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Last updated on April 17, 2014 at 1:21 EDT

Rally Software Announces First Quarter Fiscal 2014 Financial Results

June 6, 2013

- Subscription and support revenue increased 40%

BOULDER, Colo., June 6, 2013 /PRNewswire/ — Rally Software (NYSE: RALY), a leading global provider of cloud-based solutions for managing Agile software development, today announced financial results for its first quarter of fiscal 2014 ended April 30, 2013.

For the first quarter, subscription and support revenue increased 40% over the same period one year ago to $13.4 million. Rally reported total revenue of $16.0 million, an increase of 24% over the same period one year ago.

GAAP gross margin for the quarter was 78% as compared to 79% 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 79%, unchanged from the same period one year ago.

The company sold more than 15,000 seats in the quarter, bringing total paid seat count to more than 184,000.

Rally generated $1.4 million in cash flow from operating activities, and raised $89.8 million in proceeds from its initial public offering, net of underwriting discounts and commissions, during the quarter. Cash and cash equivalents at April 30, 2013 were $103.6 million. Deferred revenue increased 44% from $27.7 million in the same period one year ago to $40.0 million.

“We are delighted to report record results for our first quarter as a public company,” commented Tim Miller, Chairman and CEO of Rally. “As our financials demonstrate, we experienced good momentum across the business and had notable new customer wins in many key industries and geographies. These new customers include a major healthcare provider in the U.S., banks in North America and Europe, and a large retailer in the UK and Europe. In addition, we were successful at expanding engagements with existing customers, including a major Internet search provider that increased its seat count by 200% in the quarter. The number of new companies developing their businesses based on Agile and Rally from inception is not only driving our revenue in the near term, but makes us highly optimistic about our continued success well into the future.”

GAAP net loss for the first quarter of fiscal 2014 was $(5.8) million, or $(0.98) per basic and diluted share, based on 5.9 million weighted average shares of common stock outstanding. This compares to a net loss of $(1.7) million, or $(0.86) per basic and diluted share, based on 2.0 million weighted average shares of common stock outstanding in the same period one year ago. The increase in GAAP net loss and net loss per share was primarily related to the company’s continued investment to drive future growth of the business.

The company reported a non-GAAP net loss of $(5.1) million, or $(0.86) per basic and diluted share, as compared to a net loss of $(1.5) million, or $(0.75) per basic and diluted share, in the prior year’s first quarter, excluding $0.7 million in stock-based compensation and amortization of acquired intangible assets in the first quarter of fiscal 2014, and $0.2 million in stock-based compensation and amortization of acquired intangible assets in the first quarter of fiscal 2013. A reconciliation of GAAP to non-GAAP financial measures can be found in the accompanying table to this press release.

Business Outlook

As of June 6, 2013, management is providing its financial outlook as follows:

Second Quarter of Fiscal 2014

  • Total revenue in the range of $17.25 to $17.75 million, or 27% to 30% growth over the prior year’s second quarter.
  • GAAP net loss per basic and diluted share of approximately $(0.24) to $(0.22), based on 24.0 million weighted average shares of common stock outstanding.
  • Non-GAAP net loss per basic and diluted share of approximately $(0.21) to $(0.19), based on 24.0 million weighted average shares of common stock outstanding, and excludes $1.4 million in stock-based compensation and amortization of acquired intangible assets.

Fiscal Year 2014

  • Total revenue in the range of $71.0 to $73.0 million, or 25% to 29% growth over the prior year.
  • GAAP net loss per basic and diluted share of approximately $(1.24) to $(1.21), based on 19.6 million weighted average shares of common stock outstanding.
  • Non-GAAP net loss per basic and diluted share of approximately $(1.04) to $(1.01), based on 19.6 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 June 6, 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, June 6, 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 second 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, June 6, 2013 until 12:59 a.m. Mountain Time, 2:59 a.m. Eastern Time, on Thursday, June 13, 2013, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4619665#.

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 table to 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 April 11, 2013 and filed with the SEC on April 12, 2013.

                                         Rally Software Development Corp.

