Guidance Software Reports 2012 Fourth Quarter and Full Year Financial Results

  Guidance Software Reports 2012 Fourth Quarter and Full Year Financial
  Results

  *Q4 2012: Record non-GAAP revenue of $36.7 million, up $6.8 million, or 23%
    year-over-year, and non-GAAP EPS of $0.17 per share
  *Full year 2012: Record non-GAAP revenue of $130.9 million and non-GAAP EPS
    of $0.40 per share
  *Record number of new EnCase® Enterprise customers: 129 in Q4, 358 in 2012
  *Initiates 2013 financial outlook and outlines plans for double-digit to
    low-teens growth

Business Wire

PASADENA, Calif. -- February 7, 2013

Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for
the fourth quarter and year ended December 31, 2012.

Fourth quarter 2012 financial highlights:

  *GAAP revenue of $36.2 million and non-GAAP revenue of $36.7 million,
    compared to GAAP and non-GAAP revenue of $29.9 million in the fourth
    quarter of 2011
  *GAAP SaaS revenues of $2.5 million and non-GAAP SaaS revenue of $2.8
    million
  *Product revenue of $16.2 million, compared to $16.8 million in the fourth
    quarter of 2011
  *Services and maintenance revenue of $17.6 million, an increase of $4.5
    million, or 34 percent, from $13.1 million in the fourth quarter of 2011
  *GAAP net income of $1.9 million, or $0.07 per share, compared to a GAAP
    net income of $2.3 million, or $0.09 per share, in the fourth 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 $4.5 million, or $0.17 per share, in the fourth
quarter of 2012, compared to non-GAAP pre-tax net income of $3.9 million, or
$0.16 per diluted share, in the fourth quarter of 2011.

Guidance Software President and Chief Executive Officer Victor Limongelli
said, “The fourth quarter was our best quarter ever, with both record revenue
and record earnings. We continued to execute on our 'EnCase Everywhere'
strategy by adding an all-time high number of 129 new EnCase® Enterprise
customers during the fourth quarter and 358 customers for the full year. Our
strong performance was further bolstered by the addition of 20 new EnCase®
Cybersecurity customers in the fourth quarter.

“Over the coming year, we are planning to launch an entirely new product on
the EnCase® Enterprise platform. This new product will be targeted at the IT
Security market and will be unveiled at our CEIC conference in May. With this
new offering and continued expansion of the capabilities of our existing
products, we will make additional investments in sales, marketing and R&D to
position Guidance for long-term growth.”

Limongelli concluded, “Guidance Software is poised for a strong 2013. As we
continue to invest in our product pipeline and the growth of the Company, we
will remain focused on delivering value to both our customers and
shareholders.”

Fourth Quarter 2012 Highlights and Noteworthy Events

  *The company celebrated its 15^th anniversary this past November. Since its
    founding, the company has grown to become a market leader and global
    standard for digital investigations, with over 500 employees, as well as
    offices around the world. The company will culminate its anniversary
    celebration at its annual Computer and Enterprise Investigations
    Conference (CEIC) scheduled to be held May 19-22, 2013 in Orlando,
    Florida.
  *In the fourth quarter, the company added 129 new EnCase® Enterprise
    customers and 32 new customers of EnCase® ^ eDiscovery or EnCase®
    Cybersecurity, which are built on the EnCase® Enterprise platform. For the
    full year 2012, the company added 358 EnCase® Enterprise customers,
    compared to 285 for full year 2011.
  *In December 2012, the company debuted its fastest forensic bridge for
    forensic imaging in both lab and field environments.
  *During the fourth quarter, the company also announced the release of
    EnCase® Portable Version 4, the simplest to use and most powerful field
    investigation tool available for digital investigation teams. EnCase®
    Portable allows for complete forensic triage and data collection in the
    field for both seasoned forensic professionals and non-technical
    personnel. It is compatible with EnCase® Forensic Version 7.05.
  *In early January 2013, the company announced the appointment of Vincent
    Schiavo as its Senior Vice President of Worldwide Sales. A veteran of the
    software industry, Schiavo is responsible for generating revenue growth
    across all Guidance Software sales channels and markets worldwide.

