Exhibit 99.1
[LOGO] | NEWS |
Editorial Contact: Erin Jones
949-754-8032
erin.jones@quest.com
Investor Contact: Scott Davidson
949-754-8659
scott.davidson@quest.com
QUEST SOFTWARE REPORTS RESULTS FOR SECOND QUARTER 2003
Revenue of $70.9 Million for the Quarter
Expects to restate previous financials to correct computational error
IRVINE, Calif., July 23, 2003– Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application management solutions, today reported financial results for the quarter ended June 30, 2003. Total revenue for the second quarter 2003 was $70.9 million. Total revenue for the first six months of 2003 was $142.0 million. These results give effect to correction of a computational error as discussed below.
GAAP Results
Quest’s net income for the second quarter was $3.1 million, or $0.03 per diluted share. Net income for the first six months of 2003 was $5.7 million or $0.06 per diluted share.
Non-GAAP Results
On a pro forma basis, net income of $5.2 million resulted in a diluted earnings per share of $0.06 for the second quarter of 2003. For the six months ended June 30, 2003 pro forma net income was $10.2 million or $0.11 per diluted share.
Quest management utilizes non-GAAP financial measures in the presentation of the company’s results to provide a consistent understanding of its historical operating performance and comparisons with peer companies. Management believes that pro forma reporting provides a more accurate representation of the company’s on-going economic performance and therefore uses pro forma reporting internally to evaluate and manage the company’s operations. Management believes that these measures provide useful information because they exclude
- more -
Quest Reports Second Quarter 2003 Results – page 2 of 9
certain items including amortization of intangibles, other compensation expenses, gains or losses on investment securities and facility closure charges that are not necessarily relevant to understanding the operating activities within the company’s business. A reconciliation of pro forma and as reported GAAP financial results is included with this press release.
“Our second quarter financial and operational performance was executed to plan and our results met our expectations,” said Vinny Smith, chairman and chief executive officer, Quest Software. “We carried out our cost containment plans announced on last quarter’s earnings call and we continue to see solid market acceptance of our products. We have a strong product cycle through the end of the year and I am confident in our ability to innovate and deliver high-value solutions to our customers.”
Financial Outlook
Quest management offers the following guidance for the quarter ending September 30, 2003:
• | Revenue is expected to be in the range of $67 million to $71 million; |
• | GAAP Diluted Earnings Per Share is expected to be in the range of $0.00 to $0.02 per share; |
• | Pro-Forma Diluted Earnings Per Share is expected to be in the range of $0.03 to $0.05 per share. The pro-forma guidance excludes approximately $1.9 million of amortization of purchased intangible assets, $925,000 of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks and $175,000 of other compensation charges related to stock options. |
For the full year ending December 31, 2003, Quest management offers the following guidance:
• | Annual revenue is expected to be in the range of $285 million to $295 million |
• | GAAP Diluted Earnings Per Share is expected to be in the range of $0.11 to $0.15 per share; |
• | Pro-Forma Diluted Earnings Per Share is expected to be in the range of $0.21 to $0.25. The pro-forma guidance excludes approximately $7.7 million of amortization of purchased intangible assets, $3.5 million of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks and $1.3 million of other compensation charges related to stock options. |
Correction of Computational Error
- more -
Quest Reports Second Quarter 2003 Results – page 3 of 9
The Company also announced that it has discovered a computational error in its internal consolidation system that has caused deferred revenue and fixed asset balances of foreign subsidiaries to be inaccurately reported. The computational error was recently discovered by the Company’s internal accounting staff and promptly brought to the attention of the Company’s auditors. Quest expects to restate its previously reported results for the first three quarters of 2002, for the calendar year 2002, and the first quarter of 2003 to correct this error. Based on preliminary financial data, and as more fully described in the attached summary, upon correction of the error GAAP basis net income for 2002 is expected to decrease by approximately $0.7 million, or $0.01 per diluted share. Pro-Forma net income for 2002 is expected to decrease by approximately $0.5 million, or $0.01 per diluted share, and revenues for 2002 are expected to decrease by not more than 2%. For the March 2003 period, GAAP and Pro-Forma net income is expected to decrease by approximately $0.3 million.
