8-K

UNITED STATES

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) January 27, 2005

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

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On February 2, 2005, Quest Software, Inc. (“Quest”) issued a press release announcing operating results for the quarter and year ended December 31, 2004. This press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

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 specifically incorporates the foregoing information into those documents by reference.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

(d) On January 27, 2005, Paul Sallaberry was elected to Quest’s Board of Directors to fill a vacancy that had existed since the date of our last Annual Meeting of Shareholders. Mr. Sallaberry will replace Jerry Murdock, Jr. as a member of Quest’s Compensation Committee. Mr. Sallaberry held several executive level positions with VERITAS Software, most recently as Executive Vice President, Worldwide Field Operations. Mr. Sallaberry had previously served as Senior Vice President, Worldwide Sales of Veritas from July 1999 to December 1999, and Vice President, Worldwide Sales of Veritas from April 1997 to July 1999. The press release issued by Quest on February 2, 2005 announcing the election of Mr. Sallaberry is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

Pursuant to the terms of the Automatic Option Grant Program under Quest’s 1999 Stock Incentive Plan, upon election to the Board, Mr. Sallaberry received options to purchase 50,000 shares of Quest Common Stock at an exercise price of $14.54, the closing price on the date of his election. Mr. Sallaberry will also enter into Quest’s standard form of indemnification agreement.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits.

99.1	Press release issued by Quest Software, Inc. on February 2, 2005 announcing results of operations.
99.2	Press release issued by Quest Software, Inc. on February 2, 2005 announcing the election of Paul Sallaberry to its Board of Directors.

SIGNATURES

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: February 2, 2005
	By:	/s/ M. Brinkley Morse
		M. Brinkley Morse
		Vice President, Finance and Operations and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Exhibit Title or Description
99.1	Press release issued by Quest Software, Inc. on February 2, 2005 announcing results of operations.
99.2	Press release issued by Quest Software, Inc. on February 2, 2005 announcing the election of Paul Sallaberry to its Board of Directors.

EX-99.1

Exhibit 99.1

	NEWS For Immediate Release
	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 RECORD REVENUE AND EARNINGS

FOR FOURTH QUARTER AND FISCAL YEAR 2004

Fourth Quarter Revenue Grows 33% Year-over-Year;

Company Posts $389 Million In Revenue for Fiscal 2004

IRVINE, Calif., February 2, 2005 – Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application, database and Windows management solutions, today reported record financial results for the fourth quarter and fiscal year ended December 31, 2004. Total revenues increased 33% year-over-year to $118.1 million in the fourth quarter of 2004 compared to last year’s fourth quarter revenue of $89.0 million. Total revenues increased 28% to $389.5 million in fiscal 2004 compared to total revenues of $304.3 million in fiscal 2003.

GAAP Results

Quest Software’s GAAP net income for the fourth quarter was $13.3 million, or $0.13 per diluted share. GAAP operating margins were 11.2% in the fourth quarter, resulting in GAAP operating income of $13.3 million. Net income for the full year ended December 31, 2004 was $47.2 million or $0.48 per diluted share versus net income of $21.5 million or $0.23 per diluted share for the comparable period in 2003. Operating income for fiscal 2004 was $63.6 million, a 145% increase over the same period in 2003. GAAP results for the fourth quarter include charges of $11.0 million for a loss contingency reserve related to our Computer Associates intellectual property litigation. In the second quarter we had a charge for the same matter of $5.0 million bringing the total charges for the year to $16.0 million. Quest Software generated cash flow from operations of $38.0 million in the December 2004 quarter.

Non-GAAP Results

On a pro forma basis, net income for the fourth quarter 2004 was $22.8 million or $0.23 per diluted share. Pro forma operating margins were 24.1% for the fourth quarter resulting in pro-forma

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 2 of 9

operating income of $28.4 million. Pro forma net income for fiscal 2004 was $52.9 million, a 67% increase over the prior year and resulting in $0.54 per diluted share. Pro forma operating income for fiscal 2004 was $72.6 million, an 89% increase over fiscal 2003.

A reconciliation of pro forma and as reported financial results is included with this press release.

“Our strong performance during Q4 and 2004 in total reflects solid execution by the members of our team across all aspects of our business,” said Vinny Smith, chairman and chief executive officer, Quest Software. “Of particular note is the strength of our 2004 license growth which demonstrates the core value of our products and our customer’s willingness to select Quest as a strategic partner to manage their key infrastructure needs. We believe that we are entering 2005 with positive momentum in our markets and we remain enthusiastic in our ability to capitalize on the investments that we made in our people, products and infrastructure during 2004.”

