Guidance Software, Inc. : Guidance Software Reports 2012 Third Quarter Financial Results
11/01/2012| 03:10pm US/Eastern
Recommend:
0
Non-GAAP Revenue: $36.6 million, up $9.3 million, or 34 percent
year-over-year
Non-GAAP EPS: $0.15 per share, up $0.06 year-over-year
Addition of 65 New EnCase® Enterprise platform customers during the
third quarter of 2012
50,000thEnCase® student trained
Guidance
Software, Inc. (NASDAQ: GUID) today reported financial results for
the quarter ended September 30, 2012.
Third quarter 2012 financial highlights, determined in accordance with
GAAP include:
GAAP Revenue of $36.1 million and non-GAAP revenue of $36.6 million,
compared to GAAP and non-GAAP revenue of $27.3 million in the third
quarter of 2011
GAAP SaaS revenues of $2.6 million and non-GAAP SaaS revenue of $3.0
million.
Product revenue of $17.4 million, an increase of $2.6 million, or 17
percent, from $14.8 million in the third quarter of 2011
Services and maintenance revenue of $16.1 million, an increase of $3.7
million, or 29 percent, from $12.4 million in the third quarter of 2011
GAAP net income of $1.3 million, or $0.05 per share, compared to a
GAAP net income of $0.5 million, or $0.02 per share, in the third
quarter of 2011
On a non-GAAP basis, which excludes share-based compensation,
acquisition-related expense and amortization of intangibles, the company
reported pre-tax net income of $4.1 million, or $0.15 per share, in the
third quarter of 2012, compared to non-GAAP pre-tax net income of $2.1
million, or $0.09 per share, in the third quarter of 2011.
"The third quarter marked another period of strong growth for Guidance
Software, with revenues increasing by more than 30% year-over-year,"
said Victor Limongelli, President and Chief Executive Officer of
Guidance Software. "The federal sector performed well in the third
quarter across the board in e-discovery, cybersecurity and forensics. We
are also excited about the recent announcement of EnCase eDiscovery
Version 5, which delivers seamless integration with our CaseCentral
cloud review platform and provides in-house counsel with control and
oversight of every phase of the electronic discovery process. Looking
ahead, we will continue to innovate in the forensics, e-discovery and
cybersecurity spaces and remain focused on delivering additional value
to our customers and shareholders."
Third Quarter 2012 Highlights and Noteworthy Events
The company added 65 new EnCase® Enterprise customers and 20 new
customers of EnCase®
eDiscovery or EnCase®
Cybersecurity, which are built on the EnCase® Enterprise platform,
in the third quarter of 2012.
In October, the company showcased EnCase® eDiscovery v5, the newest
version of its industry-leading e-discovery software, at the
Association of Corporate Counsel annual meeting. Version 5, which was
released at the end of October, delivers a seamless integration with
Guidance's CaseCentral cloud review platform and provides in-house
counsel control and oversight of every phase of the electronic
discovery process.
Also in October, the company announced the release of EnCase® Forensic
v7.05, the fastest, most comprehensive digital forensic product
available on the market. Using this new enhanced software version,
investigators can uncover evidence up to nine times faster than
previous versions, all with unparalleled precision.
In September, the company celebrated its 50,000th EnCase®
student to complete EnCase training courses in its classroom, online
training, or certified partner training programs. In the first year of
Guidance's training program the company trained 32 students. This year
Guidance expects to train nearly 6,500 students.
Also in September, the company debuted the industry's first touch
screen, modular forensic imager the Tableau® TD3 Forensic Imager. The
color touch screen on the TD3 makes it easier and faster to start
collections or to view data. The TD3 includes a pop-up software touch
screen keypad for convenient alphanumeric data entry, log review or
network connection setup, and also supports a USB-connected physical
keyboard.
The company announced a partnership with RSA®, the security division
of EMC, to interconnect EnCase® Cybersecurity and the RSA® enVision
security information and event management (SIEM) platform enabling
automated incident response and management. The interoperability of
these two solutions will enable organizations to reduce the time it
takes to remediate threats, ultimately decreasing the high cost of
response as well as the risk of exposing sensitive data to loss or
theft.
