Greenidge Generation Holdings Inc. 8.50% Senior Notes due 2026 (GREEL) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Support.com Third 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 Ido Sakal, our Controller and Interim Chief Financial 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 file with the SEC, all of which can be found through 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 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 Ido Sakal.

Thank you, Greg. Total non-GAAP revenue for Q3 was $23.7 million compared to $18.2 million in Q3 of 2012 and $20.1 million in Q2 of 2013. Total Q3 non-GAAP revenue was up 31% year-over-year and 18% sequentially. This quarter, we incurred a contra-revenue charge of $383,000 related to the issuance of a warrant to Comcast upon achievement of certain performance milestones outlined on the last call. Adjusting for this charge, total GAAP revenue for the third quarter of 2013 was $23.4 million. Q3 marked the first quarter of services revenue related to the new home networking support bundle for Comcast. Under this program, we recognize revenue as services that are performed based on training and production hours delivered by our remote service technicians. The Q3 non-GAAP revenue mix was 83% services and 17% software and other, compared to 81% and 19% in Q3 of 2012, and 80% and 20% in Q2 of 2013. In Q3, one customer accounted for 10% or more of total revenue. Overall non-GAAP gross margin for Q3 was 53% compared to 50% in Q3 of 2012 and 55% in Q2 of 2013. Non-GAAP services gross margin was 44% compared to 41% in Q3 of 2012 and 46% in Q2 of 2013. In Q4, we expect overall non-GAAP gross margin to be in the low 40s as the bundle rollout progresses. Non-GAAP software gross margin was 93% compared to 91% in Q3 of 2012 and 93% in Q2 of 2013. Total non-GAAP operating expenses for Q3 came in at $7.9 million, an increase from $7.3 million in both Q3 of 2012 and Q2 of 2013. The principal driver of the sequential increase was additional G&A headcount and recruiting expense associated with the bundle ramp, offset by reduced marketing expense resulting from the cancellation of an advertising placement for end-user software. In Q4, we expect non-GAAP operating expense to decrease by approximately $1.5 million, principally as a result of the cancellation of this advertising placement. Non-GAAP operating margin was 19% in Q3 compared to 10% in the year-ago quarter and 19% in Q2 of 2013. On a non-GAAP basis, income from continuing operations for the third quarter of 2013 was $4.6 million or $0.08 a share, compared to $1.8 million or $0.04 a share in the third quarter of 2012 and $3.8 million or $0.07 a share in the second 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, cash equivalents and investments were $68.5 million at the end of Q3 2013 compared to $65 million at the end of Q2 2013, reflecting a net cash increase of $3.5 million during the third quarter. Accounts receivable increased by approximately $4 million, and DSOs increased by 10 days to 53 days due to increased billing associated with the bundle, which will be collected in Q4. At September 30, less than 1% of our outstanding receivables were greater than 90 days old. Total headcount at September 30 was 1,551, consisting of 175 corporate employees and 1,376 work-from-home technicians. This compares to June 30 headcount of 889, consisting of 162 corporate employees and 727 work-from-home technicians. In addition to our work-from-home technicians, we use contract labor in our operations. As I noted earlier, we issued the first tranche of warrants to purchase 166,000 shares to Comcast in Q3. As a reminder, the second tranche, to purchase 324,000 shares, will be issued effective on the last day of the quarter in which cumulative revenue from Comcast is at least $75 million, and revenue from Comcast for the quarter is greater than $15 million. Should Comcast achieve both of these milestones in Q4, we would cycle out 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 for our non-GAAP results. With that, I would like to turn the call over to Josh.

