Press Release

ServiceSource Reports First Quarter 2013 Financial Results

 

SAN FRANCISCO--(BUSINESS WIRE)-- ServiceSource® (Nasdaq: SREV), the global leader in recurring revenue management, today announced its financial results for the first quarter ended March 31, 2013.

  • Revenue: $61.1 million dollars
  • Adjusted EBITDA: loss of $0.5 million dollars
  • Record amount of cash and cash equivalents totaling $117.7 million dollars
  • Four new Renew OnDemand subscription deals signed
  • Successful Spring 2013 release of Renew OnDemand with enhanced analytics

"With several new Renew OnDemand subscriptions, we are excited by the strong momentum this gives us to start the year," said Mike Smerklo, ServiceSource's Chairman and Chief Executive Officer. "We remain focused on the evolution of our business to lead with our world-class SaaS solution, purpose-built for recurring revenue, and we will continue to invest appropriately to capture this new growth opportunity."

Revenue for the first quarter of fiscal 2013 was $61.1 million, a 6% increase over the $57.6 million delivered in the same period of 2012.

Adjusted EBITDA in the quarter, which excludes stock-based compensation, was a loss of $0.5 million, compared with $3.4 million for the same period last year.

GAAP net loss in the quarter was $10.5 million, or $0.14 per share, compared with a net loss of $1.3 million, or $0.02 per share for the same period last year.

Non-GAAP net loss in the quarter was $1.5 million, or $0.02 per share, compared with a net income of approximately $1.0 million, or $0.01 per diluted share for the same period last year.

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

Quarterly Conference Call

ServiceSource will discuss its quarterly results and provide second quarter 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 International, Inc. (NASDAQ:SREV) helps the world's leading brands grow closer to their customers. As a global leader in outsourced inside sales, customer success and recurring revenue growth and retention solutions, ServiceSource expands customer lifetime value by helping companies to more efficiently and effectively find, convert, grow and retain their B2B customer relationships. Trusted by global market leaders in the cloud/XaaS, software, technology hardware, medical device & diagnostic equipment and industrial IoT sectors, ServiceSource sells, manages or renews $9 billion of revenue annually on behalf of its clients. Leveraging a robust technology suite, predictive data models and more than 3,000 revenue delivery professionals speaking 45 languages, only ServiceSource brings to market nearly 20 years of expertise and the ability to drive recurring revenue growth to more than 170 countries. To learn more, visit www.servicesource.com.

 
ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
    Three Months Ended
    March 31,
      2013       2012  
         
Net revenue   $ 61,121     $ 57,574  
Cost of revenue (1)     38,498       32,576  
Gross profit     22,623       24,998  
Operating expenses        
Sales and marketing (1)     14,808       13,477  
Research and development (1)     6,248       4,581  
General and administrative (1)     11,222       10,075  
Total operating expenses     32,278       28,133  
Loss from operations     (9,655 )     (3,135 )
Other expense, net     (107 )     (91 )
Loss before income taxes     (9,762 )     (3,226 )
Income tax provision (benefit)     693       (1,950 )
Net loss   $ (10,455 )   $ (1,276 )
         
Net loss per common share:        
Basic     (0.14 )   $ (0.02 )
Diluted   $ (0.14 )   $ (0.02 )
         
Weighted-average shares used in computing net        
loss per common share:        
Basic     75,610       73,212  
Diluted     75,610       73,212  
         
(1) Includes stock-based compensation expense as follows:        
    Three Months Ended
    March 31,
      2013       2012  
Cost of revenue   $ 732     $ 572  
Sales and marketing     2,534       1,674  
Research and development     486       363  
General and administrative     2,169       1,638  
Total stock-based compensation   $ 5,921     $ 4,247  
                 
ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
         
   

   March 31,   

  December 31,
      2013       2012  
Assets        
Current assets:        
Cash and cash equivalents   $ 67,947     $ 76,568  
Short-term investments     49,755       32,874  
Accounts receivable, net     59,039       65,238  
Current portion of deferred income taxes     177       389  
Prepaid expenses and other     5,089       5,178  
Total current assets     182,007       180,247  
Property and equipment, net     32,342       34,513  
Deferred income taxes, net of current portion     2,069       2,321  
Other assets, net     735       1,057  
Goodwill     6,334       6,334  
Total assets   $ 223,487     $ 224,472  
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable     5,319     $ 3,293  
Accrued taxes     269       1,056  
Accrued compensation and benefits     14,677       15,738  
Other accrued liabilities     11,074       10,403  
Current portion of capital lease obligations     325       326  
Total current liabilities     31,664       30,816  
Long-term liabilities     5,548       6,729  
Total liabilities     37,212       37,545  
Stockholders' equity:        
Common stock     8       8  
Treasury stock     (441 )     (441 )
Additional paid-in capital     220,357       210,650  
Accumulated deficit     (33,853 )     (23,398 )
Accumulated other comprehensive income     204       108  
Total stockholders' equity     186,275       186,927  
Total liabilities and stockholders' equity   $ 223,487     $ 224,472  
                 
ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
    Three Months Ended
    March 31,
      2013       2012  
Cash flows from operating activities        
Net loss   $ (10,455 )   $ (1,276 )
Adjustments to reconcile net loss to net cash        
provided by (used in) operating activities:        
Depreciation and amortization     3,206       2,268  
Loss on disposal of fixed assets     29       28  
Provision for doubtful accounts     (67 )     -  
Amortization of deferred financing costs     12       27  
Accretion on premium on short-term investments     174       154  
Deferred income taxes     461       (873 )
Stock-based compensation     5,921       4,247  
Income tax charge from stock-based compensation     181       362  
Changes in operating assets and liabilities:        
Accounts receivable     5,863       (5,084 )
Prepaid expenses and other     415       (2,407 )
Accounts payable     2,077       (1,257 )
Accrued taxes     (779 )     490  
Accrued compensation and benefits     (890 )     (6,783 )
Other accrued liabilities     (268 )     3,780  
Net cash provided by (used in) operating activities     5,880       (6,324 )
         
Cash flows used in investing activities        
Acquisition of property and equipment     (1,232 )     (6,631 )
Purchases of short-term investments     (18,034 )     (8,390 )
Sales of short-term investments     508       1,430  
Maturities of short-term investments     500       4,890  
Net cash used in investing activities     (18,258 )     (8,701 )
         
Cash flows from financing activities        
Repayments of capital leases     (80 )     (80 )
Proceeds from common stock issuances     3,741       5,821  
Income tax charge from stock-based compensation     (181 )     (362 )
Net cash provided by financing activities     3,480       5,379  
         
Net decrease in cash and cash equivalents     (8,898 )     (9,646 )
Effect of exchange rate changes on cash and cash equivalents     277       (232 )
Cash and cash equivalents at beginning of period     76,568       65,983  
Cash and cash equivalents at end of period   $ 67,947     $ 56,105  
                 

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. 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 Loss to Adjusted EBITDA
(In thousands)
(Unaudited)
         
    Three Months Ended
    March 31,
      2013       2012  
         
Net loss   $ (10,455 )   $ (1,276 )
Income tax provision (benefit)     693       (1,950 )
Other expense, net     107       91  
Depreciation     3,206       2,268  
EBITDA     (6,449 )     (867 )
Stock-based compensation     5,921       4,247  
Adjusted EBITDA   $ (528 )   $ 3,380  
                 
ServiceSource International, Inc.
GAAP To Non-GAAP Reconciliation
(Dollars in thousands, except per share amounts)
(unaudited)
                     
               

   Three Months Ended   

                March 31,
                  2013       2012  
Gross Profit          
GAAP gross profit     $ 22,623     $ 24,998  
Non-GAAP adjustments:          
          Stock-based compensation   (A)   732       572  
          Amortization of internally-developed software   (B)   820       140  
Non-GAAP gross profit     $ 24,175     $ 25,710  
                     
Gross Profit %          
GAAP gross profit       37 %     43 %
Non-GAAP adjustments:          
          Stock-based compensation   (A)   1 %     1 %
          Amortization of internally-developed software   (B)   1 %     0 %
Non-GAAP gross profit       40 %     45 %
Certain totals do not add due to rounding          
Operating Expenses          
GAAP operating expenses     $ 32,278     $ 28,133  
Stock-based compensation   (A)   (5,189 )     (3,675 )
Amortization of internally-developed software   (B)   (451 )     (495 )
Non-GAAP operating expenses     $ 26,638     $ 23,963  
                     
Net Income (Loss)          
GAAP net loss     $ (10,455 )   $ (1,276 )
Non-GAAP adjustments:          
          Stock-based compensation   (A)   5,921       4,247  
          Amortization of internally-developed software   (B)   1,271       635  
         

Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate

  (C)   1,721       (2,612 )
Non-GAAP net income (loss)     $ (1,542 )   $ 994  
                     
Diluted Net Income (Loss) Per Share          
GAAP net loss per share     $ (0.14 )   $ (0.02 )
Non-GAAP adjustments:          
          Stock-based compensation   (A)   0.08       0.05  
          Amortization of internally-developed software   (B)   0.02       0.01  
         

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 (loss) per share using a fully-diluted share count

  (C)   0.02       (0.03 )
Non-GAAP diluted net income (loss) per share   $ (0.02 )   $ 0.01  

Shares used in calculating diluted net income (loss) per share on a non-GAAP basis

      75,610       79,176  
 

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)   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 (loss); (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.
     
Revenue by Segment
(In thousands)
(unaudited)
                 
    Three Months Ended March 31,
    2013     2012  
        % of       % of
      $   Revenue

 

  $   Revenue
                 

NALA     

  $ 37,807   62 %   $ 36,112   63 %
EMEA     17,520   29 %     15,748   27 %
APJ     5,794   9 %     5,714   10 %
    $ 61,121   100 %   $ 57,574   100 %

 

ServiceSource International, Inc.
Anne Bawden, 415-901-4182 (Investor Relations)
abawden@servicesource.com

 

Source: ServiceSource

 

 

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