UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NO. 000-26937
QUEST SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
| California | 33-0231678 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 8001 Irvine Center Drive Irvine, California |
92618 | |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (949) 754-8000
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
Yes x No ¨
The number of shares outstanding of the Registrant’s Common Stock, no par value, as of April 30, 2004, was 94,341,818.
QUEST SOFTWARE, INC.
FORM 10-Q
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| December 31, 2003 |
March 31, 2004 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 67,470 | $ | 65,956 | ||||
| Short-term marketable securities |
26,736 | 18,107 | ||||||
| Accounts receivable, net |
58,535 | 50,987 | ||||||
| Prepaid expenses and other current assets |
6,846 | 11,267 | ||||||
| Deferred income taxes |
15,074 | 3,954 | ||||||
| Total current assets |
174,661 | 150,271 | ||||||
| Property and equipment, net |
31,950 | 47,331 | ||||||
| Long-term marketable securities |
184,160 | 180,688 | ||||||
| Goodwill |
239,840 | 325,232 | ||||||
| Amortizing intangible assets, net |
25,159 | 50,796 | ||||||
| Deferred income taxes |
10,126 | 12,626 | ||||||
| Other assets |
1,915 | 2,097 | ||||||
| Total assets |
$ | 667,811 | $ | 769,041 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,180 | $ | 5,216 | ||||
| Obligation under repurchase agreement |
— | 67,500 | ||||||
| Accrued compensation |
17,384 | 17,648 | ||||||
| Other accrued expenses |
27,939 | 26,532 | ||||||
| Income taxes payable |
9,082 | 10,484 | ||||||
| Current portion of deferred revenue |
73,957 | 84,514 | ||||||
| Total current liabilities |
132,542 | 211,894 | ||||||
| Long-term liabilities: |
||||||||
| Long-term portion of deferred revenue |
9,416 | 11,513 | ||||||
| Other long-term liabilities |
1,677 | 2,092 | ||||||
| Total long-term liabilities |
11,093 | 13,605 | ||||||
| Commitments and contingencies (Notes 3, 5 and 10) |
||||||||
| Shareholders’ equity: |
||||||||
| Preferred stock, no par value, 10,000 shares authorized; no shares issued or outstanding |
— | — | ||||||
| Common stock, no par value, 150,000 shares authorized; 93,309 and 94,187 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively |
588,203 | 610,252 | ||||||
| Accumulated deficit |
(47,073 | ) | (46,687 | ) | ||||
| Accumulated other comprehensive income |
260 | 1,165 | ||||||
| Unearned compensation |
— | (3,974 | ) | |||||
| Note receivable from sale of common stock |
(17,214 | ) | (17,214 | ) | ||||
| Net shareholders’ equity |
524,176 | 543,542 | ||||||
| Total liabilities and shareholders’ equity |
$ | 667,811 | $ | 769,041 | ||||
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||
| 2003 |
2004 | |||||
| Revenues: |
||||||
| Licenses |
$ | 42,722 | $ | 47,028 | ||
| Services |
28,477 | 35,499 | ||||
| Total revenues |
71,199 | 82,527 | ||||
| Cost of revenues: |
||||||
| Licenses |
933 | 1,097 | ||||
| Services |
5,195 | 6,403 | ||||
| Amortization of purchased intangible assets |
2,130 | 1,431 | ||||
| Total cost of revenues |
8,258 | 8,931 | ||||
| Gross profit |
62,941 | 73,596 | ||||
| Operating expenses: |
||||||
| Sales and marketing |
36,129 | 36,124 | ||||
| Research and development |
17,185 | 18,158 | ||||
| General and administrative |
6,551 | 8,260 | ||||
| In-process research and development |
— | 6,700 | ||||
| Amortization of purchased intangible assets |
867 | 730 | ||||
| Total operating expenses |
60,732 | 69,972 | ||||
| Income from operations |
2,209 | 3,624 | ||||
| Other income, net |
1,860 | 667 | ||||
| Income before income tax provision |
4,069 | 4,291 | ||||
| Income tax provision |
