UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NUMBER 000-31321
RIGHTNOW TECHNOLOGIES,
INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
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81-0503640
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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136 ENTERPRISE BLVD, BOZEMAN, MONTANA 59718
(Address of principal executive
offices) (Zip code)
(406) 522-4200
(Registrants telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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COMMON STOCK, PAR VALUE $0.001
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THE NASDAQ STOCK MARKET LLC
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Securities registered pursuant to Section 12(g) of the
Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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.
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(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
Act). Yes o No þ
The aggregate market value of common stock held by
non-affiliates of the registrant as of June 30, 2010, the
last business day of the registrants most recently
completed second fiscal quarter, was approximately $503,000,000,
based on the closing sales price of the registrants common
stock on that date as reported by The Nasdaq Global Market. For
the purposes of the foregoing calculation only, all of the
registrants directors, executive officers and persons
known to the registrant to hold ten percent or greater of the
registrants outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This
determination of affiliate status is not a determination for
other purposes.
The number of shares outstanding of the registrants common
stock as of February 28, 2011 was 32,613,990.
DOCUMENTS
INCORPORATED BY REFERENCE:
Information required by Items 10 through 14 of
Part III of this
Form 10-K,
to the extent not set forth herein, is incorporated herein by
reference to portions of the registrants definitive proxy
statement for the registrants 2011 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission not later than 120 days after the end
of the fiscal year ended December 31, 2010. Except with
respect to the information specifically incorporated by
reference in this
Form 10-K,
the registrants definitive proxy statement is not deemed
to be filed as a part of this
Form 10-K.
RightNow
Technologies, Inc.
Annual
Report on
Form 10-K
For The
Fiscal Year Ended December 31, 2010
Table of
Contents
2
CAUTIONARY
STATEMENT
In this report, the terms RightNow Technologies,
RightNow, Company, we,
us and our refer to RightNow
Technologies, Inc. and its separate, wholly-owned independent
subsidiaries.
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 pay
interest and principal when due on our convertible senior notes
or to repurchase such notes in certain circumstances, our
ability to retain and hire key executives, sales and technical
personnel and other employees in the numbers, with the
capabilities, and at the compensation levels needed to implement
our business and product plans, the competitive nature of and
anticipated growth in our markets, ability to find suitable
acquisitions on favorable terms, if at all, 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, 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; our ability to manage and expand our
partner relationships; interruptions or delays in our hosting
operations; general economic conditions; 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 hire, retain
and motivate our employees and manage our growth; our ability to
successfully integrate the products and people that we acquire
through acquisitions; the impact of potential future
acquisitions, if any; risks associated with our recent offering
of convertible senior notes including the potential impact on
earnings per share calculations; 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.
3
Part I
OVERVIEW
RightNow Technologies (we, us,
our, the Company or
RightNow) provides RightNow
CXtm,
an on-demand (cloud-based) suite of customer
experience software and services designed to help
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 on demand delivery
approach, or software-as-a-service (SaaS), 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 helping our customers 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.
RightNow was incorporated in Montana in September 1997 and
reincorporated in Delaware in August 2000. Our principal
executive offices are located at 136 Enterprise Boulevard,
Bozeman, Montana
59718-9300,
and our telephone number is
(406) 522-4200.
We have regional field offices in Boulder, Colorado; Chicago,
Illinois; Dallas, Texas; San Mateo, California; Orange
County, California; New York, New York; Fairport, New York; and
Herndon, Virginia. We also have offices in Amsterdam,
Netherlands; Barcelona, Spain; Bonn, Germany; Maidenhead,
England; Munich, Germany; Sydney, Australia; and Tokyo, Japan.
Our internet address is
http://www.rightnow.com.
The inclusion of our internet address in this report does not
include or incorporate by reference into this report any
information contained on, or accessible through, our website.
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
amendments to those reports and other Securities and Exchange
Commission, or SEC, filings are available free of charge through
our website as soon as reasonably practicable after such reports
are electronically filed with, or furnished to, the SEC. Our
common stock trades on The Nasdaq Global Market under the symbol
RNOW.
Recent
Developments
During the fourth quarter of 2010, we received
$170.0 million of net proceeds from the issuance of
convertible senior notes due in November 2030. We intend to use
the net proceeds for general corporate purposes, which may
include financing potential acquisitions and strategic
transactions, stock repurchases, and working capital. In January
2011, we acquired Q-go.com B.V., a natural language search
provider for approximately $35.7 million in cash. The
acquisition of Q-go adds Intent Guide and Natural Language
Search to our product suite. Q-gos leading edge technology
has been proven to drive higher conversion rates, increase
revenue and improve web visitor experiences.
PRODUCTS
AND SERVICES
RightNow
CXtm,
the Customer Experience Suite
RightNow CX is designed to be a comprehensive customer
experience solution for consumer-centric organizations to enable
interactions across web, social, and contact center touch
points. Our solutions give companies the ability to coordinate
disparate resources across the organization to develop, rapidly
execute, and manage their customer experience strategy.
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We believe our solutions deliver customer experiences that build
loyalty, drive revenue, reduce costs and increase efficiency.
RightNow CX includes and integrates web, social and contact
center experiences, which are layered on RightNow
Engagetm,
and our CX cloud platform as illustrated below.
RightNow
Webtm
Experience
Integrates into an existing web infrastructure to provide a
fully interactive, attractive, and branded online customer
experience providing customer access to web self-service and the
ability to seamlessly transition to agent-assisted channels.
Intent guide is designed to provide a deep understanding of
consumer intent on a website and to guide those consumers to
high-value interactions so organizations can increase
conversions, drive sales, grow loyalty and gain deeper insights.
Customer Portal gives organizations the ability to create and
manage a branded, highly interactive online customer experience
24-hours-a-day.
Customer Portal utilizes artificial intelligence technology that
learns how customers search for and use knowledge
base information. Features include knowledge syndication to
present knowledge base information on any public page, whether
that is the organizations own web page or a partners.
Mobile extends the web experience for use with the latest
generation of mobile devices. Our mobile templates allow clients
to manage and offer different experiences to different browsers,
and deliver the right consumer experience for each mobile device.
Live chat customer service software facilitates real-time,
online chat sessions between an organizations agents and
customers visiting a website. Chat helps to resolve customer
issues and increase purchase conversion rates. Co-Browsing
extends the value of the web experience by providing a visual
connection between agents and their online visitors. Coupled
with a chat session or phone call, agents are able to provide
expert support by guiding customers through the website in
real-time.
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Email Management is designed to ensure quality communication and
timely responses between organizations and customers by tracking
the progress of every email through escalation and ensuring that
no email is left unanswered. With attribute-based routing
capabilities, consumers questions can be routed to the
agent with the right skill set to address the specific customer
situation.
RightNow
Socialtm
Experience
Enables organizations both to listen and respond to
conversations with their consumers on the social web and to
build branded communities to cultivate their own conversations.
RightNows social solutions are integrated into our
complete customer experience solution that helps ensure
consistency in customer information management, knowledge
management and customer experience processes.
Extends an organizations customer experience strategy to
Facebook, to one of the worlds most popular and
fastest-growing social networks. Gives customers multiple
options for interacting with an organization
including self-service, crowd-service, and agent-assisted
service directly from a customer service tab on a
Facebook page.
Facilitates discussion between customers to talk about products
and services, share tips, and answer each others
questions. Customers can mark the best answers and be rewarded
for their participation and expertise. A resource library keeps
a searchable repository of useful information, including both
company and user-generated content.
Invites customers to submit ideas, vote for their favorite ideas
and be rewarded for their participation and expertise.
Structured feedback is captured to improve the quality of
products and services.
Enables agents to efficiently and effectively engage customers
proactively in the social cloud, monitoring Twitter, YouTube,
RSS-enabled sites, and RightNow powered communities, follow
relevant discussions, and determine actionable next steps such
as proactive outreach or creation of a service case based on
information gathered.
RightNow
Contact
Centertm
Experience
Enables organizations to deliver consistent customer experiences
across multi-channel interactions designed to maximize agent
productivity, lower costs, and drive revenue.
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Intelligent Voice Automation (IVR)
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Personalized speech IVR, voice self-service, and custom voice
applications facilitate a tailored, personalized experience for
each caller based on their individual needs, customer profile,
and business objectives.
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RightNows Dynamic Agent Desktop
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Provides a single unified view into all customer information and
interaction history regardless of contact channel. Scripting,
contextual workspaces and desktop workflow guide agents with
contextually relevant,
just-in-time
knowledge and best practices and enable the delivery of a
consistent customer experience and efficient interaction.
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RightNow
Engagetm
Providing the horizontal service, sales, and marketing business
processes that support, span, and inter-connect the web, social
and contact center experiences. RightNow Engage helps enable
organizations to provide seamless, personalized customer
experiences through proactive engagement, actionable customer
feedback, and deep business insight.
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Service-Sales-Marketing
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The traditional customer relationship management
(CRM) operational business processes, designed for
consumer-centric business:
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Service: Business processes that support
efficient and effective problem resolution and customer support
across channels.
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Sales: Business processes that support
revenue-generation, such as sales automation, opportunity
management, and upsell and cross-sell.
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Marketing: Business processes that drive
personalized, proactive customer communication such as email
marketing, lead generation and campaign management.
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Facilitates the delivery of a superior customer experiences
across web, social, and contact center by enabling organizations
to gather the
voice-of-the-customer
in real-time across every customer touch point and take
immediate action.
Managerial and operational insight to measure and analyze
customer experiences, highlight areas of improvement, and
identify trends to anticipate customer needs.
RightNow
CX Cloud
Platformtm
RightNow CX Cloud Platform provides a platform for scalability,
performance, flexibility and security and offers a set of
foundational elements that help enhance value and infuse
knowledge across the RightNow CX applications, enabling the
delivery of a positive customer experience.
Enables organizations to rapidly create, extend, configure and
integrate customer experience applications on the RightNow CX
Cloud platform. App builder is comprised of the following:
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Custom Objects: allows integrators and
administrators to create and customize business objects in the
RightNow database schema, enabling them to create new
applications, interaction channels, and components on the
RightNow CX Cloud platform.
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Connect: enables developers and integrators to
leverage open standards-based API capabilities to rapidly and
cost-effectively integrate RightNow CX into virtually anything,
including desktop applications, backend systems, telephony
systems, and the web. This allows organizations to unify their
systems data to provide insightful information exchanges across
all customer touch-points.
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Experience Design: allows business
administrators and designers to easily configure RightNow CX for
engaging experiences. With visual design tools and standard web
languages, users can quickly tailor workflows, workspaces,
business rules and process definitions to design consistent
multi-channel customer experiences.
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A set of intelligent authoring, social collaboration and access
tools for delivering relevant knowledge across all customer
touch-points. RightNows patented, self-learning knowledge
foundation
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uses each interaction across the web, social and contact center
experiences to continuously improve the knowledge it delivers.
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RightNow Natural Language Search
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Offers a unique semantic search technology designed to deliver
premium experiences across all channels of interactions. The
RightNow Natural Language Search contains industry specific
linguistic dictionaries and advanced algorithms that
comprehensively understand query intent. The result is the
highest level of relevancy achievable for every query, in every
supported language and industry.
RightNow
Mission Critical Operations
A cloud delivery platform that provides the reliability,
security, and scalability demanded for mission-critical
business. Includes:
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RightNow Government Cloud
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Provides a dedicated secure hosting facility for United States
government agencies. Housed in a carrier-class, tier-4 facility,
the Government Hosting Center meets US Federal security and
audit standards as defined by The Federal Information Security
Management Act, or FISMA, including NIST SP
800-37, NIST
SP 800-53,
and FIPS 199.
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RightNow PCI Certified Cloud
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RightNow PCI Certified Cloud meets the standards set out by PCI
(a set of comprehensive requirements for enhancing payment
account data security) for Service Provider Level 1
Certification for customers with enhanced security requirements.
RightNow
CX Commitment
The RightNow CX Commitment describes the way in which we engage
with our customers to deliver a superior customer experience.
RightNows Client Success Managers work with organizations
to help them measure their customer experience key performance
indicators, benchmark their system and processes against
industry metrics, and leverage best practices.
Our business processes are designed to make it easy to buy from
us. Beginning January 2010, we introduced the Cloud Services
Agreement (CSA), which gives our customers an arrangement that
offers greater flexibility, and is an easy to read,
plain-English framework for purchasing. Among other things, the
CSA includes annual termination for convenience, price
transparency for up to six years, ability to purchase annual
pools of capacity, and cash service level credits. We identify
performance targets and offer cash service level credits where
we fail to meet these targets.
RightNow Centers of Excellence (COEs) bring together experts
from across the organization for each of the five areas in
RightNow CX: Web Experience, Social Experience, Contact Center
Experience, Engage and CX Cloud Platform. The COEs help clients
define best practices, provide technical product expertise, and
drive product innovation.
Professional
Services
Our Professional Services group combines project management
(RightNow Project Methodology) with technical and
business-focused consulting services to our clients. Using
proven methods and customer-centric best practices, our
Professional Services group is experienced in implementing and
integrating RightNow
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products across many industries, drawing on in-depth knowledge
and practical expertise gained from thousands of deployments.
Professional services helps customers determine strategic
business objectives, align business processes, define success
metrics, help with rapid system configuration and deployment,
and adjust business solutions to support full user adoption. We
also provide
tune-up
services to our clients, auditing their solution against our
library of best practices.
During 2010, we continued to expand our professional service
organization with new investments in both partner relationships
and additional employees. These investments are expected to
allow us to engage in more complex deployments, add scalability
to our business and help drive our growth.
Sales and
Marketing
RightNow products and services are sold predominantly through
our direct sales organization and to a lesser extent through
partner channels. The sales team is organized around geographic
territory, prospect company size and vertical industry, calling
on potential new clients as well as focusing on managing and
further expanding existing client relationships.
A prospective client may deploy a portion or all of our
solutions on a pilot basis to ensure that RightNow CX solutions
meet its needs, prior to committing to any subscription fees. A
pilot project usually lasts between 30 and 90 days. The
prospective clients objectives are quantified and results
measured during the pilot period. As a result of this program,
we believe we have experienced shorter sales cycles, higher sale
closure rates and larger deal sizes.
During 2010, we continued to develop our worldwide partner
relationships to enhance the delivery of an optimized customer
experience for our shared clients. Our partner program is
focused on three core strategies extend market reach
and penetration, expand our implementation delivery providers
and extend the RightNow CX solution. These partners represent
many of the worlds largest customer care outsourcers,
including Convergys, Teleperformance, and TELUS.
In addition, we continued to develop an ecosystem of business
and technology alliance partners. These relationships with
leading independent software companies, systems integrators, and
contact center infrastructure providers have opened up new
opportunities for our direct sales organization and have created
a host of complementary solutions for our customers.
Our partners include Birst, Sterling Commerce, TARGUSinfo,
Boomi, Pervasive, OpenMethods, Interactive Intelligence,
Language Weaver, and Sajan.
We believe these partnerships have enabled our direct sales
organization to expand its contact base in key accounts, and
enhance and differentiate the RightNow CX solution, and we
believe ultimately will develop larger and more profitable
enterprise sales opportunities.
In those international markets where we do not have a direct
selling presence, we rely on system integrators and resellers to
offer RightNow CX solutions. This strategy is primarily employed
in mainland Europe, New Zealand, Asia, and Latin America.
Our marketing department promotes the awareness of our brand,
manages generation of client leads, and oversees public and
industry analyst relations. To expand our client base, we have
also developed and expect to continue to increase innovative
marketing initiatives.
Clients
and Backlog
As of December 31, 2010, we had approximately 1,900 active
clients in various industries with sales generated approximately
20% from technology, 20% from public sector, 13% from
retail/consumer packaged goods, 13% from entertainment, 6% from
financial services, 10% from telecommunications, 6% from travel
and hospitality, and 12% from various other industries. For the
year ended December 31, 2010, approximately 41% of our
sales were generated from entities with over $1 billion in
annual sales, 39% of our revenue was generated from entities
with less than $1 billion in annual revenue and 20% of our
revenue was generated from government/educational institutions.
No single client accounted for more than 10% of our revenue in
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2008, 2009, or 2010. No individual customer accounted for more
than 10% of the Companys accounts receivable at
December 31, 2009 and December 31, 2010, respectively.
Please refer to Note 1 (c) of our Notes to
Consolidated Financial Statements for financial information
about our geographic areas.
Total backlog is as follows (in thousands):
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December 31,
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2009
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2010
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Current committed backlog
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$
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117,600
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$
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126,860
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Non-current committed backlog
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57,020
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27,314
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Total firm committed backlog
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174,620
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154,174
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Current backlog subject to termination for convenience
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3,400
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21,759
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Non-current backlog subject to termination for convenience
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1,980
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119,897
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Total backlog
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$
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180,000
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$
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295,830
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Total backlog, which represents total invoiced and uninvoiced
deferred revenue, was approximately $180 million and
approximately $296 million as of December 31, 2009 and
December 31, 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 million and approximately $149 million as of
December 31, 2009 and December 31, 2010, respectively.
Due to our introduction of the CSA beginning January 2010, our
uncommitted backlog increased during the year ended
December 31, 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. Due in part to including unexercised options
under the federal government multi-year award contracts within
backlog, our uncommitted backlog increased during the year ended
December 31, 2010 as compared to the year ended
December 31, 2009.
To date, our cancellations under the CSA have been less than 2%
of our total backlog. Based on cancellations to date, and the
potential for future cancellations, we cannot provide 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. However, we cannot assure this outcome. 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 commercial customers that have 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 to terminate these arrangements at its option. 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
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is typically high at the beginning of the contract period, zero
just prior to renewal, and increases if the agreement is renewed
or if customers made additional purchases during the contract
period. 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.
Product
Development and Technology
Our product development efforts are focused on improving and
enhancing our existing solutions and service offerings as well
as developing new proprietary technology. Our product roadmap
incorporates our long-term strategic view of our market and
incorporates customer feedback to improve and enhance our
products. We currently are developing products and solutions to
broaden and deepen our offerings beyond what is offered in the
traditional CRM market. We are focusing on building applications
that not only improve the internal business processes, but also
improve the end-customer experience. We allow our clients to run
different versions of our software and provide customers the
ability to plan, schedule and implement upgrades of new
releases. Our support and development efforts are focused only
on the current and future releases of our products. We provide
support for our software versions for 24 months, and
self-service support for 18 months after that. Our research
and development expenses totaled approximately
$18.3 million in 2008 and $20.2 million in both 2009
and 2010.
We believe we have significant technology expertise in
developing and deploying highly scalable and reliable cloud
based customer experience applications. All of our products have
been designed using industry standards for the Internet and are
designed to meet the following goals: cost efficient deployment,
highly configurable, scalable, easily integrated, multi-tenant
and capable of being internationalized. The architectural
components described below form the foundation for the delivery
of a variety of features within our solution.
Intuitive Knowledge Foundation. Artificial
intelligence, self-learning, knowledgebase technologies and
innovative information retrieval technologies form the
foundation of our solution. These technologies are combined
within our customer service solution to provide self-service and
automatic email response to users and as an automated assistant
for our clients customer service representatives. Core
technologies in the area of the knowledge foundation include
automatic learning and decay of the relevancy and relatedness of
information, natural language processing, word-stemming
algorithms, information clustering and classification
algorithms, and information retrieval technologies.
Integration with Other Enterprise
Applications. Our clients are able to integrate
our solution with their other mission-critical enterprise
applications through several techniques, including: web
services, application level triggers; user interface
extensibility that allows the integration of other applications
into our solution; and pass through authentication
that allows our solution to inherit user credentials from other
applications to identify and enforce access to our clients
web sites. The Developer portion of our Customer Community
portal provides our customers an on-line forum of information on
integration topics such as
up-to-date
documentation and sample integrations as well as on-line
discussion forums that are moderated by RightNow experts.
