Michelle Johnson - General Counsel Elizabeth Cholawsky - President and CEO Roop Lakkaraju - CFO and COO

Chad Bennett - Craig Hallum Jim Fitzgerald - Northland Capital Markets Nick Farewell - Arbor Group

Thank you. Good afternoon, everyone.

Joining me here today is Elizabeth Cholawsky, our President and Chief Executive Officer; and Roop Lakkaraju, our Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that our remarks today will include forward-looking statements about our future 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 filed with the SEC, all of which can be found to the Investor Relations page of our website at www.support.com.

I would also like to point out that we will present certain non-GAAP information on this call. All numbers presented today are non-GAAP unless otherwise stated.

The reconciliation of GAAP to non-GAAP financial measures is included with today’s press release and also on our Investor Relations web page. The statements we’ll make on this conference call are based on information we know of as of today.

And we assume no obligation to update any of these statements. With that, I’ll turn it over to our President and CEO, Elizabeth Cholawsky.

Thanks, Mitchell. Good afternoon everyone and welcome.

In today’s call, I will cover a few key topics including our financial highlights from the third quarter and our progress in both services and our SaaS offering Nexus. Our revenue for the third quarter of 2015 was 17.9 million, which was in line with our guidance of 17 million to 18.5 million.

Non-GAAP loss from continuing operations came in at $0.05 per share which was in line with our guidance of a $0.05 to $0.07 loss per share. Roop will discuss this in more detail later in the call.

Starting with services, we remain focused on growing our client list and creating greater diversification in our customer base. As we’ve done throughout the year, we continue to add to our customer roster in Q3.

With the addition of these new customers, we expect to see revenue growth from the non-Comcast, non-Office Depot customers going forward. Last quarter, we noticed that Support.com has been chosen as the vendor to provide subscription based tech support for a large North American service provider.

I am pleased to announced that the contract with the service provider was signed during this quarter. The customer selected Support.com based on our leadership in the industry and our deep experience delivering subscription based tech support program on a large-scale.

This customer's tens of thousands of existing subscribers will be transferred to us over a period of three to four months beginning in late Q4. Therefore in Q4, we are making a significant investment in preparation for this program.

This investment will be between $1.2 million and $1.4 million. We have completed recruitment and hiring for the program and training will begin in the next couple of weeks.

We anticipate seeing a full revenue ramp by the end of Q1 2016. Our services margins in Q4 will be impacted by these investments as they will outlay revenues at the beginning of the program.

As you may remember from our launch with customers like Office Depot and Comcast pre-investment is typical of starting a new large subscription based tech support program. Fully ramped this program should generate revenues between $4 million and $5 million per year.

In Q3, we continued to broaden and deep in our relationship with existing customers by helping them to find ways to grow their technical services offerings. Our customers look to Support.com and our experience to help and create, manage and offer brand new support program to their end users.

In particular, Internet of Things or IoT programs are gaining momentum. For example, we are partnering with Office Depot to launch tech support for connected home devices to meet anticipated customer demand this holiday season.

Likewise with Comcast, Xfinity Home, we are consulting and support their continued expansion into home automation. Another one of our customers Dish network expanded its smartphone services offering through additional distribution channels including the largest online retailer.

These are just few examples of the growing number of opportunities that we are seeing for technical support for IoT, validating that IoT is reaching a more mainstream audience. Comcast, our largest services customer continued with their efforts to improve the wireless gateway customer experience.

As we have previously discussed, the impact of these improvement efforts is a reduction in call volume and a subsequent reduction in support.com’s revenue. The revenue reduction in Q3 2015 was as expected.

Reflected in our Q4 guidance is an additional decline which will continue into early next year with stabilization expected to happen in the second quarter of 2016. Our Comcast relationship is strong.

We expect the contract to renew at the end of this year and Comcast to be our largest customer through 2016 and beyond. Turning now to our SaaS offerings, I’m pleased to report that Nexus' progress in the third quarter keep this on the path to meet our year-end goals.

We continue to add customers and licensees more than doubled quarter-over-quarter. Usage is healthy with active agent users growing by over 40% sequentially and the average number of customer sessions per week increasing by more than 40% from the second quarter to the third quarter.

Of note, we are hearing directly from our customers that Nexus is providing values. For example, I would like to summarize comment from Julie Reynolds, Operation Manager at Assurant Solutions.

