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SupportSoft Inc. (NASDAQ:SPRT)

Q1 2009 Earnings Call

April 29, 2009 4:30 pm ET

Executives

Josh Pickus - President and CEO

Shelly Schaffer - EVP and CFO

Anne-Marie Eileraas - SVP and General Counsel

Analysts

Chad Bennett - Northland Securities

Gregg Speicher - Moss Creek

Ted Ketterer - TK Associates

Shawn Boyd - WestCliff Capital Management

Gene Weber - Weber Capital Management

Operator

Welcome to the SupportSoft first quarter 2009 financial results conference call. Today's conference is being recorded. At this time, for opening remarks and introduction, I would like to turn the conference over to SupportSoft’s Chief Counsel, Ms. Anne-Marie Eileraas. Please go ahead.

Anne-Marie Eileraas

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 would 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 have 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 Josh.

Josh Pickus

Thanks Anne-Marie. Today we are going to cover four topics: our Q1 results, the status of the sale of our Enterprise business to Consona Corporation, progress in our Consumer activities, and the outline of our go-forward plan for the standalone Consumer business.

Shelly is going to cover the first two topics, starting with her Q1 results.

Shelly Schaffer

Thanks Josh. First quarter 2009 was $10.5 million at the upper end of our guided range of $9.5 million to $10.3 million. We saw continued growth in our Consumer segment. In our Consumer segment Q1 revenue of $3.6 million represents an increase of16% as compared to Q4 revenue of $3.1 million and growth of 414% as compared to Q1 2008 revenue of $703,000. Consumer revenue out performance was driven by our partner channel.

In our Enterprise segment total revenue in Q1 was $6.9 million, down 29% from the prior quarter and down 36.7% versus Q1 of '08. The reduction of Enterprise revenue is primarily due to reduced license revenue although other Enterprise revenues also declined. Notwithstanding lower revenue, Q1 marks the 5th consecutive quarter of non-GAAP profitability for the enterprise segment.

Although Q1 gross margin in the Consumer segment was negative, it improved sequentially and on a year-over-year basis as a result of increased efficiencies in service delivery which Josh will later discuss. We believe that we are well positioned to achieve our stated full year goal of exiting 2009 year with a positive gross margin for our Consumer business.

Our operating expense lines for research and development and G&A for both businesses were consistent with the prior quarter. Sales and marketing was down by $1 million over Q4 of 2008 driven by headcount reductions in the Enterprise business as well as reduced commissions. Restructuring charges related to the first quarter headcount reductions and office closures were $896,000, in line with our expectations.

As mentioned in today's press release, we recently reduced the headquarters staff for the Consumer business to a lower go forward cost structure for that business. We will quantify the consumer restructuring charges and their effects on the go forward P&L in our Q2 2009 call.

Interest income in Q1 was $202,000, below our forecasted range of $250,000 to $290,000. This income was more than offset by approximately $285,000 in losses related to foreign currency fluctuations as well as the loss of $218,000 on the put value related to our UBS auction rate securities. The resulting total for other income and expenses for the quarter was a negative $302,000, as compared to a positive $177,000 in the prior quarter.

First quarter non-GAAP loss share of $0.11 was better than our guided loss per share of $0.12 to $0.14. This reduced loss primarily resulted from better consumer revenues and gross margin, as well as incremental cost savings across the P&L, primarily as a result of restructuring.

Let me briefly discuss the balance sheet. As a reminder, our total cash and investments reflect the sum of three line items on the balance sheet; cash and short-term investments, long-term investments, and our auction rate security put option.

Our total cash and investments totaled $89.9 million at March 31, 2009, as compared to $95 million at December 31, 2008, a net reduction of $5.1 million as expected. The change in cash and investments reflect approximately $4.4 million used for operations, 1.25 million related to restructuring activities, and 550,000 of incremental write-up in the values related to our auction rate securities.

