##### 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 June 30, 2009
 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
 þ o
 o o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ




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##### 



RightNow Technologies, Inc.
Quarterly Report on Form 10-Q
 For the Quarterly Period Ended June 30, 2009
 INDEX
 PagePart I.
    
    FINANCIAL INFORMATION
    
    
    3Item 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
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26Part II.
    
    OTHER INFORMATION
    
    
    26Item 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.
    
    Defaults Upon Senior Securities
    
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    38Item 5.
    
    Other Information
    
    
    38Item 6.
    
    Exhibits
    
    
    39SIGNATURES
    
    
    40EX-31.1EX-31.2EX-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,
    
    
    June 30,2008
    
    
    2009AssetsCash and cash equivalents
    
    $
    51,405
    
    
    $
    46,987Short-term investments
    
    
    34,412
    
    
    
    42,808Accounts receivable
    
    
    36,770
    
    
    
    31,670Term receivables, current
    
    
    5,752
    
    
    
    4,107Allowance for doubtful accounts
    
    
    (2,277
    )
    
    
    (1,910
    )Receivables, net
    
    
    40,245
    
    
    
    33,867Deferred commissions
    
    
    5,381
    
    
    
    5,663Prepaid and other current assets
    
    
    2,150
    
    
    
    2,152Total current assets
    
    
    133,593
    
    
    
    131,477Long-term investments
    
    
    4,963
    
    
    
    4,792Property and equipment, net
    
    
    10,141
    
    
    
    9,775Term receivables, non-current
    
    
    3,547
    
    
    
    2,159Intangible assets, net
    
    
    6,399
    
    
    
    5,738Deferred commissions, non-current
    
    
    2,840
    
    
    
    2,830Other
    
    
    854
    
    
    
    811Total Assets
    
    $
    162,337
    
    
    $
    157,582Liabilities and Stockholders EquityAccounts payable
    
    $
    5,058
    
    
    $
    5,952Commissions and bonuses payable
    
    
    5,665
    
    
    
    4,958Other accrued liabilities
    
    
    11,165
    
    
    
    11,895Current portion of long-term debt
    
    
    46
    
    
    
    45Current portion of deferred revenue
    
    
    77,584
    
    
    
    75,972Total current liabilities
    
    
    99,518
    
    
    
    98,822Long-term debt, less current portion
    
    
    22
    
    
    
    Deferred revenue, net of current portion
    
    
    35,614
    
    
    
    28,112Stockholders equity:Common stock
    
    
    34
    
    
    
    34Additional paid-in capital
    
    
    102,662
    
    
    
    107,282Treasury stock
    
    
    (13,209
    )
    
    
    (15,007
    )Accumulated other comprehensive income
    
    
    1,916
    
    
    
    1,260Accumulated deficit
    
    
    (64,220
    )
    
    
    (62,921
    )Total stockholders equity
    
    
    27,183
    
    
    
    30,648Total Liabilities and Stockholders Equity
    
    $
    162,337
    
    
    $
    157,582
  3




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RightNow Technologies, Inc.  Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Revenue:Software, hosting and support
    
    $
    25,573
    
    
    $
    27,424
    
    
    $
    50,129
    
    
    $
    53,469Professional services
    
    
    9,648
    
    
    
    8,916
    
    
    
    17,990
    
    
    
    18,908Total revenue
    
    
    35,221
    
    
    
    36,340
    
    
    
    68,119
    
    
    
    72,377Cost of revenue:Software, hosting and support
    
    
    5,043
    
    
    
    4,954
    
    
    
    10,078
    
    
    
    9,903Professional services
    
    
    7,810
    
    
    
    6,346
    
    
    
    15,095
    
    
    
    13,354Total cost of revenue
    
    
    12,853
    
    
    
    11,300
    
    
    
    25,173
    
    
    
    23,257Gross profit
    
    
    22,368
    
    
    
    25,040
    
    
    
    42,946
    
    
    
    49,120Operating expenses:Sales and marketing
    
    
    17,627
    
    
    
    16,008
    
    
    
    34,445
    
    
    
    30,871Research and development
    
    
    4,507
    
    
    
    5,051
    
    
    
    8,993
    
    
    
    9,807General and administrative
    
    
    3,890
    
    
    
    4,207
    
    
    
    7,406
    
    
    
