Achieves Record Second Quarter Revenues of $173.4 Million

ALISO VIEJO, Calif.–(EMWNews)–Quest Software, Inc. (Nasdaq: QSFT) today reported financial results for

the quarter ended June 30, 2008. Total revenues increased 21.9% to

$173.4 million compared to the prior year’s

second quarter revenue of $142.3 million. Total revenues for the first

six months of 2008 increased 18.5% to $346.2 million compared to $292.1

million for the same period in 2007.

The Company’s cash and investments at June 30,

2008, totaled $419.7 million, an increase of $36.2 million over the

comparable balance at March 31, 2008. Quest generated cash flow from

operations of $24.0 million in the second quarter of 2008.

“We are pleased with our financial performance

through what has been a tough macroeconomic environment in the first

half of 2008,” said Vinny Smith, Quest CEO. “We

are continuing to drive our business to support our customers’

requirements across the breadth of their IT infrastructure with

innovative products and services.”

GAAP Results

Quest Software’s net income for the second

quarter of 2008 was $8.3 million, or $0.08 per fully diluted share. This

compares to net income of $7.9 million, or $0.08 per share on a fully

diluted basis, for the second quarter of 2007. Operating margins

decreased year-over-year from 5.5% to 2.5% in the second quarter,

resulting in operating income of $4.4 million which compares to $7.9

million for the corresponding period in 2007. Net income for the first

six months of 2008 was $21.6 million, or $0.20 per fully diluted share,

versus net income of $22.8 million, or $0.22 per fully diluted share,

for the comparable period in 2007.

Non-GAAP Results

On a non-GAAP basis, net income for the second quarter of 2008 was $17.7

million, or $0.17 per fully diluted share. This compares to non-GAAP net

income of $17.4 million, or $0.17 per share on a fully diluted basis,

for the second quarter of 2007. The non-GAAP operating margin was 10.8%

in the second quarter of 2008, resulting in non-GAAP operating income of

$18.7 million, compared to non-GAAP operating margin and operating

income of 13.8% and $19.6 million, respectively, for the corresponding

period in 2007. For the six months ended June 30, 2008 non-GAAP net

income was $39.9 million, or $0.38 per fully diluted share. This

compares to non-GAAP net income of $43.6 million, or $0.41 per fully

diluted share, for the six months ended June 30, 2007. The non-GAAP

operating margin was 12.1% in the first six months of 2008, resulting in

non-GAAP operating income of $42.0 million, compared to non-GAAP

operating margin of 18.2% and non-GAAP operating income of $53.1 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 in-process research and development. 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.

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

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 updated guidance for the

twelve months ending December 31, 2008:

• Annual revenue is expected to be in the range of $705 million to $720

  million;

• GAAP operating margin is expected to be in the range of 11.0% to

  12.0%. 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 17.5% to

  18.5%. The non-GAAP guidance excludes approximately $28.5 million in

  amortization of acquisition-related intangible assets, $1.0 million

  charge for in-process research and development acquired in May 2008,

  $13.0 million related to share-based compensation expense recognized

  in the six months ended June 30, 2008, and $2.2 million in expenses

  associated with the stock option investigation.

Second Quarter 2008 Conference Call Information

Quest Software will host a conference call today, Tuesday, August 5,

2008, at 2:00 p.m. Pacific Time, to discuss its results. A simultaneous

Web cast of the conference call will be available on Quest Software’s

Web site in the Investors – IR Events section

at www.quest.com. A Web cast replay

will be available on the same Web site through August 5, 2009. An audio

replay of the conference call will also be available through August 12,

2008, by dialing (888) 203-1112 (from the U.S. or Canada) or (719)

457-0820 (outside the U.S. and Canada), using confirmation code: 1815438.

About Quest Software, Inc.

Quest Software, Inc., a leading enterprise systems management vendor,

delivers innovative products that help organizations get more

performance and productivity from their applications, databases, Windows

infrastructure and virtual environments. Through a deep expertise in IT

operations and a continued focus on what works best, Quest helps more

than 90,000 customers worldwide meet higher expectations for enterprise

IT. Quest provides customers with client management as well as server

and desktop virtualization solutions through its subsidiaries,

ScriptLogic and Vizioncore. Quest Software can be found in offices

around the globe and at www.quest.com.

Quest, Quest Software and the Quest logo are trademarks or registered

trademarks of Quest Software in the United States and certain other

countries. Other trademarks and registered trademarks are property of

their respective owners.

Forward-Looking Statements

This release and the matters to be discussed on the conference call may

include predictions, estimates and other information that might be

considered forward-looking statements, including statements relating to

expectations of future revenue and operating margin performance and

other operating prospects. These statements are based on current

expectations and assumptions that are subject to risks and

uncertainties. Actual results could differ from those anticipated as a

result of various factors, including: the impact of adverse changes in

general economic conditions on our relationships with customers,

strategic partners and vendors; reductions or delays in information

technology spending; variations in demand or the size and timing of

customer orders; competitive conditions in our various product areas;

uncertainties relating to ongoing litigation and government

investigations arising from our stock option investigation; rapid

technological change; risks associated with the development and market

acceptance of new products and product strategies; disruptions caused by

acquisitions of companies and/or technologies; fluctuating currency

exchange rates and risks associated with international operations; the

need to attract and retain qualified employees; and other risks inherent

in software businesses. For a discussion of these and other related

risks, please refer to our recent SEC filings, including our Annual

Report on Form 10-K for the year ended December 31, 2007, which are

available on the SEC’s website at www.sec.gov.