2013 Financial Outlook:

The company is initiating its guidance for the year ended December 31, 2013,
as follows:

  *Revenue is expected to be in the range of $144 million to $148 million,
    representing year-over-year growth of 10% to 13%
  *The company will expand sales capacity both internally and in the field,
    as well as invest in additional marketing initiatives to better address
    the sales opportunity and customer demand for both our EnCase® eDiscovery
    and EnCase® Cybersecurity offerings
  *Non-GAAP pre-tax earnings are expected to be approximately $0.25 to $0.30
    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. Ifyou 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 83012081, available from 8:00 pm eastern time, February 7, 2013,
through midnight eastern time, February 14, 2013.

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 65 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®,CaseCentraleDiscovery Cloud® Guidance Software™ and Tableau™
are registered trademarks or trademarks owned byGuidance Softwareinthe
United Statesand 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 (loss) as reported
and adds back the acquisition-related deferred revenue adjustment booked for
GAAP purposes and excludes amortization of intangibles, acquisition-related
expenses, share-based compensation expense, and a one-time state sales tax
charge. Non-GAAP net income (loss) consists of GAAP operating income (loss) as
reported and adds back the acquisition-related deferred revenue adjustment
booked for GAAP purposes and excludes amortization of intangibles,
acquisition-related expenses, share-based compensation expense, and a one-time
state 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.

State 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               Twelve Months Ended
                          December 31,                      December 31,
                          2012             2011             2012              2011
Revenues:
    Product revenue       $ 16,171         $ 16,787         $ 56,116          $ 52,345
    Subscription            2,486            -                9,202             -
    revenue
    Services and
    maintenance            17,585         13,088         64,152          52,256  
    revenue
Total revenues             36,242         29,875         129,470         104,601 
                                                                              
Cost of revenues:
    Cost of product         2,188            1,624            7,982             5,973
    revenue
    Cost of
    subscription            872              -                3,722             -
    revenue
    Cost of
    services and           6,646          5,196          24,733          22,453  
    maintenance
    revenue
Total cost of              9,706          6,820          36,437          28,426  
revenues
                                                                              
Gross profit               26,536         23,055         93,033          76,175  
                                                                              
Operating expenses:
    Selling and             11,937           10,386           42,278            36,992
    marketing
    Research and            6,652            4,671            24,459            18,882
    development
    General and             4,560            4,244            21,224            15,096
    administrative
    State sales tax         -                -                -                 1,336
    charges
    Depreciation
    and                    1,524          1,543          6,859           5,424   
    amortization
Total operating            24,673         20,844         94,820          77,730  
expenses
                                                                       -
Operating income            1,863            2,211            (1,787  )         (1,555  )
(loss)
                                                                              
Interest income and        2              25             (8      )        64      
other, net
                                                                       
Income (loss)               1,865            2,236            (1,795  )         (1,491  )
before income taxes
                                                                              
Income tax                 (43    )        (21    )        188             158     
provision
                                                                              
Net income (loss)         $ 1,908         $ 2,257         $ (1,983  )       $ (1,649  )
                                                                              
Net income (loss)         $ 0.08          $ 0.10          $ (0.08   )       $ (0.07   )
per share - basic
Net income (loss)         $ 0.07          $ 0.09          $ (0.08   )       $ (0.07   )
per share - diluted
                                                                              
Shares used in per
share calculation -        25,168        23,361         24,577   -      23,252  
basic
Shares used in per
share calculation -        26,864        24,265         24,577   -      23,252  
diluted
                                                                              
                                                                              
Supplemental
Financial Data
Non-GAAP income
before income taxes
excluding
acquisition-related
deferred revenue
adjustment,
acquisition-related       $ 4,478         $ 3,903         $ 10,525         $ 6,881   
expense,
share-based
compensation,
amortization of
intangibles and
certain state sales
tax charges
                                                                              
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                 $ 0.18          $ 0.17          $ 0.43           $ 0.29    
    Diluted               $ 0.17          $ 0.16          $ 0.40           $ 0.27    
                                                                              
                                                                              

                                                                  
Guidance Software, Inc.
Calculation of Pre-Tax Non-GAAP Income
(unaudited)
(in thousands, except per share amounts)

                            Three Months Ended                Twelve Months Ended
                            December 31,                      December 31,
                            2012             2011             2012             2011
Calculation of
pre-tax non-GAAP
income:
                                                                               
