e10vq

0000950123-11-073590.txt : 20110805 0000950123-11-073590.hdr.sgml : 20110805 20110805150554 ACCESSION NUMBER: 0000950123-11-073590 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20110630 FILED AS OF DATE: 20110805 DATE AS OF CHANGE: 20110805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIGHTNOW TECHNOLOGIES INC CENTRAL INDEX KEY: 0001111247 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 810503640 STATE OF INCORPORATION: MT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31321 FILM NUMBER: 111013970 BUSINESS ADDRESS: STREET 1: 136 ENTERPRISE BLVD. CITY: BOZEMAN STATE: MT ZIP: 59718 BUSINESS PHONE: 406 522 1401 MAIL ADDRESS: STREET 1: 136 ENTERPRISE BLVD. CITY: BOZEMAN STATE: MT ZIP: 59718 10-Q 1 c64649e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

000-31321
(Commission File No.)

RIGHTNOW TECHNOLOGIES, INC.

(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)

(406) 522-4200
(Registrant’s Telephone Number, Including Area Code)

N/A
(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 þ 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 registrant’s common stock, $0.001 par value, as of July 29, 2011 was 33,249,662.

RightNow Technologies, Inc.
Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2011

INDEX


	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements		3
a) Condensed consolidated balance sheets (unaudited)		3
b) Condensed consolidated statements of operations (unaudited)		4
c) Condensed consolidated statements of cash flows (unaudited)		5
d) Notes to condensed consolidated financial statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		31
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3. Defaults Upon Senior Securities		43
Item 4. (Removed and Reserved)		44
Item 5. Other Information		44
Item 6. Exhibits		44
SIGNATURES		45
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

RightNow Technologies, Inc.

Condensed Consolidated Balance Sheets
(In thousands) (Unaudited)


	December 31,			June 30,
	2010			2011
Assets
Cash and cash equivalents	$	181,948		$	121,792
Short-term investments		94,759			134,133
Accounts receivable		39,338			45,703
Allowance for doubtful accounts		(2,021	)		(1,774	)

Receivables, net		37,317			43,929
Deferred commissions		5,418			5,963
Prepaid and other current assets		4,662			5,488
Deferred tax assets, net		3,801			3,810

Total current assets		327,905			315,115

Property and equipment, net		10,702			13,003
Intangible assets, net		6,149			19,512
Goodwill		7,975			32,392
Deferred commissions, non-current		4,747			4,966
Other		4,921			4,365
Deferred tax assets, non-current, net		16,480			16,756

Total Assets	$	378,879		$	406,109

Liabilities and Stockholders’ Equity
Accounts payable	$	10,463		$	6,819
Commissions and bonuses payable		7,137			6,030
Other accrued liabilities		13,363			18,465
Current portion of deferred revenue		90,350			97,792

Total current liabilities		121,313			129,106

Deferred revenue, net of current portion		2,969			2,355
Other long-term liabilities		—			446
2.50% Convertible senior notes due 2030		175,000			175,000

Total liabilities		299,282			306,907

Stockholders’ equity:
Common stock		35			36
Additional paid-in capital		136,717			152,268
Treasury stock		(29,149	)		(29,149	)
Accumulated other comprehensive income		1,953			4,422
Accumulated deficit		(29,959	)		(28,375	)

Total stockholders’ equity		79,597			99,202

Total Liabilities and Stockholders’ Equity	$	378,879		$	406,109

See accompanying notes to condensed consolidated financial statements.

RightNow Technologies, Inc.

Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Revenue:
Recurring revenue	$	34,730		$	45,409		$	67,755		$	87,322
Professional services		8,724			9,407			17,801			19,823

Total revenue		43,454			54,816			85,556			107,145
Cost of revenue:
Recurring revenue		5,952			7,746			11,831			15,072
Professional services		7,378			9,411			14,710			18,821

Total cost of revenue		13,330			17,157			26,541			33,893

Gross profit		30,124			37,659			59,015			73,252
Operating expenses:
Sales and marketing		18,777			24,913			37,501			47,463
Research and development		4,797			5,581			9,929			11,177
General and administrative		4,324			6,377			8,623			12,548

Total operating expenses		27,898			36,871			56,053			71,188

Income from operations		2,226			788			2,962			2,064
Interest and other income (expense), net		19			(1,116	)		202			(348	)

Income (loss) before income taxes		2,245			(328	)		3,164			1,716
Benefit (provision) for income taxes		(841	)		522			(1,175	)		(132	)

Net income	$	1,404		$	194		$	1,989		$	1,584

Net income per share:
Basic	$	0.04		$	0.01		$	0.06		$	0.05
Diluted	$	0.04		$	0.01		$	0.06		$	0.04
Shares used in the computation:
Basic		32,000			33,171			31,965			32,880
Diluted		33,427			36,048			33,430			35,792

See accompanying notes to condensed consolidated financial statements.

RightNow Technologies, Inc.

Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)


	Six Months Ended
	June 30,
	2010			2011
Operating activities:
Net income	$	1,989		$	1,584
Non-cash adjustments:
Depreciation and amortization		3,937			6,120
Provision for losses on accounts receivable		81			41
Stock-based compensation		3,516			6,727
Foreign currency gain related to acquisition		—			(1,819	)
Changes in operating accounts, net of business acquisitions:
Receivables		(461	)		(2,981	)
Prepaid and other current assets		(1,868	)		443
Deferred commissions		989			(655	)
Accounts payable		3,144			(4,413	)
Commissions and bonuses payable		(1,573	)		(1,157	)
Other accrued liabilities		2,564			3,790
Deferred revenue		(4,774	)		3,107
Other		(19	)		(868	)

Cash provided by operating activities		7,525			9,919

Investing activities:
Net change in investments		16,765			(39,297	)
Acquisition of property and equipment		(3,836	)		(5,148	)
Business acquisitions, net of cash acquired		—			(33,837	)
Intangible asset additions		(2,339	)		(3,083	)

Cash provided by (used in) investing activities		10,590			(81,365	)

Financing activities:
Proceeds from issuance of common stock under employee benefit plans		1,568			8,376
Excess tax benefits of stock options exercised		1,130			449
Payments on debt		(22	)		(260	)

Cash provided by financing activities		2,676			8,565
Effect of foreign exchange rates on cash and cash equivalents		(1,125	)		2,725

Increase (decrease) in cash and cash equivalents		19,666			(60,156	)
Cash and cash equivalents at beginning of period		41,546			181,948

Cash and cash equivalents at end of period	$	61,212		$	121,792

See accompanying notes to condensed consolidated financial statements.

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 Company’s 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 management’s discussion and analysis of financial condition and results of operations, contained in the Company’s 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 Company’s financial position at June 30, 2011, results of operations for the three and six month periods ended June 30, 2010 and 2011, and cash flows for the six month periods ended June 30, 2010 and 2011. This includes all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of the Company’s 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 markets, 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 Company’s 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 Company’s 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 Company’s 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.

Financial instruments subjecting the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains cash, cash equivalents, and short-term investments with various domestic and foreign financial institutions. The Company’s 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 Company’s customers are worldwide with approximately 66% of total revenue in North America, 20% in EMEA (Europe, the Middle East and Africa) and 14% in Asia Pacific on a trailing twelve month basis.

No individual customer accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2010 and 2011. No individual customer accounted for more than 10% of the Company’s accounts receivable at December 31, 2010 or June 30, 2011.

As of December 31, 2010 and June 30, 2011, assets located outside North America totaled 12% and 22% of total assets, respectively. The income (loss) from operations outside of North America totaled $677,367 and ($1.6) million for the six months ended June 30, 2010 and 2011, respectively. The loss from operations outside North America for the six months ended June 30, 2011 was primarily due to the acquisition of Q-go during the first quarter of 2011. Revenue by geographical region follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
North America	$	30,477	$	34,915	$	60,417	$	68,990
EMEA		8,231		11,323		16,374		21,561
Asia Pacific		4,746		8,578		8,765		16,594

	$	43,454	$	54,816	$	85,556	$	107,145

(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 generated 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 Company’s 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 Company’s fee for providing the software and services is fixed or determinable; and d) collection of the Company’s fee is probable.

Subscriptions include access to the Company’s 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 management’s 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 is recognized over the contractual period and revenue for professional services is recognized as delivered provided that the above criteria have been met.

The Company’s 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 licenses 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 licenses, the Company treats the software license, hosting and support services as a 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 delivered.

The Company’s 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 Company’s 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 Company’s 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 delivered, 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 $4.2 million and $4.7 million for the three months ended June 30, 2010 and June 30, 2011, respectively. Sales incentive expense was $8.3 and $8.8 million for the six months ended June 30, 2010 and June 30, 2011, respectively. Deferred commissions at December 31, 2010 and June 30, 2011 were $10.2 million and $10.9 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 are approximately three years. Net capitalized cost of internally developed computer software was approximately $4.7 million and approximately $7.1 million as of December 31, 2010 and June 30, 2011, respectively. The capitalized costs are included in intangible assets, net on the Company’s Condensed Consolidated Balance Sheets.

(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 included in other current and non-current assets on the Company’s Condensed Consolidated Balance Sheets and are being amortized over 5 years. Debt issuance costs, net of amortization were $4.5 million as of June 30, 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				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Weighted average common shares outstanding for basic net income per share		32,000		33,171		31,965		32,880
Effect of dilutive securities:
Employee stock awards		1,427		2,877		1,465		2,912

Weighted average shares outstanding for dilutive net income per share		33,427		36,048		33,430		35,792

The Company included in the computation of diluted net income per share options to purchase 2,877,000 and 2,912,000 shares of common stock for the three and six months ended June 30, 2011, respectively, 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

Six Months Ended

June 30,

2010

2011

2010

2011

Employee stock options

5,148

3,674

5,110

3,638

In addition, the Company excluded from the computation of diluted net income per share the effect of the conversion of the convertible senior notes due 2030 (“the Notes”) as they were anti-dilutive. If the Notes had been dilutive, our diluted net income per share would have included additional earnings of $815,000 and $1.6 million for the three and six months ended June 30, 2011, respectively. Also included would have been incremental common shares of 5,487,786 for the three and six months ended June 30, 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						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Net income	$	1,404		$	194		$	1,989		$	1,584
Other comprehensive income (loss):
Unrealized gain on short-term investments		42			(63	)		16			(77	)
Foreign currency translation adjustments		(213	)		952			(28	)		2,546

Comprehensive income	$	1,233		$	1,083		$	1,977		$	4,053

(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 Company’s financial assets (cash equivalents and investments) which are measured at fair value on a recurring basis as of June 30, 2011 (in thousands):


	Level 1		Level 2		Level 3		Total
Cash	$	112,703	$	—	$	—	$	112,703
Money market funds		5,251		—		—		5,251
Certificates of deposit		1,245		—		—		1,245
Commercial paper		—		5,599		—		5,599
Corporate notes and bonds		—		19,611		—		19,611
U.S. Government agency securities		—		87,421		—		87,421
State and municipal securities		—		24,095		—		24,095

	$	119,199	$	136,726	$		$	255,925

(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				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Stock-based compensation expense:
Cost of recurring revenue	$	117	$	220	$	230	$	424
Cost of professional services		122		508		236		806
Sales and marketing expenses		726		1,496		1,477		2,473
Research and development expenses		240		387		497		694
General and administrative expenses		556		1,377		1,076		2,330

Total stock-based compensation expense	$	1,761	$	3,988	$	3,516	$	6,727

Stock-based compensation expense capitalized during the six months ended June 30, 2010 and June 30, 2011 was insignificant, respectively.

