Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Significant Accounting Policies [Abstract]

The accompanying unaudited interim condensed consolidated financial statements include the accounts of Support.com, Inc. (the "Company", "Support.com", "We" or "Our") and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated balance sheet as of March 31, 2013 and the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2013 and 2012 and the consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results for, and as of, the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The condensed consolidated balance sheet information as of December 31, 2012 is derived from audited financial statements as of that date. These financial statements have been prepared based upon Securities and Exchange Commission ("SEC") rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 8, 2013.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The accounting estimates that require management's most significant, difficult and subjective judgments include accounting for revenue recognition, the valuation and recognition of investments, the assessment of recoverability of intangible assets and their estimated useful lives, the valuations and recognition of stock-based compensation and the recognition and measurement of current and deferred income tax assets and liabilities. Actual results could differ materially from these estimates.

Revenue Recognition

For all transactions, we recognize revenue only when all of the following criteria are met:

•

Persuasive evidence of an arrangement exists;

•

Delivery has occurred;

•

Collection is considered probable; and

•

The fees are fixed or determinable.

We consider all arrangements with payment terms longer than 90 days not to be fixed or determinable. If the fee is determined not to be fixed or determinable, revenue is recognized as payment becomes due from the customer.

Services Revenue

Services revenue is comprised primarily of fees for technology support services. Service programs available for consumer markets include computer and mobile device set-up, security and support, virus and malware removal and wireless network set-up, security and support. Service programs available for small business markets include the consumer services plus managed services such as server and network monitoring and maintenance.

We offer services to consumers and small businesses, primarily through our channel partners (which include broadband service providers, retailers, technology companies and others) and to a lesser degree directly through our website at www.support.com. We transact with customers via reseller programs, referral programs and direct transactions. In reseller programs, the channel partner generally executes the financial transactions with the consumer and pays a fee to us which we recognize as revenue when the service is delivered. In referral programs, we transact with the consumer directly and pay a referral fee to the referring party. Referral fees are generally expensed in the period in which revenues are recognized. In such instances, since we are the transacting party and bear substantially all risks associated with the transaction, we record the gross amount of revenue. In direct transactions, we sell directly to the customer at the retail price.

The services described above are of three types for revenue recognition purposes:

• Subscriptions—Customers purchase subscriptions or "service plans" under which certain services are provided over a fixed subscription period. Revenues for subscriptions are recognized ratably over the respective subscription periods.

• Incident-Based Services—Customers purchase a discrete, one-time service. Revenue recognition occurs at the time of service delivery. Fees paid for services sold but not yet delivered are recorded as deferred revenue and recognized at the time of service delivery.

• Service Cards / Gift Cards—Customers purchase a service card or a gift card, which entitles the cardholder to redeem a certain service at a time of their choosing. For these sales, revenue is deferred until the card has been redeemed and the service has been provided.

In certain cases, we are paid for services that are sold but not yet delivered. We initially record such balances as deferred revenue, and recognize revenue when the service has been provided or, on the non-subscription portion of these balances, when the likelihood of the service being redeemed by the customer is remote ("services breakage"). Based on our historical redemption patterns for these relationships, we believe that the likelihood of a service being delivered more than 90 days after sale is remote. We therefore recognize non-subscription deferred revenue balances older than 90 days as services revenue. For the three months ended March 31, 2013 and 2012, services breakage revenue was immaterial, and accounted for approximately 1% and 2% of our total revenue, respectively.

Channel partners are generally invoiced monthly. Fees from consumers via referral programs and direct transactions are generally paid with a credit card at the time of sale. Revenue is recognized net of any applicable sales tax.

We generally provide a refund period on services, during which refunds may be granted to customers under certain circumstances, including inability to resolve certain support issues. For our channel sales, the refund period varies by partner, but is generally between 5 and 14 days. For referral programs and direct transactions, the refund period is generally 5 days. For all channels, we recognize revenue net of refunds and cancellations during the period. Refunds and cancellations have not been material.