                                       Condensed Consolidated Balance Sheets

                                             (Unaudited, in thousands)

                                                       April 30,                 January 31,

                                                                   2013                       2013
                                                                   ----                       ----

    ASSETS

    Current assets:

       Cash and cash equivalents                               $103,647                    $17,609

       Accounts receivable, net                                  11,743                     16,318

       Other receivables                                             40                        288

       Prepaid expenses and other
        current assets                                            3,201                      1,912
                                                                  -----                      -----

        Total current assets                                    118,631                     36,127

    Property and equipment,
     net                                                          7,582                      4,156

    Goodwill                                                      2,282                          -

    Other assets                                                    388                      1,572
                                                                    ---                      -----

        Total assets                                           $128,883                    $41,855
                                                               ========                    =======

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

    Current liabilities:

       Accounts payable                                          $3,345                     $1,945

       Accrued liabilities                                        3,341                      3,062

       Deferred revenue                                          34,926                     32,984

       Other current liabilities                                    535                        727
                                                                    ---                        ---

        Total current liabilities                                42,147                     38,718

    Deferred revenue, net of
     current portion                                              5,058                      5,206

    Deferred rent expense, net
     of current portion                                             929                        939

    Warrants for redeemable
     convertible preferred
     stock, at estimated fair
     value                                                            -                      1,604
                                                                    ---                      -----

        Total liabilities                                        48,134                     46,467
                                                                 ------                     ------

    Redeemable convertible
     preferred stock                                                  -                     68,410
                                                                    ---                     ------

    Stockholders' equity (deficit):

       Common stock                                                   3                          1

       Additional paid-in
        capital                                                 162,071                      2,503

       Accumulated deficit                                      (81,319)                   (75,529)

       Accumulated other
        comprehensive loss                                           (6)                         3
                                                                    ---                        ---

        Total stockholders' equity
         (deficit)                                               80,749                    (73,022)
                                                                 ------                    -------

    Total liabilities and
     stockholders equity
     (deficit)                                                 $128,883                    $41,855
                                                               ========                    =======

                  Rally Software Development Corp.

          Condensed Consolidated Statements of Operations

        (unaudited, in thousands, except per share amounts)

                                                Three Months Ended

                                                  April 30,

                                                  2013                 2012
                                                  ----                 ----

    Revenue:

       Subscription and
        support                                $13,373               $9,530

       Perpetual
        license                                    629                1,611
                                                   ---                -----

       Total product
        revenue                                 14,002               11,141

    Professional
     services                                    2,047                1,837

    Total revenue                               16,049               12,978
                                                ------               ------

    Cost of revenue (1) (2):

       Product                                   1,684                1,153

       Professional
        services                                 1,873                1,586
                                                 -----

       Total cost of
        revenue                                  3,557                2,739
                                                 -----                -----

    Gross profit                                12,492               10,239
                                                ------               ------

    Operating expenses (1):

       Sales and
        marketing                                8,835                7,005

       Research and
        development                              5,079                3,041

       General and
        administrative                           3,854                2,302

       Sublease
        termination
        income                                       -                 (839)

       Total operating
        expenses                                17,768               11,509
                                                ------               ------

        Loss from
         operations                             (5,276)              (1,270)

    Other income (expense):

       Interest and
        other income                                13                    2

       Interest expense                           (462)                (438)

       Loss on foreign currency transactions
        and other

        gain (loss)                                (19)                 (15)

    Loss before
     provision for
     income taxes                               (5,744)              (1,721)

    Provision for
     income taxes                                  (46)                   -

    Net loss                                   $(5,790)             $(1,721)
                                               =======              =======

    Net loss per share attributable to
     common stockholders,

     basic and
      diluted                                   $(0.98)              $(0.86)
                                                ======               ======

    Weighted average common shares
     outstanding, basic

     and diluted                                 5,904                1,991
                                                 =====                =====

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

                                              Three Months Ended

                                                  April 30,

                                                  2013                 2012
                                                  ----                 ----

    Cost of product
     revenue                                       $66                   $3

    Cost of
     professional
     services
     revenue                                        19                    4

    Sales and
     marketing                                     105                   37

    Research and
     development                                   224                   27

    General and
     administrative                                170                  118

                                                  $584                 $189
                                                  ====                 ====

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

       Cost of product
        revenue                                   $148                  $25
                                                  ====                  ===

                        Rally Software Development Corp.

                Condensed Consolidated Statements of Cash Flows

                           (Unaudited, in thousands)

                                                       Three Months Ended

                                                          April 30,

                                                          2013               2012
                                                          ----               ----

    Cash flow from operating activities:

    Net loss                                           $(5,790)           $(1,721)

    Adjustments to reconcile net loss
     to cash provided by

       operating activities:

        Depreciation and amortization                      638                441

        Noncash stock-based compensation
         expense                                           584                189

        Noncash interest expense                           462                438

        Noncash sublease termination income                  -               (839)

    Changes in operating assets and
     liabilities:

        Accounts receivable                              4,575                 56

        Other receivables                                  251                (40)

        Prepaid and other current assets                (1,264)              (529)

        Other assets                                       (61)               (30)

        Accounts payable and accrued
         expenses                                          370               (122)

        Deferred revenue                                 1,793              2,606

        Other current liabilities                         (192)              (313)

        Deferred rent expense, net of
         current portion                                    (9)             1,170

                                                         1,357              1,306

                  Net cash provided by operating activities
                                                                              ---