Highly Customizable and Usable User
Interface. The web portal interface portion of
our product, which allows our clients to serve their customers
through the web, is browser based and provides support for all
current browsers and versions, and complies with web
accessibility standards. The web portal interface is designed to
be easily integrated into our clients web sites and simple
for inexperienced internet users to understand. Our back-end
interface utilizes Microsoft Corporations Smart Client
technology. The back-end interface is used by administrators,
agents, sales representatives and marketing users. The Microsoft
Smart Client user interface (or UI) communicates
with our server through web services. This UI combines the speed
and power of traditional client/server applications with the
flexibility and reduced total cost of ownership associated with
browser-based applications. With the Microsoft Smart Client UI,
a richer user experience is possible than could be provided
through a browser. Because the Microsoft Smart Client is
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automatically network installed and updated, the desktop
maintenance generally associated with client/server applications
is reduced. Our back-end interface can be easily customized
without programming to support different workflows and can be
extended to incorporate data from other applications.
Software Architecture. Our solution has been
developed using a logical three-tier Internet architecture
consisting of presentation, application logic and data
management layers. Because of the tiered separation, our
solution is designed to be highly scalable, allowing expansion
at each tier. We deploy our solution in highly available, highly
scalable, load-balanced web server and clustered database server
configurations.
Intellectual
Property
Our success depends to a significant degree upon the development
and protection of our intellectual property rights. We believe
we have a rich repository of intellectual property. Our
intellectual property assets include thirteen issued
U.S. patents, twelve pending U.S. patents, six issued
European patents, eleven U.S. trademark registrations, two
pending U.S. trademark registrations, and multiple foreign
trademark registrations. The majority of our patents and patent
applications concern our knowledgebase technology, including
processes relating to the relative usefulness ranking and the
order of display of retrieved information in the knowledgebase;
the ability of the knowledgebase to suggest related information
to a user accessing the knowledgebase; and the ability of the
knowledgebase to produce a relational map of help information
items based on the historical usage patterns of customers
accessing the knowledgebase. Our patent portfolio also includes
patents and patent applications that relate to our voice
technology, social, marketing and sales solutions.
The following is a summary of our issued U.S. patents:
Implicit Rating of Retrieved Information in an Information
Search System. This process relates to an
information search and retrieval system through a network, such
as the Internet, in which the relative usefulness ranking and
the order of display of the retrieved information in the
knowledgebase is adjusted based on actions taken by a user. This
patent continues until April 2020.
Temporal Updates of Relevancy Rating of Retrieved Information
in an Information Search System. This process relates to an
information search and retrieval system through a network, such
as the Internet, in which the relative usefulness ranking and
the order of display of the retrieved information in the
knowledgebase is adjusted based on the amount of time elapsed
since the particular information was last accessed. This patent
continues until April 2020.
Usage Based Strength between Related Information in an
Information Retrieval System. This patent
describes an information retrieval system in which information
is displayed based on navigation behavior of previous users.
This patent continues until April 2020.
System and Method for Generating a Dynamic Interface through
a Communications Network. This patent describes a
system for dynamically adapting selections in an automatic phone
support system. This invention enables the provision of
information from a dynamic knowledgebase through a telephone
channel. This patent continues until June 2020.
Usage Based Strength between Related Help Topics and Context
Based Mapping Thereof in a Help Information retrieval
System. This process allows the knowledgebase to
suggest related information to a person based on the keyword
search and navigation patterns of that person. This patent
continues until April 2020.
Display Screen for a Computer. This is a
design patent relating to the user interface to our software.
This patent continues until March 2016.
Method for Routing Electronic Correspondence Based on the
Level and Type of Emotion Contained Therein. This
process relates to determining the emotional content of an
electronic correspondence to route or prioritize the
information, to set the expectations of a customer support
worker, to flag those workers who are using inappropriate
language with the customer, or determine another best course to
send the correspondence. This patent continues until October
2022.
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Method of Clustering Automation and Classification
Techniques. This invention covers a method for
automatically classifying and summarizing related information in
a hierarchical manner. The system comprises the steps and means
for the presentation and analysis of collected data through the
application of four distinct processes: feature selection,
clustering, classification and summarization. This patent
continues until August 2022.
Method and System for Sending Bulk Electronic
Messages. This patent describes our test cell
technology used in the marketing automation product through the
creation and transmission of electronic messages sent in bulk to
a targeted audience. This patent continues until November 2025.
System for Automated Control and Reporting of Sales
Process. This patent describes our process
builder and workflow engine for sales automation. This patent
continues until December 2025.
Automated Adaptive Classification System for
Non-Probabilistic Knowledge Networks. This patent
describes a method of relating newly published information to
existing information in a knowledge base, leading to more
accurate information retrieval. This patent continues until
April 2020.
Leveraging
User-to-User
Interactions in a Knowledgebase Using a Forum
Interface. This patent converts a forum into an
accessible relevant source of information by turning threaded
discussion in forums into incidents in our knowledgebase. By
using the applications artificial intelligence to enable the
relevant answers to rise to the top and the irrelevant to be
discarded, users can search for and obtain useful information
from forum interactions. This patent continues until October
2028.
The following European Patent is validated in six countries:
System and Method for Generating a Dynamic Interface via a
Communications Network (European Patent and Corresponds with US
approved patent above) This patent utilizes an
automatic phone support system through a knowledge base of
responses with menu selections on an automated phone system or
other response system to present the most frequently used items
earlier in the option list, or otherwise orders options and
information. The six countries that have validated the patent
will each share the patent number and each is considered a
separate patent. The six countries are France, Germany, Ireland,
Switzerland/Liechtenstein, the Netherlands, and the United
Kingdom.
Our registered United States and foreign trademarks are
RIGHTNOW®
(US, Japan, European Union), RIGHTNOW
TECHNOLOGIES®
(stylized) (Canada), BRILLIANT
ANSWERS®
(Australia),
LOCATOR®
(US), RIGHT
NOW®
(US), RIGHTNOW TECHNOLOGIES &
Design®
(European Union), RIGHTNOW TECHNOLOGIES (&
Design)®
(Australia, Japan),
SALESNET®
(Canada, European Union, US), SALESNET &
DESIGN®,
(Canada),
SMARTASSISTANT®
(Australia, Canada, European Union, Japan and US),
HIVELIVE®
(US), HIVELIVE and
DESIGN®
(US), SOCIAL BY
DESIGN®
(US),
LIVECONNECT®
(US), and
Q-go®
(Australia, European Union, and US) . We use our
RightNow mark as a descriptor of all of our
products. These marks continue indefinitely, subject to
continuous use and payment of registration fees at the
statutorily required intervals. We also use the following common
law marks RightNow
CXtm,
RightNow
Analyticstm,
RightNow CX Cloud
Platformtm,
RightNow Contact
Centertm,
RightNow
Marketingtm,
RightNow
Engagetm,
RightNow
Feedbacktm,
RightNow
Salestm,
RightNow
Servicetm,
SmartSensetm,
RightNow
Socialtm,
RightNow
Voicetm,
RightNow
Webtm,
RightNow
Chattm,
RightNow Offer
Advisortm,
RightNow
Connecttm,
RightNow Intent
Guidetm,
and
RightStarttm.
Other trademarks, trade names or service marks appearing in this
report are the property of their respective holders.
We also incorporate a number of third party software products
into our software pursuant to relevant licenses covering such
software and related underlying patents, the duration of which
range from term licenses to perpetual licenses. Some of the
software is proprietary and some is open source. These functions
are peripheral in nature, we are not substantially dependent
upon these third party software licenses and we believe the
licensed software is generally replaceable, by either licensing
or purchasing similar software from another vendor or building
the software function ourselves.
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Competition
The CRM software market consists of three major market segments:
customer service, sales force automation and marketing
automation. Within this segmentation, vendors are offering
solutions through either on-demand or traditional on-premise
delivery methods. We compete in all segments of the CRM software
market and believe that we are the leader in on-demand customer
service.
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.
We face competition from other companies currently providing
customer service solutions, some of which offer hosted services,
including BMC Software Corporation, Inc., eGain Communications
Corporation, Inquira Software, Inc., Kana Software, Inc.,
Liveperson, Microsoft Corporation, Moxie Software, Oracle
Corporation, Parature, SAP AG, and salesforce.com. In
interactive voice response technology, competing vendors include
Angel.com, Microsoft, and Voxify. Social CRM competitors include
Lithium and other niche social providers.
We expect to compete with these and additional companies as we
further expand into the CRM market, and as more companies expand
into the customer service segment. In addition, our solutions
compete with CRM systems that are developed and maintained
internally by businesses, as well as CRM products or services
that are developed, or bundled with other products or services,
and installed on a clients premises by software vendors.
We also face competition from outsourced contact center
providers who bundle solutions and agent labor in their service
offerings. 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.
Many of our current and potential competitors have larger
presence in the general CRM market, greater name recognition,
access to larger customer bases and substantially greater
financial, technical, sales and marketing, management, 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 than we can. 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.
New companies are 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. We expect
that new competitors, such as enterprise 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. It is
possible that these new competitors could rapidly acquire
significant market share.
We believe the principal factors that generally determine a
companys competitive advantage in the
on-demand
customer service and broader CRM markets include the following:
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Low total cost of ownership and easily demonstrable
cost-effective benefits for clients;
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Effectiveness in improving the quality of clients
interactions with their customers across customer service, sales
and marketing departments;
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Broad product functionality to meet complex client process
requirements;
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Ability to leverage information from customer interactions to
more accurately target marketing efforts and enhance revenue
opportunities;
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Speed and ease of implementation;
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Ease of use and associated high rates of utilization;
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System performance, security, scalability, flexibility and
reliability;
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Ease of integration with existing applications and data;
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Availability and quality of implementation, consulting and
education services;
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Quality of client care;
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Competitive sales and marketing capabilities; and
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Financial stability and reputation of the vendor.
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We cannot assure you that we will be successful in all or any of
these areas that we believe contribute to competitive advantage,
or that we will be able to compete successfully against current
or potential competitors, or that competition will not have a
material adverse effect on our business, financial condition and
results of operations.
Employees
As of December 31, 2010, we had 920 full-time
employees. Of the total employees, we had 310 in sales and
marketing, 194 in software development, 193 in professional
services, 119 in technical support and hosting, and 104 in
finance and administration. None of our employees are
represented by a labor union. We believe that our relationship
with our employees is good.
Before deciding to purchase, hold or sell our common stock,
you should carefully consider the risks described below, in
addition to the other cautionary statements and risks described
elsewhere and the other information contained in this report and
in our other filings with the SEC, including our reports on
Forms 10-Q
and 8-K. The
risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also affect our
business. If any of these known or unknown risks or
uncertainties actually occurs with material adverse effects on
RightNow, our business, financial condition and results of
operations could be seriously harmed. In that event, the market
price for our common stock could decline and you may lose all or
part of your investment.
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 27% and 31% of our revenue for the
years ended December 31, 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:
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fluctuations in foreign currency exchange rates;
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political, social and economic instability, including terrorist
attacks and security concerns in general;
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adverse changes in tariffs and other protectionist laws and
business practices that favor local competitors;
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longer collection periods and difficulties in collecting
receivables from foreign entities;
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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;
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reduced protection for our intellectual property in some
countries;
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expenses associated with localizing products for foreign
countries, including translation into foreign languages; and
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import and export license requirements and restrictions of the
United States and each other country in which we operate.
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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.
We may
not be able to sustain or increase profitability in the
future.
We had an accumulated deficit of $30.0 million as of
December 31, 2010. We expect to continue to incur
significant sales and marketing, professional services, 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 year ended December 31, 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 customer relationship management
(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:
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companies currently providing customer service solutions, some
of whom offer hosted services, including BMC Software
Corporation, Inc., eGain Communications Corporation, Inquira
Software, Inc., Kana Software, Inc., Liveperson, Microsoft
Corporation, Moxie Software, Inc., Oracle Corporation, Parature,
SAP AG, and salesforce.com;
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CRM systems that are developed and maintained internally by
businesses;
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CRM products or services that are developed, or bundled with
other products or services, and installed on a clients
premises by software vendors;
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outsourced contact center providers that bundle solutions and
agent labor in their service offerings;
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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;
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voice system integrators and voice-enabled IVR technology
providers, such as Angel.com, Microsoft, and Voxify; and
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social CRM providers, such as Lithium and other niche social CRM
providers.
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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
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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 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:
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our ability to retain and increase sales to existing clients,
attract new clients and satisfy our clients requirements;
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general economic, industry and market conditions;
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fluctuations in foreign currency exchange rates;
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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;
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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;
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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;
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the timing of contracts signed and amount of usage fees;
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the timing and success of new product introductions or upgrades
by us or our competitors;
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the timing of professional service sales and our ability to
appropriately staff and train professional service resources
without negatively impacting professional service margins;
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changes in our pricing policies or those of our competitors;
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the amount and timing of expenditures related to expanding our
operations;
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stock price volatility, employee exercise behaviors, and stock
option or restricted stock unit forfeiture rates, or changes in
the number of stock options or restricted stock units granted
and vesting requirements in any particular period, which effects
the amount of stock-based compensation expense;
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changes in the payment terms for our products and services,
including changes in the mix of payment options chosen by our
customers;
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the purchasing and budgeting cycles of our clients; and
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changes in tax rate affected by changes in the mix of earnings
and losses in jurisdictions with differing statutory tax rates,
certain non-deductible expenses arising from the requirement to
expense stock options and the valuation of deferred tax assets
and liabilities, including our ability to use our net operating
losses.
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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 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 only 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. Beginning January 2010, we introduced
the Cloud Services Agreement (CSA), which includes longer terms
and annual customer termination for convenience provisions. If
cancellations under the CSA increase, our business, financial
condition and results of operations will be materially adversely
affected. 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 materially 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.
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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.
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.
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.
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 December 31, 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 or lease and
that is currently located in third-party web hosting co-location
facilities maintained and operated in California, Illinois, the
Netherlands, New Jersey and England. Some of our Canadian
customers are hosted on equipment that is owned and operated by
a Canadian partner, and some of our U.S. Department of
Defense customers are hosted on equipment that is owned by the
Defense Information Services Agency. With our recent acquisition
of Q-go we also have the use of a data center in the Netherlands
through a managed service contract, using equipment that is
leased from a third party. 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.
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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,
beginning the first quarter of 2009, we have a software as a
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 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
20
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.
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
21
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 case law 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. These perceptions may differ among countries. 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
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unwilling to migrate to on-demand application services. While we
have supported traditional on site 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:
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on-demand security capabilities and reliability;
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concerns with entrusting a third party to store and manage
critical customer data;
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the level of customization we offer;
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our ability to continue to achieve and maintain high levels of
client satisfaction; and
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the price, performance and availability of competing products
and services.
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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, natural
language 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. In
January 2011, we acquired Q-go.com B.V. The acquisition of
Q-go.com and any potential future acquisitions could require
significant capital infusions into the acquired business and
could involve many risks, including, but not limited to, the
following:
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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;
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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;
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our existing and potential clients and the customers of the
acquired company may delay purchases due to uncertainty related
to an acquisition;
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an acquisition may disrupt our ongoing business, divert
resources, increase our expenses and distract our management;
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the acquired businesses, products or technologies may not
generate sufficient revenue to offset acquisition costs and
could result in material asset impairment charges;
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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.
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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.
Our
debt service obligations may adversely affect our financial
condition and cash flows from operations.
As a result of our sale of $175.0 million of 2.50%
convertible senior notes in November 2010 (the
Notes), we now have long-term debt that we have not
had to maintain in the past.
Our maintenance of indebtedness could have important
consequences because:
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it may impair our ability to obtain additional financing in the
future;
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an increased portion of our cash flows from operations may have
to be dedicated towards making semi-annual interest payments and
repaying the principal in 2015;
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it may make us more vulnerable to downturns in our business, our
industry or the economy in general.
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Our ability to generate sufficient cash to pay our expenses and
debt obligations will depend on our future performance, which
will be affected by financial, business, economic, regulatory
and other factors. We will not be able to control many of these
factors, such as economic conditions and governmental
regulations. If we are
24
at any time unable to generate sufficient cash to pay our debt
obligations, we may be required to attempt to renegotiate the
terms of our debt obligations, seek to refinance all or a
portion of our debt obligations or obtain additional financing.
There can be no assurance that we will be able to successfully
renegotiate such terms, that any such refinancing would be
possible or that any additional financing could be obtained on
terms that are favorable or acceptable to us. Failure to make a
payment on our debt obligations could also result in
acceleration of all of our debt obligations, including the
Notes, which would materially adversely affect our business,
financial condition and results of operations.
We may
issue additional shares of our common stock or instruments
convertible into shares of our common stock, including
additional shares associated with the potential conversion of
the Notes, and thereby materially and adversely affect the
market price of our common stock and the trading price of the
Notes and cause dilution to existing stockholders.
We are not restricted from issuing additional shares of our
common stock or other instruments convertible into, or
exchangeable or exercisable for, shares of our common stock. If
we issue additional shares of our common stock or instruments
convertible into shares of our common stock, it may materially
and adversely affect the market price of our common stock.
Because the Notes are convertible into shares of our common
stock, volatility or depressed prices of our common stock could
have a similar effect on the trading price of the Notes. In
addition, the existence of the Notes may encourage short selling
in our common stock by market participants because the
conversion of the Notes could depress the price of our common
stock. Sales of substantial amounts of shares of our common
stock in the public market, or the perception that those sales
may occur, could cause the market price of our common stock to
decline. The issuance of additional shares of our common stock,
including upon conversion of some or all of the Notes, will also
dilute the ownership interests of existing holders of our common
stock. Dilution will be greater if the conversion rate of the
Notes is adjusted upon the occurrence of certain events.
We may
not have the ability to raise the funds necessary to repurchase
the Notes upon a fundamental change or at the option of the
holders of the Notes on certain dates.
There can be no assurance that we will have sufficient financial
resources, or will be able to arrange financing, to pay the
fundamental change repurchase price if holders submit their
Notes for repurchase by us upon the occurrence of fundamental
change or at the option of the holders of the Notes on certain
dates. If we fail to repurchase the Notes that are tendered for
repurchase, we will be in default under the indenture governing
the Notes. Our inability to pay for the Notes that are tendered
for repurchase could materially and adversely affect our
business, financial condition and results of operations.
The
fundamental change provisions in the Notes may delay or prevent
an otherwise beneficial takeover attempt of us.
The fundamental change purchase rights in the Notes, which allow
Note holders to require us to purchase all or a portion of their
Notes upon the occurrence of a fundamental change and the
provisions requiring an increase to the conversion rate for
conversions in connection with a make-whole fundamental change
could make it more difficult or expensive for a third party to
acquire us, which could discourage transactions that might
otherwise be beneficial to investors.
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 November 17, 2010, we announced that our Board of
Directors had approved a $15 million increase (for a total
of $25 million) to our common stock repurchase program that
was previously announced July 28, 2010. The additional
authorization became effective November 19, 2010. The
repurchase program will stay in place until November 2012. 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
25
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 further 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 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.
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. A number of countries,
including European Union members and Japan, have imposed
restrictions, more stringent than those in the U.S., on the
collection and use of personal data that impose significant
burdens on subject businesses. If we fail to comply with those
more stringent
26
requirements or there is a perception in those countries that we
are non-compliant our sales in those countries may be adversely
affected.
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.
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 December 31, 2010, Greg Gianforte, our founder and Chief
Executive Officer, and his spouse, Susan Gianforte, have voting
power over approximately 23% of our outstanding common stock
and, together with other officers, directors and other members
of senior management, have voting power over approximately 30%
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, directors and other members of senior management, 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
27
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.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our corporate headquarters, including our principal
administrative, marketing, technical support and research and
development facilities, are located in Bozeman, Montana, where
we lease approximately 30,000 square feet with a term that
expires in March 2021, and approximately 22,000 square feet
under two leases with terms that expire in March and June 2015.