The company which offers a wide range of products to protect appliances, electronic devices, mobile phones and family finances. Julie said, our support organization and the agents love the flexibility, ease of use and structure of Nexus guided path.

We have a lot of different carriers that we support and so we were able to create guided path specific to hundreds of mobile devices and the issues that are carrier specific. In addition, we can now respond very quickly to new product launches by our customers.

Just like Assurant Solutions, our other customers are getting similar benefits and this is driving the adoption of Nexus. I would like to note that Nexus go to market strategy includes both direct sales and channel partners, both of which are driving Nexus growth.

In particular, we’re seeing traction within our channels partners. During Q3, more than a third of new customers were generated by channel partners.

We have a robust pipeline of companies with an interest in becoming new partners including e-commerce and ERP companies. The productivity and the growth of our partners solidifies our strategy to use both direct and channel partners going forward.

We are continuing to expand Nexus functionality with self service capabilities. As you know Nexus participates in the $1.3 billion support interaction optimization or SIO market as measured by Frost and Sullivan.

The addition of self-service capabilities now allows us to address 90% of the SIO market. In response to both market and customer demand, we announced the release of embeddable Nexus self-support this month.

Nexus self-support allows IoT device, software and other technology manufacturers to embed one-touch access to customer self-service protect support in mobile app, websites and software programs. Nexus self-support gives end users the ability to help themselves first or directly access to professional support representative with a single push of a button.

Customers in prospects have been emphasizing the need for a self-service solution that is engaging to use, provides embedded support that is part of the customer experience and has a smooth escalation process to the support representative if needed. Nexus deliver these capabilities in a differentiated way allowing us to compete in a fast growing self-service segment of the SIO market.

Also during the quarter, we saw a marked uptick in the demand for SupportCams, which was released earlier this year. These new potential customers are looking for an easy to use quality, high quality video streaming function, so that agents can get direct visual feedback from end users that they are trying to help.

In response, we upgraded the SupportCams capabilities to include enhanced framerates and the ability for an agent to directly [annotate] the video stream or take a snapshot all of which results in quicker problem resolution. We expect the SupportCam feature to continue to expand the types of customers, who will derive benefit from our SaaS offering.

In closing I’d like to thank all of our customers and investors that attended our Investor Day on September 10th. You heard directly from many of our customers who talked about the value they received from our services programs and our SaaS offerings.

Also at this event, we provided a more detail look at our long term strategy for future growth and diversification and business and financial goals. My team is committed to meeting and exceeding these goals.

I look forward to keeping you all up to date as we continue to make progress. And now, I’d like to turn the call over to Roop who will provide a more detailed review of our financials.

Thanks Elizabeth. Total revenue for Q3 was $17.9 million compared to $22.2 million in Q3 2014 and $20.6 million in Q2 2015.

Services revenue for the quarter was $16.6 million compared to $20.8 million in Q3 of 2014, and $19.3 million in Q2 of 2015. Services revenue decreased year-over-year and sequentially due primarily to Comcast Wireless Gateway customer experience improvement efforts.

Comcast continued to make progress in their efforts which in turn reduced our associated revenue as expected. Software and other revenue was $1.3 million in Q3 2015, $1.4 million in Q3 2014 and $1.3 million in Q2 2015.

The Q3 2015 revenue mix was 93% services and 7% software. In Q3 2014 and Q2 2015, our services revenue mix was 94% services and 6% software.

In Q3, Comcast represented 67% and Office Depot represented 17% of our total revenue. Overall, non-GAAP gross margin for Q3 was 19% compared to 27% in Q3 2014 and 23% in Q2 2015.

In Q3, non-GAAP services gross margin was 14% compared to 22% in Q3 of 2014 and 18% in Q2 2015. The decrease year-over-year and sequentially is due to expenses incurred in Q3 to support Comcast Wireless Gateway program but through its offsetting revenue will be recognized in Q4 due to certain accounting rules.

To improve the quality of the customer experience of one of our programs, we migrated the service delivery to our North American work from home technicians, from offshore contract labor. We started our investments to support the launch of our new program with the North American service provider which we anticipate to be at full ramp by the end of Q1 2016.

Non-GAAP software gross margin was 90% in Q3 2015, 84% in Q3 2014 and 90% in Q2 2015. Total non-GAAP operating expenses in Q3 2015 came in at $6.4 million, flat compared to Q2 2015 and an increase from $5.1 million in Q3 2014.

