Press Release

ServiceSource Reports Second 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 second quarter ended June 30, 2013.

  • Total subscription bookings up nearly 40% quarter-over-quarter
  • Revenue: $67.7 million
  • Adjusted EBITDA: $4.4 million
  • Record amount of cash and short term investments: $132 million
  • Four new Renew OnDemand subscription deals signed

"The outperformance of our cloud offering, Renew OnDemand, combined with our managed services, drove strong performance for ServiceSource this quarter," said Mike Smerklo, ServiceSource's Chairman and Chief Executive Officer. "As our results demonstrate, ServiceSource has gained momentum in the first half of the year."

"We're proud to announce that Dell is live on Renew OnDemand as part of a global implementation," added Mr. Smerklo, "Dell is building solutions and partnering with leading companies to leverage the cloud and big data as part of their strategy to get closer to their customers."

Revenue for the second quarter of fiscal 2013 was $67.7 million, a 13% increase over the $59.7 million delivered in the same period of 2012.

Adjusted EBITDA in the quarter was $4.4 million, compared with $4.5 million for the same period last year.

GAAP net loss in the quarter was $4.9 million, or $0.06 per share, compared with a net loss of $36.8 million, or $0.50 per share for the same period last year. GAAP net loss for 2012 reflects a $33.1 million one-time, non-cash charge related to a valuation allowance applied to our deferred tax assets.

Non-GAAP net income in the quarter was $1.5 million, or $0.02 per diluted share, compared with a net income of approximately $1.5 million, or $0.02 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 third 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.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding our momentum and the benefits of ServiceSource offerings, including our managed services and our Renew OnDemand Cloud platform and application. These forward-looking statements are based on our current assumptions and beliefs, and involve risks and uncertainties that could cause our results to differ materially from those expressed or implied in our forward-looking statements. Those risks and uncertainties include, without limitation, fluctuations in our quarterly results of operations; the risk of material defects or errors in the our software offerings or their failure to meet customer expectations; migrating customers to Renew OnDemand and the ability to integrate Renew OnDemand with other third-party applications used by our customers; our ability to grow the market for service revenue management; our ability to protect our intellectual property rights; the risk of claims that our offerings infringe the intellectual property rights of others; changes in market conditions that impact our ability to sell the Renew OnDemand solution and/or generate service revenue on our customers' behalf; errors in estimates as to the renewal rate improvements and/or service revenue we can generate for our customers; the possibility that our estimates of service revenue opportunity under management and other metrics may prove inaccurate; demand for our offering that falls short of expectations; our ability to keep customer data and other confidential information secure; our ability to adapt our solution to changes in the market or new competition; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our periodic reports and registration statements filed with the Securities and Exchange Commission, which can be obtained online at the Commission's website at http://www.sec.gov. All forward-looking statements in this press release are based on information currently available to us, and we assume no obligation to update these forward-looking statements.

ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                                       
          Three Months Ended         Six Months Ended  
          June 30,         June 30,  
            2013           2012             2013           2012    
                                       
Net revenue         $ 67,697         $ 59,694           $ 128,818         $ 117,268    
Cost of revenue (1)           38,620           33,882             77,118           66,458    
Gross profit           29,077           25,812             51,700           50,810    
Operating expenses                                      
Sales and marketing (1)           15,367           14,169             30,175           27,646    
Research and development (1)           6,794           4,298             13,042           8,879    
General and administrative (1)           10,783           10,564             22,004           20,639    
Total operating expenses           32,944           29,031             65,221           57,164    
Loss from operations           (3,867 )         (3,219 )           (13,521 )         (6,354 )  
Other expense, net           (295 )         (333 )           (403 )         (424 )  
Loss before income taxes           (4,162 )         (3,552 )           (13,924 )         (6,778 )

 

Income tax provision           744           33,217             1,437           31,267  

 

Net loss         $ (4,906 )       $ (36,769 )         $ (15,361 )       $ (38,045 )

 

                                       
Net loss per common share:                                    

 

Basic           (0.06 )       $ (0.50 )           (0.20 )       $ (0.52 )

 

