##### 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, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                 to
 000-31321
(Commission File No.)
 RIGHTNOW TECHNOLOGIES, INC.
  Delaware
    
    81-0503640(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
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 June 30, 2010
 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
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    26Item 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
    
    41Item 4.
    
    (Removed and Reserved)
    
    41Item 5.
    
    Other Information
    
    41Item 6.
    
    Exhibits
    
    42SIGNATURES
    
    43EX-31.1EX-31.2EX-32.1
  2




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Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 RightNow Technologies, Inc.  Condensed Consolidated Balance Sheets
 December 31,
    
    
    June 30,2009
    
    
    2010AssetsCash and cash equivalents
    
    $
    41,546
    
    
    $
    61,212Short-term investments
    
    
    54,977
    
    
    
    38,228Accounts receivable
    
    
    31,850
    
    
    
    33,020Term receivables, current
    
    
    2,417
    
    
    
    1,271Allowance for doubtful accounts
    
    
    (1,914
    )
    
    
    (1,697
    )Receivables, net
    
    
    32,353
    
    
    
    32,594Deferred commissions
    
    
    6,394
    
    
    
    5,226Prepaid and other current assets
    
    
    2,434
    
    
    
    3,952Total current assets
    
    
    137,704
    
    
    
    141,212Property and equipment, net
    
    
    10,122
    
    
    
    10,850Term receivables, non-current
    
    
    1,105
    
    
    
    537Intangible assets, net
    
    
    11,141
    
    
    
    12,561Deferred commissions, non-current
    
    
    3,461
    
    
    
    3,442Other
    
    
    902
    
    
    
    1,267Total Assets
    
    $
    164,435
    
    
    $
    169,869Liabilities and Stockholders EquityAccounts payable
    
    $
    5,427
    
    
    $
    8,503Commissions and bonuses payable
    
    
    6,271
    
    
    
    4,597Other accrued liabilities
    
    
    11,146
    
    
    
    13,510Current portion of long-term debt
    
    
    22
    
    
    
    Current portion of deferred revenue
    
    
    88,603
    
    
    
    86,933Total current liabilities
    
    
    111,469
    
    
    
    113,543Deferred revenue, net of current portion
    
    
    12,724
    
    
    
    7,894Stockholders equity:Common stock
    
    
    34
    
    
    
    34Additional paid-in capital
    
    
    112,439
    
    
    
    118,652Treasury stock
    
    
    (15,007
    )
    
    
    (15,007
    )Accumulated other comprehensive income
    
    
    1,125
    
    
    
    1,113Accumulated deficit
    
    
    (58,349
    )
    
    
    (56,360
    )Total stockholders equity
    
    
    40,242
    
    
    
    48,432Total Liabilities and Stockholders Equity
    
    $
    164,435
    
    
    $
    169,869
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RightNow Technologies, Inc.  Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Revenue:Recurring revenue
    
    $
    27,424
    
    
    $
    34,730
    
    
    $
    53,469
    
    
    $
    67,755Professional services
    
    
    8,916
    
    
    
    8,724
    
    
    
    18,908
    
    
    
    17,801Total revenue
    
    
    36,340
    
    
    
    43,454
    
    
    
    72,377
    
    
    
    85,556Cost of revenue:Recurring revenue
    
    
    4,954
    
    
    
    5,952
    
    
    
    9,903
    
    
    
    11,831Professional services
    
    
    6,346
    
    
    
    7,378
    
    
    
    13,354
    
    
    
    14,710Total cost of revenue
    
    
    11,300
    
    
    
    13,330
    
    
    
    23,257
    
    
    
    26,541Gross profit
    
    
    25,040
    
    
    
    30,124
    
    
    
    49,120
    
    
    
    59,015Operating expenses:Sales and marketing
    
    
    16,008
    
    
    
    18,777
    
    
    
    30,871
    
    
    
    37,501Research and development
    
    
    5,051
    
    
    
    4,797
    
    
    
    9,807
    
    
    
    9,929General and administrative
    
    
    4,207
    
    
    
    4,324
    
    
    
