SupportSoft, Inc. Q4 2007 Earnings Call Transcript

Feb.11.08 | About: Support.com, Inc. (SPRT)

SupportSoft Inc. (NASDAQ:SPRT)

Q4 2007 Earnings Call

February 11, 2008 4:30 pm ET

Executives

Anne-Marie Eileraas - General Counsel

Josh Pickus - CEO

Ken Owyang - CFO

Analysts

Chad Bennett - Northland Securities

George Grose - American Capital Partners

Todd Raker - Deutsche Bank

Andrey Glukhov - Brean Murray

David Hines - Needham & Company

Ted Ketterer - PK Association

Quince Slattery - Symmetry Peak Management

Patrick Lin - Primarius Capital

Operator

Good day, ladies and gentlemen. Thank you for joining SupportSoft, Incorporated fourth quarter and year end 2007 Earnings Call. My name is Stacy and I will be your moderator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the floor over to Anne-Marie Eileraas, General Counsel for SupportSoft. Please proceed.

Anne-Marie Eileraas

Thank you, Stacy and good afternoon. This is Anne-Marie Eileraas, General Counsel of SupportSoft. Joining me here at Redwood City are Josh Pickus, our Chief Executive Officer, and Ken Owyang, 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 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 in the reports we filed with the SEC, all of which can be found through the Investor Relations page of our web site.

I'd 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 also available on our investor relations web page. The statements we will 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 will turn it over to Josh.

Josh Pickus

Welcome and thanks for joining us. Today we'll cover three topics, our Q4 performance, some recent organizational changes and guidance for Q1. We reported a strong fourth quarter exceeding plan on revenue, non-GAAP results and cash. In the consumer business, we launched several programs announced earlier in the year. The first program with a US retail partner is a white-label program in which we offer premium technology services through the partner. In this type of program, we receive revenue from the partner on a per service basis at agreed upon prices.

In December we expanded this program from fewer than 10 stores to more than 80, representing the retailers entire store population in one state. The stores have dedicated service kiosks and our partner is promoting the program through in-store signage and newspaper advertising. We launched with a limited set of services designed for attachment at new PC sales and are now expanding to diagnostic and repair services.

All services are provided through our proprietary service delivery management system, which allows services sold in-store to be delivered remotely by our agents; providing a seamless experience for customers, store associates and management.

Results of the program in the approximately seven weeks since launch have been outstanding. Sales for store per day exceeded forecast and on certain days reached levels not expected for several quarters. Attach rates have been similarly impressive, regularly exceeding projections. While we are prohibited from revealing specific sales or Attach rate data for this program, it would be fair to say, we are very pleased with the progress to date.

In mid-November, we launched a hosted tools program with the TechGuys, a division of Dickson stores, one of Europe's largest specialty electronics retailers. In a hosted tools program we supply software tools, which our partners use to deliver premium technology services. We've receive license fees each time the partner uses the tools to deliver a service.

Results to date from the tech guys program have been strong. Store associates embraced the tools finding them easier to use and more reliable than those they replaced. Service volumes quickly approached target levels with thousands of services having been delivered since launch.

The final program we launched in Q4 was a referral program, under which McAfee promoted support.com services to McAfee customers through its website and email blasts. In a referral program, support.com delivered services to customers, referred by a partner, charges the customer directly and pays the partner a referral fee.

McAfee's marketing efforts drove an up tick in support.com order volume, including our largest single order day since inception. We expect McAfee to experiment with a number of approaches to the premium technology services market and we’re pleased to have an opportunity to work with them.

In addition to these launches we completed an agreement with Warrantech, a leading provider of service contracts and after market warranties. Starting in March, Warrantech's repair master service plans will incorporate technology services from support.com.

We believe the coupling of Warrantech's hardware service plans and support.com's services creates a unique set of offerings for the retail market place. Under the agreement with Warrantech we receive a payment each time a repair master warranty is sold. While this is our first warranty related program, our ability to forecast revenue or cost is limited. We believe that the program has the ability to contribute materially to our 2008 results.

In direct-to-consumer, support.com continues to make steady progress, relative to the prior quarter order volume increased, revenue grew reflecting both order growth and increased revenue per order and costs per order are measured as customer acquisition cost decreased.

From inception at the beginning of the year we grew support.com orders from fewer than 10 per day to more than 30 per day, while decreasing cost per order from approximately $600 to approximately $200. In 2008, we expect 85% or more of our consumer revenue to come from partnerships with only 15% or less coming from support.com. Nonetheless we’re pleased with support.com's steady progress and continue to believe that it plays an important role as a sales tool and its services laboratory.