The year-over-year increase is a result of our incremental investments and go-to-market capabilities and Nexus development. On a non-GAAP basis, loss from continuing operations for Q3 was $2.9 million or $0.05 per share.

This was at the lower end of our non-GAAP EPS guidance range of a loss of $0.05 to $0.07. We do not anticipate incurring meaningful federal or state income taxes for the foreseeable future as a result of our net operating loss carryforwards.

However, to the extent that we have future taxable income, the Company will be subject to alternative minimum taxes in certain tax paying jurisdictions. Turning now to the balance sheet.

Total cash, cash equivalents and investments were $68.4 million at September 30, 2015 compared to $71.8 million at June 30, 2015. DSOs for the quarter were 58 days, the same as the prior quarter.

At September 30, approximately 1% of our outstanding receivables were greater than 90 days old. Deferred revenue was $2.1 million at September 30, compared to $2.3 million at June 30.

Total headcount at September 30, 2015, was 1,625 consisting of 209 corporate employees and 1,416 work from home technicians. This compares to a June 30 headcount of 1,990 consisting of 220 corporate employees and 1,770 work from home technicians.

In addition to our work from home technicians, we use contract labor in our operations. Turning to guidance.

For the fourth quarter of 2015, we expect our revenue range to be between $14.8 million to $16 million. Our guidance reflects the anticipated impact of Comcast customer experience improvement efforts within the Wireless Gateway program.

As Elizabeth mentioned earlier, based on current expectations, we expect the Wireless Gateway program to stabilize in Q2 2016. Based on the best information we have today, we anticipate that the overall Comcast account will be approximately $6 million to $7 million per quarter of our total revenue starting in Q2 2016.

We believe that Comcast will remain our largest customer for fiscal 2016 and beyond. For Q4, we expect the revenue mix of 92% services and 8% software.

We expect the overall non-GAAP gross margin to be between 12% and 13%, the decrease in the gross margins for Q4 is specifically related to the investment in launching new program for the North American service provider in late Q4. You may recall that when launching new subscription oriented services programs we invest ahead of the revenue.

As Elizabeth mentioned in her comments, we estimate that we will invest an additional $1.2 million to $1.4 million during Q4 2015 to launch this program. We do anticipate that the revenue from this new program will be at full ramp by the end of Q1 2016 and the gross margins from this program will be above our current corporate average.

We anticipate that the annual revenue run rate from this new program to be between $4 million and $5 million. We expect our non-GAAP software gross margins to be approximately 88% and 90% and non-GAAP operating expenses to increase sequentially by approximately 15% to 20% as we continue to invest in go-to-market capability and in Nexus.

Based on the foregoing, our outlook for Q4 non-GAAP results from continuing operations is a loss of $0.10 to $0.12 per share. As we have previously discussed our quarterly non-GAAP results are generally indicative of a cash usage or cash generation excluding capital expenditures.

During Q4, we expect to incur approximately $800,000 to $900,000 of non-recurring capital expenditures, the primary capital expenditure is a purchase of a workforce management application this quarter contact center. With that, I’d like to turn the call back to the operator for our question-and-answer session.

Operator?

Yes. Thanks for taking my questions.

So I’m trying to reconcile the commentary we’ve been talking about regarding our largest customer Comcast or largest partner Comcast and kind of the good relationship we had and expanding relationship we have with the decline and run pretty dramatic decline in revenue run rate that we’re seeing from our partner. So I guess how do I reconcile the commentary versus the actual facts?

Comcast is a strong partner as we said multiple times. What’s going on with their including of the customer experience efforts really doesn’t have anything to do with their valuing of our partnership on [affording] the program.

So they have been working really diligently to improve their products, improve the way that customers interact to get support with their IVR systems and other ways to all make it so the customers have to call less. So that's just a thing that they’re doing that they need to do and it’s the right thing to do for the customer.

But the consequence to us is fewer calls which is directly related to our revenue. So the only way to reconcile it is that they’re doing what's right for their customer not that it has any implications for their valuing of our partnership.

And as you know there is other things that at Comcast that we’re doing that are in addition such as the additional work that we’re doing with Xfinity Home. We continue to work with them with their new initiatives and that just reinforces to me the other ways that Comcast is valuing our services and will continue to.

And Chad, this is Roop. Let me just additional couple of additional things.

One is just to reinforce the improvement efforts at Comcast is driving across their network and so the various vendors are affected and it’s similarly to Support.com. The other aspect, I’ll reinforce here is we are seeing some growth in the wireless, excuse me in Xfinity Home as we continue to work with them on a consultative basis and as they continue to expand in their home automation.

