Quest Software: Fiscal 4Q11 Financial Results

(in US$ millions)	4Q10	4Q11	FY10	FY11
Revenues	216.8	245.9	767.1	857.4
Growth		13%		12%
Net income (loss)	37.1	20.6	98.6	52.1

Quest Software, Inc. reported financial results for the quarter and year ended Dec. 31, 2011.

Total revenues were $245.9 million, a 13.4% increase compared to the prior year's fourth quarter revenues of $216.8 million. Total revenues for the year ended Dec. 31, 2011, were $857.4 million, an 11.8% increase compared to $767.1 million for the same period in 2010. Operating margins were 18.3% and 10.6% for the three and twelve months ended Dec. 31, 2011, respectively as compared to 14.4% and 15.7% for the three and twelve months ended Dec. 31, 2010, respectively. On a non-GAAP basis, operating margins were 27.2% and 19.6% for the three and twelve months ended Dec. 31, 2011, respectively as compared to 22.6% and 23.1% for the three and twelve months ended Dec. 31, 2010, respectively.

Cash and investments at Dec. 31, 2011, totaled $253.8 million, a decrease of $3.0 million from the comparable balance at Sep. 30, 2011. Cash flow from operations was $57.5 million for the three months ended Dec. 31, 2011.

"Q4 was a tougher quarter than we typically experience, but we are happy to announce results in line with our revised guidance," said Doug Garn, President and CEO of Quest Software.

Noncontrolling Interest
In October 2011, we acquired a 60 percent voting equity interest in Smarsh, Inc., a privately-held company. The minority shareholder who holds the remaining 40 percent noncontrolling interest was granted the right to require us to purchase half of the 40 percent noncontrolling interest from the first anniversary until the fifth anniversary of the acquisition date. This 20 percent noncontrolling interest is accounted for as redeemable noncontrolling interest because redemption is outside our control. As such, the redeemable noncontrolling interest is reported in the mezzanine section as temporary equity in our consolidated balance sheets. The remaining 20 percent is presented within total equity in our consolidated balance sheet. We present the amount of consolidated net income that is attributable to Quest Software, Inc. and the noncontrolling interest in our consolidated income statements. Net income per share is calculated based on net income attributable to Quest Software, Inc. stockholders. As of December 31, 2011, the carrying amount of the redeemable noncontrolling interest was adjusted to the redemption value of $22 million. The adjustment of $8.2 million was recorded in net loss attributable to noncontrolling interest, thereby directly affecting net income attributable to Quest Software, Inc.

GAAP Results
Net income attributable to Quest Software, Inc. for the fourth quarter of 2011 was $12.6 million, or $0.15 per fully diluted share. This compares to net income of $37.1 million, or $0.39 per share on a fully diluted basis, for the fourth quarter of 2010. Operating margin was 18.3% in the fourth quarter of 2011 compared to 14.4% in the comparable period of 2010, resulting in operating income of $45.1 million, which compares to $31.2 million for the corresponding period in 2010. For the year ended Dec. 31, 2011, net income attributable to Quest Software, Inc. was $44.0 million, or $0.49 per fully diluted share compared to net income of $98.6 million, or $1.06 per fully diluted share for the same period in 2010. Operating margin for the year ended Dec. 31, 2011, was 10.6% compared to 15.7% in the comparable period of 2010, resulting in operating income of $90.5 million, which compares to $120.6 million for the corresponding period in 2010.

Non-GAAP Results
On a non-GAAP basis, net income attributable to Quest Software, Inc. for the fourth quarter of 2011 was $42.6 million, or $0.51 per fully diluted share. This compares to non-GAAP net income of $44.8 million, or $0.47 per share on a fully diluted basis, for the fourth quarter of 2010. The non-GAAP operating margin was 27.2% in the fourth quarter of 2011, resulting in non-GAAP operating income of $66.8 million, compared to non-GAAP operating margin and operating income of 22.6% and $49.0 million, respectively, for the corresponding period in 2010. For the year ended Dec. 31, 2011, non-GAAP net income attributable to Quest Software, Inc. was $117.5 million, or $1.32 per fully diluted share. This compares to non-GAAP net income of $135.0 million, or $1.45 per fully diluted share, for the year ended Dec. 31, 2010. The non-GAAP operating margin was 19.6% for the year ended Dec. 31, 2011, resulting in non-GAAP operating income of $168.0 million, compared to non-GAAP operating margin and operating income of 23.1% and $177.4 million, respectively, in the comparable period of 2010.

Outlook for Fiscal Year 2012

• Total revenue is expected to grow in the range of 8.5% to 10%; and
• Non-GAAP operating margin is expected to be in the range of 20% to 21%. The non-GAAP guidance excludes after-tax effects of amortization of intangible assets acquired with business combinations, stock-based compensation expenses, acquisition related costs and other non-recurring costs.