Rally Software Announces Third Quarter Fiscal 2014 Financial Results - Subscription and support revenue increased 30%

- Total revenue increased 28% to $18.9 million

- GAAP EPS loss was $(0.24) per share; Non-GAAP EPS loss was $(0.17) per share

- Total paid seat count increased to nearly 198,000, representing a 28% increase over Q3 last year

BOULDER, Colo., Dec. 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 third quarter of fiscal 2014 ended October 31, 2013.

Rally reported third quarter subscription and support revenue of $14.9 million, an increase of 30% over the same period one year ago. Total revenue increased 28% over the same period one year ago to $18.9 million.

GAAP gross margin for the quarter was 76% 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 77% as compared to 78% from the same period one year ago.

The company increased total paid seats by 5,700 in the quarter, bringing total paid seat count to nearly 198,000.

Cash flow used in operations was $8.7 million, which includes $4.2 million in restricted cash which was pledged as a security deposit for the Company's new corporate headquarters. Cash and cash equivalents at October 31, 2013, excluding restricted cash, were $94.8 million. Deferred revenue increased 13% from $29.9 million in the same period one year ago to $33.7 million.

"This quarter, the trend of large, enterprise customers going bigger and faster with Agile and Rally across the business has continued. Today's business marketplace is fiercely competitive.  Business leaders realize they must become more Agile now to align people throughout their organizations to respond to change and gain competitive advantage," said Rally's Chairman and CEO, Tim Miller. "For example, Rally experienced the largest initial order in the history of our business when an American multinational financial services corporation, which accounts for approximately 24% of the total dollar volume of credit card transactions in the U.S., purchased 1,500 seats in the third quarter, citing Rally's ability to align business strategy and development as a key factor in choosing Rally's Agile ALM platform."

Other key customer wins this quarter include renewals, add-ons to existing subscriptions and new customers in industries ranging from media and entertainment to travel and healthcare, including: TUI Travel, Otter Products, Philadelphia Insurance Companies, Infoglobo, McKesson Automation, National Instruments, Dex Media, Heartland Payment Systems TX, Radian Group Inc., Autodesk – Enterprise Information, TomTom International, Leica Geosystems, Truven Health Analytics, and British Airways.  

GAAP net loss for the third quarter of fiscal 2014 was $(5.8) million, or $(0.24) per basic and diluted share, based on 24.4 million weighted average shares of common stock outstanding. This compares to a net loss of $(2.8) million, or $(0.52) per basic and diluted share, based on 5.3 million weighted average shares of common stock outstanding in the same period one year ago. The GAAP net loss increased as the increase in operating expenses related to the company's continued investment to drive future growth of the business was only partially offset by the increase in revenue.

The company reported a non-GAAP net loss of $(4.2) million, or $(0.17) per basic and diluted share, as compared to a non-GAAP net loss of $(2.4) million, or $(0.46) per basic and diluted share, in the prior year's third quarter, excluding $1.5 million in stock-based compensation and amortization of acquired intangible assets in the third quarter of fiscal 2014, and $0.3 million in stock-based compensation and amortization of acquired intangible assets in the third 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 December 5, 2013, management is providing its financial outlook as follows:  

Fourth Quarter of Fiscal 2014

  • Total revenue in the range of $19.2 to $19.4 million, or 24% to 25% growth over the prior year's fourth quarter.
  • GAAP net loss per basic and diluted share of approximately $(0.32) to $(0.30), based on 24.5 million weighted average shares of common stock outstanding.
  • Non-GAAP net loss per basic and diluted share of approximately $(0.26) to $(0.24), based on 24.5 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 $73.0 to $74.0 million, or 29% to 30% growth over the prior year.
  • GAAP net loss per basic and diluted share of approximately $(1.14) to $(1.10), based on 19.8 million weighted average shares of common stock outstanding.
  • Non-GAAP net loss per basic and diluted share of approximately $(0.89) to $(0.85), based on 19.8 million weighted average shares of common stock outstanding, and excludes $4.9 million in stock-based compensation and amortization of acquired intangible assets.

