##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 000-31321
(Commission File No.)
 RIGHTNOW TECHNOLOGIES, INC.
  Delaware
    
    81-0503640(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 136 Enterprise Boulevard
Bozeman, Montana 59718-9300
 (406) 522-4200
 N/A
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



RightNow Technologies, Inc.
Quarterly Report on Form 10-Q
 For the Quarterly Period Ended September 30, 2010
 INDEX
 PagePart I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3a) Condensed consolidated balance sheets (unaudited)
    
    
    3b) Condensed consolidated statements of operations (unaudited)
    
    
    4c) Condensed consolidated statements of cash flows (unaudited)
    
    
    5d) Notes to condensed consolidated financial statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. (Removed and Reserved)
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    41EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 RightNow
Technologies, Inc.
 
 Condensed Consolidated Balance Sheets
 December 31,
    
    
    September 30,2009
    
    
    2010AssetsCash and cash equivalents
    
    $
    41,546
    
    
    $
    77,728Short-term investments
    
    
    54,977
    
    
    
    31,287Accounts receivable
    
    
    34,267
    
    
    
    36,738Allowance for doubtful accounts
    
    
    (1,914
    )
    
    
    (1,867
    )Receivables, net
    
    
    32,353
    
    
    
    34,871Deferred commissions
    
    
    6,394
    
    
    
    5,215Prepaid and other current assets
    
    
    2,434
    
    
    
    3,601Total current assets
    
    
    137,704
    
    
    
    152,702Property and equipment, net
    
    
    10,122
    
    
    
    11,063Intangible assets, net
    
    
    11,141
    
    
    
    13,382Deferred commissions, non-current
    
    
    3,461
    
    
    
    3,917Other
    
    
    2,007
    
    
    
    1,125Total Assets
    
    $
    164,435
    
    
    $
    182,189Liabilities and Stockholders EquityAccounts payable
    
    $
    5,427
    
    
    $
    9,165Commissions and bonuses payable
    
    
    6,271
    
    
    
    6,142Other accrued liabilities
    
    
    11,146
    
    
    
    14,260Current portion of long-term debt
    
    
    22
    
    
    
    Current portion of deferred revenue
    
    
    88,603
    
    
    
    88,669Total current liabilities
    
    
    111,469
    
    
    
    118,236Deferred revenue, net of current portion
    
    
    12,724
    
    
    
    5,394Stockholders equity:Common stock
    
    
    34
    
    
    
    34Additional paid-in capital
    
    
    112,439
    
    
    
    125,416Treasury stock
    
    
    (15,007
    )
    
    
    (15,007
    )Accumulated other comprehensive income
    
    
    1,125
    
    
    
    1,581Accumulated deficit
    
    
    (58,349
    )
    
    
    (53,465
    )Total stockholders equity
    
    
    40,242
    
    
    
    58,559Total Liabilities and Stockholders Equity
    
    $
    164,435
    
    
    $
    182,189
  3




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##### Table of Contents



RightNow Technologies, Inc.
 
 Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Revenue:Recurring revenue
    
    $
    29,754
    
    
    $
    38,613
    
    
    $
    83,223
    
    
    $
    106,368Professional services
    
    
    8,977
    
    
    
    9,980
    
    
    
    27,885
    
    
    
    27,781Total revenue
    
    
    38,731
    
    
    
    48,593
    
    
    
    111,108
    
    
    
    134,149Cost of revenue:Recurring revenue
    
    
    5,232
    
    
    
    5,923
    
    
    
    15,135
    
    
    
    17,754Professional services
    
    
    6,365
    
    
    
    8,395
    
    
    
    19,719
    
    
    
    23,105Total cost of revenue
    
    
    11,597
    
    
    
    14,318
    
    
    
    34,854
    
    
    
    40,859Gross profit
    
    
    27,134
    
    
    
    34,275
    
    
    
    76,254
    
    
    
    93,290Operating expenses:Sales and marketing
    
    
    16,175
    
    
    
    20,006
    
    
    
    47,046
    
    
    
    57,507Research and development
    
    
    5,100
    
    
    
    5,160
    
    
    
    14,907
    
    
    
    15,089General and administrative
    
    
    4,018
    
    
    
    4,975
    
    
    
    11,671
    
    
    
    13,598Total operating expenses
    
    
    25,293
    
    
    
    30,141
    
    
    
    73,624
    
    
    
    86,194Income from operations
    
    
    1,841
    
    
    
