Attached files
file | filename |
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EX-31.2 - EX-31.2 - RIGHTNOW TECHNOLOGIES INC | c63819exv31w2.htm |
EX-10.7 - EX-10.7 - RIGHTNOW TECHNOLOGIES INC | c63819exv10w7.htm |
EX-32.1 - EX-32.1 - RIGHTNOW TECHNOLOGIES INC | c63819exv32w1.htm |
EX-31.1 - EX-31.1 - RIGHTNOW TECHNOLOGIES INC | c63819exv31w1.htm |
EX-10.6 - EX-10.6 - RIGHTNOW TECHNOLOGIES INC | c63819exv10w6.htm |
EX-10.4 - EX-10.4 - RIGHTNOW TECHNOLOGIES INC | c63819exv10w4.htm |
EX-10.5 - EX-10.5 - RIGHTNOW TECHNOLOGIES INC | c63819exv10w5.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
000-31321
(Commission File No.)
(Commission File No.)
RIGHTNOW TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 81-0503640 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
136 Enterprise Boulevard
Bozeman, Montana 59718-9300
(Address of Principal Executive Offices) (Zip Code)
Bozeman, Montana 59718-9300
(Address of Principal Executive Offices) (Zip Code)
(406) 522-4200
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock, $0.001 par value, as of
April 30, 2011 was 33,047,403.
RightNow Technologies, Inc.
Quarterly Report on Form 10-Q
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2011
INDEX
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EX-10.5 | ||||||||
EX-10.6 | ||||||||
EX-10.7 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 |
2
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
RightNow Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands) (Unaudited)
(In thousands) (Unaudited)
December 31, | March 31, | |||||||
2010 | 2011 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 181,948 | $ | 131,998 | ||||
Short-term investments |
94,759 | 117,659 | ||||||
Accounts receivable |
39,338 | 34,558 | ||||||
Allowance for doubtful accounts |
(2,021 | ) | (1,800 | ) | ||||
Receivables, net |
37,317 | 32,758 | ||||||
Deferred commissions |
5,418 | 5,461 | ||||||
Prepaid and other current assets |
4,662 | 5,406 | ||||||
Deferred tax assets, net |
3,801 | 3,806 | ||||||
Total current assets |
327,905 | 297,088 | ||||||
Property and equipment, net |
10,702 | 12,644 | ||||||
Intangible assets, net |
6,149 | 19,115 | ||||||
Goodwill |
7,975 | 31,953 | ||||||
Deferred commissions, non-current |
4,747 | 4,649 | ||||||
Other |
4,921 | 4,669 | ||||||
Deferred tax assets, non-current, net |
16,480 | 16,713 | ||||||
Total Assets |
$ | 378,879 | $ | 386,831 | ||||
Liabilities and Stockholders Equity |
||||||||
Accounts payable |
$ | 10,463 | $ | 12,114 | ||||
Commissions and bonuses payable |
7,137 | 4,678 | ||||||
Other accrued liabilities |
13,363 | 15,193 | ||||||
Current portion of deferred revenue |
90,350 | 86,244 | ||||||
Total current liabilities |
121,313 | 118,229 | ||||||
Deferred revenue, net of current portion |
2,969 | 1,939 | ||||||
Other long-term liabilities |
| 453 | ||||||
2.50% Convertible senior notes due 2030 |
175,000 | 175,000 | ||||||
Total liabilities |
299,282 | 295,621 | ||||||
Stockholders equity: |
||||||||
Common stock |
35 | 36 | ||||||
Additional paid-in capital |
136,717 | 145,359 | ||||||
Treasury stock |
(29,149 | ) | (29,149 | ) | ||||
Accumulated other comprehensive income |
1,953 | 3,533 | ||||||
Accumulated deficit |
(29,959 | ) | (28,569 | ) | ||||
Total stockholders equity |
79,597 | 91,210 | ||||||
Total Liabilities and Stockholders Equity |
$ | 378,879 | $ | 386,831 | ||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
RightNow Technologies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
(In thousands, except per share amounts) (Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Revenue: |
||||||||
Recurring revenue |
$ | 33,025 | $ | 41,913 | ||||
Professional services |
9,077 | 10,416 | ||||||
Total revenue |
42,102 | 52,329 | ||||||
Cost of revenue: |
||||||||
Recurring revenue |
5,879 | 7,326 | ||||||
Professional services |
7,332 | 9,410 | ||||||
Total cost of revenue |
13,211 | 16,736 | ||||||
Gross profit |
28,891 | 35,593 | ||||||
Operating expenses: |
||||||||
Sales and marketing |
18,724 | 22,550 | ||||||
Research and development |
5,132 | 5,596 | ||||||
General and administrative |
4,299 | 6,171 | ||||||
Total operating expenses |
28,155 | 34,317 | ||||||
Income from operations |
736 | 1,276 | ||||||
Interest and other income, net |
183 | 768 | ||||||
Income before income taxes |
919 | 2,044 | ||||||
Provision for income taxes |
(334 | ) | (654 | ) | ||||
Net income |
$ | 585 | $ | 1,390 | ||||
Net income per share: |
||||||||
Basic |
$ | 0.02 | $ | 0.04 | ||||
Diluted |
$ | 0.02 | $ | 0.04 | ||||
Shares used in the computation: |
||||||||
Basic |
31,929 | 32,585 | ||||||
Diluted |
33,431 | 35,482 |
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
RightNow Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
(In thousands) (Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Operating activities: |
||||||||
Net income |
$ | 585 | $ | 1,390 | ||||
Non-cash adjustments: |
||||||||
Depreciation and amortization |
2,065 | 2,802 | ||||||
Provision for losses on accounts receivable |
50 | 20 | ||||||
Stock-based compensation |
1,755 | 2,739 | ||||||
Foreign currency gain related to acquisition |
| (1,819 | ) | |||||
Changes in operating accounts, net of business acquisitions: |
||||||||
Receivables |
2,449 | 8,029 | ||||||
Prepaid expenses |
(1,499 | ) | (342 | ) | ||||
Deferred commissions |
445 | 140 | ||||||
Accounts payable |
2,045 | 885 | ||||||
Commissions and bonuses payable |
(1,243 | ) | (2,512 | ) | ||||
Other accrued liabilities |
1,472 | 593 | ||||||
Deferred revenue |
(4,614 | ) | (8,428 | ) | ||||
Cash provided by operating activities |
3,510 | 3,497 | ||||||
Investing activities: |
||||||||
Net change in investments |
(342 | ) | (22,886 | ) | ||||
Acquisition of property and equipment |
(1,640 | ) | (3,117 | ) | ||||
Business acquisitions, net of cash acquired |
| (33,837 | ) | |||||
Intangible asset additions |
(1,034 | ) | (1,491 | ) | ||||
Cash used in investing activities |
(3,016 | ) | (61,331 | ) | ||||
Financing activities: |
||||||||
Proceeds from issuance of common stock under employee benefit plans |
1,159 | 5,311 | ||||||
Excess tax benefits of stock options exercised |
327 | 591 | ||||||
Payments on debt |
(12 | ) | (240 | ) | ||||
Cash provided by financing activities |
1,474 | 5,662 | ||||||
Effect of foreign exchange rates on cash and cash equivalents |
(400 | ) | 2,222 | |||||
Increase (decrease) in cash and cash equivalents |
1,568 | (49,950 | ) | |||||
Cash and cash equivalents at beginning of period |
41,546 | 181,948 | ||||||
Cash and cash equivalents at end of period |
$ | 43,114 | $ | 131,998 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
RightNow Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Business Description and Basis of Presentation
Business Description
RightNow Technologies, Inc. (the Company or RightNow) provides RightNow CX, a cloud-based
suite of customer experience software solutions for companies of all sizes. The Companys customer
experience solution is designed to help consumer-centric organizations improve customer
experiences, reduce costs and increase revenue. The Company helps organizations deliver exceptional
customer experiences across the web, social networks and contact centers, all delivered through its
cloud service. Founded in 1997, RightNow is headquartered in Bozeman, Montana, with additional
offices in North America, Europe, Asia, and Australia. The Company operates in one segment, which
is the customer relationship management market.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These
financial statements and notes should be read in conjunction with the audited consolidated
financial statements and related notes, together with managements discussion and analysis of
financial condition and results of operations, contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2010.
The accompanying interim condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States. In the opinion of
management, the interim condensed consolidated financial statements and notes have been prepared on
the same basis as the audited consolidated financial statements in the Annual Report on Form 10-K
necessary for the fair presentation of the Companys financial position at March 31, 2011, and
results of operations and cash flows for the three month periods ended March 31, 2010 and 2011.
This includes all adjustments (consisting of only normal recurring adjustments) necessary for the
fair presentation of the Companys financial position. The interim period results are not
necessarily indicative of the results to be expected for the full year.