Quest Software 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 certain items including amortization of acquisition-related intangible assets, other compensation expenses associated with stock options, litigation-related loss contingency reserves and impacts of other events, which might otherwise obscure the results of operations of our core business when compared to our historical performance or competitors or are not necessarily relevant to understanding the operating activities within the Company’s business.

2004 Milestones

In addition to solid 2004 financial performance, Quest Software has also achieved the following milestones:

• Successfully integrated the people and products of Aelita Software. As a result of this acquisition, Quest Software has broadened its footprint in the Microsoft infrastructure management marketplace and diversified its multi-platform revenue stream.

• Won Microsoft’s Global ISV Partner of the year Award for 2004.

• Delivered new releases of major products across all solution areas including: Quest Central^® for Oracle 5.0; Quest Central^® for SQL Server 5.0; SharePlex^® 5.0; Stat^® ACM 5.0; PerformaSure^™ 3.0; Quest MessageStats^™ 5.0; InTrust^® 8.0; and new products Quest Group Policy Manager^™ 1.0, and Quest Archive Manager^™ for Exchange 1.0.

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 3 of 9

• Integrated the acquired assets of LECCO Technology, Inc. enabling Quest to broaden its SQL tuning and optimization product line.

• Effectively sold the Vista Plus Suite of products and its related assets to Open Text Corporation enabling the company to increase its focus on its core application, database and infrastructure management markets.

• Obtained significant industry analyst endorsements, including No. 1 positioning in Application Management software, Windows Server Management software and Distributed Data Management Facilities software by three leading industry analyst firms.

Financial Outlook

These statements do not include the potential impact of expensing stock options under the Financial Accounting Standards Board’s Statement 123R (FAS 123R), which will become effective for fiscal quarters after June 15, 2005¹.

Quest Software management offers the following guidance for the first quarter ending March 31, 2005:

• Revenue is expected to be in the range of $95.0 million to $100.0 million;

• GAAP diluted earnings per share is expected to be in the range of $0.06 to $0.10 per share;

• Pro forma diluted earnings per share is expected to be in the range of $0.09 to $0.13 per share. The pro forma guidance excludes approximately $3.4 million of amortization of acquisition related intangible assets and $755,000 of other compensation charges related to stock options.

For the full year ending December 31, 2005, Quest Software management offers the following guidance:

• Annual revenue is expected to be in the range of $435.0 million to $450.0 million;

• GAAP diluted earnings per share is expected to be in the range of $0.47 to $0.52 per share;

• Pro forma diluted earnings per share is expected to be in the range of $0.57 to $0.62. The pro-forma guidance excludes approximately $13.1 million of amortization of acquisition related intangible assets and $2.4 million of other compensation charges related to stock options.

Other Corporate Matters

In the course of its 2004 audit Deloitte & Touche, our independent auditors, informed Quest and our Audit Committee of deficiencies in Quest’s internal controls over financial reporting that arose in the course of the audit relating to staffing and procedures in our internal tax department. The company has determined that the deficiencies will likely be classified as a “material weakness” under Section 404 of SOX and PCAOB Accounting Standard No. 2. Specifically, the company’s controls failed to prevent or detect errors in certain tax calculations that resulted in adjustments reflected in our 2004 annual financial statements. The errors resulting from the deficiencies were corrected prior to completion of the audit, and the reported year-end financial results that we are releasing today reflect these corrections.

We have performed detailed analyses and reconciliations of the income tax accounts and, based thereon, believe that the 2004 income tax provision is appropriate. We are taking steps to remedy the deficiencies, primarily by engaging external tax advisors to assist in the preparation and review of our income tax calculations.

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 4 of 9

Concerning our class action securities litigation, we are pleased to announce that, after the Court granted two consecutive motions to dismiss plaintiff’s class action complaints, the lead plaintiff agreed to dismiss the case, with prejudice. The lead plaintiff filed a stipulation and proposed order dismissing the case with prejudice, which the Judge signed on January 18, 2005.

Fourth Quarter 2004 Conference Call Information

Quest Software will host a conference call today, Wednesday, February 2, 2005 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 February 2, 2006. An audio replay of the call will also be available through February 16, 2005 by dialing (888) 203-1112 (from the U.S. or Canada) or (719) 457-0820 (outside the U.S. and Canada), using confirmation code: 234311.

About Quest Software, Inc.

Quest Software, Inc. delivers innovative products that help organizations get more performance and productivity from their applications, databases and infrastructure. Through a deep expertise in IT operations and a continued focus on what works best, Quest helps more than 18,000 customers worldwide meet higher expectations for enterprise IT. Quest Software, headquartered in Irvine, Calif., can be found in offices around the globe and at www.quest.com.

