Quest Software, Inc. (Nasdaq:QSFT) today reported financial results for the first quarter ended March 31, 2008. Total revenues increased to $172.8 million compared to the prior year
’s first quarter revenue of $149.8 million. As previously disclosed, Quest modified its revenue recognition practices during Q1 2007 for large reseller transactions. In order to provide comparability in its reported results between Q1 2008 and Q1 2007 it is important to note that Q1 2007 reported results included $5.5 million in license revenues that were booked and recognized in Q1 2007 but otherwise would have been deferred under the prior practice. The Q1 2007 reported results also included $13 million in license revenues associated with reseller transactions from prior periods where cash was collected in the first quarter of 2007. If Quest had implemented this change prior to the first quarter of 2007, $136.8 million in total revenues and $61.3 million in license revenues in the first quarter of 2007 would have reported. On that basis year-over-year total revenue growth was 26% and license revenue growth was 29%.
The Company’s cash and investments at March 31, 2008 totaled $383.5 million, an increase of $66.7 million over the comparable balance at December 31, 2007. Quest generated cash flow from operations of $55.3 million in the quarter ending March 2008.
“We had a strong Q1 and I am pleased with our progress,” said Vinny Smith, Quest CEO. “Our established businesses of database Windows and application management performed as expected, and we are showing good growth in our server virtualization and desktop virtualization business.”
GAAP Results
Quest Software’s GAAP net income for the first quarter of 2008 was $13.3 million, or $0.13 per fully diluted share. GAAP operating margins decreased year-over-year from 14.8% to 5.5% in the first quarter, resulting in GAAP operating income of $9.5 million which compares to $22.1 million for the corresponding period in 2007.
Non-GAAP Results
On a non-GAAP basis, net income for the first quarter of 2008 was $22.2 million, or $0.21 per fully diluted share. This compares to non-GAAP net income of $26.1 million, or $0.25 per share on a fully diluted basis, for the first quarter of 2007. The non-GAAP operating margin was 13.5% in the first quarter of 2008, resulting in non-GAAP operating income of $23.3 million, compared to non-GAAP operating margin and income of 22.4% and $33.5 million for the corresponding period in 2007.
Non-GAAP results exclude the after-tax effects of amortization of intangible assets acquired with business combinations, share-based compensation expenses and ongoing expenses associated with our stock option investigation. A reconciliation of GAAP to non-GAAP financial results is included with this press release.
Quest Software’s management prepares and uses 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 non-GAAP reporting provides a more meaningful representation of the Company’s on-going economic performance and therefore uses non-GAAP reporting internally to evaluate and manage the Company’s operations. The Company’s management believes that by excluding charges such as such as those described above from its GAAP-based results, these non-GAAP financial measures are more likely to facilitate investors’ understanding of the Company’s ongoing business operating results. These non-GAAP financial measures also facilitate comparisons to the operating results of the Company’s competitors and provide investors with greater transparency with respect to the supplemental information used by management in its operational and financial decision making.
Financial Outlook
Quest Software management offers the following guidance for the twelve months ending December 31, 2008: