EXHIBIT 99.1
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 RECORD RESULTS FOR THIRD QUARTER 2003
Revenue of $73.3 Million for the Quarter
Expansion of Operating Margin
IRVINE, Calif., October 22, 2003– Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application management solutions, today reported record financial results for the quarter ended September 30, 2003. The Company achieved record total revenue of $73.3 million in the September 2003 quarter, a year-over-year growth rate of 16.5% compared to last year’s third quarter revenue of $62.9 million. Total revenue for the first nine months of 2003 was $215.3 million.
GAAP Results
Quest’s net income for the third quarter was $4.4 million, or $0.05 per diluted share. Net income for the first nine months of 2003 was $10.0 million, or $0.11 per diluted share. GAAP operating margins increased sequentially from 1.3% to 8.1% in the third quarter, resulting in record GAAP operating income of $5.9 million. Quest generated net cash of $15.6 million in the September 2003 quarter.
Non-GAAP Results
On a pro forma basis, operating margins increased to 12.1% for the quarter, resulting in pro forma net income of $6.3 million, or $0.07 per share on a diluted basis. This compares to pro forma net income of $4.4 million, or $0.05 per share on a diluted basis, for the third quarter ended September 30, 2002. Pro forma operating margins doubled sequentially in the third quarter to 12%, resulting in record pro forma operating income of $8.9 million for the quarter and $19.3 million for the nine months ended September 30, 2003. For the nine months ended
Quest Reports Third Quarter 2003 Results – page 2 of 8
September 30, 2003, pro forma net income was $16.3 million, or $0.17 per diluted share.
A reconciliation of pro forma and as reported financial results is included with this press release.
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 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.
“The third quarter was quite strong and we remain optimistic for several reasons. First, revenues are growing well. Second, we have been very focused on our expense run rate and have reduced our headcount by over 6% in the last two quarters. Furthermore, Q3’s margin improvement demonstrates the operating leverage in our business model,” said Vinny Smith, chairman and chief executive officer, Quest Software. “Third, the IT environment appears to be strengthening. And fourth, we are in a strong product cycle with the major new releases of our Application Performance Management and Database Management solutions.”
Financial Outlook
Quest management offers the following guidance for the quarter ending December 31, 2003:
• | Revenue is expected to be in the range of $77 million to $79 million; |
• | GAAP diluted earnings per share is expected to be in the range of $0.07 to $0.08 per share; |
• | Pro forma diluted earnings per share is expected to be in the range of $0.08 to $0.09 per share. The pro forma guidance excludes approximately $1.3 million of amortization of purchased intangible assets, $746,000 of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks, and $158,000 of other compensation charges related to stock options. |
For the full year ending December 31, 2003, Quest management has raised its prior guidance:
• | Annual revenue is expected to be in the range of $292 million to $294 million; |
Quest Reports Third Quarter 2003 Results – page 3 of 8
• | GAAP diluted earnings per share is expected to be in the range of $0.18 to $0.19 per share; |
• | Pro forma diluted earnings per share is expected to be in the range of $0.25 to $0.26. The pro-forma guidance excludes approximately $7.8 million of amortization of purchased intangible assets, $3.4 million of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks, and $1.1 million of other compensation charges related to stock options. |
Third Quarter 2003 Conference Call Information
Quest Software will host a conference call today, Wednesday, October 22, 2003 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 Investors – IR Events section atwww.quest.com. A Web cast replay will be available on the same Web site through October 22, 2004. An audio replay of the call will also be available through October 31, 2003 by dialing (888) 203-1112 (from the United States or Canada) or (719) 457-0820 (outside the United States and Canada), using confirmation code: 578779.
About Quest Software, Inc.
Quest Software, Inc., a leader in application management, provides software for Application Confidence to 18,000 customers worldwide, including 75 percent of the Fortune 500. Quest products for database management, application performance management and Microsoft infrastructure management help customers develop, deploy, manage and maintain enterprise applications without expensive downtime or business interruption. Headquartered in Irvine, Calif., Quest Software can be found in offices around the globe and atwww.quest.com.
Quest and Quest Software are registered trademarks of Quest Software, Inc. All other trademarks and registered trademarks are property of their respective owners.
