UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

or

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

For the transition period from            to

Commission file number: 000-52076

550 East Timpanogos Circle
Orem, Utah 84097
(Address, including zip code, of Registrant’s principal executive offices)

801.722.7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

There were 77,045,826 shares of the Registrant’s common stock, par value $0.001 per share, outstanding on August 3, 2009.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			1
ITEM 1. Financial Statements			1
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			39
ITEM 4. Controls and Procedures			40
PART II. OTHER INFORMATION			42
ITEM 1. Legal Proceedings			42
ITEM 1A. Risk Factors			42
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			60
ITEM 3. Defaults Upon Senior Securities			61
ITEM 4. Submission of Matters to a Vote of Security Holders			61
ITEM 5. Other Information			61
ITEM 6. Exhibits			62
SIGNATURES			66
INDEX TO EXHIBITS

PART I. FINANCIAL INFORMATION

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Description of Business and Basis of Presentation

Description of Business

     Omniture, Inc. (the “Company”) was incorporated in Delaware in August 1999 and has its principal offices located in Orem, Utah. The Company began providing its enterprise on-demand online business optimization services in February 2001. The Company is a leading provider of online business optimization products and services, which it delivers through the Omniture Online Marketing Suite. The Company’s customers use its products and services to manage and enhance online, offline and multi-channel business initiatives. The Omniture Online Marketing Suite, which is hosted and delivered to customers on-demand and as an on-premise solution, consists of an open business analytics platform and an integrated set of optimization applications for online analytics, channel analytics, visitor acquisition and conversion. The Omniture Online Marketing Suite consists of Omniture SiteCatalyst, the Company’s core product offering, Omniture DataWarehouse, Omniture Discover, Omniture Genesis, Omniture SearchCenter, Omniture Test&Target, Omniture SiteSearch, Omniture Merchandising, Omniture Recommendations and Omniture Survey services and Omniture Insight (formerly known as Discover OnPremise) and Omniture Insight for Retail (formerly known as Discover OnPremise for Retail) software.

     The condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008. The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2009, or any other period.

Principles of Consolidation

     The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.

Segments

     The Company operates its business in one reportable segment.

Use of Estimates

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Significant estimates made by management include the determination of the fair value of stock awards issued, allowances for accounts receivable, the assessment for impairment of long-lived assets, restructuring costs related to business acquisitions and income taxes. The Company also uses estimates in determining the remaining economic lives and fair values of purchased intangible assets and property and equipment related to business acquisitions. Actual results could differ from those estimates.

Subsequent Events

     We have evaluated subsequent events through August 6, 2009, the date the financial statements were issued. No material subsequent events have occurred since June 30, 2009 that required recognition or disclosure in these financial statements.

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

Revenue Recognition

     The Company derives its revenues from three primary sources: (1) subscription fees from customers implementing and utilizing the Company’s on-demand online business optimization services; (2) license revenue from selling software licenses; and (3) related professional and other services, consisting primarily of consulting and training.

     The Company accounts for its subscription revenues and related professional services revenues following the provisions of SEC Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The Company recognizes revenue when all of the following conditions are met:

•

there is persuasive evidence of an arrangement;

•

the service has been provided to the customer;

•

the collection of the fees is reasonably assured; and

•

the amount of fees to be paid by the customer is fixed or determinable.

     The Company recognizes subscription revenues, including implementation and set-up fees, on a monthly basis, beginning on the date the customer commences use of the Company’s services and ending on the final day of the contract term. The Company records amounts that have been invoiced in accounts receivable and in deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.

     The Company recognizes revenue resulting from professional services sold with subscription offerings (generally considered to be at the time of, or within 45 days of, sale of the subscription offering) over the term of the related subscription contract as these services are considered to be inseparable from the subscription service, and the Company has not yet established objective and reliable evidence of fair value for the undelivered element. The Company recognizes revenues resulting from professional services sold separately from the subscription services as those professional services are performed.

     Although the Company’s subscription contracts are generally noncancelable, a limited number of customers have the right to cancel their contracts by providing prior written notice to the Company of their intent to cancel the remainder of the contract term. In the event a customer cancels its contract, it is not entitled to a refund for prior services provided to it by the Company.

     The Company recognizes its license revenue in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition and SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition. All software license arrangements include post-contract support services for the initial term, which are recognized ratably over the term of the post-contract service period, typically one year. License arrangements may also include installation and training services as well. As such, a combination of these products and services represent a “multiple-element” arrangement for revenue recognition purposes.

     For contracts with multiple elements, the Company recognizes revenue using the residual method in accordance with SOP 98-9. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and recognized as revenue, assuming all other revenue recognition criteria have been met. If evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is recognized when evidence of fair value is determined or when all elements of the arrangement are delivered.

     Post-contract support services provide customers with rights to, when and if available, updates, maintenance releases and patches released during the term of the support period. The Company does not provide custom software development services or create tailored products to sell to specific customers.

Foreign Currency

     The Company’s results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian dollar, British pound, Canadian dollar, Danish krone, EU euro, Hong Kong dollar, Japanese yen and Swedish krona.

Recent Accounting Pronouncements

     In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FAS FSP”) FAS No. 157-2, Effective Date of FASB Statement No. 157 , which delayed the effective date of Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements, for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of 2009. Therefore, on January 1, 2009, the Company adopted SFAS No. 157 for non-financial assets and non-financial liabilities. The adoption of SFAS No. 157 for non-financial assets and non-financial liabilities that are not measured and recorded at fair value on a recurring basis did not have a significant impact on the Company’s consolidated financial statements.

     In April 2009, the FASB issued three FAS FSPs that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly , clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. FSP FAS 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments , establish a new model for measuring other-than-temporary impairments for debt securities, including criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments , expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107 to interim periods. All of these FSPs are effective for the Company beginning April 1, 2009. As a result of the adoption of these FSPs, the Company has included the appropriate disclosures in its consolidated financial statements. These FSPs did not have a material impact on the Company’s financial results.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted the provisions of SFAS No. 165 for the quarter ended June 30, 2009. The adoption of SFAS No. 165 did not have a material effect on the Company’s consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162. SFAS No. 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles and establishes the FASB Accounting Standard Codification™ (“the Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States. All guidance

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

contained in the Codification carries an equal level of authority. On the effective date of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has evaluated this new statement, and has determined that it will not have a significant impact on the determination or reporting of its financial results.

2. Acquisitions

Touch Clarity Limited

     In 2007, the Company acquired Touch Clarity Limited (“Touch Clarity”). The terms of the acquisition provided for the payment of up to $3,000,000 in additional consideration during 2008, contingent upon the achievement of certain milestones during 2007. In 2008, it was determined that the actual milestones had been achieved in accordance with the acquisition agreement. As a result, the Company accrued a total of $2,124,000 in additional consideration at December 31, 2008, which increased the aggregate purchase price and goodwill. The Company paid the $2,124,000 during the six months ended June 30, 2009.

Visual Sciences, Inc.