The preparation of the interim condensed 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 cost 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.
(2) Certain Risks and Concentrations
The Companys revenue is derived from the subscription, license, hosting and support of its
software products and provision of related professional services. The markets in which the Company
competes are highly competitive and rapidly changing. Significant technological changes, changes in
customer requirements, or the emergence of competitive products with new capabilities or
technologies could materially adversely affect the Companys operating results. The Company has
historically derived a majority of its revenue from customer experience software solutions. These
products are expected to continue to account for a significant portion of revenue for the
foreseeable future. As a result of this revenue concentration, the Companys business could be
materially 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.
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Table of Contents
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 68% of total revenue in North
America, 19% EMEA and 13% in Asia Pacific on a trailing twelve month basis.
No individual customer accounted for more than 10% of the Companys revenue in 2010 or the
three months ended March 31, 2011. No individual customer accounted for more than 10% of the
Companys accounts receivable at December 31, 2010 and March 31, 2011.
As of December 31, 2010 and March 31, 2011, assets located outside North America were 12% and
22% of total assets, respectively. The income (loss) from operations outside of North America
totaled $25,000 and ($286,000) for the three months ended March 31, 2010 and 2011, respectively.
Revenue by geographical region follows (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
North America |
$ | 29,941 | $ | 34,075 | ||||
EMEA |
8,143 | 10,238 | ||||||
Asia Pacific |
4,018 | 8,016 | ||||||
$ | 42,102 | $ | 52,329 | |||||
(3) Revenue Recognition
The Company earns its revenues from the delivery of hosted software and support services
(recurring revenue), and from the delivery of professional services. Recurring revenues are
primarily sold under subscription arrangements and, to a lesser extent, license arrangements.
Hosting and support services involve the remote management of the software, technical assistance,
and unspecified product upgrades and enhancements on a when and if available basis. Professional
services include consulting, training and development services. Under the Companys subscription
contracts, the Company applies ASU 2009-13, Revenue Arrangements with Multiple Deliverables (ASU
2009-13), rather than Industry Topic 985, Software, because the customer does not have the right
to take possession of the software without incurring a significant incremental penalty. As such,
these arrangements are considered service contracts and are not within the scope of Industry Topic
985.
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. The fair value of professional services
is based on 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.
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Table of Contents
The Companys revenue also is, to a lesser extent, earned under license arrangements. Revenue
under these arrangements is recognized pursuant to the requirements of Industry Topic 985,
Software. Licenses generally include the same elements as subscriptions, plus the right to take
possession of the software for no additional fee and are sold for a period of time (a term
license). Term contracts are non-cancelable, and generally cover a period of two years, but can
range from a period of six months to five years. For term contracts, the Company treats the
software license, hosting and support services as single element for purposes of allocating
revenue. The Company has established vendor specific objective evidence of fair value for the term
license bundle based on stand-alone sales of the bundled items. When sold with professional
services, revenue is allocated between the software license, hosting and support element and the
professional services element using the relative fair value method. Revenue for the term license
element is recognized ratably over the period of the arrangement and revenue for professional
services in these arrangements is recognized as performed.
The Companys policy is to record revenue net of any applicable sales, use or excise taxes.
If an arrangement includes a right of acceptance or a right to cancel, revenue is recognized
when acceptance is received or the right to cancel has expired. If the fee for the license has any
payment term that is due in excess of the Companys normal payment terms (over 90 days), the fee is
not considered fixed or determinable, and the amount of revenue recognized for term license or
subscription arrangements is limited to the lesser of the amount currently due from the customer or
a ratable portion of the total unallocated arrangement fee.
Certain customers have agreements that provide for usage fees above fixed minimums. Usage of
the Companys solutions requires additional fees if used by more than a specified number of users
or for more than a specified number of interactions. Fixed minimums are recognized as revenue
ratably over the term of the arrangement. Usage fees above fixed minimums are recognized as revenue
when such amounts are known and billed.
Separate contracts with the same customer that are entered into at or near the same time are
generally presumed to have been negotiated together and are combined and accounted for as a single
arrangement.
Professional services revenue is recognized as performed, based on hours incurred, unless sold
in conjunction with a license where vendor specific objective evidence for the term element does
not exist, in which case professional services revenue is recognized ratably over the contractual
period. The Company has determined that the professional service elements of its software
arrangements are not essential to the functionality of the software. The Company has also
determined that its professional services (a) are available from other vendors, (b) do not involve
a significant degree of risk or unique acceptance criteria, and (c) are not required for the
customer to use the software.
(4) Sales Incentives
Sales incentives paid for subscriptions are deferred and charged to expense in proportion to
the revenue recognized. Sales incentives paid for licenses and professional services are expensed
when earned, which is typically at the time the related sale is invoiced. Sales incentive expense
was $4.1 million for the three months ended March 31, 2010 and March 31, 2011. Deferred commissions
at December 31, 2010 and March 31, 2011 were $10.2 million and $10.1 million, respectively.
(5) Internal Use Software
Topic 350, Intangibles Goodwill and Other, requires capitalization of costs incurred during
the application development stage of certain internally developed computer software to be sold as a
service. The Company capitalizes these software development costs when application development
begins, it is probable that the project will be completed, and the software will be used as
intended. Costs associated with preliminary project stage activities, training, maintenance and all
other post-implementation stage activities are expensed as incurred. Our policy provides for the
capitalization of certain payroll, benefits and other payroll-related costs for employees who are
directly associated with internal use computer software development projects, as well as
share-based compensation costs, external direct costs of materials and services associated with
developing or obtaining internal use software. Capitalizable personnel costs are limited to the
time directly spent on such projects. The capitalized costs are being amortized and recognized as a
cost of recurring revenue, on a straight-line basis, over the estimated useful lives of the related
applications which is approximately three years. Net capitalized cost of internally developed
computer software was approximately $4.7 million and approximately $5.9 million as of December 31, 2010 and March 31, 2011, respectively. The
capitalized costs are included in intangible assets, net on the Companys Condensed Consolidated
Balance Sheets.
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Table of Contents
(6) 2.50% Convertible Senior Notes
In November 2010, the Company issued at par value, $175.0 million in the 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
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
at the initial conversion rate. 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 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 $4.7 million as of March 31, 2011.
(7) Net Income Per Share
A reconciliation of the denominator used in the calculation of basic and diluted net income
per share is as follows (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Weighted average common shares outstanding for basic net income per share |
31,929 | 32,585 | ||||||
Effect of dilutive securities: Employee stock awards |
1,502 | 2,897 | ||||||
Weighted average shares outstanding for dilutive net income per share |
33,431 | 35,482 | ||||||
The Company included in the computation of diluted net income per share options to purchase
2,897,000 shares of common stock for the period ended March 31, 2011 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.
The following common stock equivalents were excluded from the computation of diluted earnings
per share because their impact was anti-dilutive (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Employee stock options |
4,915 | 3,918 |
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In addition, the Company excluded from the computation of diluted net income per share the
effect of the conversion of the convertible senior notes (Notes) as they were anti-dilutive. If
the Notes had been dilutive, our diluted net income per share would have included additional
earnings of $815,343 for the three months ended March 31, 2011. Also included would have been
incremental common shares of 5,487,786 for the three months ended March 31, 2011. Please refer to
Note 6 herein for more details of the Notes.
(8) Comprehensive Income
Comprehensive income for the comparative periods was as follows (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Net income |
$ | 585 | $ | 1,390 | ||||
Other comprehensive income: |
||||||||
Unrealized (loss) on short-term investments |
(26 | ) | (14 | ) | ||||
Foreign currency translation adjustments |
185 | 1,594 | ||||||
Comprehensive income |
$ | 744 | $ | 2,970 | ||||
(9) Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value under Topic 820 must maximize the use of observable inputs
and minimize the use of unobservable inputs.
The fair value hierarchy is based on three levels of inputs, of which the first two are
considered observable and the last unobservable, as follows:
| Level 1 Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
| Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table represents fair value hierarchy for the Companys financial assets (cash
equivalents and investments) which are measured at fair value on a recurring basis as of March 31,
2011 (in thousands):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash |
$ | 108,274 | $ | | $ | | $ | 108,274 | ||||||||
Money market funds |
4,002 | | | 4,002 | ||||||||||||
Certificates of deposit |
2,490 | | | 2,490 | ||||||||||||
Commercial paper |
| 23,594 | | 23,594 | ||||||||||||
Corporate notes and bonds |
| 12,886 | | 12,886 | ||||||||||||
U.S. Government agency securities |
| 84,880 | | 84,880 | ||||||||||||
State and municipal securities |
| 13,531 | | 13,531 | ||||||||||||
$ | 114,766 | $ | 134,891 | $ | $ | 249,657 | ||||||||||
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(10) Stock-Based Compensation
Stock-based compensation costs are recognized based on the estimated fair value at the grant
date for all stock-based awards. The Company estimates grant date fair values using the
Black-Scholes-Merton option pricing model, which requires assumptions of the life of the award and
the stock price volatility over the term of the award. The Company records compensation cost of
stock-based awards using the straight line method, which is recorded into earnings over the vesting
period of the award.
