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Quest Software Reports Third Quarter 2008 Results
Quest Software, Inc. (Nasdaq: QSFT) today reported financial results for the quarter ended September 30, 2008. Total revenues increased 23.3% to $187.6 million compared to the prior years third quarter revenue of $152.2 million. Total revenues for the first nine months of 2008 increased 20.2% to $533.8 million compared to $444.2 million for the same period in 2007.

Quests cash and investments at September 30, 2008, totaled $374.8 million, a decrease of $44.8 million over the comparable balance at June 30, 2008. The decrease in cash and investments is primarily due to Quests acquisition of NetPro Computing, Inc. in September 2008 for $74.9 million, net of cash acquired. Quest generated cash flow from operations of $35.8 million in the third quarter of 2008.

We had a strong Q3 and are pleased with our financial performance, said Doug Garn, Quest president and CEO. With the integration of the NetPro acquisition proceeding according to plan, we are well-positioned to increase our visibility in the Windows management market. This, coupled with our well-respected application performance management, database management and virtualization management solutions, offers IT professionals a comprehensive set of high-quality products to enable them to quickly tackle everyday issues, manage more complex systems with fewer resources, and streamline their operations.

Quest also announced that it intends to initiate a modified Dutch auction tender offer on or before November 7, 2008 to repurchase $140 million of its common stock with a range of prices per share that is not expected to exceed $14.50. While Quest continues to evaluate the terms of a potential debt financing in connection with the tender offer, due to the anticipated pricing and restrictive covenants, combined with the uncertainty existing in the debt markets, Quest has decided to proceed with the $140 million tender offer utilizing available cash resources, The tender offer, when commenced, will be subject to a number of terms and conditions, including any applicable corporate and regulatory requirements, all of which will be specified in an offer to purchase to be filed with the SEC on the date the offer is commenced.

GAAP Results

Quest Softwares net income for the third quarter of 2008 was $17.3 million, or $0.16 per fully diluted share. This compares to net income of $15.0 million, or $0.14 per share on a fully diluted basis, for the third quarter of 2007. Operating margins increased year-over-year from 10.2% to 14.8% in the third quarter, resulting in operating income of $27.8 million which compares to $15.5 million for the corresponding period in 2007. Net income for the first nine months of 2008 was $38.9 million, or $0.36 per fully diluted share, versus net income of $37.8 million, or $0.36 per fully diluted share, for the comparable period in 2007.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of 2008 was $26.8 million, or $0.25 per fully diluted share. This compares to non-GAAP net income of $23.5 million, or $0.22 per share on a fully diluted basis, for the third quarter of 2007. The non-GAAP operating margin was 22.1% in the third quarter of 2008, resulting in non-GAAP operating income of $41.5 million, compared to non-GAAP operating margin and operating income of 18.2% and $27.6 million, respectively, for the corresponding period in 2007. For the nine months ended September 30, 2008 non-GAAP net income was $66.7 million, or $0.63 per fully diluted share. This compares to non-GAAP net income of $67.1 million, or $0.64 per fully diluted share, for the nine months ended September 30, 2007. The non-GAAP operating margin was 15.6% in the first nine months of 2008, resulting in non-GAAP operating income of $83.5 million, compared to non-GAAP operating margin of 18.2% and non-GAAP operating income of $80.7 million in the comparable period of 2007.

Non-GAAP results exclude the after-tax effects of amortization of intangible assets acquired with business combinations, share-based compensation expenses, expenses associated with our stock option investigation and write off of acquired in-process research and development. A reconciliation of GAAP to non-GAAP financial results is included with this press release.

Quest Softwares management prepares and uses non-GAAP financial measures in the presentation of the Companys 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 Companys on-going economic performance and therefore uses non-GAAP reporting internally to evaluate and manage the Companys operations. By excluding charges such as those described above from its GAAP-based results, we believe these non-GAAP financial measures are more likely to facilitate investors understanding of the Companys ongoing business operating results. These non-GAAP financial measures also facilitate comparisons to the operating results of the Companys 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 updated guidance for the twelve months ending December 31, 2008:

  • Annual revenue is expected to be in the range of $725 million to $740 million;
  • GAAP operating margin is expected to be in the range of 9.8% to 11.4%. Our GAAP guidance is based on information available as of the date of this release;
  • Non-GAAP operating margin is expected to be in the range of 17.0% to 18.5%. The non-GAAP guidance excludes approximately $31.2 million in amortization of acquisition-related intangible assets, $1.0 million charge for in-process research and development acquired in May 2008, $16.8 million related to share-based compensation expense, and $3.2 million in expenses associated with the stock option investigation.
Published Friday, October 31, 2008 6:09 AM by David Marshall
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GapTech » Blog Archive » Quest Software Reports Third Quarter 2008 Results : VMblog.com … - (Author's Link) - November 1, 2008 2:33 PM
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