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) November 7, 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.)

5 Polaris Way, Aliso Viejo, California	92656
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (949) 754-8000

8001 Irvine Center Drive, Irvine, California 92618

(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 November 7, 2005, Quest Software, Inc. (“Quest”) issued a press release announcing operating results for the quarter ended September 30, 2005. 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 9.01 Financial Statements and Exhibits.

(c) Exhibits.

99.1 Press release issued by Quest Software, Inc. on November 7, 2005

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: November 7, 2005
	By:	/s/ Michael J. Lambert
		Michael J. Lambert
		Senior Vice President, Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Exhibit Title or Description
99.1	Press release issued by Quest Software, Inc. on November 7, 2005.

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 RESULTS FOR THIRD QUARTER 2005

Revenue Grows 25% to $121.3 Million for the Quarter

ALISO VIEJO, Calif., November 7, 2005 – Quest Software, Inc. (Nasdaq: QSFT), a leading provider of application, database and infrastructure management solutions, today reported financial results for the third quarter ended September 30, 2005. Total revenues increased 25% year-over-year to $121.3 million compared to last year’s third quarter revenue of $96.7 million. Total revenues for the first nine months of 2005 were $331.8 million compared to $271.4 million for the same period in 2004.

GAAP Results

Quest Software’s GAAP net income for the third quarter was $6.0 million, or $0.06 per diluted share. GAAP operating margins were 11.4% in the third quarter, resulting in GAAP operating income of $13.8 million. Net income for the first nine months of 2005 was $25.7 million or $0.26 per diluted share versus net income of $34.0 million or $0.35 per diluted share for the comparable period in 2004. Quest Software generated cash flow from operations of $16.1 million in the September 2005 quarter.

Non-GAAP Results

On a pro forma basis, operating margins increased to 22.5% for the quarter, resulting in pro forma net income of $17.5 million, or $0.17 per share on a diluted basis. This compares to pro forma net income of $12.6 million, or $0.13 per share on a diluted basis for the third quarter ended September 30, 2004. For the nine months ended September 30, 2005 pro forma net income was $43.3 million or $0.43 per diluted share. This compares to pro forma net income of $30.1 million or $0.31 per diluted share for the nine months ended September 2004.

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

Quest Reports Third Quarter 2005 Results – page 2 of 8

“We executed well across all areas of the Company during Q3,” said Vinny Smith, chairman and chief executive officer, Quest Software. “As we close the year, we will be focusing on integrating the recent acquisitions of Imceda and Vintela as well as making specific investments to expand our sales organization and corporate infrastructure to support growth for 2006.”

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.

Financial Outlook

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

• Revenue is expected to be in the range of $130.0 million to $135.0 million.

• GAAP diluted earnings per share is expected to be in the range of $0.12 to $0.15 per share;

• Pro forma diluted earnings per share is expected to be in the range of $0.16 to $0.19 per share. The pro forma guidance excludes approximately $5.3 million of amortization of acquisition-related intangible assets and $900,000 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 $462 million to $467 million;

• GAAP diluted earnings per share is expected to be in the range of $0.41 to $0.44 per share;

• Pro forma diluted earnings per share is expected to be in the range of $0.59 to $0.62. The pro-forma guidance excludes approximately $18.0 million of amortization of acquisition-related intangible assets, $8.0 million of in-process research and development charges related to our acquisition of Wingra Technologies, LLC and Vintela, Inc. and $3.4 million of other compensation charges related to stock options.

Quest Reports Third Quarter 2005 Results – page 3 of 8

Third Quarter 2005 Conference Call Information

Quest Software will host a conference call today, Monday, November 7, 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 November 7, 2006. An audio replay of the call will also be available through November 18, 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: 5604428.

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 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.

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 revenues and earnings per share in future periods. 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 customers; 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 or enhanced products; disruptions caused by acquisitions of companies and/or technologies and uncertainties relating to the timing of completing proposed acquisitions, satisfaction of closing conditions, including regulatory approval requirements, and to the integration of products, services, employees and operations of acquired companies; 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, 2004 and our Quarterly Report on Form 10-Q for the period ended June 30, 2005, 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 Reports Third Quarter 2005 Results – page 4 of 8