Diluted         $ (0.06 )       $ (0.50 )         $ (0.20 )       $ (0.52 )

 

                                       
Weighted-average shares used in computing net                                      
loss per common share:                                      
Basic           77,275           74,172             76,447           73,654    
Diluted           77,275           74,172             76,447           73,654    
                                       
(1) Includes stock-based compensation expense as follows:
 
          Three Months Ended         Six Months Ended  
          June 30,         June 30,  
            2013           2012             2013           2012    
Cost of revenue         $ 688         $ 715           $ 1,420         $ 1,287    
Sales and marketing           2,449           1,982             4,982           3,656    
Research and development           519           530             1,005           893    
General and administrative           1,767           2,133             3,936           3,771    
Total stock-based compensation         $ 5,423         $ 5,360           $ 11,343         $ 9,607    
                                                       
ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
                 
        June 30,       December 31,
          2013           2012  
Assets                
Current assets:                
Cash and cash equivalents       $ 77,403         $ 76,568  
Short-term investments         54,649           32,874  
Accounts receivable, net         60,894           65,238  
Deferred income taxes         177           389  
Prepaid expenses and other         6,661           5,178  
Total current assets         199,784           180,247  
Property and equipment, net         30,275           34,513  
Deferred income taxes, net of current portion         1,986           2,321  
Other assets, net         794           1,057  
Goodwill         6,334           6,334  
Total assets       $ 239,173         $ 224,472  
                 
Liabilities and Stockholders' Equity                
Current liabilities:                
Accounts payable         2,505         $ 3,293  
Accrued taxes         1,801           1,056  
Accrued compensation and benefits         18,873           15,738  
Other accrued liabilities         13,640           10,403  
Current portion of capital lease obligations         328           326  
Total current liabilities         37,147           30,816  
Long-term liabilities         5,305           6,729  
Total liabilities         42,452           37,545  
Stockholders' equity:                
Common stock         8           8  
Treasury stock         (441 )         (441 )
Additional paid-in capital         235,714           210,650  
Accumulated deficit         (38,759 )         (23,398 )
Accumulated other comprehensive income         199           108  
Total stockholders' equity         196,721           186,927  
Total liabilities and stockholders' equity       $ 239,173         $ 224,472  
                         
ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
          Six Months Ended
          June 30,
            2013           2012  
Cash flows from operating activities                  
Net loss         $ (15,361 )       $ (38,045 )
Adjustments to reconcile net loss to net cash provided by operating activities:                  
                 
Depreciation and amortization           6,028           4,576  
Provision for doubtful accounts           (149 )         -  
Amortization of deferred financing costs           24           123  
Accretion on premium on short-term investments           347           445  
Deferred income taxes           545           32,220  
Stock-based compensation           11,343           9,607  
Income tax charge from stock-based compensation           264           362  
Changes in operating assets and liabilities:                  
Accounts receivable           4,189           2,586  
Prepaid expenses and other           (1,204 )         (811 )
Accounts payable           (558 )         (877 )
Accrued taxes           752           298  
Accrued compensation and benefits           3,291           (4,820 )
Other accrued liabilities           2,156           4,145  
Net cash provided by operating activities           11,667           9,809  
                   
Cash flows used in investing activities                  
Acquisition of property and equipment           (2,224 )         (11,244 )
Purchases of short-term investments           (26,647 )         (24,186 )
Sales of short-term investments           3,154           6,210  
Maturities of short-term investments           1,250           11,820  
Net cash used in investing activities           (24,467 )         (17,400 )
                   
Cash flows from financing activities                  
Repayments of capital leases           (161 )         (155 )
Proceeds from common stock issuances           13,612           7,818  
Income tax charge from stock-based compensation           (264 )         (362 )
Net cash provided by financing activities           13,187           7,301  
                   
Net increase (decrease) in cash and cash equivalents           387           (290 )
Effect of exchange rate changes on cash and cash equivalents           448           (107 )
Cash and cash equivalents at beginning of period           76,568           65,983  
Cash and cash equivalents at end of period         $ 77,403         $ 65,586  
                           

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       Six Months Ended
        June 30,       June 30,
          2013         2012           2013         2012  
                             