Additionally, we have a lease agreement for an additional
29,000 square feet in Bozeman with a term that expires in
February 2017. We also currently occupy a number of sales and
service offices in California, Colorado, Illinois, New Jersey,
New York, Texas, Virginia, Australia, Germany, Japan, the
Netherlands, Spain and the United Kingdom, where we lease or
license the use of an aggregate of approximately
80,000 square feet under multiple agreements, which have
terms that expire between February 2013 and February 2017. We
believe that our current facilities are suitable and adequate to
meet our current needs, and that suitable additional or
substitute space will be available as needed to accommodate
expansion of our operations. See Note 11(a) to the
Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of
Operations Contractual Obligations and
Commitments for information regarding our lease
obligations.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in legal proceedings arising
in the ordinary course of business. We believe that the
resolution of these matters will not have a negative material
effect on our consolidated financial position, results of
operations or liquidity.
28
|
|
Item 4.
|
(Removed
and Reserved).
|
Part II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Securities
|
The graph depicted below shows a comparison of cumulative total
stockholder returns for our common stock, the NASDAQ Global
Market Index and the Standard Industrial Code Index for
Prepackaged Software for the period from December 31, 2005,
to December 31, 2010, the last trading day of 2010.
COMPARISON
OF 5-YEAR
CUMULATIVE TOTAL RETURN AMONG
RIGHTNOW TECHNOLOGIES, INC., NASDAQ MARKET INDEX AND
PREPACKAGED SOFTWARE
(PERFORMANCE
GRAPH)
ASSUMES $100 INVESTED ON DEC. 31, 2005
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2010
The graph above assumes that $100 was invested in the common
stock of RightNow at its closing price and in each index, on
December 31, 2005, and that all dividends were reinvested.
RightNow has not paid or declared any cash dividends on its
common stock. The Standard Industrial Code (SIC)
used is 7372 Prepackaged Software.
Notwithstanding anything to the contrary set forth in any of our
previous filings made under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended,
that might incorporate future filings made by us under those
statutes, neither the preceding Stock Performance Graph, nor the
information relating to it, is soliciting material
or is filed or is to be incorporated by reference
into any such prior filings, nor shall such graph or information
be incorporated by reference into any future filings made by us
under those statutes.
29
Market
Information for Common Stock
Our common stock is traded on The Nasdaq Global Market under the
symbol RNOW. The table below reflects the quarterly high and low
per share sales prices of our common stock for the period
January 1, 2009 through December 31, 2010, as reported
by The Nasdaq Global Market. These prices represent prices among
dealers, do not include retail markups, markdowns or
commissions, and may not represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Mar 31
|
|
June 30
|
|
Sept 30
|
|
Dec 31
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
9.00
|
|
|
$
|
11.86
|
|
|
$
|
14.63
|
|
|
$
|
17.89
|
|
Low
|
|
|
5.84
|
|
|
|
7.00
|
|
|
|
10.69
|
|
|
|
13.65
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
17.88
|
|
|
$
|
19.92
|
|
|
$
|
19.70
|
|
|
$
|
27.76
|
|
Low
|
|
|
14.29
|
|
|
|
13.55
|
|
|
|
14.54
|
|
|
|
19.42
|
|
Holders
On February 28, 2011, there were approximately 76 holders
of record of our common stock.
Dividends
We have never declared or paid cash dividends on our capital
stock since converting from an S corporation to a C
corporation at the end of 1999. We currently intend to retain
future earnings, if any, to finance the growth and development
of our business, and therefore do not anticipate paying any cash
dividends in the foreseeable future.
Unregistered
Sales of Equity Securities
None.
Use of
Proceeds from Sales of Registered Securities
On August 5, 2004, the Securities and Exchange Commission
declared effective our Registration Statement on
Form S-1
(Reg. File
No. 333-115331)
under the Securities Act of 1933, as amended, in connections
with the initial public offering of our common stock, par value
$.001 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.
30
Purchases
of Equity Securities by the Issuer or Affiliated
Purchasers
On November 17, 2010, we announced a $15 million
increase (for a total of $25 million) to our common stock
repurchase program that was previously announced July 28,
2010. The additional authorization became effective
November 19, 2010. The repurchase program will stay in
place until November 2012. 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. We cannot assure you
that any further 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.
The table below summarizes the current year repurchase history
under the share repurchase program (in thousands, except average
price paid per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Value of Shares that
|
|
|
|
|
|
|
|
|
|
Purchased as Part of
|
|
|
may Yet be Purchased
|
|
|
|
Total Number of
|
|
|
Avg. Price Paid
|
|
|
Publicly Announced
|
|
|
Under the Repurchase
|
|
Fiscal Year 2010
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Repurchase Program
|
|
|
Program
|
|
|
November
19-30
|
|
|
50
|
|
|
$
|
24.56
|
|
|
|
50
|
|
|
$
|
23,767
|
|
December 1-30
|
|
|
531
|
|
|
|
24.31
|
|
|
|
531
|
|
|
|
12,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal Year 2010
|
|
|
581
|
|
|
$
|
24.33
|
|
|
|
581
|
|
|
$
|
10,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The following selected consolidated financial data should be
read in conjunction with the Consolidated Financial Statements
and Notes thereto and with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and other financial data included elsewhere in
this report. The consolidated statement of operations data for
the years ended December 31, 2010, 2009 and 2008, and the
consolidated balance sheet data at December 31, 2010 and
2009, are derived from audited consolidated financial statements
included elsewhere in this report. The consolidated statement of
operations data for the years ended December 31, 2007 and
2006, and the consolidated balance sheet data at
December 31, 2008, 2007 and 2006, are derived from audited
consolidated financial statements not included in this report.
The historical results are not necessarily indicative of results
to be expected in any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
$
|
86,257
|
|
|
$
|
86,983
|
|
|
$
|
102,576
|
|
|
$
|
115,395
|
|
|
$
|
147,345
|
|
Professional services
|
|
|
24,131
|
|
|
|
25,094
|
|
|
|
37,859
|
|
|
|
37,292
|
|
|
|
38,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
110,388
|
|
|
|
112,077
|
|
|
|
140,435
|
|
|
|
152,687
|
|
|
|
185,522
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
|
13,260
|
|
|
|
18,411
|
|
|
|
20,397
|
|
|
|
20,948
|
|
|
|
23,609
|
|
Professional services
|
|
|
19,110
|
|
|
|
22,012
|
|
|
|
30,440
|
|
|
|
26,610
|
|
|
|
31,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
32,370
|
|
|
|
40,423
|
|
|
|
50,837
|
|
|
|
47,558
|
|
|
|
55,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
78,018
|
|
|
|
71,654
|
|
|
|
89,598
|
|
|
|
105,129
|
|
|
|
130,460
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
61,504
|
|
|
|
65,118
|
|
|
|
67,628
|
|
|
|
64,751
|
|
|
|
79,395
|
|
Research and development
|
|
|
14,478
|
|
|
|
17,084
|
|
|
|
18,292
|
|
|
|
20,221
|
|
|
|
20,154
|
|
General and administrative
|
|
|
9,578
|
|
|
|
11,500
|
|
|
|
13,615
|
|
|
|
15,801
|
|
|
|
18,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
85,560
|
|
|
|
93,702
|
|
|
|
99,535
|
|
|
|
100,773
|
|
|
|
118,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(7,542
|
)
|
|
|
(22,048
|
)
|
|
|
(9,937
|
)
|
|
|
4,356
|
|
|
|
12,205
|
|
Interest and other income, net
|
|
|
3,064
|
|
|
|
3,683
|
|
|
|
2,696
|
|
|
|
2,094
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(4,478
|
)
|
|
|
(18,365
|
)
|
|
|
(7,241
|
)
|
|
|
6,450
|
|
|
|
12,550
|
|
Benefit (provision) for income taxes
|
|
|
(530
|
)
|
|
|
(276
|
)
|
|
|
(42
|
)
|
|
|
(579
|
)
|
|
|
15,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,008
|
)
|
|
|
(18,641
|
)
|
|
|
(7,283
|
)
|
|
|
5,871
|
|
|
|
28,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.18
|
|
|
$
|
0.88
|
|
Diluted
|
|
|
(0.16
|
)
|
|
|
(0.56
|
)
|
|
|
(0.22
|
)
|
|
|
0.18
|
|
|
|
0.83
|
|
Shares used in the computation(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,241
|
|
|
|
33,078
|
|
|
|
33,362
|
|
|
|
31,752
|
|
|
|
32,156
|
|
Diluted
|
|
|
32,241
|
|
|
|
33,078
|
|
|
|
33,362
|
|
|
|
32,336
|
|
|
|
34,568
|
|
|
|
|
(1) |
|
See Note 1, (q) Net Income (Loss) per Share in our Notes to
Consolidated Financial Statements for an explanation of the
calculation of basic and diluted income (loss) per share and for
an explanation of the determination of the number of weighted
average shares used for such calculations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,208
|
|
|
$
|
43,681
|
|
|
$
|
51,405
|
|
|
$
|
41,546
|
|
|
$
|
181,948
|
|
Short-term investments
|
|
|
39,127
|
|
|
|
52,644
|
|
|
|
34,412
|
|
|
|
54,977
|
|
|
|
94,759
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
4,963
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
50,374
|
|
|
|
45,063
|
|
|
|
34,075
|
|
|
|
26,235
|
|
|
|
206,592
|
|
Total assets
|
|
|
178,242
|
|
|
|
173,786
|
|
|
|
162,337
|
|
|
|
164,435
|
|
|
|
378,879
|
|
Deferred revenue
|
|
|
114,578
|
|
|
|
114,660
|
|
|
|
113,198
|
|
|
|
101,327
|
|
|
|
93,319
|
|
Long-term debt, less current portion
|
|
|
85
|
|
|
|
68
|
|
|
|
22
|
|
|
|
|
|
|
|
175,000
|
|
Total stockholders equity
|
|
|
47,474
|
|
|
|
38,181
|
|
|
|
27,183
|
|
|
|
40,242
|
|
|
|
79,597
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Cautionary
Statement
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with the financial statements and related notes in
this report. This discussion contains forward-looking statements
that involve risks and uncertainties. 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 and managements future strategic plans. Our
actual results could differ significantly from those projected
in the forward-looking statements as a result of factors,
including those
32
discussed under Risk Factors and elsewhere in
this report. We assume no obligation to update the
forward-looking statements or such risk factors.
Overview
RightNow Technologies provides RightNow CX, a cloud-based suite
of customer experience software and services designed to help
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. 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 on demand delivery
approach, or software-as-a-service (SaaS), 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 helping our customers 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
Servicetm
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
Marketingtm,
RightNow
Salestm,
RightNow
Feedbacktm,
and RightNow Cloud
Monitortm,
which automate aspects of marketing campaigns, sales operations,
and customer monitoring. In February 2007, we initiated a
quarterly release cycle which allows us to deliver new product
capabilities to customers every three months. During 2010, we
again demonstrated our commitment to deliver new solutions that
we believe push the customer experience to new levels. We added
new features for mobile and social interaction, two of the
experiences where companies are seeing more activity within
their customer bases. We released RightNow CX for Facebook,
which takes the customer experience to a different level,
allowing our customers to provide the same high-quality customer
experience regardless of where their customer wants to interact.
We developed new tools to make it easier for our customers to
update, customize and modify their customer experience, so they
can have greater influence on how consumers experience their
brands. In January, 2011, we acquired Q-go.com B.V., a natural
language search provider. Q-gos leading edge technology
has been proven to drive higher conversion rates, increase
revenue and improve web visitor experiences. Our products served
approximately 3.2 billion customer interactions, or unique
sessions hosted by our solutions, during the year ended
December 31, 2010. We distribute 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. 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.
33
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. We anticipate
that we will incur additional hosting, support, employee
salaries and related expenses, to support delivery of our
solutions in the future.
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. Since the majority of our historical revenue has been
from recurring revenue recognized over time, we have experienced
a delay between increasing sales and marketing expenses and the
recognition of the corresponding revenue. We expect to increase
sales and marketing expenses in absolute dollars as we continue
to hire additional sales and marketing personnel to increase the
level of sales and marketing activities in the future.
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 $4.7 million of cost
of internally developed computer software as of
December 31, 2009, and December 31, 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 in the future.
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
34
personnel, professional fees, other corporate expenses and
allocated overhead. We anticipate that we will incur additional
employee salaries and related expenses, professional service
fees and insurance costs related to the growth of our business
and operations in the future.
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 recoverability of our 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.
35
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 adopted Topic 740, Income Taxes, and it did not have a
significant impact on our financial position or results of
operations. Topic 740 requires judgment when evaluating
tax positions. Our judgment includes, but is not limited to, an
evaluation of our material positions taken on tax return
filings. The ultimate resolution of tax issues, if any, may
result in a significant change to our recorded tax assets and
liabilities.
During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax
determination is uncertain. We establish reserves for
tax-related uncertainties based on estimates of whether, and the
extent to which, additional taxes will be due. These reserves
are established when we believe that certain positions are not
more-likely-than-not to be sustained despite our belief that the
tax return provisions are reasonable. We adjust these reserves
in light of changing facts and circumstances, such as the
outcome of a tax audit. The provision for income taxes includes
the impact of reserve provisions and changes to reserves that
are considered appropriate.
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
36
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
|
73
|
%
|
|
|
76
|
%
|
|
|
79
|
%
|
Professional services
|
|
|
27
|
|
|
|
24
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
|
14
|
|
|
|
14
|
|
|
|
13
|
|
Professional services
|
|
|
22
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
36
|
|
|
|
31
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
64
|
|
|
|
69
|
|
|
|
70
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
48
|
|
|
|
43
|
|
|
|
43
|
|
Research and development
|
|
|
13
|
|
|
|
13
|
|
|
|
10
|
|
General and administrative
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
71
|
|
|
|
66
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
7
|
|
Interest and other income, net
|
|
|
2
|
|
|
|
1
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
7
|
|
Benefit (provision) for income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5
|
)%
|
|
|
4
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
The following table sets forth our on-demand customer
interactions and our revenue by type and geography expressed as
a percentage of total revenue for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Customer interactions (in millions)
|
|
|
2,099
|
|
|
|
2,494
|
|
|
|
3,163
|
|
Revenue by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring (subscriptions, term licenses, hosting and support)
|
|
|
73
|
%
|
|
|
76
|
%
|
|
|
79
|
%
|
Professional services
|
|
|
27
|
|
|
|
24
|
|
|
|
21
|
|
Revenue by geography in:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
69
|
%
|
|
|
73
|
%
|
|
|
69
|
%
|
Europe
|
|
|
23
|
|
|
|
19
|
|
|
|
19
|
|
Asia Pacific
|
|
|
8
|
|
|
|
8
|
|
|
|
12
|
|
Overview
of 2010
Our specific goals in 2010 were to accelerate growth and
continue to expand operating margins. We continued to innovate
around the customer, and expanded our CX suite every quarter
with new capabilities. We introduced the CSA, a new easier way
to buy CX, which included longer terms, annual customer
termination for convenience provisions, annual usage alignment,
annual pools of capacity, six-year price commitment, and service
level credits.
Total revenue for 2010 was $185.5 million, compared to 2009
revenue of $152.7 million. Total revenue growth of 22%, was
driven by our recurring revenue growth. Recurring revenue
increased 28% in 2010 over 2009, primarily due to expansion
within the current customer base, new customer acquisitions,
timing of contracts signed in the year and more usage fees in
the year. 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. Additionally, we
believe our expanded contact center offerings and our strategy
to win small, initial deals with customers (land)
and then grow our customer penetration based on measurable
success (expand) resulted in increased revenue.
As part of our objective to expand operating margins while still
making investments in customer satisfaction, we continued to
invest in our operations by adding sales and marketing personnel
to increase sales, increased headcount to assist with technical
support and delivering our solutions, and increased hosting
support and telecom maintenance to support our government secure
cloud. We added headcount to staff the COEs to combine
cross-functional teams and capabilities to increase client value
through best practices, increased innovation and sharing of
customer experience expertise. We introduced CSMs to ensure our
clients maximize the use of our tools. We also invested in our
research and development group to continue to enhance and expand
RightNow CX and automate quality assurance.
These investments caused total expenses to increase in absolute
dollars, but as a percentage of revenue during 2010 total
expenses decreased 3%. Total revenue growth, primarily driven by
recurring revenue growth, resulted in an improvement of our
operating income as a percentage of revenue from 3% in 2009 to
operating income as a percentage of revenue of 7% in 2010.
When compared to the year ended December 31, 2009, our
results were impacted by the strength of the U.S. dollar
for the year ended December 31, 2010 relative to the
Australian dollar, British pound, and Euro. Although we report
our actual results in U.S. dollars, we conduct a
significant number of transactions in currencies other than
U.S. dollars. Therefore, we discuss constant currency
information 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 a comparison to currency exchange rates during the
prior year. For example, total revenue in the year ended
December 31, 2010 increased by $32.8 million, or 22%
over total revenue reported in 2009. If weighted-average
currency exchange rates in the year ended December 31, 2010
had remained constant with December 31, 2009, total revenue
as of December 31, 2010
38
would have increased by approximately $31.6 million, which
is $1.2 million less than the actual increase. In other
words, the change in weighted-average currency exchange rates
between the year ended December 31, 2009 and 2010 had a
favorable impact on total revenue of approximately
$1.2 million, or 1%. Using similar methodology, the change
in period-end exchange rates between the year ended
December 31, 2009 and 2010 had a favorable impact on
deferred revenue of approximately $520,000. Expenses associated
with international revenue are primarily paid in local currency,
which generally provides a natural hedge to offset the revenue
impact. Total cost of revenue and operating expenses in the year
ended December 31, 2010 increased by $25.0 million, or
17% over total cost of revenue and operating expenses reported
in the year ended December 31, 2009. If weighted-average
currency exchange rates in the year ended December 31, 2010
had remained constant with 2009, these total expenses as of
December 31, 2010 would have increased by approximately
$24.4 million, which is $640,000 less than the actual
increase. In other words, the change in weighted-average
currency exchange rates between the year ended December 31,
2009 and 2010 had an unfavorable impact on these total expenses
of approximately $640,000, or 1%. The expenses most
significantly exposed to currency exchange fluctuations are
within sales and marketing and professional services cost of
revenue.
For the year ended December 31, 2010, we generated
$18.5 million of cash from operations compared to
$16.1 million of cash from operations in 2009. Our cash and
short-term investments balances increased to $276.7 million
at December 31, 2010 from $96.5 million a year
earlier, which was primarily due to $170.0 million of net
proceeds from the issuance of convertible senior notes due in
November 2030, and, to a lesser extent, strong collections,
timing of new sales during the year, increased profitability
over the prior year, and exercises of common stock options
issued under our employee incentive plan. We grew our cash and
short-term investment balances while at the same time using
$14.1 million to repurchase 581,000 shares of our
common stock under our expanded $25 million stock
repurchase program that was announced in November 2010.
As of December 31, 2009, we had an accumulated deficit of
$30.0 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.
Years
Ended December 31, 2008, 2009 and 2010
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
Change
|
|
|
|
(Amounts in thousands)
|
|
|
Recurring revenue
|
|
$
|
102,576
|
|
|
$
|
115,395
|
|
|
|
12
|
%
|
|
$
|
147,345
|
|
|
|
28
|
%
|
Professional services
|
|
|
37,859
|
|
|
|
37,292
|
|
|
|
(1.5
|
)
|
|
|
38,177
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
140,435
|
|
|
$
|
152,687
|
|
|
|
9
|
%
|
|
$
|
185,522
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for 2010 was $185.5 million, an increase of
$32.8 million, or 22%, over total revenue of
$152.7 million for 2009, primarily due to an increase in
recurring revenue. If weighted-average currency exchange rates
in the year ended December 31, 2010 had remained constant
with the weighted-average currency exchange rates in the year
ended December 31, 2009, revenue during 2010 would have
increased by approximately $31.6 million, which is
$1.2 million less than the actual increase, with the
majority of the currency rate impact within recurring revenue.