The Company is in the process of preparing its Form 10-Q for the second quarter of 2003, and currently expects to file amendments to its Form 10-K for the year ended December 31, 2002, as well as amendments to its Forms 10-Q for the affected quarterly periods, with the restated financial information, on or before August 14, 2003.
Second Quarter 2003 Conference Call Information
Quest Software will host a conference call today, Wednesday, July 23 at 2:00 p.m. Pacific Time, to discuss its results. A simultaneous Web cast of the conference call will be available on Quest Software’s Web site in the About Quest – Investor Relations section atwww.quest.com. A Web cast replay will be available on the same Web site through August 7, 2003. An audio replay of the call will also be available through July 30, 2003 by dialing (888) 203-1112 (from the U.S. or Canada) or (719) 457-0820 (outside the U.S. and Canada), using confirmation code: 411950.
About Quest Software, Inc.
Quest Software, Inc. is a leading provider of application management solutions. Quest provides customers with Application Confidencesm by delivering reliable software products to develop, deploy, manage and maintain enterprise applications without expensive downtime or business interruption. Targeting high availability, monitoring, database management and Microsoft infrastructure management, Quest products increase the performance and uptime of business-critical applications and enable IT professionals to achieve more with fewer resources. The company is headquartered in Irvine, Calif. and has offices around the globe. For more information on Quest Software visit www.quest.com.
Quest Reports Second Quarter 2003 Results – page 4 of 9
Forward Looking Statements
This release and the matters to be discussed on the conference call may include predictions, estimates and other information that might be considered forward-looking statements. These statements include statements concerning the scope and timing of restatement of our reported financial results, and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ from those anticipated as a result of various factors, including the impact of further adverse changes in general economic conditions; further reductions or delays in information technology spending; variations in the size and timing of customer orders; competitive products and pricing; rapid technological change; risks associated with the development and market acceptance of new products; disruptions caused by acquisitions of companies and/or technologies; risks associated with international operations; and the need to attract and retain qualified personnel, and the risk that further review of the periods affected by the foreign exchange computational error will require further adjustment. For a discussion of these and other related risks, please refer to our recent SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2002, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
# # #
Quest is a registered trademark and Quest Software is a trademark of Quest Software, Inc. All other trademarks and registered trademarks are property of their respective owners.
- more -
Quest Reports Second Quarter 2003 Results – page 5 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(As previously Reported) | (Corrected) | (As previously Reported) | ||||||||||||
Revenues: | ||||||||||||||
Licenses | $ | 41,489 | $ | 39,689 | $ | 84,254 | $ | 77,179 | ||||||
Services | 29,382 | 23,848 | 57,737 | 45,751 | ||||||||||
Total revenues | 70,871 | 63,537 | 141,991 | 122,930 | ||||||||||
Cost of revenues: | ||||||||||||||
Licenses | 1,138 | 1,002 | 2,071 | 1,922 | ||||||||||
Services | 5,343 | 4,593 | 10,538 | 8,964 | ||||||||||
Amortization of purchased intangible assets | 2,363 | 1,289 | 4,492 | 2,691 | ||||||||||
Total cost of revenues | 8,844 | 6,884 | 17,101 | 13,577 | ||||||||||
Gross profit | 62,027 | 56,653 | 124,890 | 109,353 | ||||||||||
Operating expenses: | ||||||||||||||
