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 RESULTS FOR FOURTH QUARTER AND 2003
Record Revenue of $89.0 Million for the Quarter;
$304 Million In Revenue for the Year Ended December 31, 2003
IRVINE, Calif., January 28, 2004– Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application management solutions, today reported record financial results for the quarter ended December 31, 2003. Total revenues increased 25% year over year to $89.0 million compared to last year’s fourth quarter revenue of $71.2 million. Total revenues increased 19% to $304.3 million in fiscal 2003 compared to total revenues of $255.6 million in fiscal 2002.
GAAP Results
Quest Software’s net income for the fourth quarter was $11.5 million, or $0.12 per diluted share. Net income for year ended December 31, 2003 was $21.5 million, or $0.23 per diluted share. GAAP operating margins increased sequentially from 8.1% to 19.0% in the fourth quarter, resulting in record GAAP operating income of $17.0 million.
Non-GAAP Results
On a pro forma basis, operating margins increased to 21.5% for the quarter, resulting in pro forma net income of $15.3 million, or $0.16 per share on a diluted basis. This compares to pro forma net income of $7.5 million, or $0.08 per share on a diluted basis, for the fourth quarter ended December 31, 2002. Pro forma operating income increased 71% to $38.5 million for the year ended December 31, 2003, and pro forma net income for the year was $31.7 million, or $0.34 per diluted share. Quest Software generated net cash of $27.2 million in the December 2003 quarter.
A reconciliation of pro forma and as reported financial results is included with this press release.
“We concluded the year with record license and services revenues and solid growth, with significant contributions coming from all regions and product lines,” said Vinny Smith, chairman and chief executive officer, Quest Software. “The fourth quarter marked solid execution on all fronts including product release milestones in our application performance management, database management and Microsoft infrastructure management areas with the introduction of Quest Foglight®
Quest Reports Fourth Quarter 2003 Results – page 2 of 8
version 4.0, Quest Central for Databases version 4.0 and Quest Exchange Management Suite. Customers are eagerly adopting these new products because of their technical quality, depth of capability and ability to quickly deliver a return on investment. We also believe our ongoing efforts to increase internal productivity are paying off as reflected in Q4’s extraordinary margin expansion and operating income growth.”
During the fourth quarter, Quest Software received strong interest from customers in various vertical markets including communications, internet services, financial institutions, pharmaceuticals and technology for its application performance management, database management and Microsoft infrastructure management products. In the fourth quarter, Quest Software earned new customers and expanded its business with existing customers including Cingular Wireless, Earthlink, Inc., The Economical Insurance Group, E*TRADE FINANCIAL, McGraw Hill Companies, Ricoh Corporation, Royal Auto Club (RAC) Motoring Services, and Ticketmaster.
Quest Software 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.
Financial Outlook
Quest Software management offers the following guidance for the quarter ending March 31, 2004:
• | Revenue is expected to be in the range of $77.0 million to $79.0 million; |
• | GAAP diluted earnings per share is expected to be in the range of $0.06 to $0.08 per share; |
• | Pro forma diluted earnings per share is expected to be in the range of $0.07 to $0.09 per share. The pro forma guidance excludes approximately $1.3 million of amortization of purchased intangible assets, $563,000 of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks, and $86,000 of other compensation charges related to stock options. |
For the full year ending December 31, 2004, Quest Software management offers the following guidance:
• | Annual revenue is expected to be in the range of $330 million to $340 million; |
• | GAAP diluted earnings per share is expected to be in the range of $0.32 to $0.35 per share; |
Quest Reports Fourth Quarter 2003 Results – page 3 of 8
• | Pro forma diluted earnings per share is expected to be in the range of $0.37 to $0.40. The pro-forma guidance excludes approximately $4.9 million of amortization of purchased intangible assets, $1.8 million of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks, and $342,000 of other compensation charges related to stock options. |
Fourth Quarter 2003 Conference Call Information
Quest Software will host a conference call today, Wednesday, January 28, 2004 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 January 28, 2005. An audio replay of the call will also be available through February 11, 2004 by dialing (888) 203-1112 (from the United States or Canada) or (719) 457-0820 (outside the United States and Canada), using confirmation code: 215203.