1,535 | 3,905 | ||||
| Net income |
$ | 2,534 | $ | 386 | ||
| Net income per share: |
||||||
| Basic |
$ | 0.03 | $ | 0.00 | ||
| Diluted |
$ | 0.03 | $ | 0.00 | ||
| Weighted average shares: |
||||||
| Basic |
90,974 | 93,802 | ||||
| Diluted |
92,922 | 97,970 | ||||
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 2,534 | $ | 386 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
6,919 | 5,402 | ||||||
| Compensation expense associated with stock options |
495 | 170 | ||||||
| Deferred income taxes |
110 | 3 | ||||||
| Provision for bad debts |
138 | (23 | ) | |||||
| In-process research and development |
— | 6,700 | ||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||
| Accounts receivable |
11,232 | 9,807 | ||||||
| Prepaid expenses and other current assets |
991 | (2,331 | ) | |||||
| Other assets |
948 | (3 | ) | |||||
| Accounts payable |
89 | 493 | ||||||
| Accrued compensation |
(1,101 | ) | (1,116 | ) | ||||
| Other accrued expenses |
(5,274 | ) | (4,796 | ) | ||||
| Income taxes payable |
1,789 | 2,802 | ||||||
| Deferred revenue |
3,210 | 4,843 | ||||||
| Other liabilities |
(145 | ) | 415 | |||||
| Net cash provided by operating activities |
21,935 | 22,752 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(2,883 | ) | (16,586 | ) | ||||
| Cash paid for acquisition, net of cash acquired |
— | (94,283 | ) | |||||
| Purchases of marketable securities |
(42,375 | ) | — | |||||
| Sales and maturities of marketable securities |
22,475 | 13,005 | ||||||
| Net cash used in investing activities |
(22,783 | ) | (97,864 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from repurchase agreement |
— | 67,500 | ||||||
| Repayment of capital lease obligations |
(91 | ) | (92 | ) | ||||
| Proceeds from the exercise of stock options |
195 | 4,288 | ||||||
| Proceeds from employee stock purchase plan |
2,286 | 2,723 | ||||||
| Net cash provided by financing activities |
2,390 | 74,419 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(418 | ) | (821 | ) | ||||
| Net (decrease) increase in cash and cash equivalents |
1,124 | (1,514 | ) | |||||
| Cash and cash equivalents, beginning of period |
64,283 | 67,470 | ||||||
| Cash and cash equivalents, end of period |
$ | 65,407 | $ | 65,956 | ||||
| Supplemental disclosures of condensed consolidated cash flow information: |
||||||||
| Cash paid for: |
||||||||
| Interest |
$ | 22 | $ | 51 | ||||
| Income taxes |
$ | 60 | $ | 380 | ||||
| Supplemental schedule of non-cash investing and financing activities: |
||||||||
| Unrealized gain (loss) on available-for-sale securities |
$ | (170 | ) | $ | 905 | |||
| Tax benefit related to stock option exercises |
$ | 1,510 | $ | 1,540 | ||||
See Note 3 for details of assets acquired and liabilities assumed in purchase transactions.
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||
| 2003 |
2004 | ||||||
| Net income |
$ | 2,534 | $ | 386 | |||
| Other comprehensive loss: |
|||||||
| Unrealized gain (loss) on available-for-sale securities, net of tax |
(170 | ) | 905 | ||||
| Comprehensive income |
$ | 2,364 | $ | 1,291 | |||
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
Our accompanying unaudited condensed consolidated financial statements as of March 31, 2004 and for the three months ended March 31, 2003 and 2004, reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made to the March 31, 2003 balances in order to conform to the March 31, 2004 presentation.
These financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003.
Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for any future period.
2. Stock Option Plans
The following table summarizes information about stock options outstanding as of March 31, 2004 (in thousands, except for per share data):
| &nbs |