Exhibit 99.2
CFO Commentary on First Quarter Fiscal Year 2015 Results
June 5, 2014
GAAP Quarterly Revenue Comparison
($ in millions) | | Q1 FY15 | | Q4 FY14 | | Q1 FY14 | | Q/Q | | Y/Y | |
Subscription and Support | | $ | 16.1 | | $ | 15.4 | | $ | 13.4 | | up 5% | | up 20% | |
Perpetual License | | | 0.6 | | | 1.5 | | | 0.6 | | down 57% | | up 2% | |
Total Product Revenue | | | 16.7 | | | 16.9 | | | 14.0 | | down 1% | | up 20% | |
Professional Services | | | 2.7 | | | 2.7 | | | 2.0 | | down 2% | | up 31% | |
Total Revenue | | $ | 19.4 | | $ | 19.6 | | $ | 16.0 | | down 1% | | up 21% | |
GAAP Quarterly Financial Comparison
($ in millions, except per share data) | | Q1 FY15 | | Q4 FY14 | | Q1 FY14 | | Q/Q | | Y/Y | |
Gross Margin | | 73 | % | 78 | % | 78 | % | down 5% pts | | down 5% pts | |
Operating Expenses | | $ | 22.6 | | $ | 21.5 | | $ | 17.8 | | up 5% | | up 27% | |
Earnings Per Share | | $ | (0.34 | ) | $ | (0.26 | ) | $ | (0.98 | ) | nm^ | | nm^ | |
Non- GAAP* Quarterly Financial Comparison
($ in millions, except per share data) | | Q1 FY15 | | Q4 FY14 | | Q1 FY14 | | Q/Q | | Y/Y | |
Gross Margin | | 75 | % | 79 | % | 79 | % | down 4% pts | | down 4% pts | |
Operating Expenses | | $ | 21.2 | | $ | 20.2 | | $ | 17.3 | | up 5% | | up 23% | |
Earnings Per Share | | $ | (0.27 | ) | $ | (0.19 | ) | $ | (0.86 | ) | nm^ | | nm^ | |
Key Metrics Quarterly Comparison
| | Q1 FY15 | | Q4 FY14 | | Q1 FY14 | | Q/Q | | Y/Y | |
Total Paid Seats | | 225,963 | | 214,047 | | 184,145 | | up 6% | | up 23% | |
Renewal Rate | | 114 | % | 116 | % | 126 | % | down 2% pts | | down 12% pts | |
*Non-GAAP financials exclude stock-based compensation expense and amortization of acquired intangible assets.
^ Not meaningful
The numbers set forth in this CFO Commentary will be on a non-GAAP basis for all costs, gross margins, operating and net income unless specifically stated otherwise. Reconciliations between our GAAP and non-GAAP results are set forth in the tables following the narrative. 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.
Key Metrics Discussion
We believe total paid seats are a key indicator of our market penetration, growth and future revenue. We define a paid seat as a seat with a subscription or support contract as of the measurement date.
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We ended the quarter with a total paid seat count of 225,963 seats. This seat count represents a 23% year-over-year increase when compared to 184,145 total paid seats at the close of Q1 of last
year. The 11,916 seats added in the quarter represent an increase of 6% over total paid seats at the end of last quarter.
We provide our renewal rate on a quarterly basis to provide insight into our ability to meaningfully grow our existing customer base. We calculate our renewal rate by comparing the number of paid seats of all of our existing customers at the beginning of a 12 month period to the number of paid seats for those same customers at the end of such period, taking into account non-renewals, upgrades and downgrades.
As of April 30, 2014, our renewal rate was 114%. Our renewal rate was positively impacted by meaningful seat expansions in some of our largest customers and negatively impacted by non-renewals in the quarter.
The table below highlights our top 15 customers by total paid seats and the year-over-year seat growth.
