Support.com 2014 Annual Report Download - page 24

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in
this Form 10-K. The following discussion includes forward-looking statements. Please see the section entitled “Risk Factors” in Item 1A of this Report for important information to consider when
evaluating these statements.
Overview
Support.com, Inc. is a leading provider of cloud-based software and services that enable technology support for a connected world. Our technology support services programs help leading brands create new
revenue streams and deepen customer relationships. We offer turnkey, outsourced support services for service providers, retailers and technology companies. Our technology support services programs are designed
for both the consumer and small business markets, and include computer and mobile device set-up, security and support, virus and malware removal, wireless network set-up, and home security and automation
system support.
Total revenue for the year ended December 31, 2014 decreased by $5.2 million, or 6%, from 2013. Revenue from services increased by $2.4 million, or 3%, from 2013. The increase in services revenue over
the prior year was due to growth in our partner programs, primarily the programs for Comcast. Revenue from software and other decreased by $7.6 million, or 57%, from 2013 due to a decision to discontinue our
largest advertising placements in the second half of 2013 because they were no longer profitable.
Cost of services for the year ended December 31, 2014 increased by 40% from 2013 primarily as a result of the hiring of additional technology specialists for our home networking support bundle program and
Xfinity home program with Comcast. Cost of software and other for the year ended December 31, 2014 decreased by 28% year-over-year due to lower sales of end-user software products driven by our decision to
discontinue our largest advertising placements in the second half of 2013. Total gross margin declined from 50% to 26% year-over-year due to a higher percentage of revenue generated by the lower margin
Comcast home networking support bundle program and Comcast Xfinity home program which replaced the higher margin Comcast Xfinity signature support program.
Operating expenses for the year ended December 31, 2014 decreased by 25% from 2013, driven by a decision to discontinue our largest advertising placements in the second half of 2013 because they were
no longer profitable. We expect to increase research and development and sales and marketing investment related to Nexus during 2015.
Our key goals for 2015 are to increase SaaS revenue from Nexus, to expand existing service programs, to launch service programs with new partners, to improve service delivery efficiency and to execute on
our product roadmap to provide full lifecycle support for the Internet of Things.
We intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key
items in those consolidated 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
consolidated financial statements.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with generally accepted accounting principles in the United States, we make assumptions, judgments and estimates that can have a significant
impact on our revenue and operating results, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience
and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we
evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, fair value
measurements, purchase accounting in business combinations, accounting for goodwill and other intangible assets, stock-based compensation and accounting for income taxes have the greatest potential impact on
our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated with these policies. For further information on the
critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements.
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