The following table illustrates the stock-based compensation expense resulting from
stock-based awards included in the Condensed Consolidated Statement of Operations (amounts in
thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Stock-based compensation expense: |
||||||||
Cost of recurring revenue |
$ | 113 | $ | 204 | ||||
Cost of professional services |
114 | 298 | ||||||
Sales and marketing expenses |
751 | 977 | ||||||
Research and development expenses |
257 | 307 | ||||||
General and administrative expenses |
520 | 953 | ||||||
Total stock-based compensation expense |
$ | 1,755 | $ | 2,739 | ||||
Stock-based compensation expense capitalized during the three months ended March 31, 2011 and
March 31, 2010 was insignificant, respectively.
Unrecognized stock-based compensation expense of outstanding stock options at March 31, 2011
was approximately $30.4 million, which is expected to be recognized over a weighted average period
of 2.9 years.
Information regarding the fair value of stock options granted, and the weighted-average
assumptions used to obtain the fair values, for the respective periods follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Fair value per share |
$ | 7.97 | $ | 14.10 | ||||
Risk free rate |
2.0 | % | 2.0 | % | ||||
Expected term |
4.5 yrs | 4.7 yrs | ||||||
Volatility |
65 | % | 62 | % | ||||
Dividend yield |
0 | % | 0 | % |
Key assumptions used to estimate the fair value of stock awards are as follows:
Risk Free Rate: The risk-free rate is determined by reference to the U.S. Treasury yield curve
in effect at or near the time of grant 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 determined based on historical experience of similar awards,
giving consideration to the contractual term of the awards, vesting schedules and expectations of
employee exercise behavior.
Volatility: The Companys estimate of expected volatility is based on the historical
volatility of the Companys common stock over the expected life of the options as this represents
the Companys best estimate of future volatility.
Dividend Yield: The dividend yield assumption is based on the Companys history and
expectation of dividend payouts.
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Activity under the Companys stock option plans for the three months ended March 31, 2011 was
as follows (option shares in thousands):
Weighted | Weighted | |||||||||||||||||||
Shares | average | Aggregate | average | |||||||||||||||||
Shares | underlying | exercise | intrinsic | remaining | ||||||||||||||||
available | outstanding | price per | value (in | contractual | ||||||||||||||||
for grant | options | share | thousands) | life (in years) | ||||||||||||||||
Balance at December 31, 2010 |
2,433 | 6,223 | $ | 12.02 | 7.0 | |||||||||||||||
Annual reserve addition (1) |
1,000 | | | |||||||||||||||||
Granted (2) |
(1,353 | ) | 1,324 | 26.96 | ||||||||||||||||
Exercised |
| (644 | ) | 8.34 | ||||||||||||||||
Forfeited, expired, exchanged or canceled (3) |
89 | (88 | ) | 11.83 | ||||||||||||||||
Balance at March 31, 2011 |
2,169 | 6,815 | $ | 15.27 | $ | 109,366 | 7.6 | |||||||||||||
Vested or expected to vest at March 31, 2011 |
6,483 | $ | 14.94 | $ | 106,199 | 7.5 | ||||||||||||||
Exercisable at March 31, 2011 |
3,159 | $ | 11.91 | $ | 61,304 | 6.1 | ||||||||||||||
(1) | The 2004 Equity Incentive Plan provides for an automatic, annual increase on the first of each year in an amount equal to the lesser of: a) 1,000,000 shares; b) 4% of the number of outstanding common shares on the last day of the previous fiscal year; or c) such lesser amount as determined by the board of directors. The annual automatic increase has been approved by stockholders through December 31, 2014. | |
(2) | During the three months ended March 31, 2011, there were 29,365 restricted stock units granted under 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 during the three months ended March 31, 2010
and 2011 was $622,000 and $13.4 million, respectively.
(11) Commitments and Contingencies
Warranties and Indemnification
The Companys cloud-based application service is typically warranted to perform in accordance
with its user documentation.
The Companys arrangements generally include certain provisions for indemnifying customers
against liabilities if its products or services infringe a third-partys intellectual property
rights. To date, the Company has not incurred any material costs as a result of such
indemnifications and has not accrued any liabilities related to such obligations in the
accompanying condensed consolidated financial statements.
The Company has entered into service level agreements with a number of its customers
warranting certain levels of uptime reliability and permitting those customers to receive credits
or terminate their 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.
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Litigation
From time to time, the Company is involved in legal proceedings arising in the normal course
of business. The Company believes that the resolution of these matters will not have a material
effect on the Companys consolidated financial position, results of operations or liquidity.
(12) Income Taxes
The provision for income taxes of $654,000 in the three months ended March 31, 2011 consists
primarily of tax expense resulting from federal taxes, foreign tax withholdings and various state
income taxes. The Companys effective tax rate differs from the
federal statutory rate primarily due to
state and foreign taxes, foreign rate
differentials, and non-deductible meal and entertainment expenses. Excess stock option deductions
are expected to reduce federal and state taxes payable such that the Company does not have
significant income taxes payable at March 31, 2011. As of December 31, 2010 and March 31, 2011, the
Company had an insignificant amount of unrecognized tax benefits, none of which would materially
affect its effective tax rate if recognized. The Company does not expect that the amount of
unrecognized tax benefits will significantly increase or decrease within the next twelve months.
The Companys policy is to recognize interest and penalties on unrecognized tax benefits as
interest expense and other expense, respectively, in its Condensed Consolidated Statements of
Operations. The amount of interest and penalties for the three months ended March 31, 2011 was
insignificant. Tax years beginning in 2005 are subject to examination by taxing authorities,
although net operating loss and credit carry forwards from all years are subject to examinations
and adjustments for at least three years following the year in which the attributes are used. The
jurisdictions which could be subject to examination include the U.S., Montana, Illinois,
California, Massachusetts, New York, United Kingdom, Germany, Australia, Japan, Canada, Spain and
the Netherlands.
(13) Acquisition
On January 26, 2011, the Company acquired all of the stock of Q-go.com B.V. (Q-go) and its
subsidiaries for approximately $35.7 million in cash. Q-go is a natural language search provider.
The Company believes Q-gos leading edge technology will help
organizations increase customer revenue and improve web visitor experiences. Q-go was headquartered in Amsterdam
with subsidiary operations in Germany, Spain and the United States. The acquisition was accounted
for under the purchase method of accounting and, accordingly, the results of Q-go are included in
the condensed consolidated financial statements since the acquisition date.
The Company has allocated the purchase price to the Q-go assets acquired and liabilities
assumed at estimated fair values. The purchase price, and purchase price allocation are as follows
(amounts in thousands):
Cash consideration |
$ | 35,673 | ||
Total purchase price |
$ | 35,673 | ||
Purchase price allocation: |
||||
Net assets assumed |
$ | 531 | ||
Goodwill and intangible assets |
35,142 | |||
Total purchase price |
$ | 35,673 | ||
As part of the acquisition accounting for Q-go, the Company recognized provisional amounts for
the fair value of certain assets acquired and liabilities assumed. The Company continues to review
these matters during the measurement period, and if it obtains new information about the facts and
circumstances that existed at the acquisition date, which identify adjustments to the initially
recorded balances, the acquisition accounting will be revised to reflect the resulting adjustments
to the provisional amounts. Subsequent revisions, if any, are not expected to be material.
The components of the intangible assets listed in the above table as of the acquisition date
are as follows (amounts in thousands):
Goodwill |
$ | 23,091 | ||
Developed technology |
9,586 | |||
Customer relationships |
1,369 | |||
Trade name and trademarks |
685 | |||
Non-compete agreements |
411 | |||
Intangible assets |
$ | 35,142 | ||
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Included in net assets assumed was the fair value of cash acquired of $1.8 million. The excess
of the purchase price over the estimated fair value of the net assets acquired of $23.1 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 natural language search 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 non-compete
agreements will be amortized over a period of three years using the straight-line method and 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.
In preparation for the acquisition of Q-go, the Company purchased Euros for settlement of the
transaction. As a result of appreciation of the Euro, the Company realized a foreign currency gain
of $1.8 million on the date consideration was transferred. The gain was recorded within interest
and other income, net on the Condensed Consolidated Statements of Operations.
(14) Subsequent Events
The Company accounts for its subsequent events in accordance with FASB Accounting Standards
Codification, Topic 855, Subsequent Events. There have been no subsequent events in accordance
with Topic 855 to report as of the date this Form-10Q was filed.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
In this report, the terms RightNow Technologies, RightNow, Company, we, us and our
refer to RightNow Technologies, Inc. and its separate, wholly-owned independent subsidiaries.
