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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, 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 o
Accelerated filer þ
Non-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 September 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
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    28Part II.
    
    OTHER INFORMATION
    
    
    28Item 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3.
    
    Defaults Upon Senior Securities
    
    
    40Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 5.
    
    Other Information
    
    
    40Item 6.
    
    Exhibits
    
    
    41SIGNATURES
    
    
    
    
    42EX-31.1EX-31.2EX-32.1
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Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 RightNow Technologies, Inc.  Condensed Consolidated Balance Sheets
 December 31,
    
    
    September 30,2008
    
    
    2009AssetsCash and cash equivalents
    
    $
    51,405
    
    
    $
    32,388Short-term investments
    
    
    34,412
    
    
    
    60,634Accounts receivable
    
    
    36,770
    
    
    
    31,034Term receivables, current
    
    
    5,752
    
    
    
    3,011Allowance for doubtful accounts
    
    
    (2,277
    )
    
    
    (1,701
    )Receivables, net
    
    
    40,245
    
    
    
    32,344Deferred commissions
    
    
    5,381
    
    
    
    5,822Prepaid and other current assets
    
    
    2,150
    
    
    
    2,867Total current assets
    
    
    133,593
    
    
    
    134,055Long-term investments
    
    
    4,963
    
    
    
    Property and equipment, net
    
    
    10,141
    
    
    
    9,781Term receivables, non-current
    
    
    3,547
    
    
    
    1,447Intangible assets, net
    
    
    6,399
    
    
    
    11,222Deferred commissions, non-current
    
    
    2,840
    
    
    
    2,828Other
    
    
    854
    
    
    
    941Total Assets
    
    $
    162,337
    
    
    $
    160,274Liabilities and Stockholders EquityAccounts payable
    
    $
    5,058
    
    
    $
    4,593Commissions and bonuses payable
    
    
    5,665
    
    
    
    4,838Other accrued liabilities
    
    
    11,165
    
    
    
    12,008Current portion of long-term debt
    
    
    46
    
    
    
    34Current portion of deferred revenue
    
    
    77,584
    
    
    
    75,643Total current liabilities
    
    
    99,518
    
    
    
    97,116Long-term debt, less current portion
    
    
    22
    
    
    
    Deferred revenue, net of current portion
    
    
    35,614
    
    
    
    28,298Stockholders equity:Common stock
    
    
    34
    
    
    
    34Additional paid-in capital
    
    
    102,662
    
    
    
    109,394Treasury stock
    
    
    (13,209
    )
    
    
    (15,007
    )Accumulated other comprehensive income
    
    
    1,916
    
    
    
    1,395Accumulated deficit
    
    
    (64,220
    )
    
    
    (60,956
    )Total stockholders equity
    
    
    27,183
    
    
    
    34,860Total Liabilities and Stockholders Equity
    
    $
    162,337
    
    
    $
    160,274
  3




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RightNow Technologies, Inc.  Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Revenue:Software, hosting and support
    
    $
    25,956
    
    
    $
    29,754
    
    
    $
    76,085
    
    
    $
    83,223Professional services
    
    
    10,281
    
    
    
    8,977
    
    
    
    28,271
    
    
    
    27,885Total revenue
    
    
    36,237
    
    
    
    38,731
    
    
    
    104,356
    
    
    
    111,108Cost of revenue:Software, hosting and support
    
    
    5,305
    
    
    
    5,232
    
    
    
    15,383
    
    
    
    15,135Professional services
    
    
    8,133
    
    
    
    6,365
    
    
    
    23,228
    
    
    
    19,719Total cost of revenue
    
    
    13,438
    
    
    
    11,597
    
    
    
    38,611
    
    
    
    34,854Gross profit
    
    
    22,799
    
    
    
    27,134
    
    
    
    65,745
    
    
    
    76,254Operating expenses:Sales and marketing
    
    
    16,889
    
    
    
    16,175
    
    
    
    51,334
    
    
    
    47,046Research and development
    
    
    4,671
    
    
    
    5,100
    
    
    
    13,664
    
    
    
