Guidance Software Reports 2013 Third Quarter Financial Results

  Guidance Software Reports 2013 Third Quarter Financial Results

  *Revenue of $28.3 million; Non-GAAP net loss of ($0.09) per share
  *51 new EnCase® Enterprise platform customers
  *Releases industry’s first proactive endpoint security analytics solution,
    EnCase® Analytics

Business Wire

PASADENA, Calif. -- November 5, 2013

Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for
the third quarter ended September 30, 2013.

Third quarter 2013 financial highlights, calculated in accordance with
generally accepted accounting principles (GAAP) include:

  *Revenue of $28.3 million, compared to $36.1 million in the third quarter
    of 2012
  *SaaS revenues of $2.7 million, compared to $2.6 million in the third
    quarter of 2012
  *Product revenue of $9.7 million, compared to $17.4 million in the third
    quarter of 2012
  *Services and maintenance revenue of $15.9 million, compared to $16.1
    million in the third quarter of 2012
  *Net loss of $5.0 million, or ($0.19) per share, compared to net income of
    $1.3 million, or $0.05 per share, in the third quarter of 2012

On a non-GAAP basis, which excludes share-based compensation and amortization
of intangibles, the Company reported a pre-tax net loss of $2.3 million, or
($0.09) per share, in the third quarter of 2013, compared to non-GAAP pre-tax
net income of $4.1 million, or $0.15 per diluted share, in the third quarter
of 2012.

Guidance Software President and Chief Executive Officer Victor Limongelli
said, “Our third quarter results met our expectations, as our business began
to improve from the first half of the year. Product revenues for the third
quarter increased 26% sequentially and we added 51 new EnCase® Enterprise
customers. Most importantly, during the third quarter we introduced our newest
product, EnCase® Analytics, the industry’s first proactive endpoint security
analytics solution. The introduction of EnCase® Analytics builds upon Guidance
Software’s overall strategy of ‘EnCase® Everywhere’ and is a testament to our
Company’s ability to create innovative products that meet and exceed the needs
of our customers.”

Third Quarter 2013 Highlights and Noteworthy Events

  *In September, the Company announced that its newest product, EnCase®
    Analytics, is now generally available to the market through Guidance
    Software as well as channel partners. EnCase® Analytics exposes unknown
    and difficult-to-detect threats by applying "big data" analytical
    techniques to the reams of data generated by endpoint activity, producing
    a clear picture of organization-wide security risk through an interactive
    visual interface. For the first time, IT security teams can take a
    proactive approach to threat surveillance by collecting and analyzing
    activity across all endpoints—including servers—on their network to reveal
    both external and internal threats.
  *In the third quarter of 2013, the Company added 51 new EnCase® Enterprise
    customers. The Company also added 17 customers ofEnCase®^eDiscovery or
    EnCase® Cybersecurity, which are built on the EnCase® Enterprise platform.
  *The Company released the results of a survey conducted during the
    Guidance’s 13^th Annual Computer and Enterprise Investigations Conference
    (CEIC) held this past May. The respondents, which include more than 150
    organizations, indicated shifting priorities in enterprise and government
    security teams with the “length of time to resolve attacks” coming in as
    the primary cybersecurity concern. EnCase® Cybersecurity and EnCase®
    Analytics help organizations reduce the gap between detecting an incident
    and mobilizing a rapid response.
  *EnCase® App Central downloads have exceeded 15,000 since the online store
    opened in spring 2013. EnCase® App Central has become a trusted source for
    developers and investigation professionals to share and discover the
    latest apps that complement the Company’s EnCase® solutions. In addition,
    Belkasoft®, a developer of forensic analysis tools, published its entire
    Evidence Center product line on the EnCase® App Central.
  *The Company introduced the Tableau T3iu Forensic SATA Imaging Bay, which
    adds SATA imaging capacity to forensic workstations via USB 3.0 bandwidth
    and provides fast and efficient SATA hard-drive acquisitions.

2013 Financial Outlook:

The Company is maintaining its guidance for the year endingDecember 31, 2013:

  *Revenue for 2013 is expected to be in the range of$112 million to $115
    million.
  *Non-GAAP pre-tax earnings for 2013 are expected to be in the range of a
    $0.50 per share loss to a $0.42 per share loss.

