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8-K - CURRENT REPORT - Support.com, Inc. | sprt_8k.htm |
Exhibit 99.1
Support.com Reports Third Quarter 2018 Financial Results and
Reaches Settlement Agreement with Federal Trade
Commission
Sunnyvale, CA – November 7, 2018 –
Support.com, Inc. (NASDAQ: SPRT), a full-spectrum leader in outsourced
call center and direct-to-consumer technical support
solutions, today reported unaudited financial results for
its third quarter ended September 30, 2018. In addition,
Support.com announced it has reached a proposed settlement
agreement with the Federal Trade Commission (“FTC” or
the “Commission”) in relation to activities of the
Company prior to December 2016, resolving the multi-year
investigation.
Rick
Bloom, President and Chief Executive Officer of the Company,
stated, “The settlement with the FTC removes an impediment
that has limited our ability to undertake certain investments.
While we believe the FTC’s substantive allegations are
factually incorrect, we considered the settlement in the best
interests of the Company because the financial cost and distraction
of protracted litigation would have been significant. Now the Board
and management team can focus their energies on continuing to build
shareholder value.”
Q3 2018 Financial Summary
For the
third quarter of 2018, total revenue was $18.0 million, up
20 percent compared to revenues of $15.0 million in the
third quarter of 2017 and up 3 percent compared to revenues of
$17.5 million in the second quarter of 2018.
On a
GAAP basis, we recorded a net loss for the third quarter of 2018 of
$(9.1) million, or $(0.49) per share, compared to
$0.2 million, or $0.01 per share, in the third quarter of 2017
and $0.4 million, or $0.02 per share, in the second quarter of
2018. Included in the third quarter of 2018 is a $10 million
charge in relation to the abovementioned settlement with the
FTC.
On a
non-GAAP basis, we recorded net income in the third quarter of 2018
of $1.0 million, or $0.05 per share, compared to
$0.4 million, or $0.02 per share, in the third quarter of 2017
and $0.5 million, or $0.03 per share, in the second quarter of
2018.
On both
a GAAP and non-GAAP basis, operating expenses for the third quarter
of 2018 included $0.1 million in primarily legal expenses not
associated with normal business operations. This compares with
$0.2 million in the third quarter of 2017 and
$0.1 million in the second quarter of 2018, both primarily
legal expenses.
Key
changes in our non-GAAP net income/(loss) included the
following:
●
Gross profit
increased by $0.1 million in the third quarter compared to the
same period in 2017, and was up $0.6 million compared to the
second quarter of 2018.
●
Our gross profit
margin declined by 3.0 percentage points compared with the
same quarter of 2017, but was up 2.7 percentage points
relative to the second quarter of 2018. The increase from the
second quarter reflected the benefits from our investment in
recruiting and training agents with several key major
customers.
●
Operating expenses
in the third quarter of 2018 were $2.8 million, lower by
$0.4 million (13 percent) than the $3.2 million of
operating expenses in the third quarter of 2017, but were higher by
$0.1 million (6 percent) than the $2.7 million of
operating expenses in the second quarter of 2018.
●
Our lower operating
expenses as compared with the year-ago quarter reflect the impact
of our continuing cost-savings initiatives during 2018, which
included operational efficiencies, tighter fiscal controls on
headcount and spending, and the renegotiation of certain vendor
agreements.
Non-GAAP
income/(loss) excludes stock-based compensation, amortization of
intangible assets, restructuring expenses and one-time legal
settlement expenses. Collectively, these items impacted
income/(loss) from continuing operations by $10.1 million in
the third quarter of 2018, $0.2 million in the third quarter
of 2017, and $0.1 million in the second quarter of 2018. A
reconciliation of GAAP to non-GAAP results is presented in the
tables below.
Balance Sheet Information
At
September 30, 2018, cash, cash equivalents, and
short-term investments were $47.9 million, compared to
$49.2 million at December 31, 2017.
Total
assets as of September 30, 2018, were $63.3 million
and total shareholders’ equity was
$47.2 million.
Support.com
will not host a conference call discussing the Company’s
third quarter results. For more information, please visit the
Investor Relations section of the Support.com website at
Support.com/about-us/investor-relations/.
Support.com Reaches Settlement Agreement with Federal Trade
Commission
In
December 2016, the FTC began an investigation related to a
customer’s use of PC Healthcheck, a now obsolete software
program that the Company developed on behalf of that customer for
their use with their own customers. The investigation is a result
of that third party’s interactions with their own customers,
and it relates to this third party’s use prior to December
31, 2016, when the Company was under the management of the previous
Board of Directors and executive management team. Support.com has
cooperated fully with the FTC’s investigation and provided
all requested information.
