GUID Guidance Software, Inc.

Guidance Software, Inc. (NASDAQ: GUID) today reported financial results for the second quarter ended June 30, 2017.

Financial results for the second quarter of 2017, on a generally accepted accounting principles (GAAP) basis, include:

• Revenue of $24.7 million, compared to $27.6 million in the second quarter of 2016
• Net loss of $1.2 million, or ($0.04) per share, compared to a net loss of $9.7 million, or ($0.33) per share, in the second quarter of 2016
• EBITDA of ($31,000), compared to EBITDA of ($8.4) million in the second quarter of 2016

Financial results, on a non-GAAP basis, which excludes share-based compensation, amortization of intangibles, realignment expenses and income taxes, include:

• Non-GAAP net income of $1.6 million, or $0.05 per share, in the second quarter of 2017, compared to non-GAAP net loss of $2.4 million, or ($0.08) per share, in the second quarter of 2016
• Non-GAAP EBITDA of $2.4 million, compared to non-GAAP EBITDA of ($1.4) million in the second quarter of 2016

2017 Financial Outlook

The Company has suspended forward looking guidance pending the outcome of the previously announced acquisition of the Company by OpenText.

In light of the foregoing, the Company will not be hosting a conference call today.

About Guidance Software:

Guidance (NASDAQ: GUID) exists to turn chaos and the unknown into order and the known so that companies and their customers can go about their daily lives as usual without worry or disruption, knowing their most valuable information is safe and secure. The makers of EnCase®, the gold standard in forensic security, and EnForce™, an automated cyber risk management platform, Guidance provides a mission-critical foundation of market-leading applications that offer deep 360-degree visibility across all endpoints, devices and networks, allowing proactive identification and remediation of threats.

From retail to financial institutions, our field-tested and court-proven solutions are deployed on an estimated 33 million endpoints at more than 70 of the Fortune 100 and hundreds of agencies worldwide, from beginning to endpoint.

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® and EnForce™ 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.

Non-GAAP Financial Measures

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 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 realignment expenses, amortization of intangibles, litigation settlements, proxy contest expenses and share-based compensation expense. Non-GAAP net income (loss) consists of GAAP operating income (loss) as reported and excludes realignment expenses, amortization of intangibles, litigation settlements, proxy contest expense and share-based compensation expense and the income tax (benefit) 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 additional information specific to each item excluded from our non-GAAP financial measures below. Management and the Board of Directors do not consider these excluded items for purposes of 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. 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, the comparable financial measures calculated in accordance with GAAP.

A reconciliation of our non-GAAP forward-looking measures to corresponding GAAP forward-looking measures is not available as a result of the uncertainty, and potential variability, in the forward looking estimates of the reconciling items between such non-GAAP forward-looking measures and the comparable forward-looking GAAP measures. Certain factors that are materially significant to our ability to estimate these items are out of our control and/or cannot be reasonably predicted, including the timing and amount of realignment expenses, amortization of intangibles, share-based compensation expense and income taxes.

Realignment Expenses. Realignment expenses represent severance and related employment costs associated with a reduction in headcount. Guidance Software excludes realignment expenses from non-GAAP gross profit, non-GAAP operating expenses, non-GAAP operating income (loss) and non-GAAP net income (loss) 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 not expected to recur in future periods.

Proxy Contest Expenses. Proxy contest expenses represent one-time legal and other consulting expenses related to the proxy contest between Guidance Software and its founder and former chairman, which was settled on April 22, 2016. Guidance Software excludes proxy contest expenses from non-GAAP operating expenses, non-GAAP operating income (loss) and non-GAAP net income (loss) 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.

Litigation Settlement. Litigation settlement expense represents a one-time settlement expense of a patent infringement lawsuit with MyKey Technology, LLC. Guidance Software excludes litigation settlement expense from non-GAAP operating income and non-GAAP net income because it believes (i) the amount of such expense may not directly correlate to the underlying performance of Guidance Software business operations and (ii) such expense is 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 expenses, non-GAAP operating income (loss) and non-GAAP net income (loss) 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 gross profit, non-GAAP operating expenses, non-GAAP operating income (loss) and non-GAAP net income (loss) 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. 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.

