Aliso Viejo-based Quest Software Inc. has ridden the coattails of Oracle Corp., Microsoft Corp. and IBM Corp. and its own acquisitions to grow.
Quest makes programs that improve the speed and user-friendliness of databases and e-mail software. The company has yearly sales of $591 million, up 118.3% from three years earlier. It ranks No. 23 on our list of the fastest-growing public companies.
Acquisitions also have played a part in Quest’s growth. Earlier this year, it paid $90 million for Florida’s ScriptLogic Corp., a privately held company that makes network management software that runs on Microsoft’s operating systems.
ScriptLogic has yearly sales of about $20 million.
But it’s been a bumpy year for Quest.
In August, the company came up with a $143 million bill to fix misdated stock options granted from 1999 to spring 2006. For much of the past year, Quest didn’t release financial results amid its probe of options accounting.
Two months ago, it offered six quarters of revenue and cash figures, but no profits or other numbers. Quest is expected to restate past results and get up to date on full results for the past year or so.
Wall Street was relieved to see Quest’s revenue growth still is intact. For the second quarter, Quest said it had sales of $143 million, up 11% from a year earlier. That was more than most analysts had expected.
One analyst, Richard Sherman of MKM Partners LLC in Greenwich, Conn., said he wasn’t looking for double-digit growth because “the management team was heavily engaged in getting the options investigation concluded.”
Sales growth has been driven in part by Quest’s programs for Microsoft’s business software, according to Sherman.
Quest’s infrastructure management group focuses on software that layers on top of Microsoft’s programs, including a bit of administrative software known as Active Directory.
The company also makes database management software that works with programs from Oracle, IBM and Sun Microsystems Inc.
A big part of Quest’s revenue comes from licensing and renewal fees for its software.
The company’s growth has made it something of a piggybank.
Quest had $423 million in cash as of June 30, up 46% from a year earlier.
Its cash “was well ahead of Street models,” said Aaron Schwartz of J.P. Morgan Securities Inc.
While profits still are an open question, Quest’s “strong cash balance suggests that the company’s margin structure has held up,” Schwartz said.
The cash also gives Quest a war chest to make more acquisitions, according to analysts.
There are perennial rumors about Quest itself being a takeover target. They heated up during the company’s options probe.
Potential buyers could include Oracle, Hewlett-Packard Co., EMC Corp. or Symantec Corp., a maker of virus protection software.
While Quest has grown on the heels of big software makers, they’re also a threat to the company.
For now, Quest’s place in the software market is solid, according to analysts. But the company could find itself in a precarious spot in a few years, they say.
Oracle or Microsoft could decide to include software with their own programs that take away the need to buy it separately from Quest.
Quest has to rely on research and acquisitions, Chief Executive Vincent “Vinny” Smith has said in the past.
The company’s ability to buy and smoothly integrate other companies is an advantage, according to analysts.
The deal making stems from Smith himself, who sounds like a kid in a candy store when he talks about visiting technology shows packed with startups.
“It’s fun to go and spend $100 million a year,” he’s said.
Smith said he likes to find small, strong companies with good growth prospects. He’s shied away from big buys.
“I enjoy chasing the little companies,” he said.
THE NUMBERS
Three-year growth: 118.3%
Yearly sales through June 30: $591 million
Yearly profit: not available
Market value: $1.8 billion
Employees: 2,912, 605 in OC
Company: maker of business software
