February 11, 2016

Guidance Software Reports 2015 Fourth Quarter and Full Year Financial Results

  • Fourth quarter 2015 revenue and EPS beat consensus estimates
  • Fourth quarter revenue of $27.6 million and non-GAAP EPS of ($0.05) per share
  • Full year 2015 revenue of $107.0 million and non-GAAP EPS of ($0.18) per share

PASADENA, Calif.--(BUSINESS WIRE)-- Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for the fourth quarter and full year ended December 31, 2015.

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

  • Revenue of $27.6 million, compared to $28.2 million in the fourth quarter of 2014
  • Net loss of $3.6 million, or ($0.13) per share, compared to a net loss of $3.1 million, or ($0.11) per share, in the fourth quarter of 2014

"2015 was a year of transformation at Guidance and I am pleased to report that we finished the year strong," said Patrick Dennis, Guidance Software's Chief Executive Officer. "Looking forward, 2016 will be a year of growth for Forensic Security. Our customers have acknowledged that prevention solutions are insufficient for reducing digital risk. They have already started to shift spending to rapid detection and response solutions like ours."

On a non-GAAP basis, which excludes share-based compensation, amortization of intangibles and realignment expenses, the Company reported a pre-tax net loss of $1.3 million, or ($0.05) per share, in the fourth quarter of 2015, compared to non-GAAP pre-tax net income of $0.9 million, or $0.03 per share, in the fourth quarter of 2014.

"Throughout 2015 our software mix shifted to end point security" said Barry Plaga, Guidance Software's Chief Operating Officer. "In Q4 end point security was our largest individual business, representing 24% growth on a year on year basis."

Fourth Quarter 2015 Highlights and Recent Noteworthy Events

  • In November, the Company released EnCase® Endpoint Security version 5.10. Version 5.10 included support for IOC's (YARA), improved surgical remediation, and operating system and integration support updates.
  • In February, the Company unveiled EnForce™ Risk Manager, the first purpose built product to help security professionals reduce the attack surface area associated with sensitive data (PII, PCI, PHI).
  • In February, the Company unveiled its cloud strategy. In a phased approach, the Company will begin supporting hosted versions of its EnCase family of products. This allows customers to bring the robust end point security used inside the four walls of the data center to their preferred public cloud.

2016 Financial Outlook

Comments regarding the Company's 2016 financial outlook will be discussed on today's conference call.

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 fourth quarter and full year 2015 results. Participants should call (877) 407-0784 (North America) or (201) 689-8560 (International) 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 13628074, available from 8:00 pm Eastern Time, February 11, 2016, through midnight Eastern Time, February 18, 2016.

About Guidance Software:

Guidance Software, Inc. (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. Our field-tested and court-proven solutions are used with confidence by more than 70 of the Fortune 100 and hundreds of agencies worldwide. For more information about Guidance Software, please visit guidancesoftware.com, "Like" our Facebook page, follow us on Twitter, or follow our LinkedIn page.

Guidance Software®, EnCase®, EnScript®, EnCE™, EnCEP™, EnForce™, Linked Review™, EnPoint™ and Tableau™ are trademarks owned by Guidance Software and may not be used without prior written permission. All other trademarks and copyrights 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 Twelve Months Ended
December 31, December 31,
  2015     2014     2015     2014  
Revenues:
Product revenue $ 8,804 $ 9,205 $ 31,897 $ 34,412
Services revenue 8,778 8,738 35,264 34,333
Maintenance revenue   10,048     10,305     39,845     39,911  
Total revenues   27,630     28,248     107,006     108,656  
 
Cost of revenues:
Cost of product revenue 2,313 2,292 8,869 8,427
Cost of services revenue 5,837 6,229 24,349 25,385
Cost of maintenance revenue   647     576     2,428     2,194  
Total cost of revenues   8,797     9,097     35,646     36,006  
 
Gross profit   18,833     19,151     71,360     72,650  
 
Operating expenses:
Selling and marketing 10,353 9,316 38,710 39,011
Research and development 5,490 5,083 21,180 22,998
General and administrative 4,869 5,996 19,131 18,350
Depreciation and amortization   1,592     1,774     6,403     7,426  
Total operating expenses   22,304     22,169     85,424     87,785  
 