Quest and Quest Software are registered trademarks of Quest Software, Inc. The Quest Software logo and all other Quest Software product or service names and slogans are registered trademarks or trademarks of Quest Software, Inc. All other trademarks and registered trademarks are property of their respective owners.

¹ As a result of excluding stock option expense, diluted earnings per share presented in our Financial Outlook for fiscal year ending December 31, 2005, may constitute a non-GAAP financial measure. Quest is unable to provide a quantitative reconciliation of such forward-looking measures to GAAP because Quest is currently in the process of assessing the potential impact of FAS 123R and, therefore, the amount of stock option expense is unknown at this time.

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 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 on our customers; further reductions or delays in information technology spending; variations in the size and timing of customer orders; the outcome of pending or future litigation (including pending litigation involving our Quest Central for DB2 products and resulting disruption to our business); 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; fluctuating currency exchange rates and other risks associated with international operations; and the need to attract and retain qualified employees. 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, 2003 and form 10Q for the period ended September 30, 2004. 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 Reports Fourth Quarter and Fiscal Year 2004 Results – page 5 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended December 31,				Twelve Months Ended December 31,
	2004		2003		2004		2003
Revenues:
Licenses	$	73,269	$	54,250	$	225,032	$	179,560
Services		44,781		34,740		164,431		124,728
Total revenues		118,050		88,990		389,463		304,288
Cost of revenues:
Licenses		1,123		1,214		3,958		4,312
Services		7,907		5,560		29,646		21,365
Amortization of purchased technology		2,126		1,284		8,107		7,675
Total cost of revenues		11,156		8,058		41,711		33,352
Gross profit		106,894		80,932		347,752		270,936
Operating expenses:
Sales and marketing		50,510		38,003		170,702		144,460
Research and development		19,924		16,859		78,305		67,448
General and administrative		10,833		8,371		36,493		29,656
Amortization of other purchased intangible assets		1,351		747		5,212		3,390
In-process research and development		—		—		6,980		—
Litigation loss provision		11,000		—		16,000		—
Total operating expenses		93,618		63,980		313,692		244,954
Gain on sale of Vista Plus product suite		—		—		29,574		—
Income from operations		13,276		16,952		63,634		25,982
Other income, net		6,093		481		8,976		7,637
Income before income tax provision		19,369		17,433		72,610		33,619
Income tax provision		6,106		5,955		25,390		12,103
Net income	$	13,263	$	11,478	$	47,220	$	21,516
Net income per share:
Basic	$	0.14	$	0.12	$	0.50	$	0.23
Diluted	$	0.13	$	0.12	$	0.48	$	0.23
Weighted average shares:
Basic		95,557		93,096		94,622		92,081
Diluted		99,635		96,480		98,158		94,231

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 6 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

			Three Months Ended December 31, 2004						Twelve Months Ended December 31, 2004
	GAAP		Adjustments		Adjusted		GAAP		Adjustments		Adjusted
Revenues:
Licenses	$	73,269			$	73,269	$	225,032			$	225,032
Services		44,781				44,781		164,431				164,431
Total revenues		118,050				118,050		389,463				389,463
Cost of revenues:
Licenses		1,123				1,123		3,958				3,958
Services		7,907	(45	)(1)		7,862		29,646	(190	)(1)		29,456
Amortization of purchased technology		2,126	(2,126	)		—		8,107	(8,107	)		—
Total cost of revenues		11,156				8,985		41,711				33,414
Gross profit		106,894				109,065		347,752				356,049
Operating expenses:
Sales and marketing		50,510	(379	)(1)		50,131		170,702	(1,409	)(1)		169,293
Research and development		19,924	(219	)(1)		19,705		78,305	(569	)(1)		77,736
General and administrative		10,833	(19	)(1)		10,814		36,493	(40	)(1)		36,453
Amortization of other purchased intangible assets		1,351	(1,351	)		—		5,212	(5,212	)		—
In-process research and development		—	—			—		6,980	(6,980	)(3)		—
Litigation loss provision		11,000	(11,000	)(4)		—		16,000	(16,000	)(4)		—
Total operating expenses		93,618				80,650		313,692				283,482
Gain on sale of Vista Plus product suite		—	—			—		29,574	(29,574	)		—
Income from operations		13,276				28,415		63,634				72,567
Other income, net		6,093				6,093		8,976				8,976
Income before income tax provision		19,369				34,508		72,610				81,543
Income tax provision		6,106	5,600	(2)		11,706		25,390	3,248	(2)		28,638
Net income	$	13,263			$	22,802	$	47,220			$	52,905
Net income per share:
Basic	$	0.14			$	0.24	$	0.50			$	0.56
Diluted	$	0.13			$	0.23	$	0.48			$	0.54
Weighted average shares:
Basic		95,557				95,557		94,622				94,622
Diluted		99,635				99,635		98,158				98,158

(1) Represents stock based compensation and payroll taxes attributed to stock option exercises.

