July 30, 2015

Guidance Software Reports Strong 2015 Second Quarter Financial Results

  • Revenue of $27.5 million and non-GAAP net loss of ($0.05) per share
  • Endpoint Security grows 25% for the first-half of 2015

PASADENA, Calif.--(BUSINESS WIRE)-- Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for the second quarter ended June 30, 2015.

Second quarter 2015 financial highlights, calculated in accordance with generally accepted accounting principles (GAAP) include:

  • Revenue of $27.5 million, compared to $27.2 million in the second quarter of 2014
  • Net loss of $3.5 million, or ($0.13) per share, compared to a net loss of $2.9 million, or ($0.11) per share, in the second quarter of 2014

On a non-GAAP basis, which excludes share-based compensation and amortization of intangibles, the Company reported a pre-tax net loss of $1.3 million, or ($0.05) per share, in the second quarter of 2015, compared to a non-GAAP pre-tax net loss, of $0.7 million, or ($0.02) per share, in the second quarter of 2014.

"The second quarter reflects a continuation of the solid execution and momentum we experienced in the first quarter of 2015, with revenues exceeding our expectations for the quarter and surpassing our revenue for the same period of 2014," said Patrick Dennis, Guidance Software's Chief Executive Officer. "Guidance's progress in the second quarter was marked by continued success in the endpoint security space, and for the first-half of 2015, endpoint security revenues grew 25% year-over-year."

"Endpoint security now represents over 30% of Guidance's overall revenues and continues to grow as we partner with the best channel distributors. We were particularly pleased to recently initiate our distribution agreement with WestconGroup, a leading value-added global distributor of security solutions. As WestconGroup's vendor of choice, we can now team together to provide endpoint security products with shared intelligence and automation to solution providers. Our growth in the endpoint security space is in-line with the trends we are seeing in the overall market, which has been further evidenced by Guidance's addition to the PureFunds Cyber Security ETF, HACK. We have made great progress so far in 2015, and we look forward to solid growth in the second-half of the year."

Second Quarter 2015 Highlights and Noteworthy Events

  • Guidance Software was named the "Best Computer Forensics Solution" at the 2015 SC Awards Europe for the second year in a row. The award was announced on June 2nd at the SC Magazine awards gala during the InfoSecurity Europe Conference in London. This recognition was the latest in a series of awards that Guidance Software has recently earned. Earlier in 2015, the Company received an SC Magazine Professional Award for the best IT security-related training program.
  • Infinigate UK, a recognized, true value-added distributor of IT security solutions, has signed an agreement with Guidance Software in the UK to distribute Guidance's leading cybersecurity and digital investigative solutions. Infinigate UK's channel partners are now able to capitalize on a wealth of marketing materials on the Infinigate partner portal including information and tools to market, sell and support Guidance Software's products.
  • In early July, Guidance launched the "Channel First" initiative to accelerate worldwide delivery of endpoint detection and response solutions. This initiative reflects an organizational focus on streamlining channel partner support and relations to help meet the needs of customer organizations that prefer to work with trusted local providers. To ensure greater success for partners, Guidance's channel partner program provides a wide array of benefits including product training, product discounts, deal registration, access to channel account managers, demand generation, and joint field marketing.

2015 Financial Outlook:

For the full-year ending December 31, 2015, Guidance is reiterating guidance as follows:

  • Revenue is expected to be in the range of $108 million to $112 million.
  • Non-GAAP pre-tax earnings are expected to be approximately ($0.15) - ($0.08) 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) 407-0784 (North America) or (201) 689-8560 (International) and should dial in at least five minutes prior to the conference call.

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

An audio-only replay of the call will be available by calling (877) 870-5176, passcode 13610060, available from 8:00 pm Eastern time, July 30, 2015, through midnight Eastern Time, August 6, 2015.

About Guidance Software:

Guidance Software, Inc. (NASDAQ: GUID), the maker of the EnCase technology platform, is the gold standard in digital investigations and endpoint data security, helping organizations around the world lower business risk by providing the most complete visibility to data everywhere it's stored—on the endpoint, across servers, and into the cloud. Guidance Software solutions are built for integration within a rich technology ecosystem, including Dropbox, HP, Cisco, Box, and Blue Coat Systems, and are widely adopted within multiple industries where compliance is critical, such as finance, insurance, defense, energy, pharmaceuticals, manufacturing, and retail. Recognized as the market leader in endpoint detection and response by Gartner, the company's EnCase platform has been deployed on an estimated 25 million endpoints and is used with confidence by more than 70 of the Fortune 100 and hundreds of government agencies around the world.

For more information about Guidance Software, please visit www.guidancesoftware.com, "Like" our Facebook page, follow us on Twitter, or follow our LinkedIn page.

