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EX-31.1 - EXHIBIT 31.1 - RIGHTNOW TECHNOLOGIES INC | c59628exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - RIGHTNOW TECHNOLOGIES INC | c59628exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - RIGHTNOW TECHNOLOGIES INC | c59628exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
000-31321
(Commission File No.)
(Commission File No.)
RIGHTNOW TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 81-0503640 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
136 Enterprise Boulevard
Bozeman, Montana 59718-9300
(Address of Principal Executive Offices) (Zip Code)
Bozeman, Montana 59718-9300
(Address of Principal Executive Offices) (Zip Code)
(406) 522-4200
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock, $0.001 par value, as of October
31, 2010 was 32,342,697
RightNow Technologies, Inc.
Quarterly Report on Form 10-Q
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2010
INDEX
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40 | ||||||||
41 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32.1 |
2
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
RightNow
Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands) (Unaudited)
(In thousands) (Unaudited)
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 41,546 | $ | 77,728 | ||||
Short-term investments |
54,977 | 31,287 | ||||||
Accounts receivable |
34,267 | 36,738 | ||||||
Allowance for doubtful accounts |
(1,914 | ) | (1,867 | ) | ||||
Receivables, net |
32,353 | 34,871 | ||||||
Deferred commissions |
6,394 | 5,215 | ||||||
Prepaid and other current assets |
2,434 | 3,601 | ||||||
Total current assets |
137,704 | 152,702 | ||||||
Property and equipment, net |
10,122 | 11,063 | ||||||
Intangible assets, net |
11,141 | 13,382 | ||||||
Deferred commissions, non-current |
3,461 | 3,917 | ||||||
Other |
2,007 | 1,125 | ||||||
Total Assets |
$ | 164,435 | $ | 182,189 | ||||
Liabilities and Stockholders Equity |
||||||||
Accounts payable |
$ | 5,427 | $ | 9,165 | ||||
Commissions and bonuses payable |
6,271 | 6,142 | ||||||
Other accrued liabilities |
11,146 | 14,260 | ||||||
Current portion of long-term debt |
22 | | ||||||
Current portion of deferred revenue |
88,603 | 88,669 | ||||||
Total current liabilities |
111,469 | 118,236 | ||||||
Deferred revenue, net of current portion |
12,724 | 5,394 | ||||||
Stockholders equity: |
||||||||
Common stock |
34 | 34 | ||||||
Additional paid-in capital |
112,439 | 125,416 | ||||||
Treasury stock |
(15,007 | ) | (15,007 | ) | ||||
Accumulated other comprehensive income |
1,125 | 1,581 | ||||||
Accumulated deficit |
(58,349 | ) | (53,465 | ) | ||||
Total stockholders equity |
40,242 | 58,559 | ||||||
Total Liabilities and Stockholders Equity |
$ | 164,435 | $ | 182,189 | ||||
See accompanying notes to condensed consolidated financial statements.
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RightNow Technologies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
(In thousands, except per share amounts) (Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
Recurring revenue |
$ | 29,754 | $ | 38,613 | $ | 83,223 | $ | 106,368 | ||||||||
Professional services |
8,977 | 9,980 | 27,885 | 27,781 | ||||||||||||
Total revenue |
38,731 | 48,593 | 111,108 | 134,149 | ||||||||||||
Cost of revenue: |
||||||||||||||||
Recurring revenue |
5,232 | 5,923 | 15,135 | 17,754 | ||||||||||||
Professional services |
6,365 | 8,395 | 19,719 | 23,105 | ||||||||||||
Total cost of revenue |
11,597 | 14,318 | 34,854 | 40,859 | ||||||||||||
Gross profit |
27,134 | 34,275 | 76,254 | 93,290 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
16,175 | 20,006 | 47,046 | 57,507 | ||||||||||||
Research and development |
5,100 | 5,160 | 14,907 | 15,089 | ||||||||||||
General and administrative |
4,018 | 4,975 | 11,671 | 13,598 | ||||||||||||
Total operating expenses |
25,293 | 30,141 | 73,624 | 86,194 | ||||||||||||
Income from operations |
1,841 | 4,134 | 2,630 | 7,096 | ||||||||||||
Interest and other income, net |
342 | 454 | 1,094 | 656 | ||||||||||||
Income before income taxes |
2,183 | 4,588 | 3,724 | 7,752 | ||||||||||||
Provision for income taxes |
(218 | ) | (1,693 | ) | (460 | ) | (2,868 | ) | ||||||||
Net income |
$ | 1,965 | $ | 2,895 | $ | 3,264 | $ | 4,884 | ||||||||
Net income per share: |
||||||||||||||||
Basic |
$ | 0.06 | $ | 0.09 | $ | 0.10 | $ | 0.15 | ||||||||
Diluted |
$ | 0.06 | $ | 0.09 | $ | 0.10 | $ | 0.15 | ||||||||
Shares used in the computation: |
||||||||||||||||
Basic |
31,733 | 32,128 | 31,731 | 32,020 | ||||||||||||
Diluted |
32,424 | 33,659 | 32,249 | 33,515 |
See accompanying notes to condensed consolidated financial statements.
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RightNow Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
(In thousands) (Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2010 | |||||||
Operating activities: |
||||||||
Net income |
$ | 3,264 | $ | 4,884 | ||||
Non-cash adjustments: |
||||||||
Depreciation and amortization |
5,410 | 5,749 | ||||||
Provisions for uncollectible accounts receivable |
117 | 131 | ||||||
Stock-based compensation |
6,104 | 5,718 | ||||||
Changes in operating accounts: |
||||||||
Receivables |
10,731 | (1,424 | ) | |||||
Prepaid expenses and other current assets |
(735 | ) | (1,316 | ) | ||||
Deferred commissions |
(142 | ) | 726 | |||||
Accounts payable |
(567 | ) | 3,710 | |||||
Commissions and bonuses payable |
(941 | ) | (122 | ) | ||||
Other accrued liabilities |
415 | 2,946 | ||||||
Deferred revenue |
(12,036 | ) | (7,661 | ) | ||||
Other |
255 | 157 | ||||||
Cash provided by operating activities |
11,875 | 13,498 | ||||||
Investing activities: |
||||||||
Net change in investments |
(21,391 | ) | 23,700 | |||||
Acquisition of property and equipment |
(3,665 | ) | (5,475 | ) | ||||
Intangible asset additions |
(244 | ) | (3,459 | ) | ||||
Business acquisition |
(5,906 | ) | | |||||
Cash provided (used) in investing activities |
(31,206 | ) | 14,766 | |||||
Financing activities: |
||||||||
Proceeds from issuance of common stock under employee benefit plans |
396 | 4,636 | ||||||
Excess tax benefits of stock options exercised |
232 | 2,621 | ||||||
Common stock repurchased |
(1,798 | ) | | |||||
Payments on long-term debt |
(34 | ) | (22 | ) | ||||
Cash provided (used) by financing activities |
(1,204 | ) | 7,235 | |||||
Effect of foreign exchange rates on cash and cash equivalents |
1,518 | 683 | ||||||
Increase (decrease) in cash and cash equivalents |
(19,017 | ) | 36,182 | |||||
Cash and cash equivalents at beginning of period |
51,405 | 41,546 | ||||||
Cash and cash equivalents at end of period |
$ | 32,388 | $ | 77,728 | ||||
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
RightNow Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Unaudited)
(1) Business Description and Basis of Presentation
Business Description
RightNow Technologies, Inc. (the Company or RightNow) provides RightNow CX, a cloud-based
suite of customer experience software solutions for companies of all sizes. The Companys customer
experience solution is designed to help consumer-centric organizations improve customer
experiences, reduce costs and increase revenue. The Company helps organizations deliver exceptional
customer experiences across the web, social networks and contact centers, all delivered through its
cloud service. Founded in 1997, RightNow is headquartered in Bozeman, Montana, with additional
offices in North America, Europe, Asia, and Australia. The Company operates in one segment, which
is the customer relationship management market.
Basis of Presentation
The accompanying condensed interim consolidated financial statements are unaudited. These
financial statements and notes should be read in conjunction with the audited consolidated
financial statements and related notes, together with managements discussion and analysis of
financial condition and results of operations, contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2009.
The accompanying interim condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States. In the opinion of
management, the interim condensed consolidated financial statements and notes have been prepared on
the same basis as the audited consolidated financial statements in the Annual Report on Form 10-K
necessary for the fair presentation of the Companys financial position at September, 30, 2010,
results of operations for the three and nine month periods ended September 30, 2009 and 2010 and
cash flows for the nine month periods ended September 30, 2009 and 2010. The interim period results
are not necessarily indicative of the results to be expected for the full year.
Current and non-current term receivables as of September 30, 2010 were $371,000 and $82,000,
respectively. As these amounts were not significant, current term receivables were classified
within accounts receivable and non-current term receivables were classified within other
non-current assets as of September 30, 2010. For comparability purposes with September 30, 2010,
the Company reclassified $2.4 million of current term receivables to accounts receivable, and $1.1
million of non-current term receivables to other non-current assets in the accompanying December
31, 2009 consolidated balance sheet.
The preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management of the Company to make a
number of estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosures of contingent assets and liabilities. Management evaluates
these estimates on an on-going basis using historical experience and other factors, including the
current economic environment, and management believes these estimates to be reasonable under the
circumstances. Estimates and assumptions are adjusted when facts and circumstances dictate.
Illiquid credit markets, volatile equity, fluctuations in foreign currency exchange rates, and
declines in consumer spending have combined to increase the uncertainty inherent in such estimates
and assumptions. Significant items subject to such estimates and assumptions include: elements
comprising our software, hosting and support sales arrangements and whether the elements have
stand-alone and/or fair value; whether the fees charged for our products and services are fixed or
determinable, the carrying amount of property and equipment and intangible assets, including
internal use software capitalization; valuation allowances for receivables and deferred income tax
assets; and estimates of expected term and volatility in determining stock-based compensation
expense. As future events and their effects cannot be determined with precision, actual results
could differ significantly from those estimates.
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(2) Certain Risks and Concentrations
The Companys revenue is derived from the subscription, license, hosting and support of its
software products and provision of related professional services. The markets in which the Company
competes are highly competitive and rapidly changing. Significant technological changes, changes in
customer requirements, or the emergence of competitive products with new capabilities or
technologies could adversely affect the Companys operating results. The Company has historically
derived a majority of its revenue from customer experience software solutions. These products are
expected to continue to account for a significant portion of revenue for the foreseeable future. As
a result of this revenue concentration, the Companys business could be harmed by a decline in
demand for, or in the prices of, these products or as a result of, among other factors, any change
in pricing model, a maturation in the markets for these products, increased price competition or a
failure by the Company to keep up with technological change.
Financial instruments subjecting the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, short-term investments, and accounts and term receivables.
The Company maintains cash, cash equivalents, and short-term investments with various domestic and
foreign financial institutions. The Companys cash balances with its financial institutions may
exceed deposit insurance limits. Short-term investments are investment grade, interest-earning
securities, and are diversified by type and industry.
The Companys customers are worldwide with approximately 70% of total revenue in North
America, 19% EMEA and 11% in Asia Pacific on a trailing twelve month basis.
No individual customer accounted for more than 10% of the Companys revenue in 2009 or the
three and nine months ended September 30, 2010. No individual customer accounted for more than 10%
of the Companys accounts receivable at December 31, 2009, and one individual customer accounted
for approximately 11% of the Companys accounts receivables at September 30, 2010.
As of December 31, 2009 and September 30, 2010, assets located outside North America were 18%
and 22% of total assets, respectively. The income (loss) from operations outside of North America
totaled $(688,000) and $1.2 million for the nine months ended September 30, 2009 and 2010,
respectively. Revenue by geographical region follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
North America |
$ | 27,737 | $ | 33,389 | $ | 81,120 | $ | 93,806 | ||||||||
EMEA |
7,441 | 9,304 | 20,713 | 25,678 | ||||||||||||
Asia Pacific |
3,553 | 5,900 | 9,275 | 14,665 | ||||||||||||
$ | 38,731 | $ | 48,593 | $ | 111,108 | $ | 134,149 | |||||||||
(3) Revenue Recognition
The Company earns its revenues from the delivery of hosted software and support services
(recurring revenue), and from the delivery of professional services. Recurring revenues are
primarily sold under subscription arrangements and, to a lesser extent, license arrangements.
Hosting and support services involve the remote management of the software, technical assistance,
and unspecified product upgrades and enhancements on a when and if available basis. Professional
services include consulting, training and development services.
The Company recognizes revenue for subscriptions and licenses when all of the following
criteria are met: a) the Company has entered into a legally binding agreement with the customer; b)
the software has been made available or delivered to the customer; c) the Companys fee for
providing the software and services is fixed or determinable; and d) collection of the Companys
fee is probable. Under the Companys subscription contracts, the Company applies ASU 2009-13,
Revenue Arrangements with Multiple Deliverables (ASU 2009-13), rather than Industry Topic 985,
Software, because the customer does not have the right to take possession of the software without
incurring a significant incremental penalty. As such, these arrangements are considered service
contracts and are not within the scope of Industry Topic 985.
Subscriptions include access to the Companys software through its hosting services, technical
support, and product upgrades when and if available, all for a bundled fee. In the first quarter of
2010, we elected early adoption of Financial Accounting Standards Board (FASB) Accounting
Standards Update 2009-13, Revenue Arrangements with Multiple Deliverables. ASU 2009-13, which
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amended FASB Topic 605-25, Multiple-Element Arrangements, requires a vendor to allocate
revenue to each unit of accounting in arrangements involving multiple deliverables. It changes the
level of evidence of fair value of an element to allow an estimated selling price which represents
managements best estimate of the stand-alone selling price of deliverables when vendor specific
objective evidence or third party evidence of selling price is not available and requires that
revenue be allocated among the elements on a relative fair value basis. The adoption of ASU 2009-13
did not have a material impact on the timing or amount of revenue recognized as the Company had
established fair value for all elements in the vast majority of its historical subscription
arrangements.