Unrecognized stock-based compensation expense of outstanding stock options at June 30, 2011 was approximately $28.7 million, which is expected to be recognized over a weighted average period of 2.7 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						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Fair value per share	$	7.21		$	15.86		$	7.82		$	14.23
Risk free rate		1.7	%		1.4	%		1.9	%		2.0	%
Expected term	4.2 yrs			4.4 yrs			4.5 yrs			4.7 yrs
Volatility		64	%		62	%		65	%		62	%
Dividend yield		0	%		0	%		0	%		0	%

Key assumptions used to estimate the fair value of stock awards are as follows:

Risk Free Rate: The risk-free rate is determined by reference to the U.S. Treasury yield curve in effect at or near the time of grant for time periods similar to the expected term of the award.

Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is estimated based on historical experience of similar awards, giving consideration to the contractual term of the awards, vesting schedules and expectations of employee exercise behavior.

Volatility: The Company’s estimate of expected volatility is based on the historical volatility of the Company’s common stock over the expected life of the options as this represents the Company’s best estimate of future volatility.

Dividend Yield: The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Activity under the Company’s stock option plans for the six months ended June 30, 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)		(1,472	)		1,427			27.30
Exercised		—			(945	)		8.92
Forfeited, expired, exchanged or canceled (3)		155			(155	)		13.34

Balance at June 30, 2011		2,116			6,550		$	15.77	$	108,990		7.4

Vested or expected to vest at June 30, 2011					6,259		$	15.45	$	106,115		7.3

Exercisable at June 30, 2011					2,984		$	12.26	$	60,097		5.9


(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 six months ended June 30, 2011, there were 45,165 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 six months ended June 30, 2010 and 2011 was $861,000 and $20.1 million, respectively.

(11) Commitments and Contingencies

Warranties and Indemnification

The Company’s cloud-based application service is typically warranted to perform in accordance with its user documentation.

The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any material 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 subscription 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 person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request.

Litigation

From time to time, the Company is involved in legal proceedings arising in the normal course of business. The Company believes that the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

(12) Income Taxes

The benefit for income taxes of $522,000 and the provision for income taxes of $132,000 in the three and six months ended June 30, 2011, respectively, consists primarily of tax expense resulting from federal taxes, foreign tax withholdings and various state income taxes. Without period specific tax benefit items of $554,000, the effective tax rate was 40%. The benefit for income taxes in the three months ended June 30, 2011 was primarily due to tax benefits related to the recognition of net operating losses and stock option exercises. The Company’s effective tax rate without period specific items 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 June 30, 2011. As of December 31, 2010 and June 30, 2011, the Company had an insignificant liability for unrecognized tax benefits, none of which would materially adversely affect its effective tax rate if recognized. The Company does not expect that the obligation for unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Company’s policy is to recognize interest and penalties on the liability for 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 and six months ended June 30, 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, which the Company believes helps 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

The change in goodwill was as follows (amounts in thousands):


	Six Months Ended
	June 30,
	2010		2011
Balance, beginning of period	$	7,975	$	7,975
Acquisition of Q-go		—		23,091
Effect of exchange rate changes		—		1,326

Balance, end of period	$	7,975	$	32,392

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. As a result of exchange rate changes, the amount recorded as goodwill relating to Q-go has appreciated $1.3 million. 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this report, the terms “RightNow Technologies,” “RightNow,” “Company,” “we,” “us” and “our” refer to RightNow Technologies, Inc. and its 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, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words, and include, but are not limited to, statements regarding projected results of operations, management’s future strategic plans, 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 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; our ability to protect our intellectual property from infringement, and to avoid infringing on the intellectual property rights of third parties; 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; 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 prior and 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 CX^tm, 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 today’s competitive business environment, we believe providing superior customer experiences can be a powerful way for companies to drive sustainable differentiation. Our technology enables an organization’s 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 return on their investment. Approximately 1,900 corporations and government agencies worldwide depend on RightNow to help them achieve their strategic objectives and better meet the needs of those they serve.

We released our initial version of RightNow Service^tm 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 Experience^tm, RightNow Social Experience^tm, RightNow Contact Center Experience^tm, RightNow Engage^tm and the RightNow CX Cloud Platform^tm. In February 2007, we initiated a quarterly release cycle which allows us to deliver new product capabilities to customers every three months. During the second quarter of 2011, we released RightNow CX^TM May 2011, which expanded on the features of intent guide and chat and also provided our customers with additional capabilities such as online polling surveys. During the first quarter of 2011, we acquired intent guide and natural language search technologies through our acquisition of Q-go.

Our products served more than 873 million customer interactions, or unique sessions hosted by our solutions, during the three months ended June 30, 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 client’s 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 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 $7.1 million of net cost of internally developed computer software as of December 31, 2010 and June 30, 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 management’s application of accounting policies. Our critical accounting policies include revenue recognition, valuation of receivables and deferred tax assets, accounting for share-based compensation, and internal use software capitalization. Significant items subject to such estimates and assumptions include: elements comprising our software, hosting and support sales arrangements and whether the elements have stand-alone and/or fair value; whether the fees charged for our products and services are fixed or determinable; the recoverability of our property and equipment and intangible assets; valuation allowances for receivables and deferred income tax assets; estimates of expected term and volatility in determining share based compensation expense; and internal use software capitalization. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates.

Revenue Recognition

We sell substantially all products under subscription arrangements (“subscriptions”). For a bundled fee, subscriptions provide the customer with access to the software and data over the Internet, or on-demand, and provide technical support services and software

upgrades when and if available. Under subscriptions, customers do not have the right to take possession of the software and these arrangements are considered service contracts which are outside the scope of Industry Topic 985, Software.

In the first quarter of 2010, we elected early adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2009-13, “Revenue Arrangements with Multiple Deliverables” (“ASU 2009-13”). ASU 2009-13, which amended FASB Topic 605-25, “Multiple-Element Arrangements,” changes the level of evidence of fair value of an element to allow an estimated selling price which represents management’s 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 customer’s current creditworthiness; customer concentration; age of the receivable balance; and general economic conditions that may affect a customer’s 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.

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

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amended guidance on fair value measurement and related disclosures. The new guidance clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. The standard is effective for interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. Management is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. Other than the change in presentation, the Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

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						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Revenue:
Recurring revenue		80	%		83	%		79	%		82	%
Professional services		20			17			21			18

Total revenue		100			100			100			100

Cost of revenue:
Recurring revenue		14			14			14			14
Professional services		17			17			17			18

Total cost of revenue		31			31			31			32

Gross profit		69			69			69			68
Operating expenses:
Sales and marketing		43			46			44			44
Research and development		11			10			12			10
General and administrative		10			12			10			12

Total operating expenses		64			68			66			66

Income from operations		5			1			3			2
Interest and other income, net		—			(2	)		—			—

Income before income taxes		5			(1	)		3			2
Provision for income taxes		2			1			1			—

Net income		3	%		—	%		2	%		2	%

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						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Revenue by geography in:
North America		70	%		63	%		71	%		64	%
EMEA		19			21			19			20
Asia Pacific		11			16			10			16

Quarter Overview

Total revenue for the second quarter of 2011 increased 26% over the second quarter of 2010, driven by our growth in recurring revenue. Recurring revenue increased 31% compared to the second 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 second quarter of 2011 increased 8%, due primarily to the increase in the number of billable hours being delivered during the quarter ended June 30, 2011 as compared to the quarter ended June 30, 2010. During the second quarter of 2011, as compared to the first quarter of 2011 we saw a decrease in the need for our professional services work as a result of increasing traction with partners who are performing more professional services work as well as solution innovation that helps simplify the implementation and configuration processes. Thus, we have seen a decrease in professional services revenue from the first quarter of 2011.

During the second quarter of 2011, we directed our investments to expand distribution by adding sales and marketing personnel to increase sales and by increasing headcount to assist with delivering our solutions and technical support. We realigned resources within professional services organization to better serve our shift in revenue mix and demand for professional services work. We invested in our research and development group to continue to enhance and expand RightNow CX^TM. The increase in headcount during the second quarter of 2011 over the second quarter of 2010 also included staff additions related to our first quarter 2011 acquisition of Q-go.

General and administrative expenses increased during the quarter ended June 30, 2011 compared to the quarter ended June 30, 2010 primarily due to growth in headcount and annual salary and incentive increases. Total operating expenses increased during the quarter ended June 30, 2011 compared to the quarter ended June 30, 2010 primarily due to these headcount increases and related expenses in addition to annual merit increases. Bonus expense increased $5.5 million during the second quarter of 2011 over the second quarter of 2010 primarily due to achievement under our corporate incentive program. We experienced an increase in total revenue, driven primarily by recurring revenue increases during the second quarter ended June 30, 2011 as compared to the second quarter ended June 30, 2010. The impact of the increase was primarily offset by staff additions and annual merit increases, the acquisition of Q-go, and professional service realignment. These increases in expenses were the reason operating income as a percentage of revenue was 1% during the quarter ended June 30, 2011 compared to 5% during the quarter ended June 30, 2010. For the quarter ended June 30, 2011, we generated $6.4 million of cash from operations compared to $4.0 million in the quarter ended June 30, 2010. Our cash and investment balances decreased to $255.9 million at June 30, 2011 from $276.7 million at December 31, 2010, primarily due to the use of $33.8 million for the acquisition of Q-go, which occurred during the first quarter of 2011, $5.1 million for capital asset additions and $3.1 million for intangible asset additions, offset by $8.4 million of proceeds from stock option exercises and excess tax benefits of stock options exercised through the six months ended June 30, 2011.

During the three and six months ended June 30, 2011, foreign currency fluctuations had a significant impact on our financial results on a constant currency basis when comparing the weighted-average exchange rates during the three and six months ended June 30, 2010 to the weighted-average exchange rates during the three and six months ended June 30, 2011.

When compared to the three months ended June 30, 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 three months ended June 30, 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 June 30, 2011 increased $11.4 million, or 26%, over total revenue reported in the same period of 2010. If weighted-average currency exchange rates in the quarter ended June 30, 2011 had remained constant with the quarter ended June 30, 2010, revenue for the quarter ended June 30, 2011 would have increased by approximately $9.2 million, which is $2.2 million less than the actual increase. In other words, the change in weighted-average currency exchange rates between the quarters ended June 30, 2010 and 2011 had a favorable impact to revenue of $2.2 million.

Expenses associated with international revenue are generally paid in local currency, which generally provides a natural hedge to offset the revenue impact. Total international cost of revenue and operating expenses in the three months ended June 30, 2011 increased by $12.8 million, or 31%, over total cost of revenue and operating expenses in the three months ended June 30, 2010. If weighted-average currency exchange rates in the three months ended June 30, 2011 had remained constant with the same period of 2010, these total expenses in the three months ended June 30, 2011 would have increased by approximately $11.4 million, which is $1.4 million less than the actual increase. In other words, the change in weighted-average currency exchange rates between the three months ended June 30, 2010 and the three months ended June 30, 2011 increased these total expenses by approximately $1.4 million. The expenses most significantly exposed to currency exchange fluctuations are generally within sales and marketing and professional services cost of revenue.