Revenue from the consumer business in Q4 was approximately $350,000 while this represents a substantial, sequential increase from Q3, the absolute number is muted by the fact that our new programs launched late in the quarter limiting their contribution. For our first full year in the consumer business, we recorded approximately $1 million of revenue.

In our enterprise business, license revenue of approximately $4 million represented a substantial improvement over a difficult third quarter. Key transactions included a license with Canadian managed service provider CGI that will support several outsourcing contracts. Our relationship with North American outsourcing firms such as CGI, CSC and EDS are strong and we are working to expand our roster of customers to include major Indian outsourcers.

Outsourcing firms use our software to fulfill the cost and quality commitments they make to their customers and continue to represent an important market opportunity for us. Our professional services team delivered an outstanding quarter, posting revenues significantly above plan.

Although it is not evident in the financial statements, the cost of services line includes expenses associated with our consumer call centers. The professional services team delivered its second consecutive quarter of profitability. This represents a substantial improvement over the first half of the year and I salute the team that made this happen.

In the overall enterprise business, we achieved profitability on costs higher than those we are carrying into 2008.

Let me turn it now over briefly to Ken for some additional color on Q4.

Ken Owyang

Thanks Josh. Since Josh has already provided color on Q4 revenue, I’m going to focus on the expense portion of our P&L and our balance sheet. In terms of expenses our total non-GAAP cost and expenses were approximately $800,000 lower than they were in the third quarter. There are several reasons for this, first of all the reduction in force affected during the fourth quarter. The risk affected 41 employees and contractors representing approximately 12% of our work force.

We ended the year with 296 full time employees and contractors, while terminations occurred throughout Q4, most were effective in late October yielding two months of savings. In total the restructuring resulted in a GAAP charge of $1.2 million and was comprised almost entirely to personal related termination costs. The risk charge was lower than we originally estimated due to lower severances in EMEA and lower facilities related charges.

Secondly, there were several items in other areas that contributed to the lower sequential expenses in the fourth quarter. Some of these reductions were specific to Q4 and therefore not necessarily expected going forward. In R&D, the lower Q4 expense was driven primarily by an R&D investment tax credit specific to that quarter.

In G&A, an annual through-up of bonuses in Q4 resulted in lower bonus expenses as we did not achieve our annual targets. In Q1, we expect to resume recording a normal level of bonuses.

Looking forward to Q1 spending, cost reductions in the enterprise segment affected through the RIF will be offset by incremental investments in the consumer business. The additional consumer business investments and the resumption of a normal level of expense in G&A will mean higher total cost in Q1 as compared to Q4.

Moving briefly to our GAAP expenses, we recorded a non-cash charge of $1.7 million related to our discounting of one the legacy products we acquired from core networks in 2004 and our reevaluation of the carrying value of the core intangible assets. We have excluded this charge from our non-GAAP results.

From a balance sheet perspective, we ended the quarter with approximately $113 million in cash and marketable securities approximately 245 per share. During the fourth quarter, we used $1.3 million of cash, bringing our annual cash usage to $7 million, approximately half of the $15 million we initially projected at the beginning of last year.

The better than expected cash results for Q4 were due a number of sizable in-quarter cash collections that we achieved above our forecast.

DSOs for the fourth quarter were 72 days, up slightly from 67 days in Q3, primarily because of the increase in accounts receivable from $8.7 million to $10.1 million at yearend.

Deferred revenue gross from $7.8 million at September 30 to $10.5 million at December 31. Consistent with our historical experience, we expected deferred revenue to be highest at yearend due the seasonal nature of our maintenance renewals.

With that, I'll turn the call over to Josh.

Josh Pickus

Thanks, Ken. Since our last call, we've made several important organizational changes to position us for 2008. First, we appointed Shelly Schaffer, Chief Financial Officer, Shelly comes to us with a wealth of experience at Yahoo, Mercury Interactive, Nestle, Coca Cola and Cosine. I believe this experience combined with her expertise in both consumer services and enterprise software business models will allow her to make a substantial contribution to our company.

Shelly will join us in late February and will assume the CFO role following the filing of our 2007 10-K in March. Ken will remain with us through the filing of the 10-K to assure a smooth transition of responsibilities to Shelly.

I am deeply grateful to Ken for his many contributions and outstanding service to SupportSoft. Effective January 1st, we also divided the company's operations into two business units to promote focus, accountability and transparency.

The consumer solutions unit lead by Richard Mandeberg and Anthony Rodio consists of operations related to the consumer initiative launched in 2007. We're increasing our investment in this part of the business to drive revenue growth in 2008.