    14,907General and administrative
    
    
    3,215
    
    
    
    4,018
    
    
    
    10,621
    
    
    
    11,671Total operating expenses
    
    
    24,775
    
    
    
    25,293
    
    
    
    75,619
    
    
    
    73,624Income (loss) from operations
    
    
    (1,976
    )
    
    
    1,841
    
    
    
    (9,874
    )
    
    
    2,630Interest and other income, net
    
    
    552
    
    
    
    342
    
    
    
    2,009
    
    
    
    1,094Income (loss) before income taxes
    
    
    (1,424
    )
    
    
    2,183
    
    
    
    (7,865
    )
    
    
    3,724Provision for income taxes
    
    
    (23
    )
    
    
    (218
    )
    
    
    (110
    )
    
    
    (460
    )Net income (loss)
    
    $
    (1,447
    )
    
    $
    1,965
    
    
    $
    (7,975
    )
    
    $
    3,264Net income (loss) per share:Basic
    
    $
    (0.04
    )
    
    $
    0.06
    
    
    $
    (0.24
    )
    
    $
    0.10Diluted
    
    $
    (0.04
    )
    
    $
    0.06
    
    
    $
    (0.24
    )
    
    $
    0.10Shares used in the computation:Basic
    
    
    33,640
    
    
    
    31,733
    
    
    
    33,585
    
    
    
    31,731Diluted
    
    
    33,640
    
    
    
    32,424
    
    
    
    33,585
    
    
    
    32,249
  4




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RightNow Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
 Nine Months EndedSeptember 30,2008
    
    
    2009Operating activities:Net income (loss)
    
    $
    (7,975
    )
    
    $
    3,264Non-cash adjustments, net of assets acquired:Depreciation and amortization
    
    
    5,866
    
    
    
    5,410Provisions for uncollectible accounts receivable
    
    
    179
    
    
    
    117Stock-based compensation
    
    
    4,695
    
    
    
    6,104Changes in operating accounts, net of assets acquired:Receivables
    
    
    12,652
    
    
    
    10,731Prepaid expenses and other current assets
    
    
    (654
    )
    
    
    (735
    )Deferred commissions
    
    
    (2,170
    )
    
    
    (142
    )Accounts payable
    
    
    1,061
    
    
    
    (567
    )Commissions and bonuses payable
    
    
    (615
    )
    
    
    (941
    )Other accrued liabilities
    
    
    1,016
    
    
    
    415Deferred revenue
    
    
    (2,999
    )
    
    
    (12,036
    )Other
    
    
    (142
    )
    
    
    255Cash provided by operating activities
    
    
    10,914
    
    
    
    11,875Investing activities:Net change in investments
    
    
    996
    
    
    
    (21,391
    )Acquisition of property and equipment
    
    
    (4,344
    )
    
    
    (3,673
    )Intangible asset additions
    
    
    
    
    
    
    (244
    )Business acquisition
    
    
    
    
    
    
    (5,906
    )Other
    
    
    (25
    )
    
    
    8Cash used in investing activities
    
    
    (3,373
    )
    
    
    (31,206
    )Financing activities:Proceeds from issuance of common stock under employee benefit plans
    
    
    1,266
    
    
    
    396Excess tax benefits of stock options exercised
    
    
    
    
    
    
    232Common stock repurchased
    
    
    
    
    
    
    (1,798
    )Payments on long-term debt
    
    
    (33
    )
    
    
    (34
    )Cash provided (used) by financing activities
    
    
    1,233
    
    
    
    (1,204
    )Effect of foreign exchange rates on cash and cash equivalents
    
    
    (1,310
    )
    
    
    1,518Increase (decrease) in cash and cash equivalents
    
    
    7,464
    
    
    
    (19,017
    )Cash and cash equivalents at beginning of period
    
    
    43,681
    
    
    
    51,405Cash and cash equivalents at end of period
    
    $
    51,145
    
    
    $
    32,388
  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
    (2) Certain Risks and Concentrations
  6