When compared to the six months ended June 30, 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 six months ended June 30, 2011 relative to the Australian dollar, British pound, Euro and Yen. Total revenue in the six months ended June 30, 2011 increased $21.6 million, or 25%, over total revenue reported in the same period of 2010. If weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the six months ended June 30, 2010, revenue for the six months ended June 30, 2011 would have increased by approximately $18.5 million, which is $3.1 million less than the actual increase. In other words, the change in weighted-average currency exchange rates between the six months ended June 30, 2010 and 2011 had a favorable impact to revenue of $3.1 million.

Total international cost of revenue and operating expenses in the six months ended June 30, 2011 increased by $22.5 million, or 27%, over total cost of revenue and operating expenses in the six months ended June 30, 2010. If weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the same period of 2010, these total expenses in the six months ended June 30, 2011 would have increased by approximately $20.5 million, which is $2.0 million less than the actual increase. In other words, the change in weighted-average currency exchange rates between the six months ended June 30, 2010 and the six months ended June 30, 2011 increased these total expenses by approximately $2.0 million. The expenses most significantly exposed to currency exchange fluctuations are generally within sales and marketing and professional services cost of revenue.

Using similar methodology, the change in period-end exchange rates between the year ended December 31, 2010 and quarter ended June 30, 2011 had a favorable impact on deferred revenue of approximately $1.0 million.

As of June 30, 2011, we had an accumulated deficit of $28.4 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:


	December 31, 2010,						June 30, 2011
(Amounts in thousands)	Current		Non-Current		Total		Current		Non-Current		Total
Committed backlog	$	126,860	$	27,314	$	154,174	$	131,597	$	22,969	$	154,566
Backlog subject to termination		21,759		119,897		141,656		32,002		147,293		179,295

Total backlog	$	148,619	$	147,211	$	295,830	$	163,599	$	170,262	$	333,861

Total backlog, which represents total invoiced and uninvoiced deferred revenue, was approximately $295.8 million and $333.9 million as of December 31, 2010 and June 30, 2011, respectively. The increase in backlog was primarily due to expansion sales within our existing customer base, new customer acquisitions and the addition of backlog as a result of the acquisition of Q-go during the first quarter of 2011. 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 $163.6 million as of December 31, 2010 and June 30, 2011. We treat backlog that is subject to termination as uncommitted backlog and we treat backlog that is not subject to termination as committed backlog.

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 June 30, 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 June 30, 2011 as compared to the year ended December 31, 2010.

During the second quarter of 2011, our cancellations under the CSA were less than 1% 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 falls under the termination for convenience 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, while the majority of our business is sold through reseller arrangements that do not include termination for convenience provision(s), some of the business that is contracted with this group is subject to termination for convenience as set forth in the Federal Acquisition Regulations (FARs). The FARs allow the federal government to terminate these arrangements at its option.

The backlog not recorded on our balance sheet represents future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue.

We expect that the amount of backlog may change from year-to-year and quarter-to-quarter for several reasons, including the specific timing and duration of large customer subscription agreements, varying billing cycles of noncancelable subscription agreements, the specific timing of customer renewals, fluctuations in foreign currency exchange rates, the timing of revenue recognition, and changes in customer financial circumstances. For multi-year subscription agreements billed annually, the associated unbilled deferred revenue is typically high at the beginning of the contract period, zero just prior to renewal, and increases if the agreement is renewed 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 and Six Months Ended June 30, 2010 and 2011

Revenue


	Three Months Ended June 30,							Six Months Ended June 30,
					Percent							Percent
(Amounts in thousands)	2010		2011		Change			2010		2011		Change
Recurring revenue:	$	34,730	$	45,409		31	%	$	67,755	$	87,322		29	%
Professional services		8,724		9,407		8			17,801		19,823		11

Total revenue	$	43,454	$	54,816		26	%	$	85,556	$	107,145		25	%

Total revenue for the three months ended June 30, 2011 was $54.8 million, an increase of $11.4 million, or 26%, over total revenue of $43.5 million for the three months ended June 30, 2010. During the second quarter of 2011, we saw an increase in recurring revenue. At the same time, we saw a decrease in the need for our professional services work as a result of increasing traction with partners who are performing more professional services work as well as solution innovation that helps simplify the implementation and configuration processes. Thus, we have seen a decrease in professional services revenue from the first quarter of 2011. If weighted-average currency exchange rates in the three months ended June 30, 2011 had remained constant with the weighted-average currency exchange rates in the three months ended June 30, 2010, revenue during the first three months of 2011 would have increased by approximately $9.2 million, which is $2.2 million less than the actual increase with the majority of the currency rate impact within recurring revenue.

Total revenue for the six months ended June 30, 2011 was $107.1 million, an increase of $21.6 million, or 25%, over total revenue of $85.6 million for the six months ended June 30, 2010. If weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the weighted-average currency exchange rates in the six months ended June 30, 2010, revenue during the first six months of 2011 would have increased by approximately $18.5 million, which is $3.1 million less than the actual increase with the majority of the currency rate impact within recurring revenue.

Recurring revenue for the three months ended June 30, 2011 was $45.4 million, an increase of $10.7 million, or 31%, over recurring revenue of $34.7 million for the three months ended June 30, 2010. If weighted-average currency exchange rates in the first three months of 2011 had remained constant with weighted-average currency exchange rates in the first three months of 2010, recurring revenue for the three months ended June 30, 2011 would have increased by approximately $9.0 million, which is $1.7 million 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 multi-channel solution, RightNow CX^TM, 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.

For the six months ended June 30, 2011, recurring revenue increased $19.6 million, or 29%, over recurring revenue of $67.8 million for the six months ended June 30, 2010. If weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the weighted-average currency exchange rates in the six months ended June 30, 2010, recurring revenue

during the first six months of 2011 would have increased by $17.3 million, which is $2.3 million less than the actual increase. Recurring revenue increased due to expansion sales within our existing customer base and new customer acquisitions, and addition of Q-go revenue over the comparable period.

Professional services revenue increased $683,000, or 8%, in the quarter ended June 30, 2011 over the comparable 2010 quarter. If weighted-average currency exchange rates in the second quarter of 2011 had remained constant with the weighted-average currency exchange rates in the second quarter of 2010, professional services revenue as of June 30, 2011 would have increased $129,000, which is $554,000 less than the actual increase. We believe our solution innovation is driving the acceleration in our recurring revenue and at the same time, reducing the need for internal professional services work. Professional services revenue represented 17% and 20% of total revenue in the three months ended June 30, 2011 and 2010, respectively.

Professional services revenue for the six months ended June 30, 2011 increased $2.0 million over the six months ended June 30, 2010. If weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the weighted-average currency exchange rates in the six months ended June 30, 2010, professional services revenue during the first six months of 2011 would have increased by approximately $1.2 million, which is $835,000 less than the actual increase. The professional services revenue increase was primarily due to the number of hours delivered and the timing of the mix of projects delivered during the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. Professional services revenue represented 18% and 21% of total revenue in the six months ended June 30, 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 21% of total revenue in the quarter ended June 30, 2011 from 19% of total revenue in the quarter ended June 30, 2010, while revenue from Asia Pacific clients increased to 16% of total revenue in the quarter ended June 30, 2011 compared to 11% of total revenue in the quarter ended June 30, 2010. Revenue outside North America increased to 37% of total revenue in the three months ended June 30, 2011, compared to 30% for the three months ended June 30, 2010, due to sales expansion in these regions, including Q-go revenue, and favorable foreign currency exchange rate impact. Revenue outside North America increased to represent 36% of total revenue for the six months ended June 30, 2011 from 29% for the six months ended June 30, 2010, due to sales expansion in these regions, including Q-go revenue, and favorable foreign currency exchange rate impact.

Cost of Revenue


	Three Months Ended							Six Months Ended
	June 30,							June 30,
					Percent							Percent
(Amounts in thousands)	2010		2011		Change			2010		2011		Change
Recurring revenue	$	5,952	$	7,746		30	%	$	11,831	$	15,072		27	%
Professional services		7,378		9,411		28			14,710		18,821		28

Total cost of revenue	$	13,330	$	17,157		29	%	$	26,541	$	33,893		28	%

Total cost of revenue for the quarter ended June 30, 2011 was $17.2 million, an increase of $3.8 million, or 29%, over total cost of revenue of $13.3 million for the quarter ended June 30, 2010. Total cost of revenue for the six months ended June 30, 2011 was $33.9 million, an increase of $7.4 million, or 28%, over total cost of revenue of $26.5 million for the six months ended June 30, 2010.

Cost of recurring revenue increased $1.8 million, or 30%, during the quarter ended June 30, 2011 over the quarter ended June 30, 2010. 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 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 $709,000. Intangible asset amortization associated with the Q-go acquisition was approximately $590,000 and amortization of internally developed computer software increased approximately $351,000.

Average employee count in our recurring revenue support operations was 122 during the second quarter of 2011 as compared to 111 during the second quarter of 2010. As a percent of the associated revenue, recurring revenue costs were approximately 17% in both the three months ended June 30, 2011 and the three months ended June 30, 2010.

For the six months ended June 30, 2011, cost of recurring revenue increased $3.2 million, or 27%, from the comparable 2010 period 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 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 $1.2 million. Intangible asset amortization associated with the Q-go acquisition was approximately $1.4 million and amortization of internally developed computer software increased approximately $621,000. As a percent of the associated revenue, recurring revenue costs were 17% in the six months ended June 30, 2011 as compared to 18% of associated revenue in the six months ended June 30, 2010. The reduction in the cost of recurring revenue as a percentage of associated revenue was due to our growth in recurring revenue.

Cost of professional services increased $2.0 million, or 28% in the quarter ended June 30, 2011 over the quarter ended June 30, 2010. If the weighted-average currency exchange rates in the second quarter of 2011 had remained constant with weighted-average currency exchange rates in the second quarter of 2010, cost of professional services in the quarter ended June 30, 2011 would have increased $1.5 million, which is $523,000 less than the actual increase. Absent exchange rate impact, cost of professional services increased primarily due to increased headcount, which increased salaries and related expenses, resulting in a combined increase of approximately $1.4 million and increases in employee incentives one-time severance payments as a result of staff realignment and expenses relating to third-party professional service expenses.

Average employee count in our professional service operations was 254 during the second quarter of 2011 compared to 175 during the second quarter of 2010, which was partially due to the addition of 20 employees from the Q-go acquisition. Although headcount has grown, we have reduced the size of our professional services organization to meet the decline in demand for professional service work during the second quarter of 2011 and have engaged more with partners and other third-party contractors who recognize the strategic value of implementing our solutions and help simplify the implementation and configuration processes. As a percent of the associated revenue, professional services costs were 100% in the three months ended June 30, 2011, compared to 85% in the three months ended June 30, 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.

For the six months ended June 30, 2011, cost of professional services increased $4.1 million, or 28%, from the comparable 2010 period. If the weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the six months ended June 30, 2010, cost of professional services in the six months ended June 30, 2011 would have increased $3.3 million, which is $761,000 less than the actual increase. In other words, the change in weighted-average exchange rates between the six months ended June 30, 2010 and the six months ended June 30, 2011 increased these total expenses by approximately $761,000. Absent exchange rate impact, the increase in the professional service costs from the comparable 2010 period was primarily due to increased headcount, which increased salaries and related expenses resulting in a combined increase of approximately $3.1 million and increases in expenses relating to third-party professional service expenses, employee incentives and one-time severance payments as a result of staff realignment.