     In January 2008, the Company acquired all of the outstanding voting stock of Visual Sciences, Inc. (“Visual Sciences”) a provider of on-demand Web analytics applications. The aggregate purchase price was approximately $447,270,000, which consisted of (1) the issuance of 10,265,449 shares of the Company’s common stock upon closing of the acquisition, valued at approximately $354,846,000, net of issuance costs, (2) cash consideration of approximately $50,069,000 paid upon closing of the acquisition, (3) the fair value of assumed Visual Sciences stock options of $15,251,000, (4) acquisition-related costs, (5) restructuring charges and (6) a $2,250,000 license payment to NetRatings, Inc. (“NetRatings”) in accordance with a settlement and patent cross-license agreement entered into by Visual Sciences with NetRatings in August 2007. The fair value of the 10,265,449 shares of common stock was determined based on the average closing price of the Company’s common stock during the period two days before and two days after the terms of the acquisition were agreed to and announced. Acquisition-related costs for the Visual Sciences acquisition totaled $17,422,000, of which $16,000 were unpaid at June 30, 2009.

     The estimated restructuring charges recorded in conjunction with the acquisition totaled $7,432,000 and related to 1) severance payments and severance-related benefits associated with the termination of approximately 70 Visual Sciences employees from all functions within the business made redundant by the acquisition and 2) estimated excess facilities costs resulting from the employee terminations included in this restructuring. These restructuring charges were accounted for in accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination . Future decreases to the estimates of executing the restructuring plan will be recorded as an adjustment to goodwill. Future increases to the estimates of the restructuring plan will be recorded as an adjustment to operating expenses. The following table summarizes the activity related to the Visual Sciences restructuring (in thousands):

Mercado Asset Acquisition

     On November 5, 2008, the Company acquired certain assets, including intellectual property and other business assets, of Mercado Software Ltd. (“Mercado”), a leading search and merchandising solution provider. The preliminary aggregate purchase price was

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

approximately $8,477,000, which consisted of (1) cash consideration of approximately $6,643,000, (2) restructuring charges and (3) acquisition-related costs. The determination of the final purchase price is subject to potential adjustments, including finalization of acquisition-related costs. The Company does not expect any changes to the purchase price allocation to materially increase or decrease operating and amortization expenses, but they may have a material effect on the amount of recorded goodwill.

     The estimated restructuring charges recorded in conjunction with the acquisition totaled $1,389,000 and related to 1) severance payments and severance-related benefits associated with the termination of Mercado employees from all functions within the business made redundant by the acquisition and 2) estimated excess facilities costs resulting from the employee terminations included in this restructuring. These restructuring charges were accounted for in accordance with EITF Issue No. 95-3. Estimates associated with the Company’s restructuring accrual primarily relate to lease loss assumptions associated with excess facilities. Future decreases to the estimates of executing the restructuring plan will be recorded as an adjustment to goodwill. Increases to the estimates of the restructuring plan will be recorded as an adjustment to goodwill during the purchase accounting allocation period and as an adjustment to operating expenses thereafter.

     The following table summarizes the activity related to the Mercado restructuring (in thousands):

     On January 27, 2009, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with WPP Luxembourg Gamma Three Sarl (“WPP”) and WPP Group USA, Inc. (“WPP USA”), pursuant to which the Company issued to WPP a total of 2,852,578 unregistered shares of its common stock, at a cash purchase price equal to $8.76 per share, which price was equal to the arithmetic average of the closing prices of the Company’s common stock for the five consecutive trading days ending on January 26, 2009, for aggregate consideration of $25,000,000. In addition, WPP, WPP USA and any of their respective affiliates are bound by certain standstill and market standoff provisions for a period of eighteen months, which restrict their ability to liquidate any portion of their common stock holdings during that period of time.

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

Warrants

     Concurrent with the execution of the Purchase Agreement, the Company and WPP USA also entered into an Enterprise Channel Partner Agreement (the “Enterprise Agreement”), which specifies the terms under which WPP will resell and market the Company’s online business optimization services. In the event WPP USA achieves certain performance milestones under the Enterprise Agreement, the Company will issue to WPP a warrant (the “Warrant”) to purchase a number of shares of the Company’s common stock to be determined by dividing an amount ranging from $0 to $10,000,000, with the exact amount to be based on WPP USA’s achievement of certain performance milestones under the Enterprise Agreement, by the exercise price per share of the Warrant. The exercise price of the Warrant equals the arithmetic average of the daily volume weighted-average prices of the Company’s common stock for the five consecutive trading days immediately prior to April 15, 2010. The Enterprise Agreement contemplates that if the performance milestones are met, the Warrant will be issued on or around April 15, 2010, and will be subject to periodic vesting over a period of 21 months following its issuance, so long as the Enterprise Agreement remains in effect, subject to certain exceptions. As of June 30, 2009, the Company did not record any expense associated with the Warrant because management does not believe the recognition criteria for recording an expense under applicable accounting guidance has yet been met. At each balance sheet date, the Company will reassess the likelihood of WPP achieving the performance milestones. If the Company determines at that time that it is likely the milestones will be achieved, the fair value of the warrant will be amortized as a reduction to revenues over the period the warrant is earned beginning on the date of the Enterprise Agreement.

Equity Incentive Plans

     On January 1, 2009, the number of authorized shares of common stock available for issuance under the Omniture, Inc. 2006 Equity Incentive Plan (the “2006 Plan”) was increased by 3,648,724 in accordance with the provisions of the 2006 Plan with respect to annual increases of the number of shares of common stock available for issuance under the 2006 Plan. At June 30, 2009, a total of 4,772,104 shares of common stock were available for grant under the Company’s equity incentive plans.

Employee Stock Purchase Plan

     During the six months ended June 30, 2009, the Company issued 20,966 shares of common stock under the 2006 employee stock purchase plan. At June 30, 2009, a total of 1,542,656 shares of common stock were reserved for future issuance under this plan.

Stock Options

     The Company estimates the fair value of stock option awards granted in accordance with SFAS No. 123R, Share-Based Payment, using the Black-Scholes-Merton option-pricing formula and a single option award approach. The Company amortizes the fair value of awards expected to vest on a straight-line basis over the requisite service periods of the awards, which is generally the period from the grant date to the end of the vesting period.

     Estimated volatility for options granted through December 31, 2007 reflected the application of SAB No. 107 interpretive guidance and, accordingly, was derived solely from historical volatility of similar entities whose share prices were publicly available. Effective January 1, 2008, the Company changed its methodology for estimating its volatility and now uses a weighted-average volatility based on 50% of the Company’s actual historical volatility since its initial public offering in 2006 and 50% of the average historical stock volatilities of similar entities.

     The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. The Company used historical data to estimate the number of future stock option forfeitures.

     During the three months ended June 30, 2008 and 2009, the Company recorded compensation expense related to these stock option awards totaling $6,412,000 and $5,478,000, respectively, and $11,660,000 and $10,951,000 during the six months ended June 30, 2008 and 2009, respectively. At June 30, 2009, there was $48,281,000 of total unrecognized compensation cost related to these unvested stock option awards. This unrecognized compensation cost is equal to the fair value of awards expected to vest and will be recognized over a weighted-average period of 3.3 years.

