February 6, 2013

ServiceSource Reports Fourth Quarter and Full Year 2012 Financial Results

SAN FRANCISCO, CA -- (Marketwire) -- 02/06/13 -- ServiceSource® (NASDAQ: SREV)

  • Reports fourth quarter revenue of $67.3 million and full year revenue of $243.7 million, up 11% and 19% year-over-year, respectively
  • Achieves 2012 adjusted EBITDA of $20.9 million, up 17% year-over-year, and non-GAAP EPS of $0.10 per diluted share
  • Adds Beckman Coulter, Intralinks and Rockwell Automation to growing list of customers; notable expansions include Adobe Marketing Cloud, Avaya and GE Healthcare, among others
  • Increases Annual Contract Value (ACV) to $270.4 million, up 13% year-over-year

ServiceSource® (NASDAQ: SREV), the global leader in recurring revenue management, today announced financial results for the fourth quarter and fiscal year ended December 31, 2012.

"ServiceSource delivered a record year of revenue in 2012 resulting in 19% year-over-year growth, despite ACV that was heavily back end loaded," said Mike Smerklo, ServiceSource's Chairman and Chief Executive Officer. "Recurring revenue continues to grow as a percent of total revenue for companies around the world and this trend drives a growing interest in Renew OnDemand, the world's only cloud application built specifically to maximize recurring revenue. Our focus in 2013 is on investing in Renew OnDemand for innovation, improving productivity in our sales organization and executing with consistency."

Revenue was $67.3 million in the fourth quarter, representing an 11% increase over the $60.8 million delivered in the prior year. Revenue for the full year 2012 was $243.7 million, up 19% from $205.5 million in 2011.

For the fourth quarter of fiscal year 2012, adjusted EBITDA was $8.3 million, compared with $9.3 million for the same period last year. GAAP net loss in the quarter was $1.2 million, or $0.02 per share, compared with a profit of $1.7 million, or $0.02 per diluted share for the same period last year. Non-GAAP net income in the quarter was $3.6 million compared with $4.6 million for the same period last year. Non-GAAP EPS was $0.05 per diluted share, compared with $0.06 per diluted share for the same period last year.

For the full year 2012, adjusted EBITDA was $20.9 million, compared with $17.8 million for fiscal year 2011. GAAP net loss for the year was $42.8 million, or $0.58 per share, compared with a profit of $15.1 million, or $0.21 per diluted share for 2011. Non-GAAP net income for the year was $7.9 million, compared with $6.5 million in 2011. Non-GAAP EPS was $0.10 per diluted share, compared with $0.09 per diluted share for 2011.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release.

In addition, the company has named Ashley Fieglein Johnson to the role of Chief Financial Officer effective upon the filing of the company's fiscal year 2012 Form 10-K. Current CFO, David Oppenheimer, announced his departure in December of 2012. Previously, Ms. Johnson held the role of Senior Vice President of Finance at ServiceSource.

Quarterly Conference Call

ServiceSource will discuss its quarterly results and provide 2013 financial guidance today via teleconference at 1:30 p.m. Pacific Time. To access the call within the U.S., please dial (877) 293-5486, or outside the U.S. (914) 495-8592, at least five minutes prior to the start time. A live webcast of the call will also be available at http://ir.servicesource.com/events.cfm under the Events & Presentations menu. A replay of the webcast will also be available on the Company's website at http://ir.servicesource.com.

About ServiceSource International, Inc.

ServiceSource is the global leader in recurring revenue management. The world's most successful companies rely on us to maximize subscription, maintenance and support revenue, improve customer retention and increase business predictability and insight. ServiceSource delivers results with Renew OnDemand, the world's only cloud application built specifically to manage and grow recurring revenue, which can be combined with our industry-leading services.

With over a decade of experience focused exclusively in growing recurring revenue, our services and applications are based on proven best practices and global benchmarks. The company is headquartered in San Francisco, and has over $8 billion under management for customers in more than 150 countries and 40 languages.

ServiceSource, Renew OnDemand and any ServiceSource product or service names or logos above are trademarks of ServiceSource International, Inc. All other trademarks used herein belong to their respective owners.

For more information on ServiceSource, visit http://www.servicesource.com. To connect with ServiceSource, visit us on Twitter, Facebook, LinkedIn and YouTube.