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

Notes to Unaudited Condensed Consolidated Statements of Operations:

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

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

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

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

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

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

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

Forward Looking Statements:

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

 
Guidance Software, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
           
Three Months Ended Six Months Ended
June 30, June 30,
  2015     2014     2015     2014  
Revenues:
Product revenue $ 8,280 $ 8,888 $ 15,334 $ 15,749
Services revenue 9,264 8,466 17,446 17,424
Maintenance revenue   10,005     9,826     19,773     19,388  
Total revenues $ 27,549   $ 27,180   $ 52,553   $ 52,561  
 
Cost of revenues:
Cost of product revenue $ 2,293 $ 1,888 $ 4,036 $ 3,638
Cost of services revenue 6,285 6,506 12,501 12,934
Cost of maintenance revenue   690     565     1,180     1,078  
Total cost of revenues $ 9,268   $ 8,959   $ 17,717   $ 17,650  
 
Gross profit $ 18,281   $ 18,221   $ 34,836   $ 34,911  
 
Operating expenses:
Selling and marketing $ 10,257 $ 9,732 $ 19,201 $ 19,797
Research and development 5,244 6,154 10,409 12,626
General and administrative 4,629 3,958 9,184 8,220
Depreciation and amortization   1,596     1,867     3,237     3,841  
Total operating expenses $ 21,726   $ 21,711   $ 42,031   $ 44,484  
 
Operating loss $ (3,445 ) $ (3,490 ) $ (7,195 ) $ (9,573 )
 
Interest income and other, net   10     637     18     654  

 

Loss before income taxes $ (3,435 ) $ (2,853 ) $ (7,177 ) $ (8,919 )
 
Income tax provision   96     82     167     160  
 
Net loss $ (3,531 ) $ (2,935 ) $ (7,344 ) $ (9,079 )
 
Net loss per share - basic $ (0.13 ) $ (0.11 ) $ (0.27 ) $ (0.34 )
Net loss per share - diluted $ (0.13 ) $ (0.11 ) $ (0.27 ) $ (0.34 )
 
Shares used in per share calculation - basic   27,999  

 

  26,789     27,143     26,599  
Shares used in per share calculation - diluted   27,999  

 

  26,789     27,143     26,599  
                   

Supplemental Financial Data

Non-GAAP loss before income taxes excluding amortization of intangibles, realignment expense, gain on sale of domain name and share-based compensation expense $ (1,293 ) $ (650 ) $ (2,920 ) $ (3,254 )
 
Non-GAAP loss per share before income taxes excluding amortization of intangibles, realignment expense, gain on sale of domain name, and share-based compensation expense
Basic $ (0.05 ) $ (0.02 ) $ (0.11 ) $ (0.12 )
Diluted $ (0.05 ) $ (0.02 ) $ (0.11 ) $ (0.12 )
                   
 
 
Guidance Software, Inc.
Calculation of Pre-Tax Non-GAAP Income
(unaudited)
(in thousands, except per share amounts)
           
Three Months Ended Six Months Ended

June 30,

June 30,

  2015     2014     2015     2014  
Calculation of pre-tax non-GAAP income (loss):
 
GAAP net loss $ (3,531 ) $ (2,935 ) $ (7,344 ) $ (9,079 )
Add:
Income tax provision 96 82 167 160
Amortization of intangibles 413 539 862 1,137
Realignment expense - 443 - 1,577
Gain on sale of domain name - (630 ) - (630 )
Share-based compensation expense (including related payroll taxes paid by the Company)   1,729     1,851     3,395     3,581  
 
Non-GAAP loss before income taxes excluding amortization of intangibles, realignment expense, gain on sale of domain name and share-based compensation expense $ (1,293 ) $ (650 ) $ (2,920 ) $ (3,254 )
 
Non-GAAP loss per share before income taxes excluding amortization of intangibles, realignment expense, gain on sale of domain name and share-based compensation expense
Basic $ (0.05 ) $ (0.02 ) $ (0.11 ) $ (0.12 )
Diluted $ (0.05 ) $ (0.02 ) $ (0.11 ) $ (0.12 )
 
Shares used in per share calculations:
Basic   27,999     26,789     27,143     26,599  
Diluted   27,999     26,789     27,143     26,599  
 

Detail of Share-based Compensation Expense:

Cost of product revenue $ 29 $ 33 $ 61 $ 72
Cost of services revenue 281 354 568 688
Cost of maintenance revenue 40 37 82 72
Selling and marketing 406 519 761 912
Research and development 376 418 814 880
General and administrative   597     490     1,109     957  
Total share-based compensation expense $ 1,729   $ 1,851   $ 3,395   $ 3,581  
 

Detail of Realignment Expense:

Cost of services revenue $ - $ - $ - $ 186
Selling and marketing - - - 468
Research and development - 443 - 790
General and administrative   -     -     -     133  
Total realignment expense $ -   $ 443   $ -   $ 1,577  
 

Detail of Gain on Sale of Domain Name:

Interest income and other, net $ -   $ 630   $ -   $ 630  
Total gain on sale of domain name $ -   $ 630   $ -   $ 630  
 
 
Guidance Software, Inc
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
           
Three Months Ended Six Months Ended
June 30, June 30,
  2015     2014     2015     2014  
 
Total revenues, as reported $ 27,549   $ 27,180   $ 52,553   $ 52,561  
Total non-GAAP revenues $ 27,549   $ 27,180   $ 52,553   $ 52,561  
 