Operating Expenses


	Three Months Ended							Six Months Ended
	June 30,							June 30,
					Percent							Percent
(Amounts in thousands)	2010		2011		Change			2010		2011		Change
Sales and marketing	$	18,777	$	24,913		33	%	$	37,501	$	47,463		27	%
Research and development		4,797		5,581		16			9,929		11,177		13
General and administrative		4,324		6,377		47			8,623		12,548		46

Total operating expenses	$	27,898	$	36,871		32	%	$	56,053	$	71,188		27	%

Sales and Marketing Expenses

Sales and marketing expenses were $24.9 million in the second quarter of 2011, an increase of $6.1 million, or 33%, over sales and marketing expenses of $18.8 million in the second quarter of 2010. If weighted-average currency exchange rates in the second quarter of 2011 had remained constant with weighted-average currency exchange rates in the second quarter of 2010, sales and marketing expenses in the quarter ended June 30, 2011 would have increased approximately $5.5 million, which is $667,000 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 327 during the second quarter of 2011 from 289 during the second quarter of 2010. The personnel additions combined with annual merit increases and commission and bonus expenses increased sales and marketing expenses by approximately $2.8 million and increased common expense allocation by approximately $1.1 million. RightNow CX^TM related marketing efforts increased approximately $480,000 and travel related expenses increased $459,000 in the quarter ended June 30, 2011 over the quarter ended June 30, 2010 as we continued to focus on increasing sales and brand awareness.

Sales and marketing expenses were $47.5 million for the six months ended June 30, 2011, an increase of $10.0 million, or 27%, over sales and marketing expense of $37.5 million for the six months ended June 30, 2010. Unfavorable foreign currency exchange rate impact increased sales and marketing expense by $917,000 for the six months ended June 30, 2011. If weighted-average currency exchange rates in the six months ended June 30, 2011 had remained constant with the weighted-average currency exchange rates in the six months ended June 30, 2010, sales and marketing expenses during the first six months in 2011 would have increased by approximately $9.0 million. Absent exchange rate impact, the sales and marketing expenses increase was primarily due to personnel additions combined with annual merit increases and commission and bonus expense increasing by $4.3 million and common expense allocation increasing by approximately $1.6 million during the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. Additionally, travel related expenses increased approximately $900,000 and marketing related efforts increased approximately $850,000 as we continued to focus on increasing sales and brand awareness during the six months ended June 30, 2011 over the six months ended June 30, 2010.

Under subscription arrangements, we defer the related sales incentive costs and expense them in proportion to the revenue recognized. Under license arrangements, we expense sales incentives when earned, which is typically upon contract signing. Net sales incentive expense was $4.7 million and $4.2 million for the three months ended June 30, 2011 and June 30, 2010, respectively. Net sales incentive expense was $8.8 million and $8.3 million for the six months ended June 30, 2011 and June 30, 2010, respectively. Our deferred commissions were $10.2 million and $10.9 million at December 31, 2010 and June 30, 2011, respectively.

Research and Development Expenses

Research and development expenses were $5.6 million in the three months ended June 30, 2011, an increase of $784,000, or 16%, over research and development expenses of $4.8 million in the three months ended June 30, 2010, primarily due to growth in headcount, which increased salaries and related expenses by $679,000 and common expense allocation by $369,000. The increase in research and development costs were offset by a $286,000 increase in capitalized cost of internally developed computer software over the same period last year. The capitalized costs of internally developed computer software are included in intangible assets, net on our Condensed Consolidated Balance Sheets and are amortized to cost of recurring revenue on our Condensed Consolidated Statements of Operations. Average employee count in our research and development organization was 225 during the second quarter of 2011 compared to 174 during the second quarter of 2010, which was primarily due to the addition of headcount to enhance and expand RightNow CX^TM, including the addition of 22 employees from our first quarter 2011 acquisition of Q-go.

Research and development expenses for the six months ended June 30, 2011 increased $1.2 million, or 13%, over the comparable 2010 period primarily due to growth in headcount and expenditures pertaining to enhancing and expanding RightNow CX^TM. The increase in these costs, were offset by a $744,000 increase in capitalized cost of internally developed computer software over the same period of 2010.

General and Administrative Expenses

General and administrative expenses were $6.4 million in the second quarter of 2011, an increase of $2.1 million over the second quarter of 2010, primarily due to growth in headcount and annual salary and incentive increases, which increased salaries and related expenses

by $619,000 and increased common expense allocation by $211,000. Average employees in our general and administrative organization were 109 during the second quarter of 2011 compared to 96 during the second quarter of 2010. Additionally, stock based compensation expense increased $821,000, legal costs increased $253,000 and accounting and payroll services increased $143,000.

General and administrative expenses for the six months ended June 30, 2011 were $12.5 million, or 46%, over the comparable period in 2010, which was primarily due to growth in headcount and related expenses which resulted in a combined increase of $1.4 million, an increase in stock based compensation of $1.3 million and acquisition costs related to the Q-go acquisition during the first quarter of 2011 of $415,000.

Stock-Based Compensation Expense

Total stock-based compensation expense for the three months ended June 30, 2011 was $4.0 million compared to $1.8 million for the three months ended June 30, 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 second quarter of 2011 over the second quarter of 2010. Additionally, a portion of overachievement of employee bonuses was recorded to stock-based compensation expense during the second quarter of 2011 and will be paid in stock issued during the third quarter of 2011. Stock-based compensation was $6.7 million for the six months ended June 30, 2011 as compared to $3.5 million for the six months ended June 30, 2010. Stock-based compensation was higher for the six months ended June 30, 2011 primarily due to an increase in the number of awards granted and an increase in the underlying stock price during the first half of 2011 over the first half of 2010. Stock-based compensation expense varies from period-to-period because of the number of option shares that are expected to vest, forfeiture rates, and changes in our underlying stock price and valuation assumptions.

Interest and Other Income (Expense), Net


	Three Months Ended									Six Months Ended
	June 30,									June 30,
							Percent									Percent
(Amounts in thousands)	2010			2011			Change			2010			2011			Change
Interest income	$	117		$	201			72	%	$	313		$	451			44	%
Interest expense		(1	)		(1,099	)		1098			(1	)		(2,197	)		2,196
Other income (expense), net		(97	)		(218	)		125			(110	)		1,398			1,371

Total interest and other income, net	$	19		$	(1,116	)		5,974	%	$	202		$	(348	)		272	%

Interest income increased 72% and 44% in the three and six months ended June 30, 2011, respectively, 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 and $2.2 million in the three and six months ended June 30, 2011, respectively, 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 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.

The change in other income (expense), net during the first quarter of 2011 from the first quarter of 2010 resulted in a net expense increase of $121,000 primarily due to the amortization of debt issuance costs of $253,000 offset by an increase in unrealized exchange gain of $111,000 during the first quarter of 2011.

The change in other income (expense), net during the first half of 2011 from the first half of 2010 resulted in a net income increase of $1.5 million 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 $507,000 during the first half of 2011. 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

Liquidity and Capital Resources


	Three Months Ended June 30,							Six Months Ended June 30,
					Percent							Percent
(Amounts in thousands)	2010		2011		Change			2010		2011		Change
Cash, cash equivalents and short-term investments	$	99,440	$	255,925		157	%	$	99,440	$	255,925		157	%
Cash provided by operating activities		4,014		6,422		60	%		7,525		9,919		32	%

We have historically funded our operations with cash from operations, equity and convertible debt financings and debt borrowings. At June 30, 2011, cash, cash equivalents, and short-term investments totaled $255.9 million. In addition to our cash and short-term investments, other sources of liquidity at June 30, 2011 included a $3.0 million bank line of credit facility, under which there have been no borrowings.

Operating activities provided $6.4 million and $9.9 million of cash during the three and six months ended June 30, 2011, respectively, as compared to $4.0 million and $7.5 million of cash during the three and six months ended June 30, 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. 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 4% of current accounts receivable at June 30, 2011 and 5% of current accounts receivable at December 31, 2010. Accounts receivable written off in the second quarter of 2011 were lower compared to the fourth quarter of 2010. As of June 30, 2011, we experienced an improvement in our aged receivables as compared to December 31, 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 $20.0 million and $81.4 million in the three and six months ended June 30, 2011, respectively. Second quarter 2011 investing activities consisted of $16.4 million of net purchases of short-term investments, $2.0 million of purchased capital expenditures and $1.6 million of capitalized cost of internally developed computer software to be sold as a service. Capital asset additions consisted primarily of equipment acquisitions for our hosting operations and employee growth. During the six months ended June 30, 2011, investing activities consisted of $39.3 million of net purchases of short-term investments, $33.8 million of business acquisition costs related to the acquisition of Q-go, $5.1 million of purchased capital expenditures and $3.1 million of capitalized cost of internally developed computer software to be sold as a service.

Financing activities provided $2.9 million and $8.6 million in the three and six months ended June 30, 2011, respectively, which was primarily due to cash generated from exercises of common stock options issued under our employee equity incentive plan.

We believe our existing cash and short-term investments, together with funds generated from operations, should be sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth and expansion of our sales and marketing activities, the possible 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 June 30, 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 June 30, 2011 or June 30, 2010.

During the three and six months ended June 30, 2011, foreign currency fluctuations had a significant impact on our financial results on a constant currency basis, when comparing the weighted-average exchange rates during the three and six months ended June 30, 2010 to the weighted-average exchange rates during the three and six months ended June 30, 2011.

When compared to the three months ended June 30, 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 three months ended June 30, 2011 relative to the Australian dollar, British pound, Euro and Yen. The change in weighted-average currency exchange rates between the three months ended June 30, 2010 and 2011 had a favorable impact to revenue of $2.2 million. Additionally, deferred revenue increased by approximately $1.0 million when comparing the change in period-end weighted-average currency exchange rates between the year ended December 31, 2010 and quarter ended June 30, 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 three months ended June 30, 2011 had an unfavorable impact of approximately $1.4 million when comparing the change in weighted-average currency exchange rates between the three months ended June 30, 2010 and 2011.

When compared to the six months ended June 30, 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 June 30, 2011 relative to the Australian dollar, British pound, Euro and Yen. The change in weighted-average currency exchange rates between the six months ended June 30, 2010 and 2011 had a favorable impact to revenue of $3.1 million. 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 six months ended June 30, 2011 had an unfavorable impact of approximately $2.0 million when comparing the change in weighted-average currency exchange rates between the six months ended June 30, 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 June 30, 2011, the fair value of our portfolio would decline by approximately $898,000.

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 June 30, 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.

(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 30% and 37% of our revenue for the quarters ended June 30, 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:

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fluctuations in foreign currency exchange rates;

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political, social and economic instability, including terrorist attacks and security concerns in general;

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adverse changes in tariffs and other protectionist laws and business practices that favor local competitors;

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longer collection periods and difficulties in collecting receivables from foreign entities;

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exposure to different legal standards and burdens of complying with a variety of foreign laws, including employment, tax, privacy and data protection laws and regulations;

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reduced protection for our intellectual property in some countries;

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expenses associated with localizing products for foreign countries, including translation into foreign languages; and

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import and export license requirements and restrictions of the United States and each other country in which we operate.

We believe that international sales will continue to represent a significant portion of our revenue for the foreseeable future, and that continued growth will require further expansion of our international operations. A substantial percentage of our international sales are denominated in the local currency. As a result, an increase in the relative value of the dollar could make our products more expensive and potentially less price competitive in international markets.