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009North America
    
    $
    25,187
    
    
    $
    27,737
    
    
    $
    70,928
    
    
    $
    81,120Europe
    
    
    8,082
    
    
    
    7,441
    
    
    
    25,024
    
    
    
    20,713Asia Pacific
    
    
    2,968
    
    
    
    3,553
    
    
    
    8,404
    
    
    
    9,275$
    36,237
    
    
    $
    38,731
    
    
    $
    104,356
    
    
    $
    111,108
 (3) Revenue Recognition
   Topic 605-25, Multiple-Element Arrangements. Topic 605-25
 Topic 605-25 Industry Topic 985, Software Industry Topic
985
 7




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##### Table of Contents



Industry Topic 985
       (4) Sales Commissions
  8




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(5) Net Income (Loss) Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Weighted average common
shares outstanding for basic
net income (loss) per share
    
    
    33,640
    
    
    
    31,733
    
    
    
    33,585
    
    
    
    31,731Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    691
    
    
    
    
    
    
    
    518Weighted average shares
outstanding for dilutive net
income (loss) per share
    
    
    33,640
    
    
    
    32,424
    
    
    
    33,585
    
    
    
    32,249
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Employee stock options
    
    
    4,559
    
    
    
    5,393
    
    
    
    4,559
    
    
    
    5,566
 (6) Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Net income (loss)
    
    $
    (1,447
    )
    
    $
    1,965
    
    
    $
    (7,975
    )
    
    $
    3,264Other comprehensive income (loss):Unrealized gain (loss) on short-term investments
    
    
    (227
    )
    
    
    (36
    )
    
    
    (201
    )
    
    
    158Unrealized gain (loss) on long-term investments
    
    
    35
    
    
    
    
    
    
    
    (390
    )
    
    
    Foreign currency translation adjustments
    
    
    785
    
    
    
    171
    
    
    
    690
    
    
    
    (679
    )Comprehensive income (loss)
    
    $
    (854
    )
    
    $
    2,100
    
    
    $
    (7,876
    )
    
    $
    2,743
 (7) Fair Value
 Topic 820, Fair Value Measurements and Disclosures Topic 820 Topic 820 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. 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
 9




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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
    
    $
    22,449
    
    
    $
    
    
    
    $
    
    
    
    $
    22,449Money Market funds
    
    
    9,443
    
    
    
    
    
    
    
    
    
    
    
    9,443Commercial paper
    
    
    
    
    
    
    5,598
    
    
    
    
    
    
    
    5,598Certificates of deposit
    
    
    1,234
    
    
    
    
    
    
    
    
    
    
    
    1,234Corporate notes and bonds
    
    
    
    
    
    
    2,046
    
    
    
    
    
    
    
    2,046U.S. Government agency securities
    
    
    
    
    
    
    45,462
    
    
    
    
    
    
    
    45,462State and Municipal securities
    
    
    
    
    
    
    2,394
    
    
    
    
    
    
    
    2,394Auction rate federally insured student loan bonds
    
    
    
    
    
    
    
    
    
    
    4,055
    
    
    
    4,055Auction rate
security put option
    
    
    
    
    
    
    
    
    
    
    341
    
    
    
    341Total
    
    $
    33,126
    
    
    $
    55,500
    
    
    $
    4,396
    
    
    $
    93,022
  Sept. 30, 2009Fair value at December 31, 2008
    
    $
    4,963Unrealized gain adjustmentARS
    
    
    428Unrealized loss adjustmentput option
    
    
    (397
    )Redemption of auction rate preferred stocks
    
    
    (598
    )Fair value at September 30, 2009
    
    $
    4,396
    10




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Topic 815, Derivatives and Hedging, Topic 320,
Investments-Debt and Equity Securities Topic 825, Financial Instruments,
 Topic
320, Investments-Debt and Equity Securities,
   (8) Stock-Based Compensation
 Topic 718, Compensation-Stock Compensation. Topic 718
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Stock-based compensation expense:
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009Cost of software, hosting and support
    
    $
    87
    
    
    $
    120
    
    
    $
    243
    
    
    $
    358Cost of professional services
    
    
    158
    
    
    