In July, the company's EnCase® eDiscovery software was ranked #1 out
of more than 20 vendors in the inaugural DCIG
E-Discovery Early Case Assessment (ECA) Buyer's Guide. For the
Buyer's Guide, DCIG looked at more than 60 key features of more than
25 ECA software products from more than 20 leading companies. EnCase
eDiscovery was ranked the #1 product in each one of the three
evaluation categories (Overall, Operating Environment, and User
Experience) outscoring each one of the other reviewed products and
earning the "Recommended" ranking from DCIG.
2012 Financial Outlook:
As it enters the final quarter of the year, the company's guidance for
the year ended December 31, 2012 is as follows:
Non-GAAP revenue in the range of $129 million - $131 million,
representing year-over-year growth of 23 percent to 25 percent.
Non-GAAP pre-tax earnings in the range of $0.37 - $0.41 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 5 minutes prior to the
conference call.
A webcast and replay of the call may also be found on the Internet
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 34410521, available from 8:00 pm eastern time,
November 1, 2012, through midnight eastern time, November 8, 2012.
About Guidance Software:
Guidance Software is recognized worldwide as the industry leader in
digital investigative solutions. Its EnCase® platform, with more than
40,000 licenses distributed worldwide, provides the foundation for
government, corporate and law enforcement organizations to conduct
thorough, network-enabled, and court-validated computer investigations
of any kind, such as responding to e-discovery requests, conducting
internal investigations, responding to regulatory inquiries or
performing data and compliance auditing - all while maintaining the
integrity of the data. The EnCase Enterprise platform is used by
numerous Federal Civilian and Defense agencies, more than 60 of the
Fortune 100, and thousands attend Guidance Software's renowned training
programs annually. For more information about Guidance Software, visit www.guidancesoftware.com.
EnCase®, EnScript®, FastBloc®, EnCE®, EnCEP®,
CaseCentral®, CaseCentral eDiscovery Cloud®, 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 in this release 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 the
acquisition-related deferred revenue adjustment booked for GAAP
purposes. Non-GAAP gross profit consists of GAAP gross profit as
reported and adds back the acquisition-related deferred revenue
adjustment and stock-based compensation expense booked for GAAP
purposes. Non-GAAP operating income (loss) consists of GAAP operating
income as reported and adds back the acquisition-related deferred
revenue adjustment booked for GAAP purposes and excludes amortization of
intangibles, transaction-related expenses, stock-based compensation
expense, and a one-time sales tax charge. Non-GAAP net income (loss)
consists of GAAP operating income as reported and adds back the
acquisition-related deferred revenue adjustment booked for GAAP purposes
and excludes amortization of intangibles, transaction-related expenses,
stock-based compensation expense, and a one-time sales tax charge.
Non-GAAP net income (loss) also excludes the 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 costs 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.
Acquisition-related Expenses. Acquisition-related expenses are
fees and expenses, including legal, investment banking and accounting
fees and other integration-related expenses, incurred in connection with
announced transactions. Guidance Software excludes acquisition-related
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 can vary
significantly between 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.
Stock-based Compensation Expense. Stock-based compensation
expense is a non-cash expense arising from the grant of stock awards to
employees. Guidance Software excludes stock-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 stock-based
awards, including grants in connection with acquisitions. Investors
should note that stock-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.
Sales Tax One-time Charge. The sales tax one-time charge is
expenses accrued for sales taxes that may be due to a taxing authority.
Guidance Software excludes the sales tax charge from non-GAAP operating
income and non-GAAP net income because it believes the amount of the
expense in the specific period it occurred is a one-time charge and does
not directly correlate to the underlying performance of Guidance
Software's business operations.
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 the 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 the Guidance Software's pursuit of providing network security and
eDiscovery technology might not be successful, or that if successful, it
will not materially enhance the 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 the 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.
