Support.com 2007 Annual Report Download - page 42

the year ended December 31, 2007, revenues from our consumer segment did not represent a material portion of total revenue. Total revenue increased by 6% in
2007 as compared to 2006 and decreased by 27% in 2006 as compared to 2005. 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 $15.8 million in 2007, $16.4 million
in 2006, and $32.7 million in 2005. 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. For example, in
2007 we had 7 customers that contributed greater than $500,000 in license revenue. This compares to 12 such customers in 2006 and 14 such customers in 2005.
Additionally, in 2005 there were 5 customers with license revenues in excess of $2 million. There was only one such customer in each of the years ended
December 31, 2007 and 2006.
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 $16.1 million in 2007, $15.7 million in 2006 and $14.3 million in 2005. 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 $15.9 million in 2007, $12.9 million in 2006, and $14.9 million in 2005. Our services revenue may fluctuate from period to period
depending on the overall demand for our consulting services and level of consulting activity with major customers. The increase in services revenue in 2007 from
2006 was due primarily to increased services demand, particularly from one customer whose revenue increased to $3.4 million in 2007 from $0.6 million in
2006. The decrease in services revenue in 2006 from 2005 was due mainly to lower services revenue from a customer who ordered approximately $1.5 million
less consulting services in 2006, as compared to 2005.
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Source: SUPPORTSOFT INC, 10-K, March 13, 2008