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SupportSoft Inc. (SPRT)

Q4 2008 Earnings Call

February 11, 2009 4:30 pm ET


Anne-Marie Eileraas – Vice President and General Counsel

Shelly Schaffer – Chief Financial Officer

Josh Pickus – President and Chief Executive Officer


Jon Maietta – Needham & Company

Chad Bennett – Northland Securities

Ted Ketterer – TK Associates

Gene Weber – Weber Capital Management

Stephen Silk – C. Silk & Sons

Jim Kennedy – Marathon Capital Management

Nick Farwell – Arbor Group



Good day everyone and welcome to the SupportSoft Fourth Quarter and Year End 2008 Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ms. Anne-Marie Eileraas, General Counsel for SupportSoft.

Anne-Marie Eileraas

Thank you, [Jamie]. 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 like to 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 webpage. 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.

Shelly Schaffer

Thanks Anne-Marie. I'm going to cover the fourth quarter financial highlights and then turn the call over to Josh.

Fourth quarter 2008 revenue was $12.8 million and it exceeded the midpoint of our guided range of $11.8 million to $13.4 million, primarily as a result of the continued growth in our consumer segment. Non-GAAP loss per share of $0.07 was lower than our guided loss per share of approximately $0.11 to $0.14. This reduced loss primarily resulted from lower costs across the P&L as a result of our December reduction in force, as well as a strong dollar and partially offset by the ramp in work-from-home agents.

In our consumer segment, Q4 revenue of $3.1 million represents an increase of 47% as compared to Q3 revenue of $2.1 million, and growth of nearly 800% when compared to Q4 2000 revenue of $349,000. Fourth quarter gross margin in the Consumer segment was negative, as it was for the full year of 2008. As Josh will discuss, shift in gross margin into the positive territory is a key goal for us in 2009.

Turning to the Enterprise segment; revenue of $9.7 million was down from the prior quarter, due to reduced professional service revenue and partially offset by increased license revenue.

Our operating expense lines for both businesses, which include sales and marketing, research and development, and G&A, were consistent with the prior quarter. Not withstanding lower revenue, Q4 marked the fourth consecutive quarter of non-GAAP profitability for our Enterprise segment.

From an overall expense perspective, Josh highlighted on our Q3 call, that we anticipated a difficult environment for Enterprise Technology spending in 2009, and that we planned to align our cost structure with this environment.

In actions taken in December 2008 and early this month, we implemented these planned reductions, restructuring impairment charges related to the Q4 action, totaled approximately $1.9 million, reflecting $1.3 million in employee-related costs, $450,000 in facility impairment costs, and $100,000 related to professional services incurred.

From a balance sheet perspective, $1.3 million was accrued at year end 2008, and $600,000 was paid within the fourth quarter, with a significant portion of the balance to be paid in Q1 2009. We expect the restructuring charges related to the first quarter action to approximate $900,000. In total, the two reductions in force affected approximately 16% of our non-agent workforce.

Finishing the statement of operations, other income and expenses for the quarter was $177,000 in line with the $158,000 in the third quarter. This is comprised of interest income of $306,000 less $129,000 related to the impact of foreign currency fluctuations. And as we look into the first quarter, due to the current interest rate environment and our focus on capital preservation and liquidity, we expect interest income to be in the range of $250,000 to $290,000.

Now turning to the balance sheet; we ended the quarter with cash and investment balance of $95 million compared to $98.3 million at September 30, 2008, a net reduction of $3.3 million. The change in cash and investments reflects approximately $3.4 million used for operations, $800,000 of a incremental write-up in the value related to auction rate security, less $600,000 used in the Q4 restructuring and approximate $350,000 related to other balance sheet movements.

We expect our cash usage in Q1 to exceed that of Q4, primarily due to payouts related to the Q4 in 2008 and Q1 in 2009 restructuring actions.

Q4 DSOs were 73 days as compared to 57 days in the prior quarter, and 72 days in Q4 2007 in line with seasonality.

Accounts receivable increased by approximately $2.2 million sequentially. Deferred revenue increased from $8.8 million at September 30th to $10.1 million at December 31st, again consistent with historical experience.

As a final note, I'd like to give you an update regarding our auction rate securities. At 12/31, SupportSoft held a par value of $24.5 million in auction rate securities, $20.9 million of the stocks is held with UBS.

During November, the company accepted the UBS auction rate securities right offer. This offer gives SupportSoft the right to sell the auction rate securities back to UBS at par, beginning June 30, 2010. SupportSoft separately values both the auction rate securities and the rights offer in each period.

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