    7,653
    
    
    
    8,623Total operating expenses
    
    
    25,266
    
    
    
    27,898
    
    
    
    48,331
    
    
    
    56,053Income (loss) from operations
    
    
    (226
    )
    
    
    2,226
    
    
    
    789
    
    
    
    2,962Interest and other income, net
    
    
    351
    
    
    
    19
    
    
    
    752
    
    
    
    202Income before income taxes
    
    
    125
    
    
    
    2,245
    
    
    
    1,541
    
    
    
    3,164Provision for income taxes
    
    
    (89
    )
    
    
    (841
    )
    
    
    (242
    )
    
    
    (1,175
    )Net income
    
    $
    36
    
    
    $
    1,404
    
    
    $
    1,299
    
    
    $
    1,989Net income per share:Basic
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.06Diluted
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.06Shares used in the computation:Basic
    
    
    31,677
    
    
    
    32,000
    
    
    
    31,730
    
    
    
    31,965Diluted
    
    
    32,160
    
    
    
    33,427
    
    
    
    32,207
    
    
    
    33,430
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RightNow Technologies, Inc.  Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2009
    
    
    2010Operating activities:Net income
    
    $
    1,299
    
    
    $
    1,989Non-cash adjustments:Depreciation and amortization
    
    
    3,613
    
    
    
    3,937Provisions for uncollectible accounts receivable
    
    
    87
    
    
    
    81Stock-based compensation
    
    
    4,252
    
    
    
    3,516Changes in operating accounts:Receivables
    
    
    8,398
    
    
    
    (461
    )Prepaid expenses and other current assets
    
    
    (107
    )
    
    
    (1,868
    )Deferred commissions
    
    
    (77
    )
    
    
    989Accounts payable
    
    
    830
    
    
    
    3,144Commissions and bonuses payable
    
    
    (810
    )
    
    
    (1,573
    )Other accrued liabilities
    
    
    446
    
    
    
    2,564Deferred revenue
    
    
    (11,467
    )
    
    
    (4,774
    )Other
    
    
    503
    
    
    
    (19
    )Cash provided by operating activities
    
    
    6,967
    
    
    
    7,525Investing activities:Net change in investments
    
    
    (8,310
    )
    
    
    16,765Acquisition of property and equipment
    
    
    (2,530
    )
    
    
    (3,836
    )Intangible asset additions
    
    
    
    
    
    
    (2,339
    )Other
    
    
    5
    
    
    
    Cash provided (used) in investing activities
    
    
    (10,835
    )
    
    
    10,590Financing activities:Proceeds from issuance of common stock under employee benefit plans
    
    
    229
    
    
    
    1,568Excess tax benefits of stock options exercised
    
    
    137
    
    
    
    1,130Common stock repurchased
    
    
    (1,798
    )
    
    
    Payments on long-term debt
    
    
    (23
    )
    
    
    (22
    )Cash provided (used) by financing activities
    
    
    (1,455
    )
    
    
    2,676Effect of foreign exchange rates on cash and cash equivalents
    
    
    905
    
    
    
    (1,125
    )Increase (decrease) in cash and cash equivalents
    
    
    (4,418
    )
    
    
    19,666Cash and cash equivalents at beginning of period
    
    
    51,405
    
    
    
    41,546Cash and cash equivalents at end of period
    
    $
    46,987
    
    
    $
    61,212
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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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2010
    
    
    2009
    
    
    2010North America
    
    $
    26,386
    
    
    $
    30,477
    
    
    $
    53,383
    
    
    $
    60,417EMEA
    
    
    6,832
    
    
    
    8,231
    
    
    
    13,272
    
    
    
    16,374Asia Pacific
    
    
    3,122
    
    
    
    4,746
    
    
    
    5,722
    
    
    
    8,765$
    36,340
    
    
    $
    43,454
    
    
    $
    72,377
    
    
    $
    85,556
 (3) Revenue Recognition
  Topic 605-25,
Multiple-Element Arrangements, Industry Topic 985, Software, Industry Topic 985
 Revenue Arrangements with Multiple Deliverables (ASU 2009-13" ASU
2009-13 Topic 605-25 Multiple-Element Arrangements, ASU
2009-13
 7