    4,134
    
    
    
    2,630
    
    
    
    7,096Interest and other income, net
    
    
    342
    
    
    
    454
    
    
    
    1,094
    
    
    
    656Income before income taxes
    
    
    2,183
    
    
    
    4,588
    
    
    
    3,724
    
    
    
    7,752Provision for income taxes
    
    
    (218
    )
    
    
    (1,693
    )
    
    
    (460
    )
    
    
    (2,868
    )Net income
    
    $
    1,965
    
    
    $
    2,895
    
    
    $
    3,264
    
    
    $
    4,884Net income per share:Basic
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.15Diluted
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.15Shares used in the computation:Basic
    
    
    31,733
    
    
    
    32,128
    
    
    
    31,731
    
    
    
    32,020Diluted
    
    
    32,424
    
    
    
    33,659
    
    
    
    32,249
    
    
    
    33,515
  4




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RightNow Technologies, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 Nine Months EndedSeptember 30,2009
    
    
    2010Operating activities:Net income
    
    $
    3,264
    
    
    $
    4,884Non-cash adjustments:Depreciation and amortization
    
    
    5,410
    
    
    
    5,749Provisions for uncollectible accounts receivable
    
    
    117
    
    
    
    131Stock-based compensation
    
    
    6,104
    
    
    
    5,718Changes in operating accounts:Receivables
    
    
    10,731
    
    
    
    (1,424
    )Prepaid expenses and other current assets
    
    
    (735
    )
    
    
    (1,316
    )Deferred commissions
    
    
    (142
    )
    
    
    726Accounts payable
    
    
    (567
    )
    
    
    3,710Commissions and bonuses payable
    
    
    (941
    )
    
    
    (122
    )Other accrued liabilities
    
    
    415
    
    
    
    2,946Deferred revenue
    
    
    (12,036
    )
    
    
    (7,661
    )Other
    
    
    255
    
    
    
    157Cash provided by operating activities
    
    
    11,875
    
    
    
    13,498Investing activities:Net change in investments
    
    
    (21,391
    )
    
    
    23,700Acquisition of property and equipment
    
    
    (3,665
    )
    
    
    (5,475
    )Intangible asset additions
    
    
    (244
    )
    
    
    (3,459
    )Business acquisition
    
    
    (5,906
    )
    
    
    Cash provided (used) in investing activities
    
    
    (31,206
    )
    
    
    14,766Financing activities:Proceeds from issuance of common stock under employee benefit plans
    
    
    396
    
    
    
    4,636Excess tax benefits of stock options exercised
    
    
    232
    
    
    
    2,621Common stock repurchased
    
    
    (1,798
    )
    
    
    Payments on long-term debt
    
    
    (34
    )
    
    
    (22
    )Cash provided (used) by financing activities
    
    
    (1,204
    )
    
    
    7,235Effect of foreign exchange rates on cash and cash equivalents
    
    
    1,518
    
    
    
    683Increase (decrease) in cash and cash equivalents
    
    
    (19,017
    )
    
    
    36,182Cash and cash equivalents at beginning of period
    
    
    51,405
    
    
    
    41,546Cash and cash equivalents at end of period
    
    $
    32,388
    
    
    $
    77,728
  5




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##### Table of Contents



RightNow Technologies, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (1) Business Description and Basis of Presentation
 Business Description
  Basis of Presentation
     6




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##### Table of Contents



(2) Certain Risks and Concentrations
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010North America
    
    $
    27,737
    
    
    $
    33,389
    
    
    $
    81,120
    
    
    $
    93,806EMEA
    
    
    7,441
    
    
    
    9,304
    
    
    
    20,713
    
    
    
    25,678Asia Pacific
    
    
    3,553
    
    
    
    5,900
    
    
    
    9,275
    
    
    
    14,665$
    38,731
    
    
    $
    48,593
    
    
    $
    111,108
    
    
    $
    134,149
 (3) Revenue Recognition
  ASU 2009-13,
Revenue Arrangements with Multiple Deliverables (ASU 2009-13), Industry Topic 985,
Software, Industry Topic 985
 Financial Accounting Standards Board (FASB) Accounting
Standards Update 2009-13, Revenue Arrangements with Multiple Deliverables ASU 2009-13
 7




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##### Table of Contents



Topic 605-25, Multiple-Element Arrangements ASU 2009-13
  Industry Topic 985
      (4) Sales Incentives
  8




