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Rally Software Announces First Quarter Fiscal Year 2015 Financial Results

Companies mentioned in this article: Rally Software

BOULDER, Colo., June 5, 2014 /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 year 2015 ended April 30, 2014.

First quarter fiscal year 2015 results:

    --  Revenues of $19.4 million, an increase of 21% compared to the first
        quarter in the same period one year ago.
    --  GAAP net loss of $(8.5) million, or a loss of $(0.34) per basic and
        diluted share based on 24.8 million weighted average shares of common
        stock outstanding, as compared to a GAAP net loss of $(5.8) million, or
        a loss of $(0.98) per basic and diluted share based on 5.9 million
        weighted average shares of common stock outstanding in the same period
        one year ago.
    --  Non-GAAP net loss of $(6.8) million, or $(0.27) per basic and diluted
        share, as compared to a non-GAAP net loss of $(5.1) million, or $(0.86)
        per basic and diluted share in the same period one year ago (see the
        table titled "Statement of Operations GAAP to Non-GAAP Reconciliation"
        for a reconciliation of these GAAP and non-GAAP financial measures).
    --  Total paid seats increased to nearly 226,000, a 23% increase over the
        total paid seats one year ago and a 6% increase over total paid in seats
        at the end of the prior quarter.

Cash flow used in operations in the first quarter was $2.8 million. Cash and cash equivalents at April 30, 2014, excluding restricted cash, were $85.7 million.

"Fiscal year 2015 is an important year for Rally Software and this quarter, while mixed in performance, sets a foundation for executing in the second half of this year," said Rally Software's Chairman and CEO, Tim Miller.

"We continued our success in selling our solution to the large enterprise buyer and clearly enjoyed support from our largest customers. For example, the 7,000 seat upgrade order we enjoyed from one of our top 15 customers - now at 12,000 seats under contract - underscores this aspect of our business. We struggled slightly in selling new seats to new customers, which was due largely to fast growth in quota carrying headcount that caused some execution delay as these new team members trained and learned about their new territories and Rally Software's business."

Rally Software welcomed the following new customers, including: Black & Veatch, Core Media, the Driver and Vehicle Licensing Agency in the UK, eTouch, PowerNet Global, Smartshift Technologies, Snag-a-Job, SpiritClips and Ubiquity Broadcasting.

Business Outlook

As of June 5, 2014, management is providing its financial outlook as follows:

Second Quarter of Fiscal Year 2015

    --  Total revenue in the range of $20.2 to $20.8 million, or 2% to 5% growth
        over the same period one year ago.
    --  GAAP net loss per basic and diluted share of approximately $(0.45) to
        $(0.48), based on 25.0 million weighted average shares of common stock
        outstanding.
    --  Non-GAAP net loss per basic and diluted share of approximately $(0.39)
        to $(0.42), based on 25.0 million weighted average shares of common
        stock outstanding, which excludes $1.6 million in stock-based
        compensation and amortization of acquired intangible assets.

Fiscal Year 2015

    --  Total revenue in the range of $87.0 to $90.0 million, or 17% to 21%
        growth over the prior fiscal year.
    --  GAAP net loss per basic and diluted share of approximately $(1.59) to
        $(1.64), based on 25.2 million weighted average shares of common stock
        outstanding.
    --  Non-GAAP net loss per basic and diluted share of approximately $(1.31)
        to $(1.36), based on 25.2 million weighted average shares of common
        stock outstanding, which excludes $6.5 million in stock-based
        compensation and amortization of acquired intangible assets.

CFO Commentary
Commentary on the quarter by Jim Lejeal, Rally Software Chief Financial Officer, is available at investors.rallydev.com.

Conference Call Today June 5, 2014
Rally Software 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 5, 2014. The conference call can be accessed by dialing 1-877-870-4263, or 1-412-317-0790 (outside the U.S. and Canada). A live webcast will be available on the Investor Relations page of the Rally Software corporate website at www.rallydev.com and, beginning approximately one hour after the completion of the call, will be available for replay for 90 days. An audio replay of the call will also be available to all interested parties beginning at approximately 4:00 p.m. Mountain Time, 6:00 p.m. Eastern Time, on Thursday, June 5, 2014 until 7:00 a.m. Mountain Time, 9:00 a.m. Eastern Time, on Friday, June 20, 2014, by dialing 1-877-344-7529 or 1-412-317-0088 (outside the U.S. and Canada) and entering pass code 10046217#.

About Rally Software
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 Software's solutions to accelerate the pace of innovation, improve productivity and more effectively adapt to rapidly changing customer needs and competitive dynamics.

