Quest Software: Fiscal 4Q10 Financial Results

Quest Software, Inc. reported financial results for the quarter and year ended Dec. 31, 2010.

Total revenues were $216.8 million, an 11.4% increase compared to the prior year’s fourth quarter revenue of $194.5 million, while license revenues grew 11.5% to $98.0 million. Total revenues for the year ended Dec. 31, 2010, were $767.1 million, a 10.3% increase compared to $695.2 million for the same period in 2009.

Operating margins were 14.4% and 15.7% for the three and twelve months ended Dec. 31, 2010, respectively, as compared to 23.4% and 12.0% for the three and twelve months ended Dec. 31, 2009, respectively. On a non-GAAP basis, operating margins were 22.6% and 23.1% for the three and twelve months ended Dec. 31, 2010.

Cash and investments at Dec. 31, 2010, totaled $492.3 million, an increase of $82.1 million over the comparable balance at Sep. 30, 2010. Cash flow from operations was $62.7 million for the three months ended Dec. 31, 2010.

"We continued to execute in the fourth quarter, delivering solid revenue growth," said Doug Garn, President and CEO of Quest Software. "In 2010, we delivered 14.0% non-GAAP operating income growth to $177.4 million and 16.0% diluted earnings per share growth to $1.45 per fully diluted share. Our 14.8% increase in license revenue demonstrates the strength of the market momentum we are seeing. With our strong technology and services portfolio, coupled with a compelling product roadmap, we remain confident that we will continue to extend our market leadership into the future."

Increase to Stock Repurchase Program
Quest Software also announced that its board of directors has increased the authorization under its current stock repurchase program to an aggregate of up to $150 million of its common stock. Any stock repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans. Rule 10b5-1 permits Quest Software to establish, while not in possession of material nonpublic information, prearranged plans to buy stock at a specific price in the future, regardless of any subsequent possession of material nonpublic information. The timing and actual number of shares repurchased will depend on a variety of factors including market conditions, corporate and regulatory requirements, and capital availability. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.

GAAP Results
Quest Software expects net income for the fourth quarter of 2010 to be $30.3 million, or $0.32 per fully diluted share. This compares to net income of $37.0 million, or $0.40 per share on a fully diluted basis, for the fourth quarter of 2009. Operating margin was 14.4% in the fourth quarter of 2010 compared to 23.4% in the comparable period of 2009, resulting in operating income of $31.2 million, which compares to $45.5 million for the corresponding period in 2009. Net income for the year ended Dec. 31, 2010, was $98.6 million, or $1.06 per fully diluted share compared to net income of $70.4 million, or $0.75 per fully diluted share for the same period in 2009. Operating margins increased year-over-year from 12.0% to 15.7% in the fiscal year, resulting in operating income of $120.6 million, compared to $83.5 million for the corresponding period in 2009.

Non-GAAP Results
On a non-GAAP basis, net income for the fourth quarter of 2010 is expected to be $38.0 million, or $0.40 per fully diluted share. This compares to non-GAAP net income of $36.9 million, or $0.40 per share on a fully diluted basis, for the fourth quarter of 2009. The non-GAAP operating margin was 22.6% in the fourth quarter of 2010, resulting in non-GAAP operating income of $49.0 million, compared to non-GAAP operating margin and operating income of 24.8% and $48.3 million, respectively, for the corresponding period in 2009. For the year ended Dec. 31, 2010, non-GAAP net income was $135.0 million, or $1.45 per fully diluted share. This compares to non-GAAP net income of $117.8 million, or $1.25 per fully diluted share, for the year ended Dec. 31, 2009. The non-GAAP operating margin was 23.1% for the year ended Dec. 31, 2010, resulting in non-GAAP operating income of $177.4 million, compared to non-GAAP operating margin and operating income of 22.4% and $155.6 million, respectively, in the comparable period of 2009.

This release contains estimates of net income and earnings per share for the quarter ended December 31, 2010. During the year-end close process, we discovered that approximately $6.8 million in tax reserves should have been released in the quarter ended September 30, 2010. The release of these tax reserves would result in higher net income and earnings per share than previously reported for the third quarter.