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##### Table of Contents



(5) Internal Use Software
 Topic 350, Intangibles  Goodwill and Other
 (6) Net Income Per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2010
    
    2009
    
    2010Weighted average common
shares outstanding for basic
net income per share
    
    
    31,733
    
    
    
    32,128
    
    
    
    31,731
    
    
    
    32,020Effect of dilutive securities:Employee stock awards
    
    
    691
    
    
    
    1,531
    
    
    
    518
    
    
    
    1,495Weighted average shares
outstanding for dilutive net
income per share
    
    
    32,424
    
    
    
    33,659
    
    
    
    32,249
    
    
    
    33,515
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2010
    
    2009
    
    2010Employee stock options
    
    
    5,393
    
    
    
    4,878
    
    
    
    5,566
    
    
    
    4,914
 (7) Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Net income
    
    $
    1,965
    
    
    $
    2,895
    
    
    $
    3,264
    
    
    $
    4,884Other comprehensive income:Unrealized gain (loss) on short-term
investments
    
    
    (36
    )
    
    
    (20
    )
    
    
    158
    
    
    
    22Foreign currency translation adjustments
    
    
    171
    
    
    
    488
    
    
    
    (679
    )
    
    
    434Comprehensive income
    
    $
    2,100
    
    
    $
    3,363
    
    
    $
    2,743
    
    
    $
    5,340
 (8) Fair Value
  9




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Topic 820
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
    
    Level 3  Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.The following table represents fair value hierarchy for the Companys financial assets (cash
equivalents and investments) which are measured at fair value on a recurring basis as of
September 30, 2010 (in thousands):
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalCash
    
    $
    67,345
    
    
    $
    
    
    
    $
    
    
    
    $
    67,345Money Market funds
    
    
    10,896
    
    
    
    
    
    
    
    
    
    
    
    10,896Corporate notes and bonds
    
    
    
    
    
    
    4,825
    
    
    
    
    
    
    
    4,825U.S. Government agency securities
    
    
    
    
    
    
    25,005
    
    
    
    
    
    
    
    25,005State and Municipal securities
    
    
    
    
    
    
    944
    
    
    
    
    
    
    
    944$
    78,241
    
    
    $
    30,774
    
    
    $
    
    
    
    $
    109,015
  Fair value at December 31, 2009
    
    $
    3,797Unrealized gain adjustmentARS
    
    
    109Unrealized loss adjustmentput option
    
    
    (106
    )Redemptions
    
    
    (3,800
    )Fair value at September 30, 2010
    
    $
    Fair value at December 31, 2008
    
    $
    4,963Unrealized gain adjustmentARS
    
    
    428Unrealized loss adjustmentput option
    
    
    (397
    )Redemptions
    
    
    (598
    )Fair value at September 30, 2009
    
    $
    4,396
 (9) Stock-Based Compensation
  10




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Stock-based compensation expense:
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Cost of recurring revenue
    
    $
    120
    
    
    $
    127
    
    
    $
    358
    
    
    $
    357Cost of professional services
    
    
    138
    
    
    
    128
    
    
    
    480
    
    
    
    364Sales and marketing expenses
    
    
    761
    
    
    
    818
    
    
    
    2,335
    
    
    
    2,295Research and development expenses
    
    
    285
    
    
    
    254
    
    
    
    924
    
    
    
    751General and administrative expenses
    
    
    548
    
    
    
    875
    
    
    
    2,007
    
    
    
    1,951Stock-based compensation expense
    
    $
    1,852
    
    
    $
    2,202
    
    
    $
    6,104
    
    
    $
    5,718
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2010
    
    2009
    
    2010Fair value per share
    
    $
    6.60
    
    
    $
    7.69
    
    
    $
    4.66
    
    
    $
    7.80Risk free rate
    
    
    2.21
    %
    
    
    1.6
    %
    
    
    1.71
    %
    
    
    1.9
    %Expected term
    
    4.4 yrs
    
    4.5 yrs
    
    4.4 yrs
    
    4.5 yrsVolatility
    
    
    66
    %
    
    
    63
    %
    
    
    67
    %
    
    
    64
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
      11




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Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    Aggregate
    
    
    averageShares
    
    
    
    
    
    
    exercise
    
    
    intrinsic
    
    
    remainingavailable
    
    
    Outstanding
    
    
    price per
    
    
    value (in
    
    
    contractualfor grant
    
    
    options
    
    
    share
    
    
    thousands)
    
    
    life (in years)Balance at December 31, 2009
    
    
    2,774
    
    
    