The Company bases the fair value of subscriptions on stand-alone sales of subscription
agreements, which are evidenced by subscription renewals, and stand-alone sales of professional
services. The arrangement fee is then allocated to the individual elements based on their relative
fair values. Revenue for subscriptions are recognized over the contractual period and professional
services are recognized as incurred provided that the above criteria have been met.
The Companys revenue also is, to a lesser extent, earned under license arrangements. Revenue
under these arrangements is recognized pursuant to the requirements of Industry Topic 985,
Software. Licenses generally include the same elements as subscriptions, plus the right to take
possession of the software for no additional fee and are sold for a period of time (a term
license). Term contracts are non-cancelable, and generally cover a period of two years, but can
range from a period of six months to five years. For term contracts, the Company treats the
software license, hosting and support services as single element for purposes of allocating
revenue. The Company has established vendor specific objective evidence of fair value for the term
license bundle based on stand-alone sales of the bundled items. When sold with professional
services, revenue is allocated between the software license, hosting and support element and the
professional services element using the relative fair value method. Revenue for the term license
element is recognized ratably over the period of the arrangement and revenue for professional
services in these arrangements is recognized as performed.
The Companys policy is to record revenue net of any applicable sales, use or excise taxes.
If an arrangement includes a right of acceptance or a right to cancel, revenue is recognized
when acceptance is received or the right to cancel has expired. If the fee for the license has any
payment term that is due in excess of the Companys normal payment terms (over 90 days), the fee is
not considered fixed or determinable, and the amount of revenue recognized for term license or
subscription arrangements is limited to the lesser of the amount currently due from the customer or
a ratable portion of the total unallocated arrangement fee.
Certain
customers have agreements that provide for usage fees above fixed minimums.
Usage of the Companys solutions requires additional fees if used by more than a specified number of
users or for more than a specified number of interactions. Fixed minimums are recognized as revenue
ratably over the term of the arrangement. Usage fees above fixed minimums are recognized as revenue
when such amounts are known and billed.
Separate contracts with the same customer that are entered into at or near the same time are
generally presumed to have been negotiated together and are combined and accounted for as a single
arrangement.
Professional services revenue is recognized as performed, based on hours incurred, unless sold
in conjunction with a license where vendor specific objective evidence for the term element does
not exist, in which case professional services revenue is recognized ratably over the contractual
period. The Company has determined that the professional service elements of its software
arrangements are not essential to the functionality of the software. The Company has also
determined that its professional services (a) are available from other vendors, (b) do not involve
a significant degree of risk or unique acceptance criteria, and (c) are not required for the
customer to use the software.
(4) Sales Incentives
Sales incentives paid for subscriptions are deferred and charged to expense in proportion to
the revenue recognized. Sales incentives paid for licenses and professional services are expensed
when earned, which is typically at the time the related sale is invoiced. Sales incentive expense
was $4.0 million and $4.6 million for the three months ended September 30, 2009 and 2010,
respectively. Sales incentive expense was $10.2 million and $12.8 million for the nine months ended
September 30, 2009 and 2010, respectively. Deferred commissions at December 31, 2009 and September
30, 2010 were $9.9 million and $9.1 million, respectively.
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(5) Internal Use Software
Topic 350, Intangibles Goodwill and Other, requires capitalization of costs incurred during
the application development stage of certain internally developed computer software to be sold as a
service. The Company capitalizes these software development costs when application development
begins, it is probable that the project will be completed, and the software will be used as
intended. Costs associated with preliminary project stage activities, training, maintenance and all
other post-implementation stage activities are expensed as incurred. Our policy provides for the
capitalization of certain payroll, benefits and other payroll-related costs for employees who are
directly associated with internal use computer software development projects, as well as
share-based compensation costs, external direct costs of materials and services associated with
developing or obtaining internal use software. Capitalizable personnel costs are limited to the
time directly spent on such projects. The capitalized costs are being amortized and recognized as a
cost of software, hosting and support revenue, on a straight-line basis, over the estimated useful
lives of the related applications which is approximately three years. Capitalized cost of
internally developed computer software was approximately $550,000 and approximately $4.0 million
as of December 31, 2009 and September 30, 2010, respectively. The capitalized costs are included in
intangible assets, net on the Companys Consolidated Balance Sheets.
(6) Net Income Per Share
A reconciliation of the denominator used in the calculation of basic and diluted net income
per share is as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Weighted average common
shares outstanding for basic
net income per share |
31,733 | 32,128 | 31,731 | 32,020 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Employee stock awards |
691 | 1,531 | 518 | 1,495 | ||||||||||||
Weighted average shares
outstanding for dilutive net
income per share |
32,424 | 33,659 | 32,249 | 33,515 | ||||||||||||
The following common stock equivalents were excluded from the computation of diluted earnings
per share because their impact was anti-dilutive (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Employee stock options |
5,393 | 4,878 | 5,566 | 4,914 |
(7) Comprehensive Income
Comprehensive income for the comparative periods was as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Net income |
$ | 1,965 | $ | 2,895 | $ | 3,264 | $ | 4,884 | ||||||||
Other comprehensive income: |
||||||||||||||||
Unrealized gain (loss) on short-term
investments |
(36 | ) | (20 | ) | 158 | 22 | ||||||||||
Foreign currency translation adjustments |
171 | 488 | (679 | ) | 434 | |||||||||||
Comprehensive income |
$ | 2,100 | $ | 3,363 | $ | 2,743 | $ | 5,340 | ||||||||
(8) Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
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measurement date. Valuation techniques used to measure fair value under Topic 820 must
maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy is based on three levels of inputs, of which the first two are
considered observable and the last unobservable, as follows:
| Level 1 Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
| Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. | ||
The following table represents fair value hierarchy for the Companys financial assets (cash equivalents and investments) which are measured at fair value on a recurring basis as of September 30, 2010 (in thousands): |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash |
$ | 67,345 | $ | | $ | | $ | 67,345 | ||||||||
Money Market funds |
10,896 | | | 10,896 | ||||||||||||
Corporate notes and bonds |
| 4,825 | | 4,825 | ||||||||||||
U.S. Government agency securities |
| 25,005 | | 25,005 | ||||||||||||
State and Municipal securities |
| 944 | | 944 | ||||||||||||
$ | 78,241 | $ | 30,774 | $ | | $ | 109,015 | |||||||||
During the second quarter of 2010, the Companys remaining $2.85 million of auction rate
securities (ARS) were redeemed by the issuers in addition to $950,000 redeemed during the first
quarter of 2010. The redemption during the second quarter was at par. The following table
illustrates the activity of level 3 assets from December 31, 2009 to September 30, 2010 and
comparative activity of level 3 assets from December 31, 2008 to September 30, 2009 (in
thousands):
Fair value at December 31, 2009 |
$ | 3,797 | ||
Unrealized gain adjustmentARS |
109 | |||
Unrealized loss adjustmentput option |
(106 | ) | ||
Redemptions |
(3,800 | ) | ||
Fair value at September 30, 2010 |
$ | | ||
Fair value at December 31, 2008 |
$ | 4,963 | ||
Unrealized gain adjustmentARS |
428 | |||
Unrealized loss adjustmentput option |
(397 | ) | ||
Redemptions |
(598 | ) | ||
Fair value at September 30, 2009 |
$ | 4,396 | ||
(9) Stock-Based Compensation
Stock-based compensation costs are recognized based on the estimated fair value at the grant
date for all stock-based awards. The Company estimates grant date fair values using the
Black-Scholes-Merton option pricing model, which requires assumptions of
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the life of the award and the stock price volatility over the term of the award. The Company
records compensation cost of stock-based awards using the straight line method, which is recorded
into earnings over the vesting period of the award.
The following table illustrates the stock-based compensation expense resulting from
stock-based awards included in the condensed consolidated statement of operations (amounts in
thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Stock-based compensation expense: | 2009 | 2010 | 2009 | 2010 | ||||||||||||
Cost of recurring revenue |
$ | 120 | $ | 127 | $ | 358 | $ | 357 | ||||||||
Cost of professional services |
138 | 128 | 480 | 364 | ||||||||||||
Sales and marketing expenses |
761 | 818 | 2,335 | 2,295 | ||||||||||||
Research and development expenses |
285 | 254 | 924 | 751 | ||||||||||||
General and administrative expenses |
548 | 875 | 2,007 | 1,951 | ||||||||||||
Stock-based compensation expense |
$ | 1,852 | $ | 2,202 | $ | 6,104 | $ | 5,718 |
Stock-based compensation expense capitalized during the nine months ended September 30, 2009
and September 30, 2010 was insignificant.
Unrecognized
compensation expense of outstanding equity awards at September 30, 2010 was
approximately $15.3 million, which is expected to be recognized over a weighted average period of
2.5 years.
Information regarding the fair value of stock options granted, and the weighted-average
assumptions used to obtain the fair values, for the respective periods follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Fair value per share |
$ | 6.60 | $ | 7.69 | $ | 4.66 | $ | 7.80 | ||||||||
Risk free rate |
2.21 | % | 1.6 | % | 1.71 | % | 1.9 | % | ||||||||
Expected term |
4.4 yrs | 4.5 yrs | 4.4 yrs | 4.5 yrs | ||||||||||||
Volatility |
66 | % | 63 | % | 67 | % | 64 | % | ||||||||
Dividend yield |
0 | % | 0 | % | 0 | % | 0 | % |
Key assumptions used to estimate the fair value of stock awards are as follows:
Risk Free Rate: The risk-free rate is determined by reference to the U.S. Treasury yield curve
in effect at or near the time of grant for the expected term of the award.
Expected Term: The expected term represents the period that the Companys stock-based awards
are expected to be outstanding and is determined based on historical experience of similar awards,
giving consideration to the contractual term of the awards, vesting schedules and expectations of
employee exercise behavior.
Volatility: The Companys estimate of expected volatility is based on the historical
volatility of the Companys common stock over the expected life of the options as this represents
the Companys best estimate of future volatility.
Dividend Yield: The dividend yield assumption is based on the Companys history and
expectation of not paying dividends.
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Activity under the Companys stock option plans for the nine months ended September 30, 2010
was as follows (option shares in thousands):
Weighted | Weighted | |||||||||||||||||||
average | Aggregate | average | ||||||||||||||||||
Shares | exercise | intrinsic | remaining | |||||||||||||||||
available | Outstanding | price per | value (in | contractual | ||||||||||||||||
for grant | options | share | thousands) | life (in years) | ||||||||||||||||
Balance at December 31, 2009 |
2,774 | 5,947 | $ | 10.96 | 7.2 | |||||||||||||||
Annual reserve addition (1) |
1,000 | | | |||||||||||||||||
Granted |
(1,299 | ) | 1,281 | 14.89 | ||||||||||||||||
Exercised |
| (436 | ) | 10.50 | ||||||||||||||||
Forfeited, expired, exchanged or canceled (2) |
184 | (181 | ) | 13.32 | ||||||||||||||||
Balance at September 30, 2010 |
2,659 | 6,611 | $ | 11.69 | $ | 92,950 | 7.1 | |||||||||||||
Vested or expected to vest at September 30, 2010 |
6,409 | $ | 11.66 | $ | 90,310 | 7.0 | ||||||||||||||
Exercisable at September 30, 2010 |
3,783 | $ | 11.45 | $ | 54,099 | 6.0 | ||||||||||||||
(1) | The 2004 Equity Incentive Plan provides for an automatic, annual increase on the first of each year in an amount equal to the lesser of: a) 1,000,000 shares; b) 4% of the number of outstanding common shares on the last day of the previous fiscal year; or c) such lesser amount as determined by the board of directors. The annual automatic increase has been approved by shareholders through December 31, 2014. | |
(2) | Shares forfeited, expired, exchanged or canceled under the 1998 Long-Term Equity Incentive and Stock Option Plan are not available for re-grant under the 2004 Equity Incentive Plan. |
The total intrinsic value of options exercised during the nine months ended September 30, 2009
and 2010 was $888,000 and $2.9 million, respectively.
(10) Common Stock Repurchase Program
On July 28, 2010, the Company announced that its Board of Directors had authorized a stock
repurchase program under which up to $10 million of RightNows common stock may be repurchased. The
shares may be purchased from time to time at prevailing prices in the open market, in block
transactions, in privately negotiated transactions, and/or in accelerated share repurchase
programs, in accordance with Rule 10b-18 of the Securities and Exchange Commission. The repurchase
program became effective on August 2, 2010 and will expire in two years. Any shares repurchased
will be held in treasury. RightNow expects to fund such repurchases through its cash and short-term
investments, which as of September 30, 2010 were $109.0 million. The Company cannot assure any
repurchases will be made under this program. If any repurchases are made, the Company cannot assure
as to the amount or frequency of repurchases RightNow may make under this program.
As of September 30, 2010, the Company had not repurchased any common stock under this program.
(11) Commitments and Contingencies
Warranties and Indemnification
The Companys cloud-based application service is typically warranted to perform in accordance
with its user documentation.
The Companys arrangements generally include certain provisions for indemnifying customers
against liabilities if its products or services infringe a third-partys intellectual property
rights. To date, the Company has not incurred any material costs as a result of such
indemnifications and has not accrued any liabilities related to such obligations in the
accompanying consolidated financial statements.
The Company has entered into service level agreements with a number of its customers
warranting certain levels of uptime reliability and permitting those customers to receive credits
or terminate their agreements in the event that the Company fails
to meet those levels. To date, the Company has not provided any material credits, or cancelled
any agreements related to these service level agreements.
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The Company has also agreed to indemnify its directors and executive officers for costs
associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of
these persons in any action or proceeding to which any of those persons is, or is threatened to be,
made a party by reason of the persons service as a director or officer, including any action by
the Company, arising out of that persons services as the Companys director or officer or that
persons services provided to any other company or enterprise at the Companys request.