GUID-F

  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,   2017       2016     2017       2016   Revenues: Product revenue $ 7,040 $ 9,635 $ 15,907 $ 17,093 Services revenue 7,440 8,177 15,280 16,686 Maintenance revenue   10,183     9,744     20,262     19,576   Total revenues   24,663     27,556     51,449     53,355     Cost of revenues: Cost of product revenue 1,861 2,415 3,624 4,371 Cost of services revenue 4,484 5,650 9,313 11,285 Cost of maintenance revenue   468     636     1,211     1,242   Total cost of revenues   6,813     8,701     14,148     16,898     Gross profit   17,850     18,855     37,301     36,457     Operating expenses: Selling and marketing 8,501 11,613 18,451 22,114 Research and development 4,707 6,500 10,189 12,742 General and administrative 4,676 9,133 9,208 15,323 Depreciation and amortization   1,115     1,307     2,273     2,722   Total operating expenses   18,999     28,553     40,121     52,901     Operating loss (1,149 ) (9,698 ) (2,820 ) (16,444 )   Interest expense and other, net   12     6     21     13  

 

Loss before income taxes (1,137 ) (9,692 ) (2,799 ) (16,431 )   Income tax provision   29     38     98     91     Net loss $ (1,166 ) $ (9,730 ) $ (2,897 ) $ (16,522 )   Net loss per share - basic $ (0.04 ) $ (0.33 ) $ (0.10 ) $ (0.58 ) Net loss per share - diluted $ (0.04 ) $ (0.33 ) $ (0.10 ) $ (0.58 )   Shares used in per share calculation - basic   30,421  

 

  29,397     30,051     28,689   Shares used in per share calculation - diluted   30,421  

 

  29,397     30,051     28,689                      

Supplemental Financial Data

Non-GAAP income (loss) excluding income taxes, amortization of intangibles, proxy contest expense, realignment expense, and share-based compensation expense $ 1,643 $ (2,356 ) $ 3,865 $ (4,530 )   Non-GAAP income (loss) per share excluding income taxes, amortization of intangibles, proxy contest expense, realignment expense, and share-based compensation expense Basic $ 0.05 $ (0.08 ) $ 0.12 $ (0.16 ) Diluted $ 0.05 $ (0.08 ) $ 0.12 $ (0.16 )           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,   2017       2016     2017       2016   Calculation of non-GAAP income (loss):   GAAP net loss $ (1,166 ) $ (9,730 ) $ (2,897 ) $ (16,522 ) Add: Income tax provision 29 38 98 91 Amortization of intangibles 350 379 708 766 Proxy contest expense - 1,512 - 2,176 Litigation settlements - 2,250 - 2,250 Realignment expense 694 920 2,087 3,112 Share-based compensation expense (including related payroll taxes paid by the Company)   1,736   2,275     3,869 3,597     Non-GAAP income (loss) excluding income taxes, amortization of intangibles, proxy contest expense, realignment expense, and share-based compensation expense $ 1,643 $ (2,356 ) $ 3,865 $ (4,530 ) Non-GAAP income (loss) per share excluding income taxes, amortization of intangibles, proxy contest expense, realignment expense, and share-based compensation expense Basic $ 0.05 $ (0.08 ) $ 0.12 $ (0.16 ) Diluted $ 0.05 $ (0.08 ) $ 0.12 $ (0.16 )   Shares used in per share calculations: Basic   30,421   29,397     30,051   28,689   Diluted   30,535   29,397     30,190   28,689    

Detail of Proxy Contest Expense:

General and administrative $ -

 

$ 1,512   $ - $ 2,176   Total proxy contest expense $ - $ 1,512   $ - $ 2,176    

Detail of Litigation Settlement Expense:

General and administrative $ - $ 2,250   $ - $ 2,250   Total litigation settlement expense $ - $ 2,250   $ - $ 2,250    

Detail of Realignment Expense:

Cost of services revenue $ - $ 168 $ 79 $ 622 Selling and marketing - 87 113 1,404 Research and development - - 18 351 General and administrative   694   665     1,877   735   Total realignment expense $ 694 $ 920   $ 2,087 $ 3,112  

Detail of Share-based Compensation Expense:

Cost of product revenue $ 10 $ 14 $ 20 $ 29 Cost of services revenue 86 205 159 376 Cost of maintenance revenue 18 37 38 75 Selling and marketing 692 714 1,550 824 Research and development 476 701 1,042 1,128 General and administrative   454   604     1,060   1,165   Total share-based compensation expense $ 1,736 $ 2,275   $ 3,869 $ 3,597       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,   2017       2016     2017       2016     Gross profit, as reported $ 17,850 $ 18,855 $ 37,301 $ 36,457