Conference Call Today December 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, December 5, 2013. The conference call can be accessed by dialing 1-877-941-2068, or 1-480-629-9712 (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 fourth 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, December 5, 2013 until 12:59 a.m. Mountain Time, 2:59 a.m. Eastern Time, on Thursday, December 12, 2013, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4650719#.

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 third quarter ended October 31, 2013.  

 

 

Rally Software Development Corp. 

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)








October 31,


January 31,


2013


2013

ASSETS








Current assets:




   Cash and cash equivalents

$      94,835


$      17,609

   Accounts receivable, net

11,721


16,318

   Other receivables

169


288

   Prepaid expenses and other current assets

2,686


1,912

      Total current assets

109,411


36,127





Property and equipment, net

7,453


4,156

Goodwill

2,282


-

Restricted cash

4,200


-

Other assets

593


1,572





      Total assets

$    123,939


$      41,855









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





Current liabilities:




   Accounts payable

$        2,825


$        1,945

   Accrued liabilities

3,502


3,062

   Deferred revenue

30,221


32,984

   Other current liabilities

2,415


727

      Total current liabilities

38,963


38,718





Deferred revenue, net of current portion

3,467


5,206

Deferred rent expense, net of current portion

902


939

Warrants for redeemable convertible preferred stock, at estimated fair value

-


1,604





      Total liabilities

43,332


46,467





Redeemable convertible preferred stock

-


68,410





Stockholders' equity (deficit):




   Common stock

3


1

   Additional paid-in capital

169,975


2,503

   Accumulated deficit

(89,382)


(75,529)

   Accumulated other comprehensive loss

11


3

      Total stockholders' equity (deficit)

80,607


(73,022)





Total liabilities and stockholders equity (deficit)

$    123,939


$      41,855

 

 

Rally Software Development Corp. 

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)










Three Months Ended


Nine Months Ended


October 31,


October 31,


2013


2012


2013


2012

Revenue:








   Subscription and support

$ 14,888


$ 11,419


$  42,481


$ 31,406

   Perpetual license

1,055


1,252


4,419


4,270

      Total product revenue

15,943


12,671


46,900


35,676









Professional services

2,936


2,078


7,824


5,677









      Total revenue

18,879


14,749


54,724


41,353









Cost of revenue (1) (2):








   Product 

1,997


1,437


5,482


3,816

   Professional services

2,577


1,880


6,786


5,296

      Total cost of revenue

4,574


3,317


12,268


9,112









      Gross profit

14,305


11,432


42,456


32,241









Operating expenses (1):








   Sales and marketing

10,832


7,226


28,752


20,769

   Research and development

5,167


4,153


15,297


10,697

   General and administrative

4,008


2,739


11,644


7,592

   Sublease termination income

-


-


-


(839)

      Total operating expenses

20,007


14,118


55,693


38,219









      Loss from operations

(5,702)


(2,686)


(13,237)


(5,978)









Other income (expense):








   Interest and other income

42


11


91


43

   Interest expense

-


(46)


(464)


(722)

   Loss on foreign currency transactions and other








 gain (loss)

(87)


(30)


(111)


(75)









Loss before provision for income taxes

(5,747)


(2,751)


(13,721)


(6,732)

Provision for income taxes

39


-


133


-

Net loss 

$ (5,786)


$ (2,751)


$ (13,854)


$ (6,732)









Net loss per share attributable to common stockholders,








 basic and diluted

$   (0.24)


$   (0.52)


$     (0.76)


$   (1.31)









Weighted average common shares outstanding, basic








 and diluted

24,398


5,314


18,239


5,153









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









Three Months Ended


Nine Months Ended


October 31,


October 31,


2013


2012


2013


2012

Cost of product revenue

$        69


$          4


$       174


$        11

Cost of professional services revenue

56


6


121


16

Sales and marketing

496


52


903


142

Research and development

362


62


988


127

General and administrative

433


131


864


394










$   1,416


$      255


$    3,050


$      690









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






Cost of product revenue

$      131


$        60


$       410


$      110

 

 

Rally Software Development Corp. 