                     ServiceSource International, Inc.

              Condensed Consolidated Statements of Operations

                  (In thousands, except per share amounts)

                                (Unaudited)



                                  Three Months Ended        Years Ended

                                     December 31,          December 31,

                                 --------------------  --------------------

                                    2012       2011       2012       2011

                                 ---------  ---------  ---------  ---------



Net revenue                      $  67,345  $  60,779  $ 243,703  $ 205,501

Cost of revenue (1)                 35,319     31,007    136,321    113,406

                                 ---------  ---------  ---------  ---------

Gross profit                        32,026     29,772    107,382     92,095

                                 ---------  ---------  ---------  ---------

Operating expenses

  Sales and marketing (1)           15,767     13,856     56,925     48,520

  Research and development (1)       5,960      3,423     19,255     13,073

  General and administrative (1)    10,496      8,955     41,135     33,647

                                 ---------  ---------  ---------  ---------

Total operating expenses            32,223     26,234    117,315     95,240

                                 ---------  ---------  ---------  ---------

Loss from operations                  (197)     3,538     (9,933)    (3,145)

Interest expense                       (56)       (51)      (236)      (503)

Other income (expense), net           (414)       (65)      (538)      (624)

                                 ---------  ---------  ---------  ---------

Loss before income taxes              (667)     3,422    (10,707)    (4,272)

Income tax provision (benefit)         518      1,769     32,107    (19,383)

                                 ---------  ---------  ---------  ---------

Net income (loss)                $  (1,185) $   1,653  $ (42,814) $  15,111

                                 =========  =========  =========  =========



Net income (loss) per common

 share:

  Basic                          $   (0.02) $    0.02  $   (0.58) $    0.23

                                 =========  =========  =========  =========

  Diluted                        $   (0.02) $    0.02  $   (0.58) $    0.21

                                 =========  =========  =========  =========



Weighted-average shares used in

 computing net income (loss) per

 common share:

  Basic                             75,090     71,602     74,270     66,656

                                 =========  =========  =========  =========

  Diluted                           75,090     77,823     74,270     73,585

                                 =========  =========  =========  =========



(1) Includes stock-based

 compensation expense as

 follows:

                                  Three Months Ended        Years Ended

                                     December 31,          December 31,

                                 --------------------  --------------------

                                    2012       2011       2012       2011

                                 ---------  ---------  ---------  ---------

Cost of revenue                  $     722  $     591  $   2,772  $   1,877

Sales and marketing                  2,310      1,475      8,146      4,456

Research and development               425        303      1,880      1,167

General and administrative           2,158      1,126      8,077      4,099

                                 ---------  ---------  ---------  ---------

Total stock-based compensation   $   5,615  $   3,495  $  20,875  $  11,599

                                 ---------  ---------  ---------  ---------





                     ServiceSource International, Inc.

                   Condensed Consolidated Balance Sheets

                               (In thousands)

                                (Unaudited)



                                                           December 31,

                                                          2012       2011

                                                       ---------  ---------

Assets

Current assets:

  Cash and cash equivalents                            $  76,568  $  65,983

  Short-term investments                                  32,874     42,882

  Accounts receivable, net                                65,238     54,095

  Current portion of deferred income taxes                   389      3,526

  Prepaid expenses and other                               5,178      7,945

                                                       ---------  ---------

Total current assets                                     180,247    174,431

Property and equipment, net                               34,513     26,840

Deferred income taxes, net of current portion              2,321     30,238

Other assets, net                                          1,057      1,118

Goodwill                                                   6,334      6,334

                                                       ---------  ---------

Total assets                                           $ 224,472  $ 238,961

                                                       =========  =========



Liabilities and Stockholders' Equity

Current liabilities:

  Accounts payable                                     $   3,293  $   8,617

  Accrued taxes                                            1,056        924

  Accrued compensation and benefits                       15,738     21,749

  Other accrued liabilities (including deferred

   revenue of $2,295 and $1,132 at December 31, 2012

   and December 31, 2011, respectively)                   10,403      7,639

  Current portion of capital lease obligations               326        706

                                                       ---------  ---------

Total current liabilities                                 30,816     39,635

Long-term liabilities                                      6,729      2,310

                                                       ---------  ---------

Total liabilities                                         37,545     41,945

                                                       ---------  ---------

Stockholders' equity:

  Common stock                                                 8          7

  Treasury stock                                            (441)      (441)

  Additional paid-in capital                             210,650    177,796

  Retained earnings (accumulated deficit)                (23,398)    19,416

  Accumulated other comprehensive income                     108        238

                                                       ---------  ---------

Total stockholders' equity                               186,927    197,016

                                                       ---------  ---------

Total liabilities and stockholders' equity             $ 224,472  $ 238,961

                                                       ---------  ---------





                     ServiceSource International, Inc.