Thanks, Ido. I'd like to start by welcoming Roop Lakkaraju, who is joining us today as Chief Financial Officer and Chief Operating Officer. Roop has an ideal background for our company, including CFO roles at Quantros, a private equity-backed SaaS company; 2Wire, a provider of integrated broadband solutions for the connected home; and Selectron, an electronics manufacturer whose business required disciplined margin management. We believe Roop will play a significant role in taking our business to the next level, and we're delighted to have him aboard. Turning now to the business. I'm going to discuss Q3 results, explain certain program changes and provide guidance. Starting with Q3. Both top and bottom line were exceptionally strong. Drivers of the results included: first, success in meeting the aggressive hiring, training and certification targets for the home networking support bundle for Comcast. As we discussed on the Q2 call, we are compensated on an hourly basis for services associated with the bundle, and the rapid on-boarding of technicians resulted in the delivery of a substantial number of training and production hours in the third quarter. We expect further growth from the bundle as more technicians are added and the program is rolled out across the Comcast footprint. Second, undiminished contribution from the Comcast signature support program during the quarter. We expected revenue from this program to decrease during the quarter as signature support customers began to receive bundled support and subscription fees diminished. However, the subscriber cutover is largely occurring towards the end of the year, leaving the revenue stream from the signature support program intact during the third quarter and part of the fourth quarter. Finally, solid performance from our other programs in the communications, retail and technology industries. Beyond the third quarter results, there have been other important developments in our business, including changes in our Comcast programs; progress in other services programs; growth in our pipeline, driven in part by the addition of new opportunities in the smart home support area; expansion of our software-as-a-service, or SaaS, customer base; release of the latest version of our Nexus SaaS platform; and changes in marketing activities for our end-user software products. At Comcast, the signature support program for residential customers will be discontinued. We currently expect all subscriptions under this program to cut over to the bundle or end during the fourth quarter of this year, and we do not expect any contribution from this program in 2014. However, the bundle is growing rapidly, and there are several other Comcast programs, which I'll describe in a moment, that we expect to grow next year. As a result, we currently believe Comcast revenue in 2014 will at least equal and likely exceed Comcast revenue in 2013, albeit at considerably lower margins. As I mentioned a moment ago, we have a number of other opportunities for growth at Comcast beyond the bundle. We are currently negotiating a referral program with Comcast, under which we would have the opportunity to transition existing signature support scribers to Support.com services. In addition, out-of-scope calls received by Comcast support agents would be referred to as for handling. Under the referral program, we would expect to provide the same high-quality customer experience we did under signature support, but we would do so under the Support.com brand. And we would retain the retail price of services sold while paying Comcast a referral fee. In addition to the referral program, we also have an opportunity to grow the Comcast small business program significantly through a variety of new SKUs, sales channels and bundles. We're excited about these new growth opportunities at Comcast. A number of other services programs also progressed since our last call. The DISH Network's program grew, and we expect a number of DISH support agents contributing to the program to increase in the fourth quarter. In addition, we anticipate that new solution offerings and new sales channels will be introduced over the next few months. Our RadioShack relationship, which began as a SaaS pilot for corporate-owned stores, will now include services for a test group of franchise stores. Our retail partners, Office Depot and OfficeMax, moved closer to completing their merger. And OfficeMax introduced a high-profile marketing campaign focused on services for small businesses. From a pipeline perspective, we advanced a number of premium support deals in the retail and communications industries with brand-name accounts. In addition, our pipeline has expanded to include opportunities involving support for smart home services. Smart home services have been around for a long time, but it now entered the mainstream with large telcos, cable companies and retailers offering IP-based solutions that include both home security and home automation such as energy management. As a result of these new market entrants, the smart home services market is expected to grow from approximately $2 billion today to almost $11 billion in 2017, according to NextMarket Insights. We believe smart home support services could be an important new market for us in the future, and we look forward to updating you on our progress in this area. Turning to software. We added 2 new customers to our SaaS customer base. The first, the services unit of a Fortune 100 company will use our cloud-based Nexus Service Delivery Platform to provide premium remote tech support services. A limited number of seats are covered by the initial deployment, and there is substantial opportunity for growth within this account. The second customer, a rapidly growing firm dedicated to converting support calls into revenue opportunities for its partners, will use the Nexus platform in its technical support operations, replacing several support and CRM tools with one unified platform. Several hundred seats are included in this deployment. Both of these customer relationships, and indeed our entire SaaS customer base, has come from inbound inquiries. We are now increasing our focus on demand-generation activities, starting with the addition of outstanding new marketing personnel dedicated to this SaaS initiative. Continuing our technology innovation, we recently released the latest version of the Nexus platform. This release includes expanded remote support tools for mobile devices, advanced patent-pending workflow automation for diagnosing and solving technology problems and interactive dashboards for realtime decision-making and business analytics. The new version of Nexus incorporates learnings from millions of support experiences and extends our technology leadership position. In end-user software, during the Q2 call, we indicated that we were reviewing the performance of advertising programs for these products. After review, we determined that we would discontinue our largest advertising placement because it no longer yields positive returns. We expect this change to reduce software revenue and related marketing expense by approximately $1.5 million per quarter and have reflected these changes in our guidance. In terms of guidance for the fourth quarter, we currently expect non-GAAP revenue of $24 million to $26 million, excluding any impact from the Comcast warrants, and non-GAAP earnings per share of $0.06 to $0.08. In Q1, after the wind down of the signature support program, it's likely that we'll experience a sequential decline in revenue and profitability from Q4 when both the bundle and signature support contributed to results. Following this transition, we expect to resume growth from the baseline established in Q1. Our business continues to evolve, and we're attracting great new talent to support this evolution. We're excited about our existing programs, our pipeline and our new initiatives, and we look forward to capitalizing on the opportunities in front of us. With that, I'll open it up for questions. Operator?