Stock Option Exchange

     On June 15, 2009, the Company completed a stock option exchange program (the “Exchange Offer”). Pursuant to the Exchange Offer, eligible employees tendered, and the Company accepted for cancellation, eligible options to purchase 4,388,243 shares of the Company’s common stock from 410 participants, representing approximately 66% of the total shares of common stock underlying options eligible for exchange in the Exchange Offer.

     On June 15, 2009, the Company granted new options to eligible employees to purchase 3,109,238 shares of common stock in exchange for the cancellation of the tendered eligible options. The exercise price per share of the new options granted in the Exchange Offer was $12.99, the closing price of the Company’s common stock on June 15, 2009 as reported by the Nasdaq Global Select Market. For all employees other than executive officers, the new options will vest monthly beginning on June 15, 2009 over a period ranging from 36 to 48 months, and have expiration dates of 5 years from June 15, 2009. The new options issued to executive officers will vest monthly beginning on June 15, 2009 over a period ranging from 48 to 60 months, and have expiration dates of 7 years from June 15, 2009.

     The Company will not record additional compensation cost related to the exchange as the estimated fair value of the new options did not exceed the fair value of the exchanged stock options calculated immediately prior to the exchange. The Company will recognize the remaining unamortized compensation cost related to the exchanged options over the vesting period of the new options. At June 30, 2009, there was $27,712,000 of total unrecognized compensation cost related to these new options. This unrecognized compensation cost is equal to the fair value of the new options expected to vest and will be recognized over a weighted-average period of 3.9 years.

Stock Option Activity

     The following table summarizes stock option activity under the Company’s equity incentive plans for the six months ended June 30, 2009:

Deferred Stock-based Compensation

     Prior to January 1, 2006, the Company recorded deferred stock-based compensation in the amount by which the exercise price of a stock option was less than the deemed fair value of the Company’s common stock at the date of grant. The Company recorded stock-based compensation expense related to these stock options of $196,000 and $109,000 for the three months ended June 30, 2008 and 2009, respectively, and $401,000 and $280,000 for the six months ended June 30, 2008 and 2009, respectively. At June 30, 2009, $80,000 of deferred stock-based compensation remained on the accompanying condensed consolidated balance sheet.

Restricted Stock Units and Restricted Stock Awards

     The following table summarizes activity during the six months ended June 30, 2009 related to restricted stock units (“RSUs”) and restricted stock awards (“RSAs”):

     During the three months ended June 30, 2008 and 2009, the Company recorded stock-based compensation expense related to RSUs and RSAs of $1,543,000 and $1,502,000, respectively, and $5,241,000 and $3,227,000 for the six months ended June 30, 2008 and 2009, respectively. The total fair value of shares vested during the three months ended June 30, 2008 and 2009, related to RSUs and RSAs was $622,000 and $3,232,000, respectively. The total fair value of shares vested during the six months ended June 30, 2008 and 2009, related to RSUs and RSAs was $3,390,000 and $6,769,000, respectively. At June 30, 2009, there was $20,919,000 of total unrecognized compensation cost related to unvested RSUs and RSAs. This unrecognized compensation cost is equal to the fair value of RSUs and RSAs expected to vest and will be recognized over a weighted-average period of 2.9 years.

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

Repurchases of Vested Restricted Stock

     The Company’s equity incentive plans provide that employees can elect to forfeit vested shares of restricted stock to pay for the minimum statutory tax withholding obligations related to the vesting of RSAs and RSUs. The Company is then required to remit the amount of taxes owed by the employee to the appropriate taxing authority. As a result of such elections by the Company’s employees, during the six months ended June 30, 2009, the Company effectively repurchased a total of 101,821 shares of common stock. The Company has recorded $963,000 and $1,103,000 as a financing activity for these repurchases in the condensed consolidated statement of cash flows for the six months ended June 30, 2008 and 2009, respectively.

Stock-based Compensation Expense

     Total stock-based compensation expense was classified as follows in the accompanying condensed consolidated statements of operations (in thousands):

4. Concentrations of Credit Risk and Significant Customers

     No customer accounted for 5% or greater of accounts receivable at December 31, 2008 and June 30, 2009. At December 31, 2008 and June 30, 2009, tangible assets located outside the United States were not material.

     No customer and no single foreign country accounted for more than 10% of total revenues for the three and six months ended June 30, 2008 and 2009. Subscription, license and maintenance revenues accounted for 90% of total revenues for the three and six months ended June 30, 2008 and 88% of total revenues for the three and six months ended June 30, 2009.

5. Net Loss Per Share

     The following table presents the numerator and a reconciliation of the denominator used in the calculation of net loss per share, basic and diluted (in thousands):

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

     Unrealized gains and losses on available-for-sale securities are reported as a component of stockholders’ equity in the consolidated balance sheets. Proceeds from the sales of available-for-sale securities were $1,171,000 and $5,000,000 during the three months ended June 30, 2008 and 2009, respectively and $36,970,000 and $5,000,000 during the six months ended June 30, 2008 and 2009, respectively.

     Gross realized gains and losses on available-for-sale securities were as follows (in thousands):

     At June 30, 2008, the estimated fair value of available-for-sale securities by contractual maturity was as follows (in thousands):

     Securities with contractual maturities in the above table due in greater than 10 years are auction rate securities, which the Company has classified as long-term investments in the accompanying consolidated balance sheet at June 30, 2009.

Goodwill

     The changes in the carrying amount of goodwill for the six months ended June 30, 2009 were as follows (in thousands):

     In December 2008, the Company entered into a credit agreement (the “Credit Agreement”), that provides for a secured revolving credit facility in an amount of up to $35,000,000 that is subject to a borrowing base formula and a secured term loan in an amount of $15,000,000. The revolving credit facility has sub limits for certain cash management services, interest rate and foreign exchange hedging arrangements, and for the issuance of letters of credit in a face amount up to $7,500,000. The Credit Agreement is secured by substantially all of the assets owned by the Company and its U.S. subsidiaries, including intellectual property.

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

     Letters of credit in the aggregate face amount of approximately $1,280,000 were outstanding under the revolving credit facility at June 30, 2009.

     At the option of the Company, revolving loans and the term loan accrue interest at a per annum rate based on, either (1) the base rate plus a margin of 3.00%; or (2) the London Interbank Offered Rate (“LIBOR”) plus a margin equal to 3.00%, but in no event less than 5.5%, in each case for interest periods of one, two or three months. The base rate is defined as the greatest of (i) 3.50% per annum, (ii) the federal funds rate plus a margin equal to 0.50% and (iii) the lender’s prime rate. The Company is also obligated to pay other customary closing fees, servicing fees, letter of credit fees and unused line fees for a credit facility of this size and type. At June 30, 2009, the $14,625,000 outstanding under the term loan accrued interest at a weighted-average variable rate of 5.53%. The total amount available for borrowing under the Credit Facility at June 30, 2009 was $33,720,000.

     Revolving loans may be borrowed, repaid and reborrowed until December 24, 2012, at which time all amounts outstanding must be repaid. The term loan will be repaid in quarterly principal payments in an amount equal to $375,000, with the remaining outstanding principal balance and all accrued and unpaid interest due on December 24, 2012. Accrued interest on the revolving loans and term loans will be paid monthly, or with respect to revolving loans and term loans that are accruing interest based on the LIBOR rate, then at the end of the applicable LIBOR interest rate period, which is typically 90 days.