Operating loss (3,471 ) (3,018 ) (14,064 ) (15,135 )
 
Interest income and other, net   7     7     29     670  
 
Loss before income taxes (3,464 ) (3,011 ) (14,035 ) (14,465 )
 
Income tax provision   116     53     360     264  
 
Net loss $ (3,580 ) $ (3,064 ) $ (14,395 ) $ (14,729 )
 
Net loss per share - basic $ (0.13 ) $ (0.11 ) $ (0.51 ) $ (0.55 )
Net loss per share - diluted $ (0.13 ) $ (0.11 ) $ (0.51 ) $ (0.55 )
 
Shares used in per share calculation - basic   28,363     27,199     27,953     26,758  
Shares used in per share calculation - diluted   28,363     27,199     27,953     26,758  
               

 

   

Supplemental Financial Data

 

Non-GAAP (loss) income before income taxes excluding amortization of intangibles, realignment expense, gain on sale of domain name and share-based compensation expense

$ (1,292 ) $

863

$

(5,096

) $ (2,571 )
 

Non-GAAP (loss) income 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 ) $ 0.03 $ (0.18 ) $ (0.10 )
Diluted $ (0.05 ) $ 0.03 $ (0.18 ) $ (0.10 )
                     
   
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,
  2015     2014     2015     2014  
Calculation of pre-tax non-GAAP income (loss):
 
GAAP net loss $ (3,580 ) $ (3,064 ) $ (14,395 ) $ (14,729 )
Add:
Income tax provision 116 53 360 264
Amortization of intangibles 394 520 1,654 2,187
Realignment expense 125 2,066 523 3,643
Gain on sale of domain name - - - (630 )

Share-based compensation expense (including related payroll taxes paid by the Company)

  1,653     1,288     6,762     6,694  
 

Non-GAAP (loss) income before income taxes excluding amortization of intangibles, realignment expense, gain on sale of domain name and share-based compensation expense

$

(1,292

) $ 863   $ (5,096 ) $ (2,571 )
 

Non-GAAP (loss) income 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 ) $ 0.03   $ (0.18 ) $ (0.10 )
Diluted $ (0.05 ) $ 0.03   $ (0.18 ) $ (0.10 )
 

Shares used in per share calculations:

Basic   28,363     27,199     27,953     26,758  
Diluted   28,363     27,335     27,953     26,758  
 

Detail of Share-based Compensation Expense:

 

Cost of product revenue $ 19 $ 30 $ 106 $ 131
Cost of services revenue 277 354 1,125 1,398
Cost of maintenance revenue 38 39 157 149
Selling and marketing 261 12 1,375 1,308
Research and development 437 407 1,648 1,783
General and administrative   621     446     2,351     1,925  
Total share-based compensation expense $ 1,653   $ 1,288   $ 6,762   $ 6,694  

Detail of Realignment Expense:

Cost of services revenue $ - $ - $ 77 $ 186
Selling and marketing 16 550 30 1,018
Research and development 6 - 6 790
General and administrative   103     1,516     410     1,649  
Total realignment expense $ 125   $ 2,066   $ 523   $ 3,643  
 

Detail of Gain on Sale of Domain Name:

Interest income and other, net $ -   $ -   $ -   $ 630  
Total gain on sale of domain name $ -   $ -   $ -   $ 630  
 
 

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,
  2015     2014     2015     2014  
 
Gross profit, as reported $ 18,833 $ 19,151 $ 71,360 $ 72,650
Realignment expense - - 77 186
Share-based compensation   334     423     1,388     1,678  
Gross profit adjustment   334     423     1,465     1,864  
Total non-GAAP gross profit $ 19,167   $ 19,574   $ 72,825   $ 74,514  
 
Total operating expenses, as reported $ 22,304 $ 22,169 $ 85,424 $ 87,785
Amortization of intangibles (394 ) (520 ) (1,654 ) (2,187 )
Realignment expense (125 ) (2,066 ) (446 ) (3,457 )
Share-based compensation   (1,319 )   (865 )   (5,374 )   (5,016 )
Operating expense adjustment   (1,838 )   (3,451 )   (7,474 )   (10,660 )
Total non-GAAP operating expenses $ 20,466   $ 18,718   $ 77,950   $ 77,125  
 
