Guidance Software Reports Q3 2011 Financial Results

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• Revenue: $27.3 million, up 14% year over year
• Non-GAAP EPS: $0.09 per share, up $0.05 year over year
• Addition of 77 customers to the EnCase® Enterprise platform during the quarter, as compared to 22 in Q3 2010

PASADENA, Calif.--(BUSINESS WIRE)-- Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for the quarter ended September 30, 2011, setting new revenue and earnings per share records.

Third quarter 2011 financial highlights, calculated in accordance with GAAP include:

• revenue of $27.3 million, an increase of $3.5 million, or 14 percent, from $23.8 million in the third quarter of 2010
• product revenue of $14.8 million, an increase of $2.9 million, or 24 percent, from $11.9 million in the third quarter of 2010
• services and maintenance revenue of $12.5 million, an increase of $0.6 million, or 4 percent, from $11.9 million in the third quarter of 2010
• GAAP net income of $0.5 million, or $0.02 per share, compared to a GAAP net loss of $0.8 million, or ($0.03) per share, in the third quarter of 2010.

On a non-GAAP basis, which excludes share-based compensation and amortization of intangibles, the company reported pre-tax net income of $2.1 million, or $0.09 per share, in the third quarter of 2011, compared to non-GAAP pre-tax net income of $0.8 million, or $0.04 per share, in the third quarter of 2010.

Guidance Software President and Chief Executive Officer Victor Limongelli said, “We are extremely pleased with our performance this quarter. We delivered record revenues, operating income, and non-GAAP EPS, while also adding the highest number of new customers to the EnCase® Enterprise platform in a single quarter. We continue to focus on enhancing our product offerings and increasing our margins and profitability, while maintaining our operating expense discipline.”

Limongelli added, “We are very proud of our achievements over the past three months, including the launch of EnCase® Forensic Version 7, and industry recognition as a “Leader” in the early case assessment space by IDC. In particular, EnCase® Version 7, as well as the new automated response functionality in EnCase® Cybersecurity for security information and event management systems such as ArcSight, display our continued commitment to product innovation. As we look ahead, we will continue to grow Guidance’s presence in the forensics, e-discovery and cybersecurity spaces. We remain keenly focused on executing on our strategic plan and further enhancing shareholder value.”

Third Quarter 2011 Highlights and Recent Noteworthy Events

• The company added 77 new EnCase® Enterprise customers in the third quarter of 2011, compared to 22 in the third quarter of 2010. The company also added 32 customers of EnCase® eDiscovery or EnCase® Cybersecurity, both of which are built on the EnCase® Enterprise platform.
• Industry analyst firm IDC named Guidance Software a leader in early case assessment (ECA) in a new report, the "IDC MarketScape: Worldwide Standalone Early Case Assessment Applications 2011 Vendor Analysis."
• In October 2011, the company announced that EnCase® Cybersecurity version 4.3 now integrates with security information and event management systems, including out-of-the-box integration with the industry's leading SIEM, ArcSight, to automate response to security incidents. When an attack or breach event is suspected, the SIEM system can now automatically trigger an EnCase® Cybersecurity forensic response, including exposing, collecting, triaging and remediating data related to threats — taking action on or gathering data about a security event that might otherwise have been missed. This capability fills a critical gap in information security by helping organizations respond automatically to security attacks and breaches, giving them the capacity to react to more events and reduce the time between a breach and incident response.

2011 Financial Outlook:

The company is increasing its guidance for the year ended December 31, 2011, as follows:

• Revenue is expected to be in the range of $102 million to $104 million, representing year-over-year growth of 11 percent to 13 percent.
• Non-GAAP pre-tax earnings are expected to be approximately $0.18 - $0.23 per share.

Conference Call Information:

The company will host a conference call today at 2:00 p.m. pacific time, 5:00 p.m. eastern time to discuss its quarterly results. Participants should call 877-303-9850 (North America) or 408-427-3732 (International) and should dial in at least 5 minutes prior to the conference call.

A webcast and replay of the call may also be found on the Internet through Guidance Software's Investor Relations website at http://investors.guidancesoftware.com/events.cfm. Registered users may access this content over the Internet, and there is no cost to register. 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 404-537-3406, passcode 14394885, available from 8:00 p.m. eastern time, November 1, 2011, through midnight eastern time, November 9, 2011.

About Guidance Software, Inc.

Guidance Software is recognized worldwide as the industry leader in digital investigative solutions. Its EnCase® platform provides the foundation for government, corporate and law enforcement organizations to conduct thorough, network-enabled, and court-validated computer investigations of any kind, such as responding to e-discovery requests, conducting internal investigations, responding to regulatory inquiries or performing data and compliance auditing — all while maintaining the integrity of the data. There are more than 40,000 licensed users of the EnCase® technology worldwide, the EnCase® Enterprise platform is used by more than sixty percent of the Fortune 100, and thousands attend Guidance Software's renowned training programs annually. For more information about Guidance Software, visit www.guidancesoftware.com/.