Sales and marketing | 35,817 | 31,583 | 71,944 | 61,629 | ||||||||||
Research and development | 17,085 | 15,091 | 34,389 | 30,260 | ||||||||||
General and administrative | 7,211 | 6,184 | 13,745 | 12,019 | ||||||||||
Intangible asset amortization | 887 | 480 | 1,635 | 864 | ||||||||||
Total operating expenses | 61,000 | 53,338 | 121,713 | 104,772 | ||||||||||
Income from operations | 1,027 | 3,315 | 3,177 | 4,581 | ||||||||||
Other income, net | 3,914 | 2,275 | 5,935 | 3,892 | ||||||||||
Write-down of investments | — | (1,095 | ) | — | (1,095 | ) | ||||||||
Income before income tax provision | 4,941 | 4,495 | 9,112 | 7,378 | ||||||||||
Income tax provision | 1,848 | 1,823 | 3,421 | 2,984 | ||||||||||
Net income | $ | 3,093 | $ | 2,672 | $ | 5,691 | $ | 4,394 | ||||||
Net income per share: | ||||||||||||||
Basic | $ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.05 | ||||||
Diluted | $ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.05 | ||||||
Weighted average shares: | ||||||||||||||
Basic | 91,672 | 90,323 | 91,325 | 90,037 | ||||||||||
Diluted | 93,644 | 92,577 | 93,259 | 93,214 |
Quest Reports Second Quarter 2003 Results – page 6 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, 2003 | Six Months Ended June 30, 2003 | |||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||
(Corrected) | ||||||||||||||||||
Revenues: | ||||||||||||||||||
Licenses | $ | 41,489 | $ | 41,489 | $ | 84,254 | $ | 84,254 | ||||||||||
Services | 29,382 | 29,382 | 57,737 | 57,737 | ||||||||||||||
Total revenues | 70,871 | 70,871 | 141,991 | 141,991 | ||||||||||||||
Cost of revenues: | ||||||||||||||||||
Licenses | 1,138 | (1 | )(1) | 1,137 | 2,071 | (1 | )(5) | 2,070 | ||||||||||
Services | 5,343 | (17 | )(1) | 5,326 | 10,538 | (45 | )(5) | 10,493 | ||||||||||
Amortization of purchased intangible assets | 2,363 | (2,363 | ) | — | 4,492 | (4,492 | ) | — | ||||||||||
Total cost of revenues | 8,844 | 6,463 | 17,101 | 12,563 | ||||||||||||||
Gross profit | 62,027 | 64,408 | 124,890 | 129,428 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Sales and marketing | 35,817 | (143 | )(1) | 35,674 | 71,944 | (486 | )(4) | 71,458 | ||||||||||
Research and development | 17,085 | (225 | )(1) | 16,860 | 34,389 | (577 | )(4) | 33,812 | ||||||||||
General and administrative | 7,211 | (18 | )(1) | 7,193 | 13,745 | (71 | )(5) | 13,674 | ||||||||||
Intangible asset amortization | 887 | (887 | ) | — | 1,635 | (1,635 | ) | — | ||||||||||
Total operating expenses | 61,000 | 59,727 | 121,713 | 118,944 | ||||||||||||||
Income from operations | 1,027 | 4,681 | 3,177 | 10,484 | ||||||||||||||
Other income, net | 3,914 | (177 | )(2) | 3,737 | 5,935 | 74 | (6) | 6,009 | ||||||||||
Income before income tax provision | 4,941 | 8,418 | 9,112 | 16,493 | ||||||||||||||
Income tax provision | 1,848 | 1,351 | (3) | 3,199 | 3,421 | 2,846 | (7) | 6,267 | ||||||||||
Net income | $ | 3,093 | $ | 5,219 | $ | 5,691 | $ | 10,226 | ||||||||||
Net income per share: | ||||||||||||||||||
Basic | $ | 0.03 | $ | 0.06 | $ | 0.06 | $ | 0.11 | ||||||||||
Diluted | $ | 0.03 | $ | 0.06 | $ | 0.06 | $ | 0.11 | ||||||||||
Weighted average shares: | ||||||||||||||||||
Basic | 91,672 | 91,672 | 91,325 | 91,325 | ||||||||||||||
Diluted | 93,644 | 93,644 | 93,259 | 93,259 |
For the Three Months Ended June 30, 2003
(1) | Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price. |
(2) | Represents gain on securities held for trading purposes. |
(3) | Represents the tax effect of adjustments. |
For the Six Months Ended June 30, 2003
(4) | Represents $281,000 in severance and idle facility charges incurred from closing one of our Canadian offices and $899,000 in compensation and other costs related primarily to stock option grants with a below fair market value exercise price. |
(5) | Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price. |
(6) | Represents loss on securities held for trading purposes. |
(7) | Represents the tax effect of adjustments. |
-more-
