Support.com 2006 Annual Report Download - page 37

Total Revenue. Total revenue decreased by 27% in 2006 as compared to 2005 and increased by 2% in 2005 as compared to 2004.
Each of the components of total revenue is discussed in more detail below.
License revenue. License revenue is comprised of fees for term and perpetual licenses of our software. Perpetual license revenue
is recognized using the residual method described in SOP 98−9 for arrangements in which licenses are sold with multiple elements.
We allocate revenues on these licenses based upon the fair value of each undelivered element including undelivered maintenance,
consulting and training. The determination of fair value is based upon vendor specific objective evidence (VSOE). VSOE for
maintenance is based upon separate renewals of maintenance from customers. VSOE for consulting or training is based upon separate
sales of these services to customers. Assuming all other revenue recognition criteria are met, the difference between the total
arrangement fee and the amount deferred for each undelivered element is recognized as license revenue. Revenue from license fees
was $16.4 million in 2006, $32.7 million in 2005, and $37.9 million in 2004. License fees decreased by approximately $16.3 million,
or 50%, in 2006 from 2005 and $5.2 million, or 14%, in 2005 from 2004. The decreases in license revenue from 2005 to 2006 and
from 2004 to 2005 were primarily due to fewer large license transactions from our corporate customers. For example, in 2006, we had
three customers that contributed greater than $1.0 million in license revenue for the year as compared with eight customers in 2005.
Maintenance revenue. Maintenance revenue is comprised primarily of revenue from post−contract technical support services
which includes software product updates. Maintenance revenue is recognized ratably over the term of the maintenance period, which
is generally one year.
Maintenance revenue was $15.7 million in 2006, $14.3 million in 2005 and $11.0 million in 2004. Maintenance revenue increased
by approximately $1.4 million, or 9%, in 2006 from 2005, and $3.3 million, or 30%, in 2005 from 2004. The increases in maintenance
revenue were due to new license customers who generally purchase maintenance in connection with their purchase of our software
products and more customers who have licensed our products on a perpetual basis versus a term basis. Generally, under a perpetual
license arrangement, maintenance services are sold separately and, therefore, maintenance revenue is recognized as a separate
component of total revenue. Under a term license arrangement, maintenance services are bundled and not sold separately and,
therefore, included with license revenue because we do not have VSOE of fair value to determine fair value of maintenance for a
term−based license.
Services revenue. Services revenue is primarily comprised of revenue from professional services, such as consulting, training and
fees for hosting services. Services revenue is generally recognized as the services are performed.
Services revenue was $12.9 million in 2006, $14.9 million in 2005, and $11.7 million in 2004. Services revenue decreased by
approximately $1.9 million, or 13%, in 2006 from 2005 and increased by approximately $3.2 million, or 27%, in 2005 from 2004. The
decrease in services revenue in 2006 from 2005 was due mainly to lower services revenue from a single customer who ordered
approximately $1.5 million less consulting services in 2006, as compared to 2005. The increase in services revenue in 2005 from 2004
was mainly due to performing implementation projects in connection with the growth of our customer base.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007