    7,653Total operating expenses
    
    
    26,024
    
    
    
    25,266
    
    
    
    50,844
    
    
    
    48,331Income (loss) from operations
    
    
    (3,656
    )
    
    
    (226
    )
    
    
    (7,898
    )
    
    
    789Interest and other income, net
    
    
    519
    
    
    
    351
    
    
    
    1,457
    
    
    
    752Income (loss) before income taxes
    
    
    (3,137
    )
    
    
    125
    
    
    
    (6,441
    )
    
    
    1,541(Provision) benefit for income taxes
    
    
    5
    
    
    
    (89
    )
    
    
    (87
    )
    
    
    (242
    )Net income (loss)
    
    $
    (3,132
    )
    
    $
    36
    
    
    $
    (6,528
    )
    
    $
    1,299Net income (loss) per share:Basic
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    (0.19
    )
    
    $
    0.04Diluted
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    (0.19
    )
    
    $
    0.04Shares used in the computation:Basic
    
    
    33,582
    
    
    
    31,677
    
    
    
    33,557
    
    
    
    31,730Diluted
    
    
    33,582
    
    
    
    32,160
    
    
    
    33,557
    
    
    
    32,207
  4




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##### Table of Contents



RightNow Technologies, Inc.  Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2008
    
    
    2009Operating activities:Net income (loss)
    
    $
    (6,528
    )
    
    $
    1,299Non-cash adjustments:Depreciation and amortization
    
    
    3,886
    
    
    
    3,613Provisions for uncollectible accounts receivable
    
    
    115
    
    
    
    87Stock-based compensation
    
    
    3,163
    
    
    
    4,252Changes in operating accounts:Receivables
    
    
    11,509
    
    
    
    8,398Prepaid expenses and other current assets
    
    
    (443
    )
    
    
    (107
    )Deferred commissions
    
    
    (1,213
    )
    
    
    (77
    )Accounts payable
    
    
    1,584
    
    
    
    830Commissions and bonuses payable
    
    
    (781
    )
    
    
    (810
    )Other accrued liabilities
    
    
    451
    
    
    
    446Deferred revenue
    
    
    567
    
    
    
    (11,467
    )Other
    
    
    (66
    )
    
    
    503Cash provided by operating activities
    
    
    12,244
    
    
    
    6,967Investing activities:Net change in investments
    
    
    (1,222
    )
    
    
    (8,310
    )Acquisition of property and equipment
    
    
    (3,033
    )
    
    
    (2,530
    )Other
    
    
    (27
    )
    
    
    5Cash used in investing activities
    
    
    (4,282
    )
    
    
    (10,835
    )Financing activities:Proceeds from issuance of common stock under employee benefit plans
    
    
    648
    
    
    
    229Excess tax benefits of stock options exercised
    
    
    
    
    
    
    137Common stock repurchased
    
    
    
    
    
    
    (1,798
    )Payments on long-term debt
    
    
    (22
    )
    
    
    (23
    )Cash provided (used) by financing activities
    
    
    626
    
    
    
    (1,455
    )Effect of foreign exchange rates on cash and cash equivalents
    
    
    512
    
    
    
    905Increase (decrease) in cash and cash equivalents
    
    
    9,100
    
    
    
    (4,418
    )Cash and cash equivalents at beginning of period
    
    
    43,681
    
    
    
    51,405Cash and cash equivalents at end of period
    
    $
    52,781
    
    
    $
    46,987
  5




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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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(2) Certain Risks and Concentrations
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2009
    
    
    2008
    
    
    2009North America
    
    $
    23,384
    
    
    $
    26,386
    
    
    $
    45,741
    
    
    $
    53,383Europe
    
    
    8,876
    
    
    
    6,832
    
    
    
    16,942
    
    
    
    13,272Asia Pacific
    
    
    2,961
    
    
    
    3,122
    
    
    
    5,436
    
    
    
    5,722$
    35,221
    
    
    $
    36,340
    
    
    $
    68,119
    
    
    $
    72,377
 (3) Revenue Recognition
   Revenue
Arrangements with Multiple Deliverables
 7




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Software Revenue Recognition Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That
Include the Right to Use Software Stored on Another Entitys Hardware
 Software Revenue
Recognition Software Revenue Recognition with Respect to
Certain Transactions
       8