The enterprise solutions unit lead by Mike Sayer consists of operations related to our traditional business selling software to large enterprises and digital service providers, having reduced quarterly expenses for this unit to be low $10.5 million with our Q4 RIF we are managing this business tightly to achieve sustained profitability. Beginning in Q1, we will provide revenue and profitability information for each unit to increase transparency to investors.

Looking to the future, we expect revenue of $11 million to $11.4 million in the first quarter. From a business unit perspective, we expect normal Q1 seasonality in the enterprise business and sequential growth in the consumer business. With respect to our US retail partner, our consumer numbers reflect only continuing sales at the 80 stores we are currently in, as we do not have a definitive date for expansion to additional stores.

From a P&L perspective, we expect the non-GAAP net loss of $0.08 to $0.10 and cash usage of $4 million to $6 million for this period as we expand our consumer business. Because of the substantial variability that is possible in the consumer business, we believe it is prudent at this stage to provide only one quarter of guidance.

We are cognizant of the challenges presented by macro environment but remain optimistic about our prospects for 2008 based on our experience year-to-date.

Thanks and let's go ahead and open it up for questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Chad Bennett with Northland Securities. Please proceed.

Chad Bennett - Northland Securities

Yeah, thanks Josh and talking about the consumer business it sounds like the $350,000 revenue number you did in Q4 didn't have a lot of benefit from your partners and you talked about sequential growth. I guess, I don't want to put guidance into your mouth but can we talk about maybe how this -- how significant the partners are right now and what to expect from may just generically a material partner annually, is there anyway to kind of put our arms around that?

Josh Pickus

There is a lot of variation among the partners, if you wanted to limit it to key partners, I think that we've been somebody who is the key partner to be in there at least in the high hundreds of thousands and certainly the upper end of that range gets into partners that are contributing many millions of revenues. I don't want to be more precise than that at this point because I think we're going to see that play out during this year, but I think we do feel that we've got a number of strong partners of really high quality that are now ramped and able to contribute in a material way to revenues during 2008.

Chad Bennett - Northland Securities

Okay. And can you give us an update on the competitive landscape, you are seeing out there in the market and if your thoughts have changed with respect to your opportunity?

Josh Pickus

Sure. The most interesting thing that we're seeing competitively is that the market is really evolving. One of the things that I always watch for is, when you are in a situation that is it competitive, do you see the same people and view the customers use of RFP's because all of those things indicate a market that is forming and becoming real and I can tell you that everyone of those things is true.

It does continue to move forward and become a definet market with analyst covering it and a set of competitors and all of the things that happened when you go from sort of theory to reality. So that's definitely something I see. I am very pleased by our competitive position. I feel that there are definitely other good companies in this space, but it's becoming clearer and clearer to me that we have a unique set of assets that we're bringing to bear here, and I think increasingly the bigger opportunities are recognizing how we're differentiated. So those are the two things I'd highlight in terms of development of the competitive position.

Chad Bennett - Northland Securities

Okay, and then one question about our particular partner. Is there anyway to characterize with your TechGuys relationship? How much of an improvement in productivity by their agents have they seen by utilizing your software?

Josh Pickus

Well, I won't give you a precise number, but I will tell that its very material, their issue in the past was that many of the services that they were seeking to deliver, they could not get to conclusion. And that's obviously problematic, because they can't build people or they've got to do them over. We've seen a dramatic increase in the percentage of services completed effectively and in reduction in the amount of time that it takes them to deliver services. So in both of those respects, I think you could call it double-digit at least, percentage improvements and we think there is more to come as they further train people. We also think that that's an opportunity that has a lot of legs on it and that can grow if we handle it right, into something much larger overtime.

Chad Bennett - Northland Securities

Okay, and just one quick last question for Ken. Going forward Ken, the non-GAAP operating expense run rate for the business should be this quarter roughly around the $9.5 million to $10 million range for non-GAAP?

Ken Owyang

Chad I think what we mentioned specifically is that it will be up from Q4 so you can start with Q4 and trend it up from there.

Chad Bennett - Northland Securities

Okay, alright thanks.

Operator

Your next question comes from the line of George Grose with American Capital Partners. Please proceed.

George Grose - American Capital Partners

Good afternoon, sounds to me, like with your consumer initiative that, like your most recent partners are really starting to pan in to something more material you know to be. Can you talk a little bit about what you've done though I mean I guess you've identified some hiccups that you had initially and what have you done there to turn these partnerships starting into some revenues here?

