Press Release

ServiceSource Reports Fourth Quarter and Full Year 2013 Financial Results

 

SAN FRANCISCO--(BUSINESS WIRE)-- ServiceSource® (Nasdaq: SREV), the global leader in recurring revenue management, today announced financial results for the fourth quarter and fiscal year ended December 31, 2013.

  • Reported fourth quarter revenue of $77.2 million and full year revenue of $272.5 million, up 15% and 12% year-over-year, respectively
  • Achieved 2013 adjusted EBITDA of $17.7 million and non-GAAP EPS of $0.06 per diluted share
  • Generated Free Cash Flow of $11.0 million in 2013, ending the year with a cash balance of over $275.1 million
  • Announced 15 customers live on Renew OnDemand
  • Entered 2014 with ARR of $31 million, up 235% year-over-year, with the acquisition of Scout Analytics

"Growth in subscription sales in 2013 plus the addition of Scout Analytics™ allows ServiceSource to enter 2014 with 235% growth in ARR for our subscription business," said Mike Smerklo, Chairman & CEO of ServiceSource. "We now offer the most comprehensive portfolio of cloud applications and managed services, and are excited about the opportunities ahead and confident in our ability to help the world's largest and most successful B2B companies maximize subscription and recurring revenues across the customer lifecycle."

Revenue was $77.2 million in the fourth quarter, representing a 15% increase over the $67.3 million delivered in the prior year. Revenue for the full year 2013 was $272.5 million, up 12% from $243.7 million in 2012.

For the fourth quarter of fiscal year 2013, adjusted EBITDA was $8.6 million, compared with $8.3 million for the same period last year. GAAP net loss in the quarter was $2.0 million, or $0.02 per share, compared with loss of $1.2 million, or $0.02 per share for the same period last year. Non-GAAP net income in the quarter was $3.2 million compared with $3.6 million for the same period last year. Non-GAAP EPS was $0.04 per diluted share, compared with $0.05 per diluted share for the same period last year.

For the full year 2013, adjusted EBITDA was $17.7 million, compared with $20.9 million for fiscal year 2012. GAAP net loss for the year was $22.9 million, or $0.29 loss per share, compared with a loss of $42.8 million, or $0.58 loss per share for 2012. Non-GAAP net income for the year was $5.3 million, compared with $7.9 million in 2012. Non-GAAP EPS was $0.06 per diluted share, compared with $0.10 per diluted share for 2012.

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 fourth quarter and 2013 results and provide 2014 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. Conference ID number: 31891416. In addition, a live webcast, including slides, 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

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.

Connect with ServiceSource:

http://www.facebook.com/ServiceSource

http://twitter.com/servicesource

http://www.linkedin.com/company/servicesource

http://www.youtube.com/user/ServiceSourceMKTG

Trademarks

ServiceSource, Renew OnDemand, Scout Analyticsand 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.

     
ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                 
    Three Months Ended   Twelve months ended
    December 31,   December 31,
      2013       2012       2013       2012  
                 
Net revenue   $ 77,182     $ 67,345     $ 272,482     $ 243,703  
Cost of revenue (1)     45,599       35,319       162,447       136,321  
Gross profit     31,583       32,026       110,035       107,382  
Operating expenses:                
Sales and marketing (1)     14,920       15,767       58,826       56,925  
Research and development (1)     5,313       5,960       23,855       19,255  
General and administrative (1)     11,734       10,496       44,916       41,135  
Total operating expenses     31,967       32,223       127,597       117,315  
Loss from operations     (384 )     (197 )     (17,562 )     (9,933 )
Other income (expense):                
Interest expense     (2,378 )     (56 )     (3,754 )     (236 )
Other, net     (545 )     (414 )     (664 )     (538 )
Loss before income taxes     (3,307 )     (667 )     (21,980 )     (10,707 )
Income tax provision (benefit)     (1,319 )     518       871       32,107  
Net loss   $ (1,988 )   $ (1,185 )   $ (22,851 )   $ (42,814 )
Net loss per share, basic and diluted   $ (0.02 )   $ (0.02 )   $ (0.29 )   $ (0.58 )
Weighted average common shares outstanding, basic and diluted     80,932       75,090       78,408       74,270  
                 