With respect to auction rate securities specifically, I’d like to note that we held a par value of $24.5 million in auction rate securities at March 31, 2009, $20.9 million of this balance is held with UBS. Last year we accepted the UBS auction rate securities “Rights offer.” This offer gives us the right to sell the auction rate securities back to UBS at par, beginning June 30, 2010, five quarters from today.

Q1 DSO’s were 65 days as compared to 73 in the prior quarter, and 85 in Q1 of ’08. We saw no degradation in payment performance from our customers during first quarter.

Upon closing of the sales of the Enterprise business to Consona Corporation, we expect cash proceeds of $20 million less deal-related cost, subject to certain adjustments as set forth in the Definitive Agreement.

We currently expect total deal related cost in the range of $2 to $3 million. We will continue to prudently manage both cash, cash usage and collections. However, due to the pending sale of the Enterprise business, we expect a number of one-time cash outflows this quarter. We will bridge these items in our Q2 call.

Let me finish with a brief update on the status of the sale of our Enterprise business to Consona. The closing of the Enterprise sale will require approval of our stockholders. From a timing perspective, subject to completion of an SEC review, we plan to mail our definitive proxy in time to hold a shareholder's meeting in June this year. If we receive the necessary vote from stockholders, we expect to complete the transaction in June, promptly after the meeting.

We are currently engaged in integration plan activities with Consona and are making excellent progress. Now, I'd like to turn the call over to Josh.

Josh Pickus

Thanks, Shelly. Turning now to Consumer. There are a number of developments to report. Q1 revenue performance was strong, notwithstanding the economic environment, as a result of growth in our consumer partnerships.

In our Office Depot Program performance continue to accelerate, driven primarily by sales of attached services. Store level performance improved substantially, which more than offset a reduction in store count due to closings.

While business conditions remain challenging for office superstores, Tech services is a bright spot. With Office Depot noting in its call on Tuesday, the tech services delivered positive sales trends and attach rates above their expectation.

In Q2, we are focused on expanding the break/fix side of the program and plan to launch several new service offerings in related marketing campaigns.

In our pilot with the major US retailer a roll out plan for a more substantial program has been established. Having defined a service model, which integrates our platform and services with the retailer’s existing program, we expect to expand the pilot to a full region and then offer certain skews, chain-wide, in the back half of the year.

Under this program, our services are available through service cards. Meaning, the consumer purchases a in the store and redeems it later from home or office. In addition to the expansion of the service card program, the retailer also plans to trial in-store delivery of services by our remote agents.

Because we believe this program has significant potential, we have recently hired a veteran retail executive with experience in scaling services program at both Circuit City and CompUSA to manage the roll out.

As discussed in our last call, we have been reviewing our pilot with the European retailer. Based on the review, we've recently decided to discontinue this pilot. While the retailer is committed to Tech services, the timeframe for the program to become material to us appeared to be several years away. This extended timeframe combined with the significant expense of maintaining service delivery and account management teams across several countries in Europe made this program incompatible with our plan to drive the consumer business to profitability.

In terms of new retail programs, we announced in early April, that TigerDirect has selected us to develop and deliver a technology services program across its multichannel PC and CE business. TigerDirect will market and sell support.com branded PC services through Tiger's online sites, television offerings, retail locations, catalogues and inbound and outbound call centers. The program is live today on several online properties as well as in the consumer inbound call center but we do not expect significant revenue from this program before the second half of the year.

In addition to these retail programs we announced in October that we launched a program with a leading antivirus provider. This provider is AVG. AVG is the fourth largest vendor of antivirus software worldwide with more than 80 million active users and its growing rapidly. AVG offers a widely used free version of its software as well as a number of premium versions with additional features and capabilities.

Unlike many of our retail partnerships where we wholesale services to retailers, for sale under their brands, AVG is a referral relationship under which AVG directs customers to us and we deliver services under the support.com brand. During Q1 revenue from this program grew rapidly. Based on the success to-date we are working with AVG to expand the partnership. Potential areas for expansion include a larger online presence, participation in retail channels and tighter product service integration.