     The revolving loans and term loans are subject to mandatory prepayments in the event that certain borrowing formulas are not maintained. In addition, the term loan is subject to certain mandatory prepayments under certain circumstances, including in connection with the receipt of net proceeds from certain asset sales, casualty events, tax refunds, the incurrence of certain types of indebtedness and the issuance of certain equity securities. In the event that the revolving credit facility commitment is terminated by the Company, in whole or part, prior to its maturity date, then, under certain circumstances, a prepayment fee will be due in an amount up to 2.00% of the reduced commitment amount. In the event that the term loan is prepaid, then a prepayment fee will be due in an amount up to 2.00% of the principal amount prepaid.

     The aggregate maturities of notes payable at June 30, 2009 were as follows (in thousands):

7. Derivative Financial Instruments

     On January 1, 2009, the Company adopted the provisions of SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities , an amendment of FASB Statement No. 133 (“SFAS No. 161”). Under SFAS No. 161, additional disclosures are required regarding the objectives of derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on financial position, financial performance, and cash flows.

     During the three months ended June 30, 2009, the Company recognized $2,439,000 in net realized losses and $336,000 in net unrealized losses associated with these forward contracts. During the six months ended June 30, 2009, the Company recognized $2,168,000 in net realized losses and $336,000 in net unrealized losses associated with these forward contracts. These forward contracts were not designated as accounting hedges under SFAS No. 133; therefore, unrealized gains and losses are recorded as other expense, net in the condensed consolidated statements of operations. The effect on the condensed consolidated financial statements from foreign exchange contracts not designated as hedging instruments under SFAS No. 133 was as follows (in thousands):

     The gross estimated fair value of all derivative instruments and their classification in the condensed consolidated balance sheet are shown as follows (in thousands):

8. Fair Value Measurements

     The Company adopted the provisions of SFAS No. 157 as of January 1, 2008. Under SFAS No. 157, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels. These levels, in order of highest priority to lowest priority, are described below:

     Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

     Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

     Level 3: Unobservable inputs are used when little or no market data is available.

     The following table is a reconciliation of financial assets measured at fair value using significant unobservable inputs (Level 3) during the six months ended June 30, 2009 (in thousands):

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

     At June 30, 2009, the Company held AAA-rated auction rate securities with a total estimated fair value of $13,993,000. Auction rate securities are collateralized long-term debt instruments that are intended to provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined intervals, typically every 7 to 35 days. Beginning in February 2008, auctions failed for the Company’s holdings because sell orders exceeded buy orders. The funds associated with these failed auctions will not be accessible until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process or the security matures. The underlying assets of the auction rate securities the Company holds, including the securities for which auctions have failed, are student loans which are guaranteed by the U.S. government under the Federal Education Loan Program. The Company does not believe the carrying values of these auction rate securities are permanently impaired and believes the positions will be liquidated without any significant loss.

     At March 31, 2009, the Company increased the fair value of certain auction rate securities from $4,143,000 to their par value of $5,000,000, resulting in an unrealized gain of $857,000. The Company also reclassified the $5,000,000 fair value of these auction rate securities from long-term investments to short-term investments as these securities were redeemed at their par value in April 2009.

     Due to the lack of actively traded market data, the valuation of the auction rate securities classified as long-term investments was based on Level 3 unobservable inputs. These inputs include management’s assumptions of pricing by market participants, including assumptions about risk. The Company used an internally developed model of the expected future cash flows related to the securities over a projected ten year period, which is reflective of the length of time the Company anticipates it could take the securities to become liquid. As a result of the estimated fair value, the Company has determined a temporary impairment in the valuation of these securities of $2,507,000 and has recorded an unrealized loss on these securities which is included as a component of accumulated other comprehensive loss within stockholders’ equity on the Company’s balance sheet at June 30, 2009. Due to the uncertainty related to the liquidity in the auction rate securities market and the Company’s determination at June 30, 2009, that it intends to hold these investments until the anticipated recovery in market value occurs, the Company has classified these auction rate securities as long-term assets on the condensed consolidated balance sheet.

  Fair Value of Other Financial Instruments

     The carrying amounts of the Company’s accounts receivable, accounts payable, accrued liabilities and other liabilities approximate their fair values due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of the Company’s notes payable and capital lease obligations also approximate fair value.

9. Income Taxes

     The Company calculates its interim tax provision in accordance with Accounting Principles Board Opinion No. 28, Interim Financial Reporting , and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods . At the end of each interim period, the Company estimates the annual effective tax rate and applies that to its ordinary year-to-date income or loss. In addition, the effect of changes in enacted tax laws, rates or other discrete items affecting the Company’s effective tax rate are recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including, but not limited to, the expected operating income or loss for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences between book and tax amounts and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the Company’s provision for income taxes may change as new events occur, additional information becomes available or as the tax environment changes.

     At June 30, 2009, the Company had approximately $1,746,000 in unrecognized tax benefits under FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes , which relate to the acquisition of Visual Sciences and certain research tax credits. Any interest and penalties incurred on the settlement of outstanding tax positions are recorded as a component of interest expense. The Company does not foresee material changes to its gross FIN 48 liability within the next twelve months.

     The Company’s effective income tax rate for the three and six months ended June 30, 2009, was a tax provision of approximately 12% and 9%, respectively, compared to tax benefits of approximately 45% and 27% for the same periods in 2008, which were primarily due to a reduction in deferred tax liabilities related to the Visual Sciences acquisition. As of June 30, 2009, the Company estimated its annual effective tax rate for the year ended December 31, 2009, to be a tax provision of approximately 9%, excluding certain one-time discrete items.

     The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s federal and state taxes for the years 2004 through 2008 are subject to examination. The Company believes any assessments would be immaterial to its financial statements.

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

10. Commitments and Contingencies

Litigation Settlement and Patent License Agreements

     In February 2006, the Company entered into a settlement and patent license agreement with NetRatings. In the event that the Company acquires certain specified companies, it may be required to make additional license payments based on the Web analytics revenues of the acquired company. The agreement also provides that if the Company acquires other companies, it may elect to make additional license payments based on the Web analytics revenues of the acquired company to ensure that the acquired company’s products, services or technology are covered by the license.

     In August 2007, Visual Sciences entered into a settlement and patent-license agreement with NetRatings. The agreement required Visual Sciences to make license payments of $11,250,000, $2,000,000 of which was paid by Visual Sciences on or about the date of the agreement, $4,250,000 of which was paid by the Company following the closing of the acquisition of Visual Sciences and the remaining $5,000,000 of which must be paid by the Company in quarterly installments beginning on March 31, 2008, of which $2,500,000 was paid as of June 30, 2009. As of the date of the acquisition, the Company recorded a liability equal to the net present value of the total remaining license payments based upon the Company’s estimated incremental borrowing rate at the time of the acquisition of 6.0%. At June 30, 2009, the amount of unpaid license payments related to this settlement and patent-license agreement, discounted to its net present value was $2,391,000 which was included in accrued liabilities in the condensed consolidated balance sheet.