Josh Pickus

Well I see there are at least a couple of things that are important there, part of it George is simply time. Some of these partners have been around for a while and we've simply gotten through the process of designing the program, rolling it out, training people, all of that. But it's also true that I think we've learned a lot about how you make these partnerships effective. If you take the segment that we're looking at for the highest amount of growth this year, if you look at retailers. What we're seeing is that it absolutely does work to sell these services in-stores and to attach them to sales of products in the stores and that retailers get that lead by the success of Geek Squad and by Fire Dog. I think retailers very much see in a tough environment that this is an area they can grow in.

There is an interesting article with Phil Schoonover from Circuit City in the Journal Today, where he talked about top growth initiatives and one of the two was fired off. So we think retailers really get it and what we've learnt is what do you have to do in the context of a retail environment to make this effective, because it's quite complicated to sell a service in a store that deliberate remotely make it easy for the store associate, make it painless for the customer and provide really relevant data to store management, so they can manage the program.

And I think we've gotten pretty good at that and embodied much of that in the thing I call the service delivery management platform, which I think is a huge asset for us that we are going to be able to bring to bear going forward. So to summarize it's both time passes and you get through some of the necessary things that you do, but also we've had some real learning's as we roll these programs out about what it takes to make them work particularly in retail.

George Grose - American Capital Partners

And would you care to show me to some other verticals, wherever you see that might be pretty interesting?

Josh Pickus

Well I think retail is number one and included in retail is warrantees, where we think there is quite a bit of opportunity to expand the traditional warranty. We think the digital service providers, cable and telcos are a key market for us and those are different types of arrangements and have yet to as productive as the retail ones, but they are clearly going to be key players in this long-term and we are working very hard at that.

A third area I would highlight for you would be small business and solo customers. We have the same challenge any else does in having to reach them, but once you do, its clear that there is a huge appetite. I mean, just as one small example we had some coverage in the New York Times over the weekend in the small business section and it immediately led to a spike in sport.com calls. So those are the three segments that if you wanted to focus on I would due as we look forward into 2008.

George Grose - American Capital Partners

And I guess your experience with the legacy side of the business should help you make in roads relatively quickly on the digital service side?

Josh Pickus

Well, we never call it the legacy side of the business, we were aspiring, we call it the profitable side of the business, but yeah obviously we have relationships there and they're a value to us in moving the new initiative forward.

George Grose - American Capital Partners

Okay, and can you maybe share how some, like how the pipeline is looking there with your key, with your existing customers I guess on your profitable side of the business and how quickly do you think that they could start adopting your consumer operations?

Josh Pickus

I don't want to comment specifically on any group of customers in the pipeline, but I would say this. In the consumer area as far as pipeline goes there really has been a meaningful up-tick, there are more opportunities and they are much bigger. And as we've learned it takes a while to get them close and then it takes a while to get them rolled out, but we couldn’t be more enthusiastic about the number and magnitude of the opportunities. On the enterprise of the business we feel pretty good about the pipeline for the first half of the year, we’ve got more work to do on the back end and as I say there we're really focused on managing the expenses in delivering revenue to be consistently profitable and I characterize the pipeline there as being solid, not spectacular but solid and we think enough to get us where we need to get to deliver the consistent profitability.

Operator

Your next question comes from the line of Todd Raker with Deutsche Bank. Please proceed.

Todd Raker - Deutsche Bank

Hi Josh. Hi Ken.

Josh Pickus

Hi.

Ken Owyang

Hi.

Todd Raker - Deutsche Bank

Just first on the enterprise side of business, can you just give some commentary, last quarter you had two deals on the ServiceVerify side, one was the geographic region, I believe it was Cox. Can you talk about kind of progress there and then one was a pilot with another major North America any kind of signs of progress?

Josh Pickus

Sure. The Cox structure is gone very well, what's happened since we last talked that we've actually put that in the production in two different regions and we had some real success for that. And we are in the process of collecting up those metrics and seeking to turn that into additional revenue in the course of the year.

So, we feel good about the progress we've made and really delivering value to Cox's with that program. The other one is slower than I'd like just due to some, I guess you called it, internal technical requirements and it's hard for me to predict whether that will pin out. We certainly do think that with the progress we've made on ServiceVerify that there is much more of a real revenue opportunity this year than there was last, because I think we've really got in over the hunt of making it work in a way that the customer sees value. It's difficult to predict what that means a Q2 deal or Q3 deal or Q4 deal but it does feel like we are to be able to make progress this year with that product.

Todd Raker - Deutsche Bank

And then again, just seeking on the enterprise side, BT with the UK post office is that, I know, its kind of transactional based but is that attracting toward expectations?

Josh Pickus

Yeah, it is. That is moving forward, things are going fine, it really is driven by subscriber growth there and I would say their subscriber growth has been solid but not out of the part, and we're looking to a appoint where they exceed sort of their basic payment and begin to pay more because they've exceeded their subscriber numbers and given their place with the post office holds there I think they will, it's a little bit hard to say when that will happen but I'd call it solid steady progress.