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 70989535, available from 8:00 pm eastern time, November 5, 2013,
through midnight eastern time, November 12, 2013.

About Guidance Software:

Guidance Softwareis recognized worldwide as the industry leader in digital
investigative solutions. Its EnCase® Enterprise platform is used by numerous
government agencies, more than 65 percent of the Fortune 100, and more than 40
percent of the Fortune 500, to conduct digital investigations of servers,
laptops, desktops and mobile devices. Built on the EnCase® Enterprise platform
are market-leading electronic discovery and cyber security solutions, EnCase®
eDiscovery, EnCase® Cybersecurity, and EnCase® Analytics. They empower
organizations to respond to litigation discovery requests, perform sensitive
data discovery for compliance purposes, conduct speedy and thorough security
incident response, and reveal previously hidden advanced persistent threats or
malicious insider activity. For more information aboutGuidance Software,
visitwww.encase.com.

EnCase®, EnScript®, FastBloc®, EnCE®, EnCEP®, 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 and share-based compensation expense. 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 and
share-based compensation expense.

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.

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,
                           2013       2012         2013        2012   
  Revenues:
       Product revenue    $ 9,728      $ 17,394       $ 24,953      $ 39,945
       Subscription         2,711        2,648          8,202         6,716
       revenue
       Services and
       maintenance         15,875     16,099       49,409      46,567 
       revenue
  Total revenues           28,314     36,141       82,564      93,228 
                                                                    
  Cost of revenues:
       Cost of product      2,164        2,208          5,665         5,795
       revenue
       Cost of
       subscription         1,109        981            3,289         2,850
       revenue
       Cost of services
       and maintenance     6,432      6,539        19,961      18,086 
       revenue
  Total cost of            9,705      9,728        28,915      26,731 
  revenues
                                                                    
  Gross profit             18,609     26,413       53,649      66,497 
                                                                    
  Operating expenses:
       Selling and          10,494       11,790         30,359        30,341
       marketing
       Research and         6,771        6,224          21,438        17,807
       development
       General and          4,271        5,351          14,155        16,664
       administrative
       Depreciation and    1,983      1,745        5,673       5,335  
       amortization
  Total operating          23,519     25,110       71,625      70,147 
  expenses
                                                                    
  Operating income          (4,910 )     1,303          (17,976 )     (3,650 )
  (loss)
                                                                    
  Interest income and      9          (9     )      18          (10    )
  other, net
                                                                    
  Income (loss) before      (4,901 )     1,294          (17,958 )     (3,660 )
  income taxes
                                                                    
  Income tax provision     67         22           183         231    
                                                                    
  Net income (loss)       $ (4,968 )   $ 1,272       $ (18,141 )   $ (3,891 )
                                                                    
  Net income (loss) per   $ (0.19  )   $ 0.05        $ (0.71   )   $ (0.16  )
  share - basic
  Net income (loss) per   $ (0.19  )   $ 0.05        $ (0.71   )   $ (0.16  )
  share - diluted
                                                                    
  Shares used in per
  share calculation -      25,914     24,988       25,713      24,450 
  basic
  Shares used in per
  share calculation -      25,914     26,543       25,713      24,450 
  diluted
                                                          
  Supplemental
  Financial Data
  Non-GAAP income
  (loss) before income
  taxes excluding
  acquisition-related
  deferred revenue
  adjustment,             $ (2,305 )   $ 4,065        $ (10,152 )   $ 6,047
  acquisition-related
  expense, share-based
  compensation and
  amortization of
  intangibles
                                                                    
  Non-GAAP income
  (loss) per share
  before income taxes
  excluding
  acquisition-related
  deferred revenue
  adjustment,
  acquisition-related
  expense, share-based
  compensation and
  amortization of
  intangibles
       Basic              $ (0.09  )   $ 0.16         $ (0.39   )   $ 0.25
       Diluted            $ (0.09  )   $ 0.15         $ (0.39   )   $ 0.23
                                                           

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,
                               2013       2012      2013        2012   
Calculation of pre-tax
non-GAAP (loss) income:
                                                                    
