8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) July 23, 2003

QUEST SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

California	000-26937	33-0231678
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS 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

Not Applicable

(Former name or former address, if changed since last report.)

Item 7.    Financial Statements, Pro Forma Financial Information and Exhibits

(c) Exhibits

99.1 Press Release issued by Quest Software, Inc. on July 23, 2003

Item 9.    Regulation FD Disclosure (Information furnished pursuant to Item 12, “Results of Operations and

Financial Condition”)

In accordance with SEC Release No. 33-8216, the following information, required to be furnished under “Item 12. Results of Operations and Financial Condition,” is furnished to the Commission under “Item 9. Regulation FD Disclosure.”

On July 23, 2003, Quest Software, Inc. issued a press release announcing operating results for the quarter ended June 30, 2003. This press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

The information in this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, unless Quest Software, Inc. specifically incorporates the foregoing information into those documents by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	QUEST SOFTWARE, INC.
Date: July 23, 2003	By:	/s/    M. BRINKLEY MORSE
		M. Brinkley Morse, Vice President, Finance and Operations and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description of Document
99.1	Press Release issued by Quest Software, Inc. on July 23, 2003

EX-99.1

Exhibit 99.1

[LOGO] NEWS

Editorial Contact: Erin Jones

949-754-8032

erin.jones@quest.com

Investor Contact: Scott Davidson

949-754-8659

scott.davidson@quest.com

QUEST SOFTWARE REPORTS RESULTS FOR SECOND QUARTER 2003

Revenue of $70.9 Million for the Quarter

Expects to restate previous financials to correct computational error

IRVINE, Calif., July 23, 2003 – Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application management solutions, today reported financial results for the quarter ended June 30, 2003. Total revenue for the second quarter 2003 was $70.9 million. Total revenue for the first six months of 2003 was $142.0 million. These results give effect to correction of a computational error as discussed below.

GAAP Results

Quest’s net income for the second quarter was $3.1 million, or $0.03 per diluted share. Net income for the first six months of 2003 was $5.7 million or $0.06 per diluted share.

Non-GAAP Results

On a pro forma basis, net income of $5.2 million resulted in a diluted earnings per share of $0.06 for the second quarter of 2003. For the six months ended June 30, 2003 pro forma net income was $10.2 million or $0.11 per diluted share.

Quest management utilizes 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 pro forma reporting provides a more accurate representation of the company’s on-going economic performance and therefore uses pro forma reporting internally to evaluate and manage the company’s operations. Management believes that these measures provide useful information because they exclude

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Quest Reports Second Quarter 2003 Results – page 2 of 9

certain items including amortization of intangibles, other compensation expenses, gains or losses on investment securities and facility closure charges that are not necessarily relevant to understanding the operating activities within the company’s business. A reconciliation of pro forma and as reported GAAP financial results is included with this press release.

“Our second quarter financial and operational performance was executed to plan and our results met our expectations,” said Vinny Smith, chairman and chief executive officer, Quest Software. “We carried out our cost containment plans announced on last quarter’s earnings call and we continue to see solid market acceptance of our products. We have a strong product cycle through the end of the year and I am confident in our ability to innovate and deliver high-value solutions to our customers.”

Financial Outlook

Quest management offers the following guidance for the quarter ending September 30, 2003:

• Revenue is expected to be in the range of $67 million to $71 million;

• GAAP Diluted Earnings Per Share is expected to be in the range of $0.00 to $0.02 per share;

• Pro-Forma Diluted Earnings Per Share is expected to be in the range of $0.03 to $0.05 per share. The pro-forma guidance excludes approximately $1.9 million of amortization of purchased intangible assets, $925,000 of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks and $175,000 of other compensation charges related to stock options.

For the full year ending December 31, 2003, Quest management offers the following guidance:

• Annual revenue is expected to be in the range of $285 million to $295 million

• GAAP Diluted Earnings Per Share is expected to be in the range of $0.11 to $0.15 per share;

• Pro-Forma Diluted Earnings Per Share is expected to be in the range of $0.21 to $0.25. The pro-forma guidance excludes approximately $7.7 million of amortization of purchased intangible assets, $3.5 million of amortization of acquired intangible assets including customer lists, a non-compete agreement and trademarks and $1.3 million of other compensation charges related to stock options.

