Exhibit 99.1
![]() | NEWS For Immediate Release | |
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 2004
Revenue Grows 32% to $96.7 Million for the Quarter
IRVINE, Calif., October 27, 2004– Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application, database and Windows management solutions, today reported financial results for the quarter ended September 30, 2004. Total revenues increased 32% year over year to $96.7 million compared to last year’s third quarter revenue of $73.3 million. Total revenues for the first nine months of 2004 were $271.4 million compared to $215.3 million for the same period in 2003.
GAAP Results
Quest Software’s net income for the third quarter was $30.9 million, or $0.32 per diluted share. GAAP operating margins were 43.5% in the third quarter, resulting in GAAP operating income of $42.1 million. Net income for the first nine months of 2004 was $34.0 million or $0.35 per diluted share versus net income of $10.0 million or $0.11 per diluted share for the comparable period in 2003. In the quarter, Quest sold its Vista Plus output management product line to Open Text Corporation resulting in a $29.6 million pretax gain. Quest Software generated cash flow from operations of $22.6 million in the September 2004 quarter.
Non-GAAP Results
On a pro forma basis, operating margins were 17.5% for the quarter, resulting in pro forma net income of $12.6 million, or $0.13 per share on a diluted basis. This compares to pro forma net income of $6.3 million, or $0.07 per share on a diluted basis, for the third quarter ended September 30, 2003. For the nine months ended September 30, 2004 pro forma net income was $30.1 million or $0.31 per diluted share. This compares to pro forma net income of $16.4 million or $0.18 per diluted share for the nine months ended September 30, 2003.
Quest Reports Third Quarter 2004 Results – page 2 of 9
A reconciliation of pro forma and as reported financial results is included with this press release.
“Our strong third quarter financial results demonstrate a consistent and disciplined approach to managing our operations, enabling us to realize the leverage in our model as we continued to deliver incremental operating profit,” said Vinny Smith, chairman and chief executive officer, Quest Software. “Today, Information Technology professionals are faced with mastering the growing complexity of their multi-vendor environments. Our solutions are unique because they help to simplify and automate the management of these complex, yet business-critical applications, as well as the databases, systems and Windows infrastructure that support them. This means that no matter how complex the environment is, with Quest products our customers remain in control. With a continued focus on empowering customers with the expertise to do more, we have a compelling opportunity to grow our business going forward.”
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 acquisition-related intangible assets, other compensation expenses associated with stock options, litigation-related loss contingency reserves and impacts of other events, which might otherwise obscure the results of operations of our core business when compared to our historical performance or competitors or 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 December 31, 2004:
• | Revenue is expected to be in the range of $104.0 million to $106.0 million; |
• | GAAP diluted earnings per share is expected to be in the range of $0.11 to $0.13 per share; |
• | Pro forma diluted earnings per share is expected to be in the range of $0.14 to $0.16 per share. The pro forma guidance excludes approximately $3.5 million of amortization of acquisition related intangible assets and $590,000 of other compensation charges related to stock options. |
Quest Reports Third Quarter 2004 Results – page 3 of 9
For the full year ending December 31, 2004, Quest Software management has raised its prior guidance:
• | Annual revenue is expected to be in the range of $375.5 million to $377.5 million; |
• | GAAP diluted earnings per share is expected to be in the range of $0.46 to $0.48 per share; |
• | Pro forma diluted earnings per share is expected to be in the range of $0.45 to $0.47 |
• | The pro-forma guidance excludes approximately $13.3 million of amortization of acquisition related intangible assets, $7.0 million of in-process research and development, the $5.0 million special CA litigation charge, a $29.6 million gain on sale of our Vista Plus product suite and $2.1 million of other compensation charges related to stock options. |
Third Quarter 2004 Conference Call Information
Quest Software will host a conference call today, Wednesday, October 27, 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 at www.quest.com. A Web cast replay will be available on the same Web site through October 27, 2005. An audio replay of the call will also be available through November 12, 2004 by dialing (888) 203-1112 (from the U.S. or Canada) or (719) 457-0820 (outside the U.S. and Canada), using confirmation code: 885606.