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##### Table of Contents



(4) Sales Commissions
  (5) Net Income (Loss) Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2009
    
    2008
    
    2009Weighted average common
shares outstanding for basic
net income (loss) per share
    
    
    33,582
    
    
    
    31,677
    
    
    
    33,557
    
    
    
    31,730Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    483
    
    
    
    
    
    
    
    477Weighted average shares
outstanding for dilutive net
income (loss) per share
    
    
    33,582
    
    
    
    32,160
    
    
    
    33,557
    
    
    
    32,207
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2009
    
    2008
    
    2009Employee stock options
    
    
    4,584
    
    
    
    5,498
    
    
    
    4,584
    
    
    
    5,504
 (6) Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Net income (loss)
    
    $
    (3,132
    )
    
    $
    36
    
    
    $
    (6,528
    )
    
    $
    1,299Other comprehensive income (loss):Unrealized gain (loss) on short-term investments
    
    
    (172
    )
    
    
    323
    
    
    
    25
    
    
    
    194Unrealized loss on long-term investments
    
    
    (10
    )
    
    
    
    
    
    
    (425
    )
    
    
    Foreign currency translation adjustments
    
    
    (71
    )
    
    
    (938
    )
    
    
    (95
    )
    
    
    (850
    )Comprehensive income (loss)
    
    $
    (3,385
    )
    
    $
    (579
    )
    
    $
    (7,023
    )
    
    $
    643
 (7) Fair Value
 Fair Value Measurements
 9




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
    
    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. As a result of recent market conditions, the Company holds
financial instruments for which limited or no observable market data is
available. These fair value measurements are based primarily upon our own
estimates and are often calculated based on current pricing policy, the
current economic and competitive environment, the characteristics of the
instrument, credit, interest, and other such factors. Therefore, the
results cannot be determined with precision, cannot be substantiated by
comparison to quoted prices in active markets, and may not be realized in a
current sale or immediate settlement of the asset. Additionally, there are
inherent uncertainties in any fair value measurement technique, and changes
in the underlying assumptions used, including discount rates, liquidity
risks, and estimates of future cash flows, could significantly affect the
fair value measurement amounts.
   Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalCash
    
    $
    29,750
    
    
    $
    
    
    
    $
    
    
    
    $
    29,750Money Market funds
    
    
    15,837
    
    
    
    
    
    
    
    
    
    
    
    15,837Commercial paper
    
    
    
    
    
    
    4,197
    
    
    
    
    
    
    
    4,197Corporate notes and bonds
    
    
    
    
    
    
    2,556
    
    
    
    
    
    
    
    2,556U.S. Government agency securities
    
    
    
    
    
    
    35,060
    
    
    
    
    
    
    
    35,060State and Municipal securities
    
    
    
    
    
    
    2,395
    
    
    
    
    
    
    
    2,395Auction rate preferred stocks
    
    
    
    
    
    
    
    
    
    
    4,792
    
    
    
    4,792$
    45,587
    
    
    $
    44,208
    
    
    $
    4,792
    
    
    $
    94,587
  June 30, 2009Fair value at December 31, 2008
    
    $
    4,963Unrealized gain adjustmentARS
    
    
    371Unrealized loss adjustmentput option
    
    
    (344
    )Redemption of auction rate preferred stocks
    
    
    (198
    )Fair value at June 30, 2009
    
    $
    4,792
   10




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Accounting for Derivative Instruments and Hedging Activities, Accounting for Certain Investments in Debt and Equity Securities The Fair Value Option for Financial Assets and Financial
Liabilities,
    11




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(8) Stock-Based Compensation
 Share Based Payment,
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Stock-based compensation expense:
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009Cost of software, hosting and support
    
    $
    79
    
    
    $
    142
    
    
    $
    156
    
    
    $
    238Cost of professional services
    
    
    165
    
    
    
    209
    
    
    
    318
    
    
    
    342Sales and marketing expenses
    
    
    595
    
    
    
    952
    
    
    
    1,133
    
    
    
    1,574Research and development expenses
    
    
    242
    
    
    
    377
    
    
    
    477
    
    
    
    639General and administrative expenses
    
    
    816
    
    
    
    1,056
    
    
    
    1,079
    
    
    