Cautionary Statement
All statements included or incorporated by reference in this report, other than statements or
characterizations of historical fact, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our
current expectations, estimates and projections about our industry, managements beliefs, and
certain assumptions made by us, all of which are subject to change. Forward-looking statements can
often be identified by words such as anticipates, expects, intends, plans, predicts,
believes, seeks, estimates, may, will, should, would, could, potential,
continue, ongoing, similar expressions, and variations or negatives of these words, and
include, but are not limited to, statements regarding projected results of operations, managements
future strategic plans, our business, market acceptance and performance of our products, the impact
of our technology and 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, our 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, our
business model; our success in transitioning to a new President and Chief Operating Officer; 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; general economic conditions; fluctuations
in foreign currency exchange; the gain or loss of key customers; competitive pressures and other
similar factors such as the availability and pricing of competing products and technologies and the
resulting effects on sales and pricing of our products; our ability to expand or contract
operations, manage expenses and grow profitability; the rate at which our present and future
customers adopt our existing and future products and services; fluctuations in our operating
results including our revenue mix and our rate of growth; fluctuations in backlog; the risk that
our investments in partner relationships and additional employees will not achieve expected
results; interruptions or delays in our hosting operations; breaches of our security measures; our
ability to protect our intellectual property from infringement, and to avoid infringing on the
intellectual property rights of third parties; any unanticipated ambiguities in fair value
accounting standards; the amount and timing of any stock repurchases under our stock repurchase
program; fluctuations in our operating results from the impact of stock-based compensation expense;
our ability to manage and expand our partner relationships; our ability to hire, retain and
motivate our employees and manage our growth; the risks associated with our recent acquisition of
Q-go, including our ability to retain and motivate Q-gos employees, our ability to integrate and
market Q-gos solutions to new customers, our ability to retain Q-gos existing customers, the
speed, quality and
cost of our efforts to integrate Q-gos solutions with our solution set, the
security and reliability of Q-gos service, and the risks associated with forecasting the impact of
Q-go on combined financial results; the impact of potential future acquisitions, if any; and risks
associated with our offering of convertible senior notes including the potential impact on earnings
per share calculations; and various other factors. Further information on potential factors that
could affect our financial results is included in our Annual Report on Form 10-K, quarterly reports
on Form 10-Q, and in other filings with the Securities and Exchange Commission. The
forward-looking statements in this release speak only as of the date they are made. We undertake
no obligation to revise or update publicly any forward-looking statement for any reason.
Overview
RightNow
Technologies 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. 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 believe 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
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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, and our current product suite includes RightNow Web
Experiencetm,
RightNow Social Experiencetm, RightNow Contact Center
Experiencetm, RightNow Engagetm and the RightNow CX Cloud
Platformtm. In February 2007, we initiated a quarterly release cycle which
allows us to deliver new product capabilities to customers every three months. During the first
quarter of 2011 we released RightNow CX February 2011, which included intent guide and natural
language search, which we believe will help organizations increase
customer revenue and improve web visitor experiences. We acquired this technology through our acquisition
of Q-go.com B.V. during the first quarter of 2011.
Our products served more than 869 million customer interactions, or unique sessions hosted by
our solutions, during the three months ended March 31, 2011. 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.
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 customer relationship management (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
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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 $4.7 million and $5.9 million of net cost of internally developed
computer software as of December 31, 2010, and March 31, 2011, 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 net 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 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
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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.
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 its adoption 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.
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Share-Based Compensation
We record share-based payment arrangements in accordance with Topic 718, Compensation-Stock
Compensation, which requires the cost of share-based payment arrangements to be recorded in the
statement of operations. Share-based compensation amounts are affected by our stock price as well
as our assumptions regarding the expected volatility of our stock, our employee stock option
exercise behaviors, forfeitures, and the related income tax effects. Our assumptions are based
primarily on our historical information.
Software Capitalization
Topic 350, Intangibles Goodwill and Other, requires capitalization of costs incurred during
the application development stage of certain internally developed computer software to be sold as a
service. We capitalize these software development costs when application development begins, it is
probable that the project will be completed, and the software will be used as intended. Costs
associated with preliminary project stage activities, training, maintenance and all other
post-implementation stage activities are expensed as incurred. Our policy provides for the
capitalization of certain payroll, benefits and other payroll-related costs for employees who are
directly associated with internal use computer software development projects, as well as
share-based compensation costs, and external direct costs of materials and services associated with
developing or obtaining internal use software. Capitalized costs are being amortized and recognized
as a cost of recurring revenue, on a straight-line basis, over the estimated useful lives of the
related applications, which is approximately three years. The capitalized costs are included in
intangible assets, net on our Condensed Consolidated Balance Sheets.
Recently Issued Accounting Standards
Not applicable.
Results of Operations
The following table sets forth certain Condensed Consolidated Statements of Operations data
for each of the periods indicated, expressed as a percentage of total revenue:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Revenue: |
||||||||
Recurring revenue |
78 | % | 80 | % | ||||
Professional services |
22 | 20 | ||||||
Total revenue |
100 | 100 | ||||||
Cost of revenue: |
||||||||
Recurring revenue |
14 | 14 | ||||||
Professional services |
17 | 18 | ||||||
Total cost of revenue |
31 | 32 | ||||||
Gross profit |
69 | 68 | ||||||
Operating expenses: |
||||||||
Sales and marketing |
45 | 43 | ||||||
Research and development |
12 | 11 | ||||||
General and administrative |
10 | 12 | ||||||
Total operating expenses |
67 | 66 | ||||||
Income from operations |
2 | 2 | ||||||
Interest and other income, net. |
| 2 | ||||||
Income before income taxes |
2 | 4 | ||||||
Provision for income taxes |
(1 | ) | (1 | ) | ||||
Net income |
1 | % | 3 | % | ||||
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The following table sets forth our revenue by type and geography expressed as a percentage of
total revenue for each of the periods indicated.
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Revenue by type: |
||||||||
Recurring |
78 | % | 80 | % | ||||
Professional services |
22 | 20 | ||||||
Revenue by geography in: |
||||||||
North America |
71 | % | 65 | % | ||||
EMEA |
19 | 20 | ||||||
Asia Pacific |
10 | 15 |
Quarter Overview
Total revenue for the first quarter of 2011 increased 24% over the first quarter of 2010,
driven by our growth in recurring revenue. Recurring revenue increased 27% compared to the first
quarter of 2010, due to expansion within the current customer base, new customer acquisitions and
addition of Q-go revenue. Professional services revenue during the first quarter of 2011 increased
15%, due to several projects with higher rates per hour delivered during the quarter ended March
31, 2011 as compared to the quarter ended March 31, 2010.
During the first quarter of 2011, we directed our investments to expand distribution by adding
sales and marketing personnel to increase sales and increasing headcount to assist with delivering
our solutions and technical support. We invested in our research and development group to continue
to enhance and expand RightNow CX, but research and development expense increases were offset
primarily due to net capitalized cost of internal use computer software. The increase in headcount
during the first quarter of 2011 also included staff additions related to the acquisition of Q-go.
Total operating expenses increased during the quarter ended March 31, 2011 compared to the quarter
ended March 31, 2010 primarily due to these headcount increases and related expenses in addition to
annual merit increases. We experienced an increase in recurring revenue during the first quarter
ended March 31, 2011 as compared to the first quarter ended March 31, 2010. The impact of this
increase was primarily offset due to the acquisition of Q-go, staff additions and annual merit
increases, which was the reason our operating income as a percentage of revenue remained constant
at 2% during the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010.
For the quarter ended March 31, 2011, we generated $3.5 million of cash from operations which
was relatively constant with cash generated from operations in the quarter ended March 31, 2010.
Our cash and investment balances decreased to $249.7 million at March 31, 2011 from $276.7 million
at December 31, 2010, primarily due to the use of $33.8 million for the acquisition of Q-go, $3.1
million for capital asset additions and $1.5 million for intangible asset additions, offset by $5.3
million of proceeds from stock option exercises and excess tax benefits of stock options exercised
through the three months ended March 31, 2011.
When compared to the quarter ended March 31, 2010, our revenue was favorably impacted, and our
cost of revenue and operating expenses were unfavorably impacted, by the relative strength of the
U.S. dollar in the quarter ended March 31, 2011 relative to the Australian dollar, British pound,
Euro and Yen. 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 comparison to currency exchange
rates during the prior year. For example, total revenue in the quarter ended March 31, 2011
increased by $10.2 million, or 24%, over total revenue reported in the same period of 2010. If
weighted-average currency exchange rates in the quarter ended March 31, 2011 had remained constant
with the quarter ended March 31, 2010, revenue for the quarter ended March 31, 2011 would have
increased by approximately $9.3 million, which is $910,000 less than the actual increase. In other
words, the change in weighted-average exchange rates between the quarters ended March 31, 2010 and
2011 had a favorable impact on revenue of approximately $910,000, or 2%. The revenue most
significantly exposed to currency exchange fluctuations is within recurring revenue.