(1) Includes stock-based compensation expense as follows:    
    Three Months Ended   Twelve months ended
    December 31,   December 31,
      2013       2012       2013       2012  
Cost of revenue   $ 1,081     $ 722     $ 3,303     $ 2,772  
Sales and marketing     2,435       2,310       9,831       8,146  
Research and development     656       425       2,414       1,880  
General and administrative     2,147       2,158       8,072       8,077  
Total stock-based compensation   $ 6,319     $ 5,615     $ 23,620     $ 20,875  
                                 
ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
         
    December 31,   December 31,
      2013       2012  
Assets        
Current assets:        
Cash and cash equivalents   $ 170,132     $ 76,568  
Short-term investments     105,001       32,874  
Accounts receivable, net of allowances     73,113       65,238  
Deferred income taxes     412       389  
Prepaid expenses and other     6,295       5,178  
Total current assets     354,953       180,247  
Property and equipment, net     27,998       34,513  
Deferred income taxes, net of current portion     2,035       2,321  
Other assets, net     8,624       1,057  
Goodwill     6,334       6,334  
Total assets   $ 399,944     $ 224,472  
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $ 3,610     $ 3,293  
Accrued taxes     1,134       1,056  
Accrued compensation and benefits     19,610       15,738  
Other accrued liabilities and capital leases     15,414       10,729  
Total current liabilities     39,768       30,816  
Convertible notes, net     113,915        
Other long-term liabilities     5,566       6,729  
Total liabilities     159,249       37,545  
Stockholders' equity:        
Common stock     8       8  
Treasury stock     (441 )     (441 )
Additional paid-in capital     286,526       210,650  
Accumulated Deficit     (46,250 )     (23,398 )
Accumulated other comprehensive income     852       108  
Total stockholders' equity     240,695       186,927  
Total liabilities and stockholders' equity   $ 399,944     $ 224,472  
                 
ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
    Twelve months ended
    December 31,
      2013       2012  
Cash flows from operating activities        
Net loss   $ (22,851 )   $ (42,814 )
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization     11,652       10,003  
Amortization of debt discount and issuance costs     2,761       149  
Accretion of premium on short-term investments     750       591  
Deferred income taxes     217       31,340  
Stock-based compensation     23,620       20,883  
Tax benefit from stock-based compensation     359       (1,488 )
Changes in operating assets and liabilities:        
Accounts receivable, net     (7,470 )     (10,906 )
Prepaid expenses and other     (1,305 )     3,819  
Accounts payable     521       (2,473 )
Accrued compensation and benefits     3,772       (6,239 )
Accrued liabilities and other     3,649       7,637  
Net cash provided by operating activities     15,675       10,502  
Cash flows from investing activities        
Acquisition of property and equipment     (5,261 )     (20,353 )
Other investment     (4,500 )      
Purchases of short-term investments     (89,747 )     (64,002 )
Sales of short-term investments     14,436       52,051  
Maturities of short-term investments     2,600       21,415  
Net cash used in investing activities     (82,472 )     (10,889 )
Cash flows from financing activities        
Proceeds from issuance of convertible notes, net     145,133        
Payments of convertible note hedges     (31,408 )      
Proceeds from the issuance of warrants     21,763        
Principal payment on capital lease obligations     (329 )     (710 )
Payment of deferred debt issuance costs           (141 )
Proceeds from common stock issuances     24,966       10,455  
Tax benefit from stock-based compensation     (359 )     1,488  
Net cash provided by financing activities     159,766       11,092  
Net increase in cash and cash equivalents     92,969       10,705  
Effect of exchange rate changes on cash and cash equivalents     595       (120 )
Cash and cash equivalents at beginning of period     76,568       65,983  
Cash and cash equivalents at end of period   $ 170,132     $ 76,568  
         

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 loss plus stock-based compensation, amortization of internally-developed software, non-cash interest expense 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 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.
GAAP To Non-GAAP Reconciliation
(Dollars in thousands, except per share amounts)
(unaudited)
                   
      Three Months Ended   Twelve months ended
      December 31,   December 31,
        2013       2012       2013       2012  
Gross Profit                  
GAAP gross profit     $ 31,583     $ 32,026     $ 110,035     $ 107,382  
Non-GAAP adjustments:                  
Stock-based compensation   (A)   1,081       722       3,303       2,772  
Amortization of internally-developed software   (B)   468       577       2,974       1,467  
Non-GAAP gross profit     $ 33,132     $ 33,325     $ 116,312     $ 111,621  
                   