Recurring revenue for 2010 increased $31.9 million, or 28%,
over recurring revenue of $115.4 million for 2009. If
weighted-average currency exchange rates in the year ended
December 31, 2010 had remained constant with the
weighted-average currency exchange rates in the year ended
December 31, 2009, recurring revenue during 2010 would have
increased by $31.1 million, which is $820,000 less than the
actual increase. Recurring revenue increased primarily due to
expansion within the current customer base, new customer
acquisitions, timing of contracts signed in the year and more
usage fees in the year. We believe our latest product, RightNow
CX, appeals to large customers because of robust performance
characteristics, notably
39
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 per
customer 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, were approximately 3.2 billion in 2010
as compared to 2.5 billion in 2009.
Professional services revenue for 2010 increased $885,000 over
2009. If weighted-average currency exchange rates in the year
ended December 31, 2010 had remained constant with the
weighted-average currency exchange rates in the year ended
December 31, 2009, professional services revenue during
2010 would have increased by approximately $478,000, which is
$407,000 less than the actual increase. The professional
services revenue increase was primarily due to greater billable
utilization and several projects with higher rates per hour
delivered during 2010 as compared to 2009.
Total revenue for 2009 was $152.7 million, an increase of
$12.3 million, or 9%, over total revenue of
$140.4 million for 2008. If weighted-average currency
exchange rates in the year ended December 31, 2009 had
remained constant with the weighted-average currency exchange
rates in the year ended December 31, 2008, total revenue
during 2009 would have increased by approximately
$16.4 million, which is an additional $4.1 million, or
a further 3%, with the majority of the unfavorable currency rate
impact within recurring revenue.
Recurring revenue increased $12.8 million to
$115.4 million in 2009, or 12%, over recurring revenue of
$102.6 million for 2008 primarily due to expansion sales
within our existing customer base, and new customer acquisitions
over the comparable period. If weighted-average currency
exchange rates in the year ended December 31, 2009 had
remained constant with the weighted-average currency exchange
rates in the year ended December 31, 2008, recurring
revenue during 2009 would have increased by approximately
$15.7 million, which is an additional $2.9 million, or
a further 3%, representing an unfavorable exchange rate impact.
Average recurring revenue per customer increased as a result of
sales of capacity additions, contract renewals and new products.
Customer interactions, a measure of unique customer sessions
hosted in our data centers, were approximately 2.5 billion
in 2009, a 19% increase over 2008.
Professional services revenue decreased $567,000, or (1.5)%, in
2009 over 2008, primarily due to currency exchange rate impact.
If weighted-average currency exchange rates in the year ended
December 31, 2009 had remained constant with the
weighted-average currency exchange rates in the year ended
December 31, 2008, professional services revenue during
2009 would have increased by approximately $600,000, which is an
additional $1.2 million, or a further 3%, representing an
unfavorable exchange rate impact.
Customers generally purchase professional services with initial
license or subscription arrangements, and from time to time over
the life of the contract. The mix of professional services
revenue affects our profitability from
period-to-period
due to the lower gross profit earned on professional services as
compared to the gross profit earned on recurring revenue.
Cost
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
Change
|
|
|
|
(Amounts in thousands)
|
|
|
Recurring revenue
|
|
$
|
20,397
|
|
|
$
|
20,948
|
|
|
|
3
|
%
|
|
$
|
23,609
|
|
|
|
13
|
%
|
Professional services
|
|
|
30,440
|
|
|
|
26,610
|
|
|
|
(13
|
)
|
|
|
31,453
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
50,837
|
|
|
$
|
47,558
|
|
|
|
(6
|
)%
|
|
$
|
55,062
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue for 2010 was $55.1 million, an
increase of $7.5 million, or 16%, over total cost of
revenue of $47.6 million in 2009, primarily due to an
increase in cost of professional services.
Cost of recurring revenue increased $2.7 million, or 13% in
2010 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) as well as common
expense allocation
40
(such as payroll taxes, benefits, office rent, supplies and
other overhead expenses), resulting in a combined expense
increase of $1.3 million. Intangible asset amortization
associated with the HiveLive acquisition and capitalized cost of
internally developed computer software, hosting services and
telecom maintenance to support our solutions increased $963,000.
Third-party contractor expenses also increased $353,000
primarily to assist our upgrade team.
Average employee count in our recurring revenue support
operations was 118 at the end of 2010 as compared to 110 at the
end of 2009. As a percent of the associated revenue, the cost of
recurring revenue was 16% in 2010 as compared to 18% in 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 $4.8 million, or
18% in 2010. If weighted-average currency exchange rates in the
in the year ended December 31, 2010 had remained constant
with the weighted-average currency exchange rates in the year
ended December 31, 2009, cost of professional services in
the year ended December 31, 2010 would have increased
$4.5 million, which is $305,000 less than the actual
increase. In other words, the change in weighted-average
exchange rates between the year ended December 31, 2009 and
the year ended December 31, 2010 increased these total
expenses by approximately $305,000, or 1%, representing an
unfavorable exchange rate impact. Absent exchange rate impact,
cost of professional services increased primarily 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 these expenses approximately $3.0 million.
Additionally, third-party professional service expenses
increased $1.1 million and travel related expenses
increased $532,000 to assist with delivering our solutions.
Average employee count in our professional services operations
was 188 at the end of 2010 as compared to 166 at the end of
2009. As a percent of the associated revenue, the cost of
professional services was 82% in 2010 as compared to 71% in
2009. The increase in the professional service costs from the
comparable 2009 period was primarily due to increased staffing
costs, annual merit increases, third-party professional
services, travel related expenses, and unfavorable foreign
currency exchange rate impact.
Total cost of revenue for 2009 was $47.6 million, a
decrease of $3.3 million, or (6)%, over total cost of
revenue of $50.8 million in 2008, primarily due to a
decrease in cost of professional services.
Cost of recurring revenue increased $551,000, or 3%, in 2009 as
compared to 2008, due primarily to increased headcount to assist
with technical support and delivering our solutions, which
increased salaries and related expenses (such as salaries,
bonuses and stock-based compensation) by $1.2 million,
$215,000 of increased
sub-contractor
hours to assist with hosting, and $211,000 of increased telecom
maintenance to support government secure pods. These costs were
offset by decreased depreciation expense of approximately
$620,000 associated with hosting operations, and improved
hosting bandwidth service costs, which decreased $430,000 when
compared to the year ended December 31, 2008.
Average employee count in our hosting and technical support
operations was 110 at the end of 2009 as compared to 91 at the
end of 2008. As a percent of the associated revenue, the cost of
recurring revenue was 18% in 2009 as compared to 20% in 2008 due
to improved leverage in our business model, combined with
focused expense management.
Cost of professional services decreased $3.8 million, or
(13)%, in 2009 as compared to 2008, due primarily to a favorable
foreign currency exchange rate benefit of $1.2 million, a
reassignment of professional service employees to support sales
and marketing, reduction in utilization of third-party partners
that assisted in the deployment of professional services, and a
reduction in travel-related costs. Average employee count in our
professional services organization decreased to 166 at the end
of 2009 from 178 at the end of 2008, partially due to a
reassignment of professional service employees.
Employee training, customer scheduling requirements, and use of
third-party resources can cause the cost of professional
services to fluctuate as a percentage of revenue from period to
period.
41
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
Change
|
|
|
|
(Amounts in thousands)
|
|
|
Sales and marketing
|
|
$
|
67,628
|
|
|
$
|
64,751
|
|
|
|
(4
|
)%
|
|
$
|
79,395
|
|
|
|
23
|
%
|
Research and development
|
|
|
18,292
|
|
|
|
20,221
|
|
|
|
11
|
|
|
|
20,154
|
|
|
|
0
|
|
General and administrative
|
|
|
13,615
|
|
|
|
15,801
|
|
|
|
16
|
|
|
|
18,706
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
99,535
|
|
|
$
|
100,773
|
|
|
|
1
|
%
|
|
$
|
118,255
|
|
|
|
17
|
%
|
Sales and
Marketing Expenses
Sales and marketing expense of $79.4 million increased
$14.6 million in 2010, or 23%, compared to
$64.8 million in 2009. Unfavorable foreign currency
exchange rate impact increased sales and marketing expense by
$328,000. If weighted-average currency exchange rates in the
year ended December 31, 2010 had remained constant with the
weighted-average currency exchange rates in the year ended
December 31, 2009, sales and marketing expenses during the
year ended 2010 would have increased by approximately
$14.3 million, or 1%. In other words, the change in
weighted-average exchange rates between the year ended
December 31, 2009 and the year ended December 31, 2010
increased these total expenses by approximately $328,000, or 1%.
Absent exchange rate impact, the increase was due to growth in
headcount and annual merit increases, which increased salaries
and related expenses approximately $4.4 million. The
increase in headcount also increased common expense allocation
by $1.6 million during 2010. Additionally, the increase was
due to commission expense growth from associated revenue growth
over the past seven quarters including the quarter ended
December 31, 2010, which increased net sales incentive
expense by approximately $4.3 million. We increased use of
third-party contractors to advise our marketing team on
generating greater market awareness for RightNow and RightNow
CX, which increased these expenses by approximately
$1.2 million. Travel and travel related expenses increased
approximately $1.9 million as sales increased in the year
ended December 31, 2010 over the year ended
December 31, 2009. RightNow and RightNow CX related
marketing efforts, including our annual users conference,
increased expenses approximately $1.0 million, as we
focused on building greater brand awareness during 2010. The
average number of employees in our sales and marketing
organization was 302 at the end of 2010 as compared to 261 at
the end of 2009.
Under subscription arrangements, we defer the related sales
incentive costs and expense them in proportion to the revenue
recognized. Under license and professional service arrangements,
we expense sales incentives when earned, which is typically at
the time the related sale is invoiced. Net sales incentive
expense was $18.2 million and $13.9 million for the
year ended December 31, 2010 and 2009, respectively. Our
deferred commissions were $10.2 million and
$9.9 million at December 31, 2010 and
December 31, 2009, respectively.
Sales and marketing expenses of $64.8 million in 2009
declined (4%), or $2.8 million, compared to
$67.6 million in 2008. The decrease was due primarily to
$2.0 million in favorable foreign currency exchange rate
impact. Additionally we had reduced headcount during the first
two quarters of 2009, $746,000 of reduced recruitment and
relocation costs and $422,000 of reduced travel related
spending. These costs were primarily offset by increased
commissions and bonus expense of approximately $400,000 due to
increased sales over 2008. The average employee headcount in our
sales and marketing organizations was relatively consistent from
261 at the end of 2009 as compared to 262 at the end of 2008.
Net sales incentive expense was approximately $13.9 million
and $13.6 million for the year ended December 31, 2009
and 2008, respectively. Our deferred commissions were
$9.9 million and $8.2 million at December 31,
2009 and December 31, 2008, respectively.
Research
and Development Expenses
Research and development expenses were $20.2 million in
2010 and 2009. Increases in research and development expenses in
2010 over 2009 were primarily due to growth in headcount and
annual merit
42
increases, which increased salaries and related expenses by
$3.1 million and common expense allocation by
$1.0 million. These costs, however, were primarily offset
by capitalized cost of internally developed computer software,
which increased $4.1 million over 2009. Average employee
count in our research and development organization was 192 at
the end of 2010 compared to 169 at the end of 2009.
Research and development expenses increased $1.9 million in
2009 to $20.2 million, or 11%, over 2008, primarily due to
growth in headcount and expenditures pertaining to projects to
automate quality assurance testing procedures. Average employee
count in our research and development organization increased to
169 at the end of 2009 from 146 at the end of 2008.
General
and Administrative Expenses
General and administrative expenses increased $2.9 million
to $18.7 million, or 18%, in 2010 over 2009 primarily due
to growth in headcount and annual merit increases, which
increased salaries and related expenses by $2.0 million and
increased common expense allocation by $481,000. Additionally,
travel and travel related expenses increased $223,000, and
charitable contributions increased $145,000. Average employee
count in our general and administrative organization was 101 at
the end of 2010 compared to 90 at the end of 2009.
General and administrative expenses increased $2.2 million
to $15.8 million, or 16%, in 2009 over 2008 primarily due
to staff additions, which increased salaries, related expenses,
stock-based compensation and common expense allocation by
approximately $1.8 million. The average number of employees
in our general and administrative organization was 90 at the end
of 2009 as compared to 79 at the end of 2008. Employee additions
in 2009 were primarily for finance, accounting and information
technology personnel.
Stock-Based
Compensation Expense
Total stock-based compensation expense for 2010 was
$7.9 million, a 1% increase compared to $7.8 million
in 2009. Stock-based compensation was relatively consistent year
over year. This was primarily due to a change in estimate
associated with forfeiture rates during the third quarter of
2009, which increased stock-based compensation expense during
2009. Additionally, we made additional stock option grants to
directors during the first quarter of 2009, which were fully
vested and expensed in 2009. No comparable discretionary stock
option grant was made to directors during 2010. 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.
Interest
and Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
Change
|
|
|
|
(Amounts in thousands)
|
|
|
Interest income
|
|
$
|
2,906
|
|
|
$
|
1,023
|
|
|
|
(65
|
)%
|
|
$
|
585
|
|
|
|
(43
|
)%
|
Interest expense
|
|
|
(12
|
)
|
|
|
(7
|
)
|
|
|
n/m
|
|
|
|
(474
|
)
|
|
|
6,671
|
|
Other income (expense)
|
|
|
(198
|
)
|
|
|
1,078
|
|
|
|
n/m
|
|
|
|
234
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income, net
|
|
$
|
2,696
|
|
|
$
|
2,094
|
|
|
|
(22
|
)%
|
|
$
|
345
|
|
|
|
(84
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income decreased 43% in 2010 over 2009 due to declining
investment yields. Our investment portfolio consists primarily
of short-term investment-grade interest-bearing government
securities, and corporate debt instruments. To the extent we
continue to maintain our cash reserves, we expect interest
income to increase in future periods.
Interest expense increased $467,000 in 2010 over 2009 due to
interest expense on our convertible senior notes that were
issued November 2010. The notes bear interest at a rate of 2.50%
per annum, are payable semi-annually, and mature on
November 15, 2030, unless earlier redeemed, repurchased or
converted. Please refer to Note 7 (a) in our Notes to
Consolidated Financial Statements for further discussion.
43
Other income (expense), net decreased $844,000, or 78%, in 2010
over 2009. Other income decreased $1 million from one year
earlier due to a non-recurring litigation settlement that
occurred during 2009. The decrease was offset primarily from a
gain on currency exchange rates in the year ending
December 31, 2010.
Interest income decreased (65%) in 2009 over 2008 due to
declining investment yields. Our investment portfolio consisted
then primarily of investment-grade government securities,
corporate debt instruments, and auction-rate securities.
Other income (expense) increased in 2009 over 2008 due primarily
to a non-recurring litigation settlement gain. KANA Software,
Inc. (KANA) paid $1.0 million during the fourth
quarter of 2009, under an acceleration clause pursuant to the
terms of a General Release and Settlement Agreement with KANA
and four former employees that settled claims involving alleged
violations by KANA and the four former employees of RightNow of
certain provisions of employment agreements, misappropriation of
trade secrets, as well as other claims.
Benefit
(Provision) for Income Taxes
During the fourth quarter of 2010, we reversed a deferred tax
asset valuation allowance of $19.7 million as we determined
it was more-likely-than-not that we will ultimately utilize the
deferred tax assets to reduce future taxes payable. Our decision
to reverse the deferred tax asset valuation allowance during the
fourth quarter of 2010 was due to our improving operating
results over the past three years and our expectations about
generating taxable income in the foreseeable future. As such,
our assessment regarding the potential to realize historically
reserved deferred tax assets changed. We exercised significant
judgment and considered estimates about our ability to generate
revenues, gross profits, operating income and taxable income in
future periods in reaching this decision.
The reversal of our deferred tax asset valuation allowance was
the primary cause of the benefit for income taxes of
$15.8 million in 2010. The provision for income taxes of
$(579,000) in 2009, and $(42,000) in 2008 consisted primarily of
foreign withholding taxes, and various state income taxes.
Please refer to Note 12, Income Taxes in our Notes to
Consolidated Financial Statements for further discussion.
Our effective tax rate was a benefit of 126% during 2010, and
expense of 9% during 2009 and 1% during 2008. Our effective tax
rate during 2010 differs from the federal statutory rate
primarily due to the realization of deferred tax assets and
removal of the associated valuation allowance, stock-based
compensation recorded under Topic 718, tax credits, foreign rate
differentials, and non-deductible meal and entertainment
expenses. Our effective tax rate during 2009 and 2008 differs
from the federal statutory rate for the similar reasons as 2010
except for the realization of deferred tax assets and removal of
the associated valuation allowance.
We expect our full year 2011 effective income tax rate will
closely approximate the federal and state blended statutory
rate, however this 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
2008
|
|
2009
|
|
Change
|
|
2010
|
|
Change
|
|
|
(Amounts in thousands)
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
85,817
|
|
|
$
|
96,523
|
|
|
|
12
|
%
|
|
$
|
276,707
|
|
|
|
187
|
%
|
Long-term investments
|
|
|
4,963
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
n/a
|
|
Cash provided by operating activities
|
|
|
14,724
|
|
|
|
16,097
|
|
|
|
9
|
%
|
|
|
18,494
|
|
|
|
15
|
%
|
We have historically funded our operations with cash from
operations, equity financings and debt borrowings. At
December 31, 2010, cash and cash equivalents, and
short-term investments, totaled
44
$276.7 million. In addition to our cash and short-term
investments, other sources of liquidity at December 31,
2010 included a $3.0 million bank line of credit facility,
under which there have been no borrowings.
Operating activities provided $18.5 million of cash during
the year ended December 31, 2010 as compared to
$16.1 million in 2009 and $14.7 million in 2008.
Strong cash collections from growth in sales was the primary
driver of the cash provided in operating activities during the
year ended December 31, 2010. We typically bill customers
on net
30-day terms
at the beginning of the contract period, which is reflected in
accounts receivable and deferred revenue. Cash flow from
operations can vary significantly from
year-to-year
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 70% as of December 31, 2010
as compared to approximately 46% as of December 31, 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% and 6% of current accounts receivables at
December 31, 2010 and 2009, respectively. Accounts written
off in 2010 decreased over 2009, primarily due to our focus of
selling into larger enterprises. 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.
We have approximately $12.7 million of payments due in 2011
under contractual obligations and purchase commitments for
operating and capital leases, hosting services and other items.
Total contractual obligations, including $175.0 million of
convertible senior notes due in November 2030, at
December 31, 2010 were $217.8 million to be paid per
the table set forth below under the heading Contractual
Obligations and Commitments. We believe we will generate
sufficient cash from operations to satisfy the commitments that
will come due within the next twelve months.
Investing activities used $51.1 million in 2010, which
included net purchases of short-term investments of
$39.8 million, $6.7 million of capital expenditures,
and $4.6 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.
Cash used in investing activities in 2009 was
$28.0 million, which included net purchases of short-term
investments of $15.8 million, acquisition consideration for
the purchase of HiveLive, Inc. of $5.9 million, and
approximately $6.2 million of capital expenditures.
Financing activities provided $172.2 million in 2010, which
was primarily due to $170.0 million of net proceeds from
the issuance of convertible senior notes due in November 2030.
In addition financing activities provided $16.4 million
from exercises of common stock options issued under our employee
incentive plan, offset by a repurchase of 581,000 shares of
our common stock for $14.1 million in the fourth quarter of
2010, under our expanded $25 million stock buyback program.
Financing activities provided $147,000 in 2009, which was
primarily due to approximately $1.7 million generated from
exercises of common stock options issued under our employee
incentive plan and stock purchases under our employee stock
purchase plan, offset by a repurchase of 231,000 shares of
our common stock for $1.8 million in the first quarter of
2009, which completed our previous $15 million stock
buyback program.
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 future acquisitions 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. Additional equity or debt financing may not be
available on terms favorable to us, in a timely fashion or at
all.