    1,459Stock-based compensation expense
    
    $
    1,897
    
    
    $
    2,736
    
    
    $
    3,163
    
    
    $
    4,252
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2009
    
    2008
    
    2009Fair value per share
    
    $
    5.98
    
    
    $
    4.49
    
    
    $
    5.46
    
    
    $
    4.47Risk free rate
    
    
    3.0
    %
    
    
    1.85
    %
    
    
    2.67
    %
    
    
    1.7
    %Expected term
    
    4.1 yrs
    
    
    3.8 yrs
    
    
    4.5 yrs
    
    
    4.3 yrsVolatility
    
    
    54
    %
    
    
    67
    %
    
    
    55
    %
    
    
    67
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  Risk Free Rate:
 Expected Term
 Volatility
 Dividend Yield:
 12




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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, 2008
    
    
    3,610
    
    
    
    4,428
    
    
    $
    11.81
    
    
    $
    3,978
    
    
    
    6.8Annual reserve addition (1)
    
    
    1,000
    
    
    
    
    
    
    
    Granted
    
    
    (1,849
    )
    
    
    1,849
    
    
    
    8.40Exercised
    
    
    
    
    
    
    (83
    )
    
    
    1.15Forfeited, expired, exchanged or canceled (2)
    
    
    185
    
    
    
    (213
    )
    
    
    13.81Balance at June 30, 2009
    
    
    2,946
    
    
    
    5,981
    
    
    $
    10.83
    
    
    $
    14,324
    
    
    
    7.6Vested or expected to vest at June 30, 2009
    
    
    
    
    
    
    5,575
    
    
    $
    10.93
    
    
    $
    13,239
    
    
    
    7.4Exercisable at June 30, 2009
    
    
    
    
    
    
    2,825
    
    
    $
    11.03
    
    
    $
    7,589
    
    
    
    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.  (9) Commitments and Contingencies
 Warranties and Indemnification
     Litigation
  13




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(10) Income Taxes
  (11) Fair Value of Financial Instruments
  Account receivable and term receivablescurrent:
 Accounts payablecurrent:
 Term receivablesnoncurrent:
 Debt:
 (12) Subsequent Events
 Subsequent Events,
 14




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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 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
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; 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; the gain or loss of key
customers; 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 and grow profitability; the rate at which our present
and future customers adopt our existing and future products and services; possible fluctuations in
our operating results including our revenue mix and our rate of growth; 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; the credit markets and potential impact on the recoverability of our portfolio of auction
rate securities; our ability to sell auction rate securities under a put option with our broker,
any unanticipated ambiguities in fair value accounting standards; 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 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
   15




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Sources of Revenue
        Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Sales and Marketing Expenses.
 Research and Development Expenses.
 General and Administrative Expenses
 16




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Critical Accounting Policies and Estimates
  Revenue Recognition
      Allowance for doubtful accounts
  17




---



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Income Taxes
   Share-Based Compensation
 Share Based Payment
 Recently Issued Accounting Standards
 The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles,
 18




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Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2009
    
    2008
    
    2009Revenue:Software, hosting and support
    
    
    73
    %
    
    
    75
    %
    
    
    74
    %
    
    
    74
    %Professional services
    
    
    27
    
    
    
    25
    
    
    
    26
    
    
    
    26Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of revenue:Software, hosting and support
    
    
    14
    
    
    
    14
    
    
    
    15
    
    
    
    14Professional services
    
    
    22
    
    
    
    17
    
    
    
    22
    
    
    
    18Total cost of revenue
    
    
    36
    
    
    
    31
    
    
    
    37
    
    
    
    32Gross profit
    
    
    64
    
    
    
    69
    
    
    
    63
    
    
    
    68Operating expenses:Sales and marketing
    
    
    50
    
    
    
    44
    
    
    
    51
    
    
    
    43Research and development
    
    
    13
    
    
    
    14
    
    
    
    13
    
    
    
    14General and administrative
    
    
    11
    
    
    
    12
    
    
    
    11
    
    
    
    11Total operating expenses
    
    
    74
    
    
    
    70
    
    
    
    75
    
    
    
    67Income (loss) from operations
    
    
    (10
    )
    
    
    (1
    )
    
    
    (12
    )
    
    
    1Interest and other income, net
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    1Income (loss) before income taxes
    
    
    (9
    )
    
    
    0
    
    
    