Margins on sales of our products and services in foreign countries, and on sales of products and services that include costs from foreign based employees or foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations.

We may not be able to sustain or increase profitability in the future.

We had an accumulated deficit of $28.4 million as of June 30, 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 six months ended June 30, 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:

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companies currently providing customer service solutions, some of whom offer hosted services, including BMC Software Corporation, Inc., eGain Communications Corporation, Inquira Software, Inc., Kana Software, Inc., Liveperson, Microsoft Corporation, Moxie Software, Inc., Oracle Corporation, Parature, SAP AG, and salesforce.com;

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CRM systems that are developed and maintained internally by businesses;

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CRM products or services that are developed, or bundled with other products or services, and installed on a client’s premises by software vendors;

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outsourced contact center providers that bundle solutions and agent labor in their service offerings;

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new companies entering the CRM software market, the on-demand applications market and the on-demand CRM market, or expanding from any one of these markets to the others;

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voice system integrators and voice-enabled IVR technology providers, such as Angel.com, Microsoft, and Voxify; and

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social CRM providers, such as Lithium and other niche social CRM providers.

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 applications, will continue to enter the on-demand CRM market with competing products as the on-demand CRM market develops and matures.

Our quarterly results of operations may fluctuate in the future.

Our quarterly revenue and results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly revenue or results of operations decline or fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Fluctuations in our results of operations may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section:

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our ability to retain and increase sales to existing clients, attract new clients and satisfy our clients’ requirements;

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general economic, industry and market conditions;

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fluctuations in foreign currency exchange rates;

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the mix of revenue between subscription arrangements, professional services and license arrangements as sales commissions are generally expensed ratably over the term of an agreement for subscription services, and expensed when invoiced for license arrangements and professional services;

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changes in the mix of revenue between recurring revenue and professional services revenue, because the gross margin on professional services is typically lower than the gross margin on recurring revenue;

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changes in the mix of 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;

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the timing of contracts signed and amount of usage fees;

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the timing and success of new product introductions or upgrades by us or our competitors;

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the timing of professional service sales and our ability to appropriately staff and train professional service resources without negatively impacting professional service margins;

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changes in our pricing policies or those of our competitors;

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the amount and timing of expenditures related to expanding our operations;

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stock price volatility, employee exercise behaviors, and stock option or restricted stock unit forfeiture rates, or changes in the number of stock options or restricted stock units granted and vesting requirements in any particular period, which affects the amount of stock-based compensation expense;

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changes in the payment terms for our products and services, including changes in the mix of payment options chosen by our customers;

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the purchasing and budgeting cycles of our clients; and

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changes in tax rate affected by changes in the mix of earnings and losses in jurisdictions with differing statutory tax rates, certain non-deductible expenses arising from the requirement to expense stock options and the valuation of deferred tax assets and liabilities, including our ability to use our net operating losses.

Because the sales cycle for the evaluation and implementation of our solutions typically ranges from 60 to 180 days, we may also experience a delay between increasing operating expenses and the generation of corresponding revenue, if any. Moreover, because most of the revenue from new sales agreements is recognized over time, downturns or upturns in sales may not be immediately reflected in our operating results. Additionally, our professional service margins may be negatively impacted by training requirements for new professional service resources and/or customer scheduling issues. Most of our expenses, such as salaries and third-party hosting co-location costs, are relatively fixed in the short-term, and our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may not be able to proportionally reduce operating expenses for that quarter, causing a disproportionate effect on our expected results of operations for that quarter.

Due to the foregoing factors, and the other risks discussed in this report, you should not rely only on quarter-to-quarter comparisons of our results of operations as an indication of our future performance.

Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our client base and achieve broader market acceptance of our solutions.

Increasing our client base and achieving broader market acceptance of our solutions may depend to a significant extent on the effectiveness of our sales and marketing programs/operations. Our business will be seriously harmed if our efforts do not maximize revenue per sales and marketing headcount. We may not effectively develop and maintain awareness of our CX brand in a cost-effective manner, not achieve widespread acceptance of our existing and future services and fail to expand and attract new customers. We also may not achieve anticipated revenue growth from our third-party channel partners if we are unable to attract and retain additional motivated channel partners, if any existing or future channel partners fail to successfully market, resell, implement or support our solutions for their customers, or if they represent multiple providers and devote greater resources to market, resell, implement and support competing products and services.

Most of our solutions are sold pursuant to time-based agreements, and if our existing clients elect not to renew or to renew on terms less favorable to us, our business, financial condition and results of operations will be adversely affected.

Prior to January 2010, our solutions had primarily been sold pursuant to time-based agreements that had been typically subject to renewal every two years or less and our clients have no obligation to renew. Beginning January 2010, we introduced the Cloud Services Agreement (CSA), which includes longer terms and annual customer termination for convenience provisions. If cancellations increase as a result of the CSA, 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.

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.

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 may not be able to identify and prevent all potential and threatened intellectual property infringement or violations of third-party license rights. 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. Claims, regardless of their merit, are often 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. There is little or no case law governing the interpretation of many of the terms of certain of the licenses we use for open source software 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.

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 June 30, 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, New Jersey, the Netherlands 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 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 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.

The market for our on-demand application services is not at the same stage of development as traditional on-premise enterprise software, and if it does not develop or develops more slowly than we expect, our business will be harmed.

The market for on-demand application services is not as mature as the market for traditional on-premise enterprise software, and it is uncertain whether these application services will achieve and sustain high levels of demand and market acceptance. Our success will depend to a substantial extent on the willingness of companies to increase their use of on-demand application services in general and for on-demand RightNow CX^TM 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. Widespread market acceptance of our on-demand software solutions is critical to the success of our business. Other factors that may affect the market acceptance of our solutions include:

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on-demand security capabilities and reliability;

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concerns with entrusting a third party to store and manage critical customer data;

•

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;

•

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 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 program’s effectiveness.

The success of our products and our hosted business depends on the continued use of the Internet as a business and communications tool, and the related expansion of the Internet infrastructure.

The future success of our products and our hosted business depends upon the continued and widespread use of the Internet as a primary medium for commerce, communication and business applications. Our business growth would be impeded if the performance or perception of the Internet, or companies providing hosted solutions, was harmed by security problems such as “viruses,” “worms” and other malicious programs, reliability issues arising from outages and damage to Internet infrastructure, delays in development or adoption of new standards and protocols to handle increased demands of Internet activity, increased costs, decreased accessibility and quality of service, or increased government regulation and taxation of Internet activity.

Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws affecting data privacy, the solicitation, collection, processing or use of personal or consumer information, the use of the Internet as a commercial medium and the use of email for marketing or other consumer communications. These laws or charges could limit the growth of Internet-related commerce or communications generally, result in a decline in the use of the Internet and the viability of Internet-based services such as ours and reduce the demand for our products.

The Internet has experienced, and is expected to continue to experience, significant user and traffic growth, which has, at times, caused user frustration with slow access and download times. If Internet activity grows faster than Internet infrastructure or if the Internet infrastructure is otherwise unable to support the demands placed on it, or if hosting capacity becomes scarce, our business growth may be adversely affected.

Privacy concerns and laws or other domestic or foreign regulations may adversely affect our business or reduce sales of our solutions.

Businesses using our solutions collect personal information regarding their customers when those customers contact them with customer service inquiries. A valuable component of our solutions is their ability to allow our clients to use and analyze their customers’ information to increase sales, marketing and up-sell or cross-sell opportunities. Federal, state and foreign government bodies and agencies, however, have adopted and are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our clients may limit the use and adoption of this component of our solutions and reduce overall demand for our solutions. Furthermore, even where a client desires to make full use of these features in our solutions, privacy concerns may cause our clients’ customers to resist providing the personal data necessary to allow our clients to use our solutions most effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market acceptance of our products.

Domestic and international laws and regulations, and legislative and regulatory initiatives, may adversely affect our clients’ ability to collect and/or use demographic and personal information from their customers, which could reduce demand for our solutions. A number of countries, including Australia, Canada, 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 June 30, 2011, Greg Gianforte, our founder and Chief Executive Officer, and his spouse, Susan Gianforte, have voting power over approximately 20% of our outstanding common stock and, together with other officers, directors and other members of senior management, have voting power over approximately 26% of our outstanding common stock. In addition, none of the shares of common stock over which Mr. Gianforte and Mrs. Gianforte have voting power are subject to vesting restrictions. As a result, Mr. Gianforte and Mrs. Gianforte, acting together with some of our other officers, directors and other members of senior management, may be able to influence matters requiring stockholder approval, including the election of directors, management changes and approval of significant corporate transactions. This concentration of voting power may have the effect of delaying, preventing or deterring a change in control of RightNow, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of RightNow and might reduce the market price of our common stock.

In addition, Mr. Gianforte beneficially owns, directly or indirectly, a 50% membership interest in Genesis Partners, LLC, our landlord from whom we lease our principal offices in Bozeman, Montana. Consequently, Mr. Gianforte has significant influence over any decisions by Genesis Partners regarding renewal, modification or termination of our Bozeman, Montana leases. In the event that our current leases with Genesis Partners were terminated or otherwise could not be renewed, or came up for renewal on commercially unreasonable terms, we would be required to find alternative office space to lease or buy.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

Provisions of our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable and may limit the market price of our common stock. These provisions include the following:

•

establishing a classified board in which only a portion of the total board members will be elected at each annual meeting;

•

authorizing the board to issue preferred stock;

•

providing the board with sole authority to set the number of authorized directors and to fill vacancies on the board;

•

limiting the persons who may call special meetings of stockholders;

•

prohibiting certain transactions under certain circumstances with interested stockholders;

•

requiring supermajority approval to amend certain provisions of the certificate of incorporation; and

•

prohibiting stockholder action by written consent.

It is possible that the provisions contained in our certificate of incorporation and bylaws, the voting rights held by insiders and the ability of our board of directors to issue preferred stock without stockholder action may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, may discourage bids for our common stock at a premium over the market price of our common stock and may adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock.

Item 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.

None.

Item 6. Exhibits

Exhibits

The exhibits listed below are part of this Form 10-Q, unless otherwise indicated.


Exhibit 3.1		Amended and Restated Certificate of Incorporation of the Registrant. (1)

Exhibit 3.2		Amended and Restated Bylaws of the Registrant. (2)

Exhibit 31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Exhibit 101		The following materials from the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2011, filed with the SEC on August 5, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements. (3)


(1)		Incorporated by reference to Exhibit 4.2 to the Company’s registration statement on Form S-8 (File No. 333-118515) filed with the Securities and Exchange Commission on August 24, 2004.

(2)		Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on January 25, 2006.

(3)		Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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: August 5, 2011


RightNow Technologies, Inc.
(Registrant)

By:		/s/ Jeffrey C. Davison Jeffrey C. Davison Chief Financial Officer,
		Senior Vice President, and Treasurer
		(Principal Financial and Accounting Officer)

EX-31.1 2 c64649exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

Certification of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002

I, Greg R. Gianforte, certify that:

I have reviewed this report on Form 10-Q of RightNow Technologies, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011


/s/ Greg R. Gianforte Greg R. Gianforte
Chairman and Chief Executive Officer
(Principal Executive Officer)

EX-31.2 3 c64649exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

Certification of the Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey C. Davison, certify that:

I have reviewed this report on Form 10-Q of RightNow Technologies, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011


/s/ Jeffrey C. Davison Jeffrey C. Davison
Chief Financial Officer,
Senior Vice President, and Treasurer
(Principal Financial and Accounting Officer)

EX-32.1 4 c64649exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

The following certifications accompany this report and are being furnished pursuant to Item 601(b)(32) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. These certifications shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Registrant for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, or incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates them by reference into such a filing.