              Condensed Consolidated Statements of Cash Flows

                              (In thousands)

                                (Unaudited)

                                                           Years Ended

                                                          December 31,

                                                      --------------------

                                                         2012       2011

                                                      ---------  ---------

Cash flows from operating activities

Net income (loss)                                     $ (42,814) $  15,111

Adjustments to reconcile net income (loss) to net

 cash used in operating activities:

  Depreciation and amortization                          10,014      9,372

  Loss on disposal of fixed assets                            -         46

  Amortization of deferred financing costs                  147        351

  Accretion on premium on short-term investments            577        276

  Deferred income taxes                                  31,682    (19,259)

  Stock-based compensation                               20,875     11,599

  Tax benefit from stock-based compensation              (1,488)    (2,835)

Changes in operating assets and liabilities:

  Accounts receivable                                   (10,714)    (4,972)

  Prepaid expenses and other                              4,067     (3,164)

  Accounts payable                                       (2,477)     2,235

  Accrued taxes                                            (802)     2,064

  Accrued compensation and benefits                      (5,290)     6,617

  Accrued payables to customers                               -    (30,640)*

  Other accrued liabilities                               6,859      1,968

                                                      ---------  ---------

Net cash provided by (used in) operating activities      10,636    (11,231)

                                                      ---------  ---------



Cash flows from investing activities

Acquisition of property and equipment                   (19,986)   (14,050)

Purchases of short-term investments                     (64,000)   (53,795)

Sales of short-term investments                          52,050      2,113

Maturities of short-term investments                     21,415      8,190

                                                      ---------  ---------

Net cash used in investing activities                   (10,521)   (57,542)

                                                      ---------  ---------



Cash flows from financing activities

Net proceeds from issuance of common stock in initial

 public offering and follow-on offering                       -    110,753

Proceeds from revolving credit facility                       -     23,424

Repayment of revolving credit facility                        -    (23,424)

Repayments of long-term debt and capital leases            (725)   (16,252)

Payments of deferred debt issuance costs                   (141)      (200)

Proceeds from common stock issuances                     10,387     15,045

Tax benefit from stock-based compensation                 1,488      2,835

                                                      ---------  ---------

Net cash provided by financing activities                11,009    112,181

                                                      ---------  ---------



Net increase in cash and cash equivalents                11,124     43,408

Effect of exchange rate changes on cash and cash

 equivalents                                               (539)       (77)

Cash and cash equivalents at beginning of period         65,983     22,652

                                                      ---------  ---------

Cash and cash equivalents at end of period            $  76,568  $  65,983

                                                      =========  =========



* Activity in 2011 resulted from $18.1 million in

 payments to Oracle/Sun and the related settlement of

 accrued payables owed to Oracle/Sun and amounts owed

 to the Company by Oracle/Sun.

Use of Non-GAAP Financial Measures

To supplement its financial statements presented in accordance with generally accepted accounting principles, or GAAP, ServiceSource also provides investors with non-GAAP gross profit, net income, net income per share and Adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the closest GAAP financial measure is presented in the financial tables below under the heading, "GAAP to Non-GAAP Reconciliation."

ServiceSource believes that the non-GAAP financial information provided in this release can assist investors in understanding and assessing its on-going core operations and prospects for the future and provides an additional tool for investors to use in comparing ServiceSource's financial results with other companies in the industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP gross profit consists of gross profit plus stock based compensation and amortization of internally-developed software.