(2) Represents the tax effect of adjustments.

(3) Represents one-time charges to write off in-process research and development assumed with our acquisition of Aelita Software in March 2004 and Lecco Technology in April 2004.

(4) Represents a special charge for a loss contingency reserve related to our Computer Associates intellectual property litigation.

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 7 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

			Three Months Ended December 31, 2003						Twelve Months Ended December 31, 2003
	GAAP		Adjustments		Adjusted		GAAP		Adjustments		Adjusted
Revenues:
Licenses	$	54,250			$	54,250	$	179,560			$	179,560
Services		34,740				34,740		124,728				124,728
Total revenues		88,990				88,990		304,288				304,288
Cost of revenues:
Licenses		1,214				1,214		4,312	(2	)(4)		4,310
Services		5,560	(13	)(1)		5,547		21,365	(71	)(4)		21,294
Amortization of purchased technology		1,284	(1,284	)		—		7,675	(7,675	)		—
Total cost of revenues		8,058				6,761		33,352				25,604
Gross profit		80,932				82,229		270,936				278,684
Operating expenses:
Sales and marketing		38,003	(81	)(1)		37,922		144,460	(744	)(4)		143,716
Research and development		16,859	(68	)(1)		16,791		67,448	(509	)(4)		66,939
General and administrative		8,371	(16	)(1)		8,355		29,656	(100	)(4)		29,556
Amortization of other purchased intangible assets		747	(747	)		—		3,390	(3,390	)		—
Total operating expenses		63,980				63,068		244,954				240,211
Income from operations		16,952				19,161		25,982				38,473
Other income, net		481	3,495	(2)		3,976		7,637	3,397	(2)(5)		11,034
Income before income tax provision		17,433				23,137		33,619				49,507
Income tax provision		5,955	1,847	(3)		7,802		12,103	5,720	(3)		17,823
Net income	$	11,478			$	15,335	$	21,516			$	31,684
Net income per share:
Basic	$	0.12			$	0.16	$	0.23			$	0.34
Diluted	$	0.12			$	0.16	$	0.23			$	0.34
Weighted average shares:
Basic		93,096				93,096		92,081				92,081
Diluted		96,480				96,480		94,231				94,231

(1) Represents stock based compensation and payroll taxes attributed to stock option exercises.

(2) Represents a one-time impairment charge to the carrying value of our aircraft.

(3) Represents the tax effect of adjustments.

(4) Represents (1) $281,000 in severance and idle facility charges incurred from closing one of our Canadian offices, which are included in sales and marketing and research and development, and (2) compensation and other costs related primarily to stock option grants with a below fair market value exercise price.

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

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 8 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

	December 31, 2004		December 31, 2003
Current assets:
Cash and cash equivalents	$	118,157	$	67,470
Short-term marketable securities available for sale		15,892		26,736
Accounts receivable, net		98,800		58,535
Prepaid expenses and other current assets		12,528		6,846
Deferred income taxes		11,960		15,074
Total current assets		257,337		174,661
Property and equipment, net		52,761		31,950
Long-term marketable securities		163,527		184,160
Goodwill		323,903		239,840
Amortizing intangible assets, net		41,404		25,159
Deferred income taxes		—		10,126
Other assets		3,304		1,915
Total assets	$	842,236	$	667,811
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,135	$	4,180
Obligation under repurchase agreement		12,632		—
Accrued compensation		27,802		17,384
Other accrued expenses		46,292		27,939
Income taxes payable		12,030		9,082
Current portion of deferred revenue		106,356		73,957
Total current liabilities		209,247		132,542
Long-term liabilities:
Long-term portion of deferred revenue		20,897		9,416
Deferred income taxes		3,411		—
Other long-term liabilities		1,769		1,677
Total long-term liabilities		26,077		11,093
Shareholders’ equity		606,912		524,176
Total liabilities and shareholders’ equity	$	842,236	$	667,811