45
Off-Balance
Sheet Arrangements
As of December 31, 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
The following table summarizes our contractual payment
obligations and commitments as of December 31, 2010:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Operating lease obligations
|
|
$
|
15,459
|
|
|
$
|
4,571
|
|
|
$
|
8,393
|
|
|
$
|
2,421
|
|
|
$
|
74
|
|
Obligations under capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations hosting services
|
|
|
3,166
|
|
|
|
2,053
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
Purchase obligations other
|
|
|
1,861
|
|
|
|
1,252
|
|
|
|
609
|
|
|
|
|
|
|
|
|
|
Interest obligation on 2.50% Convertible senior notes
|
|
|
22,349
|
|
|
|
4,849
|
|
|
|
8,750
|
|
|
|
8,750
|
|
|
|
|
|
2.50% Convertible senior notes due 2030 (callable
Nov. 15, 2015)
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
217,835
|
|
|
$
|
12,725
|
|
|
$
|
18,865
|
|
|
$
|
186,171
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We lease our office facilities and certain office equipment
under operating lease agreements that expire at various dates
through 2021. Obligations under capital leases pertain to
certain tenant improvements in our main office facility.
Purchase obligations consist of agreements with third parties to
provide co-location services for hosting operations, and
obligations for marketing and other miscellaneous services.
In November 2010, we issued at par value, $175.0 million in
aggregate principal amount of convertible senior notes due 2030
(the Notes). The Notes bear interest at a rate of
2.50% per annum, which is payable semi-annually, and matures on
November 15, 2030, unless earlier redeemed, repurchased or
converted. The Notes are convertible at any time, at the
holders option, have an initial conversion rate of
approximately 31.36 shares of RightNow common stock
(subject to adjustment in certain circumstances) per $1,000
principal amount of Notes, which is equivalent to an initial
conversion price of approximately $31.89 per share.
We may not redeem any of the Notes at our option prior to
November 20, 2015. At any time on or after
November 20, 2015, RightNow has the right, at its option,
to redeem the Notes in whole or in part for cash at a redemption
price equal to 100% of the principal amount of the Notes to be
redeemed, together with accrued and unpaid interest to, but
excluding, the date of redemption. On November 15, 2015,
November 15, 2020 and November 15, 2025, holders may
require us to repurchase all or a portion of their Notes for
cash in an amount equal to 100% of the principal amount of the
Notes being repurchased, plus accrued and unpaid interest to,
but excluding, the date of repurchase.
|
|
Item 7A.
|
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 Australian dollar, British pound,
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 years ended December 31,
2010 or December 31, 2009.
When compared to the year ended December 31, 2009, our
results were impacted by the strength of the U.S. dollar
for the year ended December 31, 2010 relative to the
Australian dollar, British pound, and Euro. Although we report
our actual results in U.S. dollars, we conduct a
significant number of transactions in
46
currencies other than U.S. dollars. Therefore, we discuss
constant currency information 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 a comparison to currency
exchange rates during the prior year. For example, total revenue
in the year ended December 31, 2010 increased by
$32.8 million, or 22%, over total revenue reported in 2009.
If weighted-average currency exchange rates in the year ended
December 31, 2010 had remained constant with
December 31, 2009, total revenue as of December 31,
2010 would have increased by approximately $31.6 million,
which is $1.2 million less than the actual increase. In
other words, the change in weighted-average currency exchange
rates between the year ended December 31, 2009 and 2010 had
a favorable impact on total revenue of approximately
$1.2 million, or 1%. Using similar methodology, the change
in period-end exchange rates between the year ended
December 31, 2009 and 2010 had a favorable impact on
deferred revenue of approximately $520,000. Expenses associated
with international revenue are primarily paid in local currency,
which generally provides a natural hedge to offset the revenue
impact. Total cost of revenue and operating expenses in the year
ended December 31, 2010 increased by $25.0 million, or
17% over total cost of revenue and operating expenses reported
in the year ended December 31, 2009. If weighted-average
currency exchange rates in the year ended December 31, 2010
had remained constant with 2009, these total expenses as of
December 31, 2010 would have increased by approximately
$24.4 million, which is $640,000 less than the actual
increase. In other words, the change in weighted-average
currency exchange rates between the year ended December 31,
2009 and 2010 had an unfavorable impact on these total expenses
of approximately $640,000, or 1%. The expenses most
significantly exposed to currency exchange fluctuations are
within sales and marketing and professional services cost of
revenue.
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 December 31, 2010, the fair value of our portfolio would
decline by approximately $818,000.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Our consolidated financial statements, together with our related
notes and report of KPMG LLP, our independent registered public
accounting firm, are set forth on the pages indicated in
Item 15.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
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). Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2010 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 accounting officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
47
|
|
(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.
Report of
Management on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining a
system of internal control over financial reporting as defined
under the Exchange Act Rules 13a 15(f) and
15d-15(f).
Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of our financial
reporting and preparation of financial statements for external
purposes in accordance with U.S. generally accepted
accounting principles. Internal control over financial reporting
includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements in accordance with
U.S. generally accepted accounting principles; providing
reasonable assurance that our receipts and expenditures are made
in accordance with authorizations of our management and
directors; and providing reasonable assurance that unauthorized
acquisition, use or disposition of our assets that could have a
material effect on our financial statements would be prevented
or detected on a timely basis.
Management conducted an assessment of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management
concluded that our internal control over financial reporting was
effective as of December 31, 2010 to provide reasonable
assurance regarding the reliability of financial reporting and
preparation of financial statements for external reporting
purposes in accordance with U.S. generally accepted
accounting principles. Our independent registered public
accounting firm, KPMG LLP has issued an audit report on the
effectiveness of our internal control over financial reporting
which is included in this Item 9A below.
48
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders RightNow Technologies,
Inc.:
We have audited RightNow Technologies, Inc.s internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). RightNow
Technologies, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Report of
Management on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on RightNow
Technologies, Inc.s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, RightNow Technologies, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of RightNow Technologies, Inc. and
subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of operations,
stockholders equity and comprehensive income (loss), and
cash flows for each of the years in the three-year period ended
December 31, 2010, and our report dated March 9, 2011
expressed an unqualified opinion on those consolidated financial
statements.
Portland, Oregon
March 9, 2011
49
|
|
Item 9B.
|
Other
Information
|
None.
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
|
|
(a)
|
Identification
of Directors.
|
The information under the captions Proposal One:
Election of Directors and Corporate Governance,
Board Composition and Board Committees, appearing in our
proxy statement for our 2011 annual meeting of stockholders, is
hereby incorporated by reference.
|
|
(b)
|
Identification
of Executive Officers and Certain Significant
Employees.
|
The information under the caption Executive
Officers, appearing in our proxy statement for our 2011
annual meeting of stockholders, is hereby incorporated by
reference.
|
|
(c)
|
Compliance
with Section 16(a) of the Exchange Act.
|
The information under the caption Section 16(a)
Beneficial Ownership Reporting Compliance, appearing in
our proxy statement for our 2011 annual meeting of stockholders,
is hereby incorporated by reference.
Our board of directors has adopted a code of ethics and business
conduct that applies to all of our employees, officers
(including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions) and directors. The full text of
our code of ethics and business conduct is posted on our web
site at
http://www.rightnow.com
under the Investor Relations section. We intend to disclose
future amendments to certain provisions of our code of ethics
and business conduct, or waivers of such provisions, applicable
to our directors and executive officers (including our principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions), at the same location on our web site identified
above. The inclusion of our web site address in this report does
not include or incorporate by reference the information on, or
accessible through, our web site into this report.
|
|
(e)
|
Corporate
Governance.
|
The information under the caption Corporate Governance,
Board Composition and Board Committees, appearing in our
proxy statement for our 2011 annual meeting of stockholders, is
hereby incorporated by reference.
|
|
Item 11.
|
Executive
Compensation
|
The information under the captions Compensation Discussion
and Analysis, Compensation Committee Interlocks and
Insider Participation, and Compensation Committee
Report, appearing in our proxy statement for our 2011
annual meeting of stockholders, is hereby incorporated herein by
reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information under the captions Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters and Securities Authorized for Issuance Under
Equity Compensation Plans, appearing in our proxy
statement for our 2011 annual meeting of stockholders, is hereby
incorporated by reference.
50
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
|
|
(a)
|
Certain
Relationships and Related Transactions.
|
The information under the caption Certain Relationships
and Related Person Transactions appearing in our proxy
statement for our 2011 annual meeting of stockholders, is hereby
incorporated by reference.
|
|
(b)
|
Director
Independence.
|
The information under the captions Proposal One:
Election of Directors and Corporate Governance,
Board Composition and Board Committees, appearing in our
proxy statement for our 2011 annual meeting of stockholders, is
hereby incorporated by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information under the captions Principal Accountant
Fees and Services, and Audit Committee Pre-Approval
of Audit and Permissible Non-Audit Services of Independent
Auditors, appearing in our proxy statement for our 2011
annual meeting of stockholders, is hereby incorporated by
reference.
Part IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a)(1) Financial
Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-1
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
(a)(2) Financial
Statement Schedules
The financial statement schedules required by
Regulation S-X
and Item 8 of this report are included in the financial
statements and notes thereto listed in Item 15(a)(1) of
this report.
(a)(3) Exhibits
The following is a list of exhibits to this report.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
3
|
.1
|
|
Amended and restated certificate of incorporation of the
registrant.(1)
|
|
3
|
.2
|
|
Amended and restated bylaws of the registrant.(4)
|
|
4
|
.1
|
|
Indenture between the registrant and The Bank of New York Mellon
Trust Company, N.A., dated as of November 22, 2010,
including the form of 2.50% Convertible Senior Note due
2030 (included as Exhibit A to the Indenture).(19)
|
|
10
|
.1
|
|
Form of indemnification agreement between the registrant and its
officers and directors.(2)
|
|
10
|
.2
|
|
Amended and restated 1998 Long-Term Incentive and Stock Option
Plan.(2)
|
|
10
|
.3
|
|
2004 Equity Incentive Plan, as amended and restated.(21)
|
|
10
|
.4
|
|
2004 Employee Stock Purchase Plan, as amended and restated.(15)
|
51
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.5
|
|
Lease agreement dated July 10, 2000, between Genesis
Partners, LLC and the registrant (relating to property at 40
Enterprise Blvd, Bozeman, MT).(2)
|
|
10
|
.6
|
|
Lease agreement dated July 10, 2000, between Genesis
Partners, LLC and the registrant (relating to property at 77
Discovery Drive, Bozeman, MT).(2)
|
|
10
|
.7
|
|
Severance policy for executive officers.(2)
|
|
10
|
.8
|
|
Form of executive officer offer letter and schedule of omitted
material details thereto.(2)
|
|
10
|
.9
|
|
Form of executive officer incentive stock option agreement and
schedule of omitted material details thereto.(2)
|
|
10
|
.10
|
|
Form of executive officer non-incentive stock option agreement
and schedule of omitted material details thereto.(2)
|
|
10
|
.11
|
|
Form of director non-incentive stock option agreement and
schedule of omitted material details thereto.(2)
|
|
10
|
.12
|
|
Form of Notice of Grant of Stock Options and Stock Option
Agreements.(5)
|
|
10
|
.13
|
|
Form of Incentive Stock Option Agreement.(6)
|
|
10
|
.14
|
|
Form of Non-Incentive Stock Option Agreement.(6)
|
|
10
|
.15
|
|
Lease agreement dated March 28, 2005, between the
registrant and Genesis Partners, LLC for office space located at
110 Enterprise Boulevard, Bozeman, Montana.(3)
|
|
10
|
.16
|
|
Renewed lease agreement, dated March 28, 2005, between the
registrant and Genesis Partners, LLC for office space located at
77 Discovery Drive, Bozeman, Montana.(3)
|
|
10
|
.17
|
|
Form of amended employment offer letter for executive
officers.(7)
|
|
10
|
.18
|
|
Lease agreement, dated November 1, 2005 and commencing
March 23, 2007, between the registrant and Genesis
Partners, LLC for office space located at 136 Enterprise
Boulevard, Bozeman, Montana.(8)
|
|
10
|
.19
|
|
Form of offer letter for Jason Mittelstaedt, Joseph Brown, Steve
Daines, and Michael Saracini, and schedule of omitted material
details thereto.(9)
|
|
10
|
.20
|
|
Form of executive officer offer letter and schedule of material
differences thereto for Jeff Davison and Susan Carstensen.(10)
|
|
10
|
.21
|
|
Offer letter with Marcus Bragg, VP and GM of the Americas.(11)
|
|
10
|
.22
|
|
Terms of understanding with Michael Saracini, Former VP and GM
of Americas.(12)
|
|
10
|
.23
|
|
Renewed lease agreement, dated February 16, 2010, between
the registrant and Genesis Partners, LLC for office space
located at 77 Discovery Drive, Bozeman, Montana.(22)
|
|
10
|
.24
|
|
Renewed lease agreement, dated February 16, 2010, between
the registrant and Genesis Partners, LLC for office space
located at 110 Enterprise Boulevard, Bozeman, Montana.(23)
|
|
10
|
.25
|
|
Form of Restricted Stock Unit Award Agreement for Directors.(13)
|
|
10
|
.26
|
|
Offer letter with Wayne Huyard, President and Chief Operating
Officer.(14)
|
|
10
|
.27
|
|
Renewed lease agreement dated February 7, 2011, between the
registrant and Genesis Partners, LLC for office space located at
40 Enterprise Boulevard, Bozeman, Montana.(16)
|
|
10
|
.28
|
|
Renewed lease agreement dated February 7, 2011, between the
registrant and Genesis Partners, LLC for office space located at
77 Discovery Drive, Bozeman, Montana.(17)
|
|
10
|
.29
|
|
Amended lease agreement dated February 7, 2011, between the
registrant and Genesis Partners, LLC for office space located at
136 Enterprise Boulevard, Bozeman, Montana.(18)
|
|
10
|
.30
|
|
Purchase Agreement dated November 16, 2010 between the
registrant and Credit Suisse Securities (USA) LLC, as
representative of the several initial purchasers named in
Schedule A thereto.(20)
|
|
21
|
.1
|
|
Subsidiaries of the registrant.
|
|
23
|
.1
|
|
Consent of KPMG LLP, Independent Registered Public Accounting
Firm.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act
Rule 13a-14(a)
or 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
52
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act
Rule 13a-14(a)
or 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
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 of the
registrants 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 the exhibit of the same number from
the registrants registration statement of
Form S-1
(File
No. 333-115331)
initially filed with the Securities and Exchange Commission on
May 10, 2004, as amended. |
|
(3) |
|
Incorporated by reference to the exhibit of the same number from
the registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
April 1, 2005. |
|
(4) |
|
Incorporated by reference to Exhibit 3.1 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
January 25, 2006. |
|
(5) |
|
Incorporated by reference to Exhibits 10.13, 10.14 and
10.15 of the registrants annual report on
Form 10-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on filed on
March 31, 2005. |
|
(6) |
|
Incorporated by reference to Exhibits 10.20 and 10.21,
respectively, of the registrants quarterly report on
Form 10-Q
(File No.
000-31321)
filed with the Securities and Exchange Commission on
May 10, 2006. |
|
(7) |
|
Incorporated by reference to the exhibit of the same number from
the registrants annual report on
Form 10-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
March 14, 2007. |
|
(8) |
|
Incorporated by reference to the exhibit of the same number from
the registrants quarterly report on
Form 10-Q
filed (File
No. 000-31321)
with the Securities and Exchange Commission on May 8, 2007. |
|
(9) |
|
Incorporated by reference to Exhibit 10.30 of the
registrants quarterly report on
Form 10-Q
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
August 9, 2007. |
|
(10) |
|
Incorporated by reference to Exhibit 10.31 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
January 30, 2008. |
|
(11) |
|
Incorporated by reference to Exhibit 10.1 of the
registrants quarterly report on
Form 10-Q
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
November 7, 2008. |
|
(12) |
|
Incorporated by reference to Exhibit 10.2 of the
registrants quarterly report on
Form 10-Q
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
November 7, 2008. |
|
(13) |
|
Incorporated by reference to Exhibit 10.1 to the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
June 9, 2010. |
|
(14) |
|
Incorporated by reference to Exhibit 10.1 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
October 12, 2010. |
|
(15) |
|
Incorporated by reference to Exhibit 10.1 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
December 9, 2010. |
|
(16) |
|
Incorporated by reference to Exhibit 10.1 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
February 9, 2011. |
|
(17) |
|
Incorporated by reference to Exhibit 10.2 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
February 9, 2011. |
|
(18) |
|
Incorporated by reference to Exhibit 10.3 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
February 9, 2011. |
|
(19) |
|
Incorporated by reference to Exhibit 4.1 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
November 22, 2010. |
53
|
|
|
(20) |
|
Incorporated by reference to Exhibit 10.1 of the
registrants current report on
Form 8-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on
November 22, 2010. |
|
(21) |
|
Incorporated by reference to Exhibit 10.3 of the
registrants annual report on
Form 10-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on filed on
March 9, 2010. |
|
(22) |
|
Incorporated by reference to Exhibit 10.23 of the
registrants annual report on
Form 10-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on filed on
March 9, 2010. |
|
(23) |
|
Incorporated by reference to Exhibit 10.24 of the
registrants annual report on
Form 10-K
(File
No. 000-31321)
filed with the Securities and Exchange Commission on filed on
March 9, 2010. |
|
|
|
Denotes management contract or compensatory plan or arrangement. |
The exhibits filed as part of this report are listed in
Item 15(a)(3) of this report.
|
|
(c)
|
Financial
Statement Schedules
|
The financial statement schedules required by
Regulation S-X
and Item 8 of this report are included in the financial
statements and notes thereto listed in Item 15(a)(1) of
this report.
54
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIGHTNOW TECHNOLOGIES, INC.
|
|
|
By:
|
/s/ JEFFREY
C. DAVISON
|
|
Jeffrey C. Davison
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Financial and Accounting Officer)
March 9, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on
March 9, 2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ GREG
R. GIANFORTE
Greg
R. Gianforte
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ JEFFREY
C. DAVISON
Jeffrey
C. Davison
|
|
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ RICHARD
E. ALLEN
Richard
E. Allen
|
|
Director
|
|
|
|
/s/ GREGORY
M. AVIS
Gregory
M. Avis
|
|
Director
|
|
|
|
/s/ THOMAS
W. KENDRA
Thomas
W. Kendra
|
|
Director
|
|
|
|
/s/ WILLIAM
J. LANSING
William
J. Lansing
|
|
Director
|
|
|
|
/s/ STEVEN
S. SINGH
Steven
S. Singh
|
|
Director
|
|
|
|
/s/ ALLEN
E. SNYDER
Allen
E. Snyder
|
|
Director
|
55
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders RightNow Technologies,
Inc.:
We have audited the accompanying consolidated balance sheets of
RightNow Technologies, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2010.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of RightNow Technologies, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010 in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
RightNow Technologies, Inc.s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 9, 2011 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
Portland, Oregon
March 9, 2011
F-1
RIGHTNOW
TECHNOLOGIES, INC.