GAAP net income (loss)        $ (4,968 )   $ 1,272    $ (18,141 )   $ (3,891 )
Add:
    Income tax provision        67           22         183           231
    Acquisition-related         -            214        -             2,420
    expense
    Acquisition-related
    deferred revenue            -            420        253           1,048
    adjustment
    Amortization of             577          668        1,899         2,014
    intangibles
    Share-based compensation
    expense (including         2,019      1,469     5,654       4,225  
    related payroll taxes
    paid by the Company)
                                                                    
Non-GAAP income (loss) before
income taxes excluding
acquisition-related deferred
revenue adjustment,           $ (2,305 )   $ 4,065    $ (10,152 )   $ 6,047  
acquisition-related expense,
share-based compensation and
amortization of intangibles
                                                                    
Non-GAAP income (loss) per
share before income taxes
excluding acquisition-related
deferred revenue adjustment,
acquisition-related expense,
share-based compensation and
amortization of intangibles
    Basic                     $ (0.09  )   $ 0.16     $ (0.39   )   $ 0.25   
    Diluted                   $ (0.09  )   $ 0.15     $ (0.39   )   $ 0.23   
                                                                    
Shares used in per share
calculations:
    Basic                      25,914     24,988    25,713      24,450 
    Diluted                    25,914     26,543    25,713      26,020 
                                                                    
Detail of Share-based
Compensation Expense:
    Cost of product revenue   $ 35         $ 25       $ 100         $ 72
    Cost of subscription        51           38         141           108
    revenue
    Cost of service and         368          256        1,039         735
    maintenance revenue
    Selling and marketing       539          408        1,518         1,217
    Research and                544          365        1,479         990
    development
    General and                482        377       1,377       1,103  
    administrative
    Total share-based         $ 2,019     $ 1,469    $ 5,654      $ 4,225  
    compensation expense
Detail of
Acquisition-related
Expense:
    General and               $ -         $ 214      $ -          $ 2,420  
    administrative
Detail of
Acquisition-related Deferred
Revenue Adjustment:
    Subscription revenue      $ -          $ 318      $ 193         $ 803
    Services and               -          102       60          245    
    maintenance revenue
    Total
    acquisition-related       $ -         $ 420      $ 253        $ 1,048  
    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        Nine Months Ended
                            September 30,             September 30,
                             2013       2012       2013        2012   
                                                                    
Total revenues, as          $ 28,314     $ 36,141     $ 82,564      $ 93,228
reported
    Acquisition-related
    deferred revenue         -          420        253         1,048  
    adjustment
Total non-GAAP revenues     $ 28,314    $ 36,561    $ 82,817     $ 94,276 
                                                                    
Gross profit, as reported   $ 18,609     $ 26,413     $ 53,649      $ 66,497
    Acquisition-related
    deferred revenue          -            420          253           1,048
    adjustment
    Share-based              454        319        1,280       915    
    compensation
          Gross profit       454        739        1,533       1,963  
          adjustment
Total non-GAAP gross        $ 19,063    $ 27,152    $ 55,182     $ 68,460 
profit
                                                                    
Total operating expenses,   $ 23,519     $ 25,110     $ 71,625      $ 70,147
as reported
    Amortization of           (577   )     (668   )     (1,899  )     (2,014 )
    intangibles
    Acquisition-related       -            (214   )     -             (2,420 )
    expenses
    Share-based              (1,565 )    (1,150 )    (4,374  )    (3,310 )
    compensation
          Operating
          expense            (2,142 )    (2,032 )    (6,273  )    (7,744 )
          adjustment
Total non-GAAP operating    $ 21,377    $ 23,078    $ 65,352     $ 62,403 
expenses
                                                                    
Operating income, (loss)    $ (4,910 )   $ 1,303      $ (17,976 )   $ (3,650 )
as reported
    Gross profit              454          739          1,533         1,963
    adjustment
    Operating expense        2,142      2,032      6,273       7,744  
    adjustment
Total non-GAAP operating    $ (2,314 )   $ 4,074     $ (10,170 )   $ 6,057  
income (loss)
                                                                    
