Greenidge Generation Holdings Inc. (GREE) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Support.com Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Greg Wrenn, General Counsel. You may begin.

Thank you, operator. Good afternoon, everyone. Joining me here today are Josh Pickus, our Chief Executive Officer; and Shelly Schaffer, our Chief Financial Officer. Before we begin, I'd 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 file with the SEC, all of which can be found through the Investor Relations page of our website at www.support.com. I'd 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 in 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 CFO, Shelly Schaffer.

Thank you, Greg. Total revenue for Q2 was $20.1 million compared to $17.3 million in Q2 of 2012 and $20.2 million in Q1 of 2013. Q2 total revenue was up 16% year-over-year and in line with the prior quarter. As we discussed on our last call, Q2 has been relatively consistent with Q1 for the last 3 years as growth in other areas is offset by retail's slowest quarter, and this was again the case. The Q2 revenue mix was 80% services and 20% software and other compared to 79%, 21% in Q2 of 2012 and 81% and 19% in Q1 of 2013. Q2 marked the second quarter of revenue related to the licensing of our Nexus platform. We use a per user per month model for these transactions, with licensing fees reported as software and other revenue and implementation fees reported as services revenue. In Q2, one customer contributed 10% or more of total revenue. Overall non-GAAP gross margin for the second quarter was 55% compared to 43% in Q2 of 2012 and 53% in Q1. Non-GAAP services gross margin was 46% compared to 31% in Q2 of 2012 and 44% in the prior quarter. Non-GAAP software gross margin was 93% compared to 90% in the year-ago quarter and 92% in Q1 of 2013. Total non-GAAP operating expenses for Q2 came in at $7.3 million, a decrease from $8.4 million in Q2 of 2012 and down from a total of $7.6 million in Q1 of 2013. Variances also existed at the functional level. R&D declined sequentially as the result of the utilization of certain R&D resources in our SaaS deployment and the inclusion of the costs as such resources and cost of services. Sales and marketing increased sequentially, primarily due to increased spend related to certain new advertising placements. G&A declined meaningfully as compared to Q1. The main drivers of the decline were a franchise tax refund and lower consulting and professional fees totaling approximately $230,000, as well as changes in allocation policies, which moved certain function-specific IT and facilities expenses, totaling approximately $250,000, from G&A to other departments. Non-GAAP operating margin was 19% in Q2 compared to a negative 5% in the year-ago quarter and 15% in Q1 of 2013. On a non-GAAP basis, income from continuing operations for the second quarter of 2013 was $3.8 million or $0.07 a share compared to a loss of $897,000 or a loss of $0.02 a share in the second quarter of 2012 and income of $3.1 million or $0.06 a share in the first quarter of 2013. We do not anticipate remitting meaningful federal or state income taxes for the foreseeable future as a result of our net operating loss carryforward. However, to the extent that we have future taxable income, the company will be subject to alternative minimum taxes in certain taxpaying jurisdictions. Turning now to the balance sheet. Cash, total cash, cash equivalents and investments were $65 million at June 30 compared to $59.5 million at the end of Q1 2013, reflecting a net cash increase of $5.5 million during the second quarter. DSOs for the quarter were 43 days as compared to 45 days in Q1. At June 30, approximately 1% of our outstanding receivables were greater than 90 days old. Deferred revenue was $5 million at June 30 compared to $6.3 million at March 31. The majority of the deferred revenue balance change is related to a release of deferred revenue at Staples and changes in the Comcast program that affected setup fees, which are deferred and recognized over 6 months. Please note that our deferred revenue does not reflect amounts related to a majority of our subscription revenue as we are paid on a monthly subscriber basis and our partners carry the deferred revenue on their books. Total headcount at June 30 was 889, consisting of 162 corporate employees and 727 work-from-home agents. This compares to a March 31 headcount of 889, consisting of 165 corporate employees and 724 work-from-home agents. In addition to our work-from-home agents, we use contract labor in our operation. In light of the planned Comcast bundle -- Support bundle Josh will describe, I'd like to take a moment to remind you of our warrant arrangement with Comcast. At the time of our initial agreement in 2010, we agreed to issue Comcast warrants to purchase up to 975,000 shares of Support.com common stock, in the event that Comcast met specified revenue milestones. Each warrant, if issued, will have an exercise price of $4.95 and a term of 3 years from the issuance. A fair value of the warrants will be determined as they are earned, and the resulting value will be recorded as a noncash charge against revenue in the period in which the performance milestone is met and the warrant is earned. The total number of warrants is divided into 3 tranches. The first tranche, 166,000 shares, will be issued effective on the last day of the first quarter in which the cumulative revenue from Comcast is at least $25 million and revenue from Comcast for that quarter is greater than $10 million. The second tranche of 324,000 shares will be issued effective on the last day of the first quarter in which the cumulative revenue from Comcast is at least $75 million and the revenue from Comcast for that quarter is greater than $15 million. And finally, the third tranche of 485,000 shares will be issued effective on the last day of the first quarter in which cumulative revenue from Comcast is at least $150 million and the revenue from Comcast for that quarter is greater than $25 million. Regarding the first tranche, Comcast has missed the first requirement of cumulative revenue of at least $25 million. Should revenues from Comcast to us exceed $10 million in the third quarter, we will calculate the fair value of the warrant as of the last day of the quarter and record such noncash charge as a reduction of revenue in our GAAP results. We plan to exclude any such reduction from our non-GAAP results. And with that, I'd like to turn the call over to Josh.