Certification 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

Based on my knowledge, I, Greg R. Gianforte, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RightNow Technologies, Inc. on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of RightNow Technologies, Inc.

Date: August 5, 2011


/s/ Greg R. Gianforte Greg R. Gianforte
Chairman and Chief Executive Officer

Based on my knowledge, I, Jeffrey C. Davison, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RightNow Technologies, Inc. on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of RightNow Technologies, Inc.

Date: August 5, 2011


/s/ Jeffrey C. Davison Jeffrey C. Davison
Chief Financial Officer,
Senior Vice President, and Treasurer

A signed original of these written statements required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of these written statements required by Section 906, has been provided to RightNow Technologies, Inc. and will be retained by RightNow Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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41546000

61212000

<div align="left" style="font-family: 'Times New Roman',Times,serif">   <div align="left"> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(1) Business Description and Basis of Presentation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Business Description</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 Company’s 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. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Basis of Presentation</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 Company’s financial position at June 30, 2011, results of operations for the three and six month periods ended June 30, 2010 and 2011, and cash flows for the six month periods ended June 30, 2010 and 2011. This includes all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of the Company’s financial position. The interim period results are not necessarily indicative of the results to be expected for the full year. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 markets, 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. </div> </div>

<div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(2) Certain Risks and Concentrations</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s 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 Company’s 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 Company’s 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Financial instruments subjecting the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains cash, cash equivalents, and short-term investments with various domestic and foreign financial institutions. The Company’s 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s customers are worldwide with approximately 66% of total revenue in North America, 20% in EMEA (Europe, the Middle East and Africa) and 14% in Asia Pacific on a trailing twelve month basis. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     No individual customer accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2010 and 2011. No individual customer accounted for more than 10% of the Company’s accounts receivable at December 31, 2010 or June 30, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of December 31, 2010 and June 30, 2011, assets located outside North America totaled 12% and 22% of total assets, respectively. The income (loss) from operations outside of North America totaled $677,367 and ($1.6) million for the six months ended June 30, 2010 and 2011, respectively. The loss from operations outside North America for the six months ended June 30, 2011 was primarily due to the acquisition of Q-go during the first quarter of 2011. Revenue by geographical region follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">North America </div></td> <td> </td> <td align="left">$</td> <td align="right">30,477</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">34,915</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">60,417</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">68,990</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">EMEA </div></td> <td> </td> <td> </td> <td align="right">8,231</td> <td> </td> <td> </td> <td> </td> <td align="right">11,323</td> <td> </td> <td> </td> <td> </td> <td align="right">16,374</td> <td> </td> <td> </td> <td> </td> <td align="right">21,561</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Asia Pacific </div></td> <td> </td> <td> </td> <td align="right">4,746</td> <td> </td> <td> </td> <td> </td> <td align="right">8,578</td> <td> </td> <td> </td> <td> </td> <td align="right">8,765</td> <td> </td> <td> </td> <td> </td> <td align="right">16,594</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td align="left">$</td> <td align="right">43,454</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">54,816</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">85,556</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">107,145</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>

<div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(3) Revenue Recognition</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 generated 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 Company’s subscription contracts, the Company applies <i>ASU 2009-13, “Revenue Arrangements with Multiple Deliverables” (“ASU 2009-13”), </i>rather than <i>Industry Topic 985, Software, </i>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 <i>Industry Topic 985</i>. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 Company’s fee for providing the software and services is fixed or determinable; and d) collection of the Company’s fee is probable. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Subscriptions include access to the Company’s 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 <i>Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2009-13, “Revenue Arrangements with Multiple Deliverables</i>.” <i>ASU 2009-13</i>, which amended FASB <i>Topic 605-25, “Multiple-Element Arrangements</i>,” 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 management’s 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 <i>ASU 2009-13</i> 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 is recognized over the contractual period and revenue for professional services is recognized as delivered provided that the above criteria have been met. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s revenue also is, to a lesser extent, earned under license arrangements. Revenue under these arrangements is recognized pursuant to the requirements of <i>Industry Topic 985</i>, 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 licenses 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 licenses, the Company treats the software license, hosting and support services as a 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 delivered. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s policy is to record revenue net of any applicable sales, use or excise taxes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 Company’s 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Certain customers have agreements that provide for usage fees above fixed minimums. Usage of the Company’s 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Professional services revenue is recognized as delivered, 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. </div> </div>   <div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(4) Sales Incentives</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 $4.2 million and $4.7 million for the three months ended June 30, 2010 and June 30, 2011, respectively. Sales incentive expense was $8.3 and $8.8 million for the six months ended June 30, 2010 and June 30, 2011, respectively. Deferred commissions at December 31, 2010 and June 30, 2011 were $10.2 million and $10.9 million, respectively. </div> </div>   <div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(5) Internal Use Software</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Topic 350, Intangibles — Goodwill and Other</i>, 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. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">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 are approximately three years. Net capitalized cost of internally developed computer software was approximately $4.7 million and approximately $7.1 million as of December 31, 2010 and June 30, 2011, respectively. The capitalized costs are included in intangible assets, net on the Company’s Condensed Consolidated Balance Sheets. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(6) 2.50% Convertible Senior Notes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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”). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 included in other current and non-current assets on the Company’s Condensed Consolidated Balance Sheets and are being amortized over 5 years. Debt issuance costs, net of amortization were $4.5 million as of June 30, 2011. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(7) Net Income Per Share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     A reconciliation of the denominator used in the calculation of basic and diluted net income per share is as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>Three Months Ended</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>Six Months Ended</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Weighted average common shares outstanding for basic net income per share </div></td> <td> </td> <td> </td> <td align="right">32,000</td> <td> </td> <td> </td> <td> </td> <td align="right">33,171</td> <td> </td> <td> </td> <td> </td> <td align="right">31,965</td> <td> </td> <td> </td> <td> </td> <td align="right">32,880</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Employee stock awards </div></td> <td> </td> <td> </td> <td align="right">1,427</td> <td> </td> <td> </td> <td> </td> <td align="right">2,877</td> <td> </td> <td> </td> <td> </td> <td align="right">1,465</td> <td> </td> <td> </td> <td> </td> <td align="right">2,912</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding for dilutive net income per share </div></td> <td> </td> <td> </td> <td align="right">33,427</td> <td> </td> <td> </td> <td> </td> <td align="right">36,048</td> <td> </td> <td> </td> <td> </td> <td align="right">33,430</td> <td> </td> <td> </td> <td> </td> <td align="right">35,792</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company included in the computation of diluted net income per share options to purchase 2,877,000 and 2,912,000 shares of common stock for the three and six months ended June 30, 2011, respectively, 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. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following common stock equivalents were excluded from the computation of diluted earnings per share because their impact was anti-dilutive (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>Three Months Ended</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>Six Months Ended</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> </tr>   <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Employee stock options </div></td> <td> </td> <td> </td> <td align="right">5,148</td> <td> </td> <td> </td> <td> </td> <td align="right">3,674</td> <td> </td> <td> </td> <td> </td> <td align="right">5,110</td> <td> </td> <td> </td> <td> </td> <td align="right">3,638</td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition, the Company excluded from the computation of diluted net income per share the effect of the conversion of the convertible senior notes due 2030 (“the Notes”) as they were anti-dilutive. If the Notes had been dilutive, our diluted net income per share would have included additional earnings of $815,000 and $1.6 million for the three and six months ended June 30, 2011, respectively. Also included would have been incremental common shares of 5,487,786 for the three and six months ended June 30, 2011. Please refer to Note 6 herein for more details of the Notes. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(8) Comprehensive Income</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Comprehensive income for the comparative periods was as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net income </div></td> <td> </td> <td align="left">$</td> <td align="right">1,404</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">194</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,989</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,584</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss): </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Unrealized gain on short-term investments </div></td> <td> </td> <td> </td> <td align="right">42</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(63</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">16</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(77</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Foreign currency translation adjustments </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(213</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">952</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(28</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,546</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Comprehensive income </div></td> <td> </td> <td align="left">$</td> <td align="right">1,233</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,083</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1,977</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,053</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(9) Fair Value</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 <i>Topic 820 </i>must maximize the use of observable inputs and minimize the use of unobservable inputs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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: </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Level 1 — Quoted prices in active markets for identical assets or liabilities.</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>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.</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>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.</td> </tr> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table represents fair value hierarchy for the Company’s financial assets (cash equivalents and investments) which are measured at fair value on a recurring basis as of June 30, 2011 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 1</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 2</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cash </div></td> <td> </td> <td align="left">$</td> <td align="right">112,703</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">112,703</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Money market funds </div></td> <td> </td> <td> </td> <td align="right">5,251</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">5,251</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Certificates of deposit </div></td> <td> </td> <td> </td> <td align="right">1,245</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">1,245</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Commercial paper </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">5,599</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">5,599</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Corporate notes and bonds </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">19,611</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">19,611</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">U.S. Government agency securities </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">87,421</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">87,421</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">State and municipal securities </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">24,095</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">24,095</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td align="left">$</td> <td align="right">119,199</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">136,726</td> <td> </td> <td> </td> <td align="left">$</td> <td> </td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">255,925</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(10) Stock-Based Compensation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Stock-based compensation expense: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Cost of recurring revenue </div></td> <td> </td> <td align="left">$</td> <td align="right">117</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">220</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">230</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">424</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Cost of professional services </div></td> <td> </td> <td> </td> <td align="right">122</td> <td> </td> <td> </td> <td> </td> <td align="right">508</td> <td> </td> <td> </td> <td> </td> <td align="right">236</td> <td> </td> <td> </td> <td> </td> <td align="right">806</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Sales and marketing expenses </div></td> <td> </td> <td> </td> <td align="right">726</td> <td> </td> <td> </td> <td> </td> <td align="right">1,496</td> <td> </td> <td> </td> <td> </td> <td align="right">1,477</td> <td> </td> <td> </td> <td> </td> <td align="right">2,473</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Research and development expenses </div></td> <td> </td> <td> </td> <td align="right">240</td> <td> </td> <td> </td> <td> </td> <td align="right">387</td> <td> </td> <td> </td> <td> </td> <td align="right">497</td> <td> </td> <td> </td> <td> </td> <td align="right">694</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">General and administrative expenses </div></td> <td> </td> <td> </td> <td align="right">556</td> <td> </td> <td> </td> <td> </td> <td align="right">1,377</td> <td> </td> <td> </td> <td> </td> <td align="right">1,076</td> <td> </td> <td> </td> <td> </td> <td align="right">2,330</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total stock-based compensation expense </div></td> <td> </td> <td align="left">$</td> <td align="right">1,761</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">3,988</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">3,516</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">6,727</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Stock-based compensation expense capitalized during the six months ended June 30, 2010 and June 30, 2011 was insignificant, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Unrecognized stock-based compensation expense of outstanding stock options at June 30, 2011 was approximately $28.7 million, which is expected to be recognized over a weighted average period of 2.7 years. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>Three Months Ended</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7"><b>Six Months Ended</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value per share </div></td> <td> </td> <td align="right">$</td> <td align="right">7.21</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">15.86</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">7.82</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">14.23</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Risk free rate </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">1.7</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">1.4</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">1.9</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">2.0</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Expected term </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">4.2 yrs</td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">4.4 yrs</td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">4.5 yrs</td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">4.7 yrs</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Volatility </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">64</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">62</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">65</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">62</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Dividend yield </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">0</td> <td nowrap="nowrap">%</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Key assumptions used to estimate the fair value of stock awards are as follows: </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Risk Free Rate: </i>The risk-free rate is determined by reference to the U.S. Treasury yield curve in effect at or near the time of grant for time periods similar to the expected term of the award. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Expected Term</i>: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is estimated based on historical experience of similar awards, giving consideration to the contractual term of the awards, vesting schedules and expectations of employee exercise behavior. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Volatility</i>: The Company’s estimate of expected volatility is based on the historical volatility of the Company’s common stock over the expected life of the options as this represents the Company’s best estimate of future volatility. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Dividend Yield: </i>The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Activity under the Company’s stock option plans for the six months ended June 30, 2011 was as follows (option shares in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="40%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Shares</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>average</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Aggregate</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>average</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Shares</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>underlying</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>exercise</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>intrinsic</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>remaining</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>available</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>outstanding</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>price per</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>value (in</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>contractual</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>for grant</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>options</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>share</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>thousands)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>life (in years)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010 </div></td> <td> </td> <td> </td> <td align="right">2,433</td> <td> </td> <td> </td> <td> </td> <td align="right">6,223</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">12.02</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right">7.0</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Annual reserve addition (1) </div></td> <td> </td> <td> </td> <td align="right">1,000</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Granted (2) </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,472</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">1,427</td> <td> </td> <td> </td> <td> </td> <td align="right">27.30</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Exercised </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(945</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">8.92</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Forfeited, expired, exchanged or canceled (3) </div></td> <td> </td> <td> </td> <td align="right">155</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(155</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">13.34</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at June 30, 2011 </div></td> <td> </td> <td> </td> <td align="right">2,116</td> <td> </td> <td> </td> <td> </td> <td align="right">6,550</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">15.77</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">108,990</td> <td> </td> <td> </td> <td> </td> <td align="right">7.4</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Vested or expected to vest at June 30, 2011 </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right">6,259</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">15.45</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">106,115</td> <td> </td> <td> </td> <td> </td> <td align="right">7.3</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Exercisable at June 30, 2011 </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right">2,984</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">12.26</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">60,097</td> <td> </td> <td> </td> <td> </td> <td align="right">5.9</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left"> <div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">  </div> </div> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr> <td width="3%"></td> <td width="1%"></td> <td width="96%"></td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(1)</td> <td> </td> <td>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.</td> </tr> <tr style="font-size: 3pt"> <td> </td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(2)</td> <td> </td> <td>During the six months ended June 30, 2011, there were 45,165 restricted stock units granted under the 2004 Equity Incentive Plan.</td> </tr> <tr style="font-size: 3pt"> <td> </td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(3)</td> <td> </td> <td>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.</td> </tr> </table> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The total intrinsic value of options exercised during the six months ended June 30, 2010 and 2011 was $861,000 and $20.1 million, respectively. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(11) Commitments and Contingencies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Warranties and Indemnification</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s cloud-based application service is typically warranted to perform in accordance with its user documentation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any material liabilities related to such obligations in the accompanying condensed consolidated financial statements. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 subscription 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Litigation</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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 adverse effect on the Company’s consolidated financial position, results of operations or liquidity. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(12) Income Taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The benefit for income taxes of $522,000 and the provision for income taxes of $132,000 in the three and six months ended June 30, 2011, respectively, consists primarily of tax expense resulting from federal taxes, foreign tax withholdings and various state income taxes. Without period specific tax benefit items of $554,000, the effective tax rate was 40%. The benefit for income taxes in the three months ended June 30, 2011 was primarily due to tax benefits related to the recognition of net operating losses and stock option exercises. The Company’s effective tax rate without period specific items 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 June 30, 2011. As of December 31, 2010 and June 30, 2011, the Company had an insignificant liability for unrecognized tax benefits, none of which would materially adversely affect its effective tax rate if recognized. The Company does not expect that the obligation for unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Company’s policy is to recognize interest and penalties on the liability for 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 and six months ended June 30, 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. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(13) Acquisition</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On January 26, 2011, the Company acquired all of the stock of Q-go.com B.V. (“Q-go”) and its subsidiaries for approximately $35.7 million in cash. Q-go is a natural language search provider, which the Company believes helps organizations increase customer revenue and improve web visitor experiences. Q-go was headquartered in Amsterdam with subsidiary operations in Germany, Spain and the United States. The acquisition was accounted for under the purchase method of accounting and, accordingly, the results of Q-go are included in the condensed consolidated financial statements since the acquisition date. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company has allocated the purchase price to the Q-go assets acquired and liabilities assumed at estimated fair values. The purchase price, and purchase price allocation are as follows (amounts in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cash consideration </div></td> <td> </td> <td align="left">$</td> <td align="right">35,673</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total purchase price </div></td> <td> </td> <td align="left">$</td> <td align="right">35,673</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Purchase price allocation: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net assets assumed </div></td> <td> </td> <td align="left">$</td> <td align="right">531</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Goodwill and intangible assets </div></td> <td> </td> <td> </td> <td align="right">35,142</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total purchase price </div></td> <td> </td> <td align="left">$</td> <td align="right">35,673</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As part of the acquisition accounting for Q-go, the Company recognized provisional amounts for the fair value of certain assets acquired and liabilities assumed. The Company continues to review these matters during the measurement period, and if it obtains new information about the facts and circumstances that existed at the acquisition date, which identify adjustments to the initially recorded balances, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts. Subsequent revisions, if any, are not expected to be material. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The components of the intangible assets listed in the above table as of the acquisition date are as follows (amounts in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Goodwill </div></td> <td> </td> <td align="left">$</td> <td align="right">23,091</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Developed technology </div></td> <td> </td> <td> </td> <td align="right">9,586</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Customer relationships </div></td> <td> </td> <td> </td> <td align="right">1,369</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Trade name and trademarks </div></td> <td> </td> <td> </td> <td align="right">685</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Non-compete agreements </div></td> <td> </td> <td> </td> <td align="right">411</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Intangible assets </div></td> <td> </td> <td align="left">$</td> <td align="right">35,142</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The change in goodwill was as follows (amounts in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance, beginning of period </div></td> <td> </td> <td align="left">$</td> <td align="right">7,975</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">7,975</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Acquisition of Q-go </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">23,091</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">1,326</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Balance, end of period </div></td> <td> </td> <td align="left">$</td> <td align="right">7,975</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">32,392</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. As a result of exchange rate changes, the amount recorded as goodwill relating to Q-go has appreciated $1.3 million. 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     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. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>(14) Subsequent Events</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company accounts for its subsequent events in accordance with FASB Accounting Standards Codification, <i>Topic 855, Subsequent Events</i>. There have been no subsequent events in accordance with <i>Topic 855 </i>to report as of the date this Form-10Q was filed. </div> </div>