# # #
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 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 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. For a discussion of these and other related risks, please refer to our recent SEC filings, including our Annual Report on Form 10-K/A for the year ended December 31, 2002, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 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 Reports Second Quarter 2003 Results – page 4 of 8
QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
Revenues: | ||||||||||||||
Licenses | $ | 41,423 | $ | 39,851 | $ | 125,310 | $ | 116,493 | ||||||
Services | 31,841 | 23,051 | 89,988 | 67,890 | ||||||||||
Total revenues | 73,264 | 62,902 | 215,298 | 184,383 | ||||||||||
Cost of revenues: | ||||||||||||||
Licenses | 1,026 | 904 | 3,098 | 2,826 | ||||||||||
Services | 5,267 | 4,321 | 15,805 | 13,285 | ||||||||||
Amortization of purchased intangible assets | 1,899 | 1,288 | 6,391 | 3,978 | ||||||||||
Total cost of revenues | 8,192 | 6,513 | 25,294 | 20,089 | ||||||||||
Gross profit | 65,072 | 56,389 | 190,004 | 164,294 | ||||||||||
Operating expenses: | ||||||||||||||
Sales and marketing | 34,418 | 31,096 | 106,457 | 92,725 | ||||||||||
Research and development | 16,415 | 14,685 | 50,589 | 44,944 | ||||||||||
General and administrative | 7,438 | 6,201 | 21,285 | 18,418 | ||||||||||
Intangible asset amortization | 889 | 479 | 2,643 | 1,343 | ||||||||||
Total operating expenses | 59,160 | 52,461 | 180,974 | 157,430 | ||||||||||
Income from operations | 5,912 | 3,928 | 9,030 | 6,864 | ||||||||||
Other income, net | 1,308 | 1,221 | 7,156 | 6,732 | ||||||||||
Loss on sale of aircraft | — | (790 | ) | — | (790 | ) | ||||||||
Write-down of investments | — | — | — | (1,095 | ) | |||||||||
Income before income tax provision | 7,220 | 4,359 | 16,186 | 11,711 | ||||||||||
Income tax provision | 2,782 | 2,089 | 6,148 | 5,136 | ||||||||||
Net income | $ | 4,438 | $ | 2,270 | $ | 10,038 | $ | 6,575 | ||||||
Net income per share: | ||||||||||||||
Basic | $ | 0.05 | $ | 0.03 | $ | 0.11 | $ | 0.07 | ||||||
Diluted | $ | 0.05 | $ | 0.02 | $ | 0.11 | $ | 0.07 | ||||||
Weighted average shares: | ||||||||||||||
Basic | 92,550 | 90,256 | 91,737 | 89,886 | ||||||||||
Diluted | 94,213 | 92,195 | 93,571 | 92,645 |
Quest Reports Second Quarter 2003 Results – page 5 of 8
QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, 2003 | Nine Months Ended September 30, 2003 | |||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||
Revenues: | ||||||||||||||||||
Licenses | $ | 41,423 | $ | 41,423 | $ | 125,310 | $ | 125,310 | ||||||||||
Services | 31,841 | 31,841 | 89,988 | 89,988 | ||||||||||||||
Total revenues | 73,264 | 73,264 | 215,298 | 215,298 | ||||||||||||||
Cost of revenues: | ||||||||||||||||||
Licenses | 1,026 | (1 | )(1) | 1,025 | 3,098 | (2 | )(3) | 3,096 | ||||||||||
Services | 5,267 | (13 | )(1) | 5,254 | 15,805 | (58 | )(3) | 15,747 | ||||||||||
Amortization of purchased intangible assets | 1,899 | (1,899 | ) | — | 6,391 | (6,391 | ) | — | ||||||||||
Total cost of revenues | 8,192 | 6,279 | 25,294 | 18,843 | ||||||||||||||
Gross profit | 65,072 | 66,985 | 190,004 | 196,455 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Sales and marketing | 34,418 | (82 | )(1) | 34,336 | 106,457 | (663 | )(3) | 105,794 | ||||||||||
Research and development | 16,415 | (78 | )(1) | 16,337 | 50,589 | (441 | )(3) | 50,148 | ||||||||||
General and administrative | 7,438 | (12 | )(1) | 7,426 | 21,285 | (84 | )(3) | 21,201 | ||||||||||
Intangible asset amortization | 889 | (889 | ) | — | 2,643 | (2,643 | ) | — | ||||||||||
Total operating expenses | 59,160 | 58,099 | 180,974 | 177,143 | ||||||||||||||
Income from operations | 5,912 | 8,886 | 9,030 | 19,312 | ||||||||||||||
Other income, net | 1,308 | 1,308 | 7,156 | (98 | )(4) | 7,058 | ||||||||||||
Income before income tax provision | 7,220 | 10,194 | 16,186 | 26,370 | ||||||||||||||