Net loss       $ (4,906 )     $ (36,769 )       $ (15,361 )     $ (38,045 )
Income tax provision         744         33,217           1,437         31,267  
Other expense, net         295         333           403         424  
Depreciation         2,814         2,309           6,020         4,577  
EBITDA         (1,053 )       (910 )         (7,501 )       (1,777 )
Stock-based compensation         5,423         5,360           11,343         9,607  
Adjusted EBITDA       $ 4,370       $ 4,450         $ 3,842       $ 7,830  
                                             
ServiceSource International, Inc.
GAAP To Non-GAAP Reconciliation
(Dollars in thousands, except per share amounts)
(unaudited)
                                   
              Three Months Ended       Six Months Ended
              June 30,       June 30,
                2013         2012           2013         2012  
Gross Profit                                
GAAP gross profit         $ 29,077       $ 25,812         $ 51,700       $ 50,810  
Non-GAAP adjustments:                            
  Stock-based compensation   (A)     688         715           1,420         1,287  
  Amortization of internally-developed software   (B)     838         318           1,658         458  
Non-GAAP gross profit       $ 30,603       $ 26,845         $ 54,778       $ 52,555  
                                   
Gross Profit %                              
GAAP gross profit           43 %       43 %         40 %       43 %
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         45 %       45 %         43 %       45 %
Certain totals do not add due to rounding                            
Operating Expenses                              
GAAP operating expenses       $ 32,944       $ 29,031         $ 65,221       $ 57,164  
Stock-based compensation   (A)     (4,735 )       (4,645 )         (9,923 )       (8,320 )
Amortization of internally-developed software   (B)     (432 )       (317 )         (883 )       (812 )
Non-GAAP operating expenses       $ 27,777       $ 24,069         $ 54,415       $ 48,032  
                                   
Net Income (Loss)                              
GAAP net loss         $ (4,906 )     $ (36,769 )       $ (15,361 )     $ (38,045 )
Non-GAAP adjustments:                            
  Stock-based compensation   (A)     5,423         5,360           11,343         9,607  
  Amortization of internally-developed software   (B)     1,270         635           2,541         1,270  
  One-time income tax items   (C)     -         33,072           -         33,072  
 

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

               
   

(D)

    (268 )       (832 )         1,453         (3,445 )
Non-GAAP net income (loss)       $ 1,519       $ 1,466         $ (24 )     $ 2,459  
                                   
Diluted Net Income (Loss) Per Share                            
GAAP net loss per share       $ (0.06 )     $ (0.50 )       $ (0.20 )     $ (0.52 )
Non-GAAP adjustments:                            
  Stock-based compensation   (A)     0.07         0.07           0.15         0.13  
  Amortization of internally-developed software   (B)     0.02         0.01           0.03         0.02  
  One-time income tax items   (C)     -         0.45           -         0.45  
                                               
 

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

 

(D)

    0.00         (0.01 )         0.02         (0.05 )
Non-GAAP diluted net income (loss) per share       $ 0.02       $ 0.02         $ 0.00       $ 0.03  
Certain totals do not add due to rounding                            
                             
Shares used in calculating diluted net income (loss) per share on a non-GAAP basis                
        81,855         74,172           76,447         73,654  

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)     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.
       
ServiceSource International, Inc.
Revenue by Segment
(In thousands)
(unaudited)
                           
        Three Months Ended June 30,
        2013       2012  
              % of           % of
          $     Revenue       $     Revenue
                           
NALA       $ 42,482     63 %     $ 36,961     62 %
EMEA         18,238     27 %       15,518     26 %
APJ         6,977     10 %       7,215     12 %
        $ 67,697     100 %     $ 59,694     100 %
                           
        Six Months Ended June 30,
          2013       2012
              % of           % of
          $     Revenue       $     Revenue
                           
NALA       $ 80,289     62 %     $ 73,073     62 %
EMEA         35,758     28 %       31,266     27 %
APJ         12,771     10 %       12,929     11 %
        $ 128,818     100 %     $ 117,268     100 %

 

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

 

Source: ServiceSource International, Inc.

 

 

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