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##### Table of Contents



Industry Topic 985,
Software.
      (4) Sales Incentives
  (5) Internal Use Software
 Topic 350, Intangibles  Goodwill and Other
 8




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##### Table of Contents



(6) Net Income Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2010
    
    2009
    
    2010Weighted average common
shares outstanding for basic
net income per share
    
    
    31,677
    
    
    
    32,000
    
    
    
    31,730
    
    
    
    31,965Effect of dilutive securities:Employee stock awards
    
    
    483
    
    
    
    1,427
    
    
    
    477
    
    
    
    1,465Weighted average shares
outstanding for dilutive net
income per share
    
    
    32,160
    
    
    
    33,427
    
    
    
    32,207
    
    
    
    33,430
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2010
    
    2009
    
    2010Employee stock options
    
    
    5,498
    
    
    
    5,148
    
    
    
    5,504
    
    
    
    5,110
 (7) Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Net income
    
    $
    36
    
    
    $
    1,404
    
    
    $
    1,299
    
    
    $
    1,989Other comprehensive income (loss):Unrealized gain on short-term investments
    
    
    323
    
    
    
    42
    
    
    
    194
    
    
    
    16Foreign currency translation adjustments
    
    
    (938
    )
    
    
    (213
    )
    
    
    (850
    )
    
    
    (28
    )Comprehensive income (loss)
    
    $
    (579
    )
    
    $
    1,233
    
    
    $
    643
    
    
    $
    1,977
 (8) Fair Value
 Topic 820
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
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
    
    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.
 The following table represents fair value hierarchy for the Companys financial assets (cash
equivalents and investments) which are measured at fair value on a recurring basis as of June
30, 2010 (in thousands):
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalCash
    
    $
    33,279
    
    
    $
    
    
    
    $
    
    
    
    $
    33,279Money Market funds
    
    
    28,930
    
    
    
    
    
    
    
    
    
    
    
    28,930Corporate notes and bonds
    
    
    
    
    
    
    3,974
    
    
    
    
    
    
    
    3,974U.S. Government agency securities
    
    
    
    
    
    
    32,309
    
    
    
    
    
    
    
    32,309State and Municipal securities
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    948$
    62,209
    
    
    $
    37,231
    
    
    $
    
    
    
    $
    99,440
  Fair value at December 31, 2009
    
    $
    3,797Unrealized gain adjustmentARS
    
    
    109Unrealized loss adjustmentput option
    
    
    (106
    )Redemptions
    
    
    (3,800
    )Fair value at June 30, 2010
    
    $
    Fair value at December 31, 2008
    
    $
    4,963Unrealized gain adjustmentARS
    
    
    371Unrealized loss adjustmentput option
    
    
    (344
    )Redemptions
    
    
    (198
    )Fair value at June 30, 2009
    
    $
    4,792
 (9) Stock-Based Compensation
   10




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Stock-based compensation expense:
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Cost of recurring revenue
    
    $
    142
    
    
    $
    117
    
    
    $
    238
    
    
    $
    230Cost of professional services
    
    
    209
    
    
    
    122
    
    
    
    342
    
    
    
    236Sales and marketing expenses
    
    
    952
    
    
    
    726
    
    
    
    1,574
    
    
    
    1,477Research and development expenses
    
    
    377
    
    
    
    240
    
    
    
    639
    
    
    
    497General and administrative expenses
    
    
    1,056
    
    
    
    556
    
    
    
    1,459
    
    
    
    1,076Stock-based compensation expense
    
    $
    2,736
    
    
    $
    1,761
    
    
    $
    4,252
    
    
    $
    3,516
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Fair value per share
    
    $
    4.49
    
    
    $
    7.21
    
    
    $
    4.47
    
    
    $
    7.82Risk free rate
    
    
    1.85
    %
    
    
    1.7
    %
    
    
    1.7
    %
    
    
    1.9
    %Expected term
    
    3.8 yrs
    
    4.2 yrs
    
    4.3 yrs
    
    4.5 yrsVolatility
    
    
    67
    %
    
    
    64
    %
    
    
    67
    %
    
    
    65
    %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, 2009
    
    
    2,774
    
    
    