    138
    
    
    
    476
    
    
    
    480Sales and marketing expenses
    
    
    738
    
    
    
    761
    
    
    
    1,871
    
    
    
    2,335Research and development expenses
    
    
    252
    
    
    
    285
    
    
    
    729
    
    
    
    924General and administrative expenses
    
    
    297
    
    
    
    548
    
    
    
    1,376
    
    
    
    2,007Stock-based compensation expense
    
    $
    1,532
    
    
    $
    1,852
    
    
    $
    4,695
    
    
    $
    6,104
 11




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Fair value per share
    
    $
    6.57
    
    
    $
    6.60
    
    
    $
    5.62
    
    
    $
    4.66Risk free rate
    
    
    2.78
    %
    
    
    2.21
    %
    
    
    2.69
    %
    
    
    1.71
    %Expected term
    
    4.3 yrs
    
    
    4.4 yrs
    
    
    4.5 yrs
    
    
    4.4 yrsVolatility
    
    
    54
    %
    
    
    66
    %
    
    
    55
    %
    
    
    67
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  Risk Free Rate:
 Expected Term
 Volatility
 Dividend Yield:
  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
    
    
    
    
    
    
    
    6.8Annual reserve addition (1)
    
    
    1,000
    
    
    
    
    
    
    
    Granted (2)
    
    
    (2,052
    )
    
    
    2,028
    
    
    
    8.74Exercised
    
    
    
    
    
    
    (132
    )
    
    
    1.98Forfeited, expired, exchanged or canceled (3)
    
    
    211
    
    
    
    (240
    )
    
    
    13.82Balance at September 30, 2009
    
    
    2,769
    
    
    
    6,084
    
    
    $
    10.92
    
    
    $
    24,687
    
    
    
    7.4Vested or expected to vest at September 30, 2009
    
    
    
    
    
    
    5,742
    
    
    $
    10.99
    
    
    $
    23,051
    
    
    
    7.3Exercisable at September 30, 2009
    
    
    
    
    
    
    3,208
    
    
    $
    11.16
    
    
    $
    12,933
    
    
    
    6.2
 
 (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)
    
    On September 16, 2009, the Company granted 24,180 restricted stock units to certain employees
at a fair value of $12.20 per share. The shares were granted from the 2004 Equity Incentive
Plan.(3)
    
    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. 12




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(9) Commitments and Contingencies
 Warranties and Indemnification
     Litigation
  (10) Income Taxes
  (11) Fair Value of Financial Instruments
  Account receivable and term receivablescurrent:
 13




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Accounts payablecurrent:
 Term receivablesnoncurrent:
 Debt:
 (12) Acquisition
   Cash consideration
    
    $
    5,906Total purchase price
    
    $
    5,906Purchase price allocation:Net assets assumed
    
    $
    189Intangible assets
    
    
    5,717Total purchase price
    
    $
    5,906
   Goodwill
    
    $
    3,617Developed technology
    
    
    1,800Customer relationships
    
    
    200Trade name and trademarks
    
    
    100Intangible assets
    
    $
    5,717
  14




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Three months ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Total Revenues
    
    $
    36,309
    
    
    $
    38,915
    
    
    $
    104,624
    
    
    $
    111,858Net income (loss)
    
    
    (2,812
    )
    
    
    1,072
    
    
    
    (10,876
    )
    
    
    97
  (13) Subsequent Events
 Topic 855, Subsequent Events Topic 855
  
 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
 15




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##### Table of Contents



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 success of our
efforts to integrate HiveLives people and processes, following our recent acquisition of that
Company; the risk of asset impairment associated with the acquisition of HiveLive; 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 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;
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.
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##### Table of Contents



Overview
   Sources of Revenue
       17




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##### Table of Contents



Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Sales and Marketing Expenses.
 Research and Development Expenses.
 General and Administrative Expenses
 Critical Accounting Policies and Estimates
  Revenue Recognition
 Industry
Topic 985, Software Topic 605, Revenue Recognition. Topic 605-25
 18




