8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 5, 2013

Rally Software Development Corp.

(Exact name of registrant as specified in its charter)

Delaware	001-35868	84-1597294
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3333 Walnut Street Boulder, Colorado	80301
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (303) 565-2800

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02           Results of Operations and Financial Condition.

On September 5, 2013, Rally Software Development Corp., a Delaware corporation, issued a press release announcing financial results for its second quarter of fiscal 2014 ended July 31, 2013.  The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The press release is furnished under Item 2.02 of this report and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

Item 9.01              Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press Release titled “Rally Software Announces Second Quarter Fiscal 2014 Financial Results,” dated September 5, 2013.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Rally Software Development Corp.
Dated: September 5, 2013
	By:	/s/ James M. Lejeal
		James M. Lejeal
		Chief Financial Officer, Treasurer and Secretary

3

INDEX TO EXHIBITS

Exhibit No.	Description
99.1	Press Release titled “Rally Software Announces Second Quarter Fiscal 2014 Financial Results,” dated September 5, 2013

4

EX-99.1

Exhibit 99.1

Rally Software Announces Second Quarter Fiscal 2014 Financial Results

·Total revenue increased 45% to a record $19.8 million

·Subscription and support revenue increased 36%

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

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

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

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

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

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

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

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

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

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

Business Outlook

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

Third Quarter of Fiscal 2014

·Total revenue in the range of $18.4 to $18.6 million, or 25% to 27% growth over the prior year’s third quarter.

·GAAP net loss per basic and diluted share of approximately $(0.27) to $(0.24), based on 24.4 million weighted average shares of common stock outstanding.

·Non-GAAP net loss per basic and diluted share of approximately $(0.22) to $(0.19), based on 24.4 million weighted average shares of common stock outstanding, and excludes $1.5 million in stock-based compensation and amortization of acquired intangible assets.

Fiscal Year 2014

·Total revenue in the range of $72.5 to $74.0 million, or 28% to 30% growth over the prior year.

·GAAP net loss per basic and diluted share of approximately $(1.21) to $(1.16), based on 19.9 million weighted average shares of common stock outstanding.

·Non-GAAP net loss per basic and diluted share of approximately $(0.95) to $(0.90), based on 19.9 million weighted average shares of common stock outstanding, and excludes $5.1 million in stock-based compensation and amortization of acquired intangible assets.

Conference Call Today September 5, 2013

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

About Rally

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

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

Non-GAAP Financial Measures

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

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

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

Forward-looking Statements

This press release contains forward-looking statements, including statements regarding Rally’s future financial performance, market growth, the demand for Rally’s solutions, and general business conditions. Any forward-looking statements contained in this press release are based upon Rally’s historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent Rally’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Rally disclaims any obligation to update the forward-looking statements in the future. These forward-looking statements are subject to known

and unknown risks and uncertainties that may cause actual results to differ materially from Rally’s current expectations. Important factors that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to, the growth of demand for Agile software development, Rally’s ability to expand its relationships with existing customers, Rally’s ability to attract and retain customers, the mix of perpetual license and subscription revenue, competitive factors, including but not limited to pricing pressures, industry consolidation, and entry of new competitors and new products, Rally’s ability to manage growth effectively, Rally’s ability to maintain, protect and enhance its brand and intellectual property, general economic and financial conditions, and other risks and uncertainties. Further information on risk factors that could cause actual results to differ materially from forecasted results is included in Rally’s reports filed with the SEC, including its prospectus dated July 24, 2013 and filed with the SEC on July 25, 2013 and our Form 10-Q that will be filed for the second quarter ended July 31, 2013.

Investor Relations contact:

The Blueshirt Group

Erica Abrams

415-217-5864

Erica@blueshirtgroup.com

Rally Software Development Corp.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

	July 31,			January 31,
	2013			2013
ASSETS
Current assets:
Cash and cash equivalents	$	104,653		$	17,609
Accounts receivable, net	11,068			16,318
Other receivables	64			288
Prepaid expenses and other current assets	3,087			1,912
Total current assets	118,872			36,127
Property and equipment, net	7,445			4,156
Goodwill	2,282			—
Other assets	549			1,572
Total assets	$	129,148		$	41,855
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	3,150		$	1,945
Accrued liabilities	2,478			3,062
Deferred revenue	31,900			32,984
Other current liabilities	1,553			727
Total current liabilities	39,081			38,718
Deferred revenue, net of current portion	4,266			5,206
Deferred rent expense, net of current portion	916			939
Warrants for redeemable convertible preferred stock, at estimated fair value	—			1,604
Total liabilities	44,263			46,467
Redeemable convertible preferred stock	—			68,410
Stockholders’ equity (deficit):
Common stock	3			1
Additional paid-in capital	168,504			2,503
Accumulated deficit	(83,597		)	(75,529		)
Accumulated other comprehensive loss	(25		)	3
Total stockholders’ equity (deficit)	84,885			(73,022		)
Total liabilities and stockholders equity (deficit)	$	129,148		$	41,855

Rally Software Development Corp.