Follow Guidance Software on Twitter at www.twitter.com/encase and on Facebook at www.facebook.com/guidancesoftware.

EnCase®, EnCE®, EnCEP®, EnScript®, FastBloc®, Guidance Software™ 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 marks and brands may be claimed as the property of their respective owners.

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.

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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,
					2011					2010								2011						2010
Revenues:
	Product revenue				$	14,818				$	11,908							$	35,558					$	31,585
	Services and maintenance revenue					12,440					11,939								39,168						34,363
Total revenues						27,258					23,847								74,726						65,948
Cost of revenues:
	Cost of product revenue					1,439					1,513								4,349						3,273
	Cost of services and maintenance revenue					5,373					4,924								17,257						14,093
Total cost of revenues						6,812					6,437								21,606						17,366
Gross profit						20,446					17,410								53,120						48,582
Operating expenses:
	Selling and marketing					9,791					8,955								26,606						26,240
	Research and development					4,642					4,432								14,211						12,614
	General and administrative					4,143					3,544								10,852						10,391
	State sales tax charges					-					-								1,336						-
	Depreciation and amortization					1,353					1,250								3,881						3,468
Total operating expenses						19,929					18,181								56,886						52,713
Operating income (loss)						517					(771	)							(3,766	)					(4,131	)
Interest income and other, net						20					12								39						65
Income (loss) before income taxes						537					(759	)							(3,727	)					(4,066	)
Income tax provision						25					4								179						90
Net Income (loss)					$	512				$	(763	)						$	(3,906	)				$	(4,156	)
Net income (loss) per share - basic					$	0.02				$	(0.03	)						$	(0.17	)				$	(0.18	)
Net income (loss) per share - diluted					$	0.02				$	(0.03	)						$	(0.17	)				$	(0.18	)
Shares used in per share calculation - basic						23,355					23,036								23,219						23,048
Shares used in per share calculation - diluted						24,501					23,036								23,219						23,048
Supplemental Financial Data
Non-GAAP income (loss) before income taxes excluding share-based compensation, acquisition-related expense, amortization of intangibles and certain state sales tax charges					$	2,131				$	846							$	2,778					$	486
Non-GAAP income (loss) per share before income taxes excluding share-based compensation, acquisition-related expense, amortization of intangibles and certain sales tax charges
	Basic				$	0.09				$	0.04							$	0.12					$	0.02
	Diluted				$	0.09				$	0.04							$	0.11					$	0.02

Guidance Software, Inc.
Calculation of Pre-Tax Non-GAAP Income (Loss)
(unaudited)
(in thousands, except per share amounts)
					Three Months Ended													Nine Months Ended
					September 30,													September 30,
					2011					2010								2011						2010
Calculation of pre-tax non-GAAP income (loss):
GAAP net income (loss)					$	512				$	(763	)						$	(3,906	)				$	(4,156	)
Add:
	Income tax provision					25					4								179						90
	Certain state sales tax charges					-					-								1,336						-
	Acquisition-related expense					-					-								-						223
	Amortization of intangibles					264					262								804						444
	Share-based compensation expense (including related payroll taxes paid by the Company)					1,330					1,343								4,365						3,885
Non-GAAP income (loss) before income taxes excluding share-based compensation expense, acquisition-related expense, amortization of intangibles and certain sales tax charges					$	2,131				$	846							$	2,778					$	486
Non-GAAP income (loss) per share before income taxes excluding share-based compensation expense, acquisition-related expense, amortization of intangibles and certain sales tax charges
	Basic				$	0.09				$	0.04							$	0.12					$	0.02
	Diluted				$	0.09				$	0.04							$	0.11					$	0.02
Shares used in per share calculations:
	Basic					23,355					23,036								23,219						23,048
	Diluted					24,501					23,413								24,490						23,390
Detail of Share-based Compensation Expense:
	Cost of product revenue					22					18								61						36
	Cost of service and maintenance revenue					228					215								698						650
	Selling and marketing					396					398								1,305						1,212
	Research and development					322					331								1,107						857
	General and administrative					362					381								1,194						1,130
	Total share-based compensation expense					1,330					1,343								4,365						3,885
Detail of Acquisition-related Expense:
	General and administrative					-					-								-						223

Notes to Unaudited Condensed Consolidated Statements of Operations:

This press release and its attachments include the non-GAAP financial measures of income (loss) before income taxes excluding share-based compensation expense, acquisition-related expense, amortization of intangibles and certain state sales tax charges and non-GAAP income (loss) before income taxes per share excluding share-based compensation expense, acquisition-related expense, amortization of intangibles and certain state sales tax charges, which are reconciled to net income (loss) and net income (loss) per share, respectively, which we believe are the most comparable GAAP measures. 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.