[Operator Instructions] Our first question is from Lauren Slabaugh from Stephens Inc.

So wanted to delve in a little bit on the smart home services piece. I mean, you touched on that, and it sounds like this could be a big opportunity. Any other color you can give in terms of timing or when we'll be able to get more firm details on that?

I would hope that when we're talking to you in the first quarter that we'll be able to indicate where that is. The main point that I wanted to make was that the smart home idea has been around for a long time, and it's finally getting real. And we do see it in our pipeline where a lot of our existing customers and customers that could be new accounts for us are actually beginning to offer these services. And it's clear to us that as a new type of technology, there's plenty of support issues associated with it, and ensuring that the end customer has a great experience with these services is very important. Because the services are expensive to install and a lot of marketing dollars are being invested to capture customers, when we do that, you really want to make sure you keep those customers and provide them a great experience. So it's become clear to us that there's a real opportunity to enhance the experience. The pipeline is real. As always, it's a little bit difficult to know when things will come to conclusion. But we'll give you an update on wherever we are when we speak to you in the first quarter.

Okay, that works. And then the next one, on software piece, I won't try to ask you more questions to get you to tell me who that Fortune 100 company is, but what I would like to know is as we see more of this come in and software growing, as you look out next year or even in 2015, your software is 25-ish percent now than the SaaS piece. Where do you see SaaS ultimately shaking out as a percentage of revenue?

Well, at this point, I'm not going to give you a specific percentage. But let me give you some color. If we think about this quarter and we start with the software revenue overall, it was about 17% software. Now most of that today is the end-user software. The SaaS software piece of it is really a low single-digit percentage as that's a very new initiative. What I can say with confidence is that as we look at next year, we believe that the number of customer additions, the bookings and the revenue associated with that are going to grow. That's an absolutely key initiative for us, and we are investing in it in a serious way. What is a little bit hard to know at this stage of it is how large will it get. And rather than speculating, I'll just say that it's an important component for us. We want to see it grow within software, but we're not yet ready to put a percentage on it for 2014.

Okay, fair enough. And then one quick one, and I'll jump out. Any more color on some of the rollout from the SMB front? You mentioned there are a couple of different ones, but any other updates there?

Yes. What I would say is as part of the OfficeMax advertising campaign, they are very, very focused on this element called on call. And on call is a series of SMB subscriptions. And they are very seriously behind that. They're investing in a meaningful way in demand-generation activities, and it feels to us like that's an important part of their identity going forward. So we're hopeful that the -- that exposure this quarter will begin to drive growth in that program. The second thing that I'd say is that as I mentioned in the script, the Comcast program is likely to roll out new offerings, and we think some of those are very exciting and could drive incremental growth. And then the final piece around SMB is there are a number of opportunities in our pipeline. So it's contributing to revenue now, and it's a 7-figure number for a year. But we'd like to get it to be a 7-figure number in a quarter. And that's something that is going to be an important part of driving growth in 2014.