GAAP net income             $ 1,908          $ 2,257          $ (1,983 )       $ (1,649 )
(loss)
Add:
  Income tax                  (43    )         (21    )         188              158
  (benefit) provision
  Certain state sales         -                -                -                1,336
  tax charges
  Acquisition-related         141              -                2,561            -
  expense
  Acquisition-related
  deferred revenue            417              -                1,465            -
  adjustment
  Amortization of             429              500              2,443            1,304
  intangibles
  Share-based
  compensation
  expense (including         1,626          1,167          5,851          5,532  
  related payroll
  taxes paid by the
  Company)
                                                                               
Non-GAAP income
before income taxes
excluding
acquisition-related
deferred revenue
adjustment,
acquisition-related         $ 4,478         $ 3,903         $ 10,525        $ 6,681  
expense, share-based
compensation,
amortization of
intangibles and
certain state sales
tax charges
                                                                               
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                     $ 0.18          $ 0.17          $ 0.43          $ 0.29   
  Diluted                   $ 0.17          $ 0.16          $ 0.40          $ 0.27   
                                                                               
Shares used in per
share calculations:
  Basic                      25,168         23,361         24,577         23,252 
  Diluted                    26,864         24,265         26,186         24,432 
                                                                               
Detail of Share-based
Compensation Expense:
  Cost of product             29               21               101              82
  revenue
  Cost of
  subscription                34               -                142              -
  revenue
  Cost of service and         306              200              1,041            898
  maintenance revenue
  Selling and                 422              308              1,639            1,613
  marketing
  Research and                438              266              1,428            1,373
  development
  General and                397            372            1,500          1,566  
  administrative
  Total share-based
  compensation               1,626          1,167          5,851          5,532  
  expense
Detail of
Acquisition-related
Expense:
  General and                141            -              2,561          -      
  administrative
Detail of
Acquisition-related
Deferred Revenue
Adjustment:
  Subscription                315              -                1,118            -
  revenue
  Services and               102            -              347            -      
  maintenance revenue
  Total
  acquisition-related        417            -              1,465          -      
  deferred revenue
  adjustment
                                                                               
                                                                               

                                                                   
Guidance Software, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
 
                            Three Months Ended                Twelve Months Ended
                            December 31,                      December 31,
                            2012             2011             2012              2011
                                                                                
Total revenues, as          $ 36,242         $ 29,875         $ 129,470         $ 104,601
reported
  Acquisition-related
  deferred revenue           417            -              1,465           -       
  adjustment
Total non-GAAP              $ 36,659        $ 29,875        $ 130,935        $ 104,601 
revenues
                                                                                
Gross profit, as            $ 26,536         $ 23,055         $ 93,033          $ 76,175
reported
  Acquisition-related
  deferred revenue            417              -                1,465             -
  adjustment
  Share-based                369            221            1,284           980     
  compensation
       Gross profit          786            221            2,749           980     
       adjustment
Total non-GAAP gross         27,322        $ 23,276        $ 95,782         $ 77,155  
profit
                                                                                
Total operating             $ 24,673         $ 20,844         $ 94,820          $ 77,730
expenses, as reported
  Amortization of             (429   )         (500   )         (2,443  )         (1,304  )
  intangibles
  Acquisition-related         (141   )         -                (2,561  )         -
  expenses
  Share-based                 (1,257 )         (946   )         (4,567  )         (4,552  )
  compensation
  State sales tax            -              -              -               (1,336  )
  one-time charge
       Operating
       expense               (1,827 )        (1,446 )        (9,571  )        (7,192  )
       adjustment
Total non-GAAP              $ 22,846        $ 19,398        $ 85,249         $ 70,538  
operating expenses
                                                                                
Operating income            $ 1,863          $ 2,211          $ (1,787  )       $ (1,555  )
(loss), as reported
  Gross profit                786              221              2,749             980
  adjustment
  Operating expense          1,827          1,446          9,571           7,192   
  adjustment
Total non-GAAP
operating income            $ 4,476         $ 3,878         $ 10,533         $ 6,617   
(loss)
                                                                                
Net income (loss), as       $ 1,908          $ 2,257          $ (1,983  )       $ (1,649  )
reported
  Gross profit                786              221              2,749             980
  adjustment
  Operating expense           1,827            1,446            9,571             7,192
  adjustment
  Income tax                 (43    )        (21    )        188             158     
  provision
Total non-GAAP net          $ 4,478         $ 3,903         $ 10,525         $ 6,681   
income (loss)
                                                                                