    Cash flow from investing
     activities:

        Purchase of property and equipment              (2,142)              (252)

        Proceeds from sale of property and
         equipment                                           -                  5

        Purchase of Flowdock Oy, net of
         cash received                                  (2,857)                 -

                                                        (4,999)              (247)

                  Net cash (used) in investing activities
                                                                              ---

    Cash flow from financing
     activities:

        Proceeds from exercise of common
         stock options                                     261                 21

        Proceeds from initial public
         offering, net of underwriting
         discounts and commissions                      89,838                  -

        Deferred offering costs                           (419)                 -

        Payments on capital lease
         liabilities                                         -                (11)

                                                        89,680                 10

                  Net cash provided by financing activities
                                                                              ---

                                                        86,038              1,069

                  Net increase in cash and cash equivalents
                   during period

    Cash and cash equivalents at
     beginning of period                                17,609             19,452
                                                        ------             ------

    Cash and cash equivalents at end of
     period                                           $103,647            $20,521
                                                      ========            =======

                                                                                                                 Rally Software Development Corp.

                                                                                                     Statement of Operations GAAP to Non-GAAP Reconciliation

                                                                                                       (unaudited, in thousands, except per share amounts)

                                                                  Three Months Ended
                                                                  ------------------

                                                 April 30, 2013                                               April 30, 2012
                                                 --------------                                               --------------

                                                  GAAP                            Adjustments                            Non-GAAP                            GAAP          Adjustments        Non-GAAP
                                                  ----                            -----------                            --------                            ----          -----------        --------

    Revenue:

       Subscription and
        support                                          $13,373                    $             -                                 $13,373                        $9,530    $             -            $9,530

       Perpetual license                                     629                                  -                                     629                         1,611                  -             1,611
                                                             ---                                ---                                     ---                         -----                ---             -----

        Total product
         revenue                                          14,002                                  -                                  14,002                        11,141                  -            11,141

    Professional
     services                                              2,047                                  -                                   2,047                         1,837                  -             1,837

        Total revenue                                     16,049                                  -                                  16,049                        12,978                  -            12,978
                                                          ------                                ---                                  ------                        ------                ---            ------

    Cost of revenue (1)(2):

       Product                                             1,684                               (214)                                  1,470                         1,153                (28)            1,125

       Professional
        services                                           1,873                                (19)                                  1,854                         1,586                 (4)            1,582
                                                           -----

        Total cost of
         revenue                                           3,557                               (233)                                  3,324                         2,739                (32)            2,707
                                                           -----                               ----                                   -----                         -----                ---             -----

        Gross profit                                      12,492                                233                                  12,725                        10,239                 32            10,271
                                                          ------                                ---                                  ------                        ------                ---            ------

    Operating expenses (1):

       Sales and marketing                                 8,835                               (105)                                  8,730                         7,005                (37)            6,968

       Research and
        development                                        5,079                               (224)                                  4,855                         3,041                (27)            3,014

       General and
        administrative                                     3,854                               (170)                                  3,684                         2,302               (118)            2,184

       Sublease
        termination income                                     -                                  -                                                                  (839)                 -              (839)

        Total operating
         expenses                                         17,768                               (499)                                 17,269                        11,509               (182)           11,327
                                                          ------                               ----                                  ------                        ------               ----            ------

        Loss from
         operations                                       (5,276)                               732                                  (4,544)                       (1,270)               214            (1,056)

    Other income (expense):

       Interest and other
        income                                                13                                  -                                      13                             2                  -                 2

       Interest expense                                     (462)                                 -                                    (462)                         (438)                 -              (438)

       Loss on foreign currency transactions and
        other

        gain (loss)                                          (19)                                 -                                     (19)                          (15)                 -               (15)

    Loss before
     provision for
     income taxes                                         (5,744)                               732                                  (5,012)                       (1,721)               214            (1,507)

    Provision for
     income taxes                                            (46)                                 -                                     (46)                            -                  -                 -

    Net loss                                             $(5,790)                              $732                                 $(5,058)                      $(1,721)              $214           $(1,507)
                                                         =======                               ====                                 =======                       =======               ====           =======

    Net loss per share attributable to common
     stockholders,

     basic and diluted                                    $(0.98)                             $0.12                                  $(0.86)                       $(0.86)             $0.11            $(0.75)
                                                          ======                              =====                                  ======                        ======              =====            ======

    Weighted average common shares outstanding,
     basic

     and diluted                                           5,904                                                                      5,904                         1,991                                1,991
                                                           =====                                                                      =====                         =====                                =====


    (1) Adjustments include  stock-
     based compensation expense

    (2) Adjustment includes
     amortization expense of acquired
     intangible assets

SOURCE Rally Software


Source: PR Newswire