     On October 25, 2005, Visual Sciences, LLC, which is a wholly owned subsidiary of Visual Sciences, entered into a settlement and patent license agreement with NetRatings. The agreement required total license payments of $2,000,000, $1,550,000 of which was paid as of June 30, 2009. The remaining $450,000 must be paid in annual installments, which are capped at $200,000 per year and calculated based on revenue of Visual Sciences, LLC products for each year.

Leases

     The Company leases certain equipment under capital leases. These capital leases generally contain a discounted buyout option at the end of the initial lease terms, which range between 36 and 60 months and mature at various dates through 2010.

     The future minimum lease payments under noncancelable capital and operating leases at June 30, 2009, were as follows (in thousands):

     Operating lease payments primarily relate to the Company’s leases of office space in various domestic and international locations and leases of computer equipment under operating leases.

     During the three and six months ended June 30, 2009, the Company leased equipment under operating leases with total future minimum lease payments of $1,511,000 and $9,397,000, respectively. The Company did not enter into any equipment leases during the three and six months ended June 30, 2008. Each lease of computer equipment has a thirty-six month initial term. At the end of the initial lease term, the Company generally has the option to either: (1) return the equipment to the lessor, (2) purchase the equipment for its fair market value at that date or (3) renew the lease for a stated number of months. As a condition of one of these lease

Omniture, Inc.
Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

agreements, the Company must not allow its cash balance to fall below $10,000,000 as long as this agreement is in force. Failure to maintain a minimum of $10,000,000 in cash would constitute an event of default as defined in the lease agreement.

Indemnification

     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 them in any action or proceeding to which any of them is, or is threatened to be, made a party by reason of his or her service as a director or officer, including any action by the Company, arising out of his or her services as the Company’s director or officer or his or her services provided to any other company or enterprise at the Company’s request. Historically, the Company has not been required to make payments under these obligations and the Company has recorded no liabilities for these obligations in its condensed consolidated balance sheets.

Warranties

     The Company typically warrants its on-demand online business optimization services to perform in a manner consistent with general industry standards that are reasonably applicable under normal use and circumstances. Historically, the Company has not been required to make payments under these obligations, and the Company has recorded no liabilities for these obligations in its condensed consolidated balance sheets.

     The Company’s warranty arrangements generally include certain provisions for indemnifying customers against liabilities if its services infringe a third party’s intellectual property rights.

     The Company has entered into service level agreements with a small number of its customers warranting certain levels of uptime reliability and permitting those customers to receive credits or terminate their agreements in the event that the Company fails to meet those levels. To date, amounts credited to customers pursuant to these agreements have been immaterial and the Company has recorded no liabilities for these obligations in its condensed consolidated balance sheets.

Other Legal Matters

     The Company is and may become involved in various other legal proceedings arising from the normal course of its business activities. Management does not believe the ultimate disposition of these matters will have a material adverse impact on the Company’s consolidated results of operations, cash flows or financial position. However, litigation is inherently unpredictable, and depending on the nature and timing of these proceedings, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period.

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

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this report. In addition to historical information, this quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We may also make forward-looking statements in other reports filed with the U.S. Securities and Exchange Commission, or SEC, in materials delivered to stockholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements.

     These statements relate to our, and in some cases our customers’ or partners’, future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to, statements concerning the following: our ability to achieve or maintain profitability; the impact of quarterly fluctuations of revenue and operating results; the acceptance of our pricing model; our business plan and growth management; operating expenses, including sales and marketing expenses, research and development expenses and general and administrative expenses; business expansion; expansion and effectiveness of our sales and marketing capabilities; growth of the number of Internet users, Internet commerce and the market for on-demand services and online business optimization services; the impact of the ongoing economic downturn and continued uncertainty in the financial markets in the U.S. and internationally; changing technological developments; expansion of product and service offerings, including the development of new and improved services; scalability, reliability, efficiency and performance of our platforms; our ability to provide adequate service to customers; network and systems integrity; retention of key employees; the release of future versions of current services; levels and sources of revenue; our ability to effectively integrate our recent acquisitions; future acquisitions of or investments in complementary companies, products, services or technologies; acquisition of new customers; customer renewal rates; our expectations concerning relationships with third parties, including strategic partners, technology integration, channel partners, resellers and key customers; our ability to compete effectively in the market and the competitive factors that impact the market; levels of capital expenditures; issuance of common stock for acquisitions; changes in stock-based compensation; future cash requirements and sufficiency of our existing cash and credit line; fluctuations in interest rates and foreign currency exchange rates; our ability to attain certain economies of scale; expansion of our network infrastructure; our ability to utilize our network hardware more efficiently; legal proceedings; our future license payments under our patent license agreements with NetRatings; adequacy of our intellectual property; changes in U.S. and international laws regarding privacy, private information, the Internet and other areas; changes in accounting standards; maintenance of adequate internal controls; utilization of net operating loss and tax credit carryforwards to reduce our tax payments in future periods; the trends of our costs and expenses; staffing, direct sales force and expense levels; expansion of our European and other international operations; adequacy of our capital resources to fund operations and growth; customer costs of ownership; expenditures related to equipment operating leases; and our ability to liquidate auction rate securities without loss.

     These statements are based on current expectations and assumptions regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These factors include those set forth in the following discussion and within Part II. Item 1A “Risk Factors” of this quarterly report on Form 10-Q and elsewhere within this report.

     Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual results or changes in our expectations, except as required by law. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. You should carefully review the risk factors described in other documents that we file from time to time with the SEC.

     The reports we file with the SEC are available, free of charge, on the Investor Relations page of our Internet Web site under “SEC Filings,” as soon as reasonably practicable after we electronically file such material with the SEC. Our Internet Web site address is http://www.omniture.com. Information on our Web site does not constitute a part of this quarterly report on Form 10-Q.

Overview

     We are a leading provider of online business optimization products and services, which we deliver through the Omniture Online Marketing Suite. Our customers use our products and services to manage and enhance online, offline and multi-channel business initiatives. The Omniture Online Marketing Suite, which we host and deliver to our customers on-demand and provide as an on-premise solution, consists of our Open Business Analytics Platform and our integrated set of optimization applications for online

analytics, channel analytics, visitor acquisition and conversion. Our Open Business Analytics Platform, the foundation of the Omniture Online Marketing Suite, includes the Omniture DataWarehouse, which contains the information captured by Omniture SiteCatalyst, our core product offering, and our other products and services. The platform also includes the Omniture Genesis application programming interfaces to integrate and augment this data with relevant data from Internet and enterprise applications and data from a number of online and offline channels to enable business optimization. Our online analytics applications are Omniture SiteCatalyst and Omniture Discover and our channel analytics applications are Omniture Insight (formerly known as Omniture Discover OnPremise) and Omniture Insight for Retail (formerly known as Omniture Discover OnPremise for Retail). Our visitor acquisition application is Omniture SearchCenter and conversion applications include: Omniture Test&Target, Omniture Recommendations, Omniture SiteSearch, Omniture Survey and Omniture Merchandising. These services, built on a scalable and flexible computing architecture, enable our customers to capture, store and analyze information generated by their Web sites and other sources and to gain critical business insights into the performance and efficiency of marketing and sales initiatives and other business processes. This information is also utilized to automate the delivery of content and marketing offers on a Web site and test site design and navigational elements to optimize the user experience and revenue opportunities for our customers. Our services provide customers with real-time access to online business information, the ability to generate flexible reports using real-time and historical data and the ability to measure, automate and optimize critical online processes. Our services, accessed primarily by a Web browser, reduce the need for our customers to make upfront investments in technology, implementation services or additional IT personnel, thereby increasing our customers’ flexibility in allocating their IT capital investments.