So the Comcast run rate goes to $6 million to $7 million per quarter in the June quarter, I think you said. Is it positive gross margin business at that level?

Yes, it is. Its positive today and it will continue to be positive as we move forward.

Remember Comcast is a productive power model and so there is a stronger linear relationship between the revenue and our associated cost structure. And so as the revenue would come down, we continue to manage the cost structure down as it relates to Comcast and as we’ve done.

Okay. And then can you just talk about the Nexus kind of progress you’ve made obviously, you gave some metric on licensees and sections and what not and the exit run rate of a $1 million, so where we at in terms of kind of sales headcount related to Nexus and what has that done over the last three months?

Yes, [indiscernible] we've seen progress with Nexus, it's good to see them, I’m really pleased. We have the two channels I mentioned that in the prepared remarks also that we have both our direct sales force as well as our partner channel and one of the really positive things in Q3 was to see the productivity of the channel partners that we’ve got.

So we continue to invest as I said in both Nexus in general and the go to market capabilities and for both services programs and Nexus, but they are not dramatic increases in headcount, we don't give out headcount for individual functional group. But it can, assume that kind of the investments that we’ve got in the go to market is at the level that we need to sustain the growth that we’ve got right now.

Okay. And last question for me.

Roop what do you think the cash flow or cash burn will be over the next few quarters?

Yes, obviously, in the fourth quarter, we’ve got a higher cash burn because the revenue from the New North American service provider is not coming in because its launching late in the quarter in the Q4, but yet we’ve got the expenses to get it launched effectively. In Q1 we expect that revenue come in as we’ve said in our prepared remarks.

And as we look forward, we’ll have that revenue and that program having higher than our corporate average gross margins, so all that will positively contribute. In addition I think from an overall operating expense standpoint, we’re also evaluating opportunities for cost savings in that area, so I think our cash burn as we move forward will be less than what it is in the fourth quarter.

We are also finishing up with some CapEx related for some contact center, improvements that we need to make in terms of work force management technology these sort of things and so all-in-all I think the cash burn will be lower in subsequent quarters.

Hey guys this is Jim Fitzgerald standing for Mike. So I think you guys have said in the past that the expectation was that you'd see 1 million in SaaS they are exiting this year, is that still the expectation right now?

Yes it is.

Yes, [going to have] to meet that goal.

And then can you talk a little bit about the growth you are seeing in Office Depot? I think you guys have previously said that you expect modest growth this year; can you just talk a little bit about what you are seeing there?

Office Depot is interesting, they are kind of following the cyclical periods within the year, Q3 being strong, Q2 being lower, Q4 being kind of somewhere in between, so we’re seeing that. I think what's interesting with Office Depot is some of the opportunities that they are looking at and evaluating for which we are a part of those conversations related to connected home services and some other things as we had indicated in our prepared remarks.

We don't think that significant revenue that may contribute, but at this point in time, but at the same time, they are looking at how to grow service and we’re a part of those conversations.

Okay. Great and then just lastly on your acquisition strategy, what you guys looking at there, what kind of acquisition would it be and how much of your cash reserves would you use to make an acquisition?

Yes, so at Investor Day we laid out the goals around any acquisition we would do and focused on really accelerating Nexus, so looking at complementary functionality in the Nexus area, we opportunistically look at services programs also. But the criteria that we’re really working towards is [indiscernible] contributes to topline growth, really increases the value of the company, we also laid out a couple of other parameters like positive cash flow within several quarters [indiscernible] close.

So we’ve been pretty guaranteed that there is much more detail on the information from investor day about the area of Nexus that we're building out, so you can get an idea of the kind of areas that would make the complementary fit and then meet the parameters that we set out around an acquisition.

I just have a quick follow-on question if you wouldn’t mind clarifying couple of points, one is you had a headcount decline of roughly little over 350 second to third quarter if I did my math correctly? Is it fair to assume that headcount is largely if not associated with downsizing the Comcast requirements?

Yes, so I guess there is two aspects to that Nick. Within the quarter, we did have some growth in headcount for certain programs but at the same time with the reduction in the Comcast revenue that we’ve spoken of, we also adjusted our cost structure accordingly through operational management and natural attrition.

