Support.com 2007 Annual Report Download - page 38

Total revenue was $47.8 million, $45.0 million and $61.9 million for the years 2007, 2006 and 2005, respectively. The increase in total revenue in 2007
over 2006 was due primarily to higher maintenance and services revenue. We have experienced a trend of decreasing annual license revenue over the last four
fiscal years. License revenue has decreased due to closing fewer large licensing transactions with our enterprise customers, particularly with U.S.-based digital
service providers. During 2008, our principal goal in the enterprise segment is to operate in a profitable fashion. The key elements of our strategy to achieve this
goal are cost reductions, increasing satisfaction of existing customers, and obtaining new customers. With respect to cost reductions, we completed a reduction in
force in the fourth quarter of 2007 and recorded a restructuring charge of approximately $1.2 million. This action will lower our expenses in this segment, and we
will seek to maintain the reduced spending level unless and until this segment experiences substantial growth. With respect to customer satisfaction, we are
operating with a series of tailored customer account plans designed to enable our customers to achieve maximum value from their investment in our products.
With respect to new customers, we have targeted initiatives in specific market areas designed to expand our customer base.
Based upon our history in the enterprise business, we expect to experience downward revenue seasonality between the fourth and first quarters.
Consequently, we expect revenues for the first quarter of 2008 to be lower than revenue recorded in the fourth quarter of 2007. This seasonal revenue decline,
coupled with the incremental investments noted above will likely result in a net loss in the first quarter of 2008. Furthermore, as of the filing date of this
Form 10-K, we are in the sales and negotiation process with several companies for the purchase of our enterprise products and services. Ultimate closure of these
transactions prior to March 31, 2008 will have a significant influence on whether or not we meet our expectations for revenue in the first quarter of 2008.
In 2007, we launched our consumer business, building on the offerings and market knowledge we developed in our traditional enterprise business. We
sought to establish the business in two primary ways: by developing alliances with other companies through which our offerings could reach consumers, and by
establishing a direct-to-consumer business under the support.com brand. In 2008 our goal is to develop these existing alliances, increase the revenue from them
and add new alliances for our consumer offerings. We also plan to continue to invest in support.com in an effort to drive steady improvements in our
direct-to-consumer business. Although the revenue recognition models from our consumer offerings could vary significantly depending on specific contractual
terms, we believe that growth in sales of our consumer offerings will result primarily in transaction-based services revenue. Consequently, as our consumer
initiatives begin to generate more substantial revenue, we expect our total revenue to be more linear across a quarter and to shift more toward services revenue.
Thus, while growth in the consumer business could lead to greater predictability in our revenues, services revenue generally carries higher costs of sale than
license and maintenance revenues, so a shift toward more services could reduce our overall gross margin percentage.
We do not expect immediate returns from our consumer initiative but believe it can create sustainable revenue growth over time. Although we are
leveraging many of our existing resources, we are making significant incremental investments in support of these initiatives, including investments in customer
support agents and to further develop and promote our consumer offerings. We expect that these additional investments will precede any material revenue
increase from our new business initiatives. As a result, we currently expect to incur a net loss in 2008 and possibly future periods.
We intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our financial
statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as
how certain accounting principles, policies and estimates affect our financial statements.
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Source: SUPPORTSOFT INC, 10-K, March 13, 2008