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)













Three Months Ended


Nine Months Ended



October 31, 


October 31, 



2013


2012


2013


2012

Cash flow from operating activities:








Net loss

$ (5,786)


$ (2,751)


$ (13,854)


$ (6,732)









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















   Depreciation and amortization

685


494


1,987


1,346

   Noncash stock-based compensation expense

1,416


255


3,050


690

   Noncash interest expense

-


44


462


719

   Noncash sublease termination income

-


-


-


(839)

   Other

-


(4)


1


(4)

Changes in operating assets and liabilities: 








   Accounts receivable

(653)


3,620


4,597


2,763

   Other receivables

(106)


55


121


(61)

   Prepaid and other current assets

401


56


(750)


(505)

   Other assets

(48)


(62)


(273)


(120)

   Accounts payable and accrued expenses

1,240


91


1,130


239

   Deferred revenue

(2,478)


425


(4,503)


4,775

   Other current liabilities

862


(399)


1,688


72

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

(13)


43


(35)


892

   Restricted cash

(4,200)


-


(4,200)


-











   Net cash provided by (used) in operating activities

(8,680)


1,867


(10,579)


3,235










Cash flow from investing activities:








   Purchase of property and equipment

(586)


(872)


(3,264)


(1,576)

   Proceeds from sale of property and equipment

-


4


-


9

   Purchase of Agile Advantage, Inc. assets

-


-


-


(420)

   Purchase of Flowdock Oy, net of cash received

-


-


(2,857)


-











   Net cash (used) in investing activities

(586)


(868)


(6,121)


(1,987)










Cash flow from financing activities:








   Proceeds from exercise of common stock options

54


39


463


133

   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


-

   Payments of offering costs

(606)


(1,136)


(2,259)


(1,199)

   Payments on capital lease liabilities

-


(8)


-


(30)











   Net cash provided by (used) in financing activities

(552)


(1,105)


93,926


(1,096)











   Net increase in cash and cash equivalents during period

(9,818)


(106)


77,226


152










Cash and cash equivalents at beginning of period

104,653


19,710


17,609


19,452

Cash and cash equivalents at end of period

$ 94,835


$ 19,604


$  94,835


$ 19,604

 

 

Rally Software Development Corp. 

Statement of Operations GAAP to Non-GAAP Reconciliation

(unaudited, in thousands, except per share amounts)




Three Months Ended


October 31, 2013


October 31, 2012


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Revenue:












   Subscription and support

$ 14,888


$                   -


$    14,888


$ 11,419


$                   -


$    11,419

   Perpetual license

1,055


-


1,055


1,252


-


1,252

      Total product revenue

15,943


-


15,943


12,671


-


12,671













Professional services

2,936


-


2,936


2,078


-


2,078













      Total revenue

18,879


-


18,879


14,749


-


14,749













Cost of revenue (1)(2):












   Product

1,997


(200)


1,797


1,437


(64)


1,373

   Professional services

2,577


(56)


2,521


1,880


(6)


1,874

      Total cost of revenue

4,574


(256)


4,318


3,317


(70)


3,247













      Gross profit

14,305


256


14,561


11,432


70


11,502













Operating expenses (1):












   Sales and marketing

10,832


(496)


10,336


7,226


(52)


7,174

   Research and development

5,167


(362)


4,805


4,153


(62)


4,091

   General and administrative

4,008


(433)


3,575


2,739


(131)


2,608

   Sublease termination income

-


-


-


-


-


-

      Total operating expenses

20,007


(1,291)


18,716


14,118


(245)


13,873













      Loss from operations

(5,702)


1,547


(4,155)


(2,686)


315


(2,371)













Other income (expense):












   Interest and other income

42


-


42


11


-


11

   Interest expense

-


-


-


(46)


-


(46)

   Loss on foreign currency transactions and other gain (loss)












(87)


-


(87)


(30)


-


(30)













Loss before provision for income taxes

(5,747)


1,547


(4,200)


(2,751)