Todd Raker - Deutsche Bank

So, if I look at the enterprise side of the business here, you guys missed Q3 at that time you said you had no deal you loss, you were still working them having characterized that now or quarter later?

Josh Pickus

How does the deal that we were specifically focused on there two of them closed one of them in full, one of them I'd say in part. The other two are in the pipeline, one of them, I think, is a Q1, Q2 deal the other one, I think, is a Q3, Q4 deal. And so, we definitely got part of it but not all of it and the remainder, is still very much in the pipeline.

Todd Raker - Deutsche Bank

Okay. And then, just shifting over to consumer side two questions for you, first with the new deal here on the warranty side, I just want to understand it sounds like that you guys recognize revenue when a warranty is signed but how does that impact the economies if that warranty is actually exercised 12 to 18 months down the road and you actually incur some cost servicing that product.

Josh Pickus

Sure. So, let me give you a little bit more color of that how that deal works. There are two types of warranties that are sold under it, one is called basic, one is called premium. Under basic, we're not specifically obligated to deliver any services and it simply there, one of our software agents included and that highlights the service opportunity to people and if in fact they call us they would pay separately for the service.

Todd Raker - Deutsche Bank

Okay.

Josh Pickus

On the premium side, they are entitled to a couple of services over the term of the warranty and the key thing to understand here is that if everybody redeemed their services this would be a money losing proposition for us.

We have made assumptions based on warranty experience generally about what percentage of the warranties will be actually redeemed and our assumptions which I think are pretty conservative still see there is being a very nice business but we definitely have to get in and then have the experience to understand those redemption rates.

On the basic service, I think, we take the revenue right away because there isn't a further obligation on the premium service we take the revenue, I believe over two years just to account for the possibility that somebody might redeem the royalty and when we redeem at that cost is sort of built into the cost that we have in the call center in terms of the number of agents that we have.

So that's how that deal works, we think there is a lot of opportunity because it's clear that the one key providers are looking for way to address the growing number of problems that are software as opposed to hardware related.

And I don't think they believe they are going to do it with their existing structures and work here to help. As I say, the key question is what are the redemption rates? And that's something that we are going to need to learn as we get into actuary operating this program.

Todd Raker - Deutsche Bank

Okay. And then, on the large retailer, two questions for you. You've got, I think its taxes rolled out here, it sounds like the program from your perspective is exceeding your expectations even that from the retailers perspective, do you have any timing to when they could go nationwide and if you could just generally give us a better sense for how big it is could be, I mean, when it goes nationwide, is it potential 10, 10x improvement in terms of revenue impact, how should we start and think about that?

Josh Pickus

So timing and magnitude, I guess are the questions. I think it's fair to say that not just we but our partner are very pleased with the results to-date, both in terms of sales per store per day and in terms of tax-rates, they've been terrific and that's a shared view.

I don't have any information that's definitive about when or if it will be national and I got myself into a little bit of trouble last year by being premature on that call, so I'm going to be very cautious about that until its absolutely definitive. But I can tell you that the enthusiasm appears to be shared.

In terms of magnitude, one in 80 stores, we've said that this chain domestically has more than 1000 stores and we're also selling just a very limited number of SKU's and six or fewer and ultimately we'll have many more SKU's than that and we're selling purely services that are purchased in store and redeemed or provided over the internet and there are lot of other possibilities there such as services that are purchased over the internet rather than in store.

So, there are three or four vectors in which I think you could grow very substantially and there is no question that when and if this thing gets natural and realizes its potential that it can be quite significant to us, but I just do not going to make any forecast based on that until we are absolutely definitive on the timing of it.

Todd Raker - Deutsche Bank

Is this relationship, I know you have no customer acquisition cost, is it a profitable relationship today?

Josh Pickus

Is it profitable?

Todd Raker - Deutsche Bank

Yeah.

Josh Pickus

Each service, yes is the short answer. Services here are profitable and they're, just the kind of services we want to do, at least these initial ones because they are fairly straight forward and its more possible on a higher percentage of the time to deliver them in the suggested handle time. So, we like to do as much of this as we can.

Todd Raker - Deutsche Bank

Okay, thanks. I appreciate it.

Operator

Your next question comes from the line of Andrey Glukhov with Brean Murray. Please proceed.

Andrey Glukhov - Brean Murray

Yes. Thanks for taking the question. Josh basically you shared with us the goal that for the full year the revenue from partners will be about 85% of the oral consumer revenue. If we look at Q1, do you think the partner generated revenues will exceed the revenue for support.com?