On
November 6, 2018, almost two years into the investigation, the
Company and the FTC entered into a settlement agreement (the
“Consent Order”) resolving all matters between the
Commission and the Company. This Consent Order, which has been
lodged with the US District Court for the Southern District of
Florida, provides for a judgment in favor of the Commission in the
amount of approximately $35 million. The FTC has agreed to
accept a payment of $10 million in settlement of the $35 million
judgment, subject to the factual accuracy of the information
provided by the Company as part of its financial representations.
In the Consent Order, the Company does not admit to any wrongdoing
regarding the FTC’s allegations against the
Company.
Furthermore,
the Company has agreed to implement certain new procedures and
enhance certain existing procedures. For example, the Consent Order
necessitates that the Company cooperate with representatives of the
Commission on associated investigations of other parties as needed;
imposes requirements on the Company regarding obtaining
acknowledgements of the Consent Order and compliance certification,
including record creation and maintenance.
The
Company believes that the $10 million settlement is in its best
interest because protracted litigation would likely result in
additional financial cost and further distraction during a critical
time of transition. After almost two years of legal expenses and
cooperating with the FTC’s investigation, the Company
believes the settlement makes financial sense for the shareholders.
The Company’s Board of Directors and management team can now
further focus on building the business and creating a superior tech
support experience for its customers and consumers in
general.
The
Company’s Board of Directors unanimously approved the
settlement and has established protocols to ensure full compliance
with the terms of the Consent Order.
The
Company has also responded to Civil Investigative Demands
(“CID”) issued by the Attorney General of the states of
Washington and Texas, neither of which has alleged a factual basis
for the underlying CID, and continues to remain cooperative with
respect to these matters.
“While
we disagree with the FTC’s substantive allegations against
us, we believe the settlement represents the best outcome for the
Company in this situation and given these circumstances,”
continued Mr. Bloom.
About Support.com
Support.com, Inc. (NASDAQ: SPRT) is a full-spectrum leader in
outsourced call center and direct-to-consumer technical support
solutions. The company’s skilled US-based workforce delivers
high quality, turnkey support solutions. With more than 20 years
serving well-known brands, Support.com has the expertise, tools,
and software solutions to troubleshoot and maintain all the devices
in the connected home, helping people get the most out of their
technology. For more information, please visit
www.support.com.
Support.com,
Inc. is an Equal Opportunity Employer. For more information, visit
http://www.support.com/about-us/careers.
©
2018 Support.com, Inc. All rights reserved. Support.com and the
Support.com logo are trademarks or registered trademarks of
Support.com, Inc. in the United States and other countries. All
other marks are the property of their respective
owners.
Safe Harbor Statement
This
press release contains “forward-looking statements” as
defined under the U.S. federal securities laws, including the
Private Securities Litigation Reform Act of 1995, and is subject to
the safe harbors created by such laws. Forward-looking statements
include, for example, all statements relating to expected financial
performance (including without limitation statements involving
growth and projections of revenue, margin, profitability, income
(loss) from continuing operations, income (loss) per share from
continuing operations, cash usage or generation, cash balance as of
any future date, capital structure and other financial items); the
plans and objectives of management for future operations, customer
relationships, products, services or investments; personnel
matters; and future performance in economic and other terms. Such
forward-looking statements are based on current expectations that
involve a number of uncertainties and risks that may cause actual
events or results to differ materially from those indicated by such
forward-looking statements, including, among others, our ability to
retain and grow major programs, our ability to expand and diversify
our customer base, our ability to market and sell our Support.com
Cloud (formerly “Nexus®”) software-as-a-service
(SaaS) offering, our ability to maintain and grow revenue, our
ability to successfully develop new products and services, our
ability to manage our workforce, our ability to operate in markets
that are subject to extensive regulations, such as support for home
security systems, our ability to control expenses and achieve
desired margins, our dependence on a small number of customers and
partners, our ability to attract, train and retain talented
employees, potential intellectual property, class action or other
litigation, our ability to utilize and realize the value of our net
operating loss carryforwards and how they could be substantially
limited or permanently impaired, given our current market
capitalization and cash position, our ability to execute the cost
reduction program involving the planned actions on the expected
schedule, our ability to achieve the cost savings expected in
connection with the cost reduction plan, the ultimate effect of any
such cost reductions on our financial results, and our ability to
manage the effects of the cost reduction plan on our workforce and
other operations. These and other risks may be detailed from time
to time in Support.com’s periodic reports filed with the
Securities and Exchange Commission, including, but not limited to,
its latest Annual Report on Form 10-K and its latest Quarterly
Report on Form 10-Q, copies of which may be obtained from
www.sec.gov. Support.com assumes no obligation to update its
forward-looking statements, except as may otherwise be required by
the federal securities laws.