Thanks, Shelly, not just for your commentary today but for 5 years of outstanding contributions to Support.com. You've been an excellent partner for me in building our business, and you leave a G&A team that is stronger than it's ever been. All of us wish you the very best of luck at Simply Hired, where we know you'll have great success. Turning now to the business. I'm going to add some color on Q2 and provide an outlook for the future. Starting with Q2. Revenue was consistent with Q1, as we expected. Profitability increased at the gross operating and net levels, and cash grew substantially. Overall, Q2 represented our fourth consecutive quarter of strong profitability. Looking at performance in our key services verticals, revenue from communications customers grew sequentially from Q1. In addition to existing programs, we recently launched DISH Network's premium support program. For DISH, we currently offer home networking subscriptions and Virus Removal services. We're pleased with the collaboration with DISH and look forward to next steps. Revenue from technology customers also increased sequentially, primarily driven by Symantec. Symantec has recently announced a new organizational structure and reaffirmed its commitment to premium services offerings. We look forward to expanding this business further as the new organization comes into focus. Retail revenue declined sequentially due to seasonality and previously disclosed changes in the Staples program. During the quarter, we extended our Office Depot contract without material changes and now have arrangements with both Office Depot and OfficeMax that extend well beyond the projected closing date for their merger. In terms of software revenue, we grew sequentially in Q2. As you will recall, there are 2 distinct pieces of our software business: the emerging software-as-a-service or SaaS business, in which we license our Nexus technology platform to other businesses; and the end-user software business, in which we license optimization and security applications primarily to consumers. From a SaaS perspective, we continue to add to our customer base, as I'll describe later. From an end-user software perspective, we tested new advertising placements during the quarter with some success. But we are deepening our review of the sustainability and profitability of the advertising-driven portion of this business. Looking at the business more broadly, during the last 4 quarters, we've been in optimization mode, focused on enhancing existing services programs, increasing efficiencies and expanding margins. We've had great success in achieving these goals: expanding non-GAAP gross margin from 43% in the second quarter of 2012 to 55% in the quarter just completed, increasing non-GAAP operating margin from a negative 5% in Q2 2012 to 19% in the second quarter of 2013 and adding over $16 million of cash to the balance sheet. Moving forward, we see new opportunities for top line growth. In particular, we believe the planned Comcast bundle I'll describe today and the expansion of our SaaS business, together with opportunities in certain existing premium service programs and new program wins, can drive increased revenue growth. We plan to invest to support these growth opportunities while maintaining our traditional financial discipline. Let me describe the new growth drivers, starting with the planned Comcast bundle. Currently, our Comcast programs are opt-in, meaning that subscribers must pay an additional fee to receive the services. In the future, Comcast is planning a bundle that would include support for the home network. We are currently negotiating a contract with Comcast to cover this bundled support. While many elements of the bundle are still being finalized, we expect any arrangement we enter into to bring structural changes, including the following: the number of subscribers we support would expand from hundreds of thousands to millions. The timeline for rolling out the bundle is currently being determined; our agent population would need to grow to support the expanded subscriber base. To prepare for the bundle launch, we have recently hired a substantial number of agents, and present Comcast forecasts indicate that we would need to continue to hire aggressively to support the rollout. The economic model for the bundle would differ from our traditional per subscriber model in 2 