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 email@example.com or Media Contact Alex Andrianopoulos, 626-229-9191 firstname.lastname@example.org
Guidance Software Reports 2013 Third Quarter Financial Results
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