Disclosure Regarding Non-GAAP Financial Measures
Support.com
excludes stock-based compensation expense, amortization of
intangible assets and other, restructuring charges and one-time
legal settlement charges from its GAAP results, in order to
determine the non-GAAP financial measures of Net income (loss) and
Net earnings (loss) per share, as described in A through D below.
We believe that the non-GAAP measures, when viewed in addition to
and not in lieu of our reported GAAP results, assist investors in
understanding our results of operations.
A.
Stock-based compensation expense. Management excludes stock-based
compensation expense when evaluating its performance from period to
period because such expenses do not require cash settlement and
because such expenses are not used by management to assess the
performance of the Company’s business. Stock-based
compensation expense was $102,000 in the third quarter of 2018,
compared to $28,000 in the third quarter of 2017 and $108,000 in
the second quarter of 2018. For the nine months ended September 30,
2018, and 2017, stock-based compensation expense was $576,000 and
$295,000, respectively.
B.
Amortization of intangible assets and other. The Company does not
acquire businesses on a predictable cycle; therefore, management
excludes acquisition-related intangible asset amortization and
related charges when evaluating its operating performance.
Amortization of intangible assets and other was zero in the second
and third quarters of 2018 and the third quarter 2017. For the nine
months ended September 30, 2018, and 2017, amortization of
intangible assets and other was zero and $16,000,
respectively.
C.
Restructuring charges. Management excludes restructuring charges
when evaluating its operating performance because the Company does
not incur such charges on a predictable basis and exclusion of such
charges enables more consistent evaluation of the Company’s
operating performance. Restructuring charges were zero in the third
quarter of 2018, compared to $128,000 in the third quarter of 2017
and zero in the second quarter of 2018. For the nine months ended
September 30, 2018, and 2017, restructuring charges were zero and
$128,000, respectively.
D.
One-time legal settlement for FTC litigation. Management excludes
significant one-time litigation settlement charges when evaluating
its operating performance because the Company does not incur such
charges on a predictable basis and exclusion of such charges
enables more consistent evaluation of the Company’s operating
performance. The one-time legal settlement amount for the FTC
investigation was $10 million in the third quarter of 2018,
compared to zero in the third quarter of 2017 and the second
quarter of 2018. For the nine months ended September 30, 2018, and
2017, the one-time legal settlement amounts for the FTC
investigation were $10 million and zero, respectively. Legal and
related expenses associated with this investigation have been
expensed as incurred and are included in general and administrative
expenses in the financial statements. These legal and related
expenses have not been accounted for in our non-GAAP financial
measures.
The
Company believes that non-GAAP financial measures have significant
limitations in that they do not reflect all of the amounts
associated with the Company’s financial results as determined
in accordance with GAAP and that these measures should only be used
to evaluate the Company’s financial results in conjunction
with the corresponding GAAP measures. In addition, the exclusion of
the items indicated above from the non-GAAP financial measures
presented does not indicate an expectation by management that such
items will not be incurred in subsequent periods.
SUPPORT.COM,
INC.
GAAP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in
thousands)
(unaudited)
|
Sept
30,
|
December
31,
|
|
2018
(1)
|
2017
|
|
|
|
Assets
|
|
|
Current
assets:
|
|
|
Cash, cash
equivalents and short-term investments
|
$47,918
|
$49,233
|
Accounts
receivable, net
|
12,539
|
11,951
|
Prepaid expenses
and other current assets
|
980
|
802
|
Total
current assets
|
61,437
|
61,986
|
Property and
equipment, net
|
846
|
1,133
|
Intangible assets,
net
|
250
|
250
|
Other
assets
|
725
|
984
|
|
|
|
Total
assets
|
$63,258
|
$64,353
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
Current
liabilities:
|
|
|
Accounts payable
and accrued compensation
|
$2,854
|
$3,661
|
Other accrued
liabilities
|
1,212
|
1,330
|
Acrued legal
settlement
|
10,000
|
-
|
Short-term deferred
revenue
|
1,244
|
2,006
|
Total
current liabilities
|
15,310
|
6,997
|
Long-term deferred
revenue
|
-
|
13
|
Other long-term
liabilities
|
725
|
885
|
Total
liabilities
|
16,035
|
7,895
|
|
|
|
Stockholders'
equity:
|
|
|
Common
stock
|
2
|
2
|
Additional
paid-in-capital
|
268,600
|
267,857
|
Treasury
stock
|
(5,297)
|
(5,297)
|
Accumulated other
comprehensive loss
|
(2,568)
|
(2,108)
|
Accumulated
deficit
|
(213,514)
|
(203,996)
|
Total
stockholders' equity
|
47,223
|
56,458
|
|
|
|
Total
liabilities and stockholders' equity
|
$63,258
|
$64,353
|
Note 1: Amounts are subject to completion of
management’s customary closing and review
procedures.