    5,947
    
    
    $
    10.96
    
    
    
    
    
    
    
    7.2Annual reserve addition (1)
    
    
    1,000
    
    
    
    
    
    
    
    Granted
    
    
    (1,299
    )
    
    
    1,281
    
    
    
    14.89Exercised
    
    
    
    
    
    
    (436
    )
    
    
    10.50Forfeited, expired, exchanged or canceled (2)
    
    
    184
    
    
    
    (181
    )
    
    
    13.32Balance at September 30, 2010
    
    
    2,659
    
    
    
    6,611
    
    
    $
    11.69
    
    
    $
    92,950
    
    
    
    7.1Vested or expected to vest at September 30, 2010
    
    
    
    
    
    
    6,409
    
    
    $
    11.66
    
    
    $
    90,310
    
    
    
    7.0Exercisable at September 30, 2010
    
    
    
    
    
    
    3,783
    
    
    $
    11.45
    
    
    $
    54,099
    
    
    
    6.0
 
 (1)
    
    The 2004 Equity Incentive Plan provides for an automatic, annual increase on the first of
each year in an amount equal to the lesser of: a) 1,000,000 shares; b) 4% of the number of
outstanding common shares on the last day of the previous fiscal year; or c) such lesser
amount as determined by the board of directors. The annual automatic increase has been
approved by shareholders through December 31, 2014.(2)
    
    Shares forfeited, expired, exchanged or canceled under the 1998 Long-Term Equity Incentive
and Stock Option Plan are not available for re-grant under the 2004 Equity Incentive Plan.  (10) Common Stock Repurchase Program
   (11) Commitments and Contingencies
 Warranties and Indemnification
    12




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##### Table of Contents



Litigation
  (12) Income Taxes
  (13) Subsequent Events
 Topic 855, Subsequent Events.
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 In this report, the terms RightNow Technologies, RightNow, Company, we, us and our
refer to RightNow Technologies, Inc. and its subsidiaries.
 Cautionary Statement
 All statements included or incorporated by reference in this report, other than statements or
characterizations of historical fact, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our
current expectations, estimates and projections about our industry, managements beliefs, and
certain assumptions made by us, all of which are subject to change. Forward-looking statements can
often be identified by words such as anticipates, expects, intends, plans, predicts,
believes, seeks, estimates, may, will, should, would, could, potential,
continue, ongoing, similar expressions, and variations or negatives of these words, and
include, but are not limited to, statements regarding projected results of operations, managements
future strategic plans, market acceptance and performance of our products, our ability to retain
and hire key executives, sales and technical personnel and other employees in the
 13




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numbers, with the capabilities, and at the compensation levels needed to implement our
business and product plans, the competitive nature of and anticipated growth in our markets, our
accounting estimates, and our assumptions and judgments. These forward looking statements are not
guarantees of future results and are subject to risks, uncertainties and assumptions that are
difficult to predict and that could cause our actual results to differ materially and adversely
from those expressed in any forward-looking statement. The risks and uncertainties referred to
above include, but are not limited to, general economic conditions; fluctuations in foreign
currency exchange rates; our business model; our ability to develop or acquire and gain market
acceptance for new products and enhancements to existing products in a cost-effective and timely
manner; fluctuations in our earnings as a result of potential changes to our valuation allowance(s)
on our deferred tax assets; competitive pressures and other similar factors such as the
availability and pricing of competing products and technologies and the resulting effects on sales
and pricing of our products; our ability to expand or contract operations, manage expenses and grow
profitability; the rate at which our present and future customers adopt our existing and future
products and services; fluctuations in our operating results including our revenue mix and our rate
of growth; fluctuations in backlog; the risk that our investments in partner relationships and
additional employees will not achieve expected results; interruptions or delays in our hosting
operations; breaches of our security measures; our ability to protect our intellectual property
from infringement, and to avoid infringing on the intellectual property rights of third parties;
any unanticipated ambiguities in fair value accounting standards; the amount and timing of any
stock repurchases under our stock repurchase program; fluctuations in our operating results from
the impact of stock-based compensation expense; our ability to manage and expand our partner
relationships; our ability to hire, retain and motivate our employees and manage our growth; the
impact of potential future acquisitions, if any; and various other factors, some of which are
described under the section below entitled Risk Factors, in Item 1A of this report. These
forward-looking statements speak only as of the date of this report. We undertake no obligation to
revise or update publicly any forward-looking statement for any reason, except as otherwise
required by law.
 Overview
   14