    5,947
    
    
    $
    10.96
    
    
    
    
    
    
    
    7.2Annual reserve addition (1)
    
    
    1,000
    
    
    
    
    
    
    
    Granted
    
    
    (1,147
    )
    
    
    1,129
    
    
    
    14.87Exercised
    
    
    
    
    
    
    (140
    )
    
    
    10.32Forfeited, expired, exchanged or canceled (2)
    
    
    110
    
    
    
    (108
    )
    
    
    12.90Balance at June 30, 2010
    
    
    2,737
    
    
    
    6,828
    
    
    $
    11.59
    
    
    $
    29,827
    
    
    
    7.2Vested or expected to vest at June 30, 2010
    
    
    
    
    
    
    6,575
    
    
    $
    11.56
    
    
    $
    28,960
    
    
    
    7.2Exercisable at June 30, 2010
    
    
    
    
    
    
    3,577
    
    
    $
    11.37
    
    
    $
    17,002
    
    
    
    5.8
 
 (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. 12




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(10) Commitments and Contingencies
 Warranties and Indemnification
     Litigation
  (11) Income Taxes
  (12) Subsequent Events
  13




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##### Table of Contents



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




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Overview
    Sources of Revenue
      15




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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
  16




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Revenue Recognition
 Industry
Topic 985, Software
 Revenue Arrangements with Multiple
Deliverables (ASU 2009-13 ASU 2009-13 Topic 605-25 Multiple-Element
Arrangements, ASU 2009-13
 Industry Topic 985, Software.
    Allowance for doubtful accounts
  Income Taxes
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Share-Based Compensation
 Topic 718, Compensation-Stock
Compensation,
 Software Capitalization
 Topic 350, Intangibles  Goodwill and Other,
 Industry Topic 985, Software,
 18




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##### Table of Contents



Recently Issued Accounting Standards
  Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2010
    
    2009
    
    2010Revenue:Recurring revenue
    
    
    75
    %
    
    
    80
    %
    
    
    74
    %
    
    
    79
    %Professional services
    
    
    25
    
    
    
    20
    
    
    
    26
    
    
    
    21Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of revenue:Recurring revenue
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14Professional services
    
    
    17
    
    
    
    17
    
    
    
    18
    
    
    
    17Total cost of revenue
    
    
    31
    
    
    
    31
    
    
    
    32
    
    
    
    31Gross profit
    
    
    69
    
    
    
    69
    
    
    
    68
    
    
    
    69Operating expenses:Sales and marketing
    
    
    44
    
    
    
    43
    
    
    
    43
    
    
    
    44Research and development
    
    
    14
    
    
    
    11
    
    
    
    14
    
    
    
    12General and administrative
    
    
    12
    
    
    
    10
    
    
    
    11
    
    
    
    10Total operating expenses
    
    
    70
    
    
    
    64
    
    
    
    67
    
    
    
    66Income (loss) from operations
    
    
    (1
    )
    
    
    5
    
    
    
    1
    
    
    
    3Interest and other income, net
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Income before income taxes
    
    
    0
    
    
    
    5
    
    
    
    2
    
    
    
    3Provision for income taxes
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    1Net income
    
    
    0
    %
    
    
    3
    %
    
    
    2
    %
    
    
    2
    %
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2010
    
    2009
    
    2010Revenue by type:Recurring (subscriptions, term licenses, hosting and support)
    
    
    75
    %
    
    
    80
    %
    
    
    74
    %
    
    
    79
    %Professional services
    
    
    25
    
    
    
    20
    
    
    
    26
    
    
    
    21Revenue by geography in:North America
    
    
    72
    %
    
    
    70
    %
    
    
    74
    %
    
    
    71
    %EMEA
    
    
    19
    
    
    
    19
    
    
    
    18
    
    
    
    19Asia Pacific
    
    
    9
    
    
    
    11
    
    
    