    (10
    )
    
    
    2(Provision) benefit for income taxes
    
    
    
    
    
    
    (
    )
    
    
    (
    )
    
    
    (
    )Net income (loss)
    
    
    (9
    )%
    
    
    0
    %
    
    
    (10
    )%
    
    
    2
    %
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2009
    
    2008
    
    2009Customer interactions (in millions)
    
    
    477
    
    
    
    701
    
    
    
    939
    
    
    
    1,307Revenue by type:Recurring (subscriptions, term licenses, hosting and support)
    
    
    73
    %
    
    
    75
    %
    
    
    74
    %
    
    
    74
    %Perpetual licenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Professional services
    
    
    27
    
    
    
    25
    
    
    
    26
    
    
    
    26Revenue by geography in:United States
    
    
    67
    %
    
    
    72
    %
    
    
    67
    %
    
    
    74
    %Europe
    
    
    25
    
    
    
    19
    
    
    
    25
    
    
    
    18Asia Pacific
    
    
    8
    
    
    
    9
    
    
    
    8
    
    
    
    8
 Quarter Overview
   19




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Three and Six Months Ended June 30, 2009 and 2008
 Revenue
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeSoftware, hosting and support:
    
    
    25,573
    
    
    
    27,424
    
    
    
    7
    %
    
    
    50,129
    
    
    
    53,469
    
    
    
    7
    %Professional services
    
    
    9,648
    
    
    
    8,916
    
    
    
    (8
    )
    
    
    17,990
    
    
    
    18,908
    
    
    
    5Total revenue
    
    $
    35,221
    
    
    $
    36,340
    
    
    
    3
    %
    
    $
    68,119
    
    
    
    72,377
    
    
    
    6
    %
    20




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Cost of Revenue
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeSoftware, hosting and support
    
    $
    5,043
    
    
    
    4,954
    
    
    
    (2
    )%
    
    $
    10,078
    
    
    
    9,903
    
    
    
    (2
    )%Professional services
    
    
    7,810
    
    
    
    6,346
    
    
    
    (19
    )
    
    
    15,095
    
    
    
    13,354
    
    
    
    (12
    )Total cost of revenue
    
    
    12,853
    
    
    
    11,300
    
    
    
    (12
    )%
    
    $
    25,173
    
    
    
    23,257
    
    
    
    (8
    )%
    21




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Operating Expenses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeSales and marketing
    
    $
    17,627
    
    
    $
    16,008
    
    
    
    (9
    )%
    
    
    34,445
    
    
    $
    30,871
    
    
    
    (10
    )%Research and development
    
    
    4,507
    
    
    
    5,051
    
    
    
    12
    
    
    
    8,993
    
    
    
    9,807
    
    
    
    9General and administrative
    
    
    3,890
    
    
    
    4,207
    
    
    
    8
    
    
    
    7,406
    
    
    
    7,653
    
    
    
    3Total operating expenses
    
    $
    26,024
    
    
    $
    25,266
    
    
    
    (3
    )%
    
    $
    50,844
    
    
    $
    48,331
    
    
    
    (5
    )%
 Sales and Marketing Expenses
    Research and Development Expenses
  General and Administrative Expenses
  22




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Stock-Based Compensation Expense
  Interest and Other Income, Net
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeInterest income
    
    $
    729
    
    
    $
    298
    
    
    
    (59
    )%
    
    $
    1,653
    
    
    $
    618
    
    
    
    (63
    )%Interest expense
    
    
    (2
    )
    
    
    (3
    )
    
    
    n/m
    
    
    
    (6
    )
    
    
    (6
    )
    
    
    n/mOther income (expense)
    
    
    (208
    )
    
    
    56
    
    
    
    n/m
    
    
    
    (190
    )
    
    
    140
    
    
    
    n/mTotal interest and
other income , net
    
    $
    519
    
    
    $
    351
    
    
    
    (32
    )%
    
    $
    1,457
    
    
    $
    752
    
    
    
    (48
    )%
   Provision for Income Taxes
  Liquidity and Capital Resources
 Three Months Ended June 30,
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    2009
    
    Change
    
    2008
    
    2009
    
    ChangeCash, cash
equivalents and
short-term
investments
    
    $
    94,321
    
    
    $
    89,795
    
    
    