Litigation
From time to time, the Company is involved in legal proceedings arising in the normal course
of business. The Company believes that the resolution of these matters will not have a material
effect on the Companys consolidated financial position, results of operations or liquidity.
(12) Income Taxes
The Company computes its provision for income taxes on a quarterly basis by applying the
estimated annual effective tax rate to income from recurring operations and other taxable items.
The provision for income taxes of $1.7 million and $2.9 million in the three and nine months ended
September 30, 2010, respectively, consists primarily of U.S. federal taxes, foreign tax
withholdings and various state income taxes. The Companys effective tax rate differs from the
federal statutory rate primarily due to the utilization of net operating loss carryforwards, state
and foreign taxes, foreign rate differentials, and non-deductible meal and entertainment expenses.
Excess stock option deductions are expected to reduce federal and state taxes payable such that the
Company does not have significant income taxes payable at September 30, 2010. As of December 31,
2009 and September 30, 2010, the Company had an insignificant amount of unrecognized tax benefits
associated with uncertain tax positions, none of which would materially affect its effective tax
rate if recognized. The Company does not expect that the amount of unrecognized tax benefits will
significantly increase or decrease within the next twelve months. The Companys policy is to
recognize interest and penalties on unrecognized tax benefits as interest expense and other
expense, respectively, in its Consolidated Statements of Operations. The amount of interest and
penalties for the three and nine months ended September 30, 2010 was insignificant. Tax years
beginning in 2005 are subject to examination by taxing authorities, although net operating loss and
credit carry forwards from all years are subject to examinations and adjustments for at least three
years following the year in which the attributes are used. The jurisdictions which could be subject
to examination include the U.S., Montana, Illinois, California, Massachusetts, New York, United
Kingdom, Germany, Australia, Japan, Canada and the Netherlands.
(13) Subsequent Events
The Company accounts for its subsequent events in accordance with FASB Accounting Standards
Codification, Topic 855, Subsequent Events.
Item 2. | Managements 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, managements 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, managements
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
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numbers, with the capabilities, and at the compensation levels needed to implement our
business and product plans, the competitive nature of and anticipated growth in our markets, our
accounting estimates, and our assumptions and judgments. These forward looking statements are not
guarantees of future results and are subject to risks, uncertainties and assumptions that are
difficult to predict and that could cause our actual results to differ materially and adversely
from those expressed in any forward-looking statement. The risks and uncertainties referred to
above include, but are not limited to, general economic conditions; fluctuations in foreign
currency exchange rates; our business model; our ability to develop or acquire and gain market
acceptance for new products and enhancements to existing products in a cost-effective and timely
manner; fluctuations in our earnings as a result of potential changes to our valuation allowance(s)
on our deferred tax assets; competitive pressures and other similar factors such as the
availability and pricing of competing products and technologies and the resulting effects on sales
and pricing of our products; our ability to expand or contract operations, manage expenses and grow
profitability; the rate at which our present and future customers adopt our existing and future
products and services; fluctuations in our operating results including our revenue mix and our rate
of growth; fluctuations in backlog; the risk that our investments in partner relationships and
additional employees will not achieve expected results; interruptions or delays in our hosting
operations; breaches of our security measures; our ability to protect our intellectual property
from infringement, and to avoid infringing on the intellectual property rights of third parties;
any unanticipated ambiguities in fair value accounting standards; the amount and timing of any
stock repurchases under our stock repurchase program; fluctuations in our operating results from
the impact of stock-based compensation expense; our ability to manage and expand our partner
relationships; our ability to hire, retain and motivate our employees and manage our growth; the
impact of potential future acquisitions, if any; and various other factors, some of which are
described under the section below entitled Risk Factors, in Item 1A of this report. These
forward-looking statements speak only as of the date of this report. We undertake no obligation to
revise or update publicly any forward-looking statement for any reason, except as otherwise
required by law.
Overview
RightNow Technologies (we, us, our, the Company or RightNow) provides RightNow CX,
an on-demand (cloud-based) suite of customer experience software and services that helps
consumer-centric organizations improve customer experiences, reduce costs and increase revenue. In
todays competitive business environment, we believe providing superior customer experiences can be
a powerful way for companies to drive sustainable differentiation. We help organizations deliver
exceptional customer experiences across the web, social networks and contact centers. Our
technology enables an organizations service, marketing and sales personnel to leverage a common
application platform to deliver service, to market and to sell via the phone, email, web, chat and
social interactions. Additionally, through our cloud-based delivery approach, we are able to
eliminate much of the complexity associated with traditional on premise solutions, implement
rapidly, and price our solutions at a level that results in a lower cost of ownership compared to
on premise solutions. Our value-added services, including business process optimization and product
tune-ups, are directed toward improving our customers efficiency, increasing user adoption and
assisting our customers to maximize the return on their investment. Approximately 1,900
corporations and government agencies worldwide depend on RightNow to help them achieve their
strategic objectives and better meet the needs of those they serve.
We released our initial version of RightNow Service in 1997. This product addressed the new
customer service needs resulting from the increasing use of the Internet as a customer service
channel. Since then, we have significantly enhanced product features and functionality to address
customer service needs across multiple communication channels, including web, interactive voice,
email, chat, telephone, proactive outbound email communications, and social interactions. We have
also added several products that are complementary to our RightNow Service solution, including
RightNow Marketing, RightNow Sales, RightNow Feedback, RightNow Cloud Monitor and RightNow
Social, which automate aspects of marketing campaigns, sales operations, customer monitoring, and
customer conversations within the cloud. These solutions have culminated in RightNow CX, a fully
integrated customer experience platform, which includes and integrates web, social and contact
center experiences. We believe RightNow CX helps consumer-centric organizations deliver customer
experiences that build loyalty, drive revenue, reduce costs and increase efficiency. We have a
release cycle which allows us to deliver new product capabilities to customers every three months.
During the third quarter of 2010, we released RightNow CX August 2010, with such features as Cloud
Services Portal, which provides IT departments with up-to-the-moment, 24x7 detailed visibility into
key operation metrics about their RightNow Cloud Platform operations; enhanced translation services
via partner Language Weaver; chat, email, and guided assistance for mobile consumers; Cisco UCCE
(Unified Contact Center Enterprise) integration; enhanced community moderation features and topic
monitoring for Cloud Monitor; and recurring marketing campaigns in our marketing automation solution.
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Our products served more than 780 million customer interactions, or unique sessions hosted by
our solutions, during the three months ended September 30, 2010. We sell our solutions primarily
through direct sales efforts and to a lesser extent through indirect channels.
Sources of Revenue
Our revenue is derived from fees for software, hosting and support, and fees for professional
services. Recurring revenue, referred to in this report, includes software, hosting and support
revenue from subscription agreements and term licenses.
Recurring revenue includes fees earned under subscriptions and software license arrangements.
Subscription arrangements are for a fixed term and include a bundled fee to access the software and
data through our hosting services and support services. Subscription revenue is recorded ratably
over the length of the agreement. Through our hosting services, we provide remote management and
maintenance of our software and customers data which is physically located in third party
facilities. Customers access hosted software and data through a secure Internet connection.
Support services include technical assistance for our software products and unspecified product
upgrades and enhancements on a when and if available basis.
License arrangements are also for a fixed term (a term license). For term licenses,
software, hosting and support revenue is recognized ratably over the length of the agreement.
Our sales arrangements generally provide customers with the right to use our solutions up to a
maximum number of users or transactions. A number of our arrangements provide for additional fees
for usage above the maximum (usage fees), which are billed and recognized into revenue when determinable and
earned.
Professional services revenue is comprised of revenue from consulting, education, development
services, and reimbursement of related travel costs. Consulting and education services include
implementation and best practices consulting. Development services include customizations and
integrations for a clients specific business application.
Professional services are typically sold with initial sales arrangements and then periodically
over the client engagement. Our typical education courses are billed on a per person, per class
basis.
Depending on the size and complexity of the client project, our consulting or development
services contracts are either billed on a time and materials basis or, less frequently, on a fixed
price/fixed scope basis. We have determined that the professional services element of our software
and subscription arrangements is not essential to the functionality of the software.
Cost of Revenue and Operating Expenses
Cost of Revenue. Cost of revenue consists primarily of salaries and related expenses (such as
employee benefits and payroll taxes) for our hosting, support and professional services
organizations, third-party costs and equipment depreciation relating to our hosting services,
third-party costs for voice enabled CRM applications, travel expenses related to providing
professional services to our clients, amortization of acquired intangible assets, amortization of
capitalized internally developed computer software and allocated overhead. We allocate most
overhead expenses, such as office supplies, computer supplies, utilities, rent, and depreciation
for furniture and equipment, based on headcount. As a result, overhead expenses are reflected in
each cost of revenue and operating expense category.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and
related expenses for employees in sales and marketing, including commissions and bonuses,
advertising, marketing events, corporate communications, product management expenses, travel costs
and allocated overhead. For subscription arrangements, we expense the related sales commission in
proportion to the revenue recognized. We expense our sales commissions on license and professional
service arrangements when earned, which is typically at the time the related sale is invoiced to
the client.
Research and Development Expenses. Research and development expenses consist primarily of
salary and related expenses for development personnel and costs related to the development of new
products, enhancement of existing products, translation fees, quality assurance, testing and
allocated overhead. In 2009 we began to capitalize costs of internally developed computer software
to be sold as a service, which were incurred during the application development stage. We
capitalized approximately $550,000 and $4.0
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million of cost of internally developed computer software as of December 31, 2009, and
September 30, 2010, respectively. We intend to continue to expand and enhance our product
offerings. To accomplish this, we plan to utilize existing personnel, hire additional personnel
and, from time to time, contract with third parties. We expect that research and development
expenses will increase in absolute dollars as we seek to expand our technology and product
offerings. We also expect that the capitalized cost of internally developed computer software will
increase as we continue to sell and deliver our solution as a service.
General and Administrative Expenses. General and administrative expenses consist primarily of
salary and related expenses for management, finance and accounting, legal, information systems and
human resources personnel, professional fees, other corporate expenses and allocated overhead.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes are prepared in accordance with accounting
principles generally accepted in the United States. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosures of contingent assets and liabilities. Management
evaluates these estimates on an on-going basis using historical experience and other factors,
including the current economic environment, and management believes these estimates to be
reasonable under the circumstances. Estimates and assumptions are adjusted when facts and
circumstances dictate. Illiquid credit markets, volatile equity markets, fluctuations in foreign
currency exchange rates, and declines in consumer spending have combined to increase the
uncertainty inherent in such estimates and assumptions. These assumptions are affected by
managements application of accounting policies. Our critical accounting policies include revenue
recognition, valuation of receivables and deferred tax assets, accounting for share-based
compensation, and internal use software capitalization. Significant items subject to such
estimates and assumptions include: elements comprising our software, hosting and support sales
arrangements and whether the elements have stand-alone and/or fair value; whether the fees charged
for our products and services are fixed or determinable; the carrying amount of property and
equipment and intangible assets; valuation allowances for receivables and deferred income tax
assets; estimates of expected term and volatility in determining share based compensation expense;
and internal use software capitalization. As future events and their effects cannot be determined
with precision, actual results could differ significantly from those estimates.
Revenue Recognition
We sell substantially all products under subscription arrangements (subscriptions). For a
bundled fee, subscriptions provide the customer with access to the software and data over the
Internet, or on demand, and provide technical support services and software upgrades when and if
available. Under subscriptions, customers do not have the right to take possession of the software
and these arrangements are considered service contracts which are outside the scope of Industry
Topic 985, Software.
In the first quarter of 2010, we elected early adoption of Financial Accounting Standards
Board (FASB) Accounting Standards Update 2009-13, Revenue Arrangements with Multiple
Deliverables (ASU 2009-13). ASU 2009-13, which amended FASB Topic 605-25, Multiple-Element
Arrangements, changes the level of evidence of fair value of an element to allow an estimated
selling price which represents managements best estimate of the stand-alone selling price of
deliverables when vendor specific objective evidence or third party evidence of selling price is
not available and requires that revenue be allocated among the elements on a relative fair value
basis. The adoption of ASU 2009-13 did not have a material impact on the timing or amount of
revenue recognized as we had established fair value for all elements in the vast majority of our
historical subscription arrangements.
To a lesser extent, we sell products under term-based software license arrangements
(licenses) and account for them in accordance with Industry Topic 985, Software. Licenses
generally include multiple elements that are delivered up front or over time. For example, under a
term license, we deliver the software up front and provide hosting and support services over time.
Fair value for each element in a license does not exist since none are sold separately, and
consequently, the bundled revenue is recognized ratably over the length of the agreement.
The application of these rules requires judgment, including the identification of individual
elements in multiple element arrangements, whether there is objective and reliable evidence of fair
value, including, but not limited to, vendor specific objective evidence (VSOE) of fair value,
for some or all elements. Changes to the elements in our sales arrangements, or our ability to
establish VSOE or fair value for those elements, may result in a material change to the amount of
revenue recorded in a given period.
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Fees charged for professional services are recognized when delivered. We believe the fees for
professional services qualify for separate accounting because: a) the services have value to the
customer on a stand-alone basis; b) objective and reliable evidence of fair value exists for these
services; and c) performance of the services is considered probable and does not involve unique
customer acceptance criteria.
Our standard payment terms are net 30, although payment within 90 days is considered normal.
We periodically provide extended payment terms and we consider any fees due beyond 90 days to not
be fixed or determinable. In such cases, judgment is required in determining the appropriate timing
of revenue recognition. Changes to our practice of providing extended payment terms or providing
concessions following a sale, may result in a material change to the amount of revenue recorded in
a given period.
Allowance for doubtful accounts
We regularly assess the collectability of outstanding customer invoices and, in so doing, we
maintain an allowance for estimated losses resulting from the non-collection of customer
receivables. In estimating this allowance, we consider factors such as: historical collection
experience; a customers current creditworthiness; customer concentration; age of the receivable
balance; and general economic conditions that may affect a customers ability to pay. Actual
customer collections could differ from our estimates and could exceed our related loss allowance.