Operating loss as reported $ (3,471 ) $ (3,018 ) $ (14,064 ) $ (15,135 )
Gross profit adjustment 334 423 1,465 1,864
Operating expense adjustment   1,838     3,451     7,474     10,660  
Total non-GAAP operating (loss) income $ (1,299 ) $ 856   $ (5,125 ) $ (2,611 )
 
Net loss as reported $ (3,580 ) $ (3,064 ) $ (14,395 ) $ (14,729 )
Gross profit adjustment 334 423 1,465 1,864
Operating expense adjustment 1,838 3,451 7,474 10,660
Income tax provision 116 53 360 264
Gain on sale of domain name   -     -     -     (630 )
Total non-GAAP net (loss) income $ (1,292 ) $ 863   $ (5,096 ) $ (2,571 )
 
Net loss per share-diluted, as reported $ (0.13 ) $ (0.11 ) $ (0.51 ) $ (0.55 )
 
Non-GAAP net (loss) income per share-diluted $ (0.05 ) $ 0.03   $ (0.18 ) $ (0.10 )
 
   
Guidance Software, Inc.
Unaudited Condensed Consolidated Balance Sheets

(in thousands)

   
December 31, December 31,
2015   2014  

ASSETS

Current assets:

Cash and cash equivalents $ 18,967 $ 18,355
Restricted cash - 153
Trade receivables, net 21,434 20,255
Inventory 2,543 2,684
Prepaid expenses and other current assets   3,335     5,054  
Total current assets $ 46,279   $ 46,501  
 
Long-term assets:
Property and equipment, net $ 13,513 $ 14,558
Intangible assets, net 6,157 7,766
Goodwill 14,632 14,632
Other assets   1,709     2,370  
Total long-term assets   36,011     39,326  
 
Total assets $ 82,290   $ 85,827  
 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 3,335 $ 5,919
Accrued liabilities 9,815 8,407
Capital lease obligations 69 67
Deferred revenues   41,553     39,128  
Total current liabilities $ 54,772   $ 53,521  
 
Long-term liabilities:
Deferred rent $ 6,947 $ 7,661
Other long-term liabilities 580 645
Deferred revenues 8,242 6,232
Deferred tax liabilities   511     584  
Total long-term liabilities $ 16,280   $ 15,122  
 
Stockholders' equity:
Common stock $ 25 $ 25
Additional paid-in capital 118,714 110,265
Treasury stock (11,479 ) (11,479 )
Accumulated deficit   (96,022 )   (81,627 )
Total stockholders' equity $ 11,238   $ 17,184  
 
Total liabilities and stockholders' equity $ 82,290   $ 85,827  
 
 

Guidance Software, Inc

Unaudited Cash Flow Summary
(in thousands)
         
Twelve Months Ended
December 31,
  2015     2014  
Operating Activities:
Net loss $ (14,395 ) $ (14,729 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation & amortization 6,403 7,426
Benefit for doubtful accounts (150 ) -
Share-based compensation 6,762 6,694
Gain on sale of domain name - (630 )
Deferred taxes 104 87
Loss on disposal of assets 60 249
Changes in operating assets and liabilities:
Restricted cash 153 (153 )
Trade receivables (1,029 ) (1,228 )
Inventory 141 (756 )
Prepaid expenses and other assets 2,203 (1,453 )
Accounts payable (2,555 ) 1,296
Accrued liabilities 694 (1,138 )
Deferred revenues   4,435     3,697  
Net cash provided by (used in) operating activities $ 2,826   $ (638 )
 
Investing Activities:
Purchase of property and equipment $ (3,776 ) $ (1,911 )
Purchase of intangible asset   (45 )   -  
Net cash used in investing activities $ (3,821 ) $ (1,911 )
 
Financing Activities:
Proceeds from the exercise of stock options $ 1,687 $ 1,179
Principal payments on capital lease and other obligations   (80 )   (194 )
Net cash provided by financing activities $ 1,607   $ 985  
 
Net increase (decrease) in cash and cash equivalents $ 612 $ (1,564 )
 
Cash and cash equivalents, beginning of period $ 18,355   $ 19,919  
 
Cash and cash equivalents, end of period $ 18,967   $ 18,355  
 

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

Source: Guidance Software, Inc.

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