Net income, (loss) as       $ (4,968 )   $ 1,272      $ (18,141 )   $ (3,891 )
reported
    Gross profit              454          739          1,533         1,963
    adjustment
    Operating expense         2,142        2,032        6,273         7,744
    adjustment
    Income tax provision     67         22         183         231    
Total non-GAAP net income   $ (2,305 )   $ 4,065     $ (10,152 )   $ 6,047  
(loss)
                                                                    
Net income (loss) per       $ (0.19  )   $ 0.05      $ (0.71   )   $ (0.16  )
share-diluted, as reported
                                                                    
Non-GAAP net income (loss)  $ (0.09  )   $ 0.15      $ (0.39   )   $ 0.23   
per share-diluted
                                                                             

Guidance Software, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
 
                                               September 30, December 31,
                                                 2013        2012    
ASSETS
Current assets:
  Cash and cash equivalents                    $  16,803     $  32,606
  Trade receivables, net                          21,806        23,558
  Inventory                                       1,800         2,008
  Prepaid expenses and other current assets      5,579       3,753   
    Total current assets                         45,988      61,925  
                                                             
Long-term assets:
  Property and equipment, net                     19,078        10,227
  Intangible assets, net                          10,512        12,411
  Goodwill                                        14,632        14,632
  Other assets                                   1,355       2,026   
    Total long-term assets                       45,577      39,296  
                                                             
    Total assets                               $  91,565    $  101,221 
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $  6,494      $  3,058
  Accrued liabilities                             10,853        12,929
  Capital lease obligations                       209           393
  Deferred revenues                              36,095      37,337  
    Total current liabilities                    53,651      53,717  
                                                             
Long-term liabilities:
  Rent incentives                                 6,283         730
  Deferred revenues                               4,367         6,115
  Contingent earn-out                             397           569
  Deferred tax liabilities                        958           889
  Other long-term liabilities                    81          181     
    Total long-term liabilities                  12,086      8,484   
                                                             
Stockholders' equity:
  Common stock                                    25            25
  Additional paid-in capital                      100,147       93,037
  Treasury stock                                  (10,805 )     (8,644  )
  Accumulated deficit                            (63,539 )    (45,398 )
    Total stockholders' equity                   25,828      39,020  
                                                             
    Total liabilities and stockholders' equity $  91,565    $  101,221 
                                                                        

Guidance Software, Inc.
Unaudited Cash Flow Summary
(in thousands)
                                                              
                                                     Nine Months Ended
                                                     September 30,
                                                      2013        2012    
Operating Activities:
  Net loss                                           $ (18,141 )   $ (3,891  )
  Adjustments to reconcile net loss to net cash
  (used in) provided by
  operating activities:
       Depreciation & amortization                     5,673         5,335
       Provision for doubtful accounts                 350           100
       Share-based compensation                        5,654         4,225
       Deferred taxes                                  69            96
       Loss on disposal of assets                      107           82
       Changes in operating assets and liabilities:
                Trade receivables                      1,401         3,080
                Inventory                              208           (494    )
                Prepaid expenses and other assets      217           (696    )
                Accounts payable                       2,680         170
                Accrued liabilities                    2,620         (1,255  )
                Deferred revenues                     (2,990  )    (2,109  )
       Net cash (used in) provided by operating       (2,152  )    4,643   
       activities
                                                                   
Investing Activities:
  Purchase of property and equipment                   (11,921 )     (2,485  )
  Acquisition, net of cash acquired                   -           (9,642  )
       Net cash used in investing activities          (11,921 )    (12,127 )
                                                                   
Financing Activities:
  Proceeds from the exercise of stock options          1,456         2,655
  Common stock repurchased or withheld                 (2,161  )     (1,294  )
  Principal payments on capital lease and other       (1,025  )    (937    )
  obligations
       Net cash (used in) provided by financing       (1,730  )    424     
       activities
                                                                   
Net decrease in cash and cash equivalents              (15,803 )     (7,060  )
                                                                   
Cash and cash equivalents, beginning of period        32,606      37,048  
                                                                   
Cash and cash equivalents, end of period             $ 16,803     $ 29,988  
                                                                             

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