Services revenue also includes fees from implementation services of our Nexus Service Delivery Platform ("Nexus platform"), typically covering integration to other customer systems. We generally charge for these services on a time and material basis.

Software and Other Revenue

Software and other revenue is comprised primarily of fees for end-user software products provided through direct customer downloads and through the sale of this software via channel partners. Our software is sold to consumers as a perpetual license or as a fixed period subscription. We act as the primary obligor and generally control fulfillment, pricing, product requirements, and collection risk and therefore we record the gross amount of revenue. We provide a 30-day money back guarantee for the majority of our end-user software products.

For certain products, we sell perpetual licenses. We provide a limited amount of free technical support to customers. Since the cost of providing this free technical support is insignificant and free product enhancements are minimal and infrequent, we do not defer the recognition of revenue associated with sales of these products.

For certain of our products (principally SUPERAntiSpyware), we sell licenses for a fixed subscription period. We provide regular, significant updates over the subscription period and therefore recognize revenue for these products ratably over the subscription period.

Other revenue consists primarily of revenue generated through partners advertising to our customer base in various forms, including toolbar advertising, email marketing, and free trial offers. We recognize other revenue in the period in which our partners notify us that the revenue has been earned.

Software and other revenue also includes fees from licensing of our Nexus platform. In such arrangements, customers receive a right to use our platform in their own technology support organizations. We license the Nexus platform using a software-as-a-service model under which customers cannot take possession of the technology and pay us on a per-user per- month basis during the term of the arrangement. Revenue from licensing of our Nexus platform was approximately 5% of software and other revenue in the three months ended March 31, 2013.

Cash, Cash Equivalents and Investments

All liquid instruments with an original maturity at the date of purchase of 90 days or less are classified as cash equivalents. Cash equivalents and short-term investments consist primarily of money market funds, certificates of deposit, commercial paper, corporate and municipal bonds. Our interest income on cash, cash equivalents and investments is recorded monthly and reported as interest income and other in our condensed consolidated statements of operations.

Our cash equivalents and short-term investments are classified as available-for-sale, and are reported at fair value with unrealized gains/losses included in accumulated other comprehensive income within stockholders' equity on the condensed consolidated balance sheets. We view our available-for-sale portfolio as available for use in our current operations, and therefore we present our marketable securities as short-term assets.

We monitor our investments for impairment on a quarterly basis and determine whether a decline in fair value is other-than-temporary by considering factors such as current economic and market conditions, the credit rating of the security's issuer, the length of time an investment's fair value has been below our carrying value, the Company's intent to sell the security and the Company's belief that it will not be required to sell the security before the recovery of its amortized cost. If an investment's decline in fair value is deemed to be other-than-temporary, we reduce its carrying value to its estimated fair value, as determined based on quoted market prices or liquidation values. Declines in value judged to be other-than-temporary, if any, are recorded in operations as incurred. At March 31, 2013, we evaluated our unrealized gains/losses on available-for-sale securities and determined them to be temporary. We currently do not intend to sell securities with unrealized losses and we concluded that we will not be required to sell these securities before the recovery of their amortized cost basis. At March 31, 2013 and December 31, 2012, the fair value of cash, cash equivalents and investments was $59.5 million and $56.4 million, respectively.

The following is a summary of cash, cash equivalents and investments at March 31, 2013 and December 31, 2012 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of March 31, 2013
Cash	$	13,164	$	—	$	—		$	13,164
Money market funds		14,437		—		—			14,437
Certificates of deposits		1,160		—		—			1,160
Commercial paper		3,247		1		(1	)		3,247
Corporate notes and bonds		25,770		5		(19	)		25,756
Municipal securities		201		—		—			201
U.S. government agency securities		1,509		—		—			1,509
	$	59,488	$	6	$	(20	)	$	59,474

Classified as:

