grow the market faster? Well, there are 3 things I look at: people, products, processes. And I'll start with products first because, ultimately, it is all about products. If the products are there to do testing and improve quality of -- improve quality and improve productivity of QA engineers, there's 100,000 QA engineers in the world who, potentially, over the many, many years, over the next few years, 5, 10 years, could end up using products like ours. And yet today, we probably don't service more than 1,000 QA engineers. So clearly, we have a long way to do go before we can get to the number of people who are going to use our products. And in order to get more people to use it, a, they need to build more mobile apps; b, I need to do a better job of providing integration with their existing systems such as HP, IBM. I need to be able to go more internationally because there's a lot of engineers overseas, and so on and so forth. So there's a lot of things we're doing on the product side that I feel very good about, and I believe that over the next 2, 3 years, we'll do even better. Next thing. So I'm investing the right amount. I feel I've done a good job. I don't think I have to buy somebody else to do it. It's done. It's being done. Next is people. I've looked -- we have good people at DeviceAnywhere. We have great sales people who -- probably 4 or 5 salespeople alone have essentially generated most of that DeviceAnywhere enterprise revenue that I talked about, and another 3 to 4 have generated most of the developer revenue that I've talked about. The problem is, there were people in the past we had who weren't generating enough revenue, and we had to make changes. We've made those changes, but some people had to leave the company, they did. We've added new people. But we've added 3 new sales guys in the field, a couple guys in telesales. But all that happened in the last 3 to 6 months -- 3 to 5 months. And generally speaking, a telesales guy might take 3 months to get productive, a field sales guy can take as much as 6 months to 9 months to get productive. So we haven't seen the full results of those folks yet, but that's really part of what we're waiting for. And then lastly, it's processes. Processes mean doing things differently than the previous company might have been doing whether it was a stand-alone company. So whether it is pricing, whether it's figuring out how you do lead generation, figuring out how you do a handoff from a simple sale for a TCD developer to a more complex sales for enterprise, we are going in with a fine-toothed comb into every process, figuring out how to make all this more productive. And all I can tell you is, I've done this thing a few times before with start-ups that I've built and scaled up. Keynote is a good example, where we did the same thing with the Internet. We did the same thing with our SIGOS business. We've scaled it up. We're going to apply the same Keynote technologies and processes to this business. And again, it's a multi-quarter, multiyear process. And I know it's not going to give you an answer whether it's something you're going to see the knee of the curve change in the next 3 to 6 months. But all I can tell you is that if we keep working at it, I'm very confident that we will build a business, that will go from the current $20 million business to hopefully 1 day a $40 million, an $80 million, and a $100 million business.

Michael Latimore - Northland Capital Markets, Research Division

Okay, that's helpful. And then just one more, if I might. And I think you guys had added some more sort of sales capacity outside of your traditional SIGOS footprint in EMEA. I think there was maybe 1 or 2 responsible in North America and some other regions. Just an update on sort of how that's trending. I know the core base of that business remains in EMEA but you guys have talked about some growth in other markets. I just wanted to see how that was playing out.

Umang Gupta

Actually, that's going very well. We have right now, in North America, I believe we have 3 sales individuals. And added to that, another company overseas we have, I think, a team of 5 people here in North America, in Asia Pac -- headquartered here in America. In Asia Pac, we've set up an office in Singapore and a subsidiary there. I think we may be up to about 5 people there. In what -- so outside of Europe but the Middle East. So I would call it the Middle East and even countries like Azerbaijan and Kazakhstan and some of these old Soviet Union countries, those countries are all run out of Turkey, which is where we have a regional sort of director type of person from there. So net-net, these are the 3 regions outside of EMEA that are all -- we have people and we are doing quite well. We've certainly done very well in Asia Pac. We've done very well in the Middle Eastern and Eastern European markets. America is still a tougher hole for us because we were never there early on in plus -- until we get to -- until the whole market goes to LTE and GSM, we're sort of stymied because CDMA was never our strong suit. But net-net, actually, there's a larger part of our business outside of EMEA today than there was 3 years ago.

Operator

Mr. Gary Spivak from ABR Investment Strategy.

Gary Spivak

It sounds like you were anticipating my question. You started talking about international a little bit. Can you give us a basic geo breakdown in the quarter, and if there was an impact of foreign exchange in the quarter?

Umang Gupta

[indiscernible] do you have a number...?

Curtis H. Smith

On the foreign exchange, the FX average rate 1 year ago in the December quarter 1 year ago was $1.36. And this quarter, it was $1.27 -- $1.29. So it was down a little bit from half a year ago.

Umang Gupta

Yes, about 5% reduction. And by the way, geo breakdown, I think 1t'll be 125 plus. Let's say, out of the $34 million, I'm just going to guess 40% is Europe?

Curtis H. Smith

[indiscernible]

Umang Gupta

45% is outside the United States, 55% is United States.

Gary Spivak

Okay. And then on the competitive environment, have you noticed any impact in the field as a result of the events around Compuware?

Umang Gupta

Not really. I think with Compuware having bought Gomez 3 years ago, we clearly saw a reduction of the price war that occurred already. Frankly, there is no price war at this point. Both companies are -- certainly we're quite stable in our pricing for measurement. And we probably did see a reduction in the kind of fierceness with which their sales people would fight us. At this point, we think we're getting market share. I certainly look at all my win-loss reports and I see more wins than I see losses. My own numbers would tell me that my subscriptions business, not the -- my Internet subscriptions business grew about 15% a year last year. I saw the numbers from Compuware that would imply that they were more like a 5% growth last year for them. But at the end of the day, we're still talking about small numbers. At the end of the day, these are 2 evenly matched businesses that are duking it out for essentially right now the main market. The main market, the pay potential for growth for us is not going to be some huge game changing moves in the Internet by either side. I think the main market will still be all about mobile. And there, as far as I know, Gomez doesn't play at all. We really don't compete with them at all.

Gary Spivak

Okay. And then I guess my final question is the guidance for Q2, given the strength in Q1. I understand there's certainly a seasonal downtick. Is there some conservatism built in or is that just really the way you see it?

Umang Gupta

Well, there's a seasonal downtick that's pretty significant this quarter that has happened for many years, if you take a look. There's usually a reduction in load testing. That by itself could be $1 million reduction. In the past, that's been that way. Now maybe this year, it might be a little less. But overall, I would still say that $1 million reduction in load testing has been historical norm for us. And seasonally, the December quarter is always higher than the March quarter for SIGOS, so that certainly would add to another reduction. So when you start to do the math, there's clearly a reduction on those 2. There may be some growth in some subscription areas, but then we have DeviceAnywhere where, at this point, I'm hesitant to forecast growth for the next quarter. So net-net, I don't know if we're necessarily being overconservative. Maybe $30 million, maybe it's really at the bottom end. I mean if it really got to $30 million, that means things went very, very much down more than we would otherwise have anticipated. But on the other hand, I can easily see the midpoint as a reasonable guidance there.

Operator

And at this time, I'm showing no further questions. Mr. Gupta, please close with any closing remarks.

Umang Gupta

Thank you very much for joining us today and for your continued interest in Keynote. We will present at the Northland Technology Conference [ph] on March 13 in New York City and hold our annual shareholders meeting on March 15 at our headquarters in San Mateo. We look forward to speaking with you soon. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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