Using similar methodology, the change in period-end exchange rates between the year ended
December 31, 2010 and quarter ended March 31, 2011 had a favorable impact on deferred revenue of
approximately $740,000.
Expenses associated with international revenue are generally paid in local currency, which
generally provides a natural hedge to offset the revenue impact. Total cost of revenue and
operating expenses in the quarter ended March 31, 2011 increased by $9.7
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million, or 23%, over total cost of revenue and operating expenses in the quarter ended March
31, 2010. If weighted-average currency exchange rates in the quarter ended March 31, 2011 had
remained constant with the same period of 2010, these total expenses in the quarter ended March 31,
2011 would have increased by approximately $9.1 million, which is $609,000 less than the actual
increase. In other words, the change in weighted-average currency exchange rates between the
quarter ended March 31, 2010 and the quarter ended March 31, 2011 increased these total expenses by
approximately $609,000. The expenses most significantly exposed to currency exchange fluctuations
are generally within sales and marketing and professional services cost of revenue.
As of March 31, 2011, we had an accumulated deficit of $28.6 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.
Backlog
Total backlog is as follows (in thousands):
December 31 | March 31, | |||||||
2010 | 2011 | |||||||
Current committed backlog |
$ | 126,860 | $ | 125,858 | ||||
Non-current committed backlog |
27,314 | 28,361 | ||||||
Total firm committed backlog |
154,174 | 154,219 | ||||||
Current backlog subject to termination for convenience |
21,759 | 28,741 | ||||||
Non-current backlog subject to termination for convenience |
119,897 | 133,164 | ||||||
Total backlog |
$ | 295,830 | $ | 316,124 | ||||
Total backlog, which represents total invoiced and uninvoiced deferred revenue, was
approximately $295.8 million and $316.1 million as of December 31, 2010 and March 31, 2011,
respectively. Current total backlog, which is the portion of backlog expected to be recognized as
revenue within the next twelve months, was approximately $148.6 million and approximately $154.6
million as of December 31, 2010 and March 31, 2011.
Beginning January 2010, we introduced the Cloud Services Agreement (CSA), which includes
longer terms and annual customer termination for convenience provisions. Due to our introduction
of the CSA our uncommitted backlog increased during the quarter ended March 31, 2011 as compared to
the year ended December 31, 2010. 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 various multi-year customer expansion arrangements and
new customer acquisitions within backlog, our uncommitted backlog increased during the quarter
ended March 31, 2011 as compared to the year ended December 31, 2010.
During the first quarter of 2011, our cancellations under the CSA were less than 2.5% 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 some 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
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agreements, the specific timing of customer renewals, fluctuations in foreign currency
exchange rates, the timing of revenue recognition, and changes in customer financial circumstances.
For multi-year subscription agreements billed annually, the associated unbilled deferred revenue is
typically high at the beginning of the contract period, zero just prior to renewal, and increases
if the agreement is renewed 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.
Three Months Ended March 31, 2010 and 2011
Revenue
Three Months Ended March 31, | ||||||||||||
Percent | ||||||||||||
(Amounts in thousands) | 2010 | 2011 | Change | |||||||||
Recurring revenue |
$ | 33,025 | $ | 41,913 | 27 | % | ||||||
Professional services |
9,077 | 10,416 | 15 | |||||||||
Total revenue |
$ | 42,102 | $ | 52,329 | 24 | % | ||||||
Total revenue for the three months ended March 31, 2011 was $52.3 million, an increase of
$10.2 million, or 24%, over total revenue of $42.1 million for the three months ended March 31,
2010. If weighted-average currency exchange rates in the quarter ended March 31, 2011 had remained
constant with the weighted-average currency exchange rates in the quarter ended March 31, 2010,
revenue as of March 31, 2011 would have increased by approximately $9.3 million, which is $910,000
less than the actual increase with the majority of the currency rate impact within recurring
revenue.
Recurring revenue, which is comprised of subscriptions, term licenses, hosting and support
revenue for the three months ended March 31, 2011 was $41.9 million, an increase of $8.9 million,
or 27%, over recurring revenue of $33.0 million for the three months ended March 31, 2010. If
weighted-average currency exchange rates in the first quarter of 2011 had remained constant with
the first quarter 2010 weighted-average currency exchange rates, recurring revenue for the three
months ended March 31, 2011 would have increased by approximately $8.3 million, which is $629,000
less than the actual increase. Recurring revenue increased primarily due to expansion sales within
our existing customer base, new customer acquisitions, and addition of Q-go revenue. 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 higher average transaction prices per customer. Average recurring
revenue within the existing customer base increased as a result of sales capacity additions,
contract renewals and new products. Customer interactions, a measure of unique customer sessions
hosted in our data centers and customer usage, exceeded 869 million in the quarter ended March 31,
2011 as compared to 765 million in the quarter ended March 31, 2010.
Professional services revenue increased $1.3 million, or 15%, in the quarter ended March 31,
2011 over the comparable 2010 quarter. If weighted-average currency exchange rates in the first
quarter of 2011 had remained constant with the first quarter 2010 weighted-average currency
exchange rates, professional services revenue as of March 31, 2011 would have increased $1.1
million, which is $281,000 less than the actual increase. The professional services revenue
increase was primarily due to the timing of the mix of projects being delivered during the quarter
ended March 31, 2011 as compared to the timing of the mix of projects delivered during the quarter
ended March 31, 2010. Professional services revenue represented 20% and 22% of total revenue in the
three months ended March 31, 2011 and 2010, respectively. Customers generally purchase professional
services with initial subscription or license arrangements, and periodically over the life of the
contract.
Revenue from EMEA customers increased to 20% of total revenue in the quarter ended March 31,
2011 from 19% of total revenue in the quarter ended March 31, 2010, while revenue from Asia Pacific
clients increased to 15% of total revenue in the quarter ended March 31, 2010 compared to 10% of
total revenue in the quarter ended March 31, 2010. Revenue outside North America increased to 35%
of total revenue in the three months ended March 31, 2011, compared to 29% for the three months
ended March 31, 2010, due to sales expansion in these regions, including Q-go revenue, and
favorable foreign currency exchange rate impact.
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Cost of Revenue
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
Percent | ||||||||||||
(Amounts in thousands) | 2010 | 2011 | Change | |||||||||
Recurring revenue |
$ | 5,879 | $ | 7,326 | 25 | % | ||||||
Professional services |
7,332 | 9,410 | 28 | |||||||||
Total cost of revenue |
13,211 | 16,736 | 27 | % | ||||||||
Total cost of revenue for the quarter ended March 31, 2011 was $16.7 million, an increase of
$3.5 million, or 27%, over total cost of revenue of $13.2 million for the quarter ended March 31,
2010.
Cost of recurring revenue increased $1.4 million, or 25%, during the quarter ended March 31,
2011 over the quarter ended March 31, 2010. If the weighted-average currency exchange rates in the
first quarter of 2011 had remained constant with the first quarter 2010 weighted-average currency
exchange rates, cost of recurring revenue in the quarter ended March 31, 2011 would have been
$109,000 less than the actual increase. Absent exchange rate impact, cost of recurring revenue
increased primarily due to increased headcount to assist with technical support and delivering our
solutions, increased expenses from Q-go, and annual merit increases, which increased salaries and
related expenses (such as bonuses and stock-based compensation) as well as common expense
allocation (such as payroll taxes, benefits, office rent, supplies and other overhead expenses),
resulting in a combined expense increase of $612,000. Intangible asset amortization associated with
the Q-go acquisition was $592,000 and amortization of internally developed computer software
increased $100,000.
Average employee count in our recurring revenue support operations was 119 during the first
quarter of 2011 as compared to 110 during the first quarter of 2010. As a percent of the associated
revenue, recurring revenue costs were approximately 18% in both the three months ended March 31,
2011 and the three months ended March 31, 2010.
Cost of professional services increased $2.1 million, or 28% in the quarter ended March 31,
2011 over the quarter ended March 31, 2010. If the weighted-average currency exchange rates in the
first quarter of 2011 had remained constant with the first quarter 2010 weighted-average currency
exchange rates, cost of professional services in the quarter ended March 31, 2011 would have
increased $1.9 million, which is $238,000 less than the actual increase. Absent exchange rate
impact, cost of professional services increased primarily due to increased headcount, increased
expenses from Q-go, annual merit increases, bonuses and increases in common expense allocation
(such as payroll taxes, benefits, office rent, supplies and other overhead expenses), which
increased these expenses approximately $1.8 million. Additionally, third-party professional service
expenses increased $447,000.