Josh Pickus

Yes, I do.

Andrey Glukhov - Brean Murray

Okay. And just to put in perspective, in the 375 number for Q4, was there meaningful chunk of partner generated revenue?

Josh Pickus

Yes, there was. The percentage of support.com revenue, we expect was higher in Q4 than it will be in Q1, because we think support.com will continue to grow but at a slower pace than these partner transactions. So our expectation in that, both will contribute in Q1, but the percentage associated with the partner piece will grow faster and be larger.

Andrey Glukhov - Brean Murray

As that ramps up and one other thing that's hitting your profit in support.com as that your customer acquisition cost, it too is pretty high. As your partner revenue ramps up, can you deemphasize sales and marketing in support.com?

Josh Pickus

That is not our intension. We have a fixed plan for what we're going to spend on support.com in terms of advertising and we think that’s a prudent investment to make over the course of this year to build a long-term business and to build that brand. So I don’t think that because we see partner growing substantially, we do less on a consumer and its more that the overall mix will become more profitable, because more of it is coming from partners. If the only thing we were focused were near profitability we wouldn't do support.com at all. But we think that there is a bigger gain here in terms of having some brand that can overtime drive better returns even with partners.

So we’re going to make a prudent level of investment for support.com throughout the year even if we achieve all of our goals on the partner side.

Andrey Glukhov - Brean Murray

Okay. Let me ask you another question on the cost side in that business. Since at least in your initial efforts with partners you tend to grab or take to the services that are a bit more out of the box if you wish. Is there an opportunity for you guys to explore alternative delivery models; be it offshore, be it more reliance on distributors call centers to lower the essentially the cost of goods sold?

Josh Pickus

Absolutely there is, we believe that at this moment in the evolution of the remote services business, that what the customer wants is an onshore call center and so we don’t have immediate plans to go offshore. I could see that changing overtime, I could see certain classes of services such as things that were done overnight, didn’t have customer interaction going offshore, but the other item you highlighted is the place that we really do see a substantial near-term opportunity to reduce cost. And that is by supplementing our brick and mortar outsourced call centers with internally owned distributed or work from home agents and we are very much aggressively working on that. We've hired about 10 of those agents and we'll be hiring more and we think that offers the opportunity both for excellent control over the agents in other words us directly with them, but also meaningful lower cost than in our current situation. So we are after that and that's something that we see occurring over the course of this year.

Andrey Glukhov - Brean Murray

Okay. And I guess lastly, historically one of the opportunities here is to significantly scale the business through M&A and use your cash balance. Are you starting to see the valuations on the part of your prospective targets or the valuation expectations I should say start to moderate?

Josh Pickus

Not yet. I think that that thing is generally a little bit delayed as reality filters through the private company community and I think that it will happen, but I cannot tell you that as of this moment it's happened yet.

Andrey Glukhov - Brean Murray

Okay. Thank you.

Operator

(Operator Instructions). Your next question comes from line of David Hines with Needham & Company. Please proceed.

David Hines - Needham & Company

Hey thanks. Josh, five years ago remote network management and activation was under penetrated and I guess industry consultants said it was going to be more than $1 billion market. Was the market smaller than expected or has technology changed to make this not true. And I guess the corollary question, which you've touched on is what does this mean for the core business in terms of what investors shifts back in terms of growth and profitability going forward?

Josh Pickus

Yeah lets just be clear out what remote network management needs. Remote network management in our world has to deal with the product that we call service gateway. Service gateway is focused on enabling principally Telco's, because there is already standard way to do it for cable companies. To manage the firmware that exists in the devices that their subscribers have modems, routers and home Gateways and I guess what I'd say about that is that there is clearly demand for it.

I mean it is the first product that an emerging service provider will acquire because they've got us to have some way to update that firmware. If there is a challenge, its around pricing and the fact that these deals are often done in connection with hardware purchases. So the hardware providers have a very important influence in this and the software is a tiny bet of the deal to them and it may make sense for them to be very, very competitive price wise on that to drive a larger deal. So we think that there is an opportunity, we don't think it's an enormous opportunity and we think that we will complete a number of those transactions this year and that it will contribute to revenue, but our focus in the base business is really all around proving that we can operate that business profitably in a consistent manner.

David Hines - Needham & Company

Okay, and today's guidance number is created by Ken or by Shelly or combination?

Josh Pickus

Shelly is really not on board yet, she is still very much finishing up her stuff at Yahoo!, so Ken and I prepared the guidance numbers for today.

David Hines - Needham & Company

Got you, okay that's it for me, thanks.

Operator

Your next question comes from the line of [Ted Ketterer with PK Association]. Please proceed.