    8
    
    
    
    10
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Quarter Overview
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Backlog
  December 31
    
    
    June 30,2009
    
    
    2010Current committed backlog
    
    $
    117,600
    
    
    $
    114,500Non-current committed backlog
    
    
    57,020
    
    
    
    39,700Total firm committed backlog
    
    
    174,620
    
    
    
    154,200Current backlog subject to termination for convenience
    
    
    3,400
    
    
    
    6,550Non-current backlog subject to termination for convenience
    
    
    1,980
    
    
    
    51,250Total backlog
    
    $
    180,000
    
    
    $
    212,000
      Three and Six Months Ended June 30, 2010 and 2009
 Revenue
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Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeRecurring revenue:
    
    $
    27,424
    
    
    $
    34,730
    
    
    
    27
    %
    
    $
    53,469
    
    
    $
    67,755
    
    
    
    27
    %Professional services
    
    
    8,916
    
    
    
    8,724
    
    
    
    (2
    )
    
    
    18,908
    
    
    
    17,801
    
    
    
    (6
    )Total revenue
    
    $
    36,340
    
    
    $
    43,454
    
    
    
    20
    %
    
    $
    72,377
    
    
    $
    85,556
    
    
    
    18
    %
        Cost of Revenue
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeRecurring revenue
    
    $
    4,954
    
    
    $
    5,952
    
    
    
    20
    %
    
    $
    9,903
    
    
    $
    11,831
    
    
    
    19
    %Professional services
    
    
    6,346
    
    
    
    7,378
    
    
    
    16
    
    
    
    13,354
    
    
    
    14,710
    
    
    
    10Total cost of revenue
    
    $
    11,300
    
    
    $
    13,330
    
    
    
    18
    %
    
    $
    23,257
    
    
    $
    26,541
    
    
    
    14
    %
      Operating Expenses
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeSales and marketing
    
    $
    16,008
    
    
    $
    18,777
    
    
    
    17
    %
    
    $
    30,871
    
    
    $
    37,501
    
    
    
    21
    %Research and development
    
    
    5,051
    
    
    
    4,797
    
    
    
    (5
    )
    
    
    9,807
    
    
    
    9,929
    
    
    
    1General and administrative
    
    
    4,207
    
    
    
    4,324
    
    
    
    3
    
    
    
    7,653
    
    
    
    8,623
    
    
    
    13Total operating expenses
    
    $
    25,266
    
    
    $
    27,898
    
    
    
    10
    %
    
    $
    48,331
    
    
    $
    56,063
    
    
    
    16
    %
 Sales and Marketing Expenses
    Research and Development Expenses
  General and Administrative Expenses
  Stock-Based Compensation Expense
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Interest and Other Income, Net
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeInterest income
    
    $
    298
    
    
    $
    117
    
    
    
    (61
    )%
    
    $
    618
    
    
    $
    313
    
    
    
    (49
    )%Interest expense
    
    
    (3
    )
    
    
    (1
    )
    
    
    n/m
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    n/mOther income (expense)
    
    
    56
    
    
    
    (97
    )
    
    
    n/m
    
    
    
    140
    
    
    
    (110
    )
    
    
    n/mTotal interest and other income , net
    
    $
    351
    
    
    $
    19
    
    
    
    95
    %
    
    $
    752
    
    
    $
    202
    
    
    
    (73
    )%
   Provision for Income Taxes
 Topic 718
 Liquidity and Capital Resources
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent(Amounts in thousands)
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    ChangeCash, cash equivalents and short-term
investments
    
    $
    89,795
    
    
    $
    99,440
    
    
    
    11
    %
    
    $
    89,795
    
    
    $
    99,440
    
    
    
    11
    %Long-term investments
    
    
    4,792
    
    
    
    
    
    
    
    (100
    )%
    
    
    4,792
    
    
    
    
    
    
    
    (100
    )%Cash provided by operating activities
    
    
    2,081
    
    
    
    4,014
    
    
    
    93
    %
    
    
    6,967
    
    
    
    7,525
    
    
    