Gross Profit %                  
GAAP gross profit       41 %     48 %     40 %     44 %
Non-GAAP adjustments:                  
Stock-based compensation   (A)   1 %     1 %     1 %     1 %
Amortization of internally-developed software   (B)   1 %     1 %     1 %     1 %
Non-GAAP gross profit       43 %     49 %     43 %     46 %
Certain totals do not add due to rounding                  
Operating Expenses                  
GAAP operating expenses     $ 31,967     $ 32,223     $ 127,597     $ 117,315  
Stock-based compensation   (A)   (5,238 )     (4,893 )     (20,317 )     (18,103 )
Amortization of internally-developed software   (B)   (120 )     (412 )     (1,426 )     (1,579 )
Non-GAAP operating expenses     $ 26,609     $ 26,918     $ 105,854     $ 97,633  
                   
Net Income (Loss)                  
GAAP net loss     $ (1,988 )   $ (1,185 )   $ (22,851 )   $ (42,814 )
Non-GAAP adjustments:                  
Stock-based compensation   (A)   6,319       5,615       23,620       20,875  
Amortization of internally-developed software   (B)   588       989       4,400       3,046  
One-time income tax items   (C)                     33,072  
Non-cash interest expense   (D)   1,794             2,713        
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate   (E)   (3,477 )     (1,857 )     (2,630 )     (6,251 )
Non-GAAP net income     $ 3,236     $ 3,562     $ 5,252     $ 7,928  
                   
Diluted Net Income (Loss) Per Share                  
GAAP net loss per share     $ (0.02 )   $ (0.02 )   $ (0.29 )   $ (0.58 )
Non-GAAP adjustments:                  
Stock-based compensation   (A)   0.07       0.07       0.29       0.26  
Amortization of internally-developed software   (B)   0.01       0.01       0.05       0.04  
One-time income tax items   (C)                     0.42  
Non-cash interest expense   (D)   0.02             0.03        
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate   (E)   (0.04 )     (0.02 )     (0.03 )     (0.05 )
Non-GAAP diluted net income per share     $ 0.04     $ 0.05     $ 0.06     $ 0.10  
Certain totals do not add due to rounding                  
Shares used in calculating diluted net income per share on a non-GAAP basis       84,615       77,831       82,268       79,093  
                   

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. 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) Non-cash interest expense. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the $150 million convertible senior notes that were issued in August 2013. Accordingly, for GAAP purposes we are required to recognize effective interest expense on our convertible senior notes which includes interest cost related to the amortization of debt issuance costs and the contractual 1.5% interest rate of the note. The difference between the effective interest expense and the contractual interest expense is excluded from our assessment of our operating performance because we believe that this non-cash expense is not indicative of ongoing operating performance. We believe that the exclusion of the non-cash interest expense provides investors a view of our core operating performance.

(E) 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, C and D 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.

 
ServiceSource International, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(In thousands)
(Unaudited)
                 
                 
    Three Months Ended   Twelve months ended
    December 31,   December 31,
      2013       2012       2013       2012  
                 
Net loss   $ (1,988 )   $ (1,185 )   $ (22,851 )   $ (42,814 )
Income tax provision (benefit)     (1,319 )     518       871       32,107  
Other expense, net     2,923       470       4,418       774  
Depreciation and amortization     2,642       2,922       11,652       10,003  
EBITDA     2,258       2,725       (5,910 )     70  
Stock-based compensation     6,319       5,615       23,620       20,875  
Adjusted EBITDA   $ 8,577     $ 8,340     $ 17,710     $ 20,945  
                 
                 
ServiceSource International, Inc.
Revenue by Segment

(In thousands)

(unaudited)

     
   

Three Months Ended

December 31,

   

2013

   

2012

 
       

% of

     

% of

      $     Revenue     $     Revenue
                 
NALA   $ 47,831       62 %   $ 39,320       58 %
EMEA     22,456       29 %     21,478       32 %
APJ     6,895       9 %     6,547       10 %
    $ 77,182       100 %   $ 67,345       100 %
                 
   

Twelve Months Ended

December 31,

    2013     2012  
        % of       % of
      $     Revenue     $     Revenue
                 
NALA   $ 173,188       64 %   $ 150,041       62 %
EMEA     73,839       27 %     66,902       27 %
APJ     25,455       9 %     26,760       11 %
    $ 272,482       100 %   $ 243,703       100 %

 

Investor Relations Contact for ServiceSource:
ServiceSource International, Inc.
Anne Bawden, 415-901-4182
abawden@servicesource.com

 

Source: ServiceSource International, Inc.

 

 

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