Rally Software Announces Second Quarter Fiscal 2014 Financial Results - Total revenue increased 45% to a record $19.8 million

- Subscription and support revenue increased 36%

- GAAP EPS loss was $(0.09) per share; Non-GAAP EPS loss was $(0.04) per share

- Total paid seat count increased to more than 192,000, representing a 34% increase from close of Q2 last year

BOULDER, Colo., Sept. 5, 2013 /PRNewswire/ -- Rally® (NYSE: RALY), a leading global provider of cloud-based solutions for managing Agile software development, today announced financial results for its second quarter of fiscal 2014 ended July 31, 2013.

For the second quarter, subscription and support revenue increased 36% over the same period one year ago to $14.2 million. Rally reported total revenue of $19.8 million, an increase of 45% over the same period one year ago.

GAAP gross margin for the quarter was 79% as compared to 78% from the same period one year ago. Excluding stock-based compensation and amortization of acquired intangible assets, non-GAAP gross margin for the quarter was 80% as compared to 78% from the same period one year ago.

The company increased net new seats by 7,900 in the quarter, bringing total paid seat count to more than 192,000.

During the quarter, Rally raised $5.9 million in proceeds from its follow-on public offering, net of underwriting discounts and commissions, and cash flow used in operations was $3.3 million. Cash and cash equivalents at July 31, 2013 were $104.7 million. Deferred revenue increased 23% from $29.5 million in the same period one year ago to $36.2 million.

"We are delighted to report record revenues for our second quarter as a public company," commented Tim Miller, Chairman and CEO of Rally. "As our performance demonstrates, we experienced good momentum across the business and had notable new customer wins in many key industries and geographies. These new customers include a leading global automaker, the financial services unit of a diversified technology and financial services company, a consumer credit reporting agency, a broadcast and satellite service provider, and a large online retailer. Our ability to exceed expectations across key operating metrics during the second quarter highlights Rally's continued strong competitive win rates, healthy renewals, and continued international growth and expansion into existing accounts, underscoring our confidence that we have built a high-growth, highly defensible business."

GAAP net loss for the second quarter of fiscal 2014 was $(2.3) million, or $(0.09) per basic and diluted share, based on 24.0 million weighted average shares of common stock outstanding. This compares to a net loss of $(2.3) million, or $(1.09) per basic and diluted share, based on 2.1 million weighted average shares of common stock outstanding in the same period one year ago. The GAAP net loss was unchanged as the increase in operating expenses related to the company's continued investment to drive future growth of the business was offset by the increase in revenue.

The company reported a non-GAAP net loss of $(1.1) million, or $(0.04) per basic and diluted share, as compared to a non-GAAP net loss of $(2.0) million, or $(0.96) per basic and diluted share, in the prior year's second quarter, excluding $1.2 million in stock-based compensation and amortization of acquired intangible assets in the second quarter of fiscal 2014, and $0.3 million in stock-based compensation and amortization of acquired intangible assets in the second quarter of fiscal 2013. A reconciliation of GAAP to non-GAAP financial measures can be found in the accompanying financial statements included with this press release.  

Business Outlook

As of September 5, 2013, management is providing its financial outlook as follows:  

Third Quarter of Fiscal 2014

  • Total revenue in the range of $18.4 to $18.6 million, or 25% to 27% growth over the prior year's third quarter.
  • GAAP net loss per basic and diluted share of approximately $(0.27) to $(0.24), based on 24.4 million weighted average shares of common stock outstanding.
  • Non-GAAP net loss per basic and diluted share of approximately $(0.22) to $(0.19), based on 24.4 million weighted average shares of common stock outstanding, and excludes $1.5 million in stock-based compensation and amortization of acquired intangible assets.

Fiscal Year 2014

  • Total revenue in the range of $72.5 to $74.0 million, or 28% to 30% growth over the prior year.
  • GAAP net loss per basic and diluted share of approximately $(1.21) to $(1.16), based on 19.9 million weighted average shares of common stock outstanding.
  • Non-GAAP net loss per basic and diluted share of approximately $(0.95) to $(0.90), based on 19.9 million weighted average shares of common stock outstanding, and excludes $5.1 million in stock-based compensation and amortization of acquired intangible assets.

Conference Call Today September 5, 2013
Rally will host a conference call and live webcast to discuss the financial results at 3:00 p.m. Mountain Time, 5:00 p.m. Eastern Time, today, Thursday, September 5, 2013. The conference call can be accessed by dialing 1-877-941-1427, or 1-480-629-9664 (outside the U.S. and Canada). A live webcast will be available on the Investor Relations page of the Rally corporate website at www.rallydev.com and beginning approximately two hours after the completion of the call is available for replay until the company's conference call to discuss its financial results for its third quarter of fiscal 2014. An audio replay of the call will also be available to all interested parties beginning at approximately 6:00 p.m. Mountain Time, 8:00 p.m. Eastern Time, on Thursday, September 5, 2013 until 12:59 a.m. Mountain Time, 2:59 a.m. Eastern Time, on Thursday, September 12, 2013, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4637604#.