important respects. First, in our current model, we are responsible for forecast, and we bear the risk of variances in contact rates and handle times. In the bundle model, Comcast would provide a forecast of the number of agents required, and our responsibility would be to staff the required agents. Second, in our current model, we are compensated on a fixed fee per subscriber basis. Meaning that profitability levels are determined by usage over time. In the bundle model, we would be compensated on an hourly basis for time spent performing services. The Comcast premium support program for residential customers will continue, but will support customers who do not receive the bundle and customer needs beyond the home network. And finally, the Comcast premium support program for small-business customers will be unaffected by the bundle and will continue to expand. If a contract is finalized, we expect the bundle would contribute to revenue in Q3 and increase top line growth in Q4. To support this growth, we plan to make substantial investments, not just in additional agents but also in management personnel, technology infrastructure and other areas. We expect these investments to reduce earnings during the second half of 2013. In addition, we expect margins on the bundle to be lower than current Comcast margins, in part because of the pricing associated with the scale of the program and in part because the productive hour model eliminates both the risk and the risk premium associated with the per subscriber model. The bundle represents a new chapter in our Comcast relationship, and we're delighted to have the opportunity to serve an increasing portion of the subscriber base. Today, we're providing you with as much information as we can regarding the bundle and its effect on near-term results. There's a lot more to learn about the size and shape of this program and its impact on future periods, so we'll plan to update you in the future calls as more information becomes available. The other new growth driver is our SaaS business. As we've previously discussed, we began licensing our Nexus technology platform separately from our services in the fourth quarter of last year. We began this business with an agreement with US Tech Support, under which we replaced 4 separate systems supporting a premium tech support operation and then added our first internal IT customer in Q1. I'm pleased to announce that we signed another customer, RadioShack, during Q2. RadioShack has a new and dynamic management team that is reenergizing the brand, and we're excited to be working with them as they execute this transformation. The pilot agreement provides for RadioShack to use our platform to deliver tech services through store associates. We're currently launching the program and are also in discussions with RadioShack about broadening the technology relationship. Beyond RadioShack, the SaaS pipeline continues to expand, and we expect further announcements later this year. To date, we have relied entirely on existing personnel to get the SaaS business off the ground. We have now seen enough promise in this business to begin to provide incremental resources to it. Starting this quarter, we are investing in this opportunity in 2 new ways: we're expanding the SaaS marketing organization and SaaS marketing activities, and we're establishing a professional services capability focused on integrations with customer systems. Both of our new growth opportunities represent evolutions of our current business, one in which our success in service delivery is enabling us to expand our footprint with a major customer, and the other in which the differentiated technology we use in service delivery is creating a new revenue stream for us. We have our work cut out for us to execute on these opportunities as well as on our other existing and new programs, and we look forward to the second half of the year. Turning to guidance. We expect Q3 revenue of $21 million to $22.5 million, excluding any impact from the Comcast warrants, with the software services mix being in line with Q2. We project overall gross margins in the mid-40s, and operating expenses that are higher by approximately 10% due to investments in the bundle and SaaS. Considering the foregoing, we expect non-GAAP earnings per share of $0.03 to $0.05 in Q3. With that, I'll to open it up for questions. Operator?