Consolidated
Balance Sheets
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,546
|
|
|
$
|
181,948
|
|
Short-term investments
|
|
|
54,977
|
|
|
|
94,759
|
|
Accounts receivable
|
|
|
34,267
|
|
|
|
39,338
|
|
Less allowance for doubtful accounts
|
|
|
(1,914
|
)
|
|
|
(2,021
|
)
|
|
|
|
|
|
|
|
|
|
Total current receivables, net
|
|
|
32,353
|
|
|
|
37,317
|
|
Deferred commissions
|
|
|
6,394
|
|
|
|
5,418
|
|
Prepaid and other current assets
|
|
|
2,434
|
|
|
|
4,662
|
|
Deferred tax assets, net
|
|
|
|
|
|
|
3,801
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
137,704
|
|
|
|
327,905
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
10,122
|
|
|
|
10,702
|
|
Intangible assets, net
|
|
|
11,141
|
|
|
|
14,124
|
|
Deferred commissions, non-current
|
|
|
3,461
|
|
|
|
4,747
|
|
Other assets
|
|
|
2,007
|
|
|
|
4,921
|
|
Deferred tax assets, non-current, net
|
|
|
|
|
|
|
16,480
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
164,435
|
|
|
$
|
378,879
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,427
|
|
|
$
|
10,463
|
|
Commissions and bonuses payable
|
|
|
6,271
|
|
|
|
7,137
|
|
Other accrued liabilities
|
|
|
11,146
|
|
|
|
13,363
|
|
Current portion of long-term debt
|
|
|
22
|
|
|
|
|
|
Current portion of deferred revenue
|
|
|
88,603
|
|
|
|
90,350
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
111,469
|
|
|
|
121,313
|
|
Deferred revenue, net of current portion
|
|
|
12,724
|
|
|
|
2,969
|
|
2.50% Convertible senior notes due 2030
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
124,193
|
|
|
|
299,282
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized and
undesignated 15,000 shares at December 31, 2009, and
2010, respectively
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value. Authorized
150,000 shares; issued and outstanding 33,992 and
31,879 shares at December 31, 2009; issued and
outstanding 35,074 and 32,380 respectively at December 31,
2010
|
|
|
34
|
|
|
|
35
|
|
Additional paid-in capital
|
|
|
112,439
|
|
|
|
136,717
|
|
Treasury Stock, at cost. 2,113 shares and 2,694 shares
at December 31, 2009 and 2010, respectively
|
|
|
(15,007
|
)
|
|
|
(29,149
|
)
|
Accumulated other comprehensive income
|
|
|
1,125
|
|
|
|
1,953
|
|
Accumulated deficit
|
|
|
(58,349
|
)
|
|
|
(29,959
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
40,242
|
|
|
|
79,597
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
164,435
|
|
|
$
|
378,879
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-2
RIGHTNOW
TECHNOLOGIES, INC.
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
$
|
102,576
|
|
|
$
|
115,395
|
|
|
$
|
147,345
|
|
Professional services
|
|
|
37,859
|
|
|
|
37,292
|
|
|
|
38,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
140,435
|
|
|
|
152,687
|
|
|
|
185,522
|
|
Costs of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
|
20,397
|
|
|
|
20,948
|
|
|
|
23,609
|
|
Professional services
|
|
|
30,440
|
|
|
|
26,610
|
|
|
|
31,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
50,837
|
|
|
|
47,558
|
|
|
|
55,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
89,598
|
|
|
|
105,129
|
|
|
|
130,460
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
67,628
|
|
|
|
64,751
|
|
|
|
79,395
|
|
Research and development
|
|
|
18,292
|
|
|
|
20,221
|
|
|
|
20,154
|
|
General and administrative
|
|
|
13,615
|
|
|
|
15,801
|
|
|
|
18,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
99,535
|
|
|
|
100,773
|
|
|
|
118,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(9,937
|
)
|
|
|
4,356
|
|
|
|
12,205
|
|
Interest and other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,906
|
|
|
|
1,023
|
|
|
|
585
|
|
Interest expense
|
|
|
(12
|
)
|
|
|
(7
|
)
|
|
|
(474
|
)
|
Other
|
|
|
(198
|
)
|
|
|
1,078
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income, net
|
|
|
2,696
|
|
|
|
2,094
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(7,241
|
)
|
|
|
6,450
|
|
|
|
12,550
|
|
Benefit (provision) for income taxes
|
|
|
(42
|
)
|
|
|
(579
|
)
|
|
|
15,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(7,283
|
)
|
|
$
|
5,871
|
|
|
$
|
28,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.22
|
)
|
|
$
|
0.18
|
|
|
$
|
0.88
|
|
Diluted
|
|
$
|
(0.22
|
)
|
|
$
|
0.18
|
|
|
$
|
0.83
|
|
Shares used in the computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
33,362
|
|
|
|
31,752
|
|
|
|
32,156
|
|
Diluted
|
|
|
33,362
|
|
|
|
32,336
|
|
|
|
34,568
|
|
See accompanying notes to consolidated financial statements
F-3
RIGHTNOW
TECHNOLOGIES, INC.
Consolidated
Statements of Stockholders Equity and Comprehensive Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(Amount in thousands)
|
|
|
Balance at December 31, 2007
|
|
|
33,453
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
95,377
|
|
|
|
(292
|
)
|
|
|
(56,937
|
)
|
|
|
38,181
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
236
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
1,177
|
|
Employee stock purchase plan
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
219
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,025
|
|
|
|
|
|
|
|
|
|
|
|
6,025
|
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
Treasury Stock, at cost
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
(13,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,209
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,283
|
)
|
|
|
(7,283
|
)
|
Unrealized gain on available for sale investments net of tax of
$0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242
|
|
|
|
|
|
|
|
242
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,966
|
|
|
|
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
33,712
|
|
|
|
34
|
|
|
|
1,882
|
|
|
|
(13,209
|
)
|
|
|
102,662
|
|
|
|
1,916
|
|
|
|
(64,220
|
)
|
|
|
27,183
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,497
|
|
|
|
|
|
|
|
|
|
|
|
1,497
|
|
Employee stock purchase plan
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
251
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,786
|
|
|
|
|
|
|
|
|
|
|
|
7,786
|
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
Treasury Stock, at cost
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
(1,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,798
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,871
|
|
|
|
5,871
|
|
Unrealized gain on available for sale investments net of tax of
$0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(802
|
)
|
|
|
|
|
|
|
(802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
33,992
|
|
|
$
|
34
|
|
|
|
2,113
|
|
|
|
(15,007
|
)
|
|
$
|
112,439
|
|
|
$
|
1,125
|
|
|
$
|
(58,349
|
)
|
|
$
|
40,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,068
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
12,570
|
|
|
|
|
|
|
|
|
|
|
|
12,571
|
|
Employee stock purchase plan
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,854
|
|
|
|
|
|
|
|
|
|
|
|
7,854
|
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,604
|
|
|
|
|
|
|
|
|
|
|
|
3,604
|
|
Treasury Stock, at cost
|
|
|
|
|
|
|
|
|
|
|
581
|
|
|
|
(14,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,142
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,390
|
|
|
|
28,390
|
|
Unrealized loss on available for sale investments net of tax of
$0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
Foreign currency translation adjustment net of tax benefit of
$526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
847
|
|
|
|
|
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
35,074
|
|
|
$
|
35
|
|
|
|
2,694
|
|
|
|
(29,149
|
)
|
|
$
|
136,717
|
|
|
$
|
1,953
|
|
|
$
|
(29,959
|
)
|
|
$
|
79,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
RIGHTNOW
TECHNOLOGIES, INC.
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(7,283
|
)
|
|
$
|
5,871
|
|
|
$
|
28,390
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,771
|
|
|
|
7,491
|
|
|
|
7,772
|
|
Stock-based compensation
|
|
|
6,025
|
|
|
|
7,786
|
|
|
|
7,854
|
|
Provision for losses on accounts receivable
|
|
|
212
|
|
|
|
157
|
|
|
|
191
|
|
Benefit for deferred tax asset valuation allowance reversal
|
|
|
|
|
|
|
|
|
|
|
(19,732
|
)
|
Changes in operating assets and liabilities (net of assets
acquired):
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
4,774
|
|
|
|
11,255
|
|
|
|
(4,029
|
)
|
Prepaid and other current assets
|
|
|
(101
|
)
|
|
|
(209
|
)
|
|
|
(948
|
)
|
Deferred commissions
|
|
|
(3,623
|
)
|
|
|
(1,282
|
)
|
|
|
(314
|
)
|
Accounts payable
|
|
|
895
|
|
|
|
238
|
|
|
|
4,997
|
|
Commissions and bonuses payable
|
|
|
930
|
|
|
|
451
|
|
|
|
877
|
|
Other accrued liabilities
|
|
|
462
|
|
|
|
(424
|
)
|
|
|
2,122
|
|
Deferred revenue
|
|
|
4,169
|
|
|
|
(14,916
|
)
|
|
|
(8,388
|
)
|
Other
|
|
|
493
|
|
|
|
(321
|
)
|
|
|
(298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,724
|
|
|
|
16,097
|
|
|
|
18,494
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(47,908
|
)
|
|
|
(69,952
|
)
|
|
|
(105,268
|
)
|
Sales or maturities of investments
|
|
|
61,339
|
|
|
|
54,119
|
|
|
|
65,455
|
|
Purchase of property and equipment
|
|
|
(5,759
|
)
|
|
|
(5,577
|
)
|
|
|
(6,708
|
)
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(5,906
|
)
|
|
|
|
|
Intangible asset additions
|
|
|
(33
|
)
|
|
|
(654
|
)
|
|
|
(4,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
7,639
|
|
|
|
(27,970
|
)
|
|
|
(51,081
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes issuance costs
|
|
|
|
|
|
|
|
|
|
|
(5,038
|
)
|
Proceeds from issuance of convertible senior notes
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
Purchase of treasury stock
|
|
|
(13,209
|
)
|
|
|
(1,798
|
)
|
|
|
(14,142
|
)
|
Proceeds from issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants
|
|
|
1,177
|
|
|
|
1,497
|
|
|
|
12,571
|
|
Employee stock purchase plan
|
|
|
219
|
|
|
|
251
|
|
|
|
250
|
|
Excess (shortfall) tax benefit of stock options exercised
|
|
|
(135
|
)
|
|
|
243
|
|
|
|
3,604
|
|
Payments on long-term debt
|
|
|
(43
|
)
|
|
|
(46
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(11,991
|
)
|
|
|
147
|
|
|
|
172,223
|
|
Effect of foreign exchange rates on cash and cash equivalents
|
|
|
(2,648
|
)
|
|
|
1,867
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
7,724
|
|
|
|
(9,859
|
)
|
|
|
140,402
|
|
Cash and cash equivalents at beginning of period
|
|
|
43,681
|
|
|
|
51,405
|
|
|
|
41,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
51,405
|
|
|
$
|
41,546
|
|
|
$
|
181,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
RIGHTNOW
TECHNOLOGIES, INC.
Notes to
Consolidated Financial Statements
Years
ended December 31, 2008, 2009 and 2010
|
|
(1)
|
Business
Description and Summary of Significant Accounting
Policies
|
(a) Business
Description
RightNow Technologies, Inc. (the Company or
RightNow) provides RightNow
CXtm,
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.
(b) Basis
of Consolidation
The accompanying consolidated financial statements have been
prepared in accordance with United States generally accepted
accounting principles, which include the accounts of the Company
and its foreign subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
(c) Reclassification
Deferred revenue is not recorded for subscriptions with monthly,
quarterly, or annual billing terms until the invoices are
issued. During the second quarter of 2010, the Company
identified certain uninvoiced accounts receivable that had not
been aged in relation to deferred revenue, which resulted in a
misclassification between the current and non-current portion of
deferred revenue. As a result, the Company reclassified
$14 million of non-current deferred revenue to current
deferred revenue in the accompanying December 31, 2009
consolidated balance sheet. The reclassification had no impact
on total deferred revenue, revenue, net income or net cash
provided by operating activities during the period ended
December 31, 2009.
(d) 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 service 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
69% of total revenue in North America during 2008, approximately
73% of total revenue in North America in 2009 and approximately
69% of total revenue in North America during 2010.
F-6
No individual customer accounted for more than 10% of the
Companys revenue in 2008, 2009 or 2010. No individual
customer accounted for more than 10% of the Companys
accounts receivable at December 31, 2009 or
December 31, 2010, respectively.
Assets located outside North America totaled 18% and 12% of
total assets at December 31, 2009 and 2010, respectively.
The income (loss) from operations outside the United States
totaled $(1.4) million, $(849,000), and $1.4 million
for the years ended December 31, 2008, 2009 and 2010,
respectively.
Revenue by geographical region is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
North America
|
|
$
|
97,640
|
|
|
$
|
110,814
|
|
|
$
|
128,072
|
|
Europe
|
|
|
31,946
|
|
|
|
28,544
|
|
|
|
35,700
|
|
Asia Pacific
|
|
|
10,849
|
|
|
|
13,329
|
|
|
|
21,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,435
|
|
|
$
|
152,687
|
|
|
$
|
185,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) Use
of Estimates
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 recoverability 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.
(f) Cash
Equivalents
The Company considers all highly liquid investments purchased
with an original maturity date of three months or less to be
cash equivalents. Cash equivalents are recorded at cost, which
approximates market value.
(g) Short-Term
Investments
Short-term investments in debt and equity securities are
classified as
available-for-sale
and are recorded at fair market value. Realized gains and losses
are included in income based on the specific identification
method. Unrealized gains and losses (excluding
other-than-temporary
impairments), net of tax, are recorded to Other Comprehensive
Income (Loss), a component of stockholders equity.
A decline in market value of any
available-for-sale
security below cost, which is deemed to be
other-than-temporary
results in an impairment charge to reduce the carrying amount to
fair value. The impairment is charged to earnings and a new cost
basis for the security is established. If the cost of an
investment exceeds its fair value, we evaluate, among other
factors, general market conditions, the duration and extent that
cost is less than fair value, as well as our ability and intent
to hold the investment. We also consider specific adverse
conditions of the investee, including industry and sector
performance, operational and cash flow factors, and rating
agency actions.
F-7
(h) Accounts
Receivable and Term Receivables
Accounts receivable represents amounts currently due from
customers for which revenue has been recognized or is being
recognized ratably in future periods, and amounts currently due
under contract billings for which revenue has not been
recognized. In license arrangements, term receivables include
the remaining minimum committed amounts due from customers for
which no revenue has been recognized. The Company performs
credit evaluations when considered necessary, but generally does
not require collateral to extend credit.
The allowance for doubtful accounts is the Companys best
estimate of the amount of probable credit losses in the
Companys existing receivables. The Company determines the
allowance based on factors such as historical collection
experience, customers current creditworthiness, customer
concentration, age of accounts receivable balance and general
economic conditions that may affect a customers ability to
pay. Actual customer collections could differ from estimates.
Account balances are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance
sheet credit exposure related to its customers.
Provisions to the allowance for doubtful accounts are charged to
expense
and/or
against deferred revenue for accounts receivable and against
deferred revenue for term receivables. Following is a summary of
the activity in the allowance for doubtful accounts (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Balance, beginning of year
|
|
$
|
1,918
|
|
|
$
|
2,277
|
|
|
$
|
1,914
|
|
Provision charged to expense
|
|
|
212
|
|
|
|
157
|
|
|
|
191
|
|
Provision charged against deferred revenue
|
|
|
1,515
|
|
|
|
1,158
|
|
|
|
1,087
|
|
Write-downs charged against the allowance
|
|
|
(1,399
|
)
|
|
|
(2,160
|
)
|
|
|
(1,312
|
)
|
Recoveries of amounts previously charged-off
|
|
|
31
|
|
|
|
482
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,277
|
|
|
$
|
1,914
|
|
|
$
|
2,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Property
and Equipment
Property and equipment, including software purchased for
internal use, are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization is computed
using the straight-line method over the estimated useful lives
of the assets, generally three to seven years. Repairs and
maintenance are expensed as incurred.
(j) Intangible
Assets
Intangible assets include purchased technologies and goodwill.
Purchased technologies are carried at cost less accumulated
amortization. The Company amortizes these assets on a
straight-line basis over their estimated useful lives of two to
five years. Goodwill is the excess of cost over the fair value
of the net identifiable assets acquired in business
acquisitions. Goodwill is not amortized, but is evaluated for
impairment at least annually and more often if indicators of
potential impairment exist.
(k) 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. 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
F-8
penalty. As such, these arrangements are considered service
contracts and are not within the scope of Industry Topic
985.
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.
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 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.
F-9
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.
The following table sets forth revenue by product or service as
a percentage of total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Revenue by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
|
73
|
%
|
|
|
76
|
%
|
|
|
79
|
%
|
Professional services
|
|
|
27
|
|
|
|
24
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue represents amounts received or due from
customers for which the revenue recognition criteria have not
been met. The majority of deferred revenue results from the
upfront billing of term and subscription contracts while revenue
is recognized ratably over the contractual period. Deferred
revenue is recognized into revenue when the Company provides its
products and services, assuming all other revenue recognition
criteria noted above are met. Under subscriptions, the amount
currently due and payable from the customer is reflected in
accounts receivable and deferred revenue. Under licenses, the
full customer commitment is reflected in accounts receivable for
amounts currently due, or term receivables for amounts due over
the contractual term, and deferred revenue. The Company does not
provide refunds for customer cancellations.
(l) 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
$13.6 million, $13.9 million, and $18.2 million
for the years ended December 31, 2008, 2009 and 2010,
respectively. Deferred commissions at December 31, 2009 and
December 31, 2010 were $9.9 million and
$10.2 million, respectively.
(m) Research
and Development
Research and development expenditures are expensed as incurred.
(n) 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 recurring
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
$4.7 million as of December 31, 2009 and
December 31, 2010, respectively. The capitalized costs are
included in intangible assets, net on the Companys
Consolidated Balance Sheets.
F-10
(o) Income
Taxes
The Company records income taxes under the asset and liability
method as prescribed under Topic 740, Income Taxes.
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
on deferred tax assets and liabilities of a change in tax rates
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.
The Company considers the provisions of Topic 740, Income
Taxes, which deal with accounting for uncertainties in
income taxes. The provisions have not had a significant impact
on the Companys financial position or results of
operations. The provisions prescribe a recognition threshold and
measurement attribute for financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return, and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax
determination is uncertain. The Company establishes reserves for
tax-related uncertainties based on estimates of whether, and the
extent to which, additional taxes will be due. These reserves
are established when the Company believes that certain positions
are not more-likely-than-not to be sustained despite
managements belief that the tax return provisions are
reasonable. The Company adjusts these reserves in light of
changing facts and circumstances, such as the outcome of a tax
audit. The provision for income taxes includes the impact of
reserve provisions and changes to reserves that are considered
appropriate.
(p) Impairment
of Long-Lived Assets
Long-lived assets, including intangible assets, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the estimated fair value of the
assets. Fair value is determined based on discounted cash flow
or appraised value, depending on the nature of the asset. Assets
to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Goodwill is tested for
impairment at least annually, and more frequently if indicators
of potential impairment exist. No impairments of long-lived
assets have been identified in any of the periods presented.
(q) Net
Income (Loss) Per Share
A reconciliation of the denominator used in the calculation of
basic and diluted net income (loss) per share is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Weighted average common shares outstanding for basic net income
(loss) per share
|
|
|
33,362
|
|
|
|
31,752
|
|
|
|
32,156
|
|
Employee stock options
|
|
|
|
|
|
|
584
|
|
|
|
1,826
|
|
If converted, share conversion of convertible senior
notes
|
|
|
|
|
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for dilutive net income
(loss) per share
|
|
|
33,362
|
|
|
|
32,336
|
|
|
|
34,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
The Company included in the computation of diluted net income
(loss) per share options to purchase 1,826,000 shares of
common stock for the period ending December 31, 2010,
because the Company incurred net income for the period and the
option price was less than the average market price of the
common stock during the period. In addition, the computation of
diluted net income (loss) per share assumed convertible senior
notes that were issued November 2010 were converted into a
weighted average of 586,000 shares of our common stock
during the period ending December 31, 2010. Due to the
converted share count assumption, the Company added back
convertible note interest expense and debt amortization costs,
net of tax, of $402,000 to net income during the period ending
December 31, 2010 to calculate earnings per share. The
convertible senior notes upon full conversion are convertible
into 5,487,786 shares. Please refer to Note 7 herein
for more details of the convertible senior notes.
The following common stock equivalents were excluded from the
computation of diluted earnings income (loss) per share because
they had an anti-dilutive impact (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Employee stock options
|
|
|
4,428
|
|
|
|
5,363
|
|
|
|
4,397
|
|
(r) Stock-Based
Compensation
The Company accounts for its stock-based compensation plans in
accordance with FASB Accounting Standards Codification, Topic
718, Compensation-Stock Compensation. Under Topic
718, 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 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. Pursuant to the income tax provisions included in
Topic 718, the Company has elected the short cut
method of computing its hypothetical pool of additional
paid-in capital that is available to absorb future tax benefit
shortfalls.