     We were founded in 1996, began offering our on-demand online business optimization services in 1997 and began offering these services to large enterprise customers in 2001. We have experienced significant growth in recent years as illustrated in the following table:

     We sell our products and services through direct sales efforts and indirectly through resellers. A substantial majority of our revenues are derived from subscription, license and maintenance fees, which represented approximately 94% of total revenues in 2006, 92% of total revenues in 2007 and 90% of total revenues in 2008. Subscription, license and maintenance fees represented 90% of our total revenues for the six months ended June 30, 2008, and 88% of total revenues for the six months ended June 30, 2009.

     We provide our online business optimization products and services to businesses in 92 countries. During the six months ended June 30, 2008, our products and services captured 1.7 trillion transactions and during the six months ended June 30, 2009, our products and services captured almost 2.1 trillion transactions for over 5,000 customers worldwide.

     Our future revenue growth will depend on our ability to attract new customers, to retain the existing revenues from our current customers over time and to sell additional products and services to our installed Omniture SiteCatalyst customer base. In addition to these factors that will impact our revenue growth, our profitability will be affected by our ability to realize economies of scale and manage our expenses as our business grows, the amount of stock-based compensation expense we must record related to future stock-based awards and the amount of amortization expense associated with future intangible asset acquisitions. The delivery of our services requires us to make significant upfront capital expenditures to support the network infrastructure needs of our services. We typically depreciate our network infrastructure equipment over a period of approximately four years, and we begin to include the depreciation amount in our cost of subscription revenues promptly after making the expenditures. During 2007, we began leasing a portion of our network infrastructure equipment requirements under operating leases, which require us to begin making lease payments and begin recording lease expense immediately upon receipt of the equipment. We generally recognize revenue from our customers ratably over the contractual service period but only after we begin to provide our services to them. As a result, any delays we encounter in the implementation of our services to our customers will impact our ability to start recognizing revenue and to begin to offset the depreciation and lease costs resulting from the upfront expenditures for capital equipment and acquisitions under operating leases. These delays will also defer the collection of cash necessary to begin offsetting the expenditures.

     Those few customers that contract for the measurement of the highest numbers of transactions generally require us to make more significant upfront capital expenditures and require more prolonged implementation cycles. In addition, we typically provide customers that commit to a higher number of transactions with lower per transaction pricing, which results in lower gross margins for revenues from those customers. These factors together further delay the profitability and positive cash-flow realization from these large customers.

     Historically, most of our revenues have resulted from the sale of our services to companies located in the U.S. Since 2007, we have acquired four businesses with significant European operations as part of our strategy to expand our international sales operations by growing our direct sales force abroad. We have also utilized, and intend to continue utilizing, resellers and other sales channel relationships with third parties, to expand our international sales operations. As a result of these efforts, our revenues from customers outside of the U.S. increased from 17% of total revenues in 2006, to 26% of total revenues in 2007 and to 28% of total 2008 revenues. Our revenues from customers outside the United States increased from 27% of total revenues for the six months ended June 30, 2008, to 28% of total revenues for the six months ended June 30, 2009.

     We experience seasonality in our contracting activity. Historically, a significant percentage of our customers have entered into or renewed subscription services agreements in the fourth quarter. Also, a significant percentage of our customer agreements within a given quarter are entered into during the last month, weeks or days of the quarter.

How We Generate Revenues

     Our revenues are classified into two categories: (1) subscription, license and maintenance revenues and (2) professional services and other revenues. Subscription, license and maintenance revenues accounted for 94% of total revenues for 2006, 92% of total revenues for 2007 and 90% of total 2008 revenues. Subscription, license and maintenance revenues represented 90% of our total revenues for the six months ended June 30, 2008, and 88% of total revenues for the six months ended June 30, 2009.

Subscription, License and Maintenance Revenues

     We derive subscription, license and maintenance revenues primarily from customers that use our online business optimization services. We generally bill for our Omniture SiteCatalyst and Omniture Discover subscription fees based on a committed minimum number of transactions from which we capture data over a predetermined period. We generally consider a transaction to be any electronic interaction, which could be either online or offline, between our customer and its customer that generates data which is incorporated into our optimization suite. Most of our customer contracts provide for additional fees for over-usage based on the number of transactions in excess of the committed minimum numbers. In addition, we generally charge an annual fee for Omniture Discover, based on the number of users of these subscription services. We bill a limited number of large customers based on actual transactions from which we capture data during the billing period.

     We generally bill customers for our Omniture SearchCenter subscription services based on either a fixed percentage of our customer’s monthly online advertising spending managed through our Omniture SearchCenter services, or based on a committed minimum number of bid reviews tracked on a monthly basis. We generally consider a bid review to be each instance where our Omniture SearchCenter services check or change a customer’s bids on its keyword or product listing. Most of our customer contracts provide for additional fees for bid reviews in excess of a stated quantity during a month.

     For our Omniture Test&Target subscription services, we generally bill the targeting portion of these subscription fees based on the number of campaign containers we manage for our customers. We consider a campaign container to be any unique location on a customer’s Web page for which the customer is tracking data about a specific marketing campaign activity. We generally bill the testing portion of our Omniture Test&Target subscription services based on a committed minimum number of daily visits to the customer’s Web page that are tracked through our services. Most of our customer contracts for Omniture Test&Target subscription services provide for additional fees for transactions tracked in excess of a specified quantity of transactions.

     For our Omniture SiteSearch subscription services, we generally bill based on the volume of indexed pages and server requests. We consider an indexed page to be a customer’s Web page included within a specific search and a server request to be any call to our servers to carry out a search activity. Most of our customer contracts for Omniture SiteSearch subscription services allow us to charge additional fees for usage in excess of the volume of server requests purchased.

     We generally bill customers for our Omniture Merchandising subscription services based on the number of queries and the number of stock keeping units, or SKUs, managed on the customer’s Web site. We consider a query to be any keyword search,

navigation action, or action resulting in a call to our server and we consider a SKU to be the customer’s most basic sellable unit. Most of our customer contracts for Omniture Merchandising allow us to charge additional fees for usage in excess of the purchased volume limit of queries.

     We also derive subscription revenues from implementation fees associated with the initial deployment of our services. Implementation fees are generally billed as fixed fees per service installation.

     The volume of subscription revenues is driven primarily by the number of customers and the number of transactions from which we capture data. The terms of our service agreements are typically from one to three years. We recognize subscription revenues ratably over the term of the agreement, beginning on the commencement of the service. Customers typically have the right to terminate their contracts for cause if we fail to substantially perform. Some of our customers also have the right to cancel their service agreements by providing prior written notice to us of their intent to cancel the remaining term of their agreement. In the event that a customer cancels its contract, it is not entitled to a refund for prior services provided to it by us.