Correction of Computational Error

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Quest Reports Second Quarter 2003 Results – page 3 of 9

The Company also announced that it has discovered a computational error in its internal consolidation system that has caused deferred revenue and fixed asset balances of foreign subsidiaries to be inaccurately reported. The computational error was recently discovered by the Company’s internal accounting staff and promptly brought to the attention of the Company’s auditors. Quest expects to restate its previously reported results for the first three quarters of 2002, for the calendar year 2002, and the first quarter of 2003 to correct this error. Based on preliminary financial data, and as more fully described in the attached summary, upon correction of the error GAAP basis net income for 2002 is expected to decrease by approximately $0.7 million, or $0.01 per diluted share. Pro-Forma net income for 2002 is expected to decrease by approximately $0.5 million, or $0.01 per diluted share, and revenues for 2002 are expected to decrease by not more than 2%. For the March 2003 period, GAAP and Pro-Forma net income is expected to decrease by approximately $0.3 million.

The Company is in the process of preparing its Form 10-Q for the second quarter of 2003, and currently expects to file amendments to its Form 10-K for the year ended December 31, 2002, as well as amendments to its Forms 10-Q for the affected quarterly periods, with the restated financial information, on or before August 14, 2003.

Second Quarter 2003 Conference Call Information

Quest Software will host a conference call today, Wednesday, July 23 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 About Quest – Investor Relations section at www.quest.com. A Web cast replay will be available on the same Web site through August 7, 2003. An audio replay of the call will also be available through July 30, 2003 by dialing (888) 203-1112 (from the U.S. or Canada) or (719) 457-0820 (outside the U.S. and Canada), using confirmation code: 411950.

About Quest Software, Inc.

Quest Software, Inc. is a leading provider of application management solutions. Quest provides customers with Application Confidence^sm by delivering reliable software products to develop, deploy, manage and maintain enterprise applications without expensive downtime or business interruption. Targeting high availability, monitoring, database management and Microsoft infrastructure management, Quest products increase the performance and uptime of business-critical applications and enable IT professionals to achieve more with fewer resources. The company is headquartered in Irvine, Calif. and has offices around the globe. For more information on Quest Software visit www.quest.com.

Quest Reports Second Quarter 2003 Results – page 4 of 9

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. These statements include statements concerning the scope and timing of restatement of our reported financial results, and 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 further adverse changes in general economic conditions; further reductions or delays in information technology spending; variations in the size and timing of customer orders; competitive products and pricing; rapid technological change; risks associated with the development and market acceptance of new products; disruptions caused by acquisitions of companies and/or technologies; risks associated with international operations; and the need to attract and retain qualified personnel, and the risk that further review of the periods affected by the foreign exchange computational error will require further adjustment. 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, 2002, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. 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 is a registered trademark and Quest Software is a trademark of Quest Software, Inc. All other trademarks and registered trademarks are property of their respective owners.

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Quest Reports Second Quarter 2003 Results – page 5 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2003		2002			2003		2002
			(As previously Reported)			(Corrected)		(As previously Reported)
Revenues:
Licenses	$	41,489	$	39,689		$	84,254	$	77,179
Services		29,382		23,848			57,737		45,751
Total revenues		70,871		63,537			141,991		122,930
Cost of revenues:
Licenses		1,138		1,002			2,071		1,922
Services		5,343		4,593			10,538		8,964
Amortization of purchased intangible assets		2,363		1,289			4,492		2,691
Total cost of revenues		8,844		6,884			17,101		13,577
Gross profit		62,027		56,653			124,890		109,353
Operating expenses:
Sales and marketing		35,817		31,583			71,944		61,629
Research and development		17,085		15,091			34,389		30,260
General and administrative		7,211		6,184			13,745		12,019
Intangible asset amortization		887		480			1,635		864
Total operating expenses		61,000		53,338			121,713		104,772
Income from operations		1,027		3,315			3,177		4,581
Other income, net		3,914		2,275			5,935		3,892
Write-down of investments		—		(1,095	)		—		(1,095	)
Income before income tax provision		4,941		4,495			9,112		7,378
Income tax provision		1,848		1,823			3,421		2,984
Net income	$	3,093	$	2,672		$	5,691	$	4,394
Net income per share:
Basic	$	0.03	$	0.03		$	0.06	$	0.05
Diluted	$	0.03	$	0.03		$	0.06	$	0.05
Weighted average shares:
Basic		91,672		90,323			91,325		90,037
Diluted		93,644		92,577			93,259		93,214