Income Taxes
We record income taxes under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date. When applicable, a valuation allowance is
established to reduce any deferred tax asset when it is determined that it is more likely than not
that some portion of the deferred tax asset will not be realized.
We have established a valuation allowance equal to our net deferred tax assets due to
uncertainties regarding the realization of our net operating loss carryforwards, tax credits, and
deductible timing differences. The uncertainty of realizing these benefits has been based primarily
on our lack of taxable earnings. We continue to monitor the necessity for a full or partial
valuation allowance against our deferred tax assets.
Share-Based Compensation
We record share-based payment arrangements in accordance with Topic 718, Compensation-Stock
Compensation, which requires the cost of share-based payment arrangements to be recorded in the
statement of operations. Share-based compensation amounts are affected by our stock price as well
as our assumptions regarding the expected volatility of our stock, our employee stock option
exercise behaviors, forfeitures, and the related income tax effects. Our assumptions are based
primarily on our historical information.
Software Capitalization
Topic 350, Intangibles Goodwill and Other, requires capitalization of costs incurred during
the application development stage of certain internally developed computer software to be sold as a
service. We capitalize these software development costs when application development begins, it is
probable that the project will be completed, and the software will be used as intended. Costs
associated with preliminary project stage activities, training, maintenance and all other
post-implementation stage activities are expensed as incurred. Our policy provides for the
capitalization of certain payroll, benefits and other payroll-related costs for employees who are
directly associated with internal use computer software development projects, as well as
share-based compensation costs, and external direct costs of materials and services associated with
developing or obtaining internal use software. Capitalized costs are being amortized and recognized
as a cost of recurring revenue, on a straight-line basis, over the estimated useful lives of the
related applications, which is approximately three years. The capitalized costs are included in
intangible assets, net on our Consolidated Balance Sheets.
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Industry Topic 985, Software, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. We establish technological
feasibility upon completion of a working model. Historically, the period between achieving
technological feasibility and general availability of such software has been short and software
development costs qualifying for capitalization have been immaterial. Accordingly, we have not
capitalized any software development costs under this standard.
Recently Issued Accounting Standards
Not applicable.
Results of Operations
The following table sets forth certain consolidated statements of operations data for each of
the periods indicated, expressed as a percentage of total revenue:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
Recurring revenue |
77 | % | 79 | % | 75 | % | 79 | % | ||||||||
Professional services |
23 | 21 | 25 | 21 | ||||||||||||
Total revenue |
100 | 100 | 100 | 100 | ||||||||||||
Cost of revenue: |
||||||||||||||||
Recurring revenue |
14 | 12 | 14 | 13 | ||||||||||||
Professional services |
16 | 17 | 18 | 17 | ||||||||||||
Total cost of revenue |
30 | 29 | 32 | 30 | ||||||||||||
Gross profit |
70 | 71 | 68 | 70 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
42 | 41 | 42 | 43 | ||||||||||||
Research and development |
13 | 11 | 13 | 11 | ||||||||||||
General and administrative |
10 | 10 | 11 | 10 | ||||||||||||
Total operating expenses |
65 | 62 | 66 | 64 | ||||||||||||
Income from operations |
5 | 9 | 2 | 6 | ||||||||||||
Interest and other income, net |
1 | | 1 | | ||||||||||||
Income before income taxes |
6 | 9 | 3 | 6 | ||||||||||||
Provision for income taxes |
(1 | ) | (3 | ) | ( | ) | (2 | ) | ||||||||
Net income |
5 | % | 6 | % | 3 | % | 4 | % | ||||||||
The following table sets forth our revenue by type and geography expressed as a percentage of
total revenue for each of the periods indicated.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenue by type: |
||||||||||||||||
Recurring (subscriptions, term licenses, hosting and support) |
77 | % | 79 | % | 75 | % | 79 | % | ||||||||
Professional services |
23 | 21 | 25 | 21 | ||||||||||||
Revenue by geography: |
||||||||||||||||
North America |
72 | % | 69 | % | 73 | % | 70 | % | ||||||||
EMEA |
19 | 19 | 19 | 19 | ||||||||||||
Asia Pacific |
9 | 12 | 8 | 11 |
Quarter Overview
Total revenue for the third quarter of 2010 increased 25% over the third quarter of 2009,
driven by our growth in recurring revenue. Recurring revenue increased 30% compared to the third
quarter of 2009, due to expansion within the current customer base, new customer acquisitions,
timing of contracts signed in quarter and more usage fees in quarter. Professional services revenue
during
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the third quarter of 2010 increased 11%, due to greater billable utilization and several
projects with higher rates per hour delivered during the quarter ended September 30, 2010 as
compared to the quarter ended September 30, 2009.
During the third quarter of 2010, we continued to invest in our operations by adding sales and
marketing personnel to increase sales, and by increasing headcount to assist with delivering our
solutions and technical support. We invested in our research and development group to continue to
enhance and expand RightNow CX, however research and development expense increases were offset
primarily due to capitalized cost of internal use computer software. These factors increased total
expenses in absolute dollars, but total expenses were reduced as a percentage of revenue during the
quarter ended September 30, 2010 compared to the quarter ended September 30, 2009 due to the
accelerated growth in recurring revenue. Consequently, our operating income as a percentage of
revenue improved to 9% during the quarter ended September 30, 2010 compared to 5% during the
quarter ended September 30, 2009.
For the quarter ended September 30, 2010, we generated $6.0 million of cash from operations
compared to $4.9 million of cash from operations in the quarter ended September 30, 2009. Our cash
and investment balances increased to $109.0 million at September 30, 2010 from $96.5 million at
December 31, 2009, partially due to $13.5 million of cash generated from operations year to date
and $7.3 million of proceeds from stock option exercises and excess tax benefits of stock options
exercised, offset by the use of $5.5 million for capital asset additions and $3.5 million for
intangible asset additions through the nine months ended September 30, 2010.
During the quarter ended September 30, 2010, foreign currency fluctuations did not have a
significant impact on our financial results on a constant currency basis, when comparing the
average exchange rates during the quarter ended September 30, 2009 to the average exchange rates
during the quarter ended September 30, 2010. However, during the nine months ended September 30,
2010, foreign currency rate fluctuations did have a significant impact on our financial results on
a constant currency basis, when comparing the average exchange rates during the nine months ended
September 30, 2009 to the average exchange rates during the nine months ending September 30, 2010.
When compared to the nine months ended September 30, 2009, our revenue was favorably impacted,
and our cost of revenue and operating expenses were unfavorably impacted, by the relative strength
of the U.S. dollar in the nine months ended September 30, 2010 relative to the British pound,
Australian dollar and Euro. Therefore, we discuss constant currency information for the nine months
ended September 30, 2010 compared to the nine months ended September 30, 2009, to provide a
framework for assessing how our underlying business performed excluding the effect of foreign
currency rate fluctuations. Constant currency discussions herein are based on comparison to
currency exchange rates during the prior year. For example, total revenue in the nine months ended
September 30, 2010 increased by $23.0 million, or 21%, over total revenue reported in the same
period of 2009. If average currency exchange rates in the nine months ended September 30, 2010 had
remained constant with the nine months ended September 30, 2009, revenue for the nine months ended
September 30, 2010 would have increased by approximately $21.9 million, which is $1.1 million less
than the actual increase. In other words, the change in exchange rates between the nine months
ended September 30, 2009 and 2010 had a favorable impact on revenue of approximately $1.1 million,
or 1%. The revenue most significantly exposed to currency exchange fluctuations is within recurring
revenue.
Using similar methodology, the change in period-end exchange rates between the year ended
December 31, 2009 and quarter ended September 30, 2010 had a favorable impact on deferred revenue
of approximately $470,000.
Expenses associated with international revenue are generally paid in local currency, which
generally provides a natural hedge to offset the revenue impact. Total cost of revenue and
operating expenses in the nine months ended September 30, 2010 increased by $18.6 million, or 17%,
over total cost of revenue and operating expenses in the nine months ended September 30, 2009. If
currency exchange rates in the nine months ended September 30, 2010 had remained constant with the
same period of 2009, these total expenses in the nine months ended September 30, 2010 would have
increased by approximately $18.0 million, which is $600,000 less than the actual increase. In other
words, the change in average exchange rates between the nine months ended September 30, 2009 and
the nine months ended September 30, 2010 increased these total expenses by approximately $600,000.
The expenses most significantly exposed to currency exchange fluctuations are generally within sales and marketing and professional services cost of revenue.
As of September 30, 2010, we had an accumulated deficit of $53.5 million. This deficit and our
historical operating losses were primarily the result of costs incurred in the development, sales
and marketing of our products and for general and administrative purposes.
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Backlog
Total backlog is as follows (in thousands):
December 31 | September 30, | |||||||
2009 | 2010 | |||||||
Current committed backlog |
$ | 117,600 | $ | 122,273 | ||||
Non-current committed backlog |
57,020 | 34,848 | ||||||
Total firm committed backlog |
174,620 | 157,121 | ||||||
Current backlog subject to termination for convenience |
3,400 | 11,900 | ||||||
Non-current backlog subject to termination for convenience |
1,980 | 83,313 | ||||||
Total backlog |
$ | 180,000 | $ | 252,334 | ||||
Total backlog, which represents total invoiced and uninvoiced deferred revenue, was
approximately $180.0 million and approximately $252.3 million as of December 31, 2009 and September
30, 2010, respectively. Current total backlog, which is the portion of backlog expected to be
recognized as revenue within the next twelve months, was approximately $121.0 million and
approximately $134.2 million as of December 31, 2009 and September 30, 2010, respectively.
In January 2010, we introduced the Cloud Services Agreement (CSA), which includes longer terms
and annual customer termination for convenience provisions. As expected, due to the introduction of
the CSA, our uncommitted backlog increased during the quarter ended September 30, 2010 as compared
to the year ended December 31, 2009. In addition, certain of our arrangements with the federal
government include multi-year awards from the federal government. We include within uncommitted
backlog unexercised options in our multi-year award contracts with the federal government. As
expected, due in part to including unexercised options under the federal government multi-year
award contracts within backlog, our uncommitted backlog increased during the quarter ended
September 30, 2010 as compared to the year ended December 31, 2009.
We have not had specific experience with the CSA to estimate a percentage of customers that
may exercise the right to annual termination for convenience,
and therefore we can provide no assurance that
termination
for convenience
will not be exercised in the future. Based on our past experience with the federal government,
future year options are
generally exercised if funds are appropriated. As a
result of the CSA and multi-year award contracts with the federal government, we expect the
proportion of total backlog that is uncommitted to continue to increase in the future.
Additionally, a right to terminate for convenience exists in certain of our business
contracted with the federal government, and with some commercial customers (non-CSA agreements). In
the case of federal government customers, some of the business that is contracted with this group
falls under the termination for convenience guidelines as set forth in the Federal Acquisition
Regulations (FARs). The FARs allow the federal government at its option to terminate these
arrangements. The majority of our business with the federal government is sold through reseller
arrangements that do not include termination for convenience provision(s). A minority of our
arrangements are sold either directly to the federal government or through resellers under
contracts that do include a right of termination for convenience in accordance with the applicable
FARs. We treat this backlog as uncommitted.
The backlog not recorded on our balance sheet represents future billings under our
subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred
revenue.
We expect that the amount of backlog may change from year-to-year and quarter-to-quarter for
several reasons, including the specific timing and duration of large customer subscription
agreements, varying billing cycles of noncancelable subscription agreements, the specific timing of
customer renewals, fluctuations in foreign currency exchange rates, the timing of revenue
recognition, and changes in customer financial circumstances. For multi-year subscription
agreements billed annually, the associated unbilled deferred revenue is typically high at the
beginning of the contract period, zero just prior to renewal, and increases if the agreement is
renewed. Low unbilled backlog revenue attributable to a particular subscription agreement is
typically associated with an impending renewal and may not be an indicator of the likelihood of
renewal or future revenue from such customer. Accordingly, we expect that the amount of backlog
revenue may change from year-to-year and quarter-to-quarter depending in part upon the number and
dollar amount of subscription agreements at particular stages in their renewal cycle. Such
fluctuations are generally not a reliable indicator of future revenues.
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Three and Nine Months Ended September 30, 2010 and 2009
Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(Amounts in thousands) | 2009 | 2010 | Change | 2009 | 2010 | Change | ||||||||||||||||||
Recurring revenue: |
$ | 29,754 | $ | 38,613 | 30 | % | $ | 83,223 | $ | 106,368 | 28 | % | ||||||||||||
Professional services |
8,977 | 9,980 | 11 | 27,885 | 27,781 | 0 | ||||||||||||||||||
Total revenue |
$ | 38,731 | $ | 48,593 | 25 | % | $ | 111,108 | $ | 134,149 | 21 | % | ||||||||||||
Total revenue for the three months ended September 30, 2010 was $48.6 million, an increase of
$9.9 million, or 25%, over total revenue of $38.7 million for the three months ended September 30,
2009. Total revenue for the nine months ended September 30, 2010 was $134.1 million, an increase of
$23.0 million, or 21%, over total revenue of $111.1 million for the nine months ended September 30,
2009. If average currency exchange rates in the nine months ended September 30, 2010 had remained
constant with the average currency exchange rates in the nine months ended September 30, 2009,
revenue during the first nine months of 2010 would have increased by approximately $21.9 million,
which is $1.1 million less than the actual increase, with the majority of the currency rate impact
within recurring revenue.