In addition to growing and diversifying revenue, our key financial goal for 2009 is improving gross margin in our consumer business. To do this we must significantly increase our service delivery efficiency. I am pleased to say that we made substantial progress in this regard in Q1 with service delivery times for top skews declining by a substantial percentage from Q4. Our progress in this area results from a combination of solution-center management and process, and technology development and deployment.

In the solution center, key improvements included the following: Establishment of a dual crew of agents who intervene to resolve long calls and identify common issues that lengthen handle times; implementation of skill-based driving to ensure services are directed to properly skilled agents, and launch of a Six Sigma style initiative to identify and resolve process variances and inefficiencies.

From a technology perspective, we released a major new capability known as pre-service automation. This feature enables our proprietary software to conduct many time-consuming service delivery steps, such as software downloads and system tuning before our solutions engineer take remote control and begin work on the consumer’s PC.

In the week following the introduction of pre-service automation, we observed an immediate and dramatic reduction in the average time on our two most common services. We expect to release further extensions to pre-service automation that will continue to reduce service times in Q2 and beyond. This feature is just one example of how we are applying our significant software development capability to our business with the goal of enabling it to scale profitably.

Outside of service delivery efficiency, technology also enabled us to significantly enhance our industry-leading service delivery management system. Known as Break/Fix 2.0, these enhancements offer partners a comprehensive and cost effective repair solution that is differentiated from the segregated service channel offerings in market today.

With Break/Fix 2.0, our solutions engineers diagnose PC problems and either repair them remotely or provide detailed recommendations for an onsite or depot repair service. Our proprietary service delivery management system then electronically transfers the work order, along with diagnostic information and service recommendations to the appropriate service partner. The result is that, the customer gets the right service, from the right party, in the service chain the first time.

In addition to this customer benefits Break/Fix 2.0 increases the operational and financial stickiness of our service delivery management system platform through tight cross vendor integration and enhanced the revenue potential for partners.

The final topic, we'd like to cover today is our go-forward plan for the standalone Consumer business. I should start by saying that more color on the financial model will be provided in our second quarter conference call, following the completion of the sale of the Enterprise business.

But I'd like to sketch the outlines of the plan for you today: To begin, we describe our Consumer business as a technology enabled service business. By this we mean a service business that we believe will be capable of rapid and profitable growth, because it leverages technology, in addition to labor and capital investment to achieve scale.

Our services generally attract the relationship between consumers and technology and specifically involve support for the digital home and small office. We deliver our services remotely and we've determined that a very substantial percentage of issues can be addressed in this fashion.

We work primarily with PCs and peripherals and plan to expand the cover in an array of other platforms and devices. We offer both incident-based and subscription services, and are increasingly bundling our offerings with other products and services.

Our principle financial goals for 2009 are to grow and diversify revenue and improve gross margin. Over several years, our goal is to build a very large business with the gross margin of 40% to 50% and operating margin of 10% to 20%. We do not expect to achieve profitability or to generate cash in 2009, but we are intensely focused on reaching those milestones as sooner thereafter it's practicable.

To that end, in addition to our revenue growth initiatives, we have reduced the head quarter staff of the Consumer business. And plan to explore additional cost production measures; such as lowering facilities costs and redesigning our executive compensation program to match the stage of the development of our consumer business. We are working on plans in these areas and will have more to share in our second quarter conference call.

From a guidance perspective, Q2 is an unusual quarter. While we expect the sale of the Enterprise business to close in June, we do not know with certainty the timing of the closing, making it difficult to provide overall revenue guidance.

In addition, we expect a number of non-recurring charges, which are difficult to estimate in connection with the sale. While we have reduced the go-forward expense base with the Consumer business, these charges will provide a counterweight during Q2.

As a result of these complexities, we are providing only consumer revenue guidance for the second quarter. With respect to consumer revenue we note that Q2 was a challenging quarter for our retail partners and that revenue contributions from our new and expanding programs are likely to be more substantial in the back half of the year. As a result we express consumer revenue at $3.5 million to $3.8 million for the second quarter.

With that I will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we'll go first to Chad Bennett, Northland Securities.