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2013			2012			2013			2012
Revenue:
Subscription and support	$	14,220		$	10,457		$	27,593		$	19,987
Perpetual license	2,735			1,407			3,364			3,018
Total product revenue	16,955			11,864			30,957			23,005
Professional services	2,840			1,763			4,888			3,600
Total revenue	19,795			13,627			35,845			26,605
Cost of revenue (1) (2):
Product	1,800			1,226			3,485			2,379
Professional services	2,336			1,830			4,209			3,416
Total cost of revenue	4,136			3,056			7,694			5,795
Gross profit	15,659			10,571			28,151			20,810
Operating expenses (1):
Sales and marketing	9,085			6,537			17,919			13,543
Research and development	5,051			3,505			10,131			6,545
General and administrative	3,782			2,567			7,636			4,853
Sublease termination income	—			—			—			(839		)
Total operating expenses	17,918			12,609			35,686			24,102
Loss from operations	(2,259		)	(2,038		)	(7,535		)	(3,292		)
Other income (expense):
Interest and other income	36			30			49			31
Interest expense	(2		)	(237		)	(464		)	(676		)
Loss on foreign currency transactions and other gain (loss)	(4		)	(15		)	(24		)	(44		)
Loss before provision for income taxes	(2,229		)	(2,260		)	(7,974		)	(3,981		)
Provision for income taxes	49			—			94			—
Net loss	$	(2,278	)	$	(2,260	)	$	(8,068	)	$	(3,981	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.09	)	$	(1.09	)	$	(0.53	)	$	(1.96	)
Weighted average common shares outstanding, basic and diluted	24,014			2,068			15,109			2,029

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

	Three Months Ended				Six Months Ended
	July 31,				July 31,
	2013		2012		2013		2012
Cost of product revenue	$	39	$	4	$	105	$	7
Cost of professional services revenue	46		6		65		10
Sales and marketing	302		52		407		89
Research and development	402		38		626		65
General and administrative	261		145		431		263
	$	1,050	$	245	$	1,634	$	434

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

Cost of product revenue $ 131 $ 25 $ 279 $ 50

Rally Software Development Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2013			2012			2013			2012
Cash flow from operating activities:
Net loss	$	(2,278	)	$	(2,260	)	$	(8,068	)	$	(3,981	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	664			411			1,302			852
Noncash stock-based compensation expense	1,050			245			1,634			434
Noncash interest expense	—			237			462			674
Noncash sublease termination income	—			—			—			(839		)
Changes in operating assets and liabilities:
Accounts receivable	675			(913		)	5,250			(857		)
Other receivables	(24		)	(77		)	227			(116		)
Prepaid and other current assets	113			(30		)	(1,151		)	(560		)
Other assets	(164		)	(27		)	(225		)	(58		)
Accounts payable and accrued expenses	(480		)	270			(110		)	148
Deferred revenue	(3,818		)	1,743			(2,024		)	4,349
Other current liabilities	1,019			445			826			481
Deferred rent expense, net of current portion and other long-term liabilities	(13		)	18			(22		)	840
Net cash provided by (used) in operating activities	(3,256		)	62			(1,899		)	1,367
Cash flow from investing activities:
Purchase of property and equipment	(537		)	(453		)	(2,679		)	(704		)
Proceeds from sale of property and equipment	—			—			—			5
Purchase of Agile Advantage, Inc. assets	—			(420		)	—			(420		)
Purchase of Flowdock Oy, net of cash received	—			—			(2,857		)	—
Net cash (used) in investing activities	(537		)	(873		)	(5,536		)	(1,119		)
Cash flow from financing activities:
Proceeds from exercise of common stock options	148			72			409			93
Proceeds from initial public offering, net of underwriting discounts and commissions	—			—			89,838			—
Proceeds from follow-on public offering, net of underwriting discounts and commissions	5,884			—			5,884			—
Offering costs	(1,233		)	(62		)	(1,652		)	(62		)
Payments on capital lease liabilities	—			(10		)	—			(21		)
Net cash provided by financing activities	4,799			—			94,479			10
Net increase in cash and cash equivalents during period	1,006			(811		)	87,044			258
Cash and cash equivalents at beginning of period	103,647			20,521			17,609			19,452
Cash and cash equivalents at end of period	$	104,653		$	19,710		$	104,653		$	19,710

Rally Software Development Corp.