Recurring revenue, which is comprised of subscriptions, term licenses, hosting and support
revenue for the three months ended September 30, 2010, increased 30% over recurring revenue of
$29.8 million for the three months ended September 30, 2009. Recurring revenue increased primarily
due to expansion within the current customer base, new customer acquisitions, timing of contracts
signed in quarter and more usage fees in quarter. We believe our latest product, RightNow CX,
appeals to large customers because of robust performance characteristics, notably within the
contact center, which in turn has driven expansion within our existing customer base and generally
higher average transaction prices per customer. Average recurring revenue within the existing
customer base increased as a result of sales capacity additions, contract renewals and new
products. Customer interactions, a measure of unique customer sessions hosted in our data centers
and customer usage, was 786 million in the quarter ended September 30, 2010 as compared to 620
million in the quarter ended September 30, 2009.
For the nine months ended September 30, 2010, recurring revenue increased $23.1 million, or
28%, over recurring revenue of $83.2 million for the nine months ended September 30, 2009. If
average currency exchange rates in the nine months ended September 30, 2010 had remained constant
with the average currency exchange rates in the nine months ended September 30, 2009, recurring
revenue during the first nine months of 2010 would have increased by $22.3 million, which is
$800,000 less than the actual increase. Recurring revenue increased due to expansion sales within
our existing customer base and new customer acquisitions over the comparable period.
Professional services revenue increased $1.0 million, or 11%, in the quarter ended September
30, 2010 over the comparable 2009 quarter. The professional services revenue increase was primarily
due to greater billable utilization and several projects with higher rates per hour delivered
during the period ended September 30, 2010 as compared to the period ended September 30, 2009.
Professional services revenue represented 21% and 23% of total revenue in the three months ended
September 30, 2010 and 2009, respectively. Professional services revenue represented 21% and 25%
of total revenue in the nine months ended September 30, 2010 and 2009, respectively. The decline
in professional services as a percentage of total revenue was due to the growth in recurring
revenue in the nine months ended September 30, 2010 over September 30, 2009.
Professional services revenue for the nine months ended September 30, 2010 decreased $104,000
over the nine months ended September 30, 2009. If average currency exchange rates in the nine
months ended September 30, 2010 had remained constant with the average currency exchange rates in
the nine months ended September 30, 2009, professional services revenue during the first nine
months of 2010 would have decreased by approximately $444,000, which is a $340,000 greater decline
than the actual decrease. The professional services revenue decline was primarily due to the timing
of the mix of projects being delivered and several projects with lower rates per hour delivered
during the nine months ended September 30, 2010 as compared to the nine months ended September 30,
2009.
Customers generally purchase professional services with initial subscription or license
arrangements, and periodically over the life of the contract.
Revenue from EMEA customers remained constant at 19% of total revenue in the quarters ended
September 30, 2010 and September 30, 2009, while revenue from Asia Pacific clients increased to 12%
of total revenue in the quarter ended September 30,
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2010 compared to 9% of total revenue in the quarter ended September 30, 2009. Total revenue
outside North America increased to represent 31% of total revenue for the three months ended
September 30, 2010 from 28% for the three months ended September 30, 2009, due primarily to sales
expansion in the Asia Pacific region during the third quarter of 2010. Total revenue outside North
America increased to represent 30% of total revenue for the nine months ended September 30, 2010
from 27% for the nine months ended September 30, 2009, due to favorable foreign currency exchange
rate impact and sales expansion in these regions during the first nine months of 2010.
Cost of Revenue
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
(Amounts in thousands) | 2009 | 2010 | Change | 2009 | 2010 | Change | ||||||||||||||
Recurring revenue |
$ | 5,232 | $ | 5,923 | 13% | $ | 15,135 | $ | 17,754 | 17% | ||||||||||
Professional services |
6,365 | 8,395 | 32 | 19,719 | 23,105 | 17 | ||||||||||||||
Total cost of revenue |
$ | 11,597 | $ | 14,318 | 23% | $ | 34,854 | $ | 40,859 | 17% | ||||||||||
Total cost of revenue for the quarter ended September 30, 2010 was $14.3 million, an increase
of $2.7 million, or 23%, over total cost of revenue of $11.6 million for the quarter ended
September 30, 2009. Total cost of revenue for the nine months ended September 30, 2010 was $40.9
million, an increase of $6.0 million, or 17%, over total cost of revenue of $34.9 million for the
nine months ended September 30, 2009.
Cost of recurring revenue increased $691,000, or 13%, in the third quarter of 2010 over the
third quarter of 2009, primarily due to increased headcount to assist with technical support and
delivering our solutions and annual merit increases, which increased salaries and related
expenses (such as bonuses and stock-based compensation) by $196,000. We incurred $149,000 of
third-party contractor expenses to assist our upgrade team, and intangible asset amortization of
$131,000 associated with the HiveLive acquisition and capitalized cost of internally developed
computer software.
Average employee count in our hosting and technical support operations was 116 during the
third quarter of 2010 as compared to 102 during the third quarter of 2009. As a percent of the
associated revenue, recurring revenue costs were 15% in the three months ended September 30, 2010
as compared to 18% of associated revenue in the three months ended September 30, 2009. The
reduction in the cost of recurring revenue as a percentage of associated revenue was due to our
growth in recurring revenue.
For the nine months ended September 30, 2010, cost of recurring revenue increased $2.6
million, or 17%, from the comparable 2009 period due to increased hosting and telecom maintenance,
headcount and amortization expense. As a percent of the associated revenue, recurring revenue costs
were 17% in the nine months ended September 30, 2010 as compared to 18% of associated revenue in
the nine months ended September 30, 2009. The reduction in the cost of recurring revenue as a
percentage of associated revenue was due to our growth in recurring revenue.
Cost of professional services increased $2.0 million, or 32%, in the quarter ended September
30, 2010 over the quarter ended September 30, 2009. The increased expense was due to increased
headcount to assist with professional service implementations, annual merit increases, bonus
achievement and increases in common expense allocation (such as payroll taxes, benefits, office
rent, supplies and other overhead expenses), which increased expenses by $1.0 million.
Additionally, expenses increased $704,000 as we utilized third-party professional services to
assist with delivering our solution, and travel related expenses increased $228,000 to assist with
delivering our solutions. Average employee count in our professional services organization
increased to 183 during the third quarter of 2010 from 164 during the third quarter of 2009. As a
percent of the associated revenue, professional services costs increased to 84% and 83% in the
three and nine months ended September 30, 2010, respectively, from 71% in the three and nine months
ended September 30, 2009, respectively. The increase in the professional service costs as a
percentage of associated revenue was primarily due to increased costs due to increased headcount
during the nine months ended September 30, 2010, annual merit increases, third-party
professional service costs, and increased travel and travel related expenses. Employee training,
customer scheduling requirements, and use of third-party resources can cause fluctuation in
professional service costs as a percentage of associated revenue.
For the nine months ended September 30, 2010, cost of professional services increased $3.4
million, or 17%, from the comparable 2009 period, of which $240,000 was attributable to unfavorable
foreign currency exchange rate impact. If average
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currency exchange rates in the nine months ended September 30, 2010 had remained constant with
the nine months ended September 30, 2009, cost of professional services in the nine months ended
September 30, 2010 would have increased $3.2 million, which is $240,000 less than the actual
increase. In other words, the change in average exchange rates between the year ended September 30,
2009 and the year ended September 30, 2010 increased these total expenses by approximately
$240,000, or 1%. The increase in the professional service costs from the comparable 2009 period was
primarily due to unfavorable foreign currency exchange rate impact, increased staffing costs, and
annual merit increases.
Operating Expenses
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(Amounts in thousands) | 2009 | 2010 | Change | 2009 | 2010 | Change | ||||||||||||||||||
Sales and marketing |
$ | 16,175 | $ | 20,006 | 24 | % | $ | 47,046 | $ | 57,507 | 22 | % | ||||||||||||
Research and development |
5,100 | 5,160 | 1 | 14,907 | 15,089 | 1 | ||||||||||||||||||
General and administrative |
4,018 | 4,975 | 24 | 11,671 | 13,598 | 17 | ||||||||||||||||||
Total operating expenses |
$ | 25,293 | $ | 30,141 | 19 | % | $ | 73,624 | $ | 86,194 | 17 | % | ||||||||||||
Sales and Marketing Expenses
Sales and marketing expenses were $20.0 million in the third quarter of 2010, an increase of
$3.8 million, or 24%, over sales and marketing expenses of $16.2 million in the third quarter of
2009. The increase was due to growth in headcount and annual merit increases, which
increased salaries and related expenses by $1.1 million. The increase in headcount also increased
common expense allocation by $425,000 during the third quarter of 2010. Additionally, the increase
was due to commission expense growth from associated revenue growth over the past six quarters
including the quarter ended September 30, 2010, which increased net sales incentive expense by
approximately $582,000. Average employee count in our sales and marketing organization increased to
292 during the third quarter of 2010 from 261 during the third quarter of 2009. RightNow and
RightNow CX related marketing efforts, including RightNow customer service video week contest,
increased expenses approximately $707,000, as we have focused on building greater brand awareness
during 2010. Travel and travel related expenses increased approximately $516,000 as sales increased
in the quarter ended September 30, 2010 over the quarter ended September 30, 2009.
Sales and marketing expenses were $57.5 million for the nine months ended September 30, 2010,
an increase of $10.5 million, or 22%, over sales and marketing expense of $47.0 million for the
nine months ended September 30, 2009. Unfavorable foreign currency exchange rate impact increased
sales and marketing expense by $366,000. If average currency exchange rates in the nine months
ended September 30, 2010 had remained constant with the average currency exchange rates in the nine
months ended September 30, 2009, sales and marketing expenses during the nine months in 2010 would
have increased by approximately $10.1 million, or 1%. The sales and marketing expense increase was
primarily due to increased headcount and growth in commission expense, which increased salaries,
related expenses, allocations and commission expense by $6.1 million, during the nine months ended
September 30, 2010 as compared to the nine months ended September 30, 2009. Additionally, travel
and travel related expenses increased approximately $1.0 million as sales increased during the nine
months ended September 30, 2010 over the nine months ended September 30, 2010.
Under subscription arrangements, we defer the related sales incentive costs and expense them
in proportion to the revenue recognized. Under license arrangements, we expense sales incentives
when earned, which is typically upon contract signing. Net sales incentive expense was $4.0 million
and $4.6 million for the three months ended September 30, 2009 and 2010, respectively. Net sales
incentive expense was $10.2 million and $12.8 million for the nine months ended September 30, 2009
and 2010, respectively. Our deferred commissions were $9.9 million and $9.1 million at December 31,
2009 and September 30, 2010, respectively.
Research and Development Expenses
Research and development expenses were $5.2 million in the three months ended September 30,
2010, an increase of approximately $60,000, or 1%, over research and development expenses of $5.1
million in the three months ended September 30, 2009. The increase was primarily due to growth in
headcount to continue to enhance and expand RightNow CX, which increased salaries and related
expenses by $703,000 and increased common expense allocation by $223,000 during the third quarter
of 2010. These costs were primarily offset by capitalized cost of internally developed computer
software, which increased $977,000 over the
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same period last year. Average employee count in our research and development organization was
180 during the third quarter of 2010 compared to 158 during the third quarter of 2009. Research and
development expenses for the nine months ended September 30, 2010 increased $182,000, or 1%, over
the comparable 2009 period primarily due to growth in headcount and expenditures pertaining to
enhancing and expanding RightNow CX. These costs were offset by capitalized cost of internally
developed computer software, which increased $3.3 million over the same period last year.
General and Administrative Expenses
General and administrative expenses were $5.0 million in the third quarter of 2010, an
increase of approximately $1.0 million, or 24%, over general and administrative expenses of $4.0
million in the third quarter of 2009. The increase was primarily due to growth in headcount and
annual merit increases, which increased salaries and related expenses by $746,000 and
increased common expense allocation by $101,000. Additionally charitable contributions increased
$300,000 in the third quarter of 2010 as compared to the third quarter of 2009. Average employees
in our general and administrative organization were 97 during the third quarter of 2010 compared to
86 during the third quarter of 2009. General and administrative expenses for the nine months ended
September 30, 2010 were $13.6 million, or 17% over the comparable 2009, which was primarily due to
growth in headcount and annual merit increases.
Stock-Based Compensation Expense
Total stock-based compensation expense for the three months ended September 30, 2010 was $2.2
million as compared to $1.9 million for the three months ended September 30, 2009. Stock-based
compensation was higher for the three months ended September 30, 2010 primarily due to the
difference in the timing of the vesting of director stock option grants as compared to the quarter
ended September 30, 2009. Stock-based compensation was $5.7 million for the nine months ended
September 30, 2010 as compared to $6.1 million for the nine months ended September 30, 2009.
Stock-based compensation was higher for the nine months ended September 30, 2009 primarily due to a
change in estimate associated with forfeiture rates during the third quarter of 2009, combined with
additional stock option grants made to directors during the first quarter of 2009. Stock-based
compensation expense varies from period-to-period because of the number of option shares that are
expected to vest, forfeiture rates, and changes in our underlying stock price and valuation
assumptions.
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Interest and Other Income, Net
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(Amounts in thousands) | 2009 | 2010 | Change | 2009 | 2010 | Change | ||||||||||||||||||
Interest income |
$ | 248 | $ | 111 | (55 | )% | $ | 866 | $ | 425 | (51 | )% | ||||||||||||
Interest expense |
(1 | ) | | n/m | (6 | ) | | n/m | ||||||||||||||||
Other income (expense) |
95 | 343 | 261 | 234 | 231 | (1 | ) | |||||||||||||||||
Total interest and other income , net |
$ | 342 | $ | 454 | 33 | % | $ | 1,094 | $ | 656 | (40 | )% | ||||||||||||
Interest income decreased 55% in the third quarter of 2010 from the third quarter of 2009 due
to declining investment yields. Our investment portfolio consists primarily of short-term
investment-grade interest-bearing government securities, and corporate debt instruments.
Other income consists primarily of a gain on currency exchange rates in the third quarter of
2010.
Provision for Income Taxes
The provision for income taxes of $1.7 million and $2.9 million in the three and nine months
ended September 30, 2010, respectively, consists primarily of U.S. federal taxes, foreign tax
withholdings and various state income taxes. Our effective tax rate differs from the federal
statutory rate primarily due to the utilization of net operating loss carryforwards, state and
foreign taxes, foreign rate differentials, and non-deductible meal and entertainment expenses.