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Sources of Revenue
        Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Sales and Marketing Expenses.
 Research and Development Expenses.
 15




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##### Table of Contents



General and Administrative Expenses
 Critical Accounting Policies and Estimates
  Revenue Recognition
 Industry
Topic 985, Software
 Revenue Arrangements with Multiple
Deliverables (ASU 2009-13 ASU 2009-13 Topic 605-25 Multiple-Element
Arrangements, ASU 2009-13
 Industry Topic 985, Software.
  16




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##### Table of Contents



Allowance for doubtful accounts
  Income Taxes
   Share-Based Compensation
 Topic 718, Compensation-Stock
Compensation,
 Software Capitalization
 Topic 350, Intangibles  Goodwill and Other,
 17




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##### Table of Contents



Industry Topic 985, Software,
 Recently Issued Accounting Standards
  Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2010
    
    2009
    
    2010Revenue:Recurring revenue
    
    
    77
    %
    
    
    79
    %
    
    
    75
    %
    
    
    79
    %Professional services
    
    
    23
    
    
    
    21
    
    
    
    25
    
    
    
    21Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of revenue:Recurring revenue
    
    
    14
    
    
    
    12
    
    
    
    14
    
    
    
    13Professional services
    
    
    16
    
    
    
    17
    
    
    
    18
    
    
    
    17Total cost of revenue
    
    
    30
    
    
    
    29
    
    
    
    32
    
    
    
    30Gross profit
    
    
    70
    
    
    
    71
    
    
    
    68
    
    
    
    70Operating expenses:Sales and marketing
    
    
    42
    
    
    
    41
    
    
    
    42
    
    
    
    43Research and development
    
    
    13
    
    
    
    11
    
    
    
    13
    
    
    
    11General and administrative
    
    
    10
    
    
    
    10
    
    
    
    11
    
    
    
    10Total operating expenses
    
    
    65
    
    
    
    62
    
    
    
    66
    
    
    
    64Income from operations
    
    
    5
    
    
    
    9
    
    
    
    2
    
    
    
    6Interest and other income, net
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Income before income taxes
    
    
    6
    
    
    
    9
    
    
    
    3
    
    
    
    6Provision for income taxes
    
    
    (1
    )
    
    
    (3
    )
    
    
    (
    )
    
    
    (2
    )Net income
    
    
    5
    %
    
    
    6
    %
    
    
    3
    %
    
    
    4
    %
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Revenue by type:Recurring (subscriptions, term licenses, hosting and support)
    
    
    77
    %
    
    
    79
    %
    
    
    75
    %
    
    
    79
    %Professional services
    
    
    23
    
    
    
    21
    
    
    
    25
    
    
    
    21Revenue by geography:North America
    
    
    72
    %
    
    
    69
    %
    
    
    73
    %
    
    
    70
    %EMEA
    
    
    19
    
    
    
    19
    
    
    
    19
    
    
    
    19Asia Pacific
    
    
    9
    
    
    
    12
    
    
    
    8
    
    
    
    11
 Quarter Overview
  18




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Backlog
  December 31
    
    
    September 30,2009
    
    
    2010Current committed backlog
    
    $
    117,600
    
    
    $
    122,273Non-current committed backlog
    
    
    57,020
    
    
    
    34,848Total firm committed backlog
    
    
    174,620
    
    
    
    157,121Current backlog subject to termination for convenience
    
    
    3,400
    
    
    
    11,900Non-current backlog subject to termination for convenience
    
    
    1,980
    
    
    
    83,313Total backlog
    
    $
    180,000
    
    
    $
    252,334
       20




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Three and Nine Months Ended September 30, 2010 and 2009
 Revenue
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeRecurring revenue:
    
    $
    29,754
    
    
    $
    38,613
    
    
    
    30
    %
    
    $
    83,223
    
    
    $
    106,368
    
    
    
    28
    %Professional services
    
    
    8,977
    
    
    
    9,980
    
    
    
    11
    
    
    
    27,885
    
    
    
    27,781
    
    
    
    0Total revenue
    
    $
    38,731
    
    
    $
    48,593
    
    
    
    25
    %
    
    $
    111,108
    
    
    $
    134,149
    
    
    
