SUPPORT.COM The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Amendment. The following discussion includes forward-looking statements. Please see the section entitled "Risk Factors" in Item 1A of the Original Form 10-K for important information to consider when evaluating these statements.
Overview
We provide customer and technical support solutions delivered primarily solely through our home-based employee model. Our cloud-based technology platform is designed to deliver scalable and flexible solutions from a global, home-based workforce. With this ExpertAnywhere delivery capability, we meet client needs through a network of on-demand, custom-profiled experts. We intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.
Results of Operations
The following table presents certain consolidated statements of operations data for the periods indicated as a percentage of total revenue:
Years Ended December 31,
2020 2019
Revenue:
Services 95.9% 94.0%
Software and other 4.1 6.0
Total revenue 100.0 100.0
Cost of revenue:
Cost of services 65.4 73.8
Cost of software and other 0.5 0.2
Total cost of revenue 65.9 74.0
Gross profit 34.1 26.0
Operating expenses:
Engineering and IT 8.3 6.5
Sales and marketing 5.4 2.8
General and administrative 20.2 12.1
Total operating expenses 33.9 21.4
Income from operations 0.1 4.6
Interest and other income, net 1.1 1.7
Income from operations, before income taxes 1.2 6.3
Income tax provision 0.2 0.2
Net income 1.0% 6.1%
1
Years Ended
Revenue
Years Ended December 31,
2020 2019 $ Change % Change
In thousands, except percentages
Services $42,079 $59,545 $(17,466) (29.3)%
Software and other 1,785 3,788 (2,003) (52.9)
Total revenue $43,864 $63,333 $(19,469) (30.7)%
Services. Services revenue consists primarily of fees for customer support services generated from our partners. We provide these services remotely, generally using service delivery personnel who utilize our proprietary technology or client systems as specified by the client to deliver the services. Services revenue is also comprised of licensing of our Support.com Cloud applications.
Services revenue for the year endedDecember 31, 2020 decreased by$17.5 million , or 29%, from the same period in 2019. This decrease was primarily due to a decline in revenue of$18.7 million resulting from termination of certain services by one of our major customers due to a realignment of the customer's needs, which concluded in the second quarter of 2020. The revenue derived from these services previously provided to this customer was 8% and 35% of the Company's total revenue for the years endedDecember 31, 2020 and 2019, respectively. To a lesser extent, this decrease also was due to a decline in revenue of an additional$1.8 million resulting from termination by this major customer of certain other services due to a further realignment of the customer's needs. The revenue derived from these additional services provided to this customer was 10% and 10% of the Company's total revenue for the years endedDecember 31, 2020 and 2019, respectively. These declines in revenue were offset by an increase in revenue from one of our other major customers of$3.0 million . We intend to shift our focus from the direct-to-consumer market to the enterprise business market, and from primarilyU.S. based delivery capabilities to global delivery capabilities. As with any market that is undergoing shifts, growth opportunities in our services programs are difficult to predict, but we are focused on delivering growth through these new strategic initiatives. Software and other. Software and other revenue is comprised primarily of fees for end-user software products provided through direct customer downloads, and, to a lesser extent, through the sale of these software products via partners. Software and other revenue for the year endedDecember 31, 2020 decreased by$2.0 million , or 52.9%, from the same period in 2019 primarily due to the cancellation of a significant customer agreement.