GUID-F
Guidance Software, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2012
2011
2012
2011
Revenues:
Product revenue
$
17,394
$
14,818
$
39,945
$
35,558
Subscription revenue
2,648
-
6,716
-
Services and maintenance revenue
16,099
12,440
46,567
39,168
Total revenues
36,141
27,258
93,228
74,726
Cost of revenues:
Cost of product revenue
2,208
1,439
5,795
4,349
Cost of subscription revenue
981
-
2,850
-
Cost of services and maintenance revenue
6,539
5,373
18,086
17,257
Total cost of revenues
9,728
6,812
26,731
21,606
Gross profit
26,413
20,446
66,497
53,120
Operating expenses:
Selling and marketing
11,790
9,791
30,341
26,606
Research and development
6,224
4,642
17,807
14,211
General and administrative
5,351
4,143
16,664
10,852
State sales tax charges
-
-
-
1,336
Depreciation and amortization
1,745
1,353
5,335
3,881
Total operating expenses
25,110
19,929
70,147
56,886
Operating income (loss)
1,303
517
(3,650
)
(3,766
)
Interest income and other, net
(9
)
20
(10
)
39
Income (loss) before income taxes
1,294
537
(3,660
)
(3,727
)
Income tax provision
22
25
231
179
Net Income (loss)
$
1,272
$
512
$
(3,891
)
$
(3,906
)
Net income (loss) per share - basic
$
0.05
$
0.02
$
(0.16
)
$
(0.17
)
Net income (loss) per share - diluted
$
0.05
$
0.02
$
(0.16
)
$
(0.17
)
Shares used in per share calculation - basic
24,988
23,355
24,450
23,219
Shares used in per share calculation - diluted
26,543
24,501
24,450
23,219
Supplemental Financial Data
Non-GAAP income before income taxes excluding acquisition-related
deferred revenue adjustment, acquisition-related expense,
share-based compensation, amortization of intangibles and
certain state sales tax charges
$
4,065
$
2,131
$
6,047
$
2,778
Non-GAAP income per share before income taxes excluding
acquisition-related deferred revenue adjustment,
acquisition-related expense, share-based compensation,
amortization of intangibles and certain state sales tax
charges
Basic
$
0.16
$
0.09
$
0.25
$
0.12
Diluted
$
0.15
$
0.09
$
0.23
$
0.11
Guidance Software, Inc.
Calculation of Pre-Tax Non-GAAP Income
(unaudited)
(in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2012
2011
2012
2011
Calculation of pre-tax non-GAAP income:
GAAP net loss
$
1,272
$
512
$
(3,891
)
$
(3,906
)
Add:
Income tax provision
22
25
231
179
Certain state sales tax charges
-
-
-
1,336
Acquisition-related expense
214
-
2,420
-
Acquisition-related deferred revenue adjustment
420
-
1,048
-
Amortization of intangibles
668
264
2,014
804
Share-based compensation expense (including related payroll
taxes paid by the Company)
1,469
1,330
4,225
4,365
Non-GAAP income before income taxes excluding acquisition-related
deferred revenue adjustment, acquisition-related expense,
share-based compensation, amortization of intangibles and
certain state sales tax charges
$
4,065
$
2,131
$
6,047
$
2,778
Non-GAAP income per share before income taxes excluding
acquisition-related deferred revenue adjustment,
acquisition-related expense, share-based compensation,
amortization of intangibles and certain state sales tax
charges
Basic
$
0.16
$
0.09
$
0.25
$
0.12
Diluted
$
0.15
$
0.09
$
0.23
$
0.11
Shares used in per share calculations:
Basic
24,988
23,355
24,450
23,219
Diluted
26,543
24,501
26,020
24,490
Detail of Share-based Compensation Expense:
Cost of product revenue
25
22
72
61
Cost of subscription revenue
38
-
108
-
Cost of service and maintenance revenue
256
228
735
698
Selling and marketing
408
396
1,217
1,305
Research and development
365
322
990
1,107
General and administrative
377
362
1,103
1,194
Total share-based compensation expense
1,469
1,330
4,225
4,365
Detail of Acquisition-related Expense:
General and administrative
214
-
2,420
-
Detail of Acquisition-related Deferred
Revenue Adjustment:
Subscription revenue
318
-
803
-
Services and maintenance revenue
102
-
245
-
Total acquisition-related deferred revenue adjustment
420
-
1,048
-
Guidance Software, Inc
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2012