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 further adverse changes in general economic conditions on our customers; 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; fluctuating currency exchange rates and other risks associated with international operations; and the need to attract and retain qualified employees. 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, as amended, and our Quarterly Report on Form 10-Q for the quarter ended September 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 Fourth Quarter 2003 Results – page 4 of 8
QUEST SOFTWARE, INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(In thousands, except per share data) |
(Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||
Revenues: | |||||||||||||||
Licenses | $ | 54,250 | $ | 44,143 | $ | 179,560 | $ | 160,636 | |||||||
Services | 34,740 | 27,056 | 124,728 | 94,946 | |||||||||||
Total revenues | 88,990 | 71,199 | 304,288 | 255,582 | |||||||||||
Cost of revenues: | |||||||||||||||
Licenses | 1,214 | 713 | 4,312 | 3,539 | |||||||||||
Services | 5,560 | 4,628 | 21,365 | 17,913 | |||||||||||
Amortization of purchased intangible assets | 1,284 | 1,765 | 7,675 | 5,744 | |||||||||||
Total cost of revenues | 8,058 | 7,106 | 33,352 | 27,196 | |||||||||||
Gross profit | 80,932 | 64,093 | 270,936 | 228,386 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 38,003 | 35,846 | 144,460 | 128,570 | |||||||||||
Research and development | 16,859 | 15,107 | 67,448 | 60,051 | |||||||||||
General and administrative | 8,371 | 6,553 | 29,656 | 24,971 | |||||||||||
In-process research and development | — | 2,900 | — | 2,900 | |||||||||||
Intangible asset amortization | 747 | 693 | 3,390 | 2,037 | |||||||||||
Total operating expenses | 63,980 | 61,099 | 244,954 | 218,529 | |||||||||||
Income from operations | 16,952 | 2,994 | 25,982 | 9,857 | |||||||||||
Other income, net | 3,976 | 2,398 | 11,132 | 9,131 | |||||||||||
Loss on impairment/sale of aircraft | (3,495 | ) | — | (3,495 | ) | (790 | ) | ||||||||
Write-down of investments | — | 1,405 | — | 310 | |||||||||||
Income before income tax provision | 17,433 | 6,797 | 33,619 | 18,508 | |||||||||||
Income tax provision | 5,955 | 2,987 | 12,103 | 8,124 | |||||||||||
�� | |||||||||||||||
Net income | $ | 11,478 | $ | 3,810 | $ | 21,516 | $ | 10,384 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.12 | $ | 0.04 | $ | 0.23 | $ | 0.12 | |||||||
Diluted | $ | 0.12 | $ | 0.04 | $ | 0.23 | $ | 0.11 | |||||||
Weighted average shares: | |||||||||||||||
Basic | 93,096 | 90,597 | 92,081 | 90,065 | |||||||||||
Diluted | 96,480 | 92,724 | 94,231 | 92,820 |
Quest Reports Fourth Quarter 2003 Results – page 5 of 8
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31, 2003 | Twelve Months Ended December 31, 2003 | |||||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||||
Revenues: | ||||||||||||||||||||
Licenses | $ | 54,250 | $ | 54,250 | $ | 179,560 | $ | 179,560 | ||||||||||||
Services | 34,740 | 34,740 | 124,728 | 124,728 | ||||||||||||||||
Total revenues | 88,990 | 88,990 | 304,288 | 304,288 | ||||||||||||||||
Cost of revenues: | ||||||||||||||||||||
Licenses | 1,214 | 1,214 | 4,312 | (2 | )(4) | 4,310 | ||||||||||||||
