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SupportSoft Inc. (SPRT)
Q3 2008 Earnings Call Transcript
October 29, 2008 4:30 pm ET
Anne-Marie Eileraas – VP and General Counsel
Shelly Schaffer – CFO and EVP of Finance
Josh Pickus – President and CEO
Jon Maietta – Needham & Company
Dan Rice [ph] – Northern Securities [ph]
Gregg Speicher – Moss Creek Capital
Stephen Silk – C. Silk & Sons
Ted Ketterer – TK Associates
Jim Kennedy – Marathon Capital Management
Previous Statements by SPRT
» SupportSoft Inc. Q1 2009 Earnings Call Transcript
» SupportSoft Inc. Q4 2008 Earnings Call Transcript
» SupportSoft Inc. Q2 2008 Earnings Call Transcript
Thank you, Francine. Good afternoon. This is Anne-Marie Eileraas, General Counsel of SupportSoft. Joining me here in Redwood City are Josh Pickus, our Chief Executive Officer; and Shelly Schaffer, our Chief Financial Officer.
Before we begin, I’d like to remind everyone that our remarks today will include forward-looking statements about our financial results and other matters. There are a number of risks and uncertainties that could cause our actual results to differ materially from expectations.
These risks are detailed in today’s press release and the reports we’ve filed with the SEC, all of which can be found through the investor relations page of our website. I would also like to point out that we will present certain non-GAAP information on this call. The reconciliation of GAAP to non-GAAP financial measures is included with today’s press release and is available on our investor relations web page. The statements we’ll make in this conference call are based on information we know as of today and we assume no obligation to update any of those statements.
With that, I’ll turn it over to Shelly.
Thanks, Anne-Marie. I’m going to cover our financial highlights and then turn it over to Josh, for additional comments regarding our business progress, as well as guidance.
Revenue of $12.8 million exceeded our guidance, driven by substantial growth in our consumer segment. Non-GAAP loss per share of $0.07 was smaller than expected, driven primarily by strong growth in consumer revenue, coupled with spending discipline.
Cash usage of $2.6 million was down significantly, with strong collections in both enterprise and consumer. In the enterprise segment, revenue of $10.7 million was consistent with the prior quarter. All revenue lines, license, maintenance and service revenue, were in line with the second quarter.
Q3 marks the third consecutive quarter of non-GAAP profitability for our enterprise segment. In our consumer segment, revenue of $2.1 million represents an increase of 137% as compared to Q2. The majority of our consumer revenue was driven by our major partners and we continue to expect that partnerships will deliver most of the consumer revenue for the year.
As expected, we had higher costs in Q3 associated with the hiring of new agents to serve our existing and pilot programs. While consumer gross margin remained negative, it did improve meaningfully over the prior quarter, as substantial revenue growth covered a greater percentage of our investment.
Looking into the fourth quarter, we anticipate higher cost of consumer revenue as we carry the full quarter cost of the agents we added in Q3 and add incremental heads to support our existing and planned programs.
In addition, given the startup phases of several pilots and the timing of partnership rollouts, we expect the cost and operating margin performance of the consumer segment to likely fluctuate significantly on a quarter-to-quarter basis.
Our operating expense lines, sales and marketing, research and development, and G&A, were all consistent with the prior quarter. We are making certain targeted investments which may increase OpEx in Q4.
Finishing the statement of operations, other income and expenses for the quarter was $158,000, down from $721,000 in the second quarter. This decrease has three separate components.
Interest income in Q3 of $479,000 was down from Q2, reflecting lower yield due to a shift to treasury securities. This income was offset by approximately $248,000 in exchange rate fluctuations and approximately $73,000 real live losses stemming from the early Q3 sales of securities issued by government-sponsored enterprises.
As we look into the fourth quarter, due to the current interest rate environment and our focus on capital preservation and liquidity, we expect other income in the range of $300,000 to $350,000.
Turning to the balance sheet, we ended the quarter with cash and investment balance of $98.3 million compared to $100.9 million at the end of June 30, 2008. The change in cash and investments reflects approximately $1.7 million used for operations and $853,000 of incremental unrealized loss for auction rate securities.
Q3 DSOs improved to 57 days as compared to 74 days in the prior quarter and 67 days in Q3 of 2007. Accounts receivable decreased by approximately $1.4 million sequentially. We continue to focus on our collection efforts and we are pleased with our progress in the third quarter.
The third quarter revenue decreased from $8.9 million at June 30 to $8.7 million at September 30, consistent with our historical experience. We continue to expect deferred revenue to be at the highest at year end due to the seasonal nature of our maintenance renewals.
As a final note, I’d like to give you an update regarding our auction rate securities. At September 30, we held a par value of $24.6 million in auction rate securities. Of this amount, 85% or $20.9 million is held with UBS.