Compensation cost recorded in the years ended December 31,
2008, 2009 and 2010 includes the cost for all stock-based awards
granted prior to, but not yet vested as of December 31,
2005, based on the grant-date fair value estimated in accordance
with the original provisions of Topic 718. Compensation
expense for all stock-based awards granted after
December 31, 2005 was based on the grant-date fair value
estimated in accordance with the provisions of Topic 718.
(s) Foreign
Currency Translation
For
non-U.S. operations,
the functional currency is the local currency. Assets and
liabilities of those operations are translated into
U.S. dollars using year-end exchange rates; income and
expenses are translated using the average exchange rates for the
reporting period. Translation adjustments are deferred in
accumulated other comprehensive income (loss), a separate
component of stockholders equity. Realized foreign
currency transaction gains and losses are included in other
income and expense.
(t) Comprehensive
Income (Loss)
Comprehensive income (loss) includes net income or loss, as well
as other changes in stockholders equity that result from
transactions and economic events other than those with
stockholders. Additional elements of other comprehensive income
or loss are attributable to foreign currency translation
adjustments and unrealized gains or losses on short-term
investments.
(u) Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
costs were $2.9 million, $2.6 million and
$3.5 million for the years ended December 31, 2008,
2009 and 2010, respectively.
F-12
On September 15, 2009, the Company acquired the outstanding
common and preferred stock of HiveLive, Inc.
(HiveLive), for $5.9 million in net cash paid
at closing. HiveLive is an enterprise-class social platform
provider with a platform for customer support, engagement and
loyalty, and ideation communities. The acquisition was accounted
for under the purchase method of accounting and, accordingly,
the results of HiveLive are included in the condensed
consolidated financial statements since the acquisition date.
The Company has allocated the purchase price to the HiveLive
assets acquired and liabilities assumed at estimated fair
values. The purchase price, and purchase price allocation are as
follows (amounts in thousands):
|
|
|
|
|
Cash consideration
|
|
$
|
5,906
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
5,906
|
|
|
|
|
|
|
Purchase price allocation:
|
|
|
|
|
Net assets assumed
|
|
$
|
189
|
|
Intangible assets
|
|
|
5,717
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
5,906
|
|
|
|
|
|
|
The components of the intangible assets listed in the above
table as of the acquisition date are as follows (amounts in
thousands):
|
|
|
|
|
Goodwill
|
|
$
|
3,617
|
|
Developed technology
|
|
|
1,800
|
|
Customer relationships
|
|
|
200
|
|
Trade name and trademarks
|
|
|
100
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
5,717
|
|
|
|
|
|
|
The excess of the purchase price over the estimated fair value
of the net assets acquired of $3.6 million was recorded as
goodwill, which is deemed to have an indefinite useful life and,
accordingly, will not be amortized, but will be subject to
periodic impairment testing in future periods. The acquisition
has allowed RightNow to offer a broad social CRM solution in the
marketplace, which resulted in the recorded goodwill. The
developed technology and customer relationships intangible
assets will be amortized over a period of four years, using the
straight-line method. The trade name and trademarks will be
amortized over a period of two years using the straight-line
method. None of the goodwill is expected to be deductible for
tax purposes.
|
|
(3)
|
Supplemental
Cash Flow Information
|
Supplemental statement of cash flow information follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
12
|
|
|
$
|
7
|
|
|
$
|
|
|
Income taxes
|
|
|
28
|
|
|
|
262
|
|
|
|
230
|
|
F-13
|
|
(4)
|
Cash
Equivalents, Short and Long-Term Investments, and Fair
Value
|
The components of cash equivalents and short and long term
investments at December 31, 2009 and 2010 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Short-
|
|
|
|
|
|
|
Unrealized
|
|
|
Market
|
|
|
Cash
|
|
|
Term
|
|
December 31, 2009
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Equivalents
|
|
|
Investments
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
15,655
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,655
|
|
|
$
|
15,655
|
|
|
$
|
|
|
Commercial paper
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
|
|
1,400
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
738
|
|
Commercial paper
|
|
|
5,597
|
|
|
|
|
|
|
|
|
|
|
|
5,597
|
|
|
|
|
|
|
|
5,597
|
|
Corporate notes and bonds
|
|
|
3,274
|
|
|
|
5
|
|
|
|
|
|
|
|
3,279
|
|
|
|
|
|
|
|
3,279
|
|
U.S. Government agency securities
|
|
|
41,309
|
|
|
|
39
|
|
|
|
(29
|
)
|
|
|
41,319
|
|
|
|
|
|
|
|
41,319
|
|
State and municipal securities
|
|
|
248
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
247
|
|
|
|
|
|
|
|
247
|
|
Auction rate state and municipal securities
|
|
|
3,800
|
|
|
|
|
|
|
|
(275
|
)
|
|
|
3,525
|
|
|
|
|
|
|
|
3,525
|
|
Auction rate settlement agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase put option
|
|
|
|
|
|
|
272
|
|
|
|
|
|
|
|
272
|
|
|
|
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals at December 31, 2009
|
|
$
|
72,021
|
|
|
|
316
|
|
|
|
(305
|
)
|
|
$
|
72,032
|
|
|
$
|
17,055
|
|
|
$
|
54,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Short-
|
|
|
|
|
|
|
Unrealized
|
|
|
Market
|
|
|
Cash
|
|
|
Term
|
|
December 31, 2010
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Equivalents
|
|
|
Investments
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
12,064
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,064
|
|
|
$
|
12,064
|
|
|
$
|
|
|
Commercial paper
|
|
|
27,946
|
|
|
|
|
|
|
|
|
|
|
|
27,946
|
|
|
|
27,946
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
|
|
1,743
|
|
|
|
1,245
|
|
Corporate notes and bonds
|
|
|
13,502
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
13,500
|
|
|
|
4,735
|
|
|
|
8,765
|
|
U.S. Government agency securities
|
|
|
77,452
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
77,439
|
|
|
|
|
|
|
|
77,439
|
|
State and municipal securities
|
|
|
7,313
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
7,310
|
|
|
|
|
|
|
|
7,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals at December 31, 2010
|
|
$
|
141,265
|
|
|
|
1
|
|
|
|
(19
|
)
|
|
$
|
141,247
|
|
|
$
|
46,488
|
|
|
$
|
94,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses at December 31, 2010 of $19,000 primarily
related to securities held more than one year. Realized gains
and losses from sales of
available-for-sale
securities in 2008, 2009 and 2010 were insignificant.
The Company considers the provisions of FASB Accounting
Standards Codification, Topic 820, Fair Value Measurements
and Disclosures. Topic 820 establishes a framework for
measuring fair value in GAAP, and enhances disclosures about
fair value measurements. Fair value is defined under Topic
820 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
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 standard describes a fair value hierarchy based on three
levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to
measure fair value, which are the following:
|
|
|
|
|
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
|
F-14
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 the Companys fair value
hierarchy for its financial assets (cash equivalents and
investments) measured at fair value on a recurring basis as of
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash
|
|
$
|
135,460
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
135,460
|
|
Money market funds
|
|
|
12,064
|
|
|
|
|
|
|
|
|
|
|
|
12,064
|
|
Certificates of deposit
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
Commercial paper
|
|
|
|
|
|
|
27,946
|
|
|
|
|
|
|
|
27,946
|
|
Corporate notes and bonds
|
|
|
|
|
|
|
13,500
|
|
|
|
|
|
|
|
13,500
|
|
U.S. Government agency securities
|
|
|
|
|
|
|
77,439
|
|
|
|
|
|
|
|
77,439
|
|
State and municipal securities
|
|
|
|
|
|
|
7,310
|
|
|
|
|
|
|
|
7,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,512
|
|
|
$
|
126,195
|
|
|
$
|
|
|
|
$
|
276,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2010, the Companys remaining $3.8 million of
auction rate securities (ARS) were redeemed by the
issuers. The redemptions during the year were at par. The
following table illustrates the activity of
level 3 assets from December 31, 2009 to
December 31, 2010 and comparative activity of
level 3 assets from December 31, 2008 to
December 31, 2009 (in thousands):
|
|
|
|
|
Fair value at December 31, 2008
|
|
$
|
4,963
|
|
Unrealized gain adjustment ARS
|
|
|
500
|
|
Unrealized loss adjustment put option
|
|
|
(466
|
)
|
Redemptions
|
|
|
(1,200
|
)
|
|
|
|
|
|
Fair value at December 31, 2009
|
|
$
|
3,797
|
|
|
|
|
|
|
Fair value at December 31, 2009
|
|
$
|
3,797
|
|
Unrealized gain adjustment ARS
|
|
|
109
|
|
Unrealized loss adjustment put option
|
|
|
(106
|
)
|
Redemptions
|
|
|
(3,800
|
)
|
|
|
|
|
|
Fair value at December 31, 2010
|
|
$
|
|
|
|
|
|
|
|
|
|
(5)
|
Property
and Equipment, Net
|
Property and equipment, net are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Computer equipment
|
|
$
|
21,421
|
|
|
$
|
24,785
|
|
Purchased software
|
|
|
7,808
|
|
|
|
8,811
|
|
Equipment
|
|
|
738
|
|
|
|
648
|
|
Furniture and fixtures
|
|
|
1,697
|
|
|
|
1,971
|
|
Leasehold improvements
|
|
|
1,209
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
32,873
|
|
|
|
37,487
|
|
Less accumulated depreciation
|
|
|
(22,751
|
)
|
|
|
(26,785
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
10,122
|
|
|
$
|
10,702
|
|
|
|
|
|
|
|
|
|
|
F-15
The following table sets forth information regarding intangible
assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
Purchased
|
|
|
Developed
|
|
|
|
|
|
|
Goodwill
|
|
|
Relationships
|
|
|
Technologies
|
|
|
Software
|
|
|
Total
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
7,975
|
|
|
$
|
3,450
|
|
|
$
|
6,547
|
|
|
$
|
556
|
|
|
$
|
18,528
|
|
Accumulated amortization
|
|
|
|
|
|
|
(2,948
|
)
|
|
|
(4,434
|
)
|
|
|
(5
|
)
|
|
|
(7,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value
|
|
$
|
7,975
|
|
|
$
|
502
|
|
|
$
|
2,113
|
|
|
$
|
551
|
|
|
$
|
11,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
7,975
|
|
|
$
|
3,450
|
|
|
$
|
6,547
|
|
|
$
|
5,116
|
|
|
$
|
23,088
|
|
Accumulated amortization
|
|
|
|
|
|
|
(3,315
|
)
|
|
|
(5,254
|
)
|
|
|
(395
|
)
|
|
|
(8,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value
|
|
$
|
7,975
|
|
|
$
|
135
|
|
|
$
|
1,293
|
|
|
$
|
4,721
|
|
|
$
|
14,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average amortization period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in years)
|
|
|
n/a
|
|
|
|
4.0
|
|
|
|
3.9
|
|
|
|
3.7
|
|
|
|
3.9
|
|
Aggregate amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
|
|
|
$
|
766
|
|
|
$
|
831
|
|
|
$
|
|
|
|
$
|
1,597
|
|
2009
|
|
|
|
|
|
|
827
|
|
|
|
797
|
|
|
|
5
|
|
|
|
1,629
|
|
2010
|
|
|
|
|
|
|
367
|
|
|
|
820
|
|
|
|
391
|
|
|
|
1,578
|
|
Estimated amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
520
|
|
|
$
|
1,365
|
|
|
$
|
1,935
|
|
2012
|
|
|
|
|
|
|
50
|
|
|
|
453
|
|
|
|
1,400
|
|
|
|
1,903
|
|
2013
|
|
|
|
|
|
|
35
|
|
|
|
320
|
|
|
|
1,197
|
|
|
|
1,552
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
|
|
496
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
260
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
(7)
|
Long-Term
Debt and Credit Facility
|
(a) 2.50% Convertible
Senior Notes
In November 2010, the Company issued at par value,
$175.0 million in aggregate principal amount of convertible
senior notes due 2030 (the Notes).
The Notes bear interest at a rate of 2.50% per annum, which will
be payable semi-annually, and mature on November 15, 2030,
unless earlier redeemed, repurchased or converted. The Notes are
convertible at any time, at the holders option, have an
initial conversion rate of approximately 31.36 shares of
RightNow common stock (subject to adjustment in certain
circumstances) per $1,000 principal amount of Notes, which is
equivalent to an initial conversion price of approximately
$31.89 per share. If fully converted the Notes would convert
into 5,487,786 shares of common stock. The conversion rate
will be subject to adjustment upon the occurrence of certain
specified events. In addition, upon the occurrence of a
fundamental change, the Company will, in certain
circumstances, increase the conversion rate by a number of
additional shares for a holder that elects to convert its Notes
in connection with such fundamental change.
The Company may not redeem any of the Notes at its option prior
to November 20, 2015. At any time on or after
November 20, 2015, the Company will have the right, at its
option, to redeem the Notes in whole or in part for cash at a
redemption price equal to 100% of the principal amount of the
Notes to be redeemed, together with accrued and unpaid interest
to, but excluding, the date of redemption. On November 15,
2015, November 15, 2020 and November 15, 2025, holders
may require the Company to repurchase all or a portion
F-16
of their Notes for cash in an amount equal to 100% of the
principal amount of the Notes being repurchased, plus accrued
and unpaid interest to, but excluding, the date of repurchase.
The Notes are general unsecured obligations, rank equally in
right of payment to all existing and future senior indebtedness
and senior in right of payment to any future indebtedness that
is expressly subordinated to the notes.
The Notes are governed by an indenture dated, November 22,
2010, between the Company and The Bank of New York Mellon
Trust Company, N.A.
In accounting for the issuance of the Notes, the Company
classified the Notes as Long-term, Convertible Senior Notes. The
debt issuance costs associated with the Notes are being
amortized over 5 years. Debt issuance costs, net of
amortization were $4.9 million as of December 31, 2010.
(b) Credit
Facility
During 2009 and 2010, the Company had a $3.0 million
working capital line of credit agreement with a commercial bank.
Advances under the line bear a variable rate of interest which
approximates the prime lending rate, and are payable monthly.
The working capital line of credit is secured by substantially
all of the United States dollar-denominated accounts receivable
of the Company. There were no advances under the line during
2009 or 2010.
|
|
(8)
|
Redeemable
Convertible Preferred Stock
|
The Company has authorized 15 million shares of preferred
stock, $.001 par value, which may be issued from time to
time by its board of directors without further action by
stockholders unless otherwise required by the rules of The
Nasdaq Stock Market. Shares of preferred stock may be issued
with dividend, redemption, voting or other rights senior to
existing common shares. There were no outstanding shares of
preferred stock at December 31, 2009 or 2010.
On November 17, 2010, the Company announced a
$15 million increase (for a total of $25 million) to
its common stock repurchase program that was previously
announced July 28, 2010. The additional authorization
became effective November 19, 2010. The repurchase program
will stay in place until November 2012. 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. During 2010, the
Company repurchased 580,593 shares of common stock under
this program at a total price of $14.1 million. The Company
cannot assure any further repurchases will be made under this
program. If any repurchases are made, the Company cannot assure
as to the amount or frequency of repurchases the Company may
make under this program. The Company expects to fund such
repurchases through its cash and short-term investments, which
as of December 31, 2010 were $276.7 million.
|
|
(10)
|
Stock-Based
Compensation
|
The Companys 1998 Long-Term Incentive and Stock Option
Plan, as amended, and the 2004 Equity Incentive Plan, as amended
and restated (the equity plans), provide for stock
options or restricted stock units (RSUs) to be granted to
employees, consultants, independent contractors, officers and
directors. The equity plans have been approved by stockholders.
Options are granted at the discretion of the Companys
board of directors, at an exercise price and term determined by
the board. However, exercise prices are not less than the fair
market value at the date of grant, and the term of the options
is not greater than ten years. Options generally vest over a
period of four years in eight equal increments. The Company also
has an employee stock purchase plan (ESPP) that
allows employees to purchase shares of common stock at a
discount to the fair market value at the date of purchase.
During 2008 through 2010, purchase periods under the ESPP were
consecutive six-month periods ending on the last day in June and
December of each year. Beginning 2011,
F-17
purchase periods under the ESPP will be consecutive six-month
periods ending on the fifteenth day in August and February each
year. Shares issued to satisfy stock option exercises and ESPP
purchases are newly issued. At December 31, 2010, the
Company had approximately 2.4 million shares available for
future issuance under the equity plans and ESPP.
Compensation expense recognized in the statement of operations
for the year ended December 31, 2008, 2009 and 2010 is
based on awards ultimately expected to vest and reflects an
estimate of awards that will be forfeited. Topic 718
requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
The following table illustrates the stock-based compensation
expense resulting from stock-based awards included in the
consolidated statement of operations (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of recurring revenue
|
|
$
|
323
|
|
|
$
|
460
|
|
|
$
|
482
|
|
Cost of professional services
|
|
|
638
|
|
|
|
612
|
|
|
|
486
|
|
Sales and marketing
|
|
|
2,454
|
|
|
|
3,029
|
|
|
|
3,077
|
|
Research and development
|
|
|
969
|
|
|
|
1,178
|
|
|
|
988
|
|
General and administrative
|
|
|
1,641
|
|
|
|
2,507
|
|
|
|
2,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
6,025
|
|
|
$
|
7,786
|
|
|
$
|
7,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock-based compensation expense was capitalized during the
year ended December 31, 2008 and an insignificant amount
was capitalized during the years ended December 31, 2009
and 2010.
Unrecognized compensation expense of outstanding stock options
at December 31, 2010 was approximately $15.9 million,
which is expected to be recognized over a weighted-average
period of 2.5 years.
The estimated weighted-average fair value per share of stock
options granted in 2008, 2009 and 2010 was $5.54, $4.75 and
$8.48, respectively. For all shares purchased under the ESPP in
2008, 2009, and 2010 ending on the last day of June and
December, no compensation cost was recognized in the
accompanying statement of operations because the terms of the
plan were determined to be noncompensatory under Topic
718. Assumptions used to obtain the estimated fair values
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
Employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average risk free rate
|
|
|
2.6
|
%
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
Weighted average expected term
|
|
|
4.5
|
yrs
|
|
|
4.4
|
yrs
|
|
|
4.5
|
yrs
|
Weighted average volatility
|
|
|
55
|
%
|
|
|
67
|
%
|
|
|
64
|
%
|
Dividend yield
|
|
|
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 U.S. Treasury yields at or near
the time of grant for time periods similar to 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 estimated 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.
F-18
Dividend Yield: The dividend yield assumption
is based on the Companys history and expectation of
dividend payouts.
Activity under the Companys stock option plans was as
follows (option shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Aggregate
|
|
|
Remaining
|
|
|
|
Available
|
|
|
Outstanding
|
|
|
Price Per
|
|
|
Intrinsic
|
|
|
Contractual
|
|
|
|
for Grant
|
|
|
Options
|
|
|
Share
|
|
|
Value
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
(In years)
|
|
|
Balance at December 31, 2009
|
|
|
2,774
|
|
|
|
5,947
|
|
|
$
|
10.96
|
|
|
|
|
|
|
|
7.2
|
|
Annual reserve addition(1)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted(2)
|
|
|
(1,558
|
)
|
|
|
1,540
|
|
|
|
16.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
(1,051
|
)
|
|
|
12.02
|
|
|
|
|
|
|
|
|
|
Forfeited, expired or exchanged(3)
|
|
|
217
|
|
|
|
(213
|
)
|
|
|
13.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
2,433
|
|
|
|
6,223
|
|
|
$
|
12.02
|
|
|
$
|
72,701
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2010
|
|
|
|
|
|
|
6,021
|
|
|
$
|
11.93
|
|
|
$
|
70,846
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
|
|
|
|
3,274
|
|
|
$
|
11.21
|
|
|
$
|
40,783
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 automatic annual
increase has been approved by shareholders through
December 31, 2014. |
|
(2) |
|
On June 7, 2010 the Company granted 18,150 restricted stock
units to certain directors at a fair value of $13.61 per share.