Net income (loss) per
share-diluted, as           $ 0.07          $ 0.09          $ (0.08   )       $ (0.07   )
reported
                                                                                
Non-GAAP net income
(loss) per                  $ 0.17          $ 0.16          $ 0.40           $ 0.27    
share-diluted
                                                                                
                                                                                

                                                    
Guidance Software, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
 
                                 December 31,                     December 31,
                                 2012                             2011
ASSETS
Current assets:
  Cash and cash                  $  32,606                        $  37,048
  equivalents
  Trade receivables, net            23,558                           19,505
  Inventory                         2,008                            1,394
  Prepaid expenses and             3,106                          2,209   
  other current assets
    Total current assets           61,278                         60,156  
                                                                  
Long-term assets:
  Property and equipment,           10,227                           9,273
  net
  Intangible assets, net            12,411                           3,754
  Goodwill, net                     14,632                           3,711
  Other assets                     2,026                          434     
    Total long-term assets         39,296                         17,172  
                                                                  
    Total assets                 $  100,574                      $  77,328  
                                                                  
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable               $  3,058                         $  2,895
  Accrued liabilities               12,929                           9,774
  Capital lease                     393                              58
  obligations
  Deferred revenues                37,337                         33,630  
    Total current                  53,717                         46,357  
    liabilities
                                                                  
Long-term liabilities:
  Rent incentives                   730                              498
  Capital lease                     181                              55
  obligations
  Deferred revenues                 6,115                            5,952
  Contingent earn-out, net          569                              -
  of current portion
  Deferred tax liabilities         242                            155     
    Total long-term                7,837                          6,660   
    liabilities
                                                                  
Stockholders' equity:
  Common stock                      25                               23
  Additional paid-in                93,037                           74,297
  capital
  Treasury stock                    (8,644  )                        (6,594  )
  Accumulated deficit              (45,398 )                       (43,415 )
    Total stockholders'            39,020                         24,311  
    equity
                                                                  
    Total liabilities and        $  100,574                      $  77,328  
    stockholders' equity
                                                                  
                                                                  

                                                      
Guidance Software, Inc.
Unaudited Cash Flow Summary
(in thousands)
     
                                    Twelve Months Ended
                                    December 31,
                                    2012                            2011
Operating Activities:
  Net loss                          $ (1,983  )                     $ (1,649 )
  Adjustments to reconcile
  net loss to net cash
  provided by operating
  activities:
       Depreciation &                 6,859                           5,424
       amortization
       Benefit for doubtful           (47     )                       -
       accounts
       Share-based                    5,851                           5,532
       compensation
       Deferred taxes                 86                              94
       Loss on disposal of            85                              -
       assets
       Changes in operating
       assets and
       liabilities:
            Trade receivables         (933    )                       (3,161 )
            Inventory                 (614    )                       (407   )
            Prepaid expenses          131                             (275   )
            and other assets
            Accounts payable          (285    )                       402
            Accrued                   (326    )                       1,795
            liabilities
            Deferred revenues        570                           5,967  
       Net cash provided by          9,394                         13,722 
       operating activities
                                                                    
Investing Activities:
  Purchase of property and            (4,022  )                       (2,116 )
  equipment
  Acquisition, net of cash           (9,642  )                      -      
  acquired
       Net cash used in              (13,664 )                      (2,116 )
       investing activities
                                                                    
Financing Activities:
  Proceeds from the exercise          3,393                           454
  of stock options
  Common stock repurchased or         (2,050  )                       (2,555 )
  withheld
  Principal payments on
  capital lease and other            (1,515  )                      (78    )
  obligations
       Net cash used in              (172    )                      (2,179 )
       financing activities
                                                                    
Net (decrease) increase in            (4,442  )                       9,427
cash and cash equivalents
                                                                    
Cash and cash equivalents,           37,048                        27,621 
beginning of period
                                                                    
Cash and cash equivalents,          $ 32,606                       $ 37,048 
end of period

Contact:

Guidance Software, Inc.
Investor Contact
Rasmus van der Colff, 626-768-4607
investorrelations@guidancesoftware.com
or
Media Contact
Alex Andrianopoulos, 626-229-9191
newsroom@guidancesoftware.com
 
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