    21
    %
        21




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Cost of Revenue
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    2009
    
    
    2010
    
    
    ChangeRecurring revenue
    
    $
    5,232
    
    
    $
    5,923
    
    
    13%
    
    $
    15,135
    
    
    $
    17,754
    
    
    17%Professional services
    
    
    6,365
    
    
    
    8,395
    
    
    32
    
    
    19,719
    
    
    
    23,105
    
    
    17Total cost of revenue
    
    $
    11,597
    
    
    $
    14,318
    
    
    23%
    
    $
    34,854
    
    
    $
    40,859
    
    
    17%
       22




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Operating Expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeSales and marketing
    
    $
    16,175
    
    
    $
    20,006
    
    
    
    24
    %
    
    $
    47,046
    
    
    $
    57,507
    
    
    
    22
    %Research and development
    
    
    5,100
    
    
    
    5,160
    
    
    
    1
    
    
    
    14,907
    
    
    
    15,089
    
    
    
    1General and administrative
    
    
    4,018
    
    
    
    4,975
    
    
    
    24
    
    
    
    11,671
    
    
    
    13,598
    
    
    
    17Total operating expenses
    
    $
    25,293
    
    
    $
    30,141
    
    
    
    19
    %
    
    $
    73,624
    
    
    $
    86,194
    
    
    
    17
    %
 Sales and Marketing Expenses
    Research and Development Expenses
  23




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General and Administrative Expenses
  Stock-Based Compensation Expense
  24




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Interest and Other Income, Net
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeInterest income
    
    $
    248
    
    
    $
    111
    
    
    
    (55
    )%
    
    $
    866
    
    
    $
    425
    
    
    
    (51
    )%Interest expense
    
    
    (1
    )
    
    
    
    
    
    
    n/m
    
    
    
    (6
    )
    
    
    
    
    
    
    n/mOther income (expense)
    
    
    95
    
    
    
    343
    
    
    
    261
    
    
    
    234
    
    
    
    231
    
    
    
    (1
    )Total interest and other income , net
    
    $
    342
    
    
    $
    454
    
    
    
    33
    %
    
    $
    1,094
    
    
    $
    656
    
    
    
    (40
    )%
   Provision for Income Taxes
 Topic 718
 Liquidity and Capital Resources
 Three Months Ended September 30,
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    2010
    
    Change
    
    2009
    
    2010
    
    ChangeCash, cash equivalents and
short-term investments
    
    $
    93,022
    
    
    $
    109,015
    
    
    
    17
    %
    
    $
    93,022
    
    
    $
    109,015
    
    
    
    17
    %Cash provided by operating activities
    
    
    4,909
    
    
    
    5,973
    
    
    
    22
    %
    
    
    11,875
    
    
    
    13,498
    
    
    
    14
    %
    25




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Off-Balance Sheet Arrangements
  Contractual Obligations and Commitments
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
     26




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Interest Rate Sensitivity
  
 Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Changes to Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Before deciding to purchase, hold or sell our common stock, you should carefully consider the
risks described below, in addition to the other cautionary statements and risks described elsewhere
and the other information contained in this report and in our other filings with the SEC, including
our reports on Forms 10-K, 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business. If any of these known or unknown risks or
uncertainties actually occurs with material adverse effects on RightNow, our business, financial
condition and results of operations could be seriously harmed. In that event, the market price for
our common stock could decline and you may lose all or part of your investment.
 General economic conditions could adversely affect our clients ability or willingness to
purchase our products, which could materially and adversely affect our results of operations.
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We have significant international sales and are subject to risks associated with operating in
international markets including the risk of foreign currency exchange rate fluctuations.
  
    
    fluctuations in foreign currency exchange rates;
    
    political, social and economic instability, including, terrorist attacks and
security concerns in general;
    
    adverse changes in tariffs and other protectionist laws and business
practices that favor local competitors;
    
    longer collection periods and difficulties in collecting receivables from
foreign entities;
    
    exposure to different legal standards and burdens of complying with a variety
of foreign laws, including employment, tax, privacy and data protection laws and
regulations;
    
    reduced protection for our intellectual property in some countries;
    
    expenses associated with localizing products for foreign countries, including
translation into foreign languages; and
    
    import and export license requirements and restrictions of the United States
and each other country in which we operate.
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We may not be able to sustain or increase profitability in the future.
  We face intense competition, and our failure to compete successfully could make it difficult
for us to add and retain clients and could reduce or impede the growth of our business.
   