SUPPORT.COM,
INC.
GAAP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
(unaudited)
|
Three
Months Ended
|
Nine
Months Ended
|
|||
|
Sept
30,
2018
(1)
|
June
30,
2018
|
Sept
30,
2017
|
Sept
30,
2018
(1)
|
Sept
30,
2017
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
Services
|
$16,759
|
$16,220
|
$13,682
|
$48,179
|
$39,744
|
Software and
other
|
1,258
|
1,248
|
1,350
|
3,828
|
4,085
|
Total
revenue
|
18,017
|
17,468
|
15,032
|
52,007
|
43,829
|
|
|
|
|
|
|
Cost
of revenue:
|
|
|
|
|
|
Cost of services
(2)
|
14,412
|
14,462
|
11,559
|
42,985
|
33,760
|
Cost of software
and other (2)
|
51
|
46
|
66
|
152
|
252
|
Total
cost of revenue
|
14,463
|
14,508
|
11,625
|
43,137
|
34,012
|
Gross
profit
|
3,554
|
2,960
|
3,407
|
8,870
|
9,817
|
Operating
expenses:
|
|
|
|
|
|
Research and
development (2)
|
690
|
681
|
631
|
2,082
|
2,429
|
Sales and marketing
(2)
|
424
|
409
|
621
|
1,383
|
2,011
|
General and
administrative (2)
|
1,800
|
1,677
|
1,996
|
5,623
|
6,847
|
Amortization of
intangible assets and other
|
-
|
-
|
-
|
-
|
16
|
Restructuring
|
-
|
-
|
128
|
-
|
128
|
Legal
Settlement
|
10,000
|
-
|
-
|
10,000
|
-
|
Total
operating expenses
|
12,914
|
2,767
|
3,376
|
19,088
|
11,431
|
|
|
|
|
|
|
Income
(loss) from operations
|
(9,360)
|
193
|
31
|
(10,218)
|
(1,614)
|
|
|
|
|
|
|
Interest income and
other, net
|
241
|
230
|
164
|
676
|
451
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
(9,119)
|
423
|
195
|
(9,542)
|
(1,163)
|
|
|
|
|
|
|
Income
tax provision (benefit)
|
29
|
27
|
(36)
|
(24)
|
57
|
|
|
|
|
|
|
Net
income (loss)
|
$(9,148)
|
$396
|
$231
|
$(9,518)
|
$(1,220)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) per share (3)
|
|
|
|
|
|
Basic
|
$(0.49)
|
$0.02
|
$0.01
|
$(0.51)
|
$(0.07)
|
Diluted
|
$(0.49)
|
$0.02
|
$0.01
|
$(0.51)
|
$(0.07)
|
|
|
|
|
|
|
Shares
used in computing per share amounts: (3)
|
|
|
|
|
|
Basic
|
18,805
|
18,765
|
18,692
|
18,786
|
18,613
|
Diluted
|
18,805
|
18,947
|
18,714
|
18,786
|
18,613
|
Note 2 : Includes stock-based compensation expense as
follows:
|
Three Months Ended
|
Nine Months Ended
|
|||
|
Sept 30, 2018
|
June 30, 2018
|
Sept 30, 2017
|
Sept 30, 2018
|
Sept 30, 2017
|
Cost of revenue:
|
|
|
|
|
|
Cost
of services
|
$11
|
$17
|
$19
|
$38
|
$83
|
Cost
of software and other
|
-
|
-
|
-
|
-
|
3
|
Operating expenses:
|
|
|
|
|
|
Research
and development
|
9
|
10
|
(18)
|
33
|
62
|
Sales
and marketing
|
14
|
7
|
12
|
40
|
34
|
General
and administrative
|
68
|
74
|
15
|
465
|
113
|
Total
|
$102
|
$108
|
$28
|
$576
|
$295
|
Note 3 : On January 20, 2017, the Company implemented a
1-for-3 reverse stock split. All share and per share information
contained within this press release has been retroactively adjusted
to reflect the effects of the reverse stock
split.