[Operator Instructions] And the first question is from Carter Malloy of Stephens Inc.

Shelly, I hate to see you go. I'm surprised and proud of you for putting up with Josh for 5 years. Congratulations. Looks like you're leaving on a great note here.

Thank you, Carter.

So I've got a ton of questions about the bundle. I got a feeling you're not going to answer any of them. Maybe first, subscription revenue was a percent of total this quarter. Can you give us that metric?

Yes. It moved up about 4 percentage points, and it's a little more than 2/3 of total revenue.

Okay, great. And then you discussed the margin profile and effectively being no risk, but no-risk premium either. But given you're not like a highly profitable company on a percentage basis, is this still something that, on a GAAP basis, is a double-digit type operating margin for the new bundle or just something we should expect below that?

What I want to say at this point about it is just really what I've said in the script, because there's a lot to learn about how this plays out. A simple example is the contract we're negotiating has a structure that has bonuses in it. And if we achieve those bonuses, it actually really matters. So what I'll say is that we do think that the bundle margin is going to be lower than the current Comcast margin. Because in one case, we're really taking risk, and in the other case, we're not. And because the scale of the bundle is going to be larger, and you expect volume pricing. Beyond saying that, that distinction is likely to hold true, I don't think it's prudent for us to go further because there's so much that is still to be determined. I think if there's anything else I'd add, it would be to the effect that if the bundle ends up being a larger percentage of Comcast revenue going forward, then the overall Comcast margin is going to continue to come down. And we don't know exactly how big it will be, and we don't know exactly what will happen with the existing premium support programs. They're very much still in place, and as you heard me say in the comments, they're very much still going to be emphasized. So that mix isn't clear. So I think all I can say with confidence now is that the bundle margin is lower than the remaining Comcast premium support margin and that to the extent the bundle ends up being a larger percentage of revenue, we would expect the overall Comcast margins to continue to be lower.

Okay. And then just overall, your confidence, one, in winning this contract or signing this contract, and 2, that you will be making substantial absolute bottom line dollar profits on this? Preferably 2 numbers to start with a 9, please?

Okay. So with respect to the contract, it's obviously not signed. It's also probably obvious that I wouldn't be talking about it unless I thought we made a lot of progress. There are important issues to resolve. I think the core economic issues are settled, but there are still important issues that are noneconomic that matter, and we need to get through those. So I can't make any absolute warranties about getting it done, and I'm certainly not going to do anything imprudent as far as the company's long-term health. But given that, I think everybody's working constructively and excited to get this going. And importantly, we have been hiring at Comcast direction because there is some urgency about making this happen. So that's sort of the comment about the contract. In terms of are we going to make money on the bundle? Yes, we're going to make money on the bundle.

The next question is from Chad Bennett of Craig-Hallum.

Echoing the first caller's thoughts, Shelly, it's been great working with you, and I know you'll be phenomenal at your next endeavor. And I wish you the best of luck.

Thank you, Chad.

So I mean, we're going to beat a dead horse on this bundle stuff by the end of this call. So I'm going to take another stab at it. So just to make sure I understand it conceptually, you are going to be paid for agent hours -- productive agent hours, which means when a Comcast home networking sub is on the phone with your agent, you get paid, is that correct?

It's in the right direction, but there's a couple of details that are off. I'm not at liberty to describe exactly how this bundle is going to work, but the notion is not that it's a home networking sub. It's a Comcast broadband subscriber. That's the core user base or some segment thereof. And when Comcast is prepared to announce exactly how this is going to work, they will. But it's not limited to people who have any kind of a home networking subscription. The user population starts with Comcast broadband subscribers, and there is going to be a meaningful portion of those that will be entitled to this bundle. And I can't go further than that in describing exactly what the population is, but that should give you a sense of it.

So it's not tied to the new wireless gateway or the -- or a Wi-Fi router or any type of product related to Comcast?

I can't comment on exactly what the bundle is going to be. I need to be very respectful of Comcast's timing on announcing things. And they -- I'm sure that in the not-too-distant future, they'll have something to say, and it'll become apparent. But I can't say anything today. I can just confirm that it doesn't really have anything to do with whether you have a home networking subscription. In fact, the home networking subscription is really a concept associated with our XFINITY signature support premium program. This starts with people who are Comcast broadband subscribers, and then it gets -- Comcast will offer this to the percentage of that population that they choose to, and it may be denominated based on a product or something else. That's entirely their decision. And all I can tell you is that it is a much larger number of subscribers than we presently serve in the premium programs, okay? So that's who the population is. And then the second piece is we get paid for productive hours. That's accurate. There's a little bit more detail around that. Productive hour is not defined just as when you're on the phone. There -- it's essentially any time you're doing work if you're available, but you're not on the phone or something like that. It's a pretty standard term in the industry, and it's broader than just talk time. We also get paid for time that people spend in training. So there's nothing unusual about those arrangements. It's simply that it's different from what we've done and continue to do in other programs, so I wanted to highlight that for people. So that's how the revenue model works. And as I said in the prepared remarks, that gives us a lower risk profile because we're not estimating usage in that. And it's pretty clear what we get paid. And so that's the thing that I was trying to make sure people understood in distinction to our traditional per sub per month model.