Average employee count in our professional service operations was 227 during the first quarter
of 2011 compared to 167 during the first quarter of 2010, which was partially due to the addition
of 20 employees from the Q-go acquisition. As a percent of the associated revenue, professional
services costs were 90% in the three months ended March 31, 2011, compared to 81% in the three
months ended March 31, 2010. The increase in the professional service costs as a percentage of the
associated revenue was primarily due to increased headcount and related expenses and unfavorable
foreign currency exchange rate impact. Employee training, customer scheduling requirements, and use
of third-party resources can also cause fluctuation in professional service costs as a percentage
of revenue.
Operating Expenses
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
Percent | ||||||||||||
(Amounts in thousands) | 2010 | 2011 | Change | |||||||||
Sales and marketing |
$ | 18,724 | $ | 22,550 | 20 | % | ||||||
Research and development |
5,132 | 5,596 | 9 | |||||||||
General and administrative |
4,299 | 6,171 | 44 | |||||||||
Total operating expenses |
$ | 28,155 | $ | 34,317 | 22 | % | ||||||
Sales and Marketing Expenses
Sales and marketing expenses were $22.6 million in the first quarter of 2011, an increase of
$3.8 million, or 20%, over sales and marketing expenses of $18.7 million in the first quarter of
2010. If weighted-average currency exchange rates in the first quarter of 2011 had remained
constant with the first quarter 2010 weighted-average currency exchange rates, sales and marketing
in the
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quarter ended March 31, 2011 would have increased approximately $3.6 million, which is
$250,000 less than the actual increase. Absent exchange rate impact, the increase was due primarily
to an increase in average employee count in our sales and marketing organization to 315 during the
first quarter of 2011 from 272 during the first quarter of 2010. The personnel additions combined
with annual merit increases and related expenses increased sales and marketing expenses by
approximately $1.7 million and increased common expense allocation by approximately $469,000.
Travel and travel related expenses increased approximately $454,000 as sales increased in the
quarter ended March 31, 2011 over the quarter ended March 31, 2010. RightNow and RightNow CX
related marketing efforts increased approximately $373,000, as we continue to focus on greater
brand awareness during 2011.
Under subscription arrangements, we defer the related sales incentive costs and expense them
in proportion to the revenue recognized. Under license arrangements, we expense sales incentives
when earned, which is typically upon contract signing. Prior to 2010, our average term length of
deals was approximately two years. Subsequent to 2010, the average term length was approximately
three years. Due to the timing of expenses recognized in proportion to revenue recognized, net
sales incentive expense remained constant at $4.1 million in the quarters ended March 31, 2011 and
March 31, 2010. Our deferred commissions were $10.2 million and $10.1 million at December 31, 2010
and March 31, 2011, respectively.
Research and Development Expenses
Research and development expenses were $5.6 million in the three months ended March 31, 2011,
an increase of $464,000, or 9%, over research and development expenses of $5.1 million in the three
months ended March 31, 2010, primarily due to growth in headcount and annual merit increases, which
increased salaries and related expenses by $628,000 and common expense allocation by $363,000.
These costs, however, were primarily offset by net capitalized cost of internally developed
computer software, which increased $391,000 and third-party
professional service costs, which decreased $169,000 over
the same period last year. Average employee count in our research and development organization was
210 during the first quarter of 2011 compared to 174 during the first quarter of 2010, which was
primarily due to the addition of 22 employees from the Q-go acquisition.
General and Administrative Expenses
General and administrative expenses were $6.2 million in the first quarter of 2011, an
increase of $1.9 million over the first quarter of 2010 primarily due to growth in headcount and
annual salary merit increases, which increased salaries and related expenses by $827,000 and
increased common expense allocation by $144,000. Average employees in our general and
administrative organization were 107 during the first quarter of 2011 compared to 94 during the
first quarter of 2010. Additionally, acquisition costs related to the acquisition of Q-go were
$415,000, professional service costs increased $132,000 and travel and travel related expenses
increased $101,000.
Stock-Based Compensation Expense
Total stock-based compensation expense for the three months ended March 31, 2011 was $2.7
million compared to $1.8 million for the three months ended March 31, 2010. The increase in
stock-based compensation expense was primarily due to an increase in the number of awards granted
and an increase in the underlying stock price during the first quarter of 2011 over the first
quarter of 2010. Stock-based compensation expense also varies from period-to-period because of the
number of option shares that are expected to vest, forfeiture rates, and valuation assumptions.
Interest and Other Income (Expense), Net
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
Percent | ||||||||||||
(Amounts in thousands) | 2010 | 2011 | Change | |||||||||
Interest income |
$ | 196 | $ | 249 | 27 | % | ||||||
Interest expense |
| (1,098 | ) | 100 | ||||||||
Other income (expense) |
(13 | ) | 1,617 | 12,538 | ||||||||
Total interest and other income, net |
$ | 183 | $ | 768 | 320 | % | ||||||
Interest income increased 27% in the first quarter of 2011 from the first quarter of 2010 due
to increased cash balances available to invest. Our investment portfolio consists primarily of
short-term investment-grade interest-bearing government securities, and corporate debt instruments.
Interest expense increased $1.1 million in the first quarter of 2011 due to interest expense
on our convertible senior notes that were issued in November 2010. The notes bear interest at a
rate of 2.50% per annum, are payable semi-annually, and mature on
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November 15, 2030, unless earlier redeemed, repurchased or converted. Please refer to Note 6
in our Notes to Condensed Consolidated Financial Statements for further discussion.
Other income (expense), net increased $1.6 million in the first quarter of 2011 from the first
quarter of 2010 primarily due to our purchases of Euros in advance of closing the acquisition of
Q-go. As a result of appreciation of the Euro, we realized a foreign currency gain of $1.8
million, which was partially offset by amortization of debt issuance costs of $254,000. Please
refer to Note 13 in our Notes to Condensed Consolidated Financial Statements for further discussion
related to the acquisition of Q-go and associated foreign currency gain.
Provision for Income Taxes
The provision for income taxes of $654,000 in the three months ended March 31, 2011 consists
primarily of tax expense resulting from federal taxes, foreign tax withholdings and various state
income taxes. Our effective tax rate differs from the federal statutory rate primarily due to the
utilization of net operating loss carryforwards, state and foreign taxes, foreign rate
differentials, and non-deductible meal and entertainment expenses. Excess stock option deductions
are expected to reduce federal and state taxes payable such that we do not have significant income
taxes payable at March 31, 2011. We expect our full year 2011 effective income tax rate will
closely approximate the combined U.S. federal and state blended statutory rate, but 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
Three Months Ended March 31, | ||||||||||||
Percent | ||||||||||||
(Amounts in thousands) | 2010 | 2011 | Change | |||||||||
Cash, cash equivalents and short-term investments |
$ | 98,407 | $ | 249,657 | 154 | % | ||||||
Cash provided by operating activities |
3,510 | 3,497 | n/m |
We have historically funded our operations with cash from operations, equity and convertible
debt financings and debt borrowings. At March 31, 2011, cash, cash equivalents, and short-term
investments totaled $249.7 million. In addition to our cash and short-term investments, other
sources of liquidity at March 31, 2011 included a $3.0 million bank line of credit facility, under
which there have been no borrowings.
Operating activities provided $3.5 million of cash during the three months ended March 31,
2011 and March 31, 2010. Cash flow from operations can vary significantly from quarter-to-quarter
for many reasons, including the timing of business in a given period, and customer payment
preferences and patterns. The percentage of business signed with periodic billing terms was
approximately 70% during the quarter ended March 31, 2011 compared to approximately 60% during the
quarter ended March 31, 2010. Deferred revenue is not recorded for subscriptions with periodic
billing terms until the invoices are issued. A change in the billing practice resulting in delayed
payment or billing terms could have a material adverse effect on cash provided from operating
activities and growth in deferred revenue.
The allowance for uncollectible accounts receivable represented approximately 5% of current
accounts and term receivables at March 31, 2011 and at December 31, 2010. Accounts receivable
written off in the first quarter of 2011 were relatively consistent with the fourth quarter of
2010. We regularly assess the adequacy of the allowance for doubtful accounts. Actual write-offs
could exceed our estimates and materially adversely affect operating cash flows in the future.
Investing activities used $61.3 million in the three months ended March 31, 2011. First
quarter 2011 investing activities consisted of $33.8 million of business acquisition costs related
to the acquisition of Q-go, $22.9 million of net purchases of short-term investments, $3.1 million
of purchased capital expenditures, and $1.5 million of capitalized cost of internally developed
computer software to be sold as a service. Capital asset additions consisted primarily of equipment
acquisitions for our hosting operations and employee growth.
Financing activities provided $5.7 million in the three months ended March 31, 2011, which was
primarily due to cash generated from exercises of common stock options issued under our employee
equity incentive plan.
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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 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.