Statement of Operations GAAP to Non-GAAP Reconciliation

(unaudited, in thousands, except per share amounts)

	Three Months Ended
	July 31, 2013									July 31, 2012
	GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Revenue:
Subscription and support	$	14,220		$	—		$	14,220		$	10,457		$	—		$	10,457
Perpetual license	2,735			—			2,735			1,407			—			1,407
Total product revenue	16,955			—			16,955			11,864			—			11,864
Professional services	2,840			—			2,840			1,763			—			1,763
Total revenue	19,795			—			19,795			13,627			—			13,627
Cost of revenue (1)(2):
Product	1,800			(170		)	1,630			1,226			(29		)	1,197
Professional services	2,336			(46		)	2,290			1,830			(6		)	1,824
Total cost of revenue	4,136			(216		)	3,920			3,056			(35		)	3,021
Gross profit	15,659			216			15,875			10,571			35			10,606
Operating expenses (1):
Sales and marketing	9,085			(302		)	8,783			6,537			(52		)	6,485
Research and development	5,051			(402		)	4,649			3,505			(38		)	3,467
General and administrative	3,782			(261		)	3,521			2,567			(145		)	2,422
Sublease termination income	—			—			—			—			—			—
Total operating expenses	17,918			(965		)	16,953			12,609			(235		)	12,374
Loss from operations	(2,259		)	1,181			(1,078		)	(2,038		)	270			(1,768		)
Other income (expense):
Interest and other income	36			—			36			30			—			30
Interest expense	(2		)	—			(2		)	(237		)	—			(237		)
Loss on foreign currency transactions and other gain (loss)	(4		)	—			(4		)	(15		)	—			(15		)
Loss before provision for income taxes	(2,229		)	1,181			(1,048		)	(2,260		)	270			(1,990		)
Provision for income taxes	49			—			49			—			—			—
Net loss	$	(2,278	)	$	1,181		$	(1,097	)	$	(2,260	)	$	270		$	(1,990	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.09	)	$	0.05		$	(0.04	)	$	(1.09	)	$	0.13		$	(0.96	)
Weighted average common shares outstanding, basic and diluted	24,014						24,014			2,068						2,068

(1) Adjustments include  stock-based compensation expense

(2) Adjustment includes amortization expense of acquired intangible assets

Rally Software Development Corp.

Statement of Operations GAAP to Non-GAAP Reconciliation

(unaudited, in thousands, except per share amounts)

	Six Months Ended
	July 31, 2013									July 31, 2012
	GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Revenue:
Subscription and support	$	27,593		$	—		$	27,593		$	19,987		$	—		$	19,987
Perpetual license	3,364			—			3,364			3,018			—			3,018
Total product revenue	30,957			—			30,957			23,005			—			23,005
Professional services	4,888			—			4,888			3,600			—			3,600
Total revenue	35,845			—			35,845			26,605			—			26,605
Cost of revenue (1)(2):
Product	3,485			(384		)	3,101			2,379			(57		)	2,322
Professional services	4,209			(65		)	4,144			3,416			(10		)	3,406
Total cost of revenue	7,694			(449		)	7,245			5,795			(67		)	5,728
Gross profit	28,151			449			28,600			20,810			67			20,877
Operating expenses (1):
Sales and marketing	17,919			(407		)	17,512			13,543			(89		)	13,454
Research and development	10,131			(626		)	9,505			6,545			(65		)	6,480
General and administrative	7,636			(431		)	7,205			4,853			(263		)	4,590
Sublease termination income	—			—						(839		)	—			(839		)
Total operating expenses	35,686			(1,464		)	34,222			24,102			(417		)	23,685
Loss from operations	(7,535		)	1,913			(5,622		)	(3,292		)	484			(2,808		)
Other income (expense):
Interest and other income	49			—			49			31			—			31
Interest expense	(464		)	—			(464		)	(676		)	—			(676		)
Loss on foreign currency transactions and other gain (loss)	(24		)	—			(24		)	(44		)	—			(44		)
Loss before provision for income taxes	(7,974		)	1,913			(6,061		)	(3,981		)	484			(3,497		)
Provision for income taxes	94			—			94			—			—			—
Net loss	$	(8,068	)	$	1,913		$	(6,155	)	$	(3,981	)	$	484		$	(3,497	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.53	)	$	0.13		$	(0.40	)	$	(1.96	)	$	0.24		$	(1.72	)
Weighted average common shares outstanding, basic and diluted	15,109						15,109			2,029						2,029

(1) Adjustments include  stock-based compensation expense

(2) Adjustment includes amortization expense of acquired intangible assets

Rally Software Development Corp.

Reconciliation of Non-GAAP Financial Guidance

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

	Three Months Ended October 31, 2013	Fiscal Year Ended January 31, 2014
Non-GAAP basic and diluted net loss per share	$(0.22) - $(0.19)	$(0.95) - $(0.90)
Stock-based compensation expense	$(0.05)	$(0.23)
Amortization of acquired intangible assets	—	$(0.03)
GAAP basic and diluted net loss per share	$(0.27) - $(0.24)	$(1.21) - $(1.16)