Got it. So -- and again, I'm beating a dead horse, but it's going to be a unknown number of subs in an unknown amount of broadband service plans, and they can call in and utilize you for any issue they have?

You've drawn me out of my lair. Yes, that's accurate. And I did say a little bit more than that, which is that it is a materially larger number of subscribers. I'm trying to be as transparent as I can because I want investors to understand the implications of this. But I obviously have to be completely respectful of Comcast proprietary information. So with that one tweak, yes, you're right.

Okay. And you -- did you indicate it would have some impact on this quarter and more material in the December quarter?

Yes, that's exactly right. It will impact this quarter. Revenues from this are in our guidance because as I indicated, at Comcast direction, we have begun to hire and have hired a substantial number of agents. But because it's getting going, we expect that contribution to be materially larger in the fourth quarter. So you're dead-on on that one.

Okay. All right. And then can you speak to -- I mean, should we be concerned at all about kind of the handoff between your existing program to the new program with Comcast and if there's any kind of transition risk there?

I wouldn't describe it as transition risk. What's going to happen is that people who qualify for the bundle, who are in the XFINITY signature support residential program, are obviously, during the rollout, when their regional area is covered, they will exit the subscriber base for XFINITY signature support if they have a subscription that's just home networking. So the effect of that is that some percentage of the subscribers who are currently in the paying subscriber base for the premium support residential program will be served under this bundle and will no longer be XSS [ph] residential customers. XSS [ph] will continue to serve subscribers who are not covered by the bundle and all subscribers who have needs beyond the home network. And as you know, we have several subscriptions that are not tied to the home network. So those will go on. And obviously, what we're doing with Comcast is carefully coordinating the rollout so that we have the right number of agents to serve a new area when we roll into it. So it's not so much transition risk. It's just that you need to understand that there will be changes to all of these programs as a result of the bundle coming into play.

Can you -- I don't know if this is a big deal or not. Can you quantify where you think agents will be at, at the end of this quarter?

I think agents will be materially higher than what we reported at the end of the second quarter.

Okay, all right. And then last one for me. On the RadioShack opportunity, I don't think I catched everything you said on it. So what does that SaaS deal entail? And what should we expect from a -- I don't know if you quantified the size of the deal, and then how quickly should we expect you to start recognizing revenue on that?

So to start at the end, we'll recognize revenue from that program in a small way this quarter. It is a pilot program, and it's in a limited number of stores. The idea behind it is that the store associates, using our platform, will deliver tech services to customers. We think it's a very exciting opportunity, both because RadioShack is going through a really interesting transformation with a, in my view, very dynamic new management team that is not focused so much on the kind of financial restructuring that previous teams have done, but really in reinventing and reinvigorating the brand and the merchandising and everything else that made RadioShack a very special part of the retelling scene. And one part of that is bringing these new service offerings to bear. It's obviously a large chain, and if we're successful in working through this, it could be a very interesting opportunity for us. But it's early days, and there's a lot to work through. And we're just pleased with it, not just because of the long-term opportunity but because it's an interesting new way for us to do one of these programs in which the partner's employees are going to use our tools to deliver the services rather than our agents. And we may provide overflow or that kind of services, but it's really dominantly, at this stage at least, a platform deal. And that represents yet another example of a big-name customer that is saying, "Hey, your platform is a really interesting way for us to do something." And that's obviously music to our ears. So early days but in our view, a very exciting opportunity.

Okay. Last one for me. Can you give us an update on the -- how the various SMB programs you have going on are going?

You bet. What I would say about SMB is that in a couple of the programs, one communications and one retail, I'm beginning to see a bit of an uptick from a sales standpoint. I can say that revenue in these programs has grown sequentially every quarter that they've been out there and that while it's still in total a 6-figure number, it's easier for me now to imagine SMB getting into 7 figures than it has been before. It feels to me a lot like when we were in the early days of some of the consumer programs. As the partners were working through their sales efforts and perfecting that. Same kind of thing going on in this marketplace. And if I learned anything there, it's that it does take a while, but it gets there. And I have the same feeling about SMB. And while I can't predict timelines, the trend line and the revenue each quarter are moving in the right direction, and I look forward to that continuing.