Off-Balance Sheet Arrangements
As of March 31, 2011, we did not have any significant off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations or commitments since
December 31, 2010.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuation due to changes in foreign
currency exchange rates, particularly changes in the Australian dollar, British pound, Euro and
Yen, because our contracts are frequently denominated in local currency. In the future, we may
utilize foreign currency forward and option contracts to manage currency exposures. We do not
currently have any such contracts in place, nor did we enter into any such contracts during the
quarters ended March 31, 2011 or March 31, 2010.
When compared to the quarter ended March 31, 2010, our revenue was favorably impacted, and our
cost of revenue and operating expenses were unfavorably impacted, by the relative strength of the
U.S. dollar in the quarter ended March 31, 2011 relative to the Australian dollar, British pound,
Euro and Yen. The change in weighted-average currency exchange rates between the quarters ended
March 31, 2010 and 2011 had a favorable impact to revenue of $910,000. Additionally, deferred
revenue increased by approximately $740,000 when comparing the change in period-end currency
exchange rates between the year ended December 31, 2010 and quarter ended March 31, 2011. Expenses
associated with international revenue are generally paid in local currency, which generally
provides a natural hedge to offset the revenue impact. These expenses in the quarter ended March
31, 2011 had an unfavorable impact of approximately $609,000 when comparing the change in
weighted-average currency exchange rates between the quarters ended March 31, 2010 and 2011.
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 March 31, 2011, the fair value of our portfolio would decline by
approximately $981,000.
Item 4. Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that,
as of March 31, 2011 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.
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(b) Changes to Internal Control over Financial Reporting
During the most recent completed fiscal quarter covered by this report, there has been no
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
From time to time, we are involved in legal proceedings in the ordinary course of business. We
believe that the resolution of these matters will not have a material effect on our consolidated
financial position, results of operations or liquidity.
Item 1A. Risk Factors
A restated description of the risk factors associated with our business is set forth below.
This description includes any and all changes (whether or not material) to, and supersedes, the
description of the risk factors associated with our business previously disclosed in Part 1, Item
1A of our Annual Report on Form 10-K for the year ended December 31, 2010.
Before deciding to purchase, hold or sell our common stock, you should carefully consider the
risks described below, in addition to the other cautionary statements and risks described elsewhere
and the other information contained in this report and in our other filings with the SEC, including
our reports on Forms 10-K, 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business. If any of these known or unknown risks or
uncertainties actually occurs with material adverse effects on RightNow, our business, financial
condition and results of operations could be seriously harmed. In that event, the market price for
our common stock could decline and you may lose all or part of your investment.
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 29% and 35% of our revenue for the quarters ended March 31, 2010
and 2011, respectively. We intend to continue to pursue and expand our international business
activities. Adverse political and economic conditions could make it difficult for us to increase
our international sales or to operate abroad. International operations are subject to many inherent
risks, including:
| fluctuations in foreign currency exchange rates; | ||
| political, social and economic instability, including terrorist attacks and security concerns in general; | ||
| adverse changes in tariffs and other protectionist laws and business practices that favor local competitors; | ||
| longer collection periods and difficulties in collecting receivables from foreign entities; | ||
| exposure to different legal standards and burdens of complying with a variety of foreign laws, including employment, tax, privacy and data protection laws and regulations; | ||
| reduced protection for our intellectual property in some countries; | ||
| expenses associated with localizing products for foreign countries, including translation into foreign languages; and | ||
| import and export license requirements and restrictions of the United States and each other country in which we operate. |
We believe that international sales will continue to represent a significant portion of our
revenue for the foreseeable future, and that continued growth will require further expansion of our
international operations. A substantial percentage of our international sales are denominated in
the local currency. As a result, an increase in the relative value of the dollar could make our
products more expensive and potentially less price competitive in international markets.
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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 $28.6 million as of March 31, 2011. 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 three months ended March 31, 2011, 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:
| 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; | ||
| CRM systems that are developed and maintained internally by businesses; | ||
| CRM products or services that are developed, or bundled with other products or services, and installed on a clients premises by software vendors; | ||
| outsourced contact center providers that bundle solutions and agent labor in their service offerings; | ||
| new companies entering the CRM software market, the on-demand applications market and the on-demand CRM market, or expanding from any one of these markets to the others; | ||
| voice system integrators and voice-enabled IVR technology providers, such as Angel.com, Microsoft, and Voxify; and | ||
| social CRM providers, such as Lithium and other niche social CRM providers. |
Some of our current and potential competitors have longer operating histories and larger
presence, greater name recognition, access to larger customer bases and substantially greater
financial, technical, sales and marketing, management, service, support and other resources than we
have. As a result, such competitors may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards or client requirements or devote greater resources
to the promotion and sale of their products and services than we can. To the extent our competitors
have an existing relationship with a potential client, that client may be unwilling to switch
vendors due to the time and financial commitments already made with our competitors.
In addition, many of our current and potential competitors have established or may establish
business, financial or strategic relationships among themselves or with existing or potential
clients, alliance partners or other third parties, or may combine and consolidate to become more
formidable competitors with better resources. We also expect that new competitors, such as
enterprise software vendors and online service providers that have traditionally focused on
enterprise resource planning or back office
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applications, will continue to enter the on-demand CRM market with competing products as the
on-demand CRM market develops and matures.
Our quarterly results of operations may fluctuate in the future.
Our quarterly revenue and results of operations may fluctuate as a result of a variety of
factors, many of which are outside of our control. If our quarterly revenue or results of
operations decline or fall below the expectations of investors or securities analysts, the price of
our common stock could decline substantially. Fluctuations in our results of operations may be due
to a number of factors, including, but not limited to, those listed below and identified throughout
this Risk Factors section:
| our ability to retain and increase sales to existing clients, attract new clients and satisfy our clients requirements; | ||
| general economic, industry and market conditions; | ||
| fluctuations in foreign currency exchange rates; | ||
| the mix of revenue between subscription arrangements, professional services and license arrangements as sales commissions are generally expensed ratably over the term of an agreement for subscription services, and expensed when invoiced for license arrangements and professional services; | ||
| changes in the mix of revenue between recurring revenue and professional services revenue, because the gross margin on professional services is typically lower than the gross margin on recurring revenue; | ||
| changes in the mix of products sold with managed services and/or usage volume, because the gross margins on voice self-service applications and intent guide is typically lower than the gross margin on our sales, marketing, feedback and service applications; | ||
| the timing of contracts signed and amount of usage fees; | ||
| the timing and success of new product introductions or upgrades by us or our competitors; | ||
| the timing of professional service sales and our ability to appropriately staff and train professional service resources without negatively impacting professional service margins; | ||
| changes in our pricing policies or those of our competitors; | ||
| the amount and timing of expenditures related to expanding our operations; | ||
| stock price volatility, employee exercise behaviors, and 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; | ||
| changes in the payment terms for our products and services, including changes in the mix of payment options chosen by our customers; | ||
| the purchasing and budgeting cycles of our clients; and | ||
| changes in tax rate affected by changes in the mix of earnings and losses in jurisdictions with differing statutory tax rates, certain non-deductible expenses arising from the requirement to expense stock options and the valuation of deferred tax assets and liabilities, including our ability to use our net operating losses. |
Because the sales cycle for the evaluation and implementation of our solutions typically
ranges from 60 to 180 days, we may also experience a delay between increasing operating expenses
and the generation of corresponding revenue, if any. Moreover, because most of the revenue from new
sales agreements is recognized over time, downturns or upturns in sales may not be immediately
reflected in our operating results. Additionally, our professional service margins may be
negatively impacted by training requirements for new professional service resources and/or customer
scheduling issues. Most of our expenses, such as salaries and
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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.
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.
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Our clients consist of large, medium and small companies in nearly all industry sectors and
geographies. Potential new clients or existing clients could defer purchases of our products
because of unfavorable macroeconomic conditions, such as fluctuations in currency exchange rates,
industry purchasing patterns, industry or national economic downturns, rising interest rates, and
other factors. Our ability to grow revenues may be adversely affected by unfavorable economic
conditions.
Starting in 2008 there has been deterioration in global economic conditions due to many
factors, including the credit market crisis, reduced credit availability, bank failures, slower
economic activity, significant expense reductions, bankruptcies, concerns about inflation,
recessionary conditions, and general adverse business conditions. These conditions could lead to
fewer sales of our products, longer sales cycles, customers requesting longer payment terms,
customers failing to pay amounts due, and slower collections of accounts receivable. All of these
factors could adversely impact our results of operations, cash flow from operations, and our
financial position. In addition, we may be forced to respond to an economic downturn by contracting
operations, which we may have difficulties managing in a timely fashion.