Chad Bennett - Northland Securities

Yeah, hi thanks. A couple of questions; First Josh on, the latest thing you said about consumer revenue guidance in Q2, understanding that some of the new deals you have signed recently are ramping or ramping to the second half. Can you give us any indication for kind of the amount of revenue recognition we could see on this pilot moving into a more expanded program and skews and what not. And then also what to expect from maybe something like a TigerDirect. I guess I’m trying to get a sense in your Q2 revenue guidance for Consumer, how much of it would be “partner signed” in the first quarter contribution versus kind of steady state stuff we had at the end of last year.

Josh Pickus

Sure, so here's the way I’d answer that Chad. With respect to both the US retailer that’s now decided to expand from a pilot into a more substantial program, and with Tiger, our planning for the full year involves substantial revenue contributions from each of them. But we expect that much more in the back half of the year. We expect both of them to contribute to Q2 revenue, but not in a material fashion. And the reasons for that are that in the case of the retailer, the expansion of that program geographically doesn’t even begin until the end of the quarter

And in the case of Tiger, the parts of that program that we expect to be the most material revenue contributions, the channels we expect to be most effective such as television, don’t begin until fairly late in the quarter. So we continue to believe that both of those programs are going to matter, and we’re very positive on them. But we want to be very cautious in Q2 just because the timing of when certain things happen is relatively late in Q2, and that limits their ability to affect the Q2 results.

Chad Bennett - Northland Securities

Okay. And Josh, just on the North American retailer expanding the program, it sounds like it is in extended pilot at this time. Maybe it’s a full-fledged deal. And then, potentially some remote in-store service skews in the second half. I guess, is there some type of reasoning behind the rolling it out this way on the retailer side, and maybe the argument is, why wouldn’t they be going after this more aggressively? And kind of, what’s the thought process there, is basically what I’m asking?

Josh Pickus

Sure. So there are two different things going on with that and let me try to break them down and be specific about each of them. First of all, there is a decision to move forward with both a broader region, but also chain wide sales of certain skews. So you could look at that and say, well that's a pilot, you're actually going into a full nationwide rollout with particular skews.

And I think that's an accurate description. There is also a pilot with respect to delivering the services, not through service cards, but through people selling them in-store and that service is being delivered in store by our remote agent and at this point, that's just a pilot.

So there are two separate things going on in roughly the same timeframe and the reason I think for doing it that way is, that if recall, this retailer has an existing program and we are fitting in with that program and so things that are more like that program happen more quickly than do things that are genuinely new, such as in-store delivery by remote agents.

And so this is different from the program that we did with Office Depot, in the sense that there really wasn't a program there before, we did it with them as it happened. Here there is a program, and so we're building on that and that tends to dictate the speed at which various things are happening.

But I will say that this retailer is now we believe, serious about growing in a meaningful way their service program and we are excited to be partnering with them and look forward to actually making this program more substantial.

Chad Bennett - Northland Securities

Okay. And one more the service cards being nationwide, is that what at the end of the quarter Josh or no?

Josh Pickus

No, that at the end of the quarter what we'll have is expansion to something regional. We expect that in the back-half of the year is when you will see the chain-wide availability of certain skews.

Chad Bennett - Northland Securities

Okay, Alright.

Josh Pickus

And again that's why you see relatively muted revenue growth in Q2, because none of that will occur until later in the year.

Chad Bennett - Northland Securities

Okay. And then maybe a question for Shelly, you reiterated that the long-term or medium term target I guess I would say exiting the year gross margin positive on the Consumer side. Should we assume gross margin percentage improves throughout the year Shelly, from where it ended or where it was in Q1?

Shelly Schaffer

Well I think the goal is obviously highly sensitive to two things. One that Josh talked about, which is just the actual blocking and tackle is simply driving al the plan and also it is sensitive to volume too. But our goal was saying the exit coming out of 2009 would be a gross margin positive.

Now, I mean it's hard to do that if you don't keep making progress each quarter, but what percentage do you think it is? It's really on a day-by-day basis that we view this.