Next question is from Chad Bennett from Craig-Hallum.

So a couple of questions for me. Can you talk about the contribution in the September quarter from the training and hours you did there on the new Comcast program? How material it was?

It was material. As the first quarter in which we were doing anything under the bundle, a lot of the agents were in training. And as we've indicated earlier, we do get paid for training hours. That is at a lower rate than production hours. But once the agents go through training and complete a certification test successfully, we do get paid for it. So in the quarter, we had material contributions from both training and production hours, though I think that the ratio reflects the stage of the program. As we move forward, there'll be more production and less training. But there was a material contribution as a percentage during the third quarter.

Okay. And how much do you think the signature support program is impacted in the fourth quarter on a kind of from a run rate of what it has been and sequentially?

The signature support program in the fourth quarter, we expect will come down. And the reason for that is that as the bundle rolls throughout the various divisions, support customers will cut over to the bundle. So that'll go away. And as I mentioned earlier, by the end of the year on a rolling basis, all of those subscriptions will end. So we expect some diminution in signature support revenue in the fourth quarter, but the real impact will be in the first quarter where there won't be any signature support revenue.

Okay. So I guess what I'm trying to really get at, maybe in a roundabout way, is if we're going to basically lose in the March quarter, call it $9 million plus per quarter of signature support revenue, how quickly does the bundle program ramp? I mean, is it -- I mean, in the December quarter, is it already a $5 million program per quarter? I guess that -- I'm trying to get at the magnitude there and kind of what could happen.

Well, let me try to answer your question while also respecting Comcast's confidential information. I think it's fair to say that the revenue from the bundle in the fourth quarter will be at least the number you gave and likely higher than that. So it's going to quickly become a material program. The other piece of it is that as you indicate, there is a substantial revenue loss resulting from the end of signature support. The things that will contribute to offset that would be, first, growth in the bundle. But also within Comcast, the referral program, which is difficult for us to size at the moment, but it's very exciting to us. And any growth in the SMB program and any other things we might start to do for Comcast. As well, of course, as growth in other programs. So what we tried to do in the guidance is signal the shape of the curve or the slope of the line. But it's difficult for us to do anything more precise than that because we don't know exactly how fast, for example, the referral program will ramp or exactly the number of agents that we'll need on the bundle or exactly how much DISH will grow. So there's a number of different factors that make more precision amount in Q1 difficult. But we did want to say, as I mentioned in the script, that we do think both revenue and profitability will be down. Don't want to surprise anybody with that. And we're just not in a position to be any more precise than that with the information that we have today.

Okay. Is it fair to say I think you talked about overall gross margin in the low 40s in the December quarter. Going into next year, the March quarter with signature support gone, overall gross margin goes below 40? Is that a fair -- I mean, I don't think that's crazy?

I think that's not crazy. I think that's right. We gave the guidance for Q4, which talks about what's going to happen it being in the low 40s. And if you sort of naturally extrapolate that and say, "Signature support is going to go away, and that's a program that is relatively high gross margin program." You're obviously going to see some decline from there. So again, not going to be precise about it, but consistent with what we've said from the time we talked about the bundle, that's a very large but relatively lower margin program. And where we end up, we'll end up depending a lot on the mix of other things in that.

Yes. So, Josh, so just last one for me, more longer term and obviously you can't give probably all the details I'd like. But, I mean, we wouldn't do this for a dollar-for-dollar exchange from one program to the next based on kind of the gross margin hit we're taking. So I guess as much color as you can give into -- I know you don't want to go off far, but the magnitude of the increase of -- in this program, looking out maybe a year or 2 or a couple of years and what the potential is I think would be very helpful because 2014 Comcast revenue kind of matching '13 just doesn't seem like that would be a good deal that you would do.

