Guidance Software : Reports 2014 Second Quarter Financial Results

Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for the second quarter 2014.

Second quarter 2014 financial highlights, calculated in accordance with generally accepted accounting principles (GAAP) include:

• Revenue of $27.2 million, compared to $27.3 million in the second quarter of 2013.
• Product revenue of $8.9 million, a sequential increase of 30% from $6.9 million in the first quarter of 2014 and a 16% increase from $7.7 million in the second quarter of 2013. Within product revenue, enterprise software revenue increased 65% from the second quarter of 2013.
• Services and maintenance revenue of $16.4 million, compared to $16.7 million in the second quarter of 2013.
• SaaS revenues of $1.8 million, compared to $2.9 million in the second quarter of 2013.
• Net loss of $2.9 million, or ($0.11) per share, compared to net loss of $6.6 million, or ($0.26) per share, in the second quarter of 2013.

On a non-GAAP basis, which excludes share-based compensation, amortization of intangibles, realignment expenses and gain on the sale of domain name, the Company reported a pre-tax net loss of $0.7 million, or ($0.02) per share, in the second quarter of 2014, compared to a non-GAAP pre-tax net loss of $3.9 million, or ($0.15) per share, in the second quarter of 2013.

Guidance Software President and Chief Executive Officer Victor Limongelli said, “We are pleased with the strong growth in enterprise software revenue in the second quarter, driven by the strategic changes we implemented earlier in the year. This strong growth was also reflected in the number of new enterprise software customers added during the quarter, which was up 141 percent on a year-over-year basis. In addition, expenses were 10 percent lower than the same quarter last year, reflecting our commitment to bottom-line improvement. We are working on improving other areas of the business so that we can return to growth on an overall basis, and we will continue to focus on enterprise software growth, adding new customers, and further improving our bottom line for the remainder of the year.”

Second Quarter 2014 Highlights and Noteworthy Events

• In the second quarter, the Company added 227 new customers of its enterprise-level products, comprised of 141 EnCase® Enterprise customers, and 86 customers of EnCase® eDiscovery, EnCase® Cybersecurity and EnCase® Analytics.
• In May, EnCase® software was named Best Computer Forensics Solution at the 2014 SC Awards Europe Awards. The award was announced on April 29, 2014 at the SC Magazine awards gala during the InfoSecurity Europe conference in London.
• From May 19-22, Guidance hosted CEIC 2014 at Caesar’s Palace in Las Vegas. Approximately 1,500 professionals attended the event, the most in the event’s history.
• In June, Guidance’s Tableau T35u USB 3.0 forensic IDE/SATA Bridge was named Best Computer Forensic Tool in the 2014 Forensic 4:cast Awards. A Tableau device has won the Best Computer Forensic Hardware Tool award each year since the advent of the Forensic 4:cast Awards in 2009.
• Guidance Software was named a “leader” in Gartner Inc.’s Magic Quadrant for e-discovery software for the fourth consecutive year since the report’s inception in 2011.

2014 Financial Outlook:

The Company is updating its guidance for the year ending December 31, 2014, as follows:

• Although the Company delivered strong enterprise software performance in the second quarter, the Company now expects 2014 total revenue to be in the range of $113 million to $116 million, in part reflecting lower-than-expected forensic hardware and professional services revenue.
• The Company is maintaining its previous guidance for 2014 non-GAAP pre-tax earnings, which are expected to be approximately $0.00 - $0.03 per share.

Conference Call Information:

The Company will host a conference call today at 2:00 p.m. Pacific time, 5:00 p.m. Eastern time to discuss its quarterly results. Participants should call 877-303-9850 (North America) or 408-427-3732 (International) and should dial in at least five minutes prior to the conference call.

A webcast and replay of the call may also be found online through Guidance Software’s Investor Relations website at http://investors.guidancesoftware.com/events.cfm. Registered users may access this content over the Internet, and there is no cost to register. If you have not already registered, please do so at least 15 minutes prior to the start of the conference call.

An audio-only replay of the call will be available by calling 855-859-2056, passcode 69719315, available from 8:00 p.m. Eastern time, August 7, 2014, through midnight Eastern Time, August 13, 2014.

About Guidance Software:

Guidance Software is recognized worldwide as the industry leader in endpoint investigation solutions for security incident response and forensic analysis. Its EnCase® Enterprise platform, deployed on an estimated 20 million endpoints, is used by 70 percent of the Fortune 100 and 45 percent of the Fortune 500, and numerous government agencies, to conduct digital investigations of servers, laptops, desktops and mobile devices. Built on the EnCase Enterprise platform are market-leading cyber security and electronic discovery solutions, EnCase® Cybersecurity, EnCase® Analytics, and EnCase® eDiscovery. They empower organizations to conduct speedy and thorough security incident response, reveal previously hidden advanced persistent threats or malicious insider activity, perform sensitive data discovery for compliance purposes, and respond to litigation discovery requests. For more information about Guidance Software, visit www.encase.com.