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##### Table of Contents



Industry Topic 985, Software.
    Allowance for doubtful accounts
  Income Taxes
   Share-Based Compensation
 Topic 718, Compensation-Stock
Compensation Topic 718
 19




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##### Table of Contents



Recently Issued Accounting Standards
 Accounting
Standards Update (ASU) 2009-13, Revenue Arrangements with Multiple Deliverables
 Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Revenue:Software, hosting and support
    
    
    72
    %
    
    
    77
    %
    
    
    73
    %
    
    
    75
    %Professional services
    
    
    28
    
    
    
    23
    
    
    
    27
    
    
    
    25Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of revenue:Software, hosting and support
    
    
    15
    
    
    
    14
    
    
    
    15
    
    
    
    14Professional services
    
    
    22
    
    
    
    16
    
    
    
    22
    
    
    
    18Total cost of revenue
    
    
    37
    
    
    
    30
    
    
    
    37
    
    
    
    32Gross profit
    
    
    63
    
    
    
    70
    
    
    
    63
    
    
    
    68Operating expenses:Sales and marketing
    
    
    47
    
    
    
    42
    
    
    
    49
    
    
    
    42Research and development
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13General and administrative
    
    
    9
    
    
    
    10
    
    
    
    10
    
    
    
    11Total operating expenses
    
    
    69
    
    
    
    65
    
    
    
    72
    
    
    
    66Income (loss) from operations
    
    
    (6
    )
    
    
    5
    
    
    
    (9
    )
    
    
    2Interest and other income, net
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    1Income (loss) before income taxes
    
    
    (4
    )
    
    
    6
    
    
    
    (7
    )
    
    
    3(Provision) benefit for income taxes
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (
    )Net income (loss)
    
    
    (4
    )%
    
    
    5
    %
    
    
    (7
    )%
    
    
    3
    %
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Customer interactions (in millions)
    
    
    576
    
    
    
    620
    
    
    
    1,516
    
    
    
    1,790Revenue by type:Recurring (subscriptions, term licenses, hosting and support)
    
    
    72
    %
    
    
    77
    %
    
    
    73
    %
    
    
    75
    %Professional services
    
    
    28
    
    
    
    23
    
    
    
    27
    
    
    
    25Revenue by geography in:United States
    
    
    70
    %
    
    
    72
    %
    
    
    68
    %
    
    
    73
    %Europe
    
    
    22
    
    
    
    19
    
    
    
    24
    
    
    
    19Asia Pacific
    
    
    8
    
    
    
    9
    
    
    
    8
    
    
    
    8
 20




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##### Table of Contents



Quarter Overview
      Three and Nine months ended September 30, 2009 and 2008
 Revenue
 Three Months Ended September 30,
    
    
    Nine months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeSoftware, hosting and support:
    
    
    25,956
    
    
    
    29,754
    
    
    
    15
    %
    
    
    76,085
    
    
    
    83,223
    
    
    
    9
    %Professional services
    
    
    10,281
    
    
    
    8,977
    
    
    
    (13
    )
    
    
    28,271
    
    
    
    27,885
    
    
    
    (1
    )Total revenue
    
    $
    36,237
    
    
    $
    38,731
    
    
    
    7
    %
    
    $
    104,356
    
    
    
    111,108
    
    
    
    6
    %
 21




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Cost of Revenue
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeSoftware, hosting and support
    
    $
    5,305
    
    
    
    5,232
    
    
    
    (1
    )%
    
    $
    15,383
    
    
    
    15,135
    
    
    
    (2
    )%Professional services
    
    
    8,133
    
    
    
    6,365
    
    
    
    (22
    )
    
    
    23,228
    
    
    
    19,719
    
    
    
    (15
    )Total cost of revenue
    
    
    13,438
    
    
    
    11,597
    
    
    
    (14
    )%
    
    $
    38,611
    
    
    
    34,854
    
    
    
    (10
    )%
 22




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##### Table of Contents



Operating Expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeSales and marketing
    
    $
    16,889
    
    
    $
    16,175
    
    
    