Well, let me start one step back from that and then come to it. The first thing here is we also have to remember that what we're ultimately doing here is serving our customers, okay? And the key thing here is that Comcast has made some decisions about how best to serve its customer base. And they've done that based on the theory that the home network is really increasingly integral to the experience of their customers. And they want to support that as much as they can. And that led to a series of other decisions, including the fact that signature support within effect gets subsumed by the bundle. But that's driven by what the customer wants to do. This isn't the situation in which we're sitting in a room and deciding exactly how we'd like to optimize things. What we're trying to do is serve the customer in the best possible way we can and expand our relationship with them. And I'm really pleased that within the Comcast relationship, we're developing very diverse points of contact. And so although there is a lot of revenue in that bucket within one account, it's much more distributed than it has been before. So that's really the way these discussions and decisions are happening rather than us saying, we would or we wouldn't make this trade. Now in terms of your specific question about the bundle, we have said from the beginning that we think it's going to be quite substantial, and nothing we've seen has caused us to have any other view of that. We continue to be very bullish on the size of it. On the question of exactly how big or how much bigger, I'd love to give you more information, but I'm really not at a point where I think that's prudent to do. It depends on things like how many contacts are there, what is the handle time, ultimately, how many agents are required. And how effective are we at meeting the performance goals and exceeding them. And all of that is still very much TBD. The most of the rollout will happen this fourth quarter, and so we don't yet have much in the way of experience with what that's going to be. And until I have that, as much as I, as well as you, want clarity and certainty about that, I don't have it. And I don't think it's prudent for me to speculate until I've got more data.

Your next question is from Kevin Liu from B. Riley & Company.

I had a couple of questions on the Comcast relationship as well. I guess, first off, what percentage of revenues do they contribute during the quarter? And then beyond that, I was also curious that the majority of the ramp on the agents side would be attributable to the new bundled offering?

So we'll have it in the 10-Q, but the number is approximately 56% for Q3. And yes, it's fair to say that the majority of the agent ramp was associated with the bundle.

In terms of the linearity of that agent ramp, just curious if the majority of those were hired earlier in the quarter or if it was kind of a steady progression throughout? And obviously the reason why I was asking there is to get a sense for if there is more incremental costs even just associated with the hires already made? And regarding capacity, is it fair to think that the amount you added that -- during Q3 is probably a decent number to think about as you ramp up for Q4?

Let's see. So there were several things in there. It was a steady progression of hires over the course of the quarter, and I want to take a moment here to really say how proud I am of that contact center team for hiring, on-boarding and training these people and really getting them ready. That was not a small thing to do, and they did it really effectively. In terms of Q4, I think what I'm comfortable saying is there will be additional hiring. We expect it to be material, and exactly how much it will be will be -- depend largely on our experience as the rollout occurs in terms of contact rates, handle times and ultimately, forecast for what the needs are.

Got it. And because the signature support is fully cut over by the end of Q4, is it fair to think at that point the Comcast bundled support offering would be completely rolled out going into Q1? And then the only unknowns then remain how much agent support you'll need to provide from there on out?

Well, I wouldn't quite say that. I think the following is true. It feels pretty clear based on the information we have that the signature support program will wind down by the end of the year. We have a schedule for the bundle, and that does suggest that we'll make substantial progress on the rollout during the fourth quarter. But things can always change. The key is making sure that a really good customer experience is delivered. There's a little bit of uncertainty about exactly how much of that rollout occurs. Then you get into next year, and I think what could change things and what could change things quite materially are the following. Number one, Comcast subscriber additions will matter. And they just reported their quarter today, and they had a really good quarter in terms of broadband subscriber additions. So that matters. The second one is what percentage of the existing 20 million subscriber base has leased devices from Comcast because the bundle provides free support to people who have these leased routers, modems and other devices. And as that percentage grows, there will be additional growth in the bundle. And we expect that likely to be material because it's important to Comcast, as we understand it, to make sure that they get as many of these devices in people's hands as possible because they're capable of delivering a much better high-speed Internet experience. So it's quite strategic for them to want these devices out there. And so we don't, by any means, think that at the beginning of the year, we will be supporting everybody who will be supported because we expect there to be additional devices out there throughout the year. And then the final piece is, okay, regardless of how many subscribers are entitled to bundle support, how often do they call? And when they call, how long are those calls? So those are the factors that will drive what the revenue from that program will look like in 2014.