Gross profit, as reported $ 18,281 $ 18,221 $ 34,836 $ 34,911
Realignment expense - - - 186
Share-based compensation   350     424     711     832  
Gross profit adjustment   350     424     711     1,018  
Total non-GAAP gross profit $ 18,631   $ 18,645   $ 35,547   $ 35,929  
 
Total operating expenses, as reported $ 21,726 $ 21,711 $ 42,031 $ 44,484
Amortization of intangibles (413 ) (539 ) (862 ) (1,137 )
Realignment expense - (443 ) - (1,391 )
Share-based compensation   (1,379 )   (1,427 )   (2,684 )   (2,749 )
Operating expense adjustment   (1,792 )   (2,409 )   (3,546 )   (5,277 )
Total non-GAAP operating expenses $ 19,934   $ 19,302   $ 38,485   $ 39,207  
 
Operating loss as reported $ (3,445 ) $ (3,490 ) $ (7,195 ) $ (9,573 )
Gross profit adjustment 350 424 711 1,018
Operating expense adjustment   1,792     2,409     3,546     5,277  
Total non-GAAP operating loss $ (1,303 ) $ (657 ) $ (2,938 ) $ (3,278 )
 
Net loss as reported $ (3,531 ) $ (2,935 ) $ (7,344 ) $ (9,079 )
Gross profit adjustment 350 424 711 1,018
Operating expense adjustment 1,792 2,409 3,546 5,277
Income tax provision 96 82 167 160
Gain on sale of domain name   -     (630 )   -     (630 )
Total non-GAAP net loss $ (1,293 ) $ (650 ) $ (2,920 ) $ (3,254 )
 
Net loss per share-diluted, as reported $ (0.13 ) $ (0.11 ) $ (0.27 ) $ (0.34 )
 
Non-GAAP net loss per share-diluted $ (0.05 ) $ (0.02 ) $ (0.11 ) $ (0.12 )
 
 
Guidance Software, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
       
June 30, December 31,
  2015     2014  
ASSETS
Current assets:
Cash and cash equivalents $ 21,029 $ 18,355
Restricted cash - 153
Trade receivables, net 17,314 20,255
Inventory 2,501 2,684
Prepaid expenses and other current assets   5,099     5,054  
Total current assets $ 45,943   $ 46,501  
 
Long-term assets:
Property and equipment, net $ 15,215 $ 14,558
Intangible assets, net 6,904 7,766
Goodwill 14,632 14,632
Other assets   2,236     2,370  
Total long-term assets   38,987     39,326  
 
Total assets $ 84,930   $ 85,827  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,548 $ 5,919
Accrued liabilities 10,826 8,407
Capital lease obligations 73 67
Deferred revenues   39,079     39,128  
Total current liabilities $ 53,526   $ 53,521  
 
Long-term liabilities:
Deferred rent $ 7,344 $ 7,661
Other long-term liabilities 655 645
Deferred revenues 7,863 6,232
Deferred tax liabilities   630     584  
Total long-term liabilities $ 16,492   $ 15,122  
 
Stockholders' equity:
Common stock $ 26 $ 25
Additional paid-in capital 115,336 110,265
Treasury stock (11,479 ) (11,479 )
Accumulated deficit   (88,971 )   (81,627 )
Total stockholders' equity $ 14,912   $ 17,184  
 
Total liabilities and stockholders' equity $ 84,930   $ 85,827  
 
 
Guidance Software, Inc
Unaudited Cash Flow Summary
(in thousands)
         
Six Months Ended
June 30,
  2015     2014  
Operating Activities:
Net loss $ (7,344 ) $ (9,079 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation & amortization 3,237 3,841
Share-based compensation 3,395 3,581
Gain on sale of domain name - (630 )
Deferred taxes 46 46
Loss on disposal of assets 12 84
Changes in operating assets and liabilities:
Restricted cash 153 -
Trade receivables 2,941 4,452
Inventory 183 (123 )
Prepaid expenses and other assets 88 (1,220 )
Accounts payable (2,341 ) (208 )
Accrued liabilities 2,102 (544 )
Deferred revenues   1,582     (849 )
Net cash provided by (used in) operating activities $ 4,054   $ (649 )
 
Investing Activities:
Purchase of property and equipment $ (3,015 ) $ (1,296 )
Net cash used in investing activities $ (3,015 ) $ (1,296 )
 
Financing Activities:
Proceeds from the exercise of stock options $ 1,677 $ 908
Principal payments on capital lease and other obligations   (42 )   (124 )
Net cash provided by financing activities $ 1,635   $ 784  
 
Net increase (decrease) in cash and cash equivalents $ 2,674 $ (1,161 )
 
Cash and cash equivalents, beginning of period $ 18,355   $ 19,919  
 
Cash and cash equivalents, end of period $ 21,029   $ 18,758  
 
 

GUID-F

INVESTORS
Guidance Software, Inc.
Rasmus van der Colff, 626-768-4607
investorrelations@guidancesoftware.com

Source: Guidance Software, Inc.

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