Income tax provision | 2,782 | 1,092 | (2) | 3,874 | 6,148 | 3,873 | (5) | 10,021 | ||||||||||
Net income | $ | 4,438 | $ | 6,320 | $ | 10,038 | $ | 16,349 | ||||||||||
Net income per share: | ||||||||||||||||||
Basic | $ | 0.05 | $ | 0.07 | $ | 0.11 | $ | 0.18 | ||||||||||
Diluted | $ | 0.05 | $ | 0.07 | $ | 0.11 | $ | 0.17 | ||||||||||
Weighted average shares: | ||||||||||||||||||
Basic | 92,550 | 92,550 | 91,737 | 91,737 | ||||||||||||||
Diluted | 94,213 | 94,213 | 93,571 | 93,571 |
For the Three Months Ended September 30, 2003
(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. |
For the Nine Months Ended September 30, 2003
(3) | Represents (1) $281,000 in severance and idle facility charges incurred from closing one of our Canadian offices, which are included in sales and marketing and research and development, and (2) compensation and other costs related primarily to stock option grants with a below fair market value exercise price. |
(4) | Represents gain on securities held for trading purposes. |
(5) | Represents the tax effect of adjustments. |
Quest Reports Second Quarter 2003 Results – page 6 of 8
QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, 2002 | Nine Months Ended September 30, 2002 | |||||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||||
Revenues: | ||||||||||||||||||||
Licenses | $ | 39,851 | $ | 39,851 | $ | 116,493 | $ | 116,493 | ||||||||||||
Services | 23,051 | 23,051 | 67,890 | 67,890 | ||||||||||||||||
Total revenues | 62,902 | 62,902 | 184,383 | 184,383 | ||||||||||||||||
Cost of revenues: | ||||||||||||||||||||
Licenses | 904 | 904 | 2,826 | 2,826 | ||||||||||||||||
Services | 4,321 | (31 | )(1) | 4,290 | 13,285 | (90 | )(1) | 13,195 | ||||||||||||
Amortization of purchased intangible assets | 1,288 | (1,288 | ) | — | 3,978 | (3,978 | ) | — | ||||||||||||
Total cost of revenues | 6,513 | 5,194 | 20,089 | 16,021 | ||||||||||||||||
Gross profit | 56,389 | 57,708 | 164,294 | 168,362 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Sales and marketing | 31,096 | (203 | )(1) | 30,893 | 92,725 | (646 | )(1) | 92,079 | ||||||||||||
Research and development | 14,685 | (177 | )(1) | 14,508 | 44,944 | (471 | )(1) | 44,473 | ||||||||||||
General and administrative | 6,201 | (51 | )(1) | 6,150 | 18,418 | (123 | )(1) | 18,295 | ||||||||||||
Intangible asset amortization | 479 | (479 | ) | — | 1,343 | (1,343 | ) | — | ||||||||||||
Total operating expenses | 52,461 | 51,551 | 157,430 | 154,847 | ||||||||||||||||
Income from operations | 3,928 | 6,157 | 6,864 | 13,515 | ||||||||||||||||
Other income, net | 1,221 | 1,221 | 6,732 | 6,732 | ||||||||||||||||
Loss on sale of aircraft | (790 | ) | 790 | — | (790 | ) | 790 | — | ||||||||||||
Write-down of investments | — | — | (1,095 | ) | 1,095 | — | ||||||||||||||
Income before income tax provision | 4,359 | 7,378 | 11,711 | 20,247 | ||||||||||||||||
Income tax provision | 2,089 | 862 | (2) | 2,951 | 5,136 | 2,963 | (2) | 8,099 | ||||||||||||
Net income | $ | 2,270 | $ | 4,427 | $ | 6,575 | $ | 12,148 | ||||||||||||
Net income per share: | ||||||||||||||||||||
Basic | $ | 0.03 | $ | 0.05 | $ | 0.07 | $ | 0.14 | ||||||||||||
Diluted | $ | 0.02 | $ | 0.05 | $ | 0.07 | $ | 0.13 | ||||||||||||
Weighted average shares: | ||||||||||||||||||||
Basic | 90,256 | 90,256 | 89,886 | 89,886 | ||||||||||||||||
Diluted | 92,195 | 92,195 | 92,645 | 92,645 |
(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. |
Quest Reports Second Quarter 2003 Results – page 7 of 8
QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
September 30, 2003 | December 31, 2002 | |||||
Current assets: | ||||||
Cash and cash equivalents | $ | 94,391 | $ | 64,283 | ||
Short-term marketable securities available for sale | 21,292 | 27,841 | ||||
Accounts receivable, net | 38,563 | 39,898 | ||||
Prepaid expenses and other current assets | 8,104 | 9,653 | ||||
Deferred income taxes | 7,349 | 9,491 | ||||