About Quest Software, Inc.
Quest Software, Inc. provides software to simplify IT management to 18,000 customers worldwide, including 75 percent of the Fortune 500. Quest products for application, database and Windows management help customers develop, deploy, manage and maintain the IT enterprise without expensive downtime or business interruption. Headquartered in Irvine, Calif., Quest Software can be found in offices around the globe and at www.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; the outcome of pending or future litigation (including pending litigation involving our Quest Central for DB2 products and resulting disruption to our business); 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, 2003
Quest Reports Third Quarter 2004 Results – page 4 of 9
and form 10-Q for the period ended June 30, 2004. 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 Third Quarter 2004 Results – page 5 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
Revenues: | ||||||||||||
Licenses | $ | 53,539 | $ | 41,423 | $ | 151,762 | $ | 125,309 | ||||
Services | 43,200 | 31,841 | 119,651 | 89,989 | ||||||||
Total revenues | 96,739 | 73,264 | 271,413 | 215,298 | ||||||||
Cost of revenues: | ||||||||||||
Licenses | 764 | 1,026 | 2,835 | 3,097 | ||||||||
Services | 7,973 | 5,267 | 21,739 | 15,805 | ||||||||
Amortization of purchased intangible assets | 2,269 | 1,899 | 5,980 | 6,392 | ||||||||
Total cost of revenues | 11,006 | 8,192 | 30,554 | 25,294 | ||||||||
Gross profit | 85,733 | 65,072 | 240,859 | 190,004 | ||||||||
Operating expenses: | ||||||||||||
Sales and marketing | 42,876 | 34,418 | 120,193 | 106,458 | ||||||||
Research and development | 19,868 | 16,415 | 58,381 | 50,591 | ||||||||
General and administrative | 8,876 | 7,438 | 25,661 | 21,282 | ||||||||
Intangible asset amortization | 1,568 | 889 | 3,861 | 2,643 | ||||||||
In-process research and development | — | — | 6,980 | — | ||||||||
Litigation loss contingency | — | — | 5,000 | — | ||||||||
Total operating expenses | 73,188 | 59,160 | 220,076 | 180,974 | ||||||||
Gain on sale of Vista Plus product suite | 29,574 | — | 29,574 | — | ||||||||
Income from operations | 42,119 | 5,912 | 50,357 | 9,030 | ||||||||
Other income, net | 2,723 | 1,308 | 2,884 | 7,156 | ||||||||
Income before income tax provision | 44,842 | 7,220 | 53,241 | 16,186 | ||||||||
Income tax provision | 13,901 | 2,782 | 19,285 | 6,148 | ||||||||
Net income | $ | 30,941 | $ | 4,438 | $ | 33,956 | $ | 10,038 | ||||
Net income per share: | ||||||||||||
Basic | $ | 0.33 | $ | 0.05 | $ | 0.36 | $ | 0.11 | ||||
Diluted | $ | 0.32 | $ | 0.05 | $ | 0.35 | $ | 0.11 | ||||
Weighted average shares: | ||||||||||||
Basic | 94,737 | 92,550 | 94,306 | 91,737 | ||||||||
Diluted | 96,608 | 94,213 | 97,691 | 93,571 |
Quest Reports Third Quarter 2004 Results – page 6 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||
Revenues: | ||||||||||||||||||
Licenses | $ | 53,539 | $ | 53,539 | $ | 151,762 | $ | 151,762 | ||||||||||
Services | 43,200 | 43,200 | 119,651 | 119,651 | ||||||||||||||
Total revenues | 96,739 | 96,739 | 271,413 | 271,413 | ||||||||||||||
Cost of revenues: | ||||||||||||||||||
Licenses | 764 | 764 | 2,835 | 2,835 | ||||||||||||||
