Guidance Software Achieves Profitability With Pre-Tax Earnings Per Share of $0.07 Non-GAAP, $0.03 GAAP, Reported for Third Quarter 2007




 * Record Total Revenue of $20.3 Million; Up $5.5 Million and
   37 percent year-over-year
 * Sixth Consecutive Quarter of Record Revenue
 * Operating Expenses Continue to Moderate

PASADENA, Calif., Nov. 13, 2007 (PRIME NEWSWIRE) -- Guidance Software, Inc. (Nasdaq:GUID), The World Leader in Digital Investigations(tm), today announced record revenues for the third quarter period ending September 30, 2007.

"It gives me pleasure to announce we have realized yet another important goal for the company and its shareholders in achieving pre-tax GAAP and non-GAAP profitability," said John Colbert, Chief Executive Officer of Guidance Software. "Continued demand for our EnCase(r) Enterprise and EnCase Forensic product lines demonstrates the strength and diversity in our earnings model despite the expected challenges to federal sales presented by continuing resolution funding issues."

Total revenue in the third quarter of fiscal 2007 was a record $20.3 million, an increase of $5.5 million, or 37 percent, from the third quarter of 2006. Product revenue in the third quarter of fiscal 2007 was $11.6 million, up $2.4 million, or 26 percent year-over-year. Services and Maintenance revenue in the third quarter of fiscal 2007 was $8.7 million, an increase of $3.1 million, or 55 percent year-over-year. Deferred revenue on September 30, 2007 was $26.6 million, rising 45 percent, or $8.2 million, from the third quarter of 2006.

The company became profitable on a pre-tax GAAP basis in the quarter. Pre-tax income rose to $0.6 million for the quarter compared to a pre-tax loss of $0.5 million for the same quarter of the prior year. Share-based compensation was $1.0 million and $0.4 million for the quarters ended September 30, 2007 and 2006, respectively. Thus, non-GAAP pre-tax income was $1.6 million or $0.07 per share for the third quarter compared to a loss of $0.2 million or ($0.01) per share for the same quarter of the prior year.

During the third quarter the Company recorded a tax provision that resulted from the amount of stock compensation the Company reported for financial reporting purposes (which differs from the amount of the compensation deduction the Company will take on its income tax returns). As a result, the Company is expected to report taxable income on its tax return for 2007. In accordance with GAAP, the Company has recorded a tax provision in the quarter ended September 30, 2007 in the amount of $1.0 million; however, the Company expects application of GAAP to result in the Company receiving an offsetting tax benefit of approximately $0.5 million in the quarter ending December 31, 2007.

For the third quarter of fiscal 2007, GAAP net loss for the quarter was $0.4 million, or ($0.02) per share, compared to a net loss of $0.5 million, or ($0.03) per share for the same period of the prior year. Excluding share-based compensation, non-GAAP net income rose to $0.6 million, or $0.03 per diluted share, compared to a loss of $0.2 million, or ($0.01) per diluted share in the third quarter of 2006.

"With seven consecutive quarters of increasing revenue, our investments in sales and product development are paying off," said Frank Sansone, Chief Financial Officer of Guidance Software. "Our third quarter results demonstrate the leverage of the EnCase platform that will continue to support our growth strategy."

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 (888) 523-1194 (North America) or (719) 325-2214 (International) and should dial in at least 10 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 web site at http://investors.guidancesoftware.com. A replay of the call will be available by calling (719) 457-0820, passcode 5084292, available from 8:00 p.m. eastern time, November 13, through midnight November 19.

Forward-Looking Statements:

This 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 company'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 company's pursuit of providing network security and eDiscovery technology might not be successful, or that if successful, it will not materially enhance the company'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 company'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.

About Guidance Software:

Guidance Software is recognized worldwide as the industry leader in digital investigative solutions.

Its EnCase(r) platform provides the foundation for government, corporate and law enforcement organizations to conduct thorough and effective computer investigations of any kind, such as intellectual property theft, incident response, compliance auditing and responding to eDiscovery requests -- all while maintaining the forensic integrity of the data. There are more than 20,000 licensed users of the technology, and thousands of investigators and corporate security personnel attend Guidance Software's forensic methodology training annually. Validated by numerous courts worldwide, EnCase software is also frequently honored with top security awards and recognition from eWEEK, SC Magazine and Network Computing, as well as the Socha-Gelbmann survey.