    
    Companies currently providing customer service solutions, some of whom offer
hosted services, including ATG, BMC Software Corporation, Inc., eGain Communications
Corporation, Inquira Software, Inc., Kana Software, Inc., Liveperson, Microsoft
Corporation, Netsuite, nGenera, Oracle Corporation, Parature, SAP AG, and
salesforce.com;
    
    CRM systems that are developed and maintained internally by businesses;
    
    CRM products or services that are developed, or bundled with other products
or services, and installed on a clients premises by software vendors;
    
    Outsourced contact center providers that bundle solutions and agent labor in
their service offerings;
    
    New companies entering the CRM software market, the on demand applications
market and the on demand CRM market, or expanding from any one of these markets to the
others;
    
    Voice system integrators and voice-enabled IVR technology providers, such as
Microsoft, TuVox, and Voxify; and
    
    Social CRM providers, such as Lithium and other niche social CRM providers.
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Our quarterly results of operations may fluctuate in the future.
  
    
    our ability to retain and increase sales to existing clients, attract new clients and
satisfy our clients requirements;
    
    general economic, industry and market conditions;
    
    fluctuations in foreign currency exchange rates;
    
    the mix of revenue between subscription arrangements, professional services and license
arrangements as sales commissions are generally expensed ratably over the term of an
agreement for subscription services, and expensed when invoiced for license arrangements and
professional services;
    
    changes in the mix of revenue between recurring revenue and professional services
revenue, because the gross margin on professional services is typically lower than the gross
margin on recurring revenue;
    
    changes in the mix of voice self service applications sold and/or usage volume, because
the gross margin on voice self service applications is typically lower than the gross margin
on our sales, marketing, feedback and service applications;
    
    the timing of contracts signed and amount of usage fees;
    
    the timing and success of new product introductions or upgrades by us or our competitors;
    
    the timing of professional service sales and our ability to appropriately staff and train
professional service resources without negatively impacting professional service margins;
    
    changes in our pricing policies or those of our competitors;
    
    the amount and timing of expenditures related to expanding our operations;
    
    stock price volatility, employee exercise behaviors, and option forfeiture rates, or
changes in the number of stock options granted and vesting requirements in any particular
period, which effects the amount of stock-based compensation expense;
    
    changes in the payment terms for our products and services, including changes in the mix
of payment options chosen by our customers;
    
    the purchasing and budgeting cycles of our clients; and
    
    changes in tax rate affected by changes in the mix of earnings and losses in
jurisdictions with differing statutory tax rates, certain non-deductible expenses arising
from the requirement to expense stock options and the valuation of deferred tax assets and
liabilities, including our ability to use our net operating losses.
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Failure to effectively develop and expand our sales and marketing capabilities could harm our
ability to increase our client base and achieve broader market acceptance of our solutions.
  Most of our solutions are sold pursuant to time-based agreements, and if our existing clients
elect not to renew or to renew on terms less favorable to us, our business, financial condition and
results of operations will be adversely affected.
  We have experienced growth in recent periods. If we fail to manage our growth effectively, we
may be unable to execute our business plan, maintain high levels of service or adequately address
competitive challenges.
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If there are interruptions or delays in our hosting services through third-party error, our
own error or the occurrence of unforeseeable events, delivery of our solutions could become
impaired, which could harm our relationships with clients and subject us to liability.
   If the security of our clients confidential information contained in our systems or stored by
use of our software is breached or otherwise subjected to unauthorized access, our hosting service
or our software may be perceived as not being secure and clients may curtail or stop using our
hosting service and our solutions.
  If we fail to respond effectively to rapidly changing technology and evolving industry
standards, particularly in the on demand CRM industry, our solutions may become less competitive or
obsolete.
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Our failure to attract and retain qualified or key personnel may prevent us from effectively
developing, marketing, selling, integrating and supporting our products.
  Our failure to attract, manage, support and retain qualified partners may prevent us from
effectively deploying product and professional services.
  If our solutions fail to perform properly or if they contain technical defects, our reputation
will be harmed, our market share would decline and we could be subject to product liability claims.
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If we are unable to protect our intellectual property rights, our competitive position could
be harmed or we could be required to incur significant expenses to enforce our rights.
  Our product development efforts may be constrained by the intellectual property of others, and
we may become subject to claims of intellectual property infringement, which could be costly and
time-consuming.
   The market for our on demand application services is not at the same stage of development as
traditional on premise enterprise software, and if it does not develop or develops more slowly than
we expect, our business will be harmed.
  34