Quest Reports Second Quarter 2003 Results – page 6 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30, 2003						Six Months Ended June 30, 2003
	GAAP		Adjustments		Adjusted		GAAP		Adjustments		Adjusted
							(Corrected)
Revenues:
Licenses	$	41,489			$	41,489	$	84,254			$	84,254
Services		29,382				29,382		57,737				57,737
Total revenues		70,871				70,871		141,991				141,991
Cost of revenues:
Licenses		1,138	(1	)(1)		1,137		2,071	(1	)(5)		2,070
Services		5,343	(17	)(1)		5,326		10,538	(45	)(5)		10,493
Amortization of purchased intangible assets		2,363	(2,363	)		—		4,492	(4,492	)		—
Total cost of revenues		8,844				6,463		17,101				12,563
Gross profit		62,027				64,408		124,890				129,428
Operating expenses:
Sales and marketing		35,817	(143	)(1)		35,674		71,944	(486	)(4)		71,458
Research and development		17,085	(225	)(1)		16,860		34,389	(577	)(4)		33,812
General and administrative		7,211	(18	)(1)		7,193		13,745	(71	)(5)		13,674
Intangible asset amortization		887	(887	)		—		1,635	(1,635	)		—
Total operating expenses		61,000				59,727		121,713				118,944
Income from operations		1,027				4,681		3,177				10,484
Other income, net		3,914	(177	)(2)		3,737		5,935	74	(6)		6,009
Income before income tax provision		4,941				8,418		9,112				16,493
Income tax provision		1,848	1,351	(3)		3,199		3,421	2,846	(7)		6,267
Net income	$	3,093			$	5,219	$	5,691			$	10,226
Net income per share:
Basic	$	0.03			$	0.06	$	0.06			$	0.11
Diluted	$	0.03			$	0.06	$	0.06			$	0.11
Weighted average shares:
Basic		91,672				91,672		91,325				91,325
Diluted		93,644				93,644		93,259				93,259

For the Three Months Ended June 30, 2003

(1) Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price.

(2) Represents gain on securities held for trading purposes.

(3) Represents the tax effect of adjustments.

For the Six Months Ended June 30, 2003

(4) Represents $281,000 in severance and idle facility charges incurred from closing one of our Canadian offices and $899,000 in compensation and other costs related primarily to stock option grants with a below fair market value exercise price.

(5) Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price.

(6) Represents loss on securities held for trading purposes.

(7) Represents the tax effect of adjustments.

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Quest Reports Second Quarter 2003 Results – page 7 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30, 2002 (3)							Six Months Ended June 30, 2002 (3)
	GAAP			Adjustments		Adjusted		GAAP			Adjustments		Adjusted
	(As Previously Reported)					(As Previously Reported)		(As Previously Reported)					(As Previously Reported)
Revenues:
Licenses	$	39,689				$	39,689	$	77,179				$	77,179
Services		23,848					23,848		45,751					45,751
Total revenues		63,537					63,537		122,930					122,930
Cost of revenues:
Licenses		1,002					1,002		1,922					1,922
Services		4,593		1	(1)		4,594		8,964		(58	)(1)		8,906
Amortization of purchased intangible assets		1,289		(1,289	)		—		2,691		(2,691	)		—
Total cost of revenues		6,884					5,596		13,577					10,828
Gross profit		56,653					57,941		109,353					112,102
Operating expenses:
Sales and marketing		31,583		14	(1)		31,597		61,629		(444	)(1)		61,185
Research and development		15,091		39	(1)		15,130		30,260		(294	)(1)		29,966
General and administrative		6,184		3	(1)		6,187		12,019		(72	)(1)		11,947
Intangible asset amortization		480		(480	)		—		864		(864	)		—
Total operating expenses		53,338					52,914		104,772					103,098
Income from operations		3,315					5,027		4,581					9,004
Other income, net		2,275					2,275		3,892					3,892
Write-down of investments		(1,095	)	1,095			—		(1,095	)	1,095			—
Income before income tax provision		4,495					7,302		7,378					12,896
Income tax provision		1,823		1,098	(2)		2,921		2,984		2,174	(2)		5,158
Net income	$	2,672				$	4,381	$	4,394				$	7,738
Net income per share:
Basic	$	0.03				$	0.05	$	0.05				$	0.09
Diluted	$	0.03				$	0.05	$	0.05				$	0.08
Weighted average shares:
Basic		90,323					90,323		90,037					90,037
Diluted		92,577					92,577		93,214					93,214

(1) Represents compensation and other costs related primarily to stock option grants with a below fair market value exercise price.