Ted Ketterer - PK Association

Good afternoon guys.

Josh Pickus

Good morning…

Ted Ketterer - PK Association

A couple of questions Josh, the national [Technical Difficulty] for the 80 stores in the home stage is that an exclusive for them is that relationship could you exclusive or could you be providing similar services to other retailers?

Josh Pickus

There is no exclusivity in either direction in that relationship and we absolutely could provide services to other retailers.

Ted Ketterer - PK Association

Secondly, have there been any additional partners taken or undersigned since the third quarter?

Josh Pickus

The key partner, that's really why we've mention this more in cap transaction, which happened during Q4 and we expect that we'll have some more to announce when we do this call after Q1.

Ted Ketterer - PK Association

Okay. And I'd like to make an observation too, Mike Sayer you’ve done a tremendous job that -- and it sounds to me like you're positioning that business to be a cash generator as appose to a growth. Am I…?

Josh Pickus

Yeah, that's a fair comment. I think we are, myself, Mike, everybody involved with that business feels like that business is a mature business, it's been around for 8 to 10 years, it needs to make money. And so job one and the key focus for 2008 is make money.

Now, we are also have a mind towards the fact that to do that overtime, you have to find the way to achieve growth and that’s something we spend a lot of time on. But if you had to rank them right now, priority number one is profitability in cash generation, priority number two is growth and I hope this that overtime, as we prove that, we can deliver profitability in that business that we can move and began to enhance growth. We just think that it's responsible to draw line and say this business needs to make money at this time.

Ted Ketterer - PK Association

Okay. Two more questions. One, how many agents do you have now?

Ken Owyang

In terms of our call center agents?

Ted Ketterer - PK Association

Yeah.

Ken Owyang

Approximately, 50.

Ted Ketterer - PK Association

50, okay and you talked about the cash or investment, will this all be in supporting support.com or will you be investing in additional either products or people or where do you think this sort of, where do you have the plan to have this money go in…?

Josh Pickus

A lion share of that investment is on the consumer side, we’ve sort of fixed the level at which we're spending in the base business and we want to keep it there, I talked about that being below 10.5 million, we want to keep it there until we are consistently profitable. So, most of the investment is going on the consumer side.

Ted Ketterer - PK Association

And then just one last question, the TechGuys are using two of your products?

Josh Pickus

They are using both the PC TuneUp, and virus and malware products.

Ted Ketterer - PK Association

Right, are there any plans or for them to expand what you see above?

Josh Pickus

Yeah, there are, our plan is a little bit too strong and we think there are a number of opportunities to expand our relationship with them. We think they are pretty dynamic organizations and it could be more products, it could be different types of services, it could be utilizing our call centers, there is a lot of ways we can grow that relationship and that's something that we are focused on right now.

Ted Ketterer - PK Association

And last question, which you must get a lot from, but you've done a phenomenal job managing your cash this year, as you mentioned earlier about some half of what you had originally projected, yet the stock is down a very -- we shareholders would say a depressed price, is there any thought or would there be any plans of doing any kind of a share buyback at this levels

Josh Pickus

No, we’ve certainly given it a lot of discussion, the view historically here and historically, I mean, over the last year has been -- look this business means to get on a path to profitability, to have a clear trajectory to get there before it's a prudent use of cash to buyback shares.

What's happen to some degree I think just because of the external market environment is that the stock is doing at levels that are very, very low and that obviously makes that a different discussion and I certainly don't want to announce that we are going to do anything or suggest that something is going to happen soon but I will say that there is a very active dialog around that discussion about how we deploy capital to bring benefit to shareholders.

One way is in May and clearly that something we continue to look at another way is the share repurchase to some degree there value in the cash in terms of providing a assurance of stability but we probably have more than it's necessary for that, so I think all I can say at this point is it's a very active subject of discussion.

Ted Ketterer - PK Association

Okay, thanks. Thanks guys, good luck.

Josh Pickus

Thank you.

Operator

Your next question comes from line of Quince Slattery with Symmetry Peak Management. Please proceed.

Quince Slattery - Symmetry Peak Management

Hi Josh.

Josh Pickus

Hi Quince.

Quince Slattery - Symmetry Peak Management

Hi, since you are nearly 50% of the way through Q1, I was just curious how business is tracking versus your expectations in Q1. Are you seeing any macro effect on the business?

Josh Pickus

Yeah, great question. Let me talk about enterprise in consumer. On the enterprise side things seem pretty good. I feel like the deals that we are hoping to get done, well, none of them have fallen out and I read the papers everyday, and you wonder whether that can continue. But if I look at not what I'm reading in the journal but what I'm experiencing so far I do not see corporate buyers pulling back on their purchases.