So I guess another way of saying that Roop would be that if the headcount declined by 350 -- 354 that you might have been I am not putting the words in your mouth, but something you can do 360 associated with Comcast maybe added six people and making numbers up to make the point to support other programs, something of that ilk.

Putting aside your numbers, the concept is correct, we added in certain programs and we reduced headcount associated with Comcast Wireless Gateway specifically.

Were there any shifts domestic versus international that made these numbers that are important that we note with these headcount numbers, or is that all North American?

All the headcount -- FTEs that we -- when we talk about work-from-home technicians they’re all North America, U.S. and Canada based.

And then when we look at the projections you provide us with respect to just Comcast, when would you expect the tech headcount to stay at home tech headcount to stabilize? Would it be consistent with what you suggested to revenue, revenues might look like over the next two to three quarters or might it happen a little bit faster than that?

Now again for Comcast because it is a productive our model, there is more of a linear relationship between the headcount and the revenue. And so I think you can think about it, commensurate with the call volume shift and the revenue shift, you’d see our cost structure shifting accordingly.

So if we take that into consideration can you give us some sense of what gross profit margins on the Comcast business have looked like over the say this year and what it might look like going into next year? If you can’t give us I know you don’t want to give us exact numbers but have they been relatively stable, have they been able to stay in front if you will of this, I’ll call it downsizing or rightsizing, or does it tend to lag?

The margins have been consistent throughout the Comcast relationship whether that’s the Wireless Gateway or the XFINITY home and we manage it effectively real time because of that linear relationship to revenue to cost structure.

Do you have any tie in with Comcast with respect to your level of profitability that’s generated during this transition period, such as they bare some of the risk of the management of the downsizing of the Comcast Gateway relationship?

I think those sort of matters aren’t necessarily I think for public comment. I think these are things that as we evaluate the relationship and how to think about the programs that we have with them those are the business conversations we have and then each party has to manage to those considerations.

So they give you some indication, what headcount or usage might be with a one to three month lead time, or something akin to that?

Well, I guess the way I’d answer that Nick is we’ve obviously given a view towards with the caveat that based on what we know today here is a view of what it could look like. And we’ll obviously update that as we learn more and more information as we move forward.

Then on a slightly different matter, if you wouldn’t mind commenting a little bit about the gross profit margins from the services side of the business and when you might see them [netter] ex-the investment in the North American service provider? Or other way, to delete that pull that out the investment front ending, the revenue anticipation of say end of Q1 or part of Q2.

I'm trying to get some sense of the ongoing level of profitability, whether that could -- to what degree it’s being compromised beyond what’s being reported?

Well, as we’ve indicated, we think that the ramp on the North American service provider will fill in by the end of Q1, so I think starting in Q2, you should see some normalized margins around the revenue we expect and the cost structure being in place.

And would that be consistent with the model you would expect to see emerging over time as you ramp up your SaaS revenue stream?

Well, the services margins, our services labor programs have lower margins than our long term SaaS expected margins. Our expected SaaS margins will be more traditional SaaS margins of let’s call it mid-70s, high 70s type of margins.

Our services margins are obviously not at that level and they’re lower than that.

So that would lead into starting perhaps first or second quarter next year to enhance gross profit margins as you ramp the Nexus revenue line, am I understanding that model correctly?

Yes, from a long term perspective as Nexus revenue fills in as well as some new service programs come into play and ramp fully then -- and we’re targeting margins that are higher than where we are today from a corporate average standpoint for those services programs as well we would expect to see gross margin increase overtime.

So finally, what I think I’m hearing you suggest or as you did in your Analyst Day that the low point and margins may occur sometime in the first half of next year. Gross margins what I’m talked about now by the way, gross margins sometime in the first half of next year and then as revenue, obviously as you grow revenue, you will see some leverage on that incremental growth in revenues?

Yes, I would actually say that the gross margins should be at its lowest point in the fourth quarter, because of the amount of investment that we have for this new program and the significance of the program overall. And so as we look to future quarters the margins will be better than where they are in the fourth quarter.

So the [netter] as reported because of the ramping up that you discussed several times will obviously be in the fourth quarter, but we’ll all going to pull those numbers out to dissect them I assume. So it be perhaps sometime in the fourth or first quarter or early second quarter next year ex the upfront investment?

Yes. So again the fourth quarter Q4 of 2015, we believe will be the low point of our margins in terms of what we’re looking at.

Thanks everyone for your time and for joining us today and I hope you have a good rest of the day. Bye, bye.