Updated from 10:18 a.m. EDT

Quest Software's ( QSFT) first-quarter results and conservative guidance failed to impress investors, who beat down the company's shares Wednesday.

Shares of Quest fell as low as $11.83 and were recently down $2.81, or 18.5%, to $12.35.

Analysts expressed widely varying views of Quest's first quarter. Some called the company's performance strong, noted the firm exceeded expectations, and discounted its guidance as conservative. That camp also noted the company's optimistic outlook and advised investors to buy on weakness.

"We believe the company is positioned to execute well throughout fiscal year 2004 and once again deliver the goods for shareholders," wrote Moors & Cabot analyst Ed Bierdeman, who has a buy rating on Quest. (His firm hasn't done any banking with Quest.)

But others were underwhelmed. Piper Jaffray senior analyst David Rudow called the results "a little softer" than the Street expected, noting license sales missed his estimate after removing revenue from a recent acquisition. He agreed the guidance is conservative and will likely go up, but maintained his market perform rating. (His firm hasn't done banking with Quest.)

After the bell Tuesday, Quest posted a 16% year-over-year jump in first-quarter revenue, but saw its profit shrink and said earnings in the second quarter and rest of the year could fall short of expectations.

Irvine, Calif.-based Quest, which makes products to manage applications and database software, reported first-quarter net income of $386,000, or break-even on a per-share basis, under generally accepted accounting principles. That compared with net income of $2.5 million, or 3 cents a share, in the same period a year earlier.

Excluding charges, Quest earned pro forma net income of $8.6 million, or 9 cents a share, in the first quarter, up from $4.8 million, or 5 cents a share, a year earlier.

Revenue increased 16% year over year to $82.5 million.

Wall Street analysts expected Quest to earn pro forma net income of 8 cents a share on $78.9 million in revenue in the first quarter, according to Thomson First Call. Many estimates, however, did not include Quest's acquisition in mid-March of Aelita Software, which contributed about $3 million to sales and a penny to earnings.

License revenue climbed 10% from a year ago to $47 million. Excluding Aelita, license sales climbed a more modest 4.7%.

Looking forward, Quest expects second-quarter revenue to range from $87 million and $89 million, with GAAP earnings ranging from 4 cents to 6 cents a share and pro forma earnings ranging from 7 cents to 9 cents a share. Analyst estimates were calling for revenue of $82.1 million and pro forma earnings of 9 cents a share in the second quarter.

For the full year, Quest forecasts revenue will range from $360 million to $370 million, with GAAP earnings ranging from 23 cents to 26 cents a share and pro forma earnings ranging from 37 cents to 40 cents a share. Analyst estimates were calling for revenue of $340.1 million and pro forma earnings of 40 cents a share in the second quarter.

In a postclose conference call, management noted operating margins are improving significantly, but earnings projections are not higher because Aelita's operations are at break-even to slightly in the red. Quest hopes Aelita is accretive to its results by the third or fourth quarter.

Overall, Chairman and CEO Vinny Smith was upbeat about the information technology environment. The first quarter "was solid ... much better than last year, which I think will allow for a pretty strong year this year," Smith said. "I think the industry is in an upswing. People are deploying more applications."

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