©2014 Rally Software Development Corp. Rally, Rally Software and the Rally logo are trademarks or registered trademarks of Rally Software Development Corp. in the United States and/or other countries. All other trade names, trademarks and service marks are properties of their respective owners.

Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (GAAP), we have provided certain measures that have not been prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP results for calculated billings, normalized billings, 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.

Our non-GAAP financial measures exclude stock-based compensation expense and amortization of acquired intangible assets. We believe 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 our core operating results and comparison of operating results across reporting periods and is therefore useful to investors in analyzing and assessing our 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 our future financial performance, market growth, the demand for our solutions, and general business conditions. Any forward-looking statements contained in this press release are based upon our historical performance and current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent our expectations as of the date of this press release. Subsequent events may cause these expectations to change, and we disclaim 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 our 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, our ability to expand relationships with existing customers, our 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, our ability to manage growth effectively, the ability of new sales personnel to become fully productive quickly and efficiently, our ability to maintain, protect and enhance our 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 our reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended January 31, 2014 filed on April 11, 2014 and our Quarterly Report on Form 10-Q that will be filed for the quarter ended April 30, 2014.

Investor Relations contact:
Rally Software Development Corp.
ir@rallydev.com


                                           Rally Software Development Corp.

                                         Condensed Consolidated Balance Sheets

                                               (Unaudited, in thousands)



                                                      April 30,                January 31,

                                                                    2014                       2014
                                                                    ----                       ----

    ASSETS


    Current assets:

    Cash and
     cash
     equivalents                                                 $85,731                    $88,891

    Restricted
     cash,
     short-term                                                       16                         16

    Accounts
     receivable,
     net                                                          16,029                     21,771

    Other
     receivables                                                     108                         78

    Prepaid
     expenses
     and other
     current
     assets                                                        4,177                      3,310
                                                                   -----                      -----

    Total
     current
     assets                                                      106,061                    114,066


    Property and
     equipment,
     net                                                           5,893                      5,569

    Goodwill                                                       2,572                      2,529

    Intangible
     assets, net                                                   1,777                      1,909

    Restricted
     cash, long-
     term                                                          4,200                      4,200

    Other assets                                                     757                        810
                                                                     ---                        ---


    Total assets                                                $121,260                   $129,083
                                                                ========                   ========



    LIABILITIES AND STOCKHOLDERS' EQUITY


    Current liabilities:

    Accounts
     payable                                                      $2,605                     $2,170

    Accrued
     liabilities                                                   3,452                      4,812

    Deferred
     revenue                                                      38,046                     38,352

    Other
     current
     liabilities                                                   2,869                      2,054
                                                                   -----                      -----

    Total
     current
     liabilities                                                  46,972                     47,388


    Deferred
     revenue,
     net of
     current
     portion                                                       1,665                      2,433

    Deferred
     rent
     expense,
     net of
     current
     portion                                                         873                        888
                                                                     ---                        ---


    Total
     liabilities                                                  49,510                     50,709
                                                                  ------                     ------


    Stockholders' equity:

    Common stock                                                       3                          3

    Additional
     paid-in
     capital                                                     175,829                    174,027

    Accumulated
     deficit                                                    (104,141)                   (95,660)

    Accumulated
     other
     comprehensive
     income                                                           59                          4
                                                                     ---                        ---

    Total
     stockholders'
     equity                                                       71,750                     78,374
                                                                  ------                     ------


    Total
     liabilities
     and
     stockholders
     equity                                                     $121,260                   $129,083
                                                                ========                   ========


                   Rally Software Development Corp.

           Condensed Consolidated Statements of Operations

         (unaudited, in thousands, except per share amounts)



                                                  Three Months Ended

                                                    April 30,
                                                    ---------

                                                     2014               2013
                                                     ----               ----

    Revenue:

    Subscription and
     support                                      $16,105            $13,373

    Perpetual
     license                                          639                629
                                                      ---                ---

        Total product
         revenue                                   16,744             14,002


    Professional
     services                                       2,687              2,047


        Total revenue                              19,431             16,049
                                                   ------             ------


    Cost of revenue (1) (2):

    Product                                         2,396              1,684

    Professional
     services                                       2,771              1,873
                                                    -----

        Total cost of
         revenue                                    5,167              3,557
                                                    -----              -----


        Gross profit                               14,264             12,492
                                                   ------             ------


    Operating expenses (1):

    Sales and
     marketing                                     11,410              8,835

    Research and
     development                                    5,986              5,079

    General and
     administrative                                 5,188              3,854

        Total operating
         expenses                                  22,584             17,768
                                                   ------             ------


        Loss from
         operations                                (8,320)            (5,276)


    Other income (expense):

    Interest and
     other income                                      39                 13

    Interest expense                                    -               (462)

    Loss on foreign currency transactions and
     other

     gain (loss)                                      (82)               (19)