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 March 31, 2011, over 98% 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 other events. Our back-up computer hardware
and systems have not been tested under actual disaster conditions and may not have sufficient
capacity to recover all data and services in the event of an outage occurring simultaneously at all
hosting facilities. In the event that our hosting facility arrangements were terminated, or there
was a lapse of service or accidental or willful damage to such facilities, we could experience
lengthy interruptions in our hosting service as well as delays and/or additional expense in
arranging new facilities and services. Any or all of these events could cause our clients to lose
access to their important data. In addition, the failure by our third-party hosting facilities to
meet our capacity requirements could result in interruptions in our service or impede our ability
to scale our operations.
Design and mechanical errors, spikes in usage volume and failure to follow system protocols
and procedures could cause our systems to fail, resulting in interruptions in our clients service
to their customers. Any interruptions or delays in our hosting services, whether as a result of
third-party error, our own error, natural disasters or security breaches, whether accidental or
willful, could harm our relationships with clients and our reputation. This in turn could reduce
our revenue, subject us to liability, and cause us to issue credits or pay penalties or cause
clients to fail to renew their licenses, any of which could adversely affect our business,
financial condition and results of operations. In the event of damage or interruption, our
insurance policies may not adequately compensate us for any losses that we may incur. Additionally,
beginning the first quarter of 2009, we have 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
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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 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,
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
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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. Our issued patents may not be broad enough to protect our
proprietary rights or could be successfully challenged by one or more third parties, which could
result in our loss of the right to prevent others from exploiting the inventions claimed in those
patents. Furthermore, legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights outside the United States are different 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.
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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 and between
industries. In addition, many companies have invested substantial personnel and financial resources
to integrate traditional enterprise software into their businesses, and therefore may be reluctant
or unwilling to migrate to on-demand application services. While we have supported traditional on
site deployment of our software applications, widespread market acceptance of our on-demand
software solutions is critical to the success of our business. Other factors that may affect the
market acceptance of our solutions include:
| on-demand security capabilities and reliability; | ||
| concerns with entrusting a third party to store and manage critical customer data; | ||
| the level of customization we offer; | ||
| our ability to continue to achieve and maintain high levels of client satisfaction; and | ||
| the price, performance and availability of competing products and services. |
If businesses do not perceive the benefits of on-demand solutions in general, or our on-demand
solutions in particular, then the market for these solutions may not develop further, or it may
develop more slowly than we expect, either of which would adversely affect our business, financial
condition and results of operations.
If our efforts to enhance existing solutions, introduce new solutions or expand the applications
for our products and solutions to broader CRM markets do not succeed, our ability to grow our
business will be adversely affected.
If we are unable to successfully develop and sell new and enhanced versions of our solutions,
or introduce new solutions for the customer service market, our financial performance will suffer.
In recent years, we have expanded our CRM solution offering to include sales, marketing, feedback,
social, 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:
| an acquisition may negatively impact our results of operations because it may require incurring large one-time charges, substantial debt or liabilities; it may require the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets; or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges; | ||
| we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations of companies that we acquire, particularly if key personnel of the acquired company decide not to work for us; | ||
| our existing and potential clients and the customers of the acquired company may delay purchases due to uncertainty related to an acquisition; |
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| an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; | ||
| the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs and could result in material asset impairment charges; | ||
| we may have to issue equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock; and | ||
| acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience. |
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:
| it may impair our ability to obtain additional financing in the future; | ||
| 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; | ||
| it may make us more vulnerable to downturns in our business, our industry or the economy in general. |
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 at any time unable to generate sufficient cash to pay our
debt
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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 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.
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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 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 March 31, 2011, Greg Gianforte, our founder and Chief Executive Officer, and his spouse,
Susan Gianforte, have voting power over approximately 22% of our outstanding common stock and,
together with other officers, directors and other members of senior management, have voting power
over approximately 28% 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,
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may be able to influence matters requiring stockholder approval, including the election of
directors, management changes and approval of significant corporate transactions. This
concentration of voting power may have the effect of delaying, preventing or deterring a change in
control of RightNow, could deprive our stockholders of an opportunity to receive a premium for
their common stock as part of a sale of RightNow and might reduce the market price of our common
stock.
In addition, Mr. Gianforte beneficially owns, directly or indirectly, a 50% membership
interest in Genesis Partners, LLC, our landlord from whom we lease our principal offices in
Bozeman, Montana. Consequently, Mr. Gianforte has significant influence over any decisions by
Genesis Partners regarding renewal, modification or termination of our Bozeman, Montana leases. In
the event that our current leases with Genesis Partners were terminated or otherwise could not be
renewed, or came up for renewal on commercially unreasonable terms, we would be required to find
alternative office space to lease or buy.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or
prevent a change in control of our company and may affect the trading price of our common stock.
Provisions of our certificate of incorporation and bylaws and Delaware law may discourage,
delay or prevent a merger or acquisition that a stockholder may consider favorable and may limit
the market price of our common stock. These provisions include the following:
| establishing a classified board in which only a portion of the total board members will be elected at each annual meeting; | ||
| authorizing the board to issue preferred stock; | ||
| providing the board with sole authority to set the number of authorized directors and to fill vacancies on the board; | ||
| limiting the persons who may call special meetings of stockholders; | ||
| prohibiting certain transactions under certain circumstances with interested stockholders; | ||
| requiring supermajority approval to amend certain provisions of the certificate of incorporation; and | ||
| prohibiting stockholder action by written consent. |
It is possible that the provisions contained in our certificate of incorporation and bylaws,
the voting rights held by insiders and the ability of our board of directors to issue preferred
stock without stockholder action may have the effect of delaying, deferring or preventing a change
in control of our company without further action by the stockholders, may discourage bids for our
common stock at a premium over the market price of our common stock and may adversely affect the
market price of our common stock and the voting and other rights of the holders of our common
stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
Not applicable.
(b) Use of Proceeds from Sales of Registered Securities
On August 5, 2004, the Securities and Exchange Commission declared effective our Registration
Statement on 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.
(c) Purchases of Equity Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
As
reported in our definitive proxy statement filed on April 29,
2011 with the Securities and Exchange Commission, on
February 25, 2011, our board of directors also adopted a new
policy in respect of severance payable to executive officers whose
employment is terminated other than for cause. Under the policy, our
chief executive officer will receive a minimum of 18 months base
salary, and accelerated vesting of 37.5% of then unvested stock
option shares under future stock options grants, together with
continuing health benefits subject to the COBRA maximum of 18 months.
Our chief operating officer and president will receive a minimum of
12 months base salary, and accelerated vesting of 25% of then
unvested stock option shares under future stock options grants,
together with reimbursement of his COBRA premiums for up to 18
months. Other executive officers will receive a minimum of 12 months
base salary, and accelerated vesting of 12.5% of then unvested stock
option shares under future stock options grants, together with
continuing health benefits subject to the COBRA maximum of 18 months.
We
have implemented both policies described above with respect to
Messrs. Gianforte, Huyard, Davison and Rassaby through amendments
dated March 8, 2011 to their employment letters.
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Item 6. Exhibits
Exhibits
The exhibits listed below are part of this Form 10-Q, unless otherwise indicated.
Exhibit 3.1
|
Amended and Restated Certificate of Incorporation of the Registrant. (1) | |
Exhibit 3.2
|
Amended and Restated Bylaws of the Registrant. (2) | |
Exhibit 10.1
|
Renewed lease agreement dated February 7, 2011, between the Registrant and Genesis Partners, LLC for office space located at 40 Enterprise Boulevard, Bozeman, Montana.(3) | |
Exhibit 10.2
|
Renewed lease agreement dated February 7, 2011, between the Registrant and Genesis Partners, LLC for office space located at 77 Discovery Drive, Bozeman, Montana.(4) | |
Exhibit 10.3
|
Amended lease agreement dated February 7, 2011, between the Registrant and Genesis Partners, LLC for office space located at 136 Enterprise Boulevard, Bozeman, Montana.(5) | |
Exhibit 10.4
|
Greg Gianforte amended severance agreement in the event of termination of employment. | |
Exhibit 10.5
|
Wayne Huyard amended severance agreement in the event of termination of employment. | |
Exhibit 10.6
|
Jeff Davison amended severance agreement in the event of termination of employment. | |
Exhibit 10.7
|
Alan Rassaby amended severance agreement in the event of termination of employment. | |
Exhibit 31.1
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 31.2
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
(1) | Incorporated by reference to Exhibit 4.2 to the Companys registration statement on Form S-8 (File No. 333-118515) filed with the Securities and Exchange Commission on August 24, 2004. | |
(2) | Incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on January 25, 2006. | |
(3) | Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on February 9, 2011. | |
(4) | Incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on February 9, 2011. | |
(5) | Incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on February 9, 2011. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 6, 2011
RightNow Technologies, Inc.
(Registrant)
(Registrant)
By: | /s/ Jeffrey C. Davison | |||
Jeffrey C. Davison | ||||
Chief Financial Officer, Senior Vice President, and Treasurer (Principal Financial and Accounting Officer) |
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