Readers are cautioned not to place undue reliance on these

forward-looking statements, which speak only as of the date thereof. We

undertake no obligation to update forward-looking statements to reflect

events or circumstances after the date thereof.

QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
		Three Months Ended							Six Months Ended
		June 30,							June 30,
			2008			2007			2008			2007
Revenues:
Licenses		$	75,286			$	65,803		$	154,428		$	140,072
Services			98,147				76,514			191,785			152,014
Total revenues			173,433				142,317			346,213			292,086
Cost of revenues:
Licenses			1,775				659			4,189			2,662
Services			16,333				13,536			31,404			26,517
Amortization of purchased technology			4,669				3,220			9,593			6,277
Total cost of revenues			22,777				17,415			45,186			35,456
Gross profit			150,656				124,902			301,027			256,630
Operating expenses:
Sales and marketing			81,275				65,822			157,647			129,058
Research and development			39,297				29,849			77,518			58,114
General and administrative			22,220				19,779			45,691			36,344
Amortization of other purchased intangible assets			2,511				1,587			5,312			3,129
In-process research and development			955				–			955			–
Total operating expenses			146,258				117,037			287,123			226,645
Income from operations			4,398				7,865			13,904			29,985
Other income, net			3,026				6,140			10,911			11,192
Income before income tax (benefit) provision			7,424				14,005			24,815			41,177
Income tax (benefit) provision			(842	)			6,070			3,261			18,336
Net income		$	8,266			$	7,935		$	21,554		$	22,841
Net income per share:
Basic		$	0.08			$	0.08		$	0.21		$	0.22
Diluted		$	0.08			$	0.08		$	0.20		$	0.22
Weighted average shares:
Basic			104,247				101,819			103,774			101,819
Diluted			106,643				105,462			106,277			105,150

Reconciliation of Non-GAAP Financial Measures to Comparable U.S. GAAP

Measures (Unaudited)

The Company has provided a reconciliation of each non-GAAP financial

measure used in this earnings release and related conference call and

Web cast to the most directly comparable GAAP financial measure. These

measures differ from GAAP in that they exclude amortization of

intangible assets acquired with business combinations, share-based

compensation expenses, expenses, including indemnification advances,

associated with ongoing legal matters arising from our stock option

investigation, write off of in-process research and development and the

estimated tax effect related to each of these items. The Company’s

basis for these adjustments is described below.

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 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.

Management excludes the expenses described above when evaluating the

Company’s operating performance and believes

that the resulting non-GAAP measures are useful to investors and

financial analysts in assessing the Company’s

operating performance due to the following factors:

• The Company does not acquire businesses on a predictable cycle. The

  Company, therefore, believes that the presentation of non-GAAP

  measures that adjust for the impact of amortization and charges for

  acquired in-process research and development that are related to

  business combinations, provide investors and financial analysts with a

  consistent basis for comparison across accounting periods and,

  therefore, are useful to investors and financial analysts in helping

  them to better understand the Company’s operating results and

  underlying operational trends.

• Amortization costs are fixed at the time of an acquisition, are then

  amortized over a period of several years after the acquisition and

  generally cannot be changed or influenced by management after the

  acquisition.

• Although share-based compensation is an important aspect of the

  compensation of the Company’s employees and

  executives, share-based compensation expense and its related tax

  impact because such charges are generally fixed at the time of grant,

  are then amortized over a period of several years after the grant of

  the share-based instrument and generally cannot be changed or

  influenced by management after the grant.

• Share-based compensation is not an expense that typically requires or

  will require cash settlement by the Company.

• Ongoing expenses associated with our stock option investigation

  include expenses incurred for outside legal fees and costs, consulting

  services and other professional fees, and indemnification expenses for

  current and former directors and officers. Because these expenses are

  non-recurring and unique to the stock option investigation, we believe

  they are not indicative of future operating results and that investors

  benefit from an understanding of our operating results without giving

  effect to them.

• The estimated income tax effects on the above items adjust the

  provision for income taxes to reflect the effect of the non-GAAP

  adjustments on non-GAAP operating income.

These non-GAAP financial measures are not prepared in accordance with

accounting principles generally accepted in the United States (“GAAP”)

and may differ from the non-GAAP information used by other companies.

There are significant limitations associated with the use of non-GAAP

financial measures. The additional non-GAAP financial information

presented here should be considered in conjunction with, and not as a

substitute for or superior to, the financial information presented in

accordance with GAAP (such as net income and earnings per share) and

should not be considered measures of the Company’s

liquidity. Furthermore, the Company in the future may exclude

amortization related to new business combinations from financial

measures that it releases, and the Company expects to continue to incur

share-based compensation expenses.

QUEST SOFTWARE, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
				Three Months Ended												Six Months Ended
				June 30, 2008												June 30, 2008
				GAAP				Adjustments					Non-GAAP			GAAP			Adjustments					Non-GAAP
Revenues:
Licenses				$	75,286								$	75,286		$	154,428							$	154,428
Services					98,147									98,147			191,785								191,785
Total revenues					173,433									173,433			346,213								Quest Software, Inc. Editorial Contact: Daphne Kent, 614-726-4787 [email protected] or Investor Contacts: Thomas Patterson, 949-754-8336 [email protected] or Stephen Wideman, 949-754-8142 [email protected] Major Newsire & Press Release Distribution with Basic Starting at only $19 and Complete OTCBB / Financial Distribution only $89 Get Unlimited Organic Website Traffic to your Website  TheNFG.com now offers Organic Lead Generation & Traffic Solutions