     We derive our license revenue from selling perpetual and term software licenses related to our Omniture Insight software, a software product acquired in connection with our acquisition of Visual Sciences Inc., or Visual Sciences, and our Omniture Merchandising software, a software product acquired in connection with our acquisition of certain assets of Mercado Software Ltd., or Mercado. Revenue associated with term licenses is recognized over the applicable term of the license agreement. Pricing of our perpetual software licenses is based on a standard price list with volume and marketing related discounts, and they are sold with the first year of post-contract support services, installation and training.

     During the three months ended June 30, 2008 and 2009, we recognized approximately $0.4 million and $0.7 million, respectively, of revenues from the sale of perpetual software licenses related to our Omniture Insight and Omniture Merchandising software. During the six months ended June 30, 2008 and 2009, we recognized approximately $1.0 million and $1.5 million, respectively, of revenues from the sale of perpetual software licenses related to these products. Generally, perpetual software license agreements entered into by us after the date we acquired Visual Sciences and Mercado entitle the customer to receive, at no additional cost, licenses to certain software released after the date of their license agreement. Revenues associated with these license agreements are recognized over the period in which the customer is entitled to receive these additional licenses free of charge, which is generally three years. We recognize revenue related to post-contract support services over the applicable term of the support agreement.

     We invoice most customers monthly, quarterly or annually in advance for subscription, license and maintenance fees and implementation fees, while we invoice over-usage fees and actual usage fees monthly in arrears. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenues, or in revenues if all the revenue recognition criteria have been met.

Professional Services and Other Revenues

     Professional services and other revenues are primarily derived from consulting and training services provided to our customers.

     Depending on the nature of the engagement, consulting services are billed either on a time-and-materials basis or as a single fee per engagement. We also offer a number of training courses on implementing, using and administering our services, which are generally billed at a standard rate per attendee, per course.

Indirect Sales

     We sell our online business optimization services primarily through direct sales efforts and through third parties that resell our services to end users. We typically bill the reseller directly for services we provide to end users, which is generally a fixed percentage of the fee charged by the reseller to the end user.

Cost of Revenues and Operating Expenses

Cost of Revenues

     Cost of subscription, license and maintenance revenues consists primarily of expenses related to operating our network infrastructure, including depreciation expenses and operating lease payments associated with computer equipment, data center costs, salaries and related expenses of network operations, implementation, account management and technical support personnel, amortization of intangible assets and allocated overhead. Cost of subscription, license and maintenance revenues for the three and six

months ended June 30, 2009, included approximately $5.0 million and $9.9 million, respectively, in amortization of intangible assets, comprised of existing and core technology related to business acquisitions and certain patent licenses. Absent any impairment, cost of subscription, license and maintenance revenues will include approximately $19.9 million in annual amortization for the year ended December 31, 2009, with decreasing annual amounts thereafter through March 31, 2014. We enter into contracts with third parties for the use of their data center facilities, and our data center costs largely consist of the amounts we pay to these third parties for rack space, power and similar items.

     Cost of professional services and other revenues consists primarily of employee-related costs associated with these services. We recognize costs related to professional services as they are incurred. The cost of professional services and other revenues is generally higher as a percentage of professional services and other revenues than the cost of subscription revenues is as a percentage of subscription revenues, due to the labor costs associated with providing these services. We expect our cost of professional services and other revenue to remain higher, as a percentage of the related revenue, than the cost of subscription revenues as a percentage of subscription revenues.

Operating Expenses

     Our operating expenses consist of sales and marketing expenses, research and development expenses and general and administrative expenses.

     Sales and marketing expenses have historically been our largest operating expense category. Sales and marketing expenses consist primarily of salaries, benefits and related expenses for our sales and marketing personnel, commissions, the costs of marketing programs (including advertising, events, corporate communications and other brand building and product marketing) and allocated overhead. Sales and marketing expenses for the three and six months ended June 30, 2009, included approximately $3.0 million and $5.9 million, respectively, in amortization of acquired customer-related intangible assets, and will, absent any impairment, also include approximately $11.7 million in amortization of acquired customer-related intangible assets annually for the full years 2009 through 2012 and decreasing amounts thereafter through March 31, 2017.

     Research and development expenses consist primarily of salaries, benefits and related expenses for our software engineering and quality assurance personnel and allocated overhead.

     General and administrative expenses consist primarily of salaries, benefits and related expenses for our executive, finance and accounting, legal, human resources and information systems personnel, professional fees, other corporate expenses and allocated overhead.

Allocated Overhead Expenses

     We allocate overhead such as rent and other occupancy costs, telecommunications charges, enterprise systems costs and non-network related depreciation to all departments based on headcount. As a result, general overhead expenses are reflected in each cost of revenues and operating expense item.

Stock-based Compensation Expenses

     Our cost of revenues and operating expenses also include stock-based compensation expenses related to the following: (1) the fair value of stock-based awards issued to employees and directors on or after January 1, 2006, including unvested options and restricted stock awards, or RSAs, assumed in connection with acquisitions; (2) stock options issued to employees prior to 2006 in situations in which the exercise price was less than the deemed fair value of our common stock on the date of grant; and (3) stock options issued to non-employees.

Trends in Our Business

     Our business has grown rapidly. Our total revenues grew from $79.7 million in 2006, to $143.1 million in 2007 and to $295.6 million in 2008, representing an average annual growth rate of approximately 91% over that time period. Our total revenues grew from $134.8 million for the six months ended June 30, 2008, to $174.7 million for the six months ended June 30, 2009, representing a 30% revenue increase. This growth has been driven primarily by an expansion of our customer base, including those customers obtained through the various businesses we have acquired since the beginning of 2007, coupled with increased subscription revenues from existing customers. To date, we have derived a majority of our revenues from subscription fees for Omniture

SiteCatalyst and related subscription services provided to customers in the United States. We expect that revenues associated with our current and future products and services other than Omniture SiteCatalyst will continue to increase over time, both in absolute dollars and as a percentage of our total revenues, due in part, to the new technologies and services obtained through our acquisitions of Touch Clarity Limited, or Touch Clarity, Offermatica Corporation, or Offermatica and Visual Sciences, as well as the acquisition of certain assets of Mercado. As a result, we expect revenues generated by Omniture SiteCatalyst will continue to decrease as a percentage of our total revenues.

     We expect our total revenues to grow at a slower rate than our average historical revenue growth rate. Due in part to the current economic recession, some of our existing customers have either reduced or terminated their currently contracted services with us, or notified us of their intent to do so upon expiration of their current contract term. We expect that other of our existing customers may either reduce or terminate their currently contracted services with us upon expiration of their current contract term, primarily due to the uncertainty associated with the overall macroeconomic environment for the remainder of 2009. We also anticipate that our rate of new business growth will continue to slow in 2009 as some of our potential customers decrease spending in an effort to reduce costs, causing them to delay or defer purchasing decisions. A limited number of our existing customers either ceased operations or filed for bankruptcy during 2008 and during the six months ended June 30, 2009, due to their inability to meet their existing financial obligations. We have also experienced delays in the timeliness of payment for our services by certain of our customers, when compared to the payment history of those customers. If the economy continues to weaken, it could cause additional customers to delay payments for our services beyond the stated payment terms, and in certain instances may require them to cease operations altogether before paying for all of our services used by them.