Total current assets | 169,699 | 151,166 | ||||
Property and equipment, net | 38,435 | 44,505 | ||||
Long-term marketable securities | 135,503 | 115,422 | ||||
Goodwill, net | 239,696 | 231,717 | ||||
Amortizing intangible assets, net | 26,822 | 31,116 | ||||
Deferred income taxes | 15,030 | 15,014 | ||||
Other assets | 1,878 | 2,341 | ||||
Total assets | $ | 627,063 | $ | 591,281 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 5,420 | $ | 5,308 | ||
Accrued compensation | 15,586 | 13,900 | ||||
Other accrued expenses | 26,025 | 23,678 | ||||
Income taxes payable | 4,214 | 1,262 | ||||
Deferred revenue | 68,010 | 63,210 | ||||
Total current liabilities | 119,255 | 107,358 | ||||
Long-term liabilities and other | 1,878 | 5,941 | ||||
Shareholders’ equity | 505,930 | 477,982 | ||||
Total liabilities and shareholders’ equity | $ | 627,063 | $ | 591,281 | ||
Quest Reports Second Quarter 2003 Results – page 8 of 8
QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 4,438 | $ | 2,270 | $ | 10,038 | $ | 6,575 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 6,446 | 6,371 | 20,654 | 17,075 | ||||||||||||
Compensation expense associated with stock option grants | 138 | 112 | 796 | 921 | ||||||||||||
Accrued interest receivable from shareholders | — | 530 | — | (99 | ) | |||||||||||
Deferred income taxes | (384 | ) | (1,081 | ) | (459 | ) | (21 | ) | ||||||||
Provision for bad debts | (220 | ) | 249 | 23 | 631 | |||||||||||
Write-down of investments | — | — | — | 1,095 | ||||||||||||
Loss on sale of aircraft | — | 790 | — | 790 | ||||||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||||||||||
Accounts receivable | (1,416 | ) | 2,233 | 3,204 | 9,140 | |||||||||||
Prepaid expenses and other current assets | 627 | (751 | ) | 2,653 | (1,556 | ) | ||||||||||
Other assets | (525 | ) | (766 | ) | (99 | ) | 176 | |||||||||
Accounts payable | 854 | 1,070 | (44 | ) | (690 | ) | ||||||||||
Accrued compensation | 618 | (1,255 | ) | 1,003 | (641 | ) | ||||||||||
Other accrued expenses | (216 | ) | (1,359 | ) | (3,379 | ) | (5,126 | ) | ||||||||
Income taxes payable | 5,449 | 1,694 | 8,634 | 4,081 | ||||||||||||
Deferred revenue | (739 | ) | 935 | 4,200 | 3,974 | |||||||||||
Other liabilities | (112 | ) | (583 | ) | (277 | ) | (1,255 | ) | ||||||||
Net cash provided by operating activities | 14,958 | 10,459 | 46,947 | 35,070 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (1,504 | ) | (884 | ) | (5,387 | ) | (3,330 | ) | ||||||||
Proceeds from sale of aircraft | — | 1,932 | — | 1,932 | ||||||||||||
Cash paid for acquisitions, net of cash acquired | — | — | (4,746 | ) | (4,063 | ) | ||||||||||
Purchases of marketable securities | (50,131 | ) | 476 | (107,491 | ) | (43,873 | ) | |||||||||
Sales and maturities of marketable securities | 27,384 | 7,681 | 93,460 | 29,868 | ||||||||||||
Net cash (used in) provided by investing activities | (24,251 | ) | 9,205 | (24,164 | ) | (19,466 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Repayment of notes payable | (1,336 | ) | (1,612 | ) | (1,336 | ) | (1,835 | ) | ||||||||
Proceeds from repayment of note receivable from shareholder | — | 685 | — | 685 | ||||||||||||
Repayment of capital lease obligations | (60 | ) | (68 | ) | (255 | ) | (193 | ) | ||||||||
Proceeds from the exercise of stock options | 1,244 | 248 | 5,388 | 1,379 | ||||||||||||
Proceeds from employee stock purchase plan | 2,345 | 1,958 | 4,631 | 4,480 | ||||||||||||
Net cash provided by financing activities | 2,193 | 1,211 | 8,428 | 4,516 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 262 | (297 | ) | (1,103 | ) | (709 | ) | |||||||||
Net (decrease) increase in cash and cash equivalents | (6,838 | ) | 20,578 | 30,108 | 19,411 | |||||||||||
Cash and cash equivalents, beginning of period | 101,229 | 29,112 | 64,283 | 30,279 | ||||||||||||
Cash and cash equivalents, end of period | $ | 94,391 | $ | 49,690 | $ | 94,391 | $ | 49,690 | ||||||||