    8
    %
   25




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




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Interest Rate Sensitivity
  27




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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-K, 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business. If any of these known or unknown risks or
uncertainties actually occurs with material adverse effects on RightNow, our business, financial
condition and results of operations could be seriously harmed. In that event, the market price for
our common stock could decline and you may lose all or part of your investment.
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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, terrorist attacks and
security concerns in general;
    
    adverse changes in tariffs and other protectionist laws and business practices
that favor local competitors;
    
    longer collection periods and difficulties in collecting receivables from foreign
entities;
    
    exposure to different legal standards and burdens of complying with a variety of
foreign laws, including employment, tax, privacy and data protection laws and
regulations;
    
    reduced protection for our intellectual property in some countries;
    
    expenses associated with localizing products for foreign countries, including
translation into foreign languages; and
    
    import and export license requirements and restrictions of the United States and
each other country in which we operate.
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We may not be able to sustain or increase profitability in the future.
  We face intense competition, and our failure to compete successfully could make it difficult
for us to add and retain clients and could reduce or impede the growth of our business.
   
    
    Companies currently providing customer service solutions, some of whom offer
hosted services, including ATG, BMC Software Corporation, Inc., eGain Communications
Corporation, Inquira Software, Inc., Kana Software, Inc., Liveperson, Microsoft
Corporation, Netsuite, nGenera, Oracle Corporation, Parature, SAP AG, and
salesforce.com;
    
    CRM systems that are developed and maintained internally by businesses;
    
    CRM products or services that are developed, or bundled with other products or
services, and installed on a clients premises by software vendors;
    
    Outsourced contact center providers that bundle solutions and agent labor in
their service offerings;
    
    New companies entering the CRM software market, the on demand applications market
and the on demand CRM market, or expanding from any one of these markets to the
others;
    
    Voice system integrators and voice-enabled IVR technology providers, such as
Microsoft, TuVox, and Voxify; and
    
    Social CRM providers, such as Lithium and other niche social CRM providers.
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Our quarterly results of operations may fluctuate in the future.
  
    
    our ability to retain and increase sales to existing clients, attract new clients and
satisfy our clients requirements;
    
    general economic, industry and market conditions;
    
    the mix of revenue between subscription arrangements, professional services and license
arrangements as sales commissions are generally expensed ratably over the term of an
agreement for subscription services, and expensed when invoiced for license arrangements and
professional services;
    
    changes in the mix of revenue between recurring revenue and professional services
revenue, because the gross margin on professional services is typically lower than the gross
margin on recurring revenue;
    
    changes in the mix of voice self service applications sold and/or usage volume, because
the gross margin on voice self service applications is typically lower than the gross margin
on our sales, marketing, feedback and service applications;
    
    the timing and success of new product introductions or upgrades by us or our competitors;
    
    the timing of professional service sales and our ability to appropriately staff and train
professional service resources without negatively impacting professional service margins;
    
    changes in our pricing policies or those of our competitors;
    
    the amount and timing of expenditures related to expanding our operations;
    
    stock price volatility, employee exercise behaviors, and option forfeiture rates, or
changes in the number of stock options granted and vesting requirements in any particular
period, which effects the amount of stock-based compensation expense;
    
    changes in the payment terms for our products and services, including changes in the mix
of payment options chosen by our customers;
    
    the purchasing and budgeting cycles of our clients; and
    
    changes in tax rate affected by changes in the mix of earnings and losses in
jurisdictions with differing statutory tax rates, certain non-deductible expenses arising
from the requirement to expense stock options and the valuation of deferred tax assets and
liabilities, including our ability to use our net operating losses.
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Failure to effectively develop and expand our sales and marketing capabilities could harm our
ability to increase our client base and achieve broader market acceptance of our solutions.
  32