2011
2012
2011
Total revenues, as reported
$
36,141
$
27,258
$
93,228
$
74,726
Acquisition-related deferred revenue adjustment
420
-
1,048
-
Total non-GAAP revenues
$
36,561
$
27,258
$
94,276
$
74,726
Gross profit, as reported
$
26,413
$
20,446
$
66,497
$
53,120
Acquisition-related deferred revenue adjustment
420
-
1,048
-
Share-based compensation
319
250
915
759
Gross profit adjustment
739
250
1,963
759
Total non-GAAP gross profit
27,152
$
20,696
$
68,460
$
53,879
Total operating expenses, as reported
$
25,110
$
19,929
$
70,147
$
56,886
Amortization of intangibles
(668
)
(264
)
(2,014
)
(804
)
Acquisition-related expenses
(214
)
-
(2,420
)
-
Share-based compensation
(1,150
)
(1,080
)
(3,310
)
(3,606
)
State sales tax one-time charge
-
-
-
(1,336
)
Operating expense adjustment
(2,032
)
(1,344
)
(7,744
)
(5,746
)
Total non-GAAP operating expenses
$
23,078
$
18,585
$
62,403
$
51,140
Operating income (loss), as reported
$
1,303
$
517
$
(3,650
)
$
(3,766
)
Gross profit adjustment
739
250
1,963
759
Operating expense adjustment
2,032
1,344
7,744
5,746
Total non-GAAP operating income (loss)
$
4,074
$
2,111
$
6,057
$
2,739
Net income (loss), as reported
$
1,272
$
512
$
(3,891
)
$
(3,906
)
Gross profit adjustment
739
250
1,963
759
Operating expense adjustment
2,032
1,344
7,744
5,746
Income tax provision
22
25
231
179
Total non-GAAP net income (loss)
$
4,065
$
2,131
$
6,047
$
2,778
Net income (loss) per share-diluted, as reported
$
0.05
$
0.02
$
(0.16
)
$
(0.17
)
Non-GAAP net income (loss) per share-diluted
$
0.15
$
0.09
$
0.23
$
0.11
Guidance Software, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
September 30,
December 31,
2012
2011
ASSETS
Current assets:
Cash and cash equivalents
$
29,988
$
37,048
Trade receivables, net
19,397
19,505
Inventory
1,888
1,394
Prepaid expenses and other current assets
4,405
2,209
Total current assets
55,678
60,156
Long-term assets:
Property and equipment, net
10,115
9,273
Intangible assets, net
15,041
3,754
Goodwill, net
16,732
3,711
Other assets
1,754
434
Total long-term assets
43,642
17,172
Total assets
$
99,320
$
77,328
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
3,840
$
2,895
Accrued liabilities
12,624
9,774
Capital lease obligations
437
58
Deferred revenues
34,869
33,630
Total current liabilities
51,770
46,357
Long-term liabilities:
Rent incentives
316
498
Capital lease obligations
257
55
Deferred revenues
5,904
5,952
Contingent earn-out, net of current portion
4,859
-
Deferred tax liabilities
251
155
Other long-term liabilities
458
-
Total long-term liabilities
12,045
6,660
Stockholders' equity:
Common stock
25
23
Additional paid-in capital
90,673
74,297
Treasury stock
(7,887
)
(6,594
)
Accumulated deficit
(47,306
)
(43,415
)
Total stockholders' equity
35,505
24,311
Total liabilities and stockholders' equity
$
99,320
$
77,328
Guidance Software, Inc
Unaudited Cash Flow Summary
(in thousands)
Nine Months Ended
September 30,
2012
2011
Operating Activities:
Net loss
$ (3,891)
$ (3,906)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation & amortization
5,335
3,881
Provision for bad debt
100
-
Share-based compensation
4,225
4,365
Deferred taxes
96
96
Loss on disposal of assets
82
-
Changes in operating assets and liabilities:
Trade receivables
3,080
(5,842)
Inventory
(494)
(377)
Prepaid expenses and other assets
(696)
(370)
Accounts payable
170
20
Accrued liabilities
(1,255)
1,216
Deferred revenues
(2,109)
2,481
Net cash provided by operating activities
4,643
1,564
Investing Activities:
Purchase of property and equipment
(2,485)
(1,880)
Acquisition, net of cash acquired
(9,642)
-
Net cash used in investing activities
(12,127)
(1,880)
Financing Activities:
Proceeds from the exercise of stock options
2,655
449
Common stock repurchased or withheld
(1,294)
(1,146)
Principal payments on capital lease and other obligations
(937)
(60)
Net cash provided by (used in) financing activities
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