Cash and cash equivalents	$	29,753	$	—	$	—		$	29,753
Short-term investments		29,735		6		(20	)		29,721
	$	59,488	$	6	$	(20	)	$	59,474

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2012
Cash	$	11,116	$	—	$	—		$	11,116
Money market funds		17,235		—		—			17,235
Certificates of deposits		1,880		—		(1	)		1,879
Commercial paper		5,745		1		(1	)		5,745
Corporate notes and bonds		20,172		7		(6	)		20,173
U.S. government agency securities		202		—		—			202
	$	56,350	$	8	$	(8	)	$	56,350

Classified as:

Cash and cash equivalents	$	30,853	$	—	$	(1	)	$	30,852
Short-term investments		25,497		8		(7	)		25,498
	$	56,350	$	8	$	(8	)	$	56,350

The following table summarizes the estimated fair value of our available-for-sale securities classified by the stated maturity date of the security (in thousands):

	March 31, 2013		December 31, 2012
Due within one year	$	27,934	$	23,885
Due within two years		1,787		1,613
	$	29,721	$	25,498

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

•	Level 1 - Quoted prices in active markets for identical assets or liabilities.

•

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•	Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with ASC 820, the following table represents our fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 (in thousands):

As of March 31, 2013	Level 1		Level 2		Level 3		Total
Money market funds	$	14,437	$	—	$	—	$	14,437
Certificates of deposits		1,160		—		—		1,160
Commercial paper		—		3,247		—		3,247
Corporate notes and bonds		—		25,756		—		25,756
Municipal securities		—		201		—		201
U.S. government agency securities		—		1,509		—		1,509
Total	$	15,597	$	30,713	$	—	$	46,310

As of December 31, 2012	Level 1		Level 2		Level 3		Total
Money market funds	$	17,235	$	—	$	—	$	17,235
Certificates of deposits		1,879		—		—		1,879
Commercial paper		—		5,745		—		5,745
Corporate notes and bonds		—		20,173		—		20,173
U.S. government agency securities		—		202		—		202
Total	$	19,114	$	26,120	$	—	$	45,234

For marketable securities, measured at fair value using Level 2 inputs, we review trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data. There have been no transfers between Level 1 and Level 2 measurements during the three months ended March 31, 2013.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents, investments and trade accounts receivable. Our investment portfolio consists of investment grade securities. Except for obligations of the United States government and securities issued by agencies of the United States government, we diversify our investments by limiting our holdings with any individual issuer. We are exposed to credit risks in the event of default by the issuers to the extent of the amount recorded on the consolidated balance sheets. The credit risk in our trade accounts receivable is substantially mitigated by our evaluation of the customers' financial conditions at the time we enter into business and reasonably short payment terms.

For the three months ended March 31, 2013, Comcast (44%) and OfficeMax (12%) accounted for 10% or more of our total revenue. For the three months ended March 31, 2012, Comcast (27%), Office Depot (17%), OfficeMax (14%) and Staples (11%) accounted for 10% or more of our total revenue. There were no other customers that accounted for 10% or more of total revenue for the three months ended March 31, 2013 and 2012.

The credit risk in our trade accounts receivable is substantially mitigated by our evaluation of the customers' financial conditions at the time we enter into business and reasonably short payment terms. As of March 31, 2013, Comcast (52%) and OfficeMax (13%) accounted for 10% or more of our total accounts receivable. As of December 31, 2012, Comcast (52%) and OfficeMax (10%) accounted for 10% or more of our total accounts receivable. There were no other customers accounted for 10% or more of our total accounts receivable as of March 31, 2013 and December 31, 2012.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount. We perform evaluations of our customers' financial condition and generally do not require collateral. We make judgments as to our ability to collect outstanding receivables and provide allowances when collection becomes doubtful. Reserves are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically provided for, reserves are recorded at differing rates, based upon the age of the receivable. In determining these rates, we analyze our historical collection experience and current payment trends. The determination of past-due accounts is based on contractual terms. At March 31, 2013 and December 31, 2012, we had an allowance for doubtful accounts of zero and $2,000, respectively.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss relate entirely to accumulated foreign currency translation losses associated with our foreign subsidiaries and unrealized gains (losses) on investments. Accumulated currency translation losses were $1.5 million as of March 31, 2013 and December 31, 2012, and accumulated unrealized gains (losses) on investments were ($14,000) and zero as of March 31, 2013 and December 31, 2012, respectively.

