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Quest Software Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 11, 2009 08:08PM
Quest Software Inc. (QSFT) filed Quarterly Report for the period ended 2009-03-31.
Highlight of Business Operations:
Cost of Services Cost of services primarily consists of personnel, outside consultants, facilities and systems costs used in providing maintenance, consulting and training services. Cost of services does not include development costs related to bug fixes and upgrades which are classified in research and development and which are not separately determinable. Personnel-related costs and travel costs decreased by approximately $0.6 million and $0.3 million, respectively, primarily due to our cost management initiatives that were undertaken in fiscal 2008. An additional $0.5 million of the overall decrease was due to reduced consulting and other professional fees. The impact from foreign currency comprised approximately 90% of the overall decrease in cost of services. Cost of services as a percentage of service revenues was 13.3% and 16.1% in the three months ended March 31, 2009 and 2008, respectively.
General and Administrative General and administrative expenses consist primarily of compensation and benefit costs for our executive, finance, legal, human resources, administrative and IS personnel, and professional fees for audit, tax and legal services. The decrease in general and administrative expense during the first quarter of 2009 as compared to the same period in 2008 was primarily due to a decrease of $1.3 million in personnel related costs and a $0.2 million decrease in travel costs, primarily due to our cost management initiatives that were undertaken in fiscal 2008. Lower professional accounting, tax and legal fees and recruiting costs contributed $1.3 million to the overall decrease in general and administrative costs. The impact from foreign currency comprised approximately 20% of the overall decrease in general and administrative expenses.
Other income (expense), net primarily includes interest income generated by our investment portfolio, gains and losses from foreign exchange fluctuations and gains or losses on other financial assets as well as a variety of other non-operating expenses. Other income (expense), net decreased to a $4.1 million expense in the first quarter of 2009 from $7.9 million in income in the first quarter of 2008. The largest impact to other income (expense), net this quarter was attributed to a foreign currency loss of $5.0 million compared to a gain of $4.7 million in the comparable period of 2008. Our foreign currency gains or losses are predominantly attributable to translation gains or losses relative to the U.S. Dollar on the re-measurement of net monetary assets, including accounts receivable and cash, which were primarily denominated in the Euro, and to a lesser extent, the British Pound and Canadian Dollar. Interest income was $0.7 million and $3.2 million in the three months ended March 31, 2009 and 2008, respectively. The decrease in interest income was due primarily to lower average investment yields and lower average cash and investment balances.
During the three months ended March 31, 2009, the provision for income taxes increased to $4.6 million from $4.1 million in the comparable period of 2008, representing an increase of $0.5 million. The increase is primarily a result of the mix of pre-tax income between high and low tax jurisdictions and items discretely impacting the quarter ended March 31, 2009, including adjustments due to the adoption of SFAS 141R and enactment of California legislation during the period. The effective income tax rate for the three months ended March 31, 2009 was approximately 31.7% compared to 23.6% in the comparable period of 2008.
Cash and cash equivalents and short-term and long-term investments were approximately $308.6 million and $257.9 million as of March 31, 2009 and December 31, 2008, respectively.
At March 31, 2009, we held within long-term investments $49.8 million (with a fair value of $47.7 million) of investment grade municipal notes with an auction reset feature (auction rate securities). These securities are collateralized by higher education funded student loans which are supported by the federal government as part of the Federal Family Education Loan Program (FFELP). We do not have reason to believe that any of the underlying issuers of our auction rate securities are presently at risk or that the underlying credit quality of the assets backing our auction rate security investments has been impacted by the reduced liquidity of these investments. Based on our current ability to access cash and other short-term investments, our expected operating cash flows, and other sources of cash that we expect to be available, we do not anticipate the current lack of liquidity of these investments to have a material impact on our business strategy, financial condition, results of operations or cash flows. Additionally, in October 2008, we entered into a put agreement with the investment firm that sold us our auction rate securities. Under the terms of the agreement, we have the ability to put all of our auction rate securities to the investment firm at any time during the period beginning June 30, 2010 and ending June 30, 2012 at par value. The investment firm also has the right to repurchase these auction rate securities at par value on or before June 30, 2010. For more information concerning our auction rate securities see Note 12 of our Notes to Condensed Consolidated Financial Statements.
Bruce Sherman of Private Capital Management.
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