About Rally
Rally Software is a leading global provider of cloud-based solutions for managing Agile software development. The Rally Agile application lifecycle management (ALM) platform transforms the way organizations manage the software development lifecycle by closely aligning software development and strategic business objectives, facilitating collaboration, increasing transparency and automating manual processes. Companies use Rally to accelerate the pace of innovation, improve productivity and more effectively adapt to rapidly changing customer needs and competitive dynamics.

Rally and the Rally logo are the property of Rally. Trade names, trademarks and service marks of other companies are the property of their respective holders.

Non-GAAP Financial Measures
To supplement Rally's condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (GAAP), the company has provided certain measures that have not been prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP results for gross profit and gross margin, net loss and basic and diluted net loss per share, which are in addition to, and, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Rally's non-GAAP financial measures exclude stock-based compensation expense and amortization of acquired intangible assets. Management believes the presentation of operating results excluding stock-based compensation expense and the amortization of acquired intangible assets provides useful supplemental information to investors and facilitates the analysis of Rally's core operating results and comparison of operating results across reporting periods and is therefore useful to investors in analyzing and assessing the company's past and future operating performance.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of the non-GAAP financial measures to such GAAP measures can be found in the accompanying financial statements included with this press release.

Forward-looking Statements
This press release contains forward-looking statements, including statements regarding Rally's future financial performance, market growth, the demand for Rally's solutions, and general business conditions. Any forward-looking statements contained in this press release are based upon Rally's historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent Rally's expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Rally disclaims any obligation to update the forward-looking statements in the future. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from Rally's current expectations. Important factors that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to, the growth of demand for Agile software development, Rally's ability to expand its relationships with existing customers, Rally's ability to attract and retain customers, the mix of perpetual license and subscription revenue, competitive factors, including but not limited to pricing pressures, industry consolidation, and entry of new competitors and new products, Rally's ability to manage growth effectively, Rally's ability to maintain, protect and enhance its brand and intellectual property, general economic and financial conditions, and other risks and uncertainties. Further information on risk factors that could cause actual results to differ materially from forecasted results is included in Rally's reports filed with the SEC, including its prospectus dated July 24, 2013 and filed with the SEC on July 25, 2013 and our Form 10-Q that will be filed for the second quarter ended July 31, 2013.  

 

Rally Software Development Corp. 

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)








July 31,


January 31,


2013


2013

ASSETS








Current assets:




Cash and cash equivalents

$ 104,653


$      17,609

Accounts receivable, net

11,068


16,318

Other receivables

64


288

Prepaid expenses and other current assets

3,087


1,912

    Total current assets

118,872


36,127





Property and equipment, net

7,445


4,156

Goodwill

2,282


-

Other assets

549


1,572





Total assets

$ 129,148


$      41,855









LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)





Current liabilities:




Accounts payable

$     3,150


$        1,945

Accrued liabilities

2,478


3,062

Deferred revenue

31,900


32,984

Other current liabilities

1,553


727

    Total current liabilities

39,081


38,718





Deferred revenue, net of current portion

4,266


5,206

Deferred rent expense, net of current portion

916


939

Warrants for redeemable convertible preferred stock, at estimated fair value

-


1,604





Total liabilities

44,263


46,467





Redeemable convertible preferred stock

-


68,410





Stockholders' equity (deficit):




Common stock

3


1

Additional paid-in capital

168,504


2,503

Accumulated deficit

(83,597)


(75,529)

Accumulated other comprehensive loss

(25)


3

    Total stockholders' equity (deficit)

84,885


(73,022)





Total liabilities and stockholders equity (deficit)

$ 129,148


$      41,855

 

Rally Software Development Corp. 

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)










Three Months Ended


Six Months Ended


July 31,


July 31,


2013


2012


2013


2012

Revenue:








Subscription and support

$ 14,220


$ 10,457


$ 27,593


$ 19,987

Perpetual license

2,735


1,407


3,364


3,018

    Total product revenue

16,955


11,864


30,957


23,005









Professional services

2,840


1,763


4,888


3,600









Total revenue

19,795


13,627


35,845


26,605









Cost of revenue (1) (2):








Product 

1,800


1,226


3,485


2,379

Professional services

2,336


1,830


4,209


3,416

    Total cost of revenue

4,136


3,056


7,694


5,795









Gross profit

15,659


10,571


28,151


20,810









Operating expenses (1):