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenue:
Recurring revenue	$ 45,409	$ 34,730	$ 87,322	$ 67,755
Professional services	9,407	8,724	19,823	17,801
Total revenue	54,816	43,454	107,145	85,556
Cost of revenue:
Recurring revenue	7,746	5,952	15,072	11,831
Professional services	9,411	7,378	18,821	14,710
Total cost of revenue	17,157	13,330	33,893	26,541
Gross profit	37,659	30,124	73,252	59,015
Operating expenses:
Sales and marketing	24,913	18,777	47,463	37,501
Research and development	5,581	4,797	11,177	9,929
General and administrative	6,377	4,324	12,548	8,623
Total operating expenses	36,871	27,898	71,188	56,053
Income from operations	788	2,226	2,064	2,962
Interest and other income (expense), net	(1,116)	19	(348)	202
Income (loss) before income taxes	(328)	2,245	1,716	3,164
Benefit (provision) for income taxes	522	(841)	(132)	(1,175)
Net income	$ 194	$ 1,404	$ 1,584	$ 1,989
Net income per share:
Basic	$ 0.01	$ 0.04	$ 0.05	$ 0.06
Diluted	$ 0.01	$ 0.04	$ 0.04	$ 0.06
Shares used in the computation:
Basic	33,171	32,000	32,880	31,965
Diluted	36,048	33,427	35,792	33,430

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating activities:
Net income	$ 1,584	$ 1,989
Non-cash adjustments:
Depreciation and amortization	6,120	3,937
Provision for losses on accounts receivable	41	81
Stock-based compensation	6,727	3,516
Foreign currency gain related to acquisition	(1,819)
Changes in operating accounts, net of business acquisitions:
Receivables	(2,981)	(461)
Prepaid and other current assets	443	(1,868)
Deferred commissions	(655)	989
Accounts payable	(4,413)	3,144
Commissions and bonuses payable	(1,157)	(1,573)
Other accrued liabilities	3,790	2,564
Deferred revenue	3,107	(4,774)
Other	(868)	(19)
Cash provided by operating activities	9,919	7,525
Investing activities:
Net change in investments	(39,297)	16,765
Acquisition of property and equipment	(5,148)	(3,836)
Business acquisitions, net of cash acquired	(33,837)
Intangible asset additions	(3,083)	(2,339)
Cash provided by (used in) investing activities	(81,365)	10,590
Financing activities:
Proceeds from issuance of common stock under employee benefit plans	8,376	1,568
Excess tax benefits of stock options exercised	449	1,130
Payments on debt	(260)	(22)
Cash provided by financing activities	8,565	2,676
Effect of foreign exchange rates on cash and cash equivalents	2,725	(1,125)
Increase (decrease) in cash and cash equivalents	(60,156)	19,666
Cash and cash equivalents at beginning of period	181,948	41,546
Cash and cash equivalents at end of period	$ 121,792	$ 61,212

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Document and Entity Information (USD $)	6 Months Ended
Document and Entity Information (USD $)	Jun. 30, 2011	Jul. 29, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	RIGHTNOW TECHNOLOGIES INC
Entity Central Index Key	0001111247
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 503,000,000
Entity Common Stock, Shares Outstanding		33,249,662

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Comprehensive Income

6 Months Ended

Jun. 30, 2011

Comprehensive Income [Abstract]

Comprehensive Income

(8) Comprehensive Income

Comprehensive income for the comparative periods was as follows (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Net income	$	1,404		$	194		$	1,989		$	1,584
Other comprehensive income (loss):
Unrealized gain on short-term investments		42			(63	)		16			(77	)
Foreign currency translation adjustments		(213	)		952			(28	)		2,546

Comprehensive income	$	1,233		$	1,083		$	1,977		$	4,053

- Definition

The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 55
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6920433&loc=d3e998-108581

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e689-108580

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 11
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e637-108580

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 17
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e716-108580

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 14
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e681-108580

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Glossary Reclassification Adjustments
-URI http://asc.fasb.org/extlink&oid=6522872

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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 130
-Paragraph 14-26
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 12
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e640-108580

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

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-Name Accounting Standards Codification
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+ Details

XML 15 R17.htm IDEA: XBRL DOCUMENT

Acquisition

6 Months Ended

Jun. 30, 2011

Acquisition [Abstract]

Acquisition

(13) Acquisition


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

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

The change in goodwill was as follows (amounts in thousands):


	Six Months Ended
	June 30,
	2010		2011
Balance, beginning of period	$	7,975	$	7,975
Acquisition of Q-go		—		23,091
Effect of exchange rate changes		—		1,326

Balance, end of period	$	7,975	$	32,392

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141
-Paragraph 51, 52
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
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-Paragraph 6
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-Name Accounting Standards Codification
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-Name Accounting Standards Codification
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-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4934-128472

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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
-Appendix F
-Paragraph F4
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-Name Accounting Standards Codification
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-Name Statement of Financial Accounting Standard (FAS)
-Number 141R
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-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 88-16
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+ Details

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Sales Incentives	6 Months Ended
Sales Incentives	Jun. 30, 2011
Sales Incentives [Abstract]
Sales Incentives	(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 $4.2 million and $4.7 million for the three months ended June 30, 2010 and June 30, 2011, respectively. Sales incentive expense was $8.3 and $8.8 million for the six months ended June 30, 2010 and June 30, 2011, respectively. Deferred commissions at December 31, 2010 and June 30, 2011 were $10.2 million and $10.9 million, respectively.