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005			2004
Revenues:
Licenses	$	65,515	$	53,539	$	174,845		$	151,762
Services		55,761		43,200		156,905			119,651
Total revenues		121,276		96,739		331,750			271,413
Cost of revenues:
Licenses		1,151		764		3,311			2,835
Services		9,483		7,973		26,844			21,739
Amortization of purchased technology		3,083		2,269		7,760			5,980
Total cost of revenues		13,717		11,006		37,915			30,554
Gross profit		107,559		85,733		293,835			240,859
Operating expenses:
Sales and marketing		51,002		42,876		140,029			120,193
Research and development		22,220		19,868		63,980			58,381
General and administrative		11,486		8,876		31,751			25,661
Amortization of other purchased intangible assets		2,183		1,568		4,957			3,861
In-process research and development		6,900		—		7,950			6,980
Litigation loss provision		—		—		—			5,000
Total operating expenses		93,791		73,188		248,667			220,076
Gain on sale of Vista Plus product suite		—		29,574		—			29,574
Income from operations		13,768		42,119		45,168			50,357
Other (expense) income, net		314		2,723		(1,718	)		2,884
Income before income tax provision		14,082		44,842		43,450			53,241
Income tax provision		8,118		13,901		17,780			19,285
Net income	$	5,964	$	30,941	$	25,670		$	33,956
Net income per share:
Basic	$	0.06	$	0.33	$	0.26		$	0.36
Diluted	$	0.06	$	0.32	$	0.26		$	0.35
Weighted average shares:
Basic		98,217		94,737		97,082			94,306
Diluted		101,624		96,608		100,154			97,691

Quest Reports Third Quarter 2005 Results – page 5 of 8

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30, 2005						Nine Months Ended September 30, 2005
	GAAP		Adjustments		Adjusted		GAAP			Adjustments		Adjusted
Revenues:
Licenses	$	65,515			$	65,515	$	174,845				$	174,845
Services		55,761				55,761		156,905					156,905
Total revenues		121,276				121,276		331,750					331,750
Cost of revenues:
Licenses		1,151				1,151		3,311					3,311
Services		9,483	(71	)(1)		9,412		26,844		(146	)(1)		26,698
Amortization of purchased technology		3,083	(3,083	)		—		7,760		(7,760	)		—
Total cost of revenues		13,717				10,563		37,915					30,009
Gross profit		107,559				110,713		293,835					301,741
Operating expenses:
Sales and marketing		51,002	(491	)(1)		50,511		140,029		(1,055	)(1)		138,974
Research and development		22,220	(662	)(1)		21,558		63,980		(1,083	)(1)		62,897
General and administrative		11,486	(88	)(1)		11,398		31,751		(109	)(1)		31,642
Amortization of other purchased intangible assets		2,183	(2,183	)		—		4,957		(4,957	)		—
In-process research and development		6,900	(6,900	)(2)		—		7,950		(7,950	)(3)		—
Total operating expenses		93,791				83,467		248,667					233,513
Income from operations		13,768				27,246		45,168					68,228
Other expense, net		314				314		(1,718	)				(1,718	)
Income before income tax provision		14,082				27,560		43,450					66,510
Income tax provision		8,118	1,959	(4)		10,077		17,780		5,465	(4)		23,245
Net income	$	5,964			$	17,483	$	25,670				$	43,265
Net income per share:
Basic	$	0.06			$	0.18	$	0.26				$	0.45
Diluted	$	0.06			$	0.17	$	0.26				$	0.43
Weighted average shares:
Basic		98,217				98,217		97,082					97,082
Diluted		101,624				101,624		100,154					100,154

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

(2) Represents a one-time charge to write off in-process research and development assumed with our acquisition of Vintela, Inc. in July 2005.

(3) Represents a one-time charge to write off in-process research and development assumed with our acquisitions of Wingra Technologies, Inc. in January 2005 and Vintela, Inc. in July 2005.

(4) Represents the tax effect of adjustments.

Quest Reports Third Quarter 2005 Results – page 6 of 8

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30, 2004						Nine Months Ended September 30, 2004
	GAAP		Adjustments		Adjusted		GAAP		Adjustments		Adjusted
Revenues:
Licenses	$	53,539			$	53,539	$	151,762			$	151,762
Services		43,200				43,200		119,651				119,651
Total revenues		96,739				96,739		271,413				271,413
Cost of revenues:
Licenses		764				764		2,835				2,835
Services		7,973	(56	)(1)		7,917		21,739	(145	)(1)		21,594
Amortization of purchased technology		2,269	(2,269	)		—		5,980	(5,980	)		—
Total cost of revenues		11,006				8,681		30,554				24,429
Gross profit		85,733				88,058		240,859				246,984
Operating expenses:
Sales and marketing		42,876	(356	)(1)		42,520		120,193	(1,030	)(1)		119,163
Research and development		19,868	(141	)(1)		19,727		58,381	(350	)(1)		58,031
General and administrative		8,876	(7	)(1)		8,869		25,661	(21	)(1)		25,640
Amortization of other purchased intangible assets		1,568	(1,568	)		—		3,861	(3,861	)		—
In-process research and development		—				—		6,980	(6,980	)(2)		—
Litigation loss provision		—				—		5,000	(5,000	)(3)		—
Total operating expenses		73,188				71,116		220,076				202,834
Gain on sale of Vista Plus product suite		29,574	(29,574	)(4)		—		29,574	(29,574	)(4)		—
Income from operations		42,119				16,942		50,357				44,150
Other (expense) income, net		2,723				2,723		2,884				2,884
Income before income tax provision		44,842				19,665		53,241				47,034
Income tax provision		13,901	(6,822	)(5)		7,079		19,285	(2,353	)(5)		16,932
Net income	$	30,941			$	12,586	$	33,956			$	30,102
Net income per share:
Basic	$	0.33			$	0.13	$	0.36			$	0.32
Diluted	$	0.32			$	0.13	$	0.35			$	0.31
Weighted average shares:
Basic		94,737				94,737		94,306				94,306
Diluted		96,608				96,608		97,691				97,691

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

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

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

(4) Represents a gain on the sale of our Vista Plus product suite.