The next question is from Ryan MacDonald of Northland Securities.

Ryan on for Michael Latimore. Just one quick question in regards to Comcast. I know you talked about already hiring a lot of agents in the third quarter here coming up. I mean, do you -- since Comcast is going to be running the forecast for how many agents you will need, I mean, do you anticipate being the exclusive provider of services on this deal? Or do you think this is something that Comcast may look at dual sourcing?

What I can say and all I can say right now is that we're the only provider that is doing this program today. Will that be true forever? I don't know. But I can tell you that the ramp that we're doing is for us to support the whole program.

Okay, okay. And then switching over to some of those SaaS opportunities, can you quantify at all how many SaaS deals you've seen in the pipeline throughout the remainder of the year? I mean, is there an opportunity to close an additional 1 or 2 deals at the very least this year?

Yes, there absolutely is an opportunity to close at least 1 or 2, and it may be more than that. We're still not in a high-volume SaaS business. I want to be very clear about that. And we believe that to make this business really interesting long term, we will need to transition into that. Where we are in the cycle, though, is really landing some terrific premier sort of flagship accounts, and that's what I hope we will continue to do throughout the balance of the year because I think those customers and their referenceability are going to be highly valuable as we try to transition in 2014 into a more high-volume operation serving all different kinds of customers.

And then just one final question. Can you quantify how much Comcast was as part of your total revenue for the quarter?

I think the number was about 45%...

Yes, 45% [indiscernible]

In the second quarter.

[Operator Instructions] Next question is from Kevin Liu of B. Riley & Company.

Congratulations on both the numbers and the Comcast announcement today.

[indiscernible]

Thanks, Kevin.

First question here. Just on the office supply retail sector, I know, none of them were 10% customers in the quarter, but can you guys offer up a aggregate number for the group?

We don't give out that kind of information that's that precise. What I can tell you directionally is that as we expected, retail declined Q1 to Q2, and it declined for 2 reasons: one is the traditional seasonality; and then as we've talked about, the end of the Staples thing with their insourcing. Going forward, we think it's going to be very interesting when Max and Depot come together because I think there's an opportunity to have a very energized operation there. And clearly, the services business is one that is very margin-positive for them. So we're looking forward to that. We also think that there are other opportunities in retail like SMB and SKUs that are non-PC related, as well as adding new retail customers. So retail is a much smaller percentage of the mix than it used to be, with communications really being the leading vertical. But retail continues to be important, and we continue to look at ways to grow that as we get into next year and the merger happens. And there's a lot of other opportunities.

Got it. I guess from my perspective, I just expected OfficeMax in particular to be able to hold up at that 10% level at least for this year. Can you just comment a little bit about that -- if the growth in that program has stalled at all or whether you think some of the revenue levels in this quarter are more a function of any sort of pricing changes?

I think their not being a 10% customer is more a function of overall revenue growth than them. They're very, very close to being a 10% customer. It's north of 9.5% and south of 10%. So I'm not sure there's a meaningful distinction there. We continue to think that program has a lot of promise.

Okay. Appreciate the color there and then obviously, have some questions on Comcast here as well. I guess the first one is, I guess because Comcast appears to be dictating the number of agents here, are you guys fairly assured of the level of revenues and profits you make on each of these agents you're hiring? Or is there more variability that we should be aware of?

Well, the way it works is they will give us a forecast for the number of agents we need, and we will have an agreed price for -- per productive hour and per training hour. So in that sense, there's a high level of certainty about what that will be. Profitability is determined by a number of things. What we pay the agents -- and currently, we're paying them all the same things, so that's a pretty straightforward thing -- benefit, costs and what goes on with them, so that's pretty nailable. The real uncertainties enter into the question of how efficient are we? And how well do we run this? Do we achieve bonuses? That kind of stuff. And I've got a lot of confidence in the team we have to really do well on that. But I need to see it operate before I get to saying, "This is exactly what I think the margins will be." But I think it has a higher degree of certainty about what margins will be than does a subscription business for us where usage can vary. And as I've said earlier, I do think that margin will be lower than what the margin is on the premium support programs that we operate for Comcast.