Great. And just one last one, and I know it's already been asked a couple of different ways. But as we think about what the Q1 revenue profile could look like as signature support shuts off, I mean, just looking at the number of agents you'll have supporting the program versus the amount of signature support revenues you're doing today, I guess why is it so hard to pinpoint the magnitude of that decline at this juncture?

Well, it's not difficult to pinpoint how much revenue from signature support will go away. That -- I mean, you can calculate that because you understand what those revenues are. What's difficult to calculate is what will happen with all the other pieces that would work against that. So for example, how large will the referral program be? What will the growth in the SMB program be? And how many agents will the bundle require? And then outside of Comcast, how do our other programs grow? Will there be new programs launching in the first quarter? And how many new SaaS deals will there be? So it's easy to calculate what goes away. It's a lot more complicated to calculate what will be added. And that's why other than saying directionally we think the P&L will be down in Q1, and then we'll grow from there, we're not going to get any more precise than that.

Okay. Sorry, just to be a little bit more clear, I was speaking specifically to kind of the net change in the Comcast revenue line. And I would think that given the number of agents you have supporting the program today plus whatever you know or expect to hire over the course of Q4, you would at least have some sense for the magnitude of the change just related to those factors.

Well, we do and we don't. I mean, we have a target forecast for this quarter, but everyone would tell you that it may vary based on our experience as we roll into the first regions. So that's sort of one part of it. Secondly, we don't really know with precision how to estimate what the referral program will be, how many subscribers will come over. So I can go on and on, but the point is we do have some information, but it's kind of dwarfed by what we don't know there. And this isn't a situation of our trying to be coy about where Q1 would be. I think we've been pretty explicit directionally. But we don't want to pretend the certainty that we don't have.

The next question is from Mike Latimore from Northland Securities.

This is Ryan MacDonald, in for Mike. Just a quick question surrounding Comcast. Obviously, there's a lot of variability around how that will -- everything with the bundle will roll out. But, I mean, as it stands right now, how many agents are you targeting for to add by year end? And can you provide that number?

No. We're not going to provide that number because I think that's proprietary and not something that Comcast would want us to disclose. You can calculate in Q3 how much the agent growth was based on the numbers we give every quarter. And I've also said that we are going to add substantial additional agents during Q4. And I think that's about all we're going to say at this moment.

Okay. And will any of the agents used for the bundle will also be used in small tech -- small business tech support or is that going to be distinct positions, distinct jobs?

There are actually 3 types of agents that we currently have, and we don't mix them. The bundle is staffed by remote service technicians who have primarily home networking-related skills. Signature support and many of our other programs are staffed by what we call personal technology experts who have home networking plus Virus Removal and other skills associated with a broad-based consumer support program. And then we have business technology experts who support our small business programs. And they have personal technology expert skills plus something specific to the needs of small businesses. So those are relatively distinct categories of agents that we have.

And in Support.com, are you guys still the exclusive on the bundle activity or has there been any talk of a dual source there or do you anticipate that at all?

No. We're the only person doing that work now.

Okay. And then just one clarifying question on the SaaS opportunity. With the Fortune 100 company, did you quantify the number of seats initially for that or how -- what kind of opportunity that is initially doing this time?

No. We didn't give us a specific number, again, out of deference to our customers and their need for confidentiality. And we said it was a limited number of seats, and we said that there's a lot of opportunity for growth there. We very much want to pursue, as most successful SaaS companies have, a land and expand strategy. And so we're very pleased with the initial beachhead. We want to do a good job for them and demonstrate how much value this can create and expand that way.

[Operator Instructions] Our next question is from James Bash [ph] from Dialectic [ph].