     We intend to continue to expand our international sales operations and international distribution channels, and accordingly, we expect that revenues from customers located outside the United States will continue to increase in absolute dollars. Although, we do not expect revenues from customers located outside of the United States to increase significantly as a percentage of total revenues. Revenues from customers located outside the United States have increased from 17% of total revenues for 2006 to 26% of total revenues for 2007 and to 28% of total 2008 revenues. Our revenues from customers outside the United States increased from 27% of total revenues for the six months ended June 30, 2008, to 28% of total revenues for the six months ended June 30, 2009. We expect the percentage of total revenues derived from our largest customers to further decrease over time as a result of continued expansion of our customer base. We also anticipate that the percentage of our total revenues derived from indirect sales will continue to grow as a percentage of our overall revenues, due to an increase in the number of third parties reselling our services.

     If our customer base continues to grow, it will be necessary for us to continue to make significant upfront investments in the network infrastructure equipment and implementation personnel necessary to support this growth. The rate at which we add new customers, along with the scale of new customer implementations, will affect the level of these upfront investments. Our gross margins increased from 60% for 2006 to 63% for 2007, primarily due to more efficient utilization of our network hardware. Our gross margins decreased to 57% for 2008, primarily due to the adjustment to record the acquired Visual Sciences deferred revenues at their fair value, increased amortization of acquired intangible assets related to the Offermatica and Visual Sciences acquisitions and increased stock-based compensation expense. Our gross margins increased from 57% for the six months ended June 30, 2008, to 59% for the six months ended June 30, 2009, primarily because the adjustment to record the acquired Visual Sciences deferred revenue at its fair value did not continue into 2009, partially offset by additional data center and network infrastructure costs necessary to support the growth in our customer base.

     During 2007, we began leasing a portion of our network infrastructure equipment requirements under operating leases provided by third-party financing sources. We leased equipment under operating leases with total future minimum lease payments of approximately $10.9 million during 2007, $7.7 million during 2008 and $9.4 million during the six months ended June 30, 2009. We expect to acquire additional equipment under operating leases in the future. Although we do not expect the use of operating leases to have a significant impact on total cost of revenues, when compared to the effect of purchasing this equipment, our capital expenditures are reduced to the extent we utilize operating leases.

     The timing of additional capital expenditures and equipment operating leases could materially affect our cost of revenues, both in absolute dollars and as a percentage of revenues, in any particular period. In addition, because we incur immediate depreciation and lease expense from our significant upfront network computer equipment requirements as new customers are added, these customers are not immediately profitable. As a result, our profitability can be significantly affected by the timing of the addition of new customers, particularly customers with large volume requirements. At least through March 31, 2014, our cost of revenues and our gross margin will also be negatively affected by the amortization of the following intangible assets: (1) the estimated fair value of the patents licensed from NetRatings, Inc., or NetRatings, and (2) the intangible assets directly related to our subscription service that were acquired as part of our acquisitions of other businesses.

     We have also experienced, and we expect to continue to experience, increases in our operating expenses as we make investments to support the anticipated growth of our customer base. Our full-time employee headcount increased from 353 at December 31, 2006, to 713 at December 31, 2007, and to 1,189 at December 31, 2008. Our full-time employee headcount increased further to 1,208 at June 30, 2009. We expect operating expenses to continue to increase in absolute dollars, but to decline over time as a percentage of total revenues, compared to the six months ended June 30, 2009, due to anticipated economies of scale in our business support functions. In general, over time we also expect our operating expenses to increase in absolute dollars due to the incremental salaries, benefits and expenses related to the addition of personnel from our acquisitions completed during 2008, along with any future acquisitions. We will continue to assess our overall operating cost structure and employee headcount growth in light of the changing macroeconomic conditions, and, as a result, we may choose to reduce the rate at which we increase future operating expenses and headcount.

     We currently plan to continue investing in sales and marketing by increasing the number of direct sales personnel over time and the number and type of indirect distribution channels, expanding our domestic and international selling and marketing activities and building brand awareness through advertising and sponsoring additional marketing events. During the remainder of 2009, due to the changing macroeconomic environment, we will continue to assess the level of our advertising and marketing programs, and, as a result, may further reduce the level of spending in these areas, compared to currently anticipated spending in these areas through the remainder of 2009. We also intend to further consolidate our sales channels in an effort to increase efficiencies. We expect that sales and marketing expenses will continue to increase in absolute dollars over time and remain our largest operating expense category. Generally, sales personnel are not immediately productive and sales and marketing expenses do not immediately result in revenues. This reduces short-term operating margins until the salesperson becomes more fully utilized and revenues can be recognized. We expect that at least through March 31, 2017, sales and marketing expenses will be negatively affected by the amortization of customer-related intangible assets acquired as part of our acquisitions of other businesses.

     We expect stock-based compensation expenses to increase in absolute dollars, compared to historical levels, primarily due to the stock-based awards granted during 2008 and thus far during 2009, along with stock-based awards we expect to grant in the future. Since the first quarter of 2006, we have recorded stock-based compensation expense under the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, Share-Based Payment , based on the fair value of stock-based awards at the date of grant. The actual amount of stock-based compensation expense we record in any fiscal period will depend on a number of factors including the number of shares subject to the stock options issued and the fair value of our common stock at the time of issuance. At June 30, 2009, there was $48.3 million of total unrecognized compensation cost related to unvested stock option awards granted subsequent to the adoption of SFAS No. 123R and $20.9 million of total unrecognized compensation cost related to unvested restricted stock units, or RSUs, and RSAs. These amounts of unrecognized compensation cost are equal to the fair value of stock option awards and RSUs and RSAs expected to vest. The unrecognized compensation cost related to unvested stock option awards will be recognized over a weighted-average period of 3.3 years and the unrecognized compensation cost related to unvested RSUs and RSAs will be recognized over a weighted-average period of 2.9 years.

     In the future, as part of our overall growth strategy, we expect to acquire other businesses, products, services or technologies to complement our Omniture Online Marketing Suite and accelerate access to strategic markets. In January 2009, we entered into a strategic partner relationship with WPP Group USA, Inc., or WPP USA, under which both companies will collaborate on technology development, on sharing data and information and on consulting services. As part of our overall growth strategy, we expect to enter into strategic partner relationships with other companies.

     During 2008, we utilized $23.4 million in net operating loss carryforwards to reduce our provision for income taxes for the year. We may utilize additional net operating loss carryforwards to reduce our 2009 provision for income taxes. At December 31, 2008, we had approximately $102.9 million in net operating loss carryforwards for federal income tax purposes, which will begin to expire in 2020, and approximately $2.5 million in federal tax credit carryforwards, which will begin to expire in 2020. These carryforwards do not include the portion that is subject to annual limitations that result in their expiration before being fully utilized. For fiscal years beginning on or after January 1, 2008, through years ending on December 31, 2009, the state of California suspended the utilization of net operating loss carryforwards by taxpayers to reduce their state income taxes. Despite the potential availability of these net operating loss carryforwards, we expect our income tax expense to increase in absolute dollars, primarily due to income taxes in the foreign jurisdictions in which we operate and because we will likely be subject to alternative minimum tax for federal income tax purposes.