EnCase®, EnScript®, FastBloc®, EnCE®, EnCEP®, Guidance Software™ and Tableau™ are registered trademarks or trademarks owned by Guidance Software in the United States and other jurisdictions and may not be used without prior written permission. All other trademarks and copyrights referenced in this press release are the property of their respective owners.

Notes to Unaudited Condensed Consolidated Statements of Operations:

Guidance Software reports its financial results in accordance with generally accepted accounting principles, or GAAP. To supplement this information, we present from time to time total non-GAAP revenue, gross profit, operating expenses, operating income (loss) and net income (loss), as well as non-GAAP net income (loss) per share. Total non-GAAP revenue consists of GAAP revenue as reported and adds back acquisition-related deferred revenue adjustments booked for GAAP purposes. Non-GAAP gross profit consists of GAAP gross profit as reported and adds back the acquisition-related deferred revenue adjustment, realignment expenses and share-based compensation expense booked for GAAP purposes. Non-GAAP operating income (loss) consists of GAAP operating income (loss) as reported and adds back the acquisition-related deferred revenue adjustments booked for GAAP purposes and excludes realignment expenses, amortization of intangibles and share-based compensation expense. Non-GAAP net income (loss) consists of GAAP net income (loss) as reported and adds back the acquisition-related deferred revenue adjustment booked for GAAP purposes and excludes realignment expenses, amortization of intangibles, share-based compensation expense, gain on sale of the domain name and the income tax provision.

We use these non-GAAP financial measures for internal managerial purposes, when publicly providing our business outlook, and to facilitate period-to-period comparisons. We describe limitations specific to each non-GAAP financial measure below. Management generally compensates for limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of the non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, net income (loss) and net income (loss) per share calculated in accordance with GAAP.

Accordingly, management and the Board of Directors do not consider these excluded items for purposes of evaluating the performance of the business; and they exclude such costs when evaluating the performance of the Company, its business units and its management teams and when making decisions to allocate resources among the Company’s business units.

Acquisition-related Deferred Revenue. Acquisition-related deferred revenue adjustment reflects the fair value adjustment to deferred revenues acquired in business combinations. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin, to perform services related to the acquiree’s software and product support, which assumes a legal obligation to do so, based on the deferred revenue balances as of the acquisition date. Guidance Software adds back this deferred revenue for its non-GAAP financial measures because it believes the inclusion of this amount directly correlates to the underlying performance of Guidance Software operations and facilitates comparisons of pre-merger results of legacy Guidance Software and CaseCentral to that of the Company’s post-merger results.

Realignment Expenses. Realignment expenses represent severance and related employment costs associated with a reduction in headcount. Guidance Software excludes realignment expenses from non-GAAP operating income and non-GAAP net income because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Guidance Software business operations and (ii) such expenses are uncommon and not expected to recur in future periods.

Amortization of Intangibles. Amortization of intangibles is a non-cash expense arising from the acquisition of intangible assets in connection with acquisitions. Guidance Software excludes acquisition-related amortization expense from non-GAAP operating income and non-GAAP net income because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Guidance Software business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Investors should note that the use of these intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and the related amortization expense will recur in future periods.

Share-based Compensation Expense. Share-based compensation expense is a non-cash expense arising from the grant of stock awards to employees. Guidance Software excludes share-based compensation expense from non-GAAP operating income and non-GAAP net income because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Guidance Software business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new share-based awards, including grants in connection with acquisitions. Investors should note that share-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods and such expense will recur in future periods.

Gain on Sale of Domain Name. Gain on sale of domain name is a non-cash gain arising from the sale of a domain name in exchange for certain third party software licenses. Guidance Software excludes the gain on sale of domain name from non-GAAP operating income and non-GAAP net income because it believes (i) the amount of such income in any specific period may not directly correlate to the underlying performance of Guidance Software business operations and (ii) such income is uncommon and not expected to recur in future periods.

Forward-Looking Statements:

This news release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements in this release involve risks and uncertainties that could cause actual results to differ materially from current expectations. There can be no assurance that demand for Guidance Software’s products will continue at current or greater levels, or that the Company will continue to grow revenues, or be profitable. There are also risks that Guidance Software’s pursuit of providing network security and eDiscovery technology might not be successful, or that if successful, it will not materially enhance Guidance Software’s financial performance; that the Company could fail to retain key employees; that changes in customer requirements and other general economic and political uncertainties could impact Guidance Software’s relationship with its customers; and that delays in product development, competitive pressures or technical difficulties could impact timely delivery of next-generation products; and other risks and uncertainties that are described from time to time in Guidance Software’s periodic reports and registration statements filed with the Securities and Exchange Commission. The Company specifically disclaims any responsibility for updating these forward-looking statements.

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