So the one thing that I did hear that was concrete or at least as concrete as anything else I heard on this call was that you did anticipate next year for Comcast revenue contribution to be at least, for the full year, equal to this year. I realized this is an expectation. So one, I just wanted to establish that. And then, two, in terms of non-Comcast revenues, how should we be thinking about that directionally next year? And then I have a follow-up after that.

Sure. So what we said specifically around Comcast was expectation of at least equaling and likely exceeding. So you did hear that right. And we also signaled that, that revenue, because the bundle would come at lower margin, we see a lot of opportunities for growth in programs outside of Comcast, but we haven't quantified that in any way, and we're not going to do that today. And I think that was the answer to your 2 questions, and then you had a follow-up.

Yes. Well, in terms of your non-Comcast revenues over the last year, can you give me the -- a sense of what those growth rates were in your non-Comcast revenues? And...

We've had some growth and some setbacks. It's sort of the way to look at it, and I think the question is best answered with a little bit more color than just a percentage. So, for example, we've seen good things happening on the OfficeMax program, expansion there. On the other hand, we had Staples decide to, in a onetime event, take its entire program in-house. So when you have those kind of binary events, it makes it a little bit complicated to establish what's really going on. If you're fundamentally asking, "Do we think the rest of the portfolio will grow from its 2013 levels?" The answer is yes. We do think it will. If you're asking, "Can you tell me how much it will grow?" That's something that we're still working on, and we're really not prepared to say at this time.

Okay. And then my last question is, I know this has been asked in around 10 different iterations so far in this call. I'm going to try to ask it in the most simple way, and I realize there's a ton of variables. As it stands at this moment, any type of economic decision one makes is the discounted future free cash flows of a business. Do you think that the way that this Comcast relationship has shifted is going to be a net present value improvement from the existing relationship you have with Comcast?

I think that we're going to, in all likelihood as we've said, end up with more revenue. I think that revenue is likely to come in at lower margin, and I think there's a lot of things that haven't been played out yet that are going to affect the ultimate answer to your question. We mentioned several of them on this call. We talked about the referral program. And the referral program is interesting because in that situation, what's happening is many of the customers that would have gone into signature support will come directly to us. And they'll be our customers for whatever their lifetime is, and we'll receive the full retail price while paying their referral fee. So that absolutely implies that per customer, there's a great margin opportunity because we're not sharing it with others or sharing it in a large way, the way we have today. But you're still left with a question of, "How many referral customers?" Right? On the small business program, we think that has real opportunity to grow. It's still a fairly modest-sized program, but, for example, if that ended up becoming a program in which support was bundled, it might grow very rapidly. So it's not that we don't have ideas about this, it's that there are a lot of variables here. And I'm not going to speculate about exactly how they play out because it would be a false sense of precision that we don't have today. We think there's lots of opportunity out there, but clearly, when signature support goes away, we're going to need to add some other things to drive the kind of results we want to drive. And we tried to give us much information as we really can at this time so that investors have some sense, but not more than we really have a basis for.

Right, and sorry, one more. This relationship that you guys have with Comcast, it's been a very deep relationship and very important for you guys. How hard is it to replicate something like this? Do you feel like Comcast is going to kind of serve its source of a really great kind of reference point for potentially getting into larger deals, maybe not as big as Comcast but similar in terms of some of their overall characteristics as what you see in Comcast right now? And if that's not the case, what are the hurdles to achieving that?

No. I think that is very much the case. And it's that case both because it is a very positive relationship, and they are very helpful to us. But it's also the case because they're incredibly forward thinking. And when something new is happening in the industry, they're probably doing it first. And that is an incredible opportunity for us to have exposure to that, to figure it out and to be able, particularly within the cable industry, to really be a market leader. So I think the way you characterized it is fair. And it exists today, and I think it will continue to exist in the future.

Our next question is from Jim Bao from Yiheng Capital.

Josh, I just wanted to clarify that you did say 56% of the revenue in the quarter was from Comcast? That's one. And second, what are -- is there -- is the training revenue in Comcast a onetime in nature?