Services | 5,560 | (13 | )(1) | 5,547 | 21,365 | (71 | )(4) | 21,294 | ||||||||||||
Amortization of purchased intangible assets | 1,284 | (1,284 | ) | — | 7,675 | (7,675 | ) | — | ||||||||||||
Total cost of revenues | 8,058 | 6,761 | 33,352 | 25,604 | ||||||||||||||||
Gross profit | 80,932 | 82,229 | 270,936 | 278,684 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Sales and marketing | 38,003 | (81 | )(1) | 37,922 | 144,460 | (744 | )(4) | 143,716 | ||||||||||||
Research and development | 16,859 | (68 | )(1) | 16,791 | 67,448 | (509 | )(4) | 66,939 | ||||||||||||
General and administrative | 8,371 | (16 | )(1) | 8,355 | 29,656 | (100 | )(4) | 29,556 | ||||||||||||
Intangible asset amortization | 747 | (747 | ) | — | 3,390 | (3,390 | ) | — | ||||||||||||
Total operating expenses | 63,980 | 63,068 | 244,954 | 240,211 | ||||||||||||||||
Income from operations | 16,952 | 19,161 | 25,982 | 38,473 | ||||||||||||||||
Other income, net | 3,976 | 3,976 | 11,132 | (98 | )(5) | 11,034 | ||||||||||||||
Loss on impairment of aircraft | (3,495 | ) | 3,495 | (2) | — | (3,495 | ) | 3,495 | (6) | — | ||||||||||
Income before income tax provision | 17,433 | 23,137 | 33,619 | 49,507 | ||||||||||||||||
Income tax provision | 5,955 | 1,847 | (3) | 7,802 | 12,103 | 5,720 | (7) | 17,823 | ||||||||||||
Net income | $ | 11,478 | $ | 15,335 | $ | 21,516 | $ | 31,684 | ||||||||||||
Net income per share: | ||||||||||||||||||||
Basic | $ | 0.12 | $ | 0.16 | $ | 0.23 | $ | 0.34 | ||||||||||||
Diluted | $ | 0.12 | $ | 0.16 | $ | 0.23 | $ | 0.34 | ||||||||||||
Weighted average shares: | ||||||||||||||||||||
Basic | 93,096 | 93,096 | 92,081 | 92,081 | ||||||||||||||||
Diluted | 96,480 | 96,480 | 94,231 | 94,231 | ||||||||||||||||
For the Three Months Ended December 31, 2003 | ||||||||||||||||||||
(1) Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price. | ||||||||||||||||||||
(2) Represents a one-time impairment charge to the carrying value of our aircraft. | ||||||||||||||||||||
(3) Represents the tax effect of adjustments. | ||||||||||||||||||||
For the Twelve Months Ended December 31, 2003 | ||||||||||||||||||||
(4) 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. | ||||||||||||||||||||
(5) Represents gain on securities held for trading purposes. | ||||||||||||||||||||
(6) Represents a one-time impairment charge to the carrying value of our aircraft. | ||||||||||||||||||||
(7) Represents the tax effect of adjustments. |
Quest Reports Fourth Quarter 2003 Results – page 6 of 8
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31, 2002 | Twelve Months Ended December 31, 2002 | ||||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | ||||||||||||||
Revenues: | |||||||||||||||||||
Licenses | $ | 44,143 | $ | 44,143 | $ | 160,636 | $ | 160,636 | |||||||||||
Services | 27,056 | 27,056 | 94,946 | 94,946 | |||||||||||||||
Total revenues | 71,199 | 71,199 | 255,582 | 255,582 | |||||||||||||||
Cost of revenues: | |||||||||||||||||||
Licenses | 713 | 713 | 3,539 | 3,539 | |||||||||||||||
Services | 4,628 | (21 | )(1) | 4,607 | 17,913 | (110 | )(1) | 17,803 | |||||||||||
Amortization of purchased intangible assets | 1,765 | (1,765 | ) | — | 5,744 | (5,744 | ) | — | |||||||||||