Excess stock option deductions are expected to reduce federal and state taxes payable such that we
do not have significant income taxes payable at September 30, 2010. Our effective tax rate in 2010
will depend on a number of factors, such as the amount and mix of stock-based compensation expense
to be recorded under Topic 718, the level of business in state and foreign tax jurisdictions,
managements expectation of the realization of deferred tax assets and the associated valuation
allowance, and other factors.
Liquidity and Capital Resources
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(Amounts in thousands) | 2009 | 2010 | Change | 2009 | 2010 | Change | ||||||||||||||||||
Cash, cash equivalents and
short-term investments |
$ | 93,022 | $ | 109,015 | 17 | % | $ | 93,022 | $ | 109,015 | 17 | % | ||||||||||||
Cash provided by operating activities |
4,909 | 5,973 | 22 | % | 11,875 | 13,498 | 14 | % |
At September 30, 2010, cash, cash equivalents and short-term investments totaled $109.0
million. In addition to our cash and short-term investments, other sources of liquidity at
September 30, 2010 included a $3.0 million bank line of credit facility, under which there have
been no borrowings.
Operating activities provided $6.0 million and $13.5 million of cash during the three and nine
months ended September 30, 2010, respectively, as compared to $4.9 and $11.9 million of cash during
the three and nine months ended September 30, 2009, respectively. Cash flow from operations can
vary significantly from quarter-to-quarter for many reasons, including the timing of business in a
given period, and customer payment preferences and patterns. The percentage of business signed, but
not invoiced due to future billing terms was approximately 63% as of September 30, 2010 as compared
to approximately 39% as of September 30, 2009. Accounts receivable and the corresponding deferred
revenue are not recorded for subscriptions until the invoices are issued. A change in the billing
practice resulting in delayed payment or billing terms could have a material adverse effect on cash
provided from operating activities and growth in deferred revenue.
The allowance for uncollectible accounts receivable represented approximately 5% of current
accounts and term receivables at September 30, 2010 and 6% of current accounts and term receivables
at December 31, 2009, respectively. Accounts receivable written off in the third quarter of 2010
were relatively consistent with the fourth quarter of 2009. We regularly assess the adequacy of the
allowance for doubtful accounts. Actual write-offs could exceed our estimates and adversely affect
operating cash flows in the future.
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Investing activities provided $4.2 million and $14.8 million in the three and nine months
ended September 30, 2010, respectively. Third quarter 2010 investing activities consisted of $6.9
million of net purchases of short-term investments, $1.6 million of capital expenditures, and $1.1
million of capitalized cost of internally developed computer software to be sold as a service.
Capital asset additions consisted primarily of equipment acquisitions for our hosting operations
and employee growth.
Financing activities provided $4.6 million and $7.2 million in the three and nine months ended
September 30, 2010, respectively, which was primarily due to cash generated from exercises of
common stock options issued under our employee incentive plan.
We believe our existing cash and short-term investments, together with funds generated from
operations, should be sufficient to fund operating and investment requirements for at least the
next twelve months. Our future capital requirements will depend on many factors, including our rate
of revenue growth and expansion of our sales and marketing activities, the possible acquisition of
complementary products or businesses, the timing and extent of spending required for research and
development efforts, and the continuing market acceptance of our products. To the extent that
available funds are insufficient to fund our future activities, we may need to raise additional
funds through public or private equity or debt financings. In addition, even though we may not need
additional funds, we may still elect to sell additional equity or debt securities or obtain credit
facilities for other reasons. Additional equity or debt financing may not be available on terms
favorable to us or at all.
Off-Balance Sheet Arrangements
As of September 30, 2010, we did not have any significant off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations or commitments since
December 31, 2009.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuation due to changes in foreign
currency exchange rates, particularly changes in the British pound, Australian dollar and Euro,
because our contracts are frequently denominated in local currency. In the future, we may utilize
foreign currency forward and option contracts to manage currency exposures. We do not currently
have any such contracts in place, nor did we enter into any such contracts during the quarters
ended September 30, 2010 or September 30, 2009. In the future, we may utilize foreign currency
forward and option contracts to manage currency exposures.
During the quarter ended September 30, 2010, foreign currency fluctuations did not have a
significant impact on our financial results on a constant currency basis, when comparing the
average exchange rates during the quarter ended September 30, 2009 to the average exchange rates
during the quarter ended September 30, 2010. However, during the nine months ended September 30,
2010, foreign currency rate fluctuations did have a significant impact on our financial results on
a constant currency basis, when comparing the average exchange rates during the nine months ended
September 30, 2009 to the average exchange rates during the nine months ending September 30, 2010.
When compared to the nine months ended September 30, 2009, our revenue was favorably impacted,
and our cost of revenue and operating expenses were unfavorably impacted, by the relative strength
of the U.S. dollar in the nine months ended September 30, 2010 relative to the British pound,
Australian dollar and Euro. The change in average exchange rates between the nine months ended
September 30, 2009 and 2010 had a favorable impact to revenue of $1.1 million. Additionally,
deferred revenue increased by approximately $470,000 when comparing the change in period-end
exchange rates between the year ended December 31, 2009 and quarter ended September 30, 2010.
Expenses associated with international revenue are generally paid in local currency, which
generally provides a natural hedge to offset the revenue impact. These expenses in the nine months
ended September 30, 2010 had an unfavorable impact of approximately $600,000 when comparing the
change in average exchange rates between the nine months ended September 30, 2009 and 2010.
Continued changes in the dollar relative to other currencies may cause us to experience
further impact to our financial results.
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Interest Rate Sensitivity
Our investments consist of short-term, interest-bearing securities, which are subject to
credit and interest rate risk. Our portfolio is investment-grade and diversified among issuers and
security types to reduce credit risk. We manage our interest rate risk by maintaining a large
portion of our investment portfolio in instruments with short maturities or frequent interest rate
resets. We also manage interest rate risk by maintaining sufficient cash and cash equivalents such
that we are able to hold investments until maturity. If market interest rates were to increase by
100 basis points from the level at September 30, 2010, the fair value of our portfolio would
decline by approximately $172,000.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of the period covered by this
report, our disclosure controls and procedures were effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of
1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the
rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to
our management, including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes to Internal Control over Financial Reporting
During the most recent completed fiscal quarter covered by this report, there has been no
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
From time to time, we are involved in legal proceedings in the ordinary course of business. We
believe that the resolution of these matters will not have a material effect on our consolidated
financial position, results of operations or liquidity.
Item 1A. Risk Factors
A restated description of the risk factors associated with our business is set forth below.
This description includes any and all changes (whether or not material) to, and supersedes, the
description of the risk factors associated with our business previously disclosed in Part 1, Item
1A of our Annual Report on Form 10-K for the year ended December 31, 2009.
Before deciding to purchase, hold or sell our common stock, you should carefully consider the
risks described below, in addition to the other cautionary statements and risks described elsewhere
and the other information contained in this report and in our other filings with the SEC, including
our reports on Forms 10-K, 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business. If any of these known or unknown risks or
uncertainties actually occurs with material adverse effects on RightNow, our business, financial
condition and results of operations could be seriously harmed. In that event, the market price for
our common stock could decline and you may lose all or part of your investment.
General economic conditions could adversely affect our clients ability or willingness to
purchase our products, which could materially and adversely affect our results of operations.
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Our clients consist of large, medium and small companies in nearly all industry sectors and
geographies. Potential new clients or existing clients could defer purchases of our products
because of unfavorable macroeconomic conditions, such as fluctuations in currency exchange rates,
industry purchasing patterns, industry or national economic downturns, rising interest rates, and
other factors. Our ability to grow revenues may be adversely affected by unfavorable economic
conditions.
Starting in 2008 there has been deterioration in global economic conditions due to many
factors, including the credit market crisis, reduced credit availability, bank failures, slower
economic activity, significant expense reductions, bankruptcies, concerns about inflation,
recessionary conditions, and general adverse business conditions. These conditions could lead to
fewer sales of our products, longer sales cycles, customers requesting longer payment terms,
customers failing to pay amounts due, and slower collections of accounts receivable. All of these
factors could adversely impact our results of operations, cash flow from operations, and our
financial position. In addition, we may be forced to respond to an economic downturn by contracting
operations, which we may have difficulties managing in a timely fashion.
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.
International sales comprised 28% and 31% of our revenue for the quarters ended September 30,
2009 and 2010, respectively. We intend to continue to pursue and expand our international business
activities. Adverse political and economic conditions could make it difficult for us to increase
our international sales or to operate abroad. International operations are subject to many inherent
risks, including:
| 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. |
We believe that international sales will continue to represent a significant portion of our
revenue for the foreseeable future, and that continued growth will require further expansion of our
international operations. A substantial percentage of our international sales are denominated in
the local currency. As a result, an increase in the relative value of the dollar could make our
products more expensive and potentially less price competitive in international markets.
Margins on sales of our products and services in foreign countries, and on sales of products
and services that include costs from foreign based employees or foreign suppliers, could be
materially adversely affected by foreign currency exchange rate fluctuations.
During the nine months ended September 30, 2010, foreign currency rate fluctuations had a
significant impact on our financial results on a constant currency basis, when comparing the
average exchange rates during the nine months ended September 30, 2009 to the average exchange
rates during the nine months ending September 30, 2010.
When compared to the nine months ended September 30, 2009, our revenue was favorably impacted,
and our cost of revenue and operating expenses were unfavorably impacted, by the relative strength
of the U.S. dollar in the nine months ended September 30, 2010 relative to the British pound,
Australian dollar and Euro. The change in average exchange rates between the nine months ended
September 30, 2009 and 2010 had a favorable impact to revenue of $1.1 million. Additionally,
deferred revenue increased by
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approximately $470,000 when comparing the change in period-end exchange rates between the year
ended December 31, 2009 and quarter ended September 30, 2010. Expenses associated with
international revenue are generally paid in local currency, which generally provides a natural
hedge to offset the revenue impact. These expenses in the nine months ended September 30, 2010 had
an unfavorable impact of approximately $600,000 when comparing the change in average exchange rates
between the nine months ended September 30, 2009 and 2010.
We may not be able to sustain or increase profitability in the future.
We had an accumulated deficit of $53.5 million as of September 30, 2010. We expect to continue
to incur significant professional services, sales and marketing, research and development and
general and administrative expenses as we expand our operations and, as a result, we will need to
generate significant revenue to sustain or increase profitability. We may not be able to continue
to improve our operating results at the rate that has occurred in the past or at all. Even though
we were profitable during the three and nine months ended September 30, 2010, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future, which may cause the
price of our stock to decline.
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.
The market for CRM solutions is highly competitive and fragmented, and is subject to rapidly
changing technology, shifting client requirements, frequent introductions of new products and
services, and increased marketing activities of other industry participants. Increased competition
could result in commoditization, pricing pressure, reduced sales, lower margins or the failure of
our solutions to achieve or maintain broad market acceptance. If we are unable to compete
effectively, it will be difficult for us to add and retain clients, and our business, financial
condition and results of operations will be seriously harmed.
We face competition from:
| 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 clients 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. |
Some of our current and potential competitors have longer operating histories and larger
presence, greater name recognition, access to larger customer bases and substantially greater
financial, technical, sales and marketing, management, service, support and other resources than we
have. As a result, such competitors may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards or client requirements or devote greater resources
to the promotion and sale of their products and services than we can. To the extent our competitors
have an existing relationship with a potential client, that client may be unwilling to switch
vendors due to the time and financial commitments already made with our competitors.
In addition, many of our current and potential competitors have established or may establish
business, financial or strategic relationships among themselves or with existing or potential
clients, alliance partners or other third parties, or may combine and consolidate to become more
formidable competitors with better resources. We also expect that new competitors, such as
enterprise
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software vendors and online service providers that have traditionally focused on enterprise
resource planning or back office applications, will continue to enter the on demand CRM market with
competing products as the on demand CRM market develops and matures.
Our quarterly results of operations may fluctuate in the future.
Our quarterly revenue and results of operations may fluctuate as a result of a variety of
factors, many of which are outside of our control. If our quarterly revenue or results of
operations decline or fall below the expectations of investors or securities analysts, the price of
our common stock could decline substantially. Fluctuations in our results of operations may be due
to a number of factors, including, but not limited to, those listed below and identified throughout
this Risk Factors section:
| our ability to retain and increase sales to existing clients, attract new clients and satisfy our clients requirements; | ||
| general economic, industry and market conditions; | ||
| fluctuations in foreign currency exchange rates; | ||
| the mix of revenue between subscription arrangements, professional services and license arrangements as sales commissions are generally expensed ratably over the term of an agreement for subscription services, and expensed when invoiced for license arrangements and professional services; | ||
| changes in the mix of revenue between recurring revenue and professional services revenue, because the gross margin on professional services is typically lower than the gross margin on recurring revenue; | ||
| changes in the mix of voice self service applications sold and/or usage volume, because the gross margin on voice self service applications is typically lower than the gross margin on our sales, marketing, feedback and service applications; | ||
| the timing of contracts signed and amount of usage fees; | ||
| the timing and success of new product introductions or upgrades by us or our competitors; | ||
| the timing of professional service sales and our ability to appropriately staff and train professional service resources without negatively impacting professional service margins; | ||
| changes in our pricing policies or those of our competitors; | ||
| the amount and timing of expenditures related to expanding our operations; | ||
| stock price volatility, employee exercise behaviors, and option forfeiture rates, or changes in the number of stock options granted and vesting requirements in any particular period, which effects the amount of stock-based compensation expense; | ||
| changes in the payment terms for our products and services, including changes in the mix of payment options chosen by our customers; | ||
| the purchasing and budgeting cycles of our clients; and | ||
| changes in tax rate affected by changes in the mix of earnings and losses in jurisdictions with differing statutory tax rates, certain non-deductible expenses arising from the requirement to expense stock options and the valuation of deferred tax assets and liabilities, including our ability to use our net operating losses. |
Because the sales cycle for the evaluation and implementation of our solutions typically
ranges from 60 to 180 days, we may also experience a delay between increasing operating expenses
and the generation of corresponding revenue, if any. Moreover, because most of the revenue from new
sales agreements is recognized over time, downturns or upturns in sales may not be immediately
reflected in our operating results. Additionally, our professional service margins may be
negatively impacted by training
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requirements for new professional service resources and/or customer scheduling issues. Most of
our expenses, such as salaries and third-party hosting co-location costs, are relatively fixed in
the short-term, and our expense levels are based in part on our expectations regarding future
revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may
not be able to proportionally reduce operating expenses for that quarter, causing a
disproportionate effect on our expected results of operations for that quarter.