Top 15 Customers
| | First Order Date | | First Order Seats | | Seats as of Q1
FY15 | | Y/Y Seat Growth | |
Customer 1 | | March 2008 | | 110 | | 12,600 | | 0 | % |
Customer 2 | | June 2008 | | 25 | | 12,095 | | 137 | % |
Customer 3 | | May 2009 | | 25 | | 12,000 | | 140 | % |
Customer 4 | | September 2008 | | 10 | | 7,065 | | 88 | % |
Customer 5 | | June 2008 | | 100 | | 6,500 | | 0 | % |
Customer 6 | | January 2008 | | 70 | | 5,710 | | 12 | % |
Customer 7 | | April 2012 | | 600 | | 5,600 | | 56 | % |
Customer 8 | | October 2009 | | 350 | | 4,351 | | 28 | % |
Customer 9 | | September 2013 | | 1500 | | 4,000 | | New Customer | |
Customer 10 | | September 2005 | | 10 | | 3,845 | | -13 | % |
Customer 11 | | December 2010 | | 25 | | 3,010 | | -2 | % |
Customer 12 | | July 2012 | | 200 | | 3,000 | | 20 | % |
Customer 13 | | December 2008 | | 35 | | 2,971 | | 33 | % |
Customer 14 | | December 2010 | | 350 | | 2,714 | | 0 | % |
Customer 15 | | July 2012 | | 750 | | 2,500 | | 0 | % |
TOTAL | | | | 4,160 | | 87,961 | | 41 | % |
Revenue, Calculated Billings, Normalized Billings, Gross Profit and Gross Margin Discussion
Total revenue for the quarter was $19.4 million which represents a 21% year-over-year increase over the same period last year. International (i.e., non-US) revenue accounted for 14% of revenue in the quarter. However, since many of our domestic customers have international users, approximately 37% of the users that access our multi-tenant platform are from locations outside the US.
Subscription and support revenue for the quarter was $16.1 million which represents a year-over-year increase of 20%.
Perpetual revenue for the quarter was $0.6 million which represents a year-over-year increase of 2%. The majority of our product revenue is subscription and support revenue, but we do expect some customers to buy perpetual licenses.
Services revenue for the quarter was $2.7 million which represents a 31% year-over-year increase. In fiscal year 2014, as a result of added capacity and increased efficiency, we were able to deliver meaningfully against our services backlog. We expect to see continued strength in services in this fiscal year, as we continue to build our backlog. We believe services are a critical component of our customers’ agile transformation.
Calculated billings, a non-GAAP measure which we define as revenue plus the change in deferred revenue, closed the quarter at $18.4 million, representing a year-over-year increase of 3% as compared to Q1 of fiscal year 2014.
In the past, we have normalized calculated billings only for the impact of prepaid contracts. When we normalize for prepaid contracts in Q1, our normalized billings were $19.0 million, representing a year-over-year increase of 7% as compared to the normalized billings in Q1 of fiscal year 2014. However, in addition to multi-year pre-pay contracts, calculated billings can be impacted materially by add-on orders that co-term with the original contract that expires in less than one year and contracts that are off balance sheet in nature. For example, in Q1, we executed a $3.7 million annual contract with an existing customer, where the customer needed to be billed in arrears. As a result, the entire value of this contract resides in off balance sheet deferred revenue. The increase in contract value for this specific deal was approximately $2.1 million.
Gross profit for the quarter was $14.6 million, compared to $12.7 million in Q1 of fiscal year 2014, reflecting an increase of $1.9 million or 15%. Total gross margin for the quarter was 75%.
Our product gross margin for the quarter was 87%. Our professional services gross margin for the quarter was break-even, which is largely a result of increased capacity added toward the end of fiscal year 2014.
Operating Expenses and Net Income Discussion
Sales and marketing expense was $11.0 million, representing a year-over-year increase of $2.2 million or 26% as compared to Q1 of fiscal year 2014. This increase was driven mainly by increased headcount across our sales and marketing organizations, and variable spend in our lead generation activities. As a percentage of revenue, sales and marketing expense was 56% for the quarter, as compared to 54% for the same period in fiscal year 2014.
Research and development expense was $5.6 million, representing a year-over-year increase of $0.7 million or 15% as compared to Q1 of fiscal year 2014. This increase was driven mainly by increased headcount as we continue to invest in product development. As a percentage of
revenue, R&D expense was 29% for the quarter, compared to 30% for the same period in fiscal year 2014.
G&A expense was $4.7 million, representing a year-over-year increase of $1.0 million or 27% as compared to Q1 of fiscal year 2014. This increase was driven mainly by increased headcount to support our growth and certain legal, accounting and insurance expenses related to operating as a public company. As a percentage of revenue, G&A expense was 24% for the quarter, as compared to 23% for the same period in fiscal year 2014.
Net loss for the first quarter was $6.8 million or a net loss per share of $(0.27) per basic and diluted share.