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##### Table of Contents




    
    on demand security capabilities and reliability;
    
    concerns with entrusting a third party to store and manage critical customer data;
    
    the level of customization we offer;
    
    our ability to continue to achieve and maintain high levels of client satisfaction;
and
    
    the price, performance and availability of competing products and services.
  If our efforts to enhance existing solutions, introduce new solutions or expand the
applications for our products and solutions to broader CRM markets do not succeed, our ability to
grow our business will be adversely affected.
  Recently completed and/or future acquisitions could disrupt our business and harm our
financial condition and results of operations.
  
    
    an acquisition may negatively impact our results of operations because it may require
incurring large one-time charges, substantial debt or liabilities; it may require the
amortization or write down of amounts related to deferred compensation, goodwill and other
intangible assets; or it may cause adverse tax consequences, substantial depreciation or
deferred compensation charges;
    
    we may encounter difficulties in assimilating and integrating the business, technologies,
products, personnel or operations of companies that we acquire, particularly if key
personnel of the acquired company decide not to work for us;
    
    our existing and potential clients and the customers of the acquired company may delay
purchases due to uncertainty related to an acquisition;
    
    an acquisition may disrupt our ongoing business, divert resources, increase our expenses
and distract our management;
    
    the acquired businesses, products or technologies may not generate sufficient revenue to
offset acquisition costs and could result in material asset impairment charges;
    
    we may have to issue equity securities to complete an acquisition, which would dilute our
stockholders and could adversely affect the market price of our common stock; and
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##### Table of Contents




    
    acquisitions may involve the entry into a geographic or business market in which we have
little or no prior experience.
  Changes to financial accounting standards may affect our results of operations and financial
condition.
  We may not be able to secure additional financing on favorable terms, or at all, to meet our
future capital needs.
  We cannot assure our stockholders that our stock repurchase program will enhance long-term
stockholder value and stock repurchases, if any, could increase the volatility of the price of our
common stock and will diminish our cash reserves.
  The success of our products and our hosted business depends on the continued use of the
Internet as a business and communications tool, and the related expansion of the Internet
infrastructure.
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Privacy concerns and laws or other domestic or foreign regulations may adversely affect our
business or reduce sales of our solutions.
    Non-solicitation concerns, laws or regulations may adversely affect our clients ability to
perform outbound marketing and other email communications, which could reduce sales of our
solutions.
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The significant influence over stockholder voting matters and our office leases that may be
exercised by our founder and Chief Executive Officer will limit your ability to influence corporate
actions and may require us to find alternative office space to lease or buy in the future.
   Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or
prevent a change in control of our company and may affect the trading price of our common stock.
  
    
    establishing a classified board in which only a portion of the total board members will
be elected at each annual meeting;
    
    authorizing the board to issue preferred stock;
    
    providing the board with sole authority to set the number of authorized directors and to
fill vacancies on the board;
    
    limiting the persons who may call special meetings of stockholders;
    
    prohibiting certain transactions under certain circumstances with interested
stockholders;
    
    requiring supermajority approval to amend certain provisions of the certificate of
incorporation; and
    
    prohibiting stockholder action by written consent.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a) Sales of Unregistered Securities
  (b) Use of Proceeds from Sales of Registered Securities
   (c) Purchases of Equity Securities
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. (Removed and Reserved).
 
 Item 5. Other Information.
  39




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Item 6. Exhibits
 Exhibits
  Exhibit 3.1
    
    Amended and Restated Certificate of Incorporation of the Registrant. (1)Exhibit 3.2
    
    Amended and Restated Bylaws of the Registrant. (2)Exhibit 31.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act Rule
13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rule
13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (furnished herewith).
 
 (1)
    
    Incorporated by reference to Exhibit 4.2 to the Companys registration statement on Form S-8
(File No. 333-118515) filed with the Securities and Exchange Commission on August 24, 2004.(2)
    
    Incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K (File
No. 000-31321) filed with the Securities and Exchange Commission on January 25, 2006. 40




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SIGNATURE
   RightNow Technologies, Inc.
(Registrant)By:
    
    /s/ Jeffrey C. Davison

Jeffrey C. DavisonChief Financial Officer, Senior Vice President and,

Treasurer (Principal Financial and Accounting
Officer)
 41