Total cost of revenues | 7,106 | 5,320 | 27,196 | 21,342 | |||||||||||||||
Gross profit | 64,093 | 65,879 | 228,386 | 234,240 | |||||||||||||||
Operating expenses: | |||||||||||||||||||
Sales and marketing | 35,846 | (437 | )(1) | 35,409 | 128,570 | (1,083 | )(1) | 127,487 | |||||||||||
Research and development | 15,107 | (150 | )(1) | 14,957 | 60,051 | (621 | )(1) | 59,430 | |||||||||||
General and administrative | 6,553 | (51 | )(1) | 6,502 | 24,971 | (175 | )(1) | 24,796 | |||||||||||
In-process research and development | 2,900 | (2,900 | ) | — | 2,900 | (2,900 | ) | — | |||||||||||
Intangible asset amortization | 693 | (693 | ) | — | 2,037 | (2,037 | ) | — | |||||||||||
Total operating expenses | 61,099 | 56,868 | 218,529 | 211,713 | |||||||||||||||
Income from operations | 2,994 | 9,011 | 9,857 | 22,527 | |||||||||||||||
Other income, net | 2,398 | 2,398 | 9,131 | 9,131 | |||||||||||||||
Loss on sale of aircraft | — | — | (790 | ) | 790 | — | |||||||||||||
Write-down of investments | 1,405 | (1,405 | ) | — | 310 | (310 | ) | — | |||||||||||
Income before income tax provision | 6,797 | 11,409 | 18,508 | 31,658 | |||||||||||||||
Income tax provision | 2,987 | 943 | (2) | 3,930 | 8,124 | 3,906 | (2) | 12,030 | |||||||||||
Net income | $ | 3,810 | $ | 7,479 | $ | 10,384 | $ | 19,628 | |||||||||||
Net income per share: | |||||||||||||||||||
Basic | $ | 0.04 | $ | 0.08 | $ | 0.12 | $ | 0.22 | |||||||||||
Diluted | $ | 0.04 | $ | 0.08 | $ | 0.11 | $ | 0.21 | |||||||||||
Weighted average shares: | |||||||||||||||||||
Basic | 90,597 | 90,597 | 90,065 | 90,065 | |||||||||||||||
Diluted | 92,724 | 92,724 | 92,820 | 92,820 | |||||||||||||||
(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 Fourth Quarter 2003 Results – page 7 of 8
QUEST SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS | ||||||
December 31, 2003 | December 31, 2002 | |||||
Current assets: | ||||||
Cash and cash equivalents | $ | 67,470 | $ | 64,283 | ||
Short-term marketable securities available for sale | 26,736 | 27,841 | ||||
Accounts receivable, net | 58,535 | 39,898 | ||||
Prepaid expenses and other current assets | 6,846 | 9,653 | ||||
Deferred income taxes | 15,074 | 9,491 | ||||
Total current assets | 174,661 | 151,166 | ||||
Property and equipment, net | 31,950 | 44,505 | ||||
Long-term marketable securities | 184,160 | 115,422 | ||||
Goodwill, net | 239,840 | 231,717 | ||||
Amortizing intangible assets, net | 25,159 | 31,116 | ||||
Deferred income taxes | 10,126 | 15,014 | ||||
Other assets | 1,915 | 2,341 | ||||
Total assets | $ | 667,811 | $ | 591,281 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 4,180 | $ | 5,308 | ||
Accrued compensation | 17,384 | 13,900 | ||||
Other accrued expenses | 27,939 | 23,678 | ||||
Income taxes payable | 9,082 | 1,262 | ||||
Short-term portion of deferred revenue | 73,957 | 59,209 | ||||
Total current liabilities | 132,542 | 103,357 | ||||
Long-term liabilities: | ||||||
Long-term portion of deferred revenue | 9,416 | 4,001 | ||||
Other long-term liabilities | 1,677 | 5,941 | ||||
Total long-term liabilities | 11,093 | 9,942 | ||||
Shareholders’ equity | 524,176 | 477,982 | ||||
Total liabilities and shareholders’ equity | $ | 667,811 | $ | 591,281 | ||