We are currently generating a net loss and as such, our basic weighted average shares outstanding for the first quarter was approximately 24.8 million, which does not include the impact of vested stock options. If we were profitable today, our fully diluted share count would have been approximately 25.6 million shares when applying the treasury stock method to these vested stock options.
Cash Flow and Balance Sheet Discussion
Cash flow from operating activities was negative $2.8 million for the quarter, as compared to positive $1.4 million for Q1 of fiscal year 2014.
As of April 30, 2014, our total cash, cash equivalents, excluding restricted cash, and accounts receivable balance was approximately $101.8 million, as compared to $110.7 million as of January 31, 2014, and $115.4 million as of April 30, 2013. We currently carry no bank debt.
We ended the quarter with an accounts receivable balance of $16.0 million.
Total deferred revenue decreased $0.3 million year-over-year to close the quarter at $39.7 million. Short term deferred revenue increased $3.1 million year-over-year to close the quarter at $38.0 million.
Our days sales outstanding was 78 days at April 30, 2014 as compared to 59 days at April 30, 2013.
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 CFO Commentary.
Forward-looking Statements
This CFO Commentary 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 CFO Commentary 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 CFO Commentary. 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 effectively, 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.
Rally Software Development Corp.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
| | April 30, | | January 31, | | April 30, | |
| | 2014 | | 2014 | | 2013 | |
ASSETS | | | | | | | |
| | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 85,731 | | $ | 88,891 | | $ | 103,647 | |
Restricted cash, short-term | | 16 | | 16 | | — | |
Accounts receivable, net | | 16,029 | | 21,771 | | 11,743 | |
Other receivables | | 108 | | 78 | | 40 | |
Prepaid expenses and other current assets | | 4,177 | | 3,310 | | 3,201 | |
Total current assets | | 106,061 | | 114,066 | | 118,631 | |
| | | | | | | |
Property and equipment, net | | 5,893 | | 5,569 | | 7,582 | |
Goodwill | | 2,572 | | 2,529 | | 2,282 | |
Intangible assets, net | | 1,777 | | 1,909 | | — | |
Restricted cash, long-term | | 4,200 | | 4,200 | | — | |
Other assets | | 757 | | 810 | | 388 | |
| | | �� | | | | |
Total assets | | $ | 121,260 | | $ | 129,083 | | $ | 128,883 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 2,605 | | $ | 2,170 | | $ | 3,345 | |
Accrued liabilities | | 3,452 | | 4,812 | | 3,341 | |
Deferred revenue | | 38,046 | | 38,352 | | 34,926 | |
Other current liabilities | | 2,869 | | 2,054 | | 535 | |
Total current liabilities | | 46,972 | | 47,388 | | 42,147 | |
| | | | | | | |
Deferred revenue, net of current portion | | 1,665 | | 2,433 | | 5,058 | |
Deferred rent expense, net of current portion | | 873 | | 888 | | 929 | |
| | | | | | | |
Total liabilities | | 49,510 | | 50,709 | | 48,134 | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Common stock | | 3 | | 3 | | 3 | |
Additional paid-in capital | | 175,829 | | 174,027 | | 162,071 | |
Accumulated deficit | | (104,141 | ) | (95,660 | ) | (81,319 | ) |
Accumulated other comprehensive income | | 59 | | 4 | | (6 | ) |
Total stockholders’ equity | | 71,750 | | 78,374 | | 80,749 | |
| | | | | | | |
Total liabilities and stockholders equity | | $ | 121,260 | | $ | 129,083 | | $ | 128,883 | |
Rally Software Development Corp.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
| | Three Months Ended | |
| | April 30, | | January 31, | | April 30, | |
| | 2014 | | 2014 | | 2013 | |
Revenue: | | | | | | | |
Subscription and support | | $ | 16,105 | | $ | 15,371 | | $ | 13,373 | |
Perpetual license | | 639 | | 1,495 | | 629 | |
Total product revenue | | 16,744 | | 16,866 | | 14,002 | |
| | | | | | | |
Professional services | | 2,687 | | 2,739 | | 2,047 | |
| | | | | | | |
Total revenue | | 19,431 | | 19,605 | | 16,049 | |
| | | | | | | |
Cost of revenue (1) (2): | | | | | | | |
Product | | 2,396 | | 2,085 | | 1,684 | |