                       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,
                             -------------------   -------------------
                                2006       2007       2006       2007
                             --------   --------   --------   --------
 Revenues:
  Product revenue            $  9,207   $ 11,616   $ 22,363   $ 31,997
  Services and maintenance
   revenue                      5,588      8,661     16,476     24,410
                             --------   --------   --------   --------
 Total revenues                14,795     20,277     38,839     56,407
                             --------   --------   --------   --------

 Cost of revenues:
  Cost of product revenue         599        653      1,623      2,054
  Cost of services and
   maintenance revenue          3,462      4,584      9,209     13,800
                             --------   --------   --------   --------
 Total cost of revenues         4,061      5,237     10,832     15,854
                             --------   --------   --------   --------

 Gross profit                  10,734     15,040     28,007     40,553
                             --------   --------   --------   --------

 Operating expenses:
  Selling and marketing         6,683      7,863     18,225     24,591
  Research and development      2,062      2,294      5,248      6,537
  General and administrative    2,062      3,681      5,535     10,249
  Depreciation                    489        909      1,281      2,424
                             --------   --------   --------   --------
 Total operating expenses      11,296     14,747     30,289     43,801
                             --------   --------   --------   --------

 Operating (loss) income         (562)       293     (2,282)    (3,248)

 Other income, net                 26        328        112      1,097
                             --------   --------   --------   --------

 (Loss) income before
  income taxes                   (536)       621     (2,170)    (2,151)

 Income tax provision              --        983         22      1,033
                             --------   --------   --------   --------

 Net loss                    $   (536)  $   (362)  $ (2,192)  $ (3,184)
                             ========   ========   ========   ========


 Net loss per share          $  (0.03)  $  (0.02)  $  (0.11)  $  (0.14)
                             ========   ========   ========   ========

 Shares used in per share
  calculation - diluted        18,789     22,745     19,525     22,485
                             ========   ========   ========   ========

 Share based compensation
  expense (including taxes
  paid by the company) was
  allocated as follows:
   Cost of product revenue   $      1   $     13   $      2   $     59
   Cost of service and
    maintenance revenue            79        205        116        549
   Selling and marketing           98        272        174        951
   Research and development        53        137         67        413
   General and administrative     129        373        223      1,008
                             --------   --------   --------   --------
   Total share-based
    compensation expense     $    360   $  1,000   $    582   $  2,980
                             ========   ========   ========   ========

 ---------------------------------------------------------------------
 Supplemental Financial Data (See Note)

 Non-GAAP (loss) income
  before income taxes
  excluding share-based
  compensation expense       $   (176)  $  1,621   $ (1,588)  $    829
                             ========   ========   ========   ========
 Non-GAAP net (loss) income
  before income taxes per
  share excluding share-based
  compensation expense       $  (0.01)  $   0.07   $  (0.08)  $   0.04
                             ========   ========   ========   ========
 ---------------------------------------------------------------------




                      Guidance Software, Inc.

    Note to Unaudited Condensed Consolidated Statements of Operations

 This press release and its attachments include the non-GAAP financial
 measures of net (loss) income before income taxes excluding
 share-based compensation expense and non-GAAP net (loss) income before
 income taxes per share excluding share-based compensation expense,
 which are reconciled to net (loss) income and net (loss) income 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 (loss) income and net
 (loss) income per share calculated in accordance with GAAP.

 Non-GAAP net (loss) income before income taxes is defined as net
 (loss) income before income taxes excluding compensation expenses
 required to be recorded by Statement of Financial Accounting Standard
 No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R") for equity
 awards to employees and directors. Management and the Board of
 Directors believe it is useful in evaluating the Company's and its
 management teams' and business units' performance during a particular
 time period to review the supplemental non-GAAP financial measures,
 which excludes income taxes and expenses related to share-based
 compensation, because income taxes are not the responsibility of
 operating managers and because SFAS 123R compensation costs are
 generally fixed at the time an award is granted, are then expensed
 over several years and generally cannot be changed or influenced by
 management once granted. Accordingly, our operational managers are
 evaluated based on the operating expenses exclusive of income taxes
 and share-based com Additionally, we believe it is useful in measuring
 the Company's performance to exclude expenses related to income taxes
 and SFAS 123 R equity expense because it facilitates comparability
 with prior period information.