Chad Bennett - Northland Securities

Okay, Josh is it material to talk about a $1 amount that you've reduced costs on the Consumer side?

Josh Pickus

It will Chad, I think that what we're going to try to do is with numbers like that, that are still a little bit in flux, we are going to provide details and color when the quarter is over, the Enterprise transaction is complete, we've finished some of the work on these other cost reduction measures that I mentioned in my facilities and executive comp.

And I think if we give bits and pieces of it now it's more confusing than anything else. The overall view that I would have to guide you in thinking about this is that, we do obviously believe that substantial revenue ramp is absolutely critical to get us across the line in terms of profitability and we don’t believe it will happen without that.

But what we're seeing today, a little bit more strongly than what we've said before is, we also want to hasten that time and to do that there is another lever that you can turn and that relates to cost and so we have done just this week, a reduction in our headquarters staff and there will be incremental cost savings that will work out through some of these other areas and we hope to be available to talk to you with all of this work through and identified when we do our call following Q2.

Chad Bennett - Northland Securities

Okay. And one last question. With Office Deport, Josh where do you think you're at now that all the stores are up and running? What do you think the organic growth of that business, where do you think we are at in terms of growth with that specific partner?

Josh Pickus

I believe that there is still material room for that program to get meaningfully bigger.

Chad Bennett - Northland Securities

Okay.

Josh Pickus

We've established a good base line but I think both we and OD, expect and are planning for and working very hard to grow it from where it is. Remember OD is a $14 billion company and while they are very pleased about this program, you know it came up several times in their call earlier this week. It’s got to get bigger to really be material to a company of that size. And so, as happy as we are with what we’ve got, there’s no sense in which we believe we are at steady state.

Chad Bennett - Northland Securities

Got it.

Josh Pickus

The particular piece that we’re trying to expand as we go forward relates to the break/fix services. The program has been heavily oriented towards attached services, and we’re really trying to grow break/fix as we go later into the year.

Chad Bennett - Northland Securities

Okay. Thanks, that’s all I have.

Operator

(Operator Instructions) And we’ll go next to Gregg Speicher, Moss Creek.

Gregg Speicher - Moss Creek

Hey guys, congratulations on getting this consumer thing going. Now, did I understand correctly that the new partnership or the new retail agreement is going to be done through card services? We buy the card and do it from the home or the office?

Josh Pickus

Yeah. So let me clarify that. That program is not so much new. It’s the major US retailer that we have been piloting for a while, and now is really getting serious and going in the more of a rollout mode. The default way in which that program operates, the way in which it operates today, and the way in which it will go chain-wide is through service cards.

So you go into the store, you purchase a card, it’s got an authorization code on it, and then you redeem it later; that is what that will be.

The other thing that I mentioned is that separate from that we will be piloting with this retailer, the approach that we use elsewhere, which involves sale and delivery of the services in the store, [door service card], with our agents remoting in to the PC, which is connected to the Internet at the store. So that's specifically what's going on with that program.

Gregg Speicher - Moss Creek

Okay, that helps. I was kind of just trying to figure out that if each new partnership you get up and going is sort of a different delivery model or are they converging or diverging depending on the partner?

Josh Pickus

Converging. We feel like we've really developed some deep expertise around retail programs, we know what the moving pieces are and we will see them vary from case-to-case, in terms of how much of this or how much of that.

But there is a common set of elements that we believe is important and for example, in this case, the reason that we are doing the work around the in-store delivery is we believe that that's a model that's capable of faster growth and the retailers heard us say that and is saying let's give that a whirl in addition to the stuff that they've done themselves. So we think our expertise is actually growing and that the programs are converging in terms of what they look like.

Gregg Speicher - Moss Creek

Okay, good. And I know for Q2, there is a lot of moving parts, but can you talk about the cash burn or is there is sort of a minimum amount of cash you want to keep on the balance sheet?