Professional services | | 2,771 | | 2,319 | | 1,873 | |
Total cost of revenue | | 5,167 | | 4,404 | | 3,557 | |
| | | | | | | |
Gross profit | | 14,264 | | 15,201 | | 12,492 | |
| | | | | | | |
Operating expenses (1): | | | | | | | |
Sales and marketing | | 11,410 | | 10,876 | | 8,835 | |
Research and development | | 5,986 | | 5,515 | | 5,079 | |
General and administrative | | 5,188 | | 5,064 | | 3,854 | |
Total operating expenses | | 22,584 | | 21,455 | | 17,768 | |
| | | | | | | |
Loss from operations | | (8,320 | ) | (6,254 | ) | (5,276 | ) |
| | | | | | | |
Other income (expense): | | | | | | | |
Interest and other income | | 39 | | 37 | | 13 | |
Interest expense | | — | | — | | (462 | ) |
Loss on foreign currency transactions and other gain (loss) | | (82 | ) | (20 | ) | (19 | ) |
| | | | | | | |
Loss before provision for income taxes | | (8,363 | ) | (6,237 | ) | (5,744 | ) |
Provision for income taxes | | 118 | | 40 | | 46 | |
Net loss | | $ | (8,481 | ) | $ | (6,277 | ) | $ | (5,790 | ) |
| | | | | | | |
Net loss per share attributable to common stockholders, basic and diluted | | $ | (0.34 | ) | $ | (0.26 | ) | $ | (0.98 | ) |
| | | | | | | |
Weighted average common shares outstanding, basic and diluted | | 24,816 | | 24,592 | | 5,904 | |
(1) Includes stock-based compensation expense as follows:
| | | | | | | |
| | | Three Months Ended | |
| | | April 30, 2014 | | January 31, 2014 | | April 30, 2013 | |
| Cost of product revenue | | $ | 95 | | $ | 76 | | $ | 66 | |
| Cost of professional services revenue | | 89 | | 60 | | 19 | |
| Sales and marketing | | 438 | | 413 | | 105 | |
| Research and development | | 412 | | 251 | | 224 | |
| General and administrative | | 522 | | 601 | | 170 | |
| | | | | | | | |
| | | $ | 1,556 | | $ | 1,401 | | $ | 584 | |
| | | | | | | | | | | |
(2) Includes amortization expense of acquired intangible assets as follows:
| | | | | | | |
| Cost of product revenue | | $ | 132 | | $ | 132 | | $ | 148 | |
| | | | | | | | | | | |
Rally Software Development Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | Three Months Ended | |
| | April 30, | | January 31, | | April 30, | |
| | 2014 | | 2014 | | 2013 | |
Cash flow from operating activities: | | | | | | | |
Net loss | | $ | (8,481 | ) | $ | (6,277 | ) | $ | (5,790 | ) |
| | | | | | | |
Adjustments to reconcile net loss to cash provided by (used) in operating activities: | | | | | | | |
Depreciation and amortization | | 724 | | 699 | | 638 | |
Noncash stock-based compensation expense | | 1,556 | | 1,401 | | 584 | |
Noncash interest expense | | — | | — | | 462 | |
Other | | 19 | | 2 | | — | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable | | 5,742 | | (10,051 | ) | 4,575 | |
Other receivables | | (30 | ) | 92 | | 251 | |
Prepaid and other current assets | | (867 | ) | (624 | ) | (1,264 | ) |
Other assets | | 36 | | (154 | ) | (61 | ) |
Accounts payable and accrued expenses | | (1,183 | ) | 828 | | 370 | |
Deferred revenue | | (1,075 | ) | 7,098 | | 1,793 | |
Other current liabilities | | 815 | | (882 | ) | (192 | ) |
Deferred rent expense, net of current portion and other long-term liabilities | | (15 | ) | (15 | ) | (9 | ) |
Restricted cash | | — | | (16 | ) | — | |
| | | | | | | |
Net cash provided by (used) in operating activities | | (2,759 | ) | (7,899 | ) | 1,357 | |
| | | | | | | |
Cash flow from investing activities: | | | | | | | |
Purchase of property and equipment | | (648 | ) | (698 | ) | (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 | ) | (698 | ) | (4,999 | ) |
| | | | | | | |
Cash flow from financing activities: | | | | | | | |
Proceeds from exercise of common stock options | | 246 | | 769 | | 261 | |
Proceeds from employee stock purchase plan | | — | | 1,884 | | — | |
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 | | 2,653 | | 89,680 | |
| | | | | | | |
Net increase (decrease) in cash and cash equivalents during period | | (3,160 | ) | (5,944 | ) | 86,038 | |
| | | | | | | |
Cash and cash equivalents at beginning of period | | 88,891 | | 94,835 | | 17,609 | |
Cash and cash equivalents at end of period | | $ | 85,731 | | $ | 88,891 | | $ | 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.