So yes, I did say 56% in Q3. And training revenue is onetime in the sense that you train an agent, and you get paid for that. Once that agent becomes productive, they get paid at a productive hourly rate. And you're paid to train up to the number of agents that they've asked you to staff for. So that's how that training revenue stream works.

And in the fourth quarter revenue guidance, is there still a training revenue component?

Yes, there is because we're continuing to on board to meet the targets that they've established for us. And so we would expect there to be a training revenue component. We do expect that the mix of training to production will shift in favor of production in the fourth quarter. So it'll be different in that regard. But there will be training revenue in Q4.

Okay. And could you comment on the service versus software split in the fourth quarter because you had done that in the past.

Well, I think it's pretty easy to figure out. We've given you the revenue guidance. We've told you that software, which was about $4 million-ish, would be down approximately $1.5 million. So I think you can calculate it from there.

And is this $1.5 million, you said per quarter, so I assume it will continue into the next year, this decline?

Yes, that is correct. What we're effectively doing is saying we've ended that advertising placement, and it knocks off about $1.5 million in both revenue and expense. It's just not a profitable business for us to support that advertising placement. And so you can multiply that by 4 to get an annual number for both decrease in revenue and decrease in expense. And obviously, it's probably a little bit more expense getting lost than revenue because that's what's driven the decision.

Next question is from Ted Ketterer from TK Associates.

Josh, the SaaS business, you have 2 customers now?

No. Actually, we have around 5 customers now.

Okay. And -- or is it used for both revenue generation and internal support? I mean, not necessarily the same company but...

Great question. At this point, it's primarily, which is to say 80% or 4 out of 5, associated with revenue generation. There is one internal support candidate. And as we expand this, that's probably where we are emphasizing more. But we'll be opportunistic about internal support opportunities where appropriate.

And can you describe the pipeline?

Yes. The pipeline -- what's interesting to me about the pipeline is it's coming from all different places. You've got people in Plant City, Florida, and you've got people overseas, and you've got people in big cities. I mean, there's a lot of things that are just coming at us. And the customers are quite different and using it for quite different things. Some of them are buttoned up. Some of them have got piercings. It's a broad customer base. And that's encouraging our view that there is a really interesting opportunity here. And it's why we are now beginning to invest in the proactive marketing. We will be hiring a very, very exciting marketing leader to drive this. And I think we've developed confidence that, presented properly, there's a real opportunity here, and that we should now go after it much more proactively than we have in the past. So the answer to the pipeline is it isn't exactly one thing or another. It's pretty diverse. And it's diverse as well in terms of large and small. If we look at the 2 companies we signed up this quarter, one is a company of under 1,000 employees, and one probably has 100,000 employees. So there's quite a bit of diversity is what I would say. And we think that presents opportunity for us.

And last question, is it fair to think that the revenue per installation can exceed $100,000 a year?

I think that's probably reasonable. That's the kind of deal size that we're thinking about. We're not trying to attack the very low end of the market. There are some terrific companies out there like a Zendesk or a Freshdesk that are targeting very, very small installations. And that's not what we're after. But we're also not targeting just the very high-end where you're going to have 7-figure deals. So your number is a reasonable approximation of the way we'd like to think about what the annual bookings might be from a typical customer.

And last while I still have it, what's the competitive situation look like? Are there other people doing the same thing?

Yes, there are. I mean, if I think about who's out there that we've competed with directly, one is RightNow, which is now part of Oracle. Another is LogMeIn. And then there's a variety of other companies. If you sort of think about this as first, CRM, and then second, the part of CRM that's focused on after-sales service as opposed to sales and marketing, you're in the right neck of the woods. And what we are really, at this time, is a subset of that service component that's focused on service that relates to making technology work. And so companies that have presences there could be competitors, but we think we have the deepest and broadest capabilities. And that's what we're going to try to go out and win on.

I'm not showing any further questions in queue. I would now like to turn the call back to Josh Pickus, CEO, for closing remarks.

Thank you very much. We appreciate everybody's attention this afternoon, and we look forward to talking to you in the future. Bye-bye.

Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Thank you.