(2) Represents the tax effect of adjustments.

(3) Subject to correction of computational error relating to foreign currency calculations.

Quest Reports Second Quarter 2003 Results – page 8 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

	June 30, 2003		December 31, 2002 (1)
			(As Previously Reported)
Current assets:
Cash and cash equivalents	$	101,229	$	64,283
Short-term marketable securities available for sale		36,814		27,841
Accounts receivable, net		36,811		40,330
Prepaid expenses and other current assets		7,786		9,653
Deferred income taxes		7,966		9,563
Total current assets		190,606		151,670
Property and equipment, net		40,738		44,616
Long-term marketable securities		97,567		115,422
Goodwill, net		239,695		231,717
Amortizing intangible assets, net		29,440		31,116
Deferred income taxes		14,975		14,960
Other assets		1,982		2,341
Total assets	$	615,003	$	591,842
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,525	$	5,308
Accrued compensation		14,908		13,900
Other accrued expenses		23,825		23,703
Income taxes payable		1,988		1,323
Deferred revenue		68,743		63,128
Total current liabilities		113,989		107,362
Long-term liabilities and other		5,776		5,941
Shareholders’ equity		495,238		478,539
Total liabilities and shareholders’ equity	$	615,003	$	591,842

(1) Subject to correction of computational error relating to foreign currency calculations.

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Quest Reports Second Quarter 2003 Results – page 9 of 9

QUEST SOFTWARE, INC.

ANTICIPATED FINANCIAL IMPACT OF RESTATEMENT

(In thousands, except per share data)

(Unaudited)

	GAAP							Pro Forma
	As Reported		Restatement			Restated		As Reported		Restatement			Restated
Net Income
Quarter Ended:
March 31, 2002	$	1,721	$	231		$	1,952	$	3,357	$	272		$	3,629
June 30, 2002		2,672		(309	)		2,363		4,381		(263	)		4,118
September 30, 2002		2,506		(263	)		2,243		4,644		(239	)		4,405
December 31, 2002		4,001		(323	)		3,678		7,670		(327	)		7,343
Year Ended December 31, 2002	$	10,900	$	(664	)	$	10,236	$	20,052	$	(557	)	$	19,495
Quarter Ended March 31, 2003	$	2,887	$	(325	)	$	2,562	$	5,139	$	(323	)	$	4,816
Earnings Per Share
Quarter Ended:
March 31, 2002	$	0.02	$	—		$	0.02	$	0.04	$	—		$	0.04
June 30, 2002		0.03		—			0.03		0.05		(0.01	)		0.04
September 30, 2002		0.03		(0.01	)		0.02		0.05		—			0.05
December 31, 2002		0.04		—			0.04		0.08		—			0.08
Year Ended December 31, 2002	$	0.12	$	(0.01	)	$	0.11	$	0.22	$	(0.01	)	$	0.21
Quarter Ended March 31, 2003	$	0.03	$	—		$	0.03	$	0.06	$	(0.01	)	$	0.05

	Quarter Ended March 31, 2002			Quarter Ended June 30, 2002			Quarter Ended September 30, 2002			Quarter Ended December 31, 2002			Year Ended December 31, 2002			Quarter Ended March 31, 2003
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Restated Pro Forma Net Income	$	3,629		$	4,118		$	4,405		$	7,343		$	19,495		$	4,816
Adjustments:
Amortization of purchased intangible assets		(1,402	)		(1,289	)		(1,288	)		(1,765	)		(5,744	)		(2,130	)
Amortization of other intangibles		(386	)		(479	)		(479	)		(692	)		(2,036	)		(867	)
Compensation and other costs		(924	)		56			(462	)		(661	)		(1,991	)		(376	)
Loss on equity investments		—			(1,095	)		—			1,405			310			—
In process research & development		—			—			—			(2,900	)		(2,900	)		—
Loss on sale of aircraft		—			—			(790	)		—			(790	)		—
Severance and facility closure charges		—			—			—			—			—			(281	)
Provision for income taxes		1,035			1,052			857			948			3,892			1,400
Restated Net Income	$	1,952		$	2,363		$	2,243		$	3,678		$	10,236		$	2,562