Quest Reports Fourth Quarter and Fiscal Year 2004 Results – page 9 of 9

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2004			2003			2004			2003
Cash flows from operating activities:
Net income	$	13,263		$	11,478		$	47,220		$	21,516
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,860			5,614			26,420			26,584
Compensation expense associated with stock option grants		512			94			1,778			890
Deferred income taxes		6,702			(2,780	)		7,314			(3,234	)
Gain on sale of Vista Plus product suite		—			—			(29,574	)		—
Tax benefit related to stock option grants		1,112			3,163			3,909			8,864
Provision for bad debts		124			268			236			291
Loss on impairment of aircraft		—			3,495			—			3,495
In-process research and development		—			—			6,980			—
Litigation loss provision		11,000			—			16,000			—
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(28,220	)		(18,515	)		(34,290	)		(14,622	)
Prepaid expenses and other current assets		(1,196	)		1,399			(1,472	)		4,074
Other assets		4,246			2			3,870			(92	)
Accounts payable		(1,531	)		(1,348	)		(829	)		(1,329	)
Accrued compensation		5,706			1,304			7,747			2,276
Other accrued expenses		2,349			4,380			(3,285	)		869
Income taxes payable		(7,344	)		4,925			2,619			7,841
Deferred revenue		25,617			15,364			41,371			19,557
Other liabilities		(216	)		(53	)		92			(329	)
Net cash provided by operating activities		37,984			28,790			96,106			76,651
Cash flows from investing activities:
Purchases of property and equipment		(3,863	)		(960	)		(31,873	)		(6,664	)
Cash paid for acquisitions, net of cash acquired		(369	)		(50	)		(96,733	)		(4,796	)
Proceeds from sale of Vista Plus product suite		—			—			22,515			—
Purchases of marketable securities		(9,994	)		(67,588	)		(10,001	)		(175,079	)
Sales and maturities of marketable securities		12,948			12,888			40,446			106,348
Net cash used in investing activities		(1,278	)		(55,710	)		(75,646	)		(80,191	)
Cash flows from financing activities:
Repayment of notes payable		—			(2,914	)		(769	)		(4,249	)
Proceeds from repurchase agreement		—			—			67,581			—
Repayment of repurchase agreement		(14,980	)		—			(55,492	)		—
Repayment of capital lease obligations		(125	)		(96	)		(400	)		(315	)
Proceeds from the exercise of stock options		9,676			4,113			16,704			9,499
Proceeds from employee stock purchase plan		—			—			4,797			4,631
Net cash provided by (used in) financing activities		(5,429	)		1,103			32,421			9,566
Effect of exchange rate changes on cash and cash equivalents		(2,504	)		(1,104	)		(2,194	)		(2,839	)
Net increase (decrease) in cash and cash equivalents		28,773			(26,921	)		50,687			3,187
Cash and cash equivalents, beginning of period		89,384			94,391			67,470			64,283
Cash and cash equivalents, end of period	$	118,157		$	67,470		$	118,157		$	67,470

EX-99.2

Exhibit 99.2

NEWS

For Immediate Release

Editorial Contact: Erin Jones

949-754-8032

erin.jones@quest.com

Investor Contact: Scott Davidson

949-754-8659

scott.davidson@quest.com

QUEST SOFTWARE NAMES NEW INDEPENDENT DIRECTOR

Former VERITAS Software Sales Executive, Paul Sallaberry, Joins Quest Software Board

IRVINE, Calif., February 2, 2005 – Quest Software, Inc. (Nasdaq: QSFT), the leading provider of application, database and Windows management solutions, today announced the election of Paul Sallaberry to its Board of Directors. Sallaberry was selected based on his extensive expertise in global enterprise software sales strategies.

“Paul is a seasoned veteran in the enterprise software industry,” said Vinny Smith, chairman and chief executive officer, Quest Software. “He has extensive experience in the go-to-market strategies required to build and support global growth including multi-channel distribution and geographic expansion. His expertise and guidance will be a valuable addition to the talent on our board.”

Sallaberry has held several executive level positions with VERITAS Software, most recently as Executive Vice President, Worldwide Field Operations. Sallaberry had previously served as Senior Vice President, Worldwide Sales of VERITAS from July 1999 to December 1999, and Vice President, Worldwide Sales of VERITAS from April 1997 to July 1999.

About Quest Software, Inc.

Quest Software, Inc. delivers innovative products that help organizations get more performance and productivity from their applications, databases and infrastructure. Through a deep expertise in IT operations and a continued focus on what works best, Quest helps more than 18,000 customers worldwide meet higher expectations for enterprise IT. Quest Software, headquartered in Irvine, Calif., can be found in offices around the globe and at www.quest.com.

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Quest and Quest Software are registered trademarks of Quest Software, Inc. All other trademarks and registered trademarks are property of their respective owners.