Services | 7,973 | (56 | )(1) | 7,917 | 21,739 | (145 | )(1) | 21,594 | ||||||||||
Amortization of purchased intangible assets | 2,269 | (2,269 | ) | — | 5,980 | (5,980 | ) | — | ||||||||||
Total cost of revenues | 11,006 | 8,681 | 30,554 | 24,429 | ||||||||||||||
Gross profit | 85,733 | 88,058 | 240,859 | 246,984 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Sales and marketing | 42,876 | (356 | )(1) | 42,520 | 120,193 | (1,030 | )(1) | 119,163 | ||||||||||
Research and development | 19,868 | (141 | )(1) | 19,727 | 58,381 | (350 | )(1) | 58,031 | ||||||||||
General and administrative | 8,876 | (7 | )(1) | 8,869 | 25,661 | (21 | )(1) | 25,640 | ||||||||||
Intangible asset amortization | 1,568 | (1,568 | ) | — | 3,861 | (3,861 | ) | — | ||||||||||
In-process research and development | — | — | — | 6,980 | (6,980 | )(4) | — | |||||||||||
Litigation loss contingency | — | — | — | 5,000 | (5,000 | )(5) | — | |||||||||||
Total operating expenses | 73,188 | 71,116 | 220,076 | 202,834 | ||||||||||||||
Gain on sale of Vista Plus product suite | 29,574 | (29,574 | )(2) | — | 29,574 | (29,574 | )(2) | — | ||||||||||
Income from operations | 42,119 | 16,942 | 50,357 | 44,150 | ||||||||||||||
Other income, net | 2,723 | 2,723 | 2,884 | 2,884 | ||||||||||||||
Income before income tax provision | 44,842 | 19,665 | 53,241 | 47,034 | ||||||||||||||
Income tax provision | 13,901 | (6,822 | )(3) | 7,079 | 19,285 | (2,353 | )(3) | 16,932 | ||||||||||
Net income | $ | 30,941 | $ | 12,586 | $ | 33,956 | $ | 30,102 | ||||||||||
Net income per share: | ||||||||||||||||||
Basic | $ | 0.33 | $ | 0.13 | $ | 0.36 | $ | 0.32 | ||||||||||
Diluted | $ | 0.32 | $ | 0.13 | $ | 0.35 | $ | 0.31 | ||||||||||
Weighted average shares: | ||||||||||||||||||
Basic | 94,737 | 94,737 | 94,306 | 94,306 | ||||||||||||||
Diluted | 96,608 | 96,608 | 97,691 | 97,691 |
(1) | Represents stock based compensation and payroll taxes attributed to stock option exercises. |
(2) | Represents a gain on the sale of our Vista Plus product suite. |
(3) | Represents the tax effect of adjustments. |
(4) | Represents one-time charges to write off in-process research and development assumed with our acquisition of Aelita Software in March 2004 and Lecco Technology in April 2004. |
(5) | Represents a special charge for a loss contingency reserve related to our Computer Associates intellectual property litigation. |
Quest Reports Third Quarter 2004 Results – page 7 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||
GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||
Revenues: | ||||||||||||||||||
Licenses | $ | 41,423 | $ | 41,423 | $ | 125,309 | $ | 125,309 | ||||||||||
Services | 31,841 | 31,841 | 89,989 | 89,989 | ||||||||||||||
Total revenues | 73,264 | 73,264 | 215,298 | 215,298 | ||||||||||||||
Cost of revenues: | ||||||||||||||||||
Licenses | 1,026 | (1 | )(2) | 1,025 | 3,097 | (2 | )(1) | 3,095 | ||||||||||
Services | 5,267 | (12 | )(2) | 5,255 | 15,805 | (58 | )(1) | 15,747 | ||||||||||
Amortization of purchased intangible assets | 1,899 | (1,899 | ) | — | 6,392 | (6,392 | ) | — | ||||||||||
Total cost of revenues | 8,192 | 6,280 | 25,294 | 18,842 | ||||||||||||||