Josh Pickus

Sure. I think what you said about it being a complex quarter is really right. And let me give you sort of a three sentenced answer to that and then if you want more color I can do it, here is sort of the net. We believe that assuming we close the transaction with Consona, we will have a substantial cash infusion and we've estimated that at $20 million subject to these adjustments for the deal cost.

Second, you got a whole bunch of other onetime charges that occur and whether they are deal cost or whether they are severance cost or something like that. And there are quite a few of those that we need to work through.

And that the net result of that is we will end up with meaningfully more cash than we have on the balance sheet today, but there is so many different pieces that we are quantifying it. And what we will do is give you a very specific bridge when we report in Q2 about here is what came in and here is what we're now and here is where we ended up where we are.

So that's kind of the overview of what's going on with cash.

Gregg Speicher - Moss Creek

Okay fair enough. One last question, how many at-home agents do you have now, has that been scaling up significantly?

Josh Pickus

Yes, in total at this moment, we have around 350 agents and that includes supervisors. The most interesting thing about the first quarter was that we really didn't grow that in a material way. I think the last time this question got asked, I said around 300 and frankly I could give back same answer today, there it hasn't been a material increase.

What really happened in Q1 that was exciting around the agents was, we were able to get substantially increased efficiency and productivity. And that enabled us to add some meaningful revenue, really without adding any material number of agents and that is the game going forward. We actually believe that if we can continue to drive efficiencies, we can scale revenue without having to make major agent additions.

Now, obviously, that excludes some kind of discontinuous events, where some huge partner comes to us and says, two weeks from now we are going to do a full launch. But in a sort of steady state type of world, where we're adding partners and they're rolling out in a measured way, our focus is less about agent addition at this moment than it is around agent efficiency and being able to drive substantially greater revenue without adding substantially greater cost.

Gregg Speicher - Moss Creek

Okay, great. Thanks a lot.

Operator

And we'll go next to Ted Ketterer, TK Associates.

Ted Ketterer - TK Associates

Hey Josh. I got a question for if you step back. This has been a fairly long road from the time you started. I don’t remember, was it 2005? And now we have a company doing lets just say annualized revenue at $20 million with 40 million share plus and you trend in the $100 million market cap and you have mentioned for a couple of years and on a number of conference calls, the goal and the dream to build a substantial company and I guess what my question is, what's the range in your mind and in your planning that you would define as substantial?

Josh Pickus

Sure, substantial companies are denominated in revenues of hundreds of millions, not tens of millions. That’s the direct answer to your question.

Ted Ketterer - TK Associates

Okay. Well its self explanatory. Okay. Thank you.

Operator

And we'll go next to Shawn Boyd, WestCliff Capital Management.

Shawn Boyd - WestCliff Capital Management

Josh, just a couple of follow-ups. The Office Depot story you mentioned they did have some closures. What were they at the end of Q1?

Josh Pickus

They've gone down by roughly 100 or so stores and they have not announced anything further, beyond what they announced that they were going to -- in Q4 that they would do in Q1. So there used to be 1200 and change and now they're 1100 and change.

Shawn Boyd - WestCliff Capital Management

Got it and you expect that to stay fairly constant here?

Josh Pickus

We don’t have any information from them about additional store closings, but I do have to say, I don’t know everything that they know. They seem very focused to me in moving the business forward, and that issue has not come up at all in any discussions we have had with them.

So our assumptions right now are that’s roughly the store count going forward, and the question is, how do we drive additional revenue out of that?

Shawn Boyd - WestCliff Capital Management

Right. And of course the more relevant point here is that the growth at the per-store level is clearly overwhelming, got impacted, and you feel like you still have a lot of headroom on that.

Josh Pickus

That is correct.

Shawn Boyd - WestCliff Capital Management

One follow-up to that is, the launch of the US retailer. Let’s think about maybe as we exit 2009, at that point would we be at scales such that we would be equivalent to where we are now in Office Depot, in terms of the national rollout being complete and starting to work on increasing the per-store growth.