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Most of our solutions are sold pursuant to time-based agreements, and if our existing clients
elect not to renew or to renew on terms less favorable to us, our business, financial condition
and results of operations will be adversely affected.
  We have experienced growth in recent periods. If we fail to manage our growth effectively, we may
be unable to execute our business plan, maintain high levels of service or adequately address
competitive challenges.
   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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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.
  Our failure to attract, manage, support and retain qualified partners may prevent us from
effectively deploying product and professional services.
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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.
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Our product development efforts may be constrained by the intellectual property of others, and we
may become subject to claims of intellectual property infringement, which could be costly and
time-consuming.
   The market for our on demand application services is not at the same stage of development as
traditional on premise enterprise software, and if it does not develop or develops more slowly
than we expect, our business will be harmed.
  
    
    on demand security capabilities and reliability;
    
    concerns with entrusting a third party to store and manage critical customer data;
    
    the level of customization we offer;
    
    our ability to continue to achieve and maintain high levels of client satisfaction; and
    
    the price, performance and availability of competing products and services.
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If our efforts to enhance existing solutions, introduce new solutions or expand the applications
for our products and solutions to broader CRM markets do not succeed, our ability to grow our
business will be adversely affected.
  Recently completed and/or future acquisitions could disrupt our business and harm our financial
condition and results of operations.
  
    
    an acquisition may negatively impact our results of operations because it may require
incurring large one-time charges, substantial debt or liabilities; it may require the
amortization or write down of amounts related to deferred compensation, goodwill and other
intangible assets; or it may cause adverse tax consequences, substantial depreciation or
deferred compensation charges;
    
    we may encounter difficulties in assimilating and integrating the business, technologies,
products, personnel or operations of companies that we acquire, particularly if key
personnel of the acquired company decide not to work for us;
    
    our existing and potential clients and the customers of the acquired company may delay
purchases due to uncertainty related to an acquisition;
    
    an acquisition may disrupt our ongoing business, divert resources, increase our expenses
and distract our management;
    
    the acquired businesses, products or technologies may not generate sufficient revenue to
offset acquisition costs and could result in material asset impairment charges;
    
    we may have to issue equity securities to complete an acquisition, which would dilute our
stockholders and could adversely affect the market price of our common stock; and
    
    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.
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We may not be able to secure additional financing on favorable terms, or at all, to meet our
future capital needs.
  We cannot assure our stockholders that our stock repurchase program will enhance long-term
stockholder value and stock repurchases, if any, could increase the volatility of the price of
our common stock and will diminish our cash reserves.
  The success of our products and our hosted business depends on the continued use of the
Internet as a business and communications tool, and the related expansion of the Internet
infrastructure.
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Privacy concerns and laws or other domestic or foreign regulations may adversely affect our
business or reduce sales of our solutions.
    Non-solicitation concerns, laws or regulations may adversely affect our clients ability to
perform outbound marketing and other email communications, which could reduce sales of our
solutions.
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The significant influence over stockholder voting matters and our office leases that may be
exercised by our founder and Chief Executive Officer will limit your ability to influence
corporate actions and may require us to find alternative office space to lease or buy in the
future.
   Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or
prevent a change in control of our company and may affect the trading price of our common stock.
  
    
    establishing a classified board in which only a portion of the total board members will
be elected at each annual meeting;
    
    authorizing the board to issue preferred stock;
    
    providing the board with sole authority to set the number of authorized directors and to
fill vacancies on the board;
    
    limiting the persons who may call special meetings of stockholders;
    
    prohibiting certain transactions under certain circumstances with interested
stockholders;
    
    requiring supermajority approval to amend certain provisions of the certificate of
incorporation; and
    
    prohibiting stockholder action by written consent.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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(a) Sales of Unregistered Securities
  (b) Use of Proceeds from Sales of Registered Securities
   (c) Purchases of Equity Securities
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. (Removed and Reserved).
 
 Item 5. Other Information.
  41




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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 10.1
    
    Form of Restricted Stock Unit Award Agreement for Directors. (3)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.(3)
    
    Incorporated by reference to the exhibit of the same number from the registrants current
report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on
June 9, 2010. 42




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SIGNATURE
   RightNow Technologies, Inc.
(Registrant)By:
    /s/ Jeffrey C. DavisonJeffrey C. DavisonChief Financial Officer, Vice President and, Treasurer
(Principal Financial and Accounting Officer) 43