Gross profit | 65,072 | 66,984 | 190,004 | 196,456 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Sales and marketing | 34,418 | (82 | )(2) | 34,336 | 106,458 | (663 | )(1) | 105,795 | ||||||||||
Research and development | 16,415 | (77 | )(2) | 16,338 | 50,591 | (441 | )(1) | 50,150 | ||||||||||
General and administrative | 7,438 | (12 | )(2) | 7,426 | 21,282 | (83 | )(1) | 21,199 | ||||||||||
Intangible asset amortization | 889 | (889 | ) | — | 2,643 | (2,643 | ) | — | ||||||||||
Total operating expenses | 59,160 | 58,100 | 180,974 | 177,144 | ||||||||||||||
Income from operations | 5,912 | 8,884 | 9,030 | 19,312 | ||||||||||||||
Other income, net | 1,308 | 1,308 | 7,156 | 7,156 | ||||||||||||||
Income before income tax provision | 7,220 | 10,192 | 16,186 | 26,468 | ||||||||||||||
Income tax provision | 2,782 | 1,091 | (3) | 3,873 | 6,148 | 3,910 | (3) | 10,058 | ||||||||||
Net income | $ | 4,438 | $ | 6,319 | $ | 10,038 | $ | 16,410 | ||||||||||
Net income per share: | ||||||||||||||||||
Basic | $ | 0.05 | $ | 0.07 | $ | 0.11 | $ | 0.18 | ||||||||||
Diluted | $ | 0.05 | $ | 0.07 | $ | 0.11 | $ | 0.18 | ||||||||||
Weighted average shares: | ||||||||||||||||||
Basic | 92,550 | 92,550 | 91,737 | 91,737 | ||||||||||||||
Diluted | 94,213 | 94,213 | 93,571 | 93,571 |
(1) | Represents (1) $281,000 in severance and idle facility charges incurred from closing one of our Canadian offices, which are included in salesand marketing and research and development, and (2) stock based compensation and payroll taxes attributed to stock option exercises. |
(2) | Represents stock based compensation and payroll taxes attributed to stock option exercises. |
(3) | Represents the tax effect of adjustments. |
Quest Reports Third Quarter 2004 Results – page 8 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, 2004 | December 31, 2003 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 89,384 | $ | 67,470 | ||
Short-term marketable securities available for sale | 56,163 | 26,736 | ||||
Accounts receivable, net | 66,610 | 58,535 | ||||
Prepaid expenses and other current assets | 11,097 | 6,846 | ||||
Deferred income taxes | 3,994 | 15,074 | ||||
Total current assets | 227,248 | 174,661 | ||||
Property and equipment, net | 51,003 | 31,950 | ||||
Long-term marketable securities | 126,544 | 184,160 | ||||
Goodwill | 326,324 | 239,840 | ||||
Amortizing intangible assets, net | 44,881 | 25,159 | ||||
Deferred income taxes | 11,219 | 10,126 | ||||
Other assets | 2,511 | 1,915 | ||||
Total assets | $ | 789,730 | $ | 667,811 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 5,533 | $ | 4,180 | ||
Obligation under repurchase agreement | 27,492 | — | ||||
Accrued compensation | 21,325 | 17,384 | ||||
Other accrued expenses | 30,445 | 27,939 | ||||
Income taxes payable | 18,929 | 9,082 | ||||
Current portion of deferred revenue | 87,630 | 73,957 | ||||
Total current liabilities | 191,354 | 132,542 | ||||
Long-term liabilities: | ||||||
Long-term portion of deferred revenue | 13,696 | 9,416 | ||||
Other long-term liabilities | 1,984 | 1,677 | ||||
Total long-term liabilities | 15,680 | 11,093 | ||||
Shareholders’ equity | 582,696 | 524,176 | ||||