SUPPORT.COM,
INC.
RECONCILIATION
OF GAAP FINANCIAL RESULTS TO NON-GAAP FINANCIAL
MEASURES
(in
thousands, except per share amounts)
(unaudited)
|
Three
Months Ended
|
Nine
Months Ended
|
|||
|
Sept
30,
2018
|
June
30,
2018
|
Sept
30,
2017
|
Sept
30,
2018
|
Sept
30,
2017
|
|
|
|
|
|
|
GAAP
cost of revenue
|
$14,463
|
$14,508
|
$11,625
|
$43,137
|
$34,012
|
Stock-based
compensation expense (Cost of revenue portion only)
|
(11)
|
(17)
|
(19)
|
(38)
|
(86)
|
Non-GAAP
cost of revenue
|
$14,452
|
$14,491
|
$11,606
|
$43,099
|
$33,926
|
|
|
|
|
|
|
GAAP
operating expenses
|
$12,914
|
$2,767
|
$3,376
|
$19,088
|
$11,431
|
Stock-based
compensation expense (Excl. cost of revenue portion)
|
(91)
|
(91)
|
(9)
|
(538)
|
(209)
|
Amortization of
intangible assets and other
|
-
|
-
|
-
|
-
|
(16)
|
Restructuring
|
-
|
-
|
(128)
|
-
|
(128)
|
Legal
settlement
|
(10,000)
|
-
|
-
|
(10,000)
|
-
|
Non-GAAP
operating expenses
|
$2,823
|
$2,676
|
$3,239
|
$8,550
|
$11,078
|
|
|
|
|
|
|
GAAP
net income (loss)
|
$(9,148)
|
$396
|
$231
|
$(9,518)
|
$(1,220)
|
Stock-based
compensation expense
|
102
|
108
|
28
|
576
|
295
|
Amortization of
intangible assets and other
|
-
|
-
|
-
|
-
|
16
|
Restructuring
|
-
|
-
|
128
|
-
|
128
|
Legal
settlement
|
10,000
|
-
|
-
|
10,000
|
-
|
Total
impact of Non-GAAP exclusions
|
10,102
|
108
|
156
|
10,576
|
439
|
Non-GAAP
net income (loss)
|
$954
|
$504
|
$387
|
$1,058
|
$(781)
|
|
|
|
|
|
|
Earnings
(loss) per share (3)
|
|
|
|
|
|
Basic -
GAAP
|
$(0.49)
|
$0.02
|
$0.01
|
$(0.51)
|
$(0.07)
|
Basic -
Non-GAAP
|
$0.05
|
$0.03
|
$0.02
|
$0.06
|
$(0.04)
|
|
|
|
|
|
|
Diluted -
GAAP
|
$(0.49)
|
$0.02
|
$0.01
|
$(0.51)
|
$(0.07)
|
Diluted -
Non-GAAP
|
$0.05
|
$0.03
|
$0.02
|
$0.06
|
$(0.04)
|
Shares
used in computing per share amounts (GAAP)
|
|
|
|
|
|
Basic
|
18,805
|
18,765
|
18,692
|
18,786
|
18,613
|
Diluted
|
18,805
|
18,947
|
18,714
|
18,786
|
18,613
|
Shares
used in computing per share amounts (Non-GAAP) (3)
|
|
|
|
|
|
Basic
|
18,805
|
18,765
|
18,692
|
18,786
|
18,613
|
Diluted
|
18,974
|
18,947
|
18,714
|
18,965
|
18,613
|
|
|
|
|
|
|
|
|
|
|
|
|
The
adjustments above reconcile the Company’s GAAP financial
results to the non-GAAP financial measures used by the Company. The
Company’s non-GAAP financial measures exclude stock-based
compensation expense, amortization of intangible assets and other,
restructuring charges, and one-time legal settlement charges. The
Company believes that presentation of these non-GAAP items provides
meaningful supplemental information to investors when viewed in
conjunction with, and not in lieu of, the Company’s GAAP
results. However, the non-GAAP financial measures have not been
prepared under a comprehensive set of accounting rules or
principles. Non-GAAP information should not be considered in
isolation from, or as a substitute for, information prepared in
accordance with GAAP. Moreover, there are material limitations
associated with the use of non-GAAP financial measures. See the
text of this press release for more information on non-GAAP
financial measures.
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2018
amounts are subject to completion of management’s customary
closing and review procedures.
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Investor Contact
Dean
Morris
Investor
Relations, Support.com
+1
(650) 556-8574
Dean.Morris@support.com