Josh Pickus

I can speculate about that, but it really is just speculation because there is so much to be done. That is certainly among the possibilities. If we had the upside case for the way these rollouts went, and then they actually liked what they saw in the pilot with the in-store type of services, that’s absolutely possible.

But at some level, I don’t know any more than you do about whether that will actually be the outcome. And so the most I can say is, that is within the realm of possibility. We are obviously driving everything we can to make it happen, but there’s a lot of miles to be walked in terms of what that rollout looks like.

Our main focus at this point is, as you know, it’s taken a while for this retailer to nearly decide to get serious about expanding this program and we feel now that, that is the case and that to us is like a very important milestone and our goal now is to really excel and make it go. As to exactly where that leaves us at the end of 2009, I have got my hopes, but they are not yet predictions.

Shawn Boyd - WestCliff Capital Management

Okay, that's fair. Switching the questions just for a second to the 350 agents that you mentioned earlier. Why would you say is the current revenue capacity of that work force?

And then the follow-up to that of course is given the efficiency improvements that you're pushing and succeeding with right now, what is it today and where do you think it can go with those process improvements?

Josh Pickus

Well, let me answer that this way, I think that there is substantially more revenue capacity in the agent pool than we are generating today. And I am not going to quantify exactly what that means, because I think it is a lot more effective if I just show you, but I will say that in Q1 the level of progress we made in dramatically diminishing the service times or in key skews was really remarkable.

And what I will tell you generally is that with respect to the attached services, they are more straightforward services, we are now doing better than we forecast we would ever do in terms of the [store-turnout] times and what we're actually doing in there. And we believe we can go further with respect to that, because the technology is really doing some remarkable things for us and the solution set of management is really kicking in.

The next week that we need to make, it's a really get where we need to get is we need to get that same kind of improvement on the more complex diag and repair services. And that's some thing that is a big focus for us and it offers very substantial opportunity for us, to keep adding revenue without adding agents.

And so, we are very excited about this part of the business, because we are finally seeing this happen. And the best word I can use, is to say, we think there is substantial incremental capacity that we had, based on the improvements we have made and improvements to come.

Shawn Boyd - WestCliff Capital Management

Got it. Well look forward to seeing them. Thank you Josh.

Josh Pickus

You bet.

Operator

And we'll go next to Gene Weber, Weber Capital Management.

Gene Weber - Weber Capital Management

Hi Josh. First of all, I want to congratulate you for making the move in your European business, because I think at this point in time that's the right decision, as tough as it may have been for you.

And maybe you can just help me on some of the totally unrelated and this will probably be a difficult question to answer, but can you give me sense as to where that headcount was at December 31st, where it is now and where it might be at June 30th, assuming your closed by then?

Josh Pickus

You are talking about the Consumer agents or the overall headcount?

Gene Weber – Weber Capital Management

Well, yes that's why it's difficult, whichever is the easiest way -- whichever way you can answer best. Let me leave it like that?

Josh Pickus

Okay, well here is kind of the way I would tackle that. The Enterprise unit, I think assuming we close the deal will go away completely. So that part of the business will not be there. The agent headcount we expect to be very consistent with, what it is today and the Consumer headcount we've announced that we did a reduction of about a little north of 20 people and this is not going to be a big organization going forward.

If you take it all in assuming that the Enterprise unit has moved on I think that will probably have around 100 employees. Do not hold me to that number because we are still specifically working through things and there could be a lot of ups and downs on that, but it’s a very rough order of magnitude. That’s kind of what I expect as the business moves forward outside of the agents.

Gene Weber - Weber Capital Management

Fine I appreciate that and I wont hold you to it but that’s just what I was looking for. Thanks Josh.

Operator

And it appears we have no further questions. At this time I would like to turn it back over to management for any additional closing remarks.

Josh Pickus

Okay so thanks for being with us today. There is obviously a lot going on and we look forward to providing further clarity on the future and telling you better business when we report after the second quarter. Thank you.

Operator

And this concludes today's conference. Thank you for your participation.

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Source: SupportSoft Inc. Q1 2009 Earnings Call Transcript
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