315


(2,436)

Provision for income taxes

39


-


39


-


-


-

Net loss 

$ (5,786)


$            1,547


$    (4,239)


$ (2,751)


$               315


$    (2,436)













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












$   (0.24)


$              0.07


$      (0.17)


$   (0.52)


$              0.06


$      (0.46)













Weighted average common shares outstanding, basic and diluted












24,398




24,398


5,314




5,314

























(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)




Nine Months Ended


October 31, 2013


October 31, 2012


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Revenue:












   Subscription and support

$  42,481


$                   -


$    42,481


$ 31,406


$                   -


$    31,406

   Perpetual license

4,419


-


4,419


4,270


-


4,270

      Total product revenue

46,900


-


46,900


35,676


-


35,676













Professional services

7,824


-


7,824


5,677


-


5,677













      Total revenue

54,724


-


54,724


41,353


-


41,353













Cost of revenue (1)(2):












   Product

5,482


(584)


4,898


3,816


(121)


3,695

   Professional services

6,786


(121)


6,665


5,296


(16)


5,280

      Total cost of revenue

12,268


(705)


11,563


9,112


(137)


8,975













      Gross profit

42,456


705


43,161


32,241


137


32,378













Operating expenses (1):












   Sales and marketing

28,752


(903)


27,849


20,769


(142)


20,627

   Research and development

15,297


(988)


14,309


10,697


(127)


10,570

   General and administrative

11,644


(864)


10,780


7,592


(394)


7,198

   Sublease termination income

-


-




(839)


-


(839)

      Total operating expenses

55,693


(2,755)


52,938


38,219


(663)


37,556













      Loss from operations

(13,237)


3,460


(9,777)


(5,978)


800


(5,178)













Other income (expense):












   Interest and other income

91


-


91


43


-


43

   Interest expense

(464)


-


(464)


(722)


-


(722)

   Loss on foreign currency transactions and other gain (loss)

(111)


-


(111)


(75)


-



(75)













Loss before provision for income taxes

(13,721)


3,460


(10,261)


(6,732)


800


(5,932)

Provision for income taxes

133


-


133


-


-


-

Net loss 

$ (13,854)


$            3,460


$  (10,394)


$ (6,732)


$               800


$    (5,932)













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












$     (0.76)


$              0.19


$      (0.57)


$   (1.31)


$              0.16


$      (1.15)













Weighted average common shares outstanding, basic and diluted












18,239




18,239


5,153




5,153

























(1) Adjustments include  stock-based compensation expense

(2) Adjustment includes amortization expense of acquired intangible assets

 

 

Rally Software Development Corp. 

Reconciliation of Total Revenue to Calculated Billings and 

Days Sales Outstanding

(unaudited, in thousands except days sales outstanding)










Three Months Ended


Nine Months Ended


October 31,


October 31,


2013


2012


2013


2012









Total revenue

$           18,879


$ 14,749


$ 54,724


$ 41,353









Deferred revenue-








End of period

33,688


29,883


33,688


29,883

Beginning of period

(36,166)


(29,458)


(38,190)


(25,109)









Net change

(2,478)


425


(4,502)


4,774









Calculated billings

$           16,401


$ 15,174


$ 50,222


$ 46,127









Accounts receivable

$           11,721


$   9,141













Days Sales Outstanding

65


55





 

 

Rally Software Development Corp. 

Reconciliation of Non-GAAP Financial Guidance


The financial guidance provided below is an estimate based on information available as of December 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 July 31, 2013 filed on September 10, 2013 and the company's Form 10-Q for the quarter ended October 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
January 31, 2014


Fiscal Year Ended
January 31, 2014





Non-GAAP basic and diluted net loss per share

$(0.26) - $(0.24)


$(0.89) - $(0.85)





Stock-based compensation expense

$(0.05)


$(0.22)





Amortization of acquired intangible assets

$(0.01)


$(0.03)





GAAP basic and diluted net loss per share

$(0.32) - $(0.30)


$(1.14) - $(1.10)

 

SOURCE Rally Software



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