Due to the foregoing factors, and the other risks discussed in this report, you should not
rely on quarter-to-quarter comparisons of our results of operations as an indication of our future
performance.
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.
Increasing our client base and achieving broader market acceptance of our solutions may depend
to a significant extent on the effectiveness of our sales and marketing programs/operations. Our
business will be seriously harmed if our efforts do not maximize revenue per sales and marketing
headcount. We may not effectively develop and maintain awareness of our CX brand in a
cost-effective manner, not achieve widespread acceptance of our existing and future services and
fail to expand and attract new customers. We also may not achieve anticipated revenue growth from
our third-party channel partners if we are unable to attract and retain additional motivated
channel partners, if any existing or future channel partners fail to successfully market, resell,
implement or support our solutions for their customers, or if they represent multiple providers and
devote greater resources to market, resell, implement and support competing products and services.
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.
Prior to January 2010, our solutions had primarily been sold pursuant to time-based agreements
that had been typically subject to renewal every two years or less and our clients have no
obligation to renew. In January 2010, we introduced the Cloud Services Agreement (CSA), which
includes longer terms and annual customer termination for convenience provisions. We have not had
enough specific experience with the CSA to estimate a percentage of customers that may exercise the
right to annual termination for convenience. Additionally, certain of our time-based agreements
with the federal government are subject to annual appropriated funding. Because our clients may
elect not to renew, or the federal government may not appropriate funding, we may not be able to
consistently and accurately predict future renewal rates. Our clients renewal rates may decline or
fluctuate as a result of a number of factors, including their level of satisfaction with our
solutions, their ability to continue their operations or invest in customer service, or the
availability and pricing of competing products. If large numbers of existing clients do not renew,
or renew on terms less favorable to us, and if we cannot replace or supplement those non-renewals
with new agreements generating the same or greater level of revenue, 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.
To achieve our business objectives, we will need to continue to expand our business at an
appropriate pace. This expansion has placed, and is expected to continue to place, a significant
strain on our managerial, administrative, operational, financial and other resources. We anticipate
that expansion will require substantial management effort and significant additional investment in
our infrastructure. If we are unable to successfully manage our growth, our business, financial
condition and results of operations will be adversely affected.
Part of the challenge that we expect to face in the course of our expansion is to maintain the
high level of customer service to which our clients have become accustomed. To date, we have
focused on providing personalized account management and customer service on a frequent basis to
ensure our clients are effectively leveraging the capabilities of our solution. We believe that
much of our success to date has been the result of high client satisfaction, attributable in part
to this focus on client service. To the extent our client base grows, we will need to expand our
account management, client service and other personnel, and third-party channel partners, in order
to enable us to continue to maintain high levels of client service and satisfaction. If we are not
able to continue to provide high levels of client service, our reputation, as well as our business,
financial condition and results of operations, could be harmed.
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If there are interruptions or delays in our hosting services through third-party error, our
own error or the occurrence of unforeseeable events, delivery of our solutions could become
impaired, which could harm our relationships with clients and subject us to liability.
As of September 30, 2010, over 95% of our clients were using our hosting services for
deployment of our software applications. We generally provide our hosting services for our
applications through computer hardware that we own and that is currently located in third-party web
hosting co-location facilities maintained and operated in California, Illinois, New Jersey and
London, England. Some of our Canadian customers are hosted on equipment that is owned and operated
by a Canadian partner. In addition, our voice applications for several international customers are
hosted by third parties who also own and operate the hardware on which our applications reside. We
do not maintain long-term supply contracts with any of our hosting providers, and providers do not
guarantee that our clients access to hosted solutions will be uninterrupted, error-free or secure.
Our operations depend on our providers ability to protect their and our systems in their
facilities against damage or interruption from natural disasters, power or telecommunications
failures, criminal acts and similar events. Our back-up computer hardware and systems have not been
tested under actual disaster conditions and may not have sufficient capacity to recover all data
and services in the event of an outage occurring simultaneously at all hosting facilities. In the
event that our hosting facility arrangements were terminated, or there was a lapse of service or
accidental or willful damage to such facilities, we could experience lengthy interruptions in our
hosting service as well as delays and/or additional expense in arranging new facilities and
services. Any or all of these events could cause our clients to lose access to their important
data. In addition, the failure by our third-party hosting facilities to meet our capacity
requirements could result in interruptions in our service or impede our ability to scale our
operations.
Design and mechanical errors, spikes in usage volume and failure to follow system protocols
and procedures could cause our systems to fail, resulting in interruptions in our clients service
to their customers. Any interruptions or delays in our hosting services, whether as a result of
third-party error, our own error, natural disasters or security breaches, whether accidental or
willful, could harm our relationships with clients and our reputation. This in turn could reduce
our revenue, subject us to liability, and cause us to issue credits or pay penalties or cause
clients to fail to renew their licenses, any of which could adversely affect our business,
financial condition and results of operations. In the event of damage or interruption, our
insurance policies may not adequately compensate us for any losses that we may incur. Additionally,
during the first quarter of 2009, we announced a SaaS service level credit program, which provides
for a partial rebate if we fall short of our system availability objective. If we fail to meet this
objective for one or all of our customers, we may have to pay a substantial amount of money, which
may impact cash reserves, revenue recognition, and our reputation.
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.
Our hosting systems and our software store and transmit proprietary information and critical
data belonging to our clients and their customers. Any accidental or willful security breaches or
other unauthorized access could expose us to a risk of information loss, litigation and other
possible liabilities. If security measures are breached because of third-party action, employee
error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and,
as a result, a third party obtains unauthorized access to any of our clients data, our
relationships with clients and our reputation will be damaged, our business may suffer and we could
incur significant liability. Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until launched against a target, we and
our third-party hosting co-location facilities may be unable to anticipate these techniques or to
implement adequate preventative measures.
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.
The CRM industry is characterized by rapid technological advances, changes in client
requirements, frequent new product and service introductions and enhancements, changes in protocols
and evolving industry standards. Our hosted business model and the on demand CRM market are
relatively new and may evolve even more rapidly than the rest of the CRM market. Competing products
and services based on new technologies or new industry standards may perform better or cost less
than our solutions and could render our solutions less competitive or obsolete. In addition,
because our solutions are designed to operate on a variety of network hardware and software
platforms using a standard Internet web browser, we will need to continuously modify and enhance
our solutions to keep pace with changes in Internet-related hardware, software, communication,
browser and database technologies and to integrate with our
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clients systems as they change and evolve. Furthermore, uncertainties about the timing and
nature of new network platforms or technologies, or modifications to existing platforms or
technologies, could increase our research and development expenses.
If we are unable to successfully develop and market new and enhanced solutions that respond in
a timely manner to changing technology and evolving industry standards, and if we are unable to
satisfy the diverse and evolving technology needs of our clients, our business, financial condition
and results of operations will suffer.
Our failure to attract and retain qualified or key personnel may prevent us from effectively
developing, marketing, selling, integrating and supporting our products.
Our success and future growth depends to a significant degree upon the skills, experience,
performance and continued service of our senior management, engineering, sales, marketing, service,
support and other key personnel. Specifically, we believe that our future success is highly
dependent on Greg Gianforte, our founder, Chairman and Chief Executive Officer. In addition, we do
not have employment agreements with any of our senior management or key personnel that require them
to remain our employees and, therefore, they could terminate their employment with us at any time
without penalty. If we lose the services of Mr. Gianforte or any of our other key personnel, our
business will be severely disrupted and we may be unable to operate effectively. We do not maintain
key person life insurance policies on any of our key employees. Our future success also depends
in large part upon our ability to attract, train, integrate, motivate and retain highly skilled
employees, particularly sales, marketing and professional services personnel, software engineers,
product trainers, and senior personnel.
Our failure to attract, manage, support and retain qualified partners may prevent us from
effectively deploying product and professional services.
Our success and future growth depends in part upon the skills, experience, performance and
continued service of our partners. We engage with partners in a number of ways, including assisting
us to identify prospective customers, to distribute our solutions, to develop complementary
solutions, and to help us to fulfill professional services engagements. We believe that our future
success depends in part upon our ability to develop strategic, long term and profitable
partnerships. If we do not acquire and retain the right partners, our products might become
uncompetitive, we may be unable to take full advantage of the potential demand for our solutions,
or our ability to rapidly deliver our solutions may be impaired. The use of partners to fulfill
customer requirements may impact our normal margins, and affect the profitability of customer
transactions.
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.
Our software products may contain undetected errors or defects that may result in product
failures, slow response times, or otherwise cause our products to fail to perform in accordance
with client expectations. Because our clients use our products for important aspects of their
business, any errors or defects in, or other performance problems with, our products could hurt our
reputation and may damage our clients businesses.
If that occurs, we could lose future sales, or our existing clients could elect to not renew
or to delay or withhold payment to us, which could result in an increase in our provision for
doubtful accounts and an increase in collection cycles for accounts receivable. Clients also may
make warranty or other claims against us, which could result in the expense and risk of litigation.
Product performance problems could result in loss of market share, failure to achieve market
acceptance and the diversion of development resources. If one or more of our products fails to
perform or contains a technical defect, a client may assert a claim against us for substantial
damages, whether or not we are responsible for the product failure or defect. We do not currently
maintain any warranty reserves.
Product liability claims could require us to spend significant time and money in litigation or
to pay significant settlements or damages. Although we maintain general liability insurance,
including coverage for errors and omissions, this coverage may not be sufficient to cover
liabilities resulting from such product liability claims. Also, our insurer may disclaim coverage.
Our liability insurance also may not continue to be available to us on reasonable terms, in
sufficient amounts, or at all. Any product liability claims successfully brought against us would
cause our business to suffer.
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If we are unable to protect our intellectual property rights, our competitive position could
be harmed or we could be required to incur significant expenses to enforce our rights.
Our success depends to a significant degree upon the protection of our software and other
proprietary technology rights. We rely on trade secret, copyright and trademark laws, patents and
confidentiality agreements with employees and third parties, all of which offer only limited
protection. The steps we have taken to protect our intellectual property may not prevent
misappropriation of our proprietary rights or the reverse engineering of our solutions. We may not
be able to obtain any further patents or trademarks, and our pending applications may not result in
the issuance of patents or trademarks. Any of our issued patents may not be broad enough to protect
our proprietary rights or could be successfully challenged by one or more third parties, which
could result in our loss of the right to prevent others from exploiting the inventions claimed in
those patents. Furthermore, legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in other countries are uncertain and may afford little
or no effective protection of our proprietary technology. Consequently, we may be unable to prevent
our proprietary technology from being exploited abroad, which could diminish international sales or
require costly efforts to protect our technology. Policing the unauthorized use of our products,
trademarks and other proprietary rights is expensive, difficult and, in some cases, impossible.
Litigation may be necessary in the future to enforce or defend our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of management resources,
either of which could harm our business. Accordingly, despite our efforts, we may not be able to
prevent third parties from infringing upon or misappropriating our intellectual property.
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 software and Internet industries are characterized by the existence of a large number of
patents, trademarks and copyrights, and by frequent litigation based upon allegations of
infringement or other violations of intellectual property rights. As we seek to extend our customer
experience product and service offerings, we may be constrained by the intellectual property rights
of others. We have in the past been named as a defendant in a lawsuit alleging intellectual
property infringement, and we may again in the future have to defend against intellectual property
lawsuits. We may not prevail in any future intellectual property infringement litigation given the
complex technical issues and inherent uncertainties in litigation. Any claims, regardless of their
merit, could be time-consuming and distracting to management, result in costly litigation or
settlement, cause product development delays, or require us to enter into royalty or licensing
agreements. If any of our products violate third-party proprietary rights, we may be required to
re-engineer our products or seek to obtain licenses from third parties, which may not be available
on reasonable terms or at all. Because our sales agreements typically require us to indemnify our
clients from any claim or finding of intellectual property infringement, any such litigation or
successful infringement claims could adversely affect our business, financial condition and results
of operations. Any efforts to re-engineer our products, obtain licenses from third parties on
favorable terms or license a substitute technology may not be successful and, in any case, may
substantially increase our costs and harm our business, financial condition and results of
operations.
Further, our software products contain open source software components that are licensed to us
under various public domain licenses. While we believe we have complied with our obligations under
the various applicable licenses for open source software that we use, there is little or no legal
precedent governing the interpretation of many of the terms of certain of these licenses and
therefore the potential impact of such terms on our business is somewhat unknown. Use of open
source standards also may make us more vulnerable to competition because the public availability of
open source software could make it easier for new market entrants and existing competitors to
introduce similar competing products quickly and cheaply.
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.