Quest Reports Second Quarter 2003 Results – page 7 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, 2002 (3) | Six Months Ended June 30, 2002 (3) | |||||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||||
(As Reported) | (As Reported) | (As Reported) | (As Reported) | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Licenses | $ | 39,689 | $ | 39,689 | $ | 77,179 | $ | 77,179 | ||||||||||||
Services | 23,848 | 23,848 | 45,751 | 45,751 | ||||||||||||||||
Total revenues | 63,537 | 63,537 | 122,930 | 122,930 | ||||||||||||||||
Cost of revenues: | ||||||||||||||||||||
Licenses | 1,002 | 1,002 | 1,922 | 1,922 | ||||||||||||||||
Services | 4,593 | 1 | (1) | 4,594 | 8,964 | (58 | )(1) | 8,906 | ||||||||||||
Amortization of purchased intangible assets | 1,289 | (1,289 | ) | — | 2,691 | (2,691 | ) | — | ||||||||||||
Total cost of revenues | 6,884 | 5,596 | 13,577 | 10,828 | ||||||||||||||||
Gross profit | 56,653 | 57,941 | 109,353 | 112,102 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Sales and marketing | 31,583 | 14 | (1) | 31,597 | 61,629 | (444 | )(1) | 61,185 | ||||||||||||
Research and development | 15,091 | 39 | (1) | 15,130 | 30,260 | (294 | )(1) | 29,966 | ||||||||||||
General and administrative | 6,184 | 3 | (1) | 6,187 | 12,019 | (72 | )(1) | 11,947 | ||||||||||||
Intangible asset amortization | 480 | (480 | ) | — | 864 | (864 | ) | — | ||||||||||||
Total operating expenses | 53,338 | 52,914 | 104,772 | 103,098 | ||||||||||||||||
Income from operations | 3,315 | 5,027 | 4,581 | 9,004 | ||||||||||||||||
Other income, net | 2,275 | 2,275 | 3,892 | 3,892 | ||||||||||||||||
Write-down of investments | (1,095 | ) | 1,095 | — �� | (1,095 | ) | 1,095 | — | ||||||||||||
Income before income tax provision | 4,495 | 7,302 | 7,378 | 12,896 | ||||||||||||||||
Income tax provision | 1,823 | 1,098 | (2) | 2,921 | 2,984 | 2,174 | (2) | 5,158 | ||||||||||||
Net income | $ | 2,672 | $ | 4,381 | $ | 4,394 | $ | 7,738 | ||||||||||||
Net income per share: | ||||||||||||||||||||
Basic | $ | 0.03 | $ | 0.05 | $ | 0.05 | $ | 0.09 | ||||||||||||
Diluted | $ | 0.03 | $ | 0.05 | $ | 0.05 | $ | 0.08 | ||||||||||||
Weighted average shares: | ||||||||||||||||||||
Basic | 90,323 | 90,323 | 90,037 | 90,037 | ||||||||||||||||
Diluted | 92,577 | 92,577 | 93,214 | 93,214 |
(1) | Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price. |
(2) | Represents the tax effect of adjustments. |
(3) | Subject to correction of computational error relating to foreign currency calculations. |
Quest Reports Second Quarter 2003 Results – page 8 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
June 30, 2003 | December 31, 2002 (1) | |||||
(As Previously Reported) | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 101,229 | $ | 64,283 | ||
Short-term marketable securities available for sale | 36,814 | 27,841 | ||||
Accounts receivable, net | 36,811 | 40,330 | ||||
Prepaid expenses and other current assets | 7,786 | 9,653 | ||||
Deferred income taxes | 7,966 | 9,563 | ||||
Total current assets | 190,606 | 151,670 | ||||
Property and equipment, net | 40,738 | 44,616 | ||||
Long-term marketable securities | 97,567 | 115,422 | ||||
Goodwill, net | 239,695 | 231,717 | ||||
Amortizing intangible assets, net | 29,440 | 31,116 | ||||
Deferred income taxes | 14,975 | 14,960 | ||||
Other assets | 1,982 | 2,341 | ||||
Total assets | $ | 615,003 | $ | 591,842 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 4,525 | $ | 5,308 | ||
Accrued compensation | 14,908 | 13,900 | ||||
Other accrued expenses | 23,825 | 23,703 | ||||
Income taxes payable | 1,988 | 1,323 | ||||
Deferred revenue | 68,743 | 63,128 | ||||
Total current liabilities | 113,989 | 107,362 | ||||
Long-term liabilities and other | 5,776 | 5,941 | ||||
Shareholders’ equity | 495,238 | 478,539 | ||||
Total liabilities and shareholders’ equity | $ | 615,003 | $ | 591,842 | ||
(1) | Subject to correction of computational error relating to foreign currency calculations. |
-more-
Quest Reports Second Quarter 2003 Results – page 9 of 9
QUEST SOFTWARE, INC.