Got it. And I know the time -- the contract isn't signed yet, and so some of the timing is still up in the air. But I mean, is it fair to assume that once everything is signed and they're ready to move forward, so long as you guys have the agent count, there's no reason why you wouldn't be serving that entire population of subscribers that you discussed earlier all at once?

I think it will be a staged rollout because I think if you think about what all at once means and you think about the size of the Comcast base and even when they subdivide it to determine who is in this bundle and who is not, we're talking about a very large number of subscribers. And it's not the kind of thing that you would ever do in one fell swoop, so there will be a staged rollout, and that rollout, based on everything I know today, it will start this quarter and will continue from there. So that's how we expect it to go.

Got it. And in the meantime, I know you guys utilize a third party and possibly have some agents internally as well and still selling the XFINITY signature support program. Does that continue or do those sales efforts stop until you figure out what this new Comcast relationship looks like?

We actually don't do any selling for XFINITY signature support. We transition that to a different vendor. So that's really not part of Comcast anymore. I do think that under this new program, one component of it will be for our delivery agents to do some kind of upselling from the bundle to potentially other excesses or other Comcast products. But that's a detail that I think will become clearer in the future. So you shouldn't think that there's any change with respect to sales revenue from Comcast because there isn't any sales revenue from Comcast right now.

Got it. I guess I just meant would you still have the third-party firm still attempting to add new Comcast subscribers to the XSS [ph] plan? Or do all those activities stop now that the Comcast...

Oh, I see. Well, obviously, Comcast decision, but I'm not aware of any reason they wouldn't continue to do that. Both the residential and the SMB programs are going to move forward. And it -- I. Would expect that they would continue to have the third parties doing that just as they are today.

Okay. And just 2 more questions on this Comcast relationship. The first being, when -- in terms of the service delivery of it, I mean, is it going to follow the exact same work-from-home model? And will they all be placed on the Nexus platform?

Yes.

Okay. And then just lastly, is it fair to assume that it's in the interest of both of -- both you guys and Comcast to structure the deal so that, that level of revenues do coincide with them being able to earn all these warrants?

Well, I think that the warrants are kind of an additional thing that's out there. I think that they've ended up being very productive because I know that from time to time when I talk to our contacts there, they mention them, which says to me that this is something that is relevant. I think that all of this is being driven by much larger business concerns that they have about how do they provide a better and better customer experience to people? And the warrants are kind of a nice add-on to that. And the reason that Shelly went into quite a bit of detail about it is just we do think that given the bundle, it's likely that we're going to get to a place where at least the first tranche and potentially the second and third tranches get earned. And so we wanted to make sure we reminded investors about those terms. But I would not think about that as driving this. That's a sweetener. The core of this is how do we deliver a really great experience for Comcast customers?

Yes, understood. Was more trying to get at the total revenue potential for this ultimately is that -- I'm sure we'll figure that out in time. And then just one last question on the software side. Curious as to whether you're consumer business grew on the software side at all or if all of the growth stemmed from the Nexus sales?

We did have some growth on the what we call end user side. So yes, it did grow a little bit. But as I said in the script, and I really want to underline here, the issue really isn't whether we can grow that business. It's whether we can grow it profitably. And I am increasingly concerned about that, and that's what we're looking at very hard. And I don't have anything definitive to say today because it's very much something we're looking at. But we're not interested in a business that can't be consistently profitable. And therefore, I think it's incumbent on us, as advertising markets change, to make sure that we should still be in that business. And so that's something we're going to continue to look at.

The next question comes from Lauren Slabaugh of Stephens Inc.

A quick question on the competitive landscape. Assuming that some of your private competitors are weakening a little bit, are you all seeing new contract win opportunities that maybe weren't there before?

Yes, we are. There are some interesting opportunities. Some of them are just brand-new opportunities, with somebody deciding they want to offer a premium support program. And there is a percentage, as I've said before, that do represent people who work with our competitors, considering whether they want to continue to do that. So there is a subset of our opportunities that looks like that, and we'll continue to pursue them aggressively.

There are no further questions at this time. I would now like to turn the call back over to Josh Pickus, CEO, for closing remarks.

Thanks, everybody. We appreciate your time and attention today, and we'll look forward to updating you in the future. Bye-bye.

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.