    Loss before
     provision for
     income taxes                                  (8,363)            (5,744)

    Provision for
     income taxes                                     118                 46

    Net loss                                      $(8,481)           $(5,790)
                                                  =======            =======


    Net loss per share attributable to common
     stockholders,

     basic and
      diluted                                      $(0.34)            $(0.98)
                                                   ======             ======


    Weighted average common shares
     outstanding, basic

     and diluted                                   24,816              5,904
                                                   ======              =====


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

                                               Three Months Ended

                                                    April 30,

                                                     2014               2013
                                                     ----               ----

    Cost of product
     revenue                                          $95                $66

    Cost of
     professional
     services
     revenue                                           89                 19

    Sales and
     marketing                                        438                105

    Research and
     development                                      412                224

    General and
     administrative                                   522                170


                                                   $1,556               $584
                                                   ======               ====


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

    Cost of product
     revenue                                         $132               $148
                                                     ====               ====


                                               Rally Software Development Corp.

                                       Condensed Consolidated Statements of Cash Flows

                                                  (Unaudited, in thousands)



                                                                                                     Three Months Ended

                                                                                                       April 30,
                                                                                                       ---------

                                                                                                        2014                 2013
                                                                                                        ----                 ----

    Cash flow from operating activities:

    Net loss                                                                                         $(8,481)             $(5,790)


    Adjustments to reconcile net loss to cash provided by (used) in
     operating activities:

    Depreciation and amortization                                                                        724                  638

    Noncash stock-based compensation
     expense                                                                                           1,556                  584

    Noncash interest expense                                                                       -                462

    Other                                                                                                 19                    -

    Changes in operating assets and liabilities:

    Accounts receivable                                                                                5,742                4,575

    Other receivables                                                                                    (30)                 251

    Prepaid and other current assets                                                                    (867)              (1,264)

    Other assets                                                                                          36                  (61)

    Accounts payable and accrued expenses                                                             (1,183)                 370

    Deferred revenue                                                                                  (1,075)               1,793

    Other current liabilities                                                                            815                 (192)

    Deferred rent expense, net of current
     portion and other long-term
     liabilities                                                                                         (15)                  (9)


                                                                      Net cash provided by (used) in
                                                                      operating activities            (2,759)               1,357
                                                                                                     -------


    Cash flow from investing activities:

    Purchase of property and equipment                                                                  (648)              (2,142)

    Proceeds from sale of property and
     equipment                                                                                             1                    -

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


                                                                      Net cash (used) in investing
                                                                      activities                        (647)              (4,999)
                                                                                                       -----


    Cash flow from financing activities:

    Proceeds from exercise of common
     stock options                                                                                       246                  261

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

    Payments of offering costs                                                                     -               (419)


                                                                      Net cash provided by financing
                                                                      activities                         246               89,680
                                                                                                         ---


                                                                      Net increase (decrease) in
                                                                      cash and cash equivalents
                                                                      during period                   (3,160)              86,038


    Cash and cash equivalents at
     beginning of period                                                                              88,891               17,609
                                                                                                      ------               ------

    Cash and cash equivalents at end of
     period                                                                                          $85,731             $103,647
                                                                                                     =======             ========


                                                                                                                                           Rally Software Development Corp.

                                                                                                                                Statement of Operations GAAP to Non-GAAP Reconciliation

                                                                                                                                  (unaudited, in thousands, except per share amounts)



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

                                                             April 30, 2014                                                      April 30, 2013
                                                             --------------                                                      --------------

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

    Revenue:

    Subscription and
     support                                                                $16,105                             $            -                                $16,105                        $13,373      $           -           $13,373

    Perpetual license                                                           639                                          -                                    639                            629                  -               629
                                                                                ---                                        ---                                    ---                            ---                ---               ---

        Total product revenue                                                16,744                                          -                                 16,744                         14,002                  -            14,002


    Professional services                                                     2,687                                          -                                  2,687                          2,047                  -             2,047


        Total revenue                                                        19,431                                          -                                 19,431                         16,049                  -            16,049
                                                                             ------                                        ---                                 ------                         ------                ---            ------


    Cost of revenue (1)(2):

    Product                                                                   2,396                                       (227)                                 2,169                          1,684               (214)            1,470

    Professional services                                                     2,771                                        (89)                                 2,682                          1,873                (19)            1,854
                                                                              -----

        Total cost of revenue                                                 5,167                                       (316)                                 4,851                          3,557               (233)            3,324
                                                                              -----                                       ----                                  -----                          -----               ----             -----


        Gross profit (3)                                                     14,264                                        316                                 14,580                         12,492                233            12,725
                                                                             ------                                        ---                                 ------                         ------                ---            ------