Non-GAAP income (loss) is defined as follows: GAAP net income (loss) before income taxes excluding share-based compensation expense, acquisition-related expense, amortization of intangibles and certain state sales tax charges. Share-based compensation expense is recorded in accordance with the FASB Accounting Standards Codification (ASC 718) Compensation – Stock Compensation Topic (formerly Statement of Financial Accounting Standard No. 123R, “Share-Based Payment”) for equity awards to employees and directors. Management and the Board of Directors believe it is useful to review the supplemental non-GAAP financial measures, which excludes income taxes and expenses related to share-based compensation, acquisition-related expense, amortization of intangibles and certain state sales tax charges in evaluating the Company, its management team and business unit performance during a particular time period. Share-based compensation expense, acquisition-related expense, amortization of intangibles, certain state sales tax charges and income taxes are not the responsibility of operating managers and generally cannot be changed or influenced by management.

Additionally, we believe it is useful in measuring the Company’s performance to exclude expenses related to income taxes, share-based compensation expense, acquisition-related expense, amortization of intangibles and certain state sales tax charges because it facilitates comparability with prior period information.

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.

Guidance Software, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
						September 30,								June 30,								December 31,
						2011								2011								2010
ASSETS
Current assets:
	Cash and cash equivalents					$	26,548							$	27,704							$	27,621
	Trade receivables, net						22,186								15,576								16,344
	Inventory						1,364								905								987
	Prepaid expenses and other current assets						2,303								2,338								1,934
		Total current assets					52,401								46,523								46,886
Long-term assets:
Property and equipment, net							10,126								10,613								11,351
Intangible assets, net							4,254								4,518								5,058
Goodwill, net							3,711								3,711								3,711
Other assets							434								434								434
		Total long-term assets					18,525								19,276								20,554
		Total assets				$	70,926							$	65,799							$	67,440
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable					$	2,558							$	2,868							$	2,568
	Accrued liabilities						9,029								7,040								7,255
	Capital lease obligations						69								74								76
	Deferred revenues						32,100								30,009								30,279
		Total current liabilities					43,756								39,991								40,178
Long-term liabilities:
	Rent incentives						663								825								1,221
	Capital lease obligations						64								78								116
	Deferred revenues						3,995								4,026								3,335
	Deferred tax liabilities						157								162								61
		Total long-term liabilities					4,879								5,091								4,733
Stockholders' equity:
	Common stock						23								23								23
	Additional paid-in capital						73,125								71,712								68,311
	Treasury stock						(5,185	)							(4,834	)							(4,039	)
	Accumulated deficit						(45,672	)							(46,184	)							(41,766	)
		Total stockholders' equity					22,291								20,717								22,529
		Total liabilities and stockholders' equity				$	70,926							$	65,799							$	67,440

Guidance Software, Inc.
Unaudited Cash Flow Summary
(in thousands)
						Nine Months Ended
						September 30,
						2011											2010
Operating Activities:
Net loss						$	(3,906	)									$	(4,156	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation & amortization						3,881											3,468
	Benefit for doubtful accounts						-											(48	)
	Share-based compensation						4,365											3,885
	Deferred taxes						96											-
	Loss on disposal of assets						-											1
	Changes in operating assets and liabilities:
		Trade receivable					(5,842	)										(1,542	)
		Inventory					(377	)										65
		Prepaid expenses and other assets					(370	)										(423	)
		Accounts payable					20											(810	)
		Accrued liabilities					1,216											1,213
		Deferred revenues					2,481											(2,461	)
	Net cash provided by (used in) operating activities						1,564											(808	)
Investing Activities:
Purchase of property and equipment							(1,880	)										(1,917	)
Acquisition, net of cash acquired							-											(10,686	)
	Net cash used in investing activities						(1,880	)										(12,603	)
Financing Activities:
Proceeds from the exercise of stock options							449											296
Common stock repurchased or withheld							(1,146	)										(1,628	)
Principal payments on capital leases							(60	)										(62	)
	Net cash used in financing activities						(757	)										(1,394	)
	Net decrease in cash and cash equivalents						(1,073	)										(14,805	)
	Cash and cash equivalents, beginning of period						27,621											36,585
	Cash and cash equivalents, end of period					$	26,548										$	21,780

Guidance Software, Inc.Investor Contact:Rasmus van der Colff, 626-768-4607[email protected]orMedia Contact:Cas Purdy, 626-768-4666[email protected]

Source: Guidance Software, Inc.

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