The market for on demand application services is not as mature as the market for traditional
on-premise enterprise software, and it is uncertain whether these application services will achieve
and sustain high levels of demand and market acceptance. Our success will depend to a substantial
extent on the willingness of companies to increase their use of on demand application services in
general and for on demand RightNow CX applications in particular. The willingness of companies to
increase their use of any on demand application services is in part dependent on the actual and
perceived reliability of hosted solutions. In addition, many companies have invested substantial
personnel and financial resources to integrate traditional enterprise software into their
businesses, and therefore may be reluctant or unwilling to migrate to on demand application
services. While we have supported traditional on site
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deployment of our software applications, widespread market acceptance of our on demand
software solutions is critical to the success of our business. Other factors that may affect the
market acceptance of our solutions include:
| on demand security capabilities and reliability; | ||
| concerns with entrusting a third party to store and manage critical customer data; | ||
| the level of customization we offer; | ||
| our ability to continue to achieve and maintain high levels of client satisfaction; and | ||
| the price, performance and availability of competing products and services. |
If businesses do not perceive the benefits of on demand solutions in general, or our on demand
solutions in particular, then the market for these solutions may not develop further, or it may
develop more slowly than we expect, either of which would adversely affect our business, financial
condition and results of operations.
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.
If we are unable to successfully develop and sell new and enhanced versions of our solutions,
or introduce new solutions for the customer service market, our financial performance will suffer.
In recent years, we have expanded our CRM solution offering to include sales, marketing, feedback,
social and voice-enabled applications. Additionally, we have focused on eService solutions to call
centers. Our efforts to expand our solution in order to improve the customer experience may not be
successful in part because certain of our competitors may have greater experience or brand
recognition in the market or because they have greater financial resources that they can use to
develop or acquire superior products. In addition, our efforts to expand our on demand software
solutions may divert management resources from our existing operations and require us to commit
significant financial resources to a market where we are less proven, which may harm our business,
financial condition and results of operations.
Recently completed and/or future acquisitions could disrupt our business and harm our
financial condition and results of operations.
In order to expand our addressable market, we may decide to acquire additional businesses,
products and technologies. Acquisitions could require significant capital infusions into the
acquired business and could involve many risks, including, but not limited to, the following:
| an acquisition may negatively impact our results of operations because it may require incurring large one-time charges, substantial debt or liabilities; it may require the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets; or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges; | ||
| we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations of companies that we acquire, particularly if key personnel of the acquired company decide not to work for us; | ||
| our existing and potential clients and the customers of the acquired company may delay purchases due to uncertainty related to an acquisition; | ||
| an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; | ||
| the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs and could result in material asset impairment charges; | ||
| we may have to issue equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock; and |
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| acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience. |
We cannot assure you that we will be able to identify or consummate any future acquisitions on
favorable terms, or at all. If we do pursue any future acquisitions, it is possible that we may not
realize the anticipated benefits from the acquisitions or that the financial markets or investors
will negatively view the acquisitions. Even if we successfully complete an acquisition, it could
adversely affect our business, financial condition and results of operations.
Changes to financial accounting standards may affect our results of operations and financial
condition.
Generally accepted accounting principles and accompanying accounting pronouncements, implementation
guidelines and interpretations for many aspects of our business, such as software revenue
recognition, accounting for stock-based compensation, internal use software capitalization,
unanticipated ambiguities in fair value accounting standards and income tax uncertainties, are
complex and involve subjective judgments by management. Changes to generally accepted accounting
principles, their interpretation, or changes in our products or business could significantly change
our reported earnings and financial condition and could add significant volatility to those
measures.
We may not be able to secure additional financing on favorable terms, or at all, to meet our
future capital needs.
We may require additional capital to respond to business challenges, including the need to
develop new solutions or enhance our existing solutions, enhance our operating infrastructure, fund
expansion, respond to competitive pressures and acquire complementary businesses, products and
technologies. Absent sufficient cash flow from operations, we may need to engage in equity or debt
financings to secure additional funds to meet our operating and capital needs. In addition, even
though we may not need additional funds, we may still elect to sell additional equity or debt
securities or obtain credit facilities for other reasons. We may not be able to secure additional
debt or equity financing on favorable terms, or at all, at the time when we need such funding. If
we raise additional funds through further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution in their percentage ownership of our
company, and any new equity securities we issue could have rights, preferences and privileges
senior to those of holders of our common stock. Any debt financing secured by us in the future
could involve restrictive covenants relating to our capital raising activities and other financial
and operational matters, which may make it more difficult for us to obtain additional capital, to
pay dividends and to pursue business opportunities, including potential acquisitions. In addition,
if we decide to raise funds through debt or convertible debt financings, we may be unable to meet
our interest or principal payments.
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.
On July 28, 2010, we announced that our Board of Directors had approved a stock repurchase
program. Under the program, we are authorized to repurchase up to $10 million of our outstanding
shares of common stock from time to time at prevailing prices in the open market or otherwise over
the next two years. The timing and actual number of shares repurchased, if any, depend on a variety
of factors including the timing of open trading windows, price, corporate and regulatory
requirements, and other market conditions. The program may be suspended or discontinued at any time
without prior notice. Repurchases pursuant to our stock repurchase program could affect our stock
price and increase its volatility. The existence of a stock repurchase program could also cause our
stock price to be higher than it would be in the absence of such a program and could potentially
reduce the market liquidity for our stock. Additionally, repurchases under our stock repurchase
program will diminish our cash reserves, which could impact our ability to pursue possible future
strategic opportunities and acquisitions and could result in lower overall returns on our cash
balances. There can be no assurance that any stock repurchases will enhance stockholder value
because the market price of our common stock may decline below the levels at which we repurchased
shares of stock. Although our stock repurchase program is intended to enhance long-term stockholder
value, short-term stock price fluctuations could reduce the programs effectiveness.
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.
The future success of our products and our hosted business depends upon the continued and
widespread use of the Internet as a primary medium for commerce, communication and business
applications. Our business growth would be impeded if the performance or perception of the
Internet, or companies providing hosted solutions, was harmed by security problems such as
viruses, worms
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and other malicious programs, reliability issues arising from outages and damage to Internet
infrastructure, delays in development or adoption of new standards and protocols to handle
increased demands of Internet activity, increased costs, decreased accessibility and quality of
service, or increased government regulation and taxation of Internet activity.
Federal, state or foreign government bodies or agencies have in the past adopted, and may in
the future adopt, laws affecting data privacy, the solicitation, collection, processing or use of
personal or consumer information, the use of the Internet as a commercial medium and the use of
email for marketing or other consumer communications. These laws or charges could limit the growth
of Internet-related commerce or communications generally, result in a decline in the use of the
Internet and the viability of Internet-based services such as ours and reduce the demand for our
products.
The Internet has experienced, and is expected to continue to experience, significant user and
traffic growth, which has, at times, caused user frustration with slow access and download times.
If Internet activity grows faster than Internet infrastructure or if the Internet infrastructure is
otherwise unable to support the demands placed on it, or if hosting capacity becomes scarce, our
business growth may be adversely affected.
Privacy concerns and laws or other domestic or foreign regulations may adversely affect our
business or reduce sales of our solutions.
Businesses using our solutions collect personal information regarding their customers when
those customers contact them with customer service inquiries. A valuable component of our solutions
is their ability to allow our clients to use and analyze their customers information to increase
sales, marketing and up-sell or cross-sell opportunities. Federal, state and foreign government
bodies and agencies, however, have adopted and are considering adopting laws and regulations
regarding the collection, use and disclosure of personal information obtained from consumers. The
costs of compliance with, and other burdens imposed by, such laws and regulations that are
applicable to the businesses of our clients may limit the use and adoption of this component of our
solutions and reduce overall demand for our solutions. Furthermore, even where a client desires to
make full use of these features in our solutions, privacy concerns may cause our clients customers
to resist providing the personal data necessary to allow our clients to use our solutions most
effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market
acceptance of our products.
European Union members have imposed stringent restrictions on the collection and use of
personal data that impose significant burdens on subject businesses. Domestic and international
laws and regulations, and legislative and regulatory initiatives, may adversely affect our clients
ability to collect and/or use demographic and personal information from their customers, which
could reduce demand for our solutions.
In addition to government activity, privacy advocacy groups and the technology and direct
marketing industries may implement new self-regulatory standards that may place additional burdens
on us. If the gathering of profiling information were to be curtailed in this manner, customer
service CRM solutions may be less effective, which would reduce demand for our solutions and harm
our business.
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.
In January 2004, the federal Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or CAN-SPAM Act, became effective. The CAN-SPAM Act regulates the
transmission and content of commercial emails and, among other things, obligates the sender of such
emails to provide recipients with the ability to opt-out of receiving future emails from the
sender, and establishes penalties for the transmission of email messages which are intended to
deceive the recipient as to source or content. Many state legislatures also have adopted laws that
impact the delivery of commercial email, and laws that regulate commercial email practices have
been enacted in many of the international jurisdictions in which we do business, including Europe,
Australia, Japan, and Canada. In addition, Internet service providers and licensors of software
products have introduced a variety of systems and products to filter out certain types of
commercial email, without any common protocol to determine whether the recipient desired to receive
the email being blocked. As a result, it is difficult for us to determine in advance whether or not
emails generated by our clients using our solutions will be permitted by spam filters to reach the
intended recipients.
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Our RightNow Marketing solution specifically serves the market for mass distribution marketing
and other email communications. The increasing regulation of email delivery, both domestically and
internationally, and the spam filtering practices of Internet service providers and email users
generally, will place significant additional burdens on our clients who have outbound communication
programs, and may cause those clients to substantially change their outbound communications
programs. These factors may lead to a reduction in sales of our RightNow Marketing solution, may
make it necessary to redesign our RightNow Marketing solution to make it easier for our clients to
conform to the requirements of such laws and standards, which would increase our expenses, or may
make it necessary for us to redefine the market for and use of our RightNow Marketing solution,
which could reduce our revenue.
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.
At September 30, 2010, Greg Gianforte, our founder and Chief Executive Officer, and his
spouse, Susan Gianforte, have voting power over approximately 25% of our outstanding common stock
and, together with other officers and directors, have voting power
over approximately 31% of our
outstanding common stock. In addition, none of the shares of common stock over which Mr. Gianforte
and Mrs. Gianforte have voting power are subject to vesting restrictions. As a result, Mr.
Gianforte and Mrs. Gianforte, acting together with some of our other officers and directors, may be
able to influence matters requiring stockholder approval, including the election of directors,
management changes and approval of significant corporate transactions. This concentration of voting
power may have the effect of delaying, preventing or deterring a change in control of RightNow,
could deprive our stockholders of an opportunity to receive a premium for their common stock as
part of a sale of RightNow and might reduce the market price of our common stock.
In addition, Mr. Gianforte beneficially owns, directly or indirectly, a 50% membership
interest in Genesis Partners, LLC, our landlord from whom we lease our principal offices in
Bozeman, Montana. Consequently, Mr. Gianforte has significant influence over any decisions by
Genesis Partners regarding renewal, modification or termination of our Bozeman, Montana leases. In
the event that our current leases with Genesis Partners were terminated or otherwise could not be
renewed, or came up for renewal on commercially unreasonable terms, we would be required to find
alternative office space to lease or buy.
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.
Provisions of our certificate of incorporation and bylaws and Delaware law may discourage,
delay or prevent a merger or acquisition that a stockholder may consider favorable and may limit
the market price of our common stock. These provisions include the following:
| 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. |
It is possible that the provisions contained in our certificate of incorporation and bylaws,
the voting rights held by insiders and the ability of our board of directors to issue preferred
stock without stockholder action may have the effect of delaying, deferring or preventing a change
in control of our Company without further action by the stockholders, may discourage bids for our
common stock at a premium over the market price of our common stock and may adversely affect the
market price of our common stock and the voting and other rights of the holders of our common
stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
Not applicable.
(b) Use of Proceeds from Sales of Registered Securities
On August 5, 2004, the Securities and Exchange Commission declared effective our Registration
Statement on From S-1 (Reg. File No. 333-115331) under the Securities Act of 1933, as amended, in
connection with the initial public offering of our common stock, par value $.0001 per share. We
sold 6.4 million shares, including shares sold upon exercise of the underwriters over-allotment
option, for an aggregate offering price of $44.9 million, and 321,945 shares, including shares sold
upon exercise of the underwriters over-allotment option, were sold by a selling stockholder for an
aggregate offering price of $2.3 million. After deducting $3.3 million in underwriting discounts
and commissions and $1.8 million in other offering costs, we received net proceeds from the
offering of approximately $40 million. None of the expenses and none of our net proceeds from the
offering were paid directly or indirectly to any director, officer, general partner of RightNow or
their associates, persons owning 10% or more of any class of equity securities of RightNow, or an
affiliate of RightNow.
In May 2005, we spent $1 million of the offering proceeds for the acquisition of the assets of
Convergent Voice. In May 2006, we spent $8.7 million of the offering proceeds to acquire Salesnet,
Inc. In September 2009, we spent $5.9 million of the offering proceeds to acquire HiveLive, Inc. We
currently intend to use the remaining proceeds for general corporate purposes as described in the
prospectus for the offering. Pending these uses, the net proceeds from the offering are invested in
short-term, interest-bearing, investment-grade securities.
(c) Purchases of Equity Securities
On July 28, 2010, we announced a stock repurchase program, effective August 2, 2010, under
which our board of directors authorized the repurchase of up to $10.0 million of our common stock
over the next two years. The shares may be purchased from time to time at prevailing prices in the
open market, in block transactions, in privately negotiated transactions, and/or in accelerated
share repurchase programs, in accordance with Rule 10b-18 of the Securities and Exchange
Commission. Any shares repurchased will be held in treasury. As of September 30, 2010, we have not
repurchased any common stock under this program. We cannot assure you that any repurchases will be
made under this program. If any repurchases are made, we also cannot assure you as to the amount or
frequency of repurchases we may make under this program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
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Item 6. Exhibits
Exhibits
The exhibits listed below are part of this Form 10-Q, unless otherwise indicated.
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 Companys 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 Companys Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on January 25, 2006. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 5, 2010
RightNow Technologies, Inc. (Registrant) |
||||
By:
|
/s/ Jeffrey C. Davison
|
|||
Chief Financial Officer, Senior Vice President and, Treasurer (Principal Financial and Accounting Officer) |
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