Drawing conclusions from Guidance Software’s Q2 2011 financial results

I do not claim any expertise in deciphering trends from the quarterly figures published by the leading players in the eDiscovery industry. I know what I am good at, and the analysis of corporate accounts is not on the list. I shy away from the subject for other reasons as well:  if one comments on one company’s figures then others might expect theirs to be reviewed; if you report on good figures then you should equally draw attention to disappointing ones.

Occasionally, however, one can draw conclusions from the narrative part of the accounts which say something about the industry generally, and I do occasionally draw attention to the figures for this reason.

If I have a particular affection for Guidance Software it is partly because it was the first big player in eDiscovery to back the eDisclosure Information Project. I have done many conference sessions with Guidance over the years and enjoyed them all, both for their own sake and for the evidence of commitment to market education which they bring; I have for three years sat on its Strategic Advisory Board, having the pleasure of tracing progress from those discussions through to product launches and other developments. Guidance Software also has links to other players including a new connection with kCura, the latest sponsor of what I do.

There are other reasons, also, for an interest in Guidance Software’s figures: sitting as they do at the front end of the eDiscovery process, their numbers say something about the state of the industry generally; in addition, sales of network collection software to the higher end of the corporate market suggests that companies are taking seriously the compliance and investigations benefits of a standard collections process as well as the requirements of litigation.

The Q2 report itself is here. The highlights include a 5% increase in overall revenue against the second quarter of 2010, with product revenue flat but services and maintenance revenue up by 11%. The statement by President and CEO Victor Limongelli draws attention to the launch of Version 7 of EnCase Forensic, to Guidance Software’s position in the Leaders’ Quadrant of the Gartner Magic Quadrant for eDiscovery Software, and to the addition of 65 new customers on the EnCase Enterprise platform, bringing the total to more than 1,000 customers, a figure which, I am told, includes over 60% of the Fortune 100.

Any company willing to forecast year over year growth of 8% to 12% (that is, between $99 million and $103 million) in this very public context at the half-way stage in the year obviously has confidence not only in its future but in the prospects for the market generally. I asked Victor Limongelli for his observations on this; he said “Customer adoption is accelerating – we have added more new customers in the first half of the year than we did in all of 2010.  Every company needs to address unstructured, unmanaged data, and we are seeing more and more of them doing something about it.”

Not everything which is collected goes through to being processed, analysed and reviewed – that is part of the point of having an easy way to collect data which you might need as opposed to merely that which you must collect. Nevertheless, the corollary is that those who sell review applications and offer software and services need to see an increase in collections to underpin their own growth. These figures therefore look promising not just for Guidance Software itself but for its rivals in the collections space and for those who sell downstream solutions and services.

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About Chris Dale

I have been an English solicitor since 1980. I run the e-Disclosure Information Project which collects and comments on information about electronic disclosure / eDiscovery and related subjects in the UK, the US, AsiaPac and elsewhere
This entry was posted in Discovery, eDisclosure, eDiscovery, Electronic disclosure, Forensic data collections, Guidance Software. Bookmark the permalink.

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