Sales and marketing

9,085


6,537


17,919


13,543

Research and development

5,051


3,505


10,131


6,545

General and administrative

3,782


2,567


7,636


4,853

Sublease termination income

-


-


-


(839)

    Total operating expenses

17,918


12,609


35,686


24,102









Loss from operations

(2,259)


(2,038)


(7,535)


(3,292)









Other income (expense):








Interest and other income

36


30


49


31

Interest expense

(2)


(237)


(464)


(676)

Loss on foreign currency transactions and other

gain (loss)

(4)


(15)


(24)


(44)









Loss before provision for income taxes

(2,229)


(2,260)


(7,974)


(3,981)

Provision for income taxes

49


-


94


-

Net loss 

$ (2,278)


$ (2,260)


$ (8,068)


$ (3,981)









Net loss per share attributable to common stockholders, basic and diluted

$   (0.09)


$   (1.09)


$   (0.53)


$   (1.96)









Weighted average common shares outstanding, basic and diluted

24,014


2,068


15,109


2,029









(1) Includes stock-based compensation expense as follows:









Three Months Ended


Six Months Ended


July 31,


July 31,


2013


2012


2013


2012

Cost of product revenue

$        39


$          4


$      105


$          7

Cost of professional services revenue

46


6


65


10

Sales and marketing

302


52


407


89

Research and development

402


38


626


65

General and administrative

261


145


431


263










$   1,050


$      245


$   1,634


$      434









(2) Includes amortization expense of acquired intangible assets as follows:






Cost of product revenue

$      131


$        25


$      279


$        50

 

Rally Software Development Corp. 

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)













Three Months Ended


Six Months Ended



July 31, 


July 31, 



2013


2012


2013


2012

Cash flow from operating activities:








Net loss

$   (2,278)


$ (2,260)


$   (8,068)


$ (3,981)









Adjustments to reconcile net loss to cash provided by operating activities:








Depreciation and amortization

664


411


1,302


852

Noncash stock-based compensation expense

1,050


245


1,634


434

Noncash interest expense

-


237


462


674

Noncash sublease termination income

-


-


-


(839)

Changes in operating assets and liabilities: 








Accounts receivable

675


(913)


5,250


(857)

Other receivables

(24)


(77)


227


(116)

Prepaid and other current assets

113


(30)


(1,151)


(560)

Other assets

(164)


(27)


(225)


(58)

Accounts payable and accrued expenses

(480)


270


(110)


148

Deferred revenue

(3,818)


1,743


(2,024)


4,349

Other current liabilities

1,019


445


826


481

Deferred rent expense, net of current portion and other long-term liabilities

(13)


18


(22)


840










Net cash provided by (used) in operating activities

(3,256)


62


(1,899)


1,367









Cash flow from investing activities:








Purchase of property and equipment

(537)


(453)


(2,679)


(704)

Proceeds from sale of property and equipment

-


-


-


5

Purchase of Agile Advantage, Inc. assets

-


(420)


-


(420)

Purchase of Flowdock Oy, net of cash received

-


-


(2,857)


-










Net cash (used) in investing activities

(537)


(873)


(5,536)


(1,119)









Cash flow from financing activities:








Proceeds from exercise of common stock options

148


72


409


93

Proceeds from initial public offering, net of underwriting discounts and commissions

-


-


89,838


-

Proceeds from follow-on public offering, net of underwriting discounts and commissions

5,884


-


5,884


-

Offering costs

(1,233)


(62)


(1,652)


(62)

Payments on capital lease liabilities

-


(10)


-


(21)











Net cash provided by financing activities

4,799


-


94,479


10











Net increase in cash and cash equivalents during period

1,006


(811)


87,044


258










Cash and cash equivalents at beginning of period

103,647


20,521


17,609


19,452

Cash and cash equivalents at end of period

$ 104,653


$ 19,710


$ 104,653


$ 19,710

 


Rally Software Development Corp. 

Statement of Operations GAAP to Non-GAAP Reconciliation

(unaudited, in thousands, except per share amounts)




Three Months Ended


July 31, 2013


July 31, 2012


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Revenue:












Subscription and support

$ 14,220


$          -


$    14,220


$ 10,457


$         -


$    10,457

Perpetual license

2,735


-


2,735


1,407


-


1,407

    Total product revenue

16,955


-


16,955


11,864


-


11,864













Professional services

2,840


-


2,840


1,763


-


1,763













Total revenue

19,795


-


19,795


13,627


-


13,627













Cost of revenue (1)(2):












Product

1,800


(170)


1,630


1,226


(29)


1,197

Professional services

2,336


(46)


2,290


1,830


(6)


1,824

    Total cost of revenue

4,136


(216)


3,920


3,056


(35)


3,021













Gross profit

15,659


216


15,875


10,571


35


10,606













Operating expenses (1):