The shares were granted from the 2004 Equity Incentive Plan. |
|
(3) |
|
Shares forfeited, expired, exchanged or canceled under the 1998
Long-Term Equity Incentive and Stock Option Plan are not
available for re-grant under the 2004 Equity Incentive Plan. |
The total intrinsic value of options exercised in 2008, 2009 and
2010 was $1.8 million, $1.7 million and
$10.9 million, respectively.
|
|
(11)
|
Commitments
and Contingencies
|
(a) Operating
Leases
The Company leases its office facilities and certain office
equipment under various non-cancelable operating lease
agreements with various expiration dates through 2021. Future
minimum payments for the next five years and thereafter as of
December 31, 2010, under these leases, are as follows (in
thousands):
|
|
|
|
|
2011
|
|
$
|
4,571
|
|
2012
|
|
|
3,266
|
|
2013
|
|
|
3,143
|
|
2014
|
|
|
1,984
|
|
2015
|
|
|
1,454
|
|
Thereafter
|
|
|
1,041
|
|
Rent expense was $4.2 million, $4.5 million and
$5.0 million in 2008, 2009 and 2010, respectively. Rent
expense is determined using the straight-line method of the
minimum expected rent paid over the term of the agreement. The
Company has no contingent rent agreements.
The Company leases a portion of its office facilities from a
development group, of which the Companys chief executive
officer is a 50% member and the Companys Vice President of
Asia-Pacific is a 25% member.
F-19
During 2008, the Company paid $1.2 million, and during 2009
and 2010, RightNow paid $1.3 million, to the development
group under these leases.
(b) Hosting
Services
The Company has agreements with third parties to provide
co-location services for hosting operations. The agreements
require payment of a minimum amount per month for a fixed period
of time in return for which the hosting service provider
provides certain guarantees of network availability.
Future minimum payments as of December 31, 2010 under these
arrangements for the next four years (no commitments beyond next
four years) as of December 31, 2010, under these
agreements, are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
2,053
|
|
2012
|
|
|
683
|
|
2013
|
|
|
397
|
|
2014
|
|
|
33
|
|
(c) Warranties
and Indemnification
The Companys on demand 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 its
customers warranting certain levels of uptime reliability and
permitting those customers to receive credits or terminate their
license 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.
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.
(d) Litigation
From time to time, the Company is involved in legal proceedings
arising in the ordinary course of business. The Company believes
that the resolution of these matters will not have a material
negative effect on the Companys consolidated financial
position, results of operations or liquidity. Legal fees are
charged to expense as incurred, unless the Company considers the
potential loss from any dispute or legal matter probable and the
amount or range of the loss can be estimated, in which case the
Company will accrue a liability for the estimated loss in
accordance with Topic 450,Contingencies.
On October 16, 2009, RightNow entered into a General
Release and Settlement Agreement with Kana Software, Inc.
(KANA) and four former employees of RightNow to
settle a lawsuit that was filed by RightNow alleging violations
by KANA and the four former employees of RightNow of certain
provisions of employment agreements, misappropriation of trade
secrets, as well as other claims. In the General Release and
Settlement Agreement, KANA agreed that it would pay a total of
$1,000,000 to RightNow with $100,000 due within ten days of
executing the General Release and Settlement Agreement and the
remainder due over nine consecutive quarters beginning with the
quarter commencing January 1, 2010. On December 23,
2009, KANA sold substantially all of its assets to Kay
Technology Corp, Inc. Pursuant to an acceleration clause in the
F-20
settlement agreement related to the change in control, KANA paid
the Company $1,000,000. RightNow received the entire cash
settlement payment during the fourth quarter of 2009 and
recorded the gain on settlement of this litigation in other
income.
The domestic and foreign components of income (loss) before
benefit (provision) for income taxes consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
United States
|
|
$
|
(5,856
|
)
|
|
$
|
7,299
|
|
|
$
|
11,152
|
|
Foreign
|
|
|
(1,385
|
)
|
|
|
(849
|
)
|
|
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
$
|
(7,241
|
)
|
|
$
|
6,450
|
|
|
$
|
12,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the income tax benefit (provision) are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2,820
|
)
|
Foreign
|
|
|
(134
|
)
|
|
|
(155
|
)
|
|
|
(167
|
)
|
State
|
|
|
92
|
|
|
|
(424
|
)
|
|
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(42
|
)
|
|
$
|
(579
|
)
|
|
$
|
(3,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
8,863
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
7,897
|
|
State
|
|
|
|
|
|
|
|
|
|
|
2,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
19,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
$
|
(42
|
)
|
|
$
|
(579
|
)
|
|
$
|
15,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys income taxes payable have been reduced by the
tax benefits from employee stock plan awards. For stock options,
the Company receives an income tax benefit calculated as the
difference between the fair market value of the stock issued at
the time of the exercise and the option price, tax effected. For
RSUs, the Company receives an income tax benefit upon the
awards vesting equal to the tax effect of the underlying
stocks fair market value. The Company had net excess tax
benefits (shortfall) from employee stock plan awards of
$(135,000), $243,000 and $3.6 million in 2008, 2009 and
2010, respectively, which were reflected as increases to
additional-paid in capital.
F-21
The reconciliation of income tax attributable to operations
computed at the U.S. Federal statutory income tax rate of
34% to income tax (benefit) expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Statutory federal tax rate
|
|
|
(34
|
)%
|
|
|
34
|
%
|
|
|
34
|
%
|
Net operating loss tax benefits not realized (realized)
|
|
|
29
|
|
|
|
(23
|
)
|
|
|
(1
|
)
|
Tax credits
|
|
|
|
|
|
|
(11
|
)
|
|
|
(3
|
)
|
Stock-based compensation
|
|
|
5
|
|
|
|
1
|
|
|
|
(3
|
)
|
State income taxes, net of federal benefit
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
5
|
|
Foreign taxes
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Foreign tax rate differential
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Valuation allowance adjustment for continuing operations
|
|
|
|
|
|
|
|
|
|
|
(163
|
)
|
Nondeductible meals & entertainment expense
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax rate
|
|
|
1
|
%
|
|
|
9
|
%
|
|
|
(126
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax components are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
13,634
|
|
|
$
|
14,156
|
|
Deferred revenue
|
|
|
3,757
|
|
|
|
1,554
|
|
Stock compensation
|
|
|
6,813
|
|
|
|
6,928
|
|
Tax credits
|
|
|
1,256
|
|
|
|
1,635
|
|
Fixed assets and intangibles
|
|
|
65
|
|
|
|
|
|
Other
|
|
|
1,647
|
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
27,172
|
|
|
|
26,378
|
|
Valuation allowance
|
|
|
(24,239
|
)
|
|
|
(2,139
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
2,933
|
|
|
|
24,239
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed Assets and Intangibles
|
|
|
|
|
|
|
(755
|
)
|
Deferred commissions
|
|
|
(2,686
|
)
|
|
|
(2,839
|
)
|
Other
|
|
|
(247
|
)
|
|
|
(364
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(2,933
|
)
|
|
|
(3,958
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
20,281
|
|
|
|
|
|
|
|
|
|
|
The ultimate realization of deferred tax assets is dependent
upon the existence, or generation, of taxable income in the
periods when those temporary differences and net operating loss
carry forwards are deductible. Management considers the
scheduled reversal of deferred tax liabilities, taxes paid in
carry back years, projected future taxable income, available tax
planning strategies, and other factors in making this
assessment. Based on available evidence, management believes it
is more-likely-than-not that the net deferred tax assets as of
December 31, 2010 will be realized in the future. The
Company continues to maintain a valuation allowance equal to the
deferred tax assets that it does not believe are
more-likely-than-not to be realized in the future based on all
available evidence. The valuation allowance increased by
$366,000 in 2009 and decreased by $22.1 million in 2010.
F-22
At December 31, 2010, the Company had domestic Federal and
State net operating loss carry forwards of approximately
$37.7 million and $23.0 million, respectively. The
Company also has approximately $29.3 million of foreign net
operating loss carry forwards, of which $27.6 million are
not subject to expiration. The remaining $1.7 million of
foreign net operating loss carry forwards expire between 2014
and 2027. Federal net operating loss carry forwards expire at
various dates between 2019 and 2030, while state net operating
loss carry forwards expire between 2012 and 2030. In addition,
the Company has federal and state research and development
credits and foreign tax credits available to reduce future
domestic income taxes. The total amount of these credits is
approximately $5.3 million. The federal and state research
and development credits expire between 2019 and 2030, and
between 2014 and 2025, respectively. The foreign tax credits
expire between 2012 and 2020.
The Companys deferred tax assets as of December 31,
2009 and 2010 have been reduced in accordance with Topic
718. As such, net operating loss carry forwards and other
attributes created by excess tax benefits from the exercise of
stock options are not recorded as deferred tax assets. Instead
such amounts are recorded as an addition to stockholders
equity if and when they are utilized. Deferred tax assets and
the related valuation allowance in the above presentation have
been reduced by $18.7 million and $16.5 million, as of
December 31, 2009 and 2010, respectively, for the effect of
excess tax deductions from stock options.
Due to the Companys available net operating loss
deductions, we have not recognized any interest or penalties
associated with uncertain tax positions. Further, the amount
accrued for interest and penalties for the year ended
December 31, 2010 and 2009 was not significant. The Company
classifies interest and penalties associated with tax matters as
additional interest expense and other expenses rather than as
part of income taxes. The Company does not anticipate any
significant changes to our unrecognized tax benefits within the
next 12 months.
A reconciliation of the beginning and ending balance of total
unrecognized tax benefits is as follows (in thousands). These
amounts represent the gross amount of exposure in individual
jurisdictions and do not reflect any additional benefits
expected to be realized if such positions were not sustained,
such as the federal deduction that could be realized if an
unrecognized state tax deduction was not sustained:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Balance as of January 1,
|
|
$
|
|
|
|
$
|
|
|
Tax positions taken in prior period
|
|
|
|
|
|
|
|
|
Gross increases
|
|
|
|
|
|
|
312
|
|
Gross decreases
|
|
|
|
|
|
|
|
|
Tax positions taken in current period
|
|
|
|
|
|
|
|
|
Gross increases
|
|
|
|
|
|
|
23
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
$
|
|
|
|
$
|
335
|
|
|
|
|
|
|
|
|
|
|
The unrecognized tax benefit, net of a $43,000 federal benefit
for state taxes is $292,000. The unrecognized benefit has been
recorded as a credit to our long-term deferred tax assets to
eliminate the benefit associated with the uncertain tax
position. If subsequently recognized, this unrecognized benefit
would reduce tax expense by $292,000.
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
utilized. The jurisdictions which could be subject to
examination include the United States federal jurisdiction and
various state and foreign jurisdictions.
F-23
|
|
(13)
|
Fair
Value of Financial Instruments
|
The carrying amounts of cash and cash equivalents, accounts
receivable, term receivables, accounts payable, approximated
their fair values at December 31, 2009 and at
December 31, 2010. The carrying amount of debt approximated
fair value at December 31, 2009. The reason these financial
instruments approximated fair values are as follows:
Account receivable and term receivables
current: The carrying amount approximated fair
value at the respective dates due to the relative short
maturities of these items.
Accounts payable current: The
carrying amount approximated fair value at the respective dates
due to the short duration the accounts payable is outstanding.
Term receivables noncurrent: The
carrying amount approximated fair value at the respective dates
due to the low rate of interest for the period of time the items
are expected to be outstanding.
Debt: As of December 31, 2009, the
carrying amount of debt approximated fair value due to the
period of time it was outstanding and the low rate of interest.
In November 2010, the Company issued at par value,
$175.0 million in aggregate principal amount of convertible
senior notes due 2030 (the Notes). As of
December 31, 2010, the Notes had a bid price of 99.5625,
which equated to fair value of $174.2 million.
|
|
(14)
|
Employee
Benefit Plans
|
The Company has a voluntary defined contribution retirement plan
qualifying under Section 401(k) of the Internal Revenue
Code of 1986. The plan covers substantially all full-time U.S.
employees. Under the terms of the plan, participants may
contribute up to the lower of 12% of their salary or the
statutorily prescribed limit to the plan. Employees are eligible
after 90 days of service. At its discretion, the Company
may make matching contributions. The Company made matching
contributions during 2008, 2009 and 2010 of 1.3 million,
$1.3 million and $1.5 million, respectively. The
Company also has retirement benefit plans related to its foreign
subsidiaries. Amounts expensed under these plans were $414,000,
$405,000 and $511,000 during 2008, 2009 and 2010, respectively.
The Company has a medical, dental and vision benefit plan and a
short-term disability program covering full-time employees of
the Company and their dependents. The plan is a partially
self-funded plan under which participant claims are obligations
of the plan. The plan is funded through employer and employee
contributions at a level sufficient to pay for the benefits
provided by the plan. The Company contributions to the plan were
$3.0 million during 2008, $3.2 million during 2009,
and $4.0 million during 2010. During 2010 the plan
maintained individual and aggregate stop loss insurance policies
on the medical portion of the plan of $100,000 and
$5.4 million (based on actual plan participants, adjusted
monthly), respectively, to mitigate losses.
In July 2004, the Company adopted the 2004 Employee Stock
Purchase Plan (Plan) which became effective in
conjunction with the Companys initial public offering of
common stock. The Plan is administered by the compensation
committee of the board of directors and is intended to qualify
as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code. Under the terms
of the plan, substantially all employees are eligible to
purchase shares of RightNow common stock through periodic
after-tax payroll deductions at a purchase price established by
the administrator. Payroll deductions are limited to 15% of the
employees regular compensation for each purchase period.
The administrator may set the purchase price equal to or
discounted from fair market value on the first or last day of
each purchase period. Through 2010, purchase periods were
consecutive six-month periods ending on the last day in June and
December each year. Beginning 2011, purchase periods will be
consecutive six-month periods ending on the fifteenth day in
August and February each year. For the purchase periods ended
December 31, 2008, 2009 and 2010, and June 30, 2009
and 2010, the plan was deemed noncompensatory because the terms
were no more favorable
F-24
than those available to all holders of our common stock.
Activity under the plan for 2008, 2009 and 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Date
|
|
|
Dec 31,
|
|
June 30,
|
|
Dec 31,
|
|
June 30,
|
|
Dec 31,
|
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
2010
|
|
Purchase price per share
|
|
$
|
7.34
|
|
|
$
|
11.21
|
|
|
$
|
16.50
|
|
|
$
|
14.91
|
|
|
$
|
22.49
|
|
Shares purchased
|
|
|
14,129
|
|
|
|
11,903
|
|
|
|
7,038
|
|
|
|
8,632
|
|
|
|
5,381
|
|
The Company accounts for its subsequent events in accordance
with FASB Accounting Standards Codification, Topic 855,
Subsequent Events.
(a) Acquisition
In January 2011, the Company completed an acquisition of
Q-go.com B.V. and its subsidiaries. Q-go is a natural language
search provider. Q-gos leading edge technology has been
proven to drive higher conversion rates, increase revenue and
improve web visitor experiences.
RightNow acquired all of the stock of Q-go.com B.V. and its
subsidiaries for approximately $35.7 million in cash. Q-go
is headquartered in Amsterdam with subsidiary operations in
Germany, Spain and the United States. RightNow will have the
purchase price accounting recorded in its March 31, 2011
quarter end financial statements.
(b) ESPP
update
On December 3, 2010, the Board of Directors of RightNow
Technologies, Inc. (the Company) approved an
amendment to the RightNow Technologies, Inc. 2004 Employee Stock
Purchase Plan (the Plan) to change the beginning of
each six month purchase period under the Plan from the first
business day in January and July, respectively, to the sixteenth
day in February and August, respectively, and change the ending
of each such six month purchase period from the last business
day in June and December, respectively, to the fifteenth day in
August and February, respectively. The Plan is intended to
qualify as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code, and permits the
Companys and its participating subsidiaries eligible
employees to elect to participate in the Plan and purchase
shares of the Companys common stock through periodic
after-tax payroll deductions at a purchase price established by
the administrator of the Plan prior to the first business day of
the applicable purchase period; provided that in no event will
the purchase price for any purchase period be less than the
lesser of 85% of the fair market value of the Companys
common stock on the first business day and the last business day
of that purchase period.
In addition to the change in purchase dates under the amended
Plan, the Company purchase price established by the
administrator of the Plan prior to the first business day of the
applicable purchase period, was 95% of the fair market value of
the Companys common stock on the last business day of that
purchase period. During 2011, the Company anticipates the
purchase price will be 85% of the fair market value of the
Companys common stock on the first business day and the
last business day of that purchase period.
(c) Related
party update
On February 7, 2011, the Company signed the following
office lease agreements and signed the following amendments to
existing office lease agreements with Genesis Partners, LLC.
The first agreement is a lease renewal for approximately
29,724 square feet of office space located at 40 Enterprise
Boulevard, Bozeman, Montana. The term of the lease is
120 months, which is expected to commence on or about
April 1, 2011, and includes a renewal option for one
additional 60 month period. The monthly lease rate for the
initial year will be $36,561, and increases by Consumer Price
Index on each anniversary date beginning in 2012.
F-25
The second agreement is a lease agreement for office space
located at 77 Discovery Drive, Bozeman, Montana. This lease
calls for construction by the landlord of additional office
space to the building at 77 Discovery Drive. Upon completion of
the construction, estimated to be by or before June 30,
2012, the lease will then cover about 34,210 square feet of
office space. The term of the lease will start when the addition
is available for occupancy and run for 120 months, with a
renewal option for one additional 60 month period. Upon the
beginning of this lease term, the existing lease covering 77
Discovery Drive shall cease in its entirety. The monthly lease
rate for the initial year will be $40,168, and increase by
Consumer Price Index on each anniversary date beginning in 2013.
The third agreement is an amendment to an existing office lease
agreement for office space located at 136 Enterprise Boulevard,
Bozeman, Montana. This lease is described in the Companys
Current Report on
Form 8-K
filing dated May 8, 2007. This amendment calls for a
modification to the early termination of the lease, extending
the period before the termination right can be exercised from
84 months to 102 months. The remainder of the lease is
unchanged.
Greg Gianforte, the Companys Chairman and Chief Executive
Officer, and Steve Daines, the Companys Vice President of
Asia-Pacific, beneficially own, directly or indirectly, 50% and
25% membership interests in Genesis Partners LLC, respectively.
The remaining 25% of Genesis Partners is beneficially owned by
Mr. Daines father, Clair Daines, who is a commercial
real estate developer and builder.
The Company believes the terms of these leases above are no less
favorable to it than they would have been if obtained from
unaffiliated third parties.
|
|
(16)
|
Quarterly
Results (Unaudited)
|
Quarterly results of operations are as follows (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(Unaudited)
|
|
Operating statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
36,037
|
|
|
$
|
36,340
|
|
|
$
|
38,731
|
|
|
$
|
41,579
|
|
Gross profit
|
|
|
24,080
|
|
|
|
25,040
|
|
|
|
27,134
|
|
|
|
28,875
|
|
Net income
|
|
|
1,263
|
|
|
|
36
|
|
|
|
1,965
|
|
|
|
2,607
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
0.04
|
|
|
$
|
0.00
|
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(Unaudited)
|
|
Operating statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
42,102
|
|
|
$
|
43,454
|
|
|
$
|
48,593
|
|
|
$
|
51,373
|
|
Gross profit
|
|
|
28,891
|
|
|
|
30,124
|
|
|
|
34,275
|
|
|
|
37,170
|
|
Net income(1)
|
|
|
585
|
|
|
|
1,404
|
|
|
|
2,895
|
|
|
|
23,506
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
0.72
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
0.64
|
|
|
|
|
(1) |
|
Net income and net income per share in fourth quarter of 2010
were positively impacted by a tax benefit from a deferred tax
asset valuation allowance reversal of $19.7 million. Please
refer to Note 12, Income Taxes in the Notes to Consolidated
Financial Statements for further discussion. |
F-26