(5) Represents the tax effect of adjustments.

Quest Reports Third Quarter 2005 Results – page 7 of 8

QUEST SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	September 30, 2005		December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	90,756	$	118,157
Short-term marketable securities available for sale		34,798		15,892
Accounts receivable, net		87,137		98,800
Prepaid expenses and other current assets		10,828		12,528
Deferred income taxes		7,434		13,075
Total current assets		230,953		258,452
Property and equipment, net		80,288		52,761
Long-term marketable securities		88,492		163,527
Amortizing intangible assets, net		70,208		41,404
Goodwill		428,570		323,903
Other assets		4,313		3,304
Total assets	$	902,824	$	843,351
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,785	$	4,135
Obligation under repurchase agreement		10,092		12,632
Accrued compensation		26,275		27,802
Other accrued expenses		27,867		46,292
Income taxes payable		11,755		12,030
Current portion of deferred revenue		119,450		106,356
Total current liabilities		198,224		209,247
Long-term liabilities:
Long-term portion of deferred revenue		25,805		20,897
Deferred income taxes		7,966		4,526
Other long-term liabilities		275		1,769
Total long-term liabilities		34,046		27,192
Shareholders’ equity		670,554		606,912
Total liabilities and shareholders’ equity	$	902,824	$	843,351

Quest Reports Third Quarter 2005 Results – page 8 of 8

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Cash flows from operating activities:
Net income	$	5,964		$	30,941		$	25,670		$	33,956
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,048			7,921			21,006			20,560
Compensation expense associated with stock option grants		1,038			557			2,032			1,266
Deferred income taxes		(21	)		601			(57	)		612
Gain on sale of Vista Plus product suite		(39	)		(29,574	)		(39	)		(29,574	)
Tax benefit related to stock option exercises		3,904			387			4,935			2,799
Provision for bad debts		37			44			77			112
In-process research and development		6,900			—			7,950			6,980
Litigation loss provision		—			—			—			5,000
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(13,483	)		(7,154	)		10,482			(6,070	)
Prepaid expenses and other current assets		(1,769	)		96			(1,001	)		(276	)
Other assets		(302	)		46			(950	)		(376	)
Accounts payable		(2,069	)		(1,905	)		(2,080	)		702
Accrued compensation		1,562			1,652			(1,893	)		2,041
Other accrued expenses		(477	)		(1,019	)		(4,107	)		(5,633	)
Litigation settlement payment		—			—			(16,000	)		—
Income taxes payable		(546	)		12,275			(611	)		9,961
Deferred revenue		8,395			8,198			14,148			15,754
Other liabilities		(1,086	)		(24	)		(1,232	)		307
Net cash provided by operating activities		16,056			23,042			58,330			58,121
Cash flows from investing activities:
Purchases of property and equipment		(7,345	)		(3,876	)		(34,234	)		(28,010	)
Cash paid for acquisitions, net of cash acquired		(57,680	)		(426	)		(115,305	)		(96,364	)
Proceeds from sale of Vista Plus product suite		2,039			22,515			2,039			22,515
Sales and maturities of marketable securities		1,709			10,160			54,982			27,491
Net cash (used in) provided by investing activities		(61,277	)		28,373			(92,518	)		(74,368	)
Cash flows from financing activities:
Proceeds from repurchase agreement		10,008			—			10,008			67,581
Repayment of repurchase agreement		—			(40,512	)		(12,725	)		(40,512	)
Repayment of notes payable		(11	)		(769	)		(51	)		(769	)
Repayment of capital lease obligations		(172	)		(47	)		(270	)		(275	)
Proceeds from the exercise of stock options		3,841			1,113			7,147			7,028
Proceeds from employee stock purchase plan		—			2,074			—			4,797
Net cash provided by (used in) financing activities		13,666			(38,141	)		4,109			37,850
Effect of exchange rate changes on cash and cash equivalents		669			381			2,678			311
Net (decrease) increase in cash and cash equivalents		(30,886	)		13,655			(27,401	)		21,914
Cash and cash equivalents, beginning of period		121,642			75,729			118,157			67,470
Cash and cash equivalents, end of period	$	90,756		$	89,384		$	90,756		$	89,384