  Sales and marketing

9,085


(302)


8,783


6,537


(52)


6,485

  Research and development

5,051


(402)


4,649


3,505


(38)


3,467

  General and administrative

3,782


(261)


3,521


2,567


(145)


2,422

  Sublease termination income

-


-


-


-


-


-

      Total operating expenses

17,918


(965)


16,953


12,609


(235)


12,374













Loss from operations

(2,259)


1,181


(1,078)


(2,038)


270


(1,768)













Other income (expense):












  Interest and other income

36


-


36


30


-


30

  Interest expense

(2)


-


(2)


(237)


-


(237)

  Loss on foreign currency transactions and other gain (loss)

(4)


-


(4)


(15)


-


(15)













Loss before provision for income taxes

(2,229)


1,181


(1,048)


(2,260)


270


(1,990)

Provision for income taxes

49


-


49


-


-


-

Net loss 

$ (2,278)


$  1,181


$    (1,097)


$ (2,260)


$     270


$    (1,990)













Net loss per share attributable to common stockholders, basic and diluted

$   (0.09)


$    0.05


$      (0.04)


$   (1.09)


$    0.13


$      (0.96)













Weighted average common shares outstanding, basic and diluted

24,014




24,014


2,068




2,068













 


(1) Adjustments include stock-based compensation expense

(2) Adjustment includes amortization expense of acquired intangible assets

 

Rally Software Development Corp. 

Statement of Operations GAAP to Non-GAAP Reconciliation

(unaudited, in thousands, except per share amounts)




Six Months Ended


July 31, 2013


July 31, 2012


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Revenue:












Subscription and support

$ 27,593


$           -


$    27,593


$ 19,987


$            -


$    19,987

Perpetual license

3,364


-


3,364


3,018


-


3,018

      Total product revenue

30,957


-


30,957


23,005


-


23,005













Professional services

4,888


-


4,888


3,600


-


3,600













Total revenue

35,845


-


35,845


26,605


-


26,605













Cost of revenue (1)(2):












  Product

3,485


(384)


3,101


2,379


(57)


2,322

  Professional services

4,209


(65)


4,144


3,416


(10)


3,406

    Total cost of revenue

7,694


(449)


7,245


5,795


(67)


5,728













Gross profit

28,151


449


28,600


20,810


67


20,877













Operating expenses (1):












  Sales and marketing

17,919


(407)


17,512


13,543


(89)


13,454

  Research and development

10,131


(626)


9,505


6,545


(65)


6,480

  General and administrative

7,636


(431)


7,205


4,853


(263)


4,590

  Sublease termination income

-


-




(839)


-


(839)

      Total operating expenses

35,686


(1,464)


34,222


24,102


(417)


23,685













Loss from operations

(7,535)


1,913


(5,622)


(3,292)


484


(2,808)













Other income (expense):












  Interest and other income

49


-


49


31


-


31

  Interest expense

(464)


-


(464)


(676)


-


(676)

  Loss on foreign currency transactions and other gain (loss)

(24)


-


(24)


(44)


-


(44)













Loss before provision for income taxes

(7,974)


1,913


(6,061)


(3,981)


484


(3,497)

Provision for income taxes

94


-


94


-


-


-

Net loss 

$ (8,068)


$   1,913


$    (6,155)


$ (3,981)


$       484


$    (3,497)













Net loss per share attributable to common stockholders, basic and diluted

$   (0.53)


$     0.13


$      (0.40)


$   (1.96)


$      0.24


$      (1.72)













Weighted average common shares outstanding, basic and diluted

15,109




15,109


2,029




2,029














 


(1) Adjustments include stock-based compensation expense

(2) Adjustment includes amortization expense of acquired intangible assets

 

Rally Software Development Corp. 

Reconciliation of Non-GAAP Financial Guidance


The financial guidance provided below is an estimate based on information available as of September 5, 2013. The company's future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect the company's financial results are stated above in this press release. More information on potential factors that could affect the company's financial results is included in the company's public reports filed with the SEC, including the company's prospectus dated July 24, 2013, the company's Form 10-Q for the quarter ended April 30, 2013 filed on June 13, 2013 and the company's Form 10-Q for the quarter ended July 31, 2013 to be filed with the SEC. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.




Three Months Ended October 31, 2013


Fiscal Year Ended January 31, 2014





Non-GAAP basic and diluted net loss per share

$(0.22) - $(0.19)


$(0.95) - $(0.90)





Stock-based compensation expense

$(0.05)


$(0.23)





Amortization of acquired intangible assets

-


$(0.03)





GAAP basic and diluted net loss per share

$(0.27) - $(0.24)


$(1.21) - $(1.16)

 

SOURCE Rally Software



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