    (5
    )%
    
    $
    94,321
    
    
    $
    89,795
    
    
    
    (5
    )%Long-term investments
    
    
    11,925
    
    
    
    4,792
    
    
    
    (60
    )%
    
    
    11,925
    
    
    
    4,792
    
    
    
    (60
    )%Cash provided by
operating activities
    
    
    8,574
    
    
    
    2,081
    
    
    
    (76
    )%
    
    
    12,244
    
    
    
    6,967
    
    
    
    (43
    )%
   23




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Off-Balance Sheet Arrangements
  Contractual Obligations and Commitments
  24




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
   Interest Rate Sensitivity
  Liquidation and Valuation Risk
  25




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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-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.
   26




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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 conflicts in the Middle East
and elsewhere abroad, 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., 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; and
    
    Voice system integrators and voice-enabled IVR technology providers, such as
Microsoft, TuVox, and Voxify.
   Our quarterly results of operations may fluctuate in the future.
  28




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##### Table of Contents




    
    our ability to retain and increase sales to existing clients, attract new clients and
satisfy our clients requirements;
    
    general economic, industry and market conditions;
    
    the mix of revenue between license arrangements, professional services and
subscription 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 professional services and software, hosting and
support, because the gross margin on professional services is typically lower than the
gross margin on software, hosting and support;
    
    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 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;
    
    changes in our assumptions of 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;
    
    changes in the mix of subscription and perpetual licenses sold in a particular
quarter, because perpetual license revenue is recorded into revenue upon delivery
whereas subscriptions are recorded into revenue ratably over the contractual period; and
    
    changes in credit market conditions associated with auction rate securities, which
could permanently impair the recoverability of these investments.
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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.
  The majority 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.
   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.
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##### Table of Contents



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.
    Our failure to attract and retain qualified or key personnel may prevent us from effectively
developing, marketing, selling, integrating and supporting our products.
  31




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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.
   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.
  32




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##### Table of Contents



The market for our on demand application services is at a relatively early stage of development,
and if it does not develop or develops more slowly than we expect, our business will be harmed.
  
    
    on demand security capabilities and reliability;
    
    concerns with entrusting a third party to store and manage critical customer data;
    
    our ability to meet the needs of broader segments of the CRM market or other on demand
markets;
    
    the level of customization we offer;
    
    our ability to continue to achieve and maintain high levels of client satisfaction;
    
    concerns with purchasing critical CRM solutions from a company with a history of
operating losses;
    
    customer acceptance of our subscription sales arrangements; 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.
  33




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##### Table of Contents



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 issue equity securities to complete an acquisition, which would dilute our
stockholders and could adversely affect the market price of our common stock; and
    
    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.
  The required adoption of SFAS 123R makes stock options a less attractive form of employee
compensation, and our use of alternative forms of employee compensation in response to SFAS 123R
could adversely affect our ability to attract and retain personnel.
  34




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With the recent volatility in the capital markets, there is a risk that we could suffer a loss
of principal in our cash and cash equivalents and short term investments and suffer a reduction
in our interest income or in our return on investments. Additionally funds associated with
auction rate securities may be inaccessible in excess of 12 months, which may result in market
value declines, which could have a material impact on our operating results in the period it is
recognized.
  We may not be able to secure additional financing on favorable terms, or at all, to meet our
future capital needs.
  The success of our products and our hosted business depends on the continued growth and
acceptance 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.
   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.
 36




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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.
  
 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
  37




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##### Table of Contents



(c) Purchases of Equity Securities
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  1.
    
    To elect one director to serve for a three-year term ending at the 2011 annual meeting
of stockholders or until his successor is elected and qualified or until his earlier
resignation and removal:
 Director Candidate
    
    For
    
    AgainstRichard E. Allen
    
    
    28,858,625
    
    
    
    102,299
  2.
    
    To ratify the appointment of KPMG LLP as the Companys independent registered public
accounting firm for 2009:
 For
    
    
    28,910,207Against
    
    
    50,717Abstain
    
    
    0
 
 Item 5. Other Information.
  38




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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. 39




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SIGNATURE
   RightNow Technologies, Inc.
  By:
    /s/ Jeffrey C. DavisonJeffrey C. DavisonChief Financial Officer, Vice President and,
Treasurer
(Principal Financial and Accounting Officer) 40