Non-GAAP net income consists of net income (loss) plus stock-based compensation, amortization of internally-developed software and applying an income tax rate of 40% reflecting our estimated tax expense on our core operations. Accordingly, our non-GAAP calculation of net income has excluded a one-time, non-cash income tax charge of $33.1 million recorded during the period ended June 30, 2012 related to a valuation allowance for a substantial portion of the company's deferred tax assets. Results for the year ended December 31, 2011 reflect a one-time tax benefit related to the conversion of ServiceSource from a limited liability corporation to a Delaware corporation, which has also been excluded from the calculation of non-GAAP net income. Stock-based compensation expense is expected to vary depending on the number of new grants issued, changes in the company's stock price, stock market volatility, expected option lives and risk-free rates of return, all of which are difficult to estimate.

EBITDA consists of net income (loss) plus depreciation and amortization, interest expense, other expenses, net, and income tax expense. Adjusted EBITDA consists of EBITDA plus non-cash, stock-based compensation expense. ServiceSource uses Adjusted EBITDA as a measure of operating performance because it assists the company in comparing performance on a consistent basis, as it removes from the operating results the impact of the company's capital structure.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States.




                     ServiceSource International, Inc.

           Reconciliation of Net Income (Loss) to Adjusted EBITDA

                               (In thousands)

                                (Unaudited)



                                   Three Months Ended       Years Ended

                                      December 31,         December 31,

                                  -------------------- --------------------

                                     2012       2011      2012       2011

                                  ---------  --------- ---------  ---------



Net income (loss)                 $  (1,185) $   1,653 $ (42,814) $  15,111

Income tax provision (benefit)          518      1,769    32,107    (19,383)

Interest expense                         56         51       236        503

Other income (expense), net             414         65       538        624

Depreciation                          2,922      2,263    10,003      9,372

                                  ---------  --------- ---------  ---------

EBITDA                                2,725      5,801        70      6,227

Stock-based compensation              5,615      3,495    20,875     11,599

                                  ---------  --------- ---------  ---------

Adjusted EBITDA                   $   8,340  $   9,296 $  20,945  $  17,826

                                  ---------  --------- ---------  ---------





                     ServiceSource International, Inc.

                      GAAP To Non-GAAP Reconciliation

              (Dollars in thousands, except per share amounts)

                                (unaudited)



                                  Three Months Ended        Years Ended

                                     December 31,          December 31,

                                 --------------------  --------------------

                                    2012       2011       2012       2011

                                 ---------  ---------  ---------  ---------

Gross Profit

  GAAP gross profit              $  32,026  $  29,772  $ 107,382  $  92,095

  Non-GAAP adjustments:

    Stock-based compensation (A)       722        591      2,772      1,877

    Amortization of

     internally-developed

     software                (B)       577        261      1,467      1,457

                                 ---------  ---------  ---------  ---------

  Non-GAAP gross profit          $  33,325  $  30,624  $ 111,621  $  95,429

                                 =========  =========  =========  =========



Gross Profit %

  GAAP gross profit                     48%        49%        44%        45%

  Non-GAAP adjustments:

    Stock-based compensation (A)         1%         1%         1%         1%

    Amortization of

     internally-developed

     software                (B)         1%         0%         1%         1%

                                 ---------  ---------  ---------  ---------

  Non-GAAP gross profit                 49%        50%        46%        47%

                                 =========  =========  =========  =========

Certain totals do not add

 due to rounding

Operating Expenses

GAAP operating expenses          $  32,223  $  26,234  $ 117,315  $  95,240

Stock-based compensation     (A)    (4,893)    (2,904)   (18,103)    (9,722)

Amortization of internally-

 developed software          (B)      (412)      (554)    (1,579)    (2,477)

                                 ---------  ---------  ---------  ---------

Non-GAAP operating expenses      $  26,918  $  22,776  $  97,633  $  83,041

                                 =========  =========  =========  =========



Net Income (Loss)

  GAAP net income (loss)         $  (1,185) $   1,653  $ (42,814) $  15,111

  Non-GAAP adjustments:

    Stock-based compensation (A)     5,615      3,495     20,875     11,599

    Amortization of

     internally-developed

     software                (B)       989        815      3,046      3,934

    One-time tax items       (C)         -          -     33,072    (20,740)

    Income tax effect on

     non-GAAP adjustments

     and impact of

     normalizing the

     effective income tax

     rate                    (D)    (1,857)    (1,324)    (6,251)    (3,417)

                                 ---------  ---------  ---------  ---------

Non-GAAP net income              $   3,562  $   4,639  $   7,928  $   6,487

                                 =========  =========  =========  =========



Diluted Net Income (Loss)