Realignment expense

- 168 79 622 Share-based compensation   114     256     217     480   Gross profit adjustment   114     424     296     1,102   Total non-GAAP gross profit $ 17,964   $ 19,279   $ 37,597   $ 37,559     Total operating expenses, as reported $ 18,999 $ 28,553 $ 40,121 $ 52,901 Amortization of intangibles (350 ) (379 ) (708 ) (766 ) Proxy contest expense - (1,512 ) - (2,176 ) Litigation settlements - (2,250 ) - (2,250 ) Realignment expense (694 ) (752 ) (2,008 ) (2,490 ) Share-based compensation expense   (1,622 )   (2,019 )   (3,652 )   (3,117 ) Operating expense adjustment   (2,666 )   (6,912 )   (6,368 )   (10,799 ) Total non-GAAP operating expenses $ 16,333   $ 21,641   $ 33,753   $ 42,102     Operating loss, as reported $ (1,149 ) $ (9,698 ) $ (2,820 ) $ (16,444 ) Gross profit adjustment 114 424 296 1,102 Operating expense adjustment   2,666     6,912     6,368     10,799   Total non-GAAP operating income (loss) $ 1,631   $ (2,362 ) $ 3,844   $ (4,543 )   Net loss, as reported $ (1,166 ) $ (9,730 ) $ (2,897 ) $ (16,522 ) Gross profit adjustment 114 424 296 1,102 Operating expense adjustment 2,666 6,912 6,368 10,799 Income tax provision   29     38     98     91   Total non-GAAP net income (loss) $ 1,643   $ (2,356 ) $ 3,865   $ (4,530 )   Net loss per share-diluted, as reported $ (0.04 ) $ (0.33 ) $ (0.10 ) $ (0.58 )   Non-GAAP net income (loss) per share-diluted $ 0.05   $ (0.08 ) $ 0.12   $ (0.16 )     Net loss, as reported $ (1,166 ) $ (9,730 ) $ (2,897 ) $ (16,522 ) Income tax provision 29 38 98 91 Interest expense (income) (9 ) (2 ) (5 ) (4 ) Depreciation and amortization expense   1,115     1,307     2,273     2,722   GAAP EBITDA $ (31 ) $ (8,387 ) $ (531 ) $ (13,713 )   Proxy contest expense - 1,512 - 2,176 Litigation settlement - 2,250 - 2,250 Share-based compensation expense 1,736 2,275 3,869 3,597 Realignment expense   694     920     2,087     3,112   Total non-GAAP EBITDA $ 2,399   $ (1,430 ) $ 5,425     (2,578 )     Guidance Software, Inc. Unaudited Condensed Consolidated Balance Sheets (in thousands)       June 30, December 31,   2017     2016   ASSETS Current assets: Cash and cash equivalents $ 13,648 $ 12,619 Trade receivables, net 14,399 22,236 Inventory 3,193 2,206 Prepaid expenses and other current assets   5,973     4,850   Total current assets $ 37,213   $ 41,911     Long-term assets: Property and equipment, net $ 8,677 $ 11,044 Intangible assets, net 3,941 4,649 Goodwill 14,632 14,632 Other assets   2,736     2,180   Total long-term assets   29,986     32,505     Total assets $ 67,199   $ 74,416     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 5,686 $ 4,722 Accrued liabilities 10,651 12,641 Bank line of credit - 3,500 Deferred revenues   37,721     40,209   Total current liabilities $ 54,058   $ 61,072     Long-term liabilities: Deferred rent and other long-term liabilities $ 6,168 $ 6,872 Deferred revenues 5,083 5,923 Deferred tax liabilities   649     604   Total long-term liabilities $ 11,900   $ 13,399     Stockholders' equity (deficit): Common stock $ 26 $ 26 Additional paid-in capital 132,362 128,169 Treasury stock (11,479 ) (11,479 ) Accumulated deficit   (119,668 )   (116,771 ) Total stockholders' equity (deficit) $ 1,241   $ (55 )   Total liabilities and stockholders' equity (deficit) $ 67,199   $ 74,416       Guidance Software, Inc Unaudited Cash Flow Summary (in thousands)       Six Months Ended June 30,   2017       2016   Operating Activities: Net loss $ (2,897 ) $ (16,522 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation & amortization 2,273 2,722 Provision for doubtful accounts 300 - Share-based compensation 3,869 3,597 Deferred taxes 45 45 Loss on disposal of assets 1,199 96 Changes in operating assets and liabilities: Trade receivables 7,537 6,033 Inventory (987 ) (101 ) Prepaid expenses and other assets (1,680 ) (2,490 ) Accounts payable 806 3,294 Accrued liabilities (2,656 ) 2,480 Deferred revenues   (3,328 )   (3,412 ) Net cash provided by (used in) operating activities   4,481     (4,258 )   Investing Activities: Purchase of property and equipment   (238 )   (1,630 ) Net cash used in investing activities   (238 )   (1,630 )   Financing Activities: Repayment of borrowing on line of credit (3,500 ) - Proceeds from the exercise of stock options 324 - Principal payments on capital lease and other obligations   (38 )   (39 ) Net cash used in financing activities   (3,214 )   (39 )   Net increase in cash and cash equivalents 1,029 (5,927 )   Cash and cash equivalents, beginning of period   12,619     18,967     Cash and cash equivalents, end of period $ 13,648   $ 13,040    

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