The amounts noted in the consolidated statements of comprehensive income (loss) are shown before taking into account the related income tax impact. The income tax effect allocated to each component of other comprehensive income for each of the periods presented is not significant.

Stock-Based Compensation

We apply the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards, including grants of stock, restricted stock awards and options to purchase stock, made to employees and directors based on estimated fair values.

The fair value of our stock-based awards was estimated using the following weighted average assumptions for the three months ended March 31, 2013 and 2012:

	Stock Option Plan						Employee Stock Purchase Plan
	Three Months Ended March 31,
	2013			2012			2013			2012
Risk-free interest rate		0.6	%		0.6	%		0.1	%		0.04	%
Expected term (in years)		3.7			3.6			0.5			0.5
Volatility		56.5	%		57.5	%		53.6	%		75.3	%
Expected dividend		0	%		0	%		0	%		0	%
Weighted average grant-date fair value	$	1.75		$	0.98		$	1.30		$	0.77

We recorded the following stock-based compensation expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended March 31,
	2013		2012
Stock-based compensation expense related to grants of:
Stock options	$	657	$	980
Employee Stock Purchase Plan ("ESPP")		28		15
restricted stock units ("RSUs")		111		—
	$	796	$	995
Stock-based compensation expense recognized in:
Cost of service	$	92	$	93
Cost of software and other		3		10
Research and development		209		286
Sales and marketing		108		138
General and administrative		384		468
	$	796	$	995

Earnings (loss) Per Share

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using our net income (loss) and the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed using our net income (loss) and the weighted average number of common shares outstanding, including the effect of the potential issuance of common stock such as stock issuable pursuant to the exercise of stock options and vesting of RSUs using the treasury stock method when dilutive. For the three months ended March 31, 2012, 693,000 outstanding options were excluded from the computation of diluted loss per share since their effect would have been anti-dilutive. For the three months ended March 31, 2013 and 2012, we excluded 2.6 million and 3.4 million outstanding weighted average stock options, respectively, from the calculation of diluted earnings per common share because the exercise price of these stock options were greater than or equal to the average market value of the common stock. These stock options could be included in the calculation in the future if the average market value of the common stock increases and is greater than the exercise price of these stock options.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):

	Three months ended March 31,
	2013		2012
Net income (loss)	$	1,882	$	(4,373	)
Basic:
Weighted-average shares of common stock outstanding		50,085		48,418
Shares used in computing basic earnings (loss) per share		50,085		48,418
Basic earnings (loss) per share	$	0.04	$	(0.09	)
Diluted:
Weighted-average shares of common stock outstanding		50,085		48,418
Add: Common equivalent shares outstanding		2,056		—
Shares used in computing diluted earnings (loss) per share		52,141		48,418
Diluted earnings (loss) per share	$	0.04	$	(0.09	)

Warranties and Indemnifications

We generally provide a refund period on sales, during which refunds may be granted to consumers under certain circumstances, including our inability to resolve certain support issues. For our channel sales, the refund period varies by channel partner, but is generally between 5-14 days. For referral programs and direct transactions, the refund period is generally 5 days. For all sales channels, we recognize revenue net of refunds and cancellations during the period. Refunds and cancellations have not been material to date.

We generally agree to indemnify our customers against legal claims that our end-user software products infringe certain third-party intellectual property rights. As of March 31, 2013, we have not been required to make any payment resulting from infringement claims asserted against our customers and have not recorded any related accruals.