Revenue Mix
The components of revenue, expressed as a percentage of total revenue were:
Years Ended December 31,
2020 2019
Services 95.9% 94.0%
Software and other 4.1 6.0
Total revenue 100.0% 100.0%
2
For the years ended
Cost of Revenue
Years Ended December 31,
2020 2019 $ Change % Change
In thousands, except percentages
Cost of services $28,697 $46,714 $(18,017) (38.6)%
Cost of software and other 224 151 73 48.3
Total cost of revenue $28,921 $46,865 $(17,944) (38.3)%
Cost of services. Cost of services consists primarily of compensation costs and contractor expenses for people providing services, technology and telecommunication expenses related to the delivery of services and other personnel-related expenses in service delivery. The decrease of$18.0 million , or 38.6%, in cost of services for the year endedDecember 31, 2020 compared to the same period in 2019 was primarily due to lower personnel expenses due to a decrease in headcount as a result of the decreased business from one of our major customers, partially offset by one-time costs associated with the transition of our executive team and other transition related costs. Cost of software and other. Cost of software and other consists primarily of third-party royalty fees for our end-user software products. Certain of these products were developed using third-party research and development resources, and the third party receives royalty payments on sales of products it developed. Operating expenses Years Ended December 31, 2020 2019 $ Change % Change In thousands, except percentages Engineering and IT$3,655 $4,078 $(423) (10.4)% Sales and marketing 2,362 1,760 602 34.2 General and administrative 8,874 7,679 1,195 15.6 Total operating expenses$14,891 $13,517 $1,374 10.2% Engineering and IT.Engineering and IT expense consists primarily of compensation costs, third-party consulting expenses and related overhead costs for engineering and IT personnel and are expensed as they are incurred. Engineering and IT costs for the year endedDecember 31, 2020 decreased$0.4 million , or 10.4%, as compared to the same period in 2019 primarily due to reduced costs related to contractors providing services for direct-to-consumer related projects. Sales and marketing.Sales and marketing expense consists primarily of compensation costs of business development, program management and marketing personnel, as well as expenses for lead generation and promotional activities, including public relations, website design, advertising and marketing. Sales and marketing costs for the year endedDecember 31, 2020 increased$0.6 million , or 34.2%, as compared to the same period in 2019 primarily due to costs related to marketing campaigns targeted to generate growth opportunities as well as one-time costs associated with the transition of our executive team and other transition related costs. General and administrative. General and administrative expense consists primarily of compensation costs and related overhead costs for administrative personnel and professional fees for legal, accounting and other professional services. General and administrative costs for year endedDecember 31, 2020 increased$1.2 million , or 15.6%, as compared to the same period in 2019 primarily due to higher headcount related costs as well as one-time costs associated with the transition of our executive team and other transition related costs. Additionally, our indefinite-lived intangible asset was fully impaired during 2020. 3
Interest income and other, net
Years Ended December 31,
In thousands, except percentages 2020 2019
$ Change % Change
Interest income and other, net
Interest income and other, net. Interest income and other, net consists primarily of interest income on our cash, cash equivalents and short-term investments. Interest income and other, net for the year endedDecember 31, 2020 decreased$0.6 million , or 52.7%, as compared to the same period in 2019 primarily due to lower cash and cash equivalents and short-term investments after the$19.1 million cash dividend paid inDecember 2019 , coupled with lower yields on investments. Income tax provision Years EndedDecember 31 ,
In thousands, except percentages 2020 2019 $ Change % Change Income tax provision$ 102 $ 154
Income tax provision.The income tax provision is comprised of estimates of current taxes due in domestic and foreign jurisdictions and changes in deferred tax balances. For the year endedDecember 31, 2020 , the income tax provision consisted of a$93,000 provision for foreign taxes and a$9,000 provision for state income tax. For the year endedDecember 31, 2019 , the income tax provision consisted of a$138,000 provision for foreign taxes and a$16,000 provision for state income tax.
Liquidity and Capital Resources
Total cash, cash equivalents and short-term investments atDecember 31, 2020 and 2019 was$30.0 million and$26.4 million , respectively. Cash equivalents and short-term investments are comprised of money market funds, certificates of deposit, corporate notes and bonds, andU.S. government agency securities. Certain amounts of our foreign subsidiary cash may be subject to taxes or other restrictions if we repatriate the cash tothe United States . We have certain contractual operating leases and uncertain tax positions, including interest and penalties, which create contractual obligations.
Operating Activities
During the year ended
During the year endedDecember 31, 2019 , our net cash used in operating activities was$4.1 million as a result of decreases in accrued legal settlement and accrued compensation, partially offset by net income, non-cash adjustments of$0.7 million and decreases in accounts receivable and prepaid expenses and other current assets. Investing Activities
During the year ended
During the year ended
Financing Activities
During the year ended
4
During the year ended
Working Capital and Capital Expenditure Requirements
AtDecember 31, 2020 , we had stockholders' equity of$34.4 million and working capital of$33.7 million . We believe that our cash and cash equivalents balances and our ongoing cash flow from operations will be sufficient to satisfy our cash requirements for at least the next 12 months. If we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to sell additional equity or debt securities. The sale of additional equity could result in more dilution to our stockholders.
Recent Accounting Pronouncements
See Note 1 - Organization and Summary of Significant Accounting Policies to the consolidated financial statements included in Part II, Item 8 of this Amendment for a summary of new accounting standards.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with accounting principles generally accepted inthe United States , management must undertake decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based. Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions. By their nature, these judgments are subject to an inherent degree of uncertainty. Accordingly, actual results may vary significantly from the estimates we have applied. Please refer to Note 1 of the notes to the consolidated financial statements in this Amendment for a complete description of our critical accounting policies and estimates.
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