    (4
    )%
    
    
    51,334
    
    
    $
    47,046
    
    
    
    (8
    )%Research and development
    
    
    4,671
    
    
    
    5,100
    
    
    
    9
    
    
    
    13,664
    
    
    
    14,907
    
    
    
    9General and administrative
    
    
    3,215
    
    
    
    4,018
    
    
    
    25
    
    
    
    10,621
    
    
    
    11,671
    
    
    
    10Total operating expenses
    
    $
    24,775
    
    
    $
    25,293
    
    
    
    2
    %
    
    $
    75,619
    
    
    $
    73,624
    
    
    
    (3
    )%
 Sales and Marketing Expenses
   23




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Research and Development Expenses
  General and Administrative Expenses
  Stock-Based Compensation Expense
  Interest and Other Income, Net
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeInterest income
    
    $
    714
    
    
    $
    248
    
    
    
    (65
    )%
    
    $
    2,366
    
    
    $
    866
    
    
    
    (63
    )%Interest expense
    
    
    (3
    )
    
    
    (1
    )
    
    
    n/m
    
    
    
    (8
    )
    
    
    (7
    )
    
    
    n/mOther income (expense)
    
    
    (159
    )
    
    
    95
    
    
    
    n/m
    
    
    
    (349
    )
    
    
    234
    
    
    
    n/mTotal interest and other income , net
    
    $
    552
    
    
    $
    342
    
    
    
    (38
    )%
    
    $
    2,009
    
    
    $
    1,094
    
    
    
    (46
    )%
   24




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##### Table of Contents



Provision for Income Taxes
 Topic 718, Compensation-Stock Compensation
 25




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Liquidity and Capital Resources
 Three Months Ended September 30,
    
    
    Nine months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2008
    
    
    2009
    
    
    Change
    
    
    2008
    
    
    2009
    
    
    ChangeCash, cash equivalents and short-term
investments
    
    $
    97,589
    
    
    $
    93,022
    
    
    
    (5
    )%
    
    $
    97,589
    
    
    $
    93,022
    
    
    
    (5
    )%Long-term investments
    
    
    4,612
    
    
    
    
    
    
    
    (100
    )%
    
    
    4,612
    
    
    
    
    
    
    
    (100
    )%Cash provided by (used in) operating
activities
    
    
    (1,330
    )
    
    
    4,909
    
    
    
    469
    %
    
    
    10,914
    
    
    
    11,876
    
    
    
    9
    %
       Topic 320
 26




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##### Table of Contents



Topic 825
  Off-Balance Sheet Arrangements
  Contractual Obligations and Commitments
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
   Interest Rate Sensitivity
  27




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##### Table of Contents



Liquidation and Valuation Risk
 Topic 320
 
 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
  28




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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.
   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,
Central Asia 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.
  29




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##### Table of Contents



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.
    
    Social CRM providers, such as Lithium and other niche social CRM providers.
  30




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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;
    
    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.
   33




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##### Table of Contents



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.
   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.
  34




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##### Table of Contents



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 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;
 35




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##### Table of Contents




    
    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.
  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 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.
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##### Table of Contents



Changes to financial accounting standards may affect our results of operations and financial
condition.
  The required adoption of Topic 718, Compensation-Stock Compensation makes stock options a less
attractive form of employee compensation, and our use of alternative forms of employee
compensation in response to Topic 718 could adversely affect our ability to attract and retain
personnel.
 Topic 718
 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.
 Topic 320
 We may not be able to secure additional financing on favorable terms, or at all, to meet our
future capital needs.
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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.
    Privacy concerns and laws or other domestic or foreign regulations may adversely affect our
business or reduce sales of our solutions.
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##### Table of Contents



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.
   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.
 39




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##### Table of Contents



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. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  40




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##### Table of Contents



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. 41




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##### Table of Contents



SIGNATURE
   RightNow Technologies, Inc.
(Registrant)By:
    /s/ Jeffrey C. DavisonJeffrey C. DavisonChief Financial Officer, Vice President and, Treasurer
(Principal Financial and Accounting Officer) 42