XML 17 R14.htm IDEA: XBRL DOCUMENT

Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

(10) Stock-Based Compensation

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				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Stock-based compensation expense:
Cost of recurring revenue	$	117	$	220	$	230	$	424
Cost of professional services		122		508		236		806
Sales and marketing expenses		726		1,496		1,477		2,473
Research and development expenses		240		387		497		694
General and administrative expenses		556		1,377		1,076		2,330

Total stock-based compensation expense	$	1,761	$	3,988	$	3,516	$	6,727

Stock-based compensation expense capitalized during the six months ended June 30, 2010 and June 30, 2011 was insignificant, respectively.

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						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Fair value per share	$	7.21		$	15.86		$	7.82		$	14.23
Risk free rate		1.7	%		1.4	%		1.9	%		2.0	%
Expected term	4.2 yrs			4.4 yrs			4.5 yrs			4.7 yrs
Volatility		64	%		62	%		65	%		62	%
Dividend yield		0	%		0	%		0	%		0	%

Key assumptions used to estimate the fair value of stock awards are as follows:

Risk Free Rate: The risk-free rate is determined by reference to the U.S. Treasury yield curve in effect at or near the time of grant for time periods similar to the expected term of the award.

Dividend Yield: The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Activity under the Company’s stock option plans for the six months ended June 30, 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)		(1,472	)		1,427			27.30
Exercised		—			(945	)		8.92
Forfeited, expired, exchanged or canceled (3)		155			(155	)		13.34

Balance at June 30, 2011		2,116			6,550		$	15.77	$	108,990		7.4

Vested or expected to vest at June 30, 2011					6,259		$	15.45	$	106,115		7.3

Exercisable at June 30, 2011					2,984		$	12.26	$	60,097		5.9


(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 six months ended June 30, 2011, there were 45,165 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 six months ended June 30, 2010 and 2011 was $861,000 and $20.1 million, respectively.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

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-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
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-Topic 718
-SubTopic 10
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+ Details

XML 18 R15.htm IDEA: XBRL DOCUMENT

Commitments and Contingencies	6 Months Ended
Commitments and Contingencies	Jun. 30, 2011
Commitments and Contingencies [Abstract]
Commitments and Contingencies	(11) Commitments and Contingencies *Warranties and Indemnification* The Company’s cloud-based application service is typically warranted to perform in accordance with its user documentation. The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any material 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 subscription 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 person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. *Litigation* From time to time, the Company is involved in legal proceedings arising in the normal course of business. The Company believes that the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

- Definition

The entire disclosure for commitments and contingencies.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
-SubTopic 20
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14435-108349

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-Name Accounting Standards Codification
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-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
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-Name Accounting Standards Codification
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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.25)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

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XML 19 R13.htm IDEA: XBRL DOCUMENT

Fair Value

6 Months Ended

Jun. 30, 2011

Fair Value [Abstract]

Fair Value

(9) Fair Value

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 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.


	Level 1		Level 2		Level 3		Total
Cash	$	112,703	$	—	$	—	$	112,703
Money market funds		5,251		—		—		5,251
Certificates of deposit		1,245		—		—		1,245
Commercial paper		—		5,599		—		5,599
Corporate notes and bonds		—		19,611		—		19,611
U.S. Government agency securities		—		87,421		—		87,421
State and municipal securities		—		24,095		—		24,095

	$	119,199	$	136,726	$		$	255,925

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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+ Details

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Certain Risks and Concentrations

6 Months Ended

Jun. 30, 2011

Certain Risks and Concentrations [Abstract]

Certain Risks and Concentrations

(2) Certain Risks and Concentrations


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
North America	$	30,477	$	34,915	$	60,417	$	68,990
EMEA		8,231		11,323		16,374		21,561
Asia Pacific		4,746		8,578		8,765		16,594

	$	43,454	$	54,816	$	85,556	$	107,145

- Definition

The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date.

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-Name Statement of Position (SOP)
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+ Details

XML 21 R9.htm IDEA: XBRL DOCUMENT

Internal Use Software	6 Months Ended
Internal Use Software	Jun. 30, 2011
Internal Use Software [Abstract]
Internal Use Software	(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 are approximately three years. Net capitalized cost of internally developed computer software was approximately $4.7 million and approximately $7.1 million as of December 31, 2010 and June 30, 2011, respectively. The capitalized costs are included in intangible assets, net on the Company’s Condensed Consolidated Balance Sheets.

XML 22 R10.htm IDEA: XBRL DOCUMENT

2.50% Convertible Senior Notes	6 Months Ended
2.50% Convertible Senior Notes	Jun. 30, 2011
2.50% Convertible Senior Notes [Abstract]
2.50% Convertible Senior Notes	(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 included in other current and non-current assets on the Company’s Condensed Consolidated Balance Sheets and are being amortized over 5 years. Debt issuance costs, net of amortization were $4.5 million as of June 30, 2011.

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Subsequent Events
6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

Subsequent Events

(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.

XML 26 R11.htm IDEA: XBRL DOCUMENT

Net Income Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Net Income Per Share

(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				Six Months Ended
	June 30,				June 30,
	2010		2011		2010		2011
Weighted average common shares outstanding for basic net income per share		32,000		33,171		31,965		32,880
Effect of dilutive securities:
Employee stock awards		1,427		2,877		1,465		2,912

Weighted average shares outstanding for dilutive net income per share		33,427		36,048		33,430		35,792

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

Six Months Ended

June 30,

2010

2011

2010

2011

Employee stock options

5,148

3,674

5,110

3,638

- Definition

The entire disclosure for earnings per share.

+ References+ Details

XML 27 R5.htm IDEA: XBRL DOCUMENT

Business Description and Basis of Presentation	6 Months Ended
Business Description and Basis of Presentation	Jun. 30, 2011
Business Description and Basis of Presentation [Abstract]
Business Description and Basis of Presentation	(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 Company’s 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 management’s discussion and analysis of financial condition and results of operations, contained in the Company’s 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 Company’s financial position at June 30, 2011, results of operations for the three and six month periods ended June 30, 2010 and 2011, and cash flows for the six month periods ended June 30, 2010 and 2011. This includes all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of the Company’s 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 markets, 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.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 720
-SubTopic 15
-URI http://asc.fasb.org/subtopic&trid=2122524

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
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-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6921930&loc=d3e5614-111684

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
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-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=6970148&loc=SL6228881-111685

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Name Statement of Position (SOP)
-Publisher AICPA
-Number 94-6
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 272
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6373374&loc=d3e70478-108055

Reference 6: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 205
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-URI http://asc.fasb.org/extlink&oid=6359566&loc=d3e326-107755

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Staff Position (FSP)
-Number FAS140-4/FIN46(R)-8
-Paragraph 8, C1, C7
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Name FASB Interpretation (FIN)
-Publisher FASB
-Number 46R
-Paragraph 4, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 852
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2209116

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/subtopic&trid=2134480

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 2-6
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-Publisher FASB
-Name Accounting Standards Codification
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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Reference 16: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2197480

+ Details

XML 28 R7.htm IDEA: XBRL DOCUMENT

Revenue Recognition	6 Months Ended
Revenue Recognition	Jun. 30, 2011
Revenue Recognition [Abstract]
Revenue Recognition	(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 generated 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 Company’s 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 Company’s fee for providing the software and services is fixed or determinable; and d) collection of the Company’s fee is probable. Subscriptions include access to the Company’s 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 management’s 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 is recognized over the contractual period and revenue for professional services is recognized as delivered provided that the above criteria have been met. The Company’s 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 licenses 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 licenses, the Company treats the software license, hosting and support services as a 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 delivered. The Company’s 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 Company’s 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 Company’s 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 delivered, 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.

XML 29 R16.htm IDEA: XBRL DOCUMENT

Income Taxes	6 Months Ended
Income Taxes	Jun. 30, 2011
Income Taxes [Abstract]
Income Taxes	(12) Income Taxes The benefit for income taxes of $522,000 and the provision for income taxes of $132,000 in the three and six months ended June 30, 2011, respectively, consists primarily of tax expense resulting from federal taxes, foreign tax withholdings and various state income taxes. Without period specific tax benefit items of $554,000, the effective tax rate was 40%. The benefit for income taxes in the three months ended June 30, 2011 was primarily due to tax benefits related to the recognition of net operating losses and stock option exercises. The Company’s effective tax rate without period specific items 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 June 30, 2011. As of December 31, 2010 and June 30, 2011, the Company had an insignificant liability for unrecognized tax benefits, none of which would materially adversely affect its effective tax rate if recognized. The Company does not expect that the obligation for unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Company’s policy is to recognize interest and penalties on the liability for 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 and six months ended June 30, 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.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
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-Article 4

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(h))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 121,792	$ 181,948
Short-term investments	134,133	94,759
Accounts receivable	45,703	39,338
Allowance for doubtful accounts	(1,774)	(2,021)
Receivables, net	43,929	37,317
Deferred commissions	5,963	5,418
Prepaid and other current assets	5,488	4,662
Deferred tax assets, net	3,810	3,801
Total current assets	315,115	327,905
Property and equipment, net	13,003	10,702
Intangible assets, net	19,512	6,149
Goodwill	32,392	7,975
Deferred commissions, non-current	4,966	4,747
Other	4,365	4,921
Deferred tax assets, non-current, net	16,756	16,480
Total Assets	406,109	378,879
Liabilities and Stockholders' Equity
Accounts payable	6,819	10,463
Commissions and bonuses payable	6,030	7,137
Other accrued liabilities	18,465	13,363
Current portion of deferred revenue	97,792	90,350
Total current liabilities	129,106	121,313
Deferred revenue, net of current portion	2,355	2,969
Other long-term liabilities	446	0
2.50% Convertible senior notes due 2030	175,000	175,000
Total liabilities	306,907	299,282
Stockholders' equity:
Common stock	36	35
Additional paid-in capital	152,268	136,717
Treasury stock	(29,149)	(29,149)
Accumulated other comprehensive income	4,422	1,953
Accumulated deficit	(28,375)	(29,959)
Total stockholders' equity	99,202	79,597
Total Liabilities and Stockholders' Equity	$ 406,109	$ 378,879

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Subsequent Events	6 Months Ended
Subsequent Events	Jun. 30, 2011
Subsequent Events [Abstract]
Subsequent Events	(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.