Total liabilities and shareholders’ equity | $ | 789,730 | $ | 667,811 | ||
Quest Reports Third Quarter 2004 Results – page 9 of 9
QUEST SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 30,941 | $ | 4,438 | $ | 33,956 | $ | 10,038 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 7,921 | 6,446 | 20,560 | 20,654 | ||||||||||||
Compensation expense associated with stock option grants | 557 | 138 | 1,266 | 796 | ||||||||||||
Deferred income taxes | 601 | (384 | ) | 612 | (459 | ) | ||||||||||
Gain on sale of Vista Plus product suite | (29,574 | ) | — | (29,574 | ) | — | ||||||||||
Provision for bad debts | 44 | (220 | ) | 112 | 23 | |||||||||||
In-process research and development | — | — | 6,980 | — | ||||||||||||
Litigation loss provision | — | — | 5,000 | — | ||||||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||||||||||
Accounts receivable | (7,154 | ) | (1,416 | ) | (6,070 | ) | 3,204 | |||||||||
Prepaid expenses and other current assets | 96 | 627 | (276 | ) | 2,653 | |||||||||||
Other assets | 46 | (525 | ) | (376 | ) | (99 | ) | |||||||||
Accounts payable | (1,905 | ) | 854 | 702 | (44 | ) | ||||||||||
Accrued compensation | 1,652 | 618 | 2,041 | 1,003 | ||||||||||||
Other accrued expenses | (1,446 | ) | (216 | ) | (5,633 | ) | (3,379 | ) | ||||||||
Income taxes payable | 12,662 | 5,449 | 12,760 | 8,634 | ||||||||||||
Deferred revenue | 8,198 | (739 | ) | 15,754 | 4,200 | |||||||||||
Other liabilities | (23 | ) | (112 | ) | 307 | (277 | ) | |||||||||
Net cash provided by operating activities | 22,616 | 14,958 | 58,121 | 46,947 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (3,876 | ) | (1,504 | ) | (28,010 | ) | (5,387 | ) | ||||||||
Cash paid for acquisitions, net of cash acquired | — | — | (96,364 | ) | (4,746 | ) | ||||||||||
Proceeds from sale of Vista Plus product suite | 22,515 | — | 22,515 | — | ||||||||||||
Purchases of marketable securities | (7 | ) | (50,131 | ) | (7 | ) | (107,491 | ) | ||||||||
Sales and maturities of marketable securities | 10,167 | 27,384 | 27,498 | 93,460 | ||||||||||||
Net cash (used in) provided by investing activities | 28,799 | (24,251 | ) | (74,368 | ) | (24,164 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Repayment of notes payable | (769 | ) | (1,336 | ) | (769 | ) | (1,336 | ) | ||||||||
Proceeds from repurchase agreement | — | — | 67,581 | — | ||||||||||||
Repayment of repurchase agreement | (40,512 | ) | — | (40,512 | ) | — | ||||||||||
Repayment of capital lease obligations | (47 | ) | (60 | ) | (275 | ) | (255 | ) | ||||||||
Proceeds from the exercise of stock options | 1,113 | 1,244 | 7,028 | 5,388 | ||||||||||||
Proceeds from employee stock purchase plan | 2,074 | 2,345 | 4,797 | 4,631 | ||||||||||||
Net cash provided by (used in) financing activities | (38,141 | ) | 2,193 | 37,850 | 8,428 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 381 | 262 | 311 | (1,103 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | 13,655 | (6,838 | ) | 21,914 | 30,108 | |||||||||||
Cash and cash equivalents, beginning of period | 75,729 | 101,229 | 67,470 | 64,283 | ||||||||||||
Cash and cash equivalents, end of period | $ | 89,384 | $ | 94,391 | $ | 89,384 | $ | 94,391 | ||||||||