        Gross margin                                                             73%                                                                               75%                            78%                                  79%


    Operating expenses (1):

    Sales and marketing                                                      11,410                                       (438)                                10,972                          8,835               (105)            8,730

    Research and
     development                                                              5,986                                       (412)                                 5,574                          5,079               (224)            4,855

    General and
     administrative                                                           5,188                                       (522)                                 4,666                          3,854               (170)            3,684

        Total operating
         expenses                                                            22,584                                     (1,372)                                21,212                         17,768               (499)           17,269
                                                                             ------                                     ------                                 ------                         ------               ----            ------


        Loss from operations                                                 (8,320)                                     1,688                                 (6,632)                        (5,276)               732            (4,544)


    Other income (expense):

    Interest and other
     income                                                                      39                                          -                                     39                             13                  -                13

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

    Loss on foreign currency transactions and other

     gain (loss)                                                                (82)                                         -                                    (82)                           (19)                 -               (19)


    Loss before provision
     for income taxes                                                        (8,363)                                     1,688                                 (6,675)                        (5,744)               732            (5,012)

    Provision for income
     taxes                                                                      118                                          -                                    118                             46                  -                46

    Net loss                                                                $(8,481)                                    $1,688                                $(6,793)                       $(5,790)              $732           $(5,058)
                                                                            =======                                     ======                                =======                        =======               ====           =======


    Net loss per share attributable to common stockholders,

     basic and diluted                                                       $(0.34)                                     $0.07                                 $(0.27)                        $(0.98)             $0.12            $(0.86)
                                                                             ======                                      =====                                 ======                         ======              =====            ======


    Weighted average common shares outstanding, basic

     and diluted                                                             24,816                                                                            24,816                          5,904                                5,904
                                                                             ======                                                                            ======                          =====                                =====



    (1) Adjustments include  stock-based compensation expense

    (2) Adjustment includes amortization expense of acquired intangible assets

    (3) Gross profit includes product and professional services gross profit (loss) as follows:

    Product gross profit                                                    $14,348                                       $227                                $14,575                        $12,318               $214           $12,532
                                                                            =======                                       ====                                =======                        =======               ====           =======

    Product gross margin                                                         86%                                                                               87%                            88%                                  90%


    Professional services
     gross profit (loss)                                                       $(84)                                       $89                                     $5                           $174                $19              $193
                                                                               ====                                        ===                                    ===                           ====                ===              ====

    Professional services
     gross margin                                                                -3%                                                                                0%                             9%                                   9%


                        Rally Software Development Corp.

    Reconciliation of Total Revenue to Calculated Billings, Normalized Billings and

                             Days Sales Outstanding

             (unaudited, in thousands except days sales outstanding)



                                                      Three Months Ended

                                                           April 30,
                                                           ---------

                                                              2014                        2013
                                                              ----                        ----


    Total revenue                                          $19,431                     $16,049
                                                           -------                     -------


    Deferred revenue-

    End of period                                           39,711                      39,984

    Beginning of
     period                                                (40,785)                    (38,190)


    Net change                                              (1,074)                      1,794
                                                            ------                       -----


    Calculated
     billings                                               18,357                      17,843


    Other adjustments
     (1)                                                       597                         (56)


    Normalized
     billings                                              $18,954                     $17,787
                                                           =======                     =======


    Accounts
     receivable                                            $16,029                     $11,743
                                                           =======                     =======


    Days Sales
     Outstanding (2)                                            78                          59
                                                               ===                         ===



    (1) - Other adjustments includes adjustments for multi-year prepaid contracts, contracts that were not
     paid annually

    in advance and add-on orders.

    (2) -Days Sales Outstanding is computed using
     calculated billings.


                                     Rally Software Development Corp.

                               Reconciliation of Non-GAAP Financial Guidance


    The financial guidance provided below is an estimate based on
     information available as of June 5, 2014. 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 annual report on Form 10-K for the fiscal year
     ended January 31, 2014 filed on April 11, 2014 and the


                                             Three Months Ended               Fiscal Year Ended
                                               July 31, 2014                  January 31, 2015
                                            -------------------              ------------------


    Non-
     GAAP
     basic
     and
     diluted
     net
     loss
     per
     share                                     $(0.42) - $(0.39)                $(1.36) - $(1.31)


    Stock-
     based
     compensation
     expense                                              $(0.05)                          $(0.26)


     Amortization
     of
     acquired
     intangible
     assets                                               $(0.01)                          $(0.02)


    GAAP
     basic
     and
     diluted
     net
     loss
     per
     share                                     $(0.48) - $(0.45)                $(1.64) - $(1.59)
                                                ================                 ================

SOURCE Rally Software