 Non-GAAP net (loss) income is defined as net (loss) income excluding
 compensation expenses required to be recorded by SFAS 123R. Management
 and the Board of Directors believe it is useful in evaluating the
 Company's and its management teams' and business units performance
 during a particular time period to review the supplemental non-GAAP
 financial measures, which excludes expenses related to share-based
 compensation because SFAS 123R compensation costs are generally fixed
 at the time an aware is granted, are then expensed over several years
 and generally cannot be changed or influenced by management once
 granted. Management and the Board of Directors do not consider
 share-based compensation 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.
 Reconciliation of GAAP (Loss) Income Before Income Taxes and Net
               (Loss) Income Before Taxes Per Share to
 Non-GAAP (Loss) Income Before Income Taxes and Net (Loss) Income
                    Before Income Taxes Per Share
               (in thousands, except per share amounts)


                                   Three Months Ended Nine Months Ended
                                      September 30,     September 30,
                                    ----------------  ----------------
                                      2006     2007     2006    2007
                                    -------  -------  -------  -------
  GAAP (loss) income before
   income taxes                     $  (536) $   621  $(2,170) $(2,151)
                                    -------  -------  -------  -------
   Share-based compensation
    expense as measured using
    the fair value method
    under SFAS 123R                 $   360  $   990  $   582  $ 2,890
   Payroll taxes on employee
    stock options and
    restricted stock grants              10      --       --        90
                                    -------  -------  -------  -------
   Total share-based
    compensation expense                360    1,000      582    2,980
                                    -------  -------  -------  -------
  Non-GAAP (loss) income
   before income taxes
   excluding share-base
   compensation expense             $  (176) $ 1,621  $(1,588) $   829
                                    -------  -------  -------  -------
   Income tax provision                 --       983       22    1,033

  Non-GAAP (loss) income
   excluding share-based
   compensation expense             $  (176) $   638  $(1,610) $  (204)
                                    =======  =======  =======  =======
  GAAP net loss per share -
   diluted                          $ (0.03) $ (0.02) $ (0.11) $ (0.14)
                                    =======  =======  =======  =======
  Non-GAAP net (loss) income
   before income taxes per
   share excluding share-based
   compensation expense -
   diluted                          $ (0.01) $  0.07  $ (0.08) $  0.04
                                    =======  =======  =======  =======
  Non-GAAP net loss excluding
   share-based compensation
   expense - diluted                $ (0.01) $  0.03  $ (0.08) $ (0.01)
                                    =======  =======  =======  =======
  Shares used in per
   share calculations -
   diluted                           18,789   22,745   19,525   22,485
                                    =======  =======  =======  =======





                        Guidance Software, Inc.
            Unaudited Condensed Consolidated Balance Sheets
                            (in thousands)

                                           December 31,  September 30,
                                               2006           2007
                                           ------------   ------------

 ASSETS
 Current assets:
   Cash and cash equivalents               $      8,041   $     35,128
   Investments in marketable debt
    securities                                   24,694            --
   Trade receivables, net                        17,513         20,052
   Prepaid expenses, inventory and
    other current assets                          2,064          3,165
                                           ------------   ------------
    Total current assets                         52,312         58,345

   Property and equipment, net                    6,526         11,607
   Other assets                                     507            616
                                           ------------   ------------

    Total assets                           $     59,345   $     70,568
                                           ============   ============
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable                        $      5,494   $      4,361
   Accrued expenses                               3,974          5,587
   Capital lease obligations                        942            657
   Deferred revenues                             18,123         24,185
                                           ------------   ------------
    Total current liabilities                    28,533         34,790
                                           ------------   ------------
 Long-term liabilities:
   Rent incentives                                1,537          2,891
   Capital lease obligations                        488            285
   Deferred revenues                              2,098          2,445
                                           ------------   ------------
     Total long-term liabilities                  4,123          5,621
                                            ------------   ------------

 Stockholders' equity:
    Common stock                                     22             23
    Additional paid-in capital                   36,393         43,094
    Accumulated other comprehensive
     loss                                           (17)           --
    Accumulated deficit                          (9,709)       (12,960)
                                           ------------   ------------
     Total stockholders' equity                  26,689         30,157
                                           ------------   ------------

     Total liabilities and
      stockholders' equity                 $     59,345   $     70,568
                                           ============   ============

GUID-F



            

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