In the consumer business there has probably been even more headline danger and its been fast because we get to track that with our programs with this retailer for example and those programs are very robust and I don't know whether that's just there pinup demand for this whether its simply data point but its certainly is not something that is gloomy in the way the headlines are about consumer spending.

And I'm hesitant to make any long-term debts on that because lets face it, we haven't been doing that program for so long, but I can tell you that so far the results seem to be define the predictions about what consumers will do.

Quince Slattery - Symmetry Peak Management

Thanks.

Operator

Your next question comes from the line of Patrick Lin with Primarius Capital. Please proceed.

Patrick Lin - Primarius Capital

Hi, Josh, I have a couple of quick questions regarding the consumer business and I was wondering on the 80 stores in Florida, the retailers, can you give us an idea what the user experience is like? In other words, are people walking in with laptops and their PC's towards a section in the store, are they leaving it there or they lining up? Give us an idea what its like if you physically walk in to a store at this time?

Josh Pickus

Sure, so without commenting on which state this is occurring in, what happens is, there is a dedicated kiosk in the store and it's got a bunch of signage around it. And the majority of the services that have been delivered so far are the week or what we call attached services and generally that happens when somebody buys a product in the store. Could be a router, or could be a PC and they have an opportunity; they have a service provided with it.

For example, they could have virus protection software put on with the Vista software tweaked, some of the craft ware taken off those kinds of things that one would do in connection with the new machine. We call those attached services and in that case the service orders entered at the kiosk immediately our remote agent performs the service and before, in those cases the consumer leads the store. They take their machine with those services having been performed and go home and have a much better initial experience than they otherwise would.

There are cases in which people leave the machines there and there are increasingly cases in which people are bringing in older machines, we call that second class of SKU, diagnostic SKUs. Where people have something wrong with their machine and in that case so far they bring it in the work order is placed and we'll either fix it very quickly if its straight forward after an initial diagnosis or we'll keep it and bring it back to them whenever its done.

Those as I say if they are newer. The lion share of the experience has been the attached experience and I think we are very pleased with what that means for the customer in terms of time just what it feels like for them, we worked hard to try to create a really seamless experience and we think we've done it in a way that is really unique in the industry.

Patrick Lin - Primarius Capital

So on the attached services, when you walk up to the kiosk, is there a person from the store there, is it just plugged into a cable, is there a telephone there. How do they actually even describe the problems to whoever might be there to help out?

Josh Pickus

A store associate will take the machine and using our service delivery management system they will complete a very simple work order, which is transmitted electronically to our agents and at the same time our agents get to work perform the service and notify the store associates when its done. Most of that is done through chat as opposed to voice we try to make business simple and as smooth as possible and so that's how most of these services occur.

Patrick Lin - Primarius Capital

So at the kiosks can they then deal with multiple customers at the same time, because you have some of the agents available, okay. And in terms of the overall experience right now is there -- do you have any data yet on utilization in terms of when its busier than others in terms of the weekdays, the weeknights, weekends?

Josh Pickus

There are definitely some patterns. I think out of respect for the partner I am not going to tell you when they are but there are certain days of the week that are busier than others and I think for this type of store they are pretty typical. The good news for us is that because they are barely predictable I think we can staff them in an efficient way. The biggest thing that has been interesting about this has been the willingness of the store associates to embrace this and we're now getting calls from people who run stores that are in regions where we don't have the service and they've got a lot of interest in it. It feels to us like it's a program that from a store associate and store manager standpoint its really an additive with which they can drive their business through this and that's certainly with every product.

Patrick Lin - Primarius Capital

Great. And then, just one final follow-up then, in terms of upcoming investor conferences, can you give us a quick overview what it looks like in the next couple of months?

Josh Pickus

Yeah. The first one that ongoing to will be this week actually, it's the Deutsche Bank on conference that is in Florida. Then ongoing to the B. Riley conference that is Las Vegas in April and there is a couple more that we've been invited to the there is a talent conference, I don't know exactly what that date is that we are planning to attend and we've gotten several other indications. So, there is the one that I can highlight for you right now.

Patrick Lin - Primarius Capital

Could B Riley being kind of in Vegas conjunction with March Magnus usually?

Josh Pickus

Yeah, that's right, I think, they have a small cap investor conference.

Operator

We've no more further questions. I would like to turn the present back over to your host CEO Josh Pickus. Please proceed, Sir.

Josh Pickus

Okay. We really appreciate your time today and we look forward to talk to you later in the year as we progress our business. Thank you.

Operator

Thank you for participation in today's conference. This concludes your presentation. You may now disconnect and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!