Quest Reports Fourth Quarter 2003 – page 8 of 8
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 11,478 | $ | 3,810 | $ | 21,516 | $ | 10,384 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 5,614 | 6,283 | 26,584 | 23,358 | ||||||||||||
Compensation expense associated with stock option grants | 94 | 494 | 890 | 1,415 | ||||||||||||
Accrued interest receivable from shareholders | — | 73 | — | (26 | ) | |||||||||||
Deferred income taxes | (2,780 | ) | (12,313 | ) | (3,234 | ) | (12,334 | ) | ||||||||
Provision for bad debts | 268 | 272 | 291 | 903 | ||||||||||||
Write-down of investments | — | (1,405 | ) | — | (310 | ) | ||||||||||
Loss on impairment/sale of aircraft | 3,495 | — | 3,495 | 790 | ||||||||||||
In-process research and development | — | 2,900 | — | 2,900 | ||||||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||||||||||
Accounts receivable | (18,515 | ) | (8,442 | ) | (14,622 | ) | 698 | |||||||||
Prepaid expenses and other current assets | 1,399 | 3,207 | 4,074 | 1,651 | ||||||||||||
Other assets | 2 | 1,302 | (92 | ) | 1,478 | |||||||||||
Accounts payable | (1,348 | ) | 13 | (1,329 | ) | (677 | ) | |||||||||
Accrued compensation | 1,304 | 792 | 2,276 | 151 | ||||||||||||
Other accrued expenses | 4,380 | 2,156 | 869 | (2,970 | ) | |||||||||||
Income taxes payable | 8,088 | 16,880 | 16,705 | 20,961 | ||||||||||||
Deferred revenue | 15,364 | 5,420 | 19,557 | 9,394 | ||||||||||||
Other liabilities | (53 | ) | (3,282 | ) | (329 | ) | (4,536 | ) | ||||||||
Net cash provided by operating activities | 28,790 | 18,160 | 76,651 | 53,230 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (960 | ) | 324 | (6,664 | ) | (3,006 | ) | |||||||||
Proceeds from sale of aircraft | — | — | — | 1,932 | ||||||||||||
Sale of equity investments | — | 875 | — | 875 | ||||||||||||
Cash paid for acquisitions, net of cash acquired | (50 | ) | (52,778 | ) | (4,796 | ) | (56,841 | ) | ||||||||
Purchases of marketable securities | (67,588 | ) | (13,767 | ) | (175,079 | ) | (57,640 | ) | ||||||||
Sales and maturities of marketable securities | 12,888 | 62,927 | 106,348 | 92,795 | ||||||||||||
Net cash (used in) provided by investing activities | (55,710 | ) | (2,419 | ) | (80,191 | ) | (21,885 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Repayment of notes payable | (2,914 | ) | (49 | ) | (4,249 | ) | (1,884 | ) | ||||||||
Proceeds from repayment of note receivable from shareholder | — | (611 | ) | — | 74 | |||||||||||
Repayment of capital lease obligations | (96 | ) | (221 | ) | (315 | ) | (414 | ) | ||||||||
Proceeds from the exercise of stock options | 4,113 | 379 | 9,505 | 1,758 | ||||||||||||
Proceeds from employee stock purchase plan | — | — | 4,631 | 4,480 | ||||||||||||
Net cash provided by financing activities | 1,103 | (502 | ) | 9,572 | 4,014 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,104 | ) | (646 | ) | (2,845 | ) | (1,355 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents | (26,921 | ) | 14,593 | 3,187 | 34,004 | |||||||||||
Cash and cash equivalents, beginning of period | 94,391 | 49,690 | 64,283 | 30,279 | ||||||||||||
Cash and cash equivalents, end of period | $ | 67,470 | $ | 64,283 | $ | 67,470 | $ | 64,283 | ||||||||