ANTICIPATED FINANCIAL IMPACT OF RESTATEMENT
(In thousands, except per share data)
(Unaudited)
GAAP | Pro Forma | |||||||||||||||||||
As Reported | Restatement | Restated | As Reported | Restatement | Restated | |||||||||||||||
Net Income | ||||||||||||||||||||
Quarter Ended: | ||||||||||||||||||||
March 31, 2002 | $ | 1,721 | $ | 231 | $ | 1,952 | $ | 3,357 | $ | 272 | $ | 3,629 | ||||||||
June 30, 2002 | 2,672 | (309 | ) | 2,363 | 4,381 | (263 | ) | 4,118 | ||||||||||||
September 30, 2002 | 2,506 | (263 | ) | 2,243 | 4,644 | (239 | ) | 4,405 | ||||||||||||
December 31, 2002 | 4,001 | (323 | ) | 3,678 | 7,670 | (327 | ) | 7,343 | ||||||||||||
Year Ended December 31, 2002 | $ | 10,900 | $ | (664 | ) | $ | 10,236 | $ | 20,052 | $ | (557 | ) | $ | 19,495 | ||||||
Quarter Ended March 31, 2003 | $ | 2,887 | $ | (325 | ) | $ | 2,562 | $ | 5,139 | $ | (323 | ) | $ | 4,816 | ||||||
Earnings Per Share | ||||||||||||||||||||
Quarter Ended: | ||||||||||||||||||||
March 31, 2002 | $ | 0.02 | $ | — | $ | 0.02 | $ | 0.04 | $ | — | $ | 0.04 | ||||||||
June 30, 2002 | 0.03 | — | 0.03 | 0.05 | (0.01 | ) | 0.04 | |||||||||||||
September 30, 2002 | 0.03 | (0.01 | ) | 0.02 | 0.05 | — | 0.05 | |||||||||||||
December 31, 2002 | 0.04 | — | 0.04 | 0.08 | — | 0.08 | ||||||||||||||
Year Ended December 31, 2002 | $ | 0.12 | $ | (0.01 | ) | $ | 0.11 | $ | 0.22 | $ | (0.01 | ) | $ | 0.21 | ||||||
Quarter Ended March 31, 2003 | $ | 0.03 | $ | — | $ | 0.03 | $ | 0.06 | $ | (0.01 | ) | $ | 0.05 |
Quarter Ended March 31, 2002 | Quarter Ended June 30, 2002 | Quarter Ended September 30, 2002 | Quarter Ended December 31, 2002 | Year Ended December 31, 2002 | Quarter Ended March 31, 2003 | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Restated Pro Forma Net Income | $ | 3,629 | $ | 4,118 | $ | 4,405 | $ | 7,343 | $ | 19,495 | $ | 4,816 | ||||||||||||
Adjustments: | ||||||||||||||||||||||||
Amortization of purchased intangible assets | (1,402 | ) | (1,289 | ) | (1,288 | ) | (1,765 | ) | (5,744 | ) | (2,130 | ) | ||||||||||||
Amortization of other intangibles | (386 | ) | (479 | ) | (479 | ) | (692 | ) | (2,036 | ) | (867 | ) | ||||||||||||
Compensation and other costs | (924 | ) | 56 | (462 | ) | (661 | ) | (1,991 | ) | (376 | ) | |||||||||||||
Loss on equity investments | — | (1,095 | ) | — | 1,405 | 310 | — | |||||||||||||||||
In process research & development | — | — | — | (2,900 | ) | (2,900 | ) | — | ||||||||||||||||
Loss on sale of aircraft | — | — | (790 | ) | — | (790 | ) | — | ||||||||||||||||
Severance and facility closure charges | — | — | — | — | — | (281 | ) | |||||||||||||||||
Provision for income taxes | 1,035 | 1,052 | 857 | 948 | 3,892 | 1,400 | ||||||||||||||||||
Restated Net Income | $ | 1,952 | $ | 2,363 | $ | 2,243 | $ | 3,678 | $ | 10,236 | $ | 2,562 | ||||||||||||