 Per Share

  GAAP diluted net income

   (loss) per share              $   (0.02) $    0.02  $   (0.58) $    0.21

  Non-GAAP adjustments:

    Stock-based compensation (A)      0.07       0.04       0.26       0.16

    Amortization of

     internally-developed

     software                (B)      0.01       0.01       0.04       0.05

    One-time tax items       (C)         -          -       0.42      (0.28)

    Income tax effect on

     non-GAAP adjustments as

     well as the impact of

     normalizing the

     effective income tax

     rate and calculating

     non-GAAP net income per

     share using a fully-

     diluted share count     (D)     (0.02)     (0.01)     (0.05)     (0.05)

                                 ---------  ---------  ---------  ---------

Non-GAAP diluted net income

 per share                       $    0.05  $    0.06  $    0.10  $    0.09

                                 =========  =========  =========  =========





Shares used in calculating

 diluted net income per

 share on a non-GAAP basis          77,831     77,823     79,093     73,585

                                 =========  =========  =========  =========





Footnotes to GAAP to Non-GAAP Reconciliation

----------------------------------------------------------------------------



(A) Stock-based compensation. Included in our GAAP presentation of cost of

    revenue and operating expenses, stock-based compensation consists of

    expenses for stock options and awards and purchase rights under our

    stock purchase plan. We exclude stock-based compensation expense from

    our non-GAAP measures because some investors may view it as not

    reflective of our core operating performance as it is a non-cash

    expense.



(B) Amortization of internally-developed software. Included in our GAAP

    presentation of cost of revenue and operating expenses, amortization of

    internally-developed software reflects non-cash expense for certain

    software purchases and software developed or obtained for internal use.

    We exclude these expenses from our non-GAAP measures because we believe

    they are not indicative of our core operating performance.



(C) One-time tax items. We elected to be treated as a corporation under

    Subchapter C of Chapter 1 of the United States Internal Revenue Code,

    effective March 1, 2011, and therefore became subject to federal and

    state tax expense beginning March 1, 2011. As a result of this tax

    election, we recorded a net deferred tax asset and a one-time non-cash

    tax benefit of $21.4 million in the first quarter of 2011. During the

    second quarter of 2012, we recorded a $33.1 million non-cash charge

    against a substantial portion of our deferred tax assets, much of which

    was recorded in connection with electing to be treated as a corporation,

    because the recoverability of these items for financial reporting

    purposes is uncertain. We have excluded these items from our non-GAAP

    measures because they are non-recurring and unique, they are non-cash in

    nature and are not indicative of our core operating performance.



(D) Income tax effect on non-GAAP adjustments as well as the impact of

    normalizing the effective income tax rate and calculating non-GAAP net

    income per share using a fully-diluted share count. This adjusts (i) the

    provision for income taxes to reflect the effect of the non-GAAP items

    A, B and C noted above on our non-GAAP net income; (ii) the income tax

    rate to a normalized effective tax rate of 40%; and (iii) non-GAAP

    earnings per share based on a fully-diluted share count.





             ServiceSource International, Inc.

                     Revenue by Segment

                       (In thousands)

                        (unaudited)



                         Three Months Ended December 31,

                     --------------------------------------

                            2012                2011

                     ------------------  ------------------

                                 % of                % of

                         $      Revenue      $      Revenue

                     --------- --------  --------- --------



NALA                 $  39,320       58% $  39,047       64%

EMEA                    21,478       32%    16,732       28%

APJ                      6,547       10%     5,000        8%

                     --------- --------  --------- --------

                     $  67,345      100% $  60,779      100%

                     ========= ========  ========= ========





                            Years Ended December 31,

                     --------------------------------------

                            2012                2011

                     ------------------  ------------------

                                 % of                % of

                         $      Revenue      $      Revenue

                     --------- --------  --------- --------



NALA                 $ 150,041       62% $ 127,430       62%

EMEA                    66,902       27%    58,344       28%

APJ                     26,760       11%    19,727       10%

                     --------- --------  --------- --------

                     $ 243,703      100% $ 205,501      100%

                     --------- --------  --------- --------

Investor Relations Contact for ServiceSource:



Mike Magaro

ServiceSource International, Inc.

(415) 901-1168

mmagaro@servicesource.com



Source: ServiceSource

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