Statement of Operations GAAP to Non-GAAP Reconciliation
(unaudited, in thousands, except per share amounts)
| | Three Months Ended | |
| | January 31, 2014 | |
| | GAAP | | Adjustments | | Non-GAAP | |
Revenue: | | | | | | | |
Subscription and support | | $ | 15,371 | | $ | — | | $ | 15,371 | |
Perpetual license | | 1,495 | | — | | 1,495 | |
Total product revenue | | 16,866 | | — | | 16,866 | |
| | | | | | | |
Professional services | | 2,739 | | — | | 2,739 | |
| | | | | | | |
Total revenue | | 19,605 | | — | | 19,605 | |
| | | | | | | |
Cost of revenue (1)(2): | | | | | | | |
Product | | 2,085 | | (208 | ) | 1,877 | |
Professional services | | 2,319 | | (60 | ) | 2,259 | |
Total cost of revenue | | 4,404 | | (268 | ) | 4,136 | |
| | | | | | | |
Gross profit (3) | | 15,201 | | 268 | | 15,469 | |
Gross margin | | 78 | % | | | 79 | % |
| | | | | | | |
Operating expenses (1): | | | | | | | |
Sales and marketing | | 10,876 | | (413 | ) | 10,463 | |
Research and development | | 5,515 | | (251 | ) | 5,264 | |
General and administrative | | 5,064 | | (601 | ) | 4,463 | |
Sublease termination income | | — | | — | | — | |
Total operating expenses | | 21,455 | | (1,265 | ) | 20,190 | |
| | | | | | | |
Loss from operations | | (6,254 | ) | 1,533 | | (4,721 | ) |
| | | | | | | |
Other income (expense): | | | | | | | |
Interest and other income | | 37 | | — | | 37 | |
Interest expense | | — | | — | | — | |
Loss on foreign currency transactions and other gain (loss) | | (20 | ) | — | | (20 | ) |
| | | | | | | |
Loss before provision for income taxes | | (6,237 | ) | 1,533 | | (4,704 | ) |
Provision for income taxes | | 40 | | — | | 40 | |
Net loss | | $ | (6,277 | ) | $ | 1,533 | | $ | (4,744 | ) |
| | | | | | | |
Net loss per share attributable to common stockholders, basic and diluted | | $ | (0.26 | ) | $ | 0.07 | | $ | (0.19 | ) |
| | | | | | | |
Weighted average common shares outstanding, basic and diluted | | 24,592 | | | | 24,592 | |
(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 | | $ | 14,781 | | $ | 208 | | $ | 14,989 | |
| Product gross margin | | 88 | % | | | 89 | % |
| | | | | | | | |
| Professional services gross profit (loss) | | $ | 420 | | $ | 60 | | $ | 480 | |
| Professional services gross margin | | 15 | % | | | 18 | % |
| | | | | | | | | | | |
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, | | January 31, | | April 30, | |
| | 2014 | | 2014 | | 2013 | |
| | | | | | | |
Total revenue | | $ | 19,431 | | $ | 19,605 | | $ | 16,049 | |
| | | | | | | |
Deferred revenue- | | | | | | | |
End of period | | 39,711 | | 40,785 | | 39,984 | |
Beginning of period | | (40,785 | ) | (33,688 | ) | (38,190 | ) |
| | | | | | | |
Net change | | (1,074 | ) | 7,097 | | 1,794 | |
| | | | | | | |
Calculated billings | | 18,357 | | 26,702 | | 17,843 | |
| | | | | | | |
Other adjustments (1) | | 597 | | — | | (56 | ) |
| | | | | | | |
Normalized billings | | $ | 18,954 | | $ | 26,702 | | $ | 17,787 | |
| | | | | | | |
Accounts receivable | | $ | 16,029 | | $ | 21,771 | | $ | 11,743 | |
| | | | | | | |
Days Sales Outstanding (2) | | 78 | | 75 | | 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.
