Press Release

ServiceSource Reports Second Quarter 2015 Financial Results

 

SAN FRANCISCO--(BUSINESS WIRE)-- ServiceSource® (Nasdaq: SREV), the global leader in recurring revenue management, today announced financial results for the second quarter ended June 30, 2015.

"ServiceSource continued to execute in the second quarter and we exceeded expectations across all key financial metrics. Year over year our gross margin increased, operating expenses decreased and EBITDA improved dramatically. We drove operational efficiency, while increasing revenues on behalf of our clients," said Christopher Carrington, CEO of ServiceSource. "Our customer-centric approach continues to tighten our relationships with customers, decrease churn and drive expansion activity. We recognize there is a great deal of work to do to return ServiceSource to growth and profitability, but I feel we are making the right changes in the business to reach that goal."

GAAP revenue was $61.6 million in the second quarter, representing a 6.6% decrease from the $66.0 million delivered in same the period in the prior year. Non-GAAP revenue, which excludes the impact of the reduction of deferred revenue in connection with our acquisition of Scout Analytics, was $61.7 million, reflecting a 7.0% decrease from the same period in the prior year.

For the second quarter of fiscal year 2015, adjusted EBITDA was a loss of $0.2 million, compared with a loss of $9.7 million for the same period last year. GAAP net loss in the quarter was $13.4 million, or $0.16 per share, compared with GAAP net loss of $21.1 million, or $0.25 per share, for the same period last year. Non-GAAP net loss in the quarter was $1.7 million compared with a net loss of $7.3 million for the same period last year. Non-GAAP EPS was a $0.02 loss per basic and diluted share, compared with a loss of $0.09 per basic and 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 second quarter 2015 results and 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: 85291706. In addition, a live webcast of the call will also be available on the Investor Relations section of the ServiceSource web site under Events & Presentations. A replay of the webcast will also be available on the Company's website at http://ir.servicesource.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding our business opportunities, challenges and market position. 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; our technology; the risk of material defects or errors in our software offerings or their failure to meet customer expectations; migrating customers to our SaaS offerings and the ability to integrate such offerings with other third-party applications used by our customers; errors in estimates as to the renewal rate improvements and/or service revenue we can generate for our customers; our ability to grow the market for service revenue management; changes in market conditions that impact our ability to sell our SaaS solutions and/or generate service revenue on our customers' behalf; 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; our ability to protect our intellectual property rights; the risk of claims that our offerings infringe the intellectual property rights of others; 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.

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   Six Months Ended
    June 30   June 30
    2015   2014   2015   2014
Net revenue   $ 61,613     $ 65,997     $ 127,810     $ 132,813  
Cost of revenue (1)   42,692     48,518     88,507     96,113  
Gross profit   18,921     17,479     39,303     36,700  
Operating expenses:                
Sales and marketing (1)   10,165     17,212     21,000     32,883  
Research and development (1)   4,646     6,881     9,468     13,597  
General and administrative (1)   10,701     12,256     22,866     25,121  
Restructuring and other   2,988         3,739      
Total operating expenses   28,500     36,349     57,073     71,601  
Loss from operations   (9,579 )   (18,870 )   (17,770 )   (34,901 )
Interest expense and other, net   (2,739 )   (2,196 )   (4,584 )   (4,770 )
Loss before income taxes   (12,318 )   (21,066 )   (22,354 )   (39,671 )
Income tax provision   1,089     26     1,223     161  
Net loss   $ (13,407 )   $ (21,092 )   $ (23,577 )   $ (39,832 )
Net loss per share, basic and diluted   $ (0.16 )   $ (0.25 )   $ (0.28 )   $ (0.48 )
Weighted average common shares outstanding, basic and diluted   85,072     82,784     84,665     82,432  
                 
(1) Includes stock-based compensation expense as follows:                
    Three Months Ended   Six Months Ended
    June 30   June 30
    2015   2014   2015   2014
Cost of revenue   $ 659     $ 1,099     $ 1,495     $ 2,133  
Sales and marketing   716     1,583     1,647     3,420  
Research and development   444     736     991     1,437  
General and administrative   1,158     1,932     3,411     3,942  
Total stock-based compensation   $ 2,977     $ 5,350     $ 7,544     $ 10,932  
                                 
ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
         
   

    June 30,    

  December 31,
    2015   2014
Assets        
Current assets:        
Cash and cash equivalents   $ 78,045     $ 90,382  
Short-term investments   136,202     125,000  
Accounts receivable, net   57,172     70,163  
Deferred income taxes   390     398  
Prepaid expenses and other   7,549     6,815  
Total current assets   279,358     292,758  
Property and equipment, net   25,540     25,658  
Deferred income taxes, net of current portion   1,512     2,488  
Goodwill and intangibles, net   10,201     10,957  
Other assets, net   8,806     7,985  
Total assets   $ 325,417     $ 339,846  
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $ 1,210     $ 2,922  
Accrued taxes   1,101     1,721  
Accrued compensation and benefits   18,957     20,056  
Deferred revenue   7,311     7,018  
Accrued expenses   6,383     8,882  
Other current liabilities   2,282     2,569  
Total current liabilities   37,244     43,168  
Convertible notes, net   124,301     120,730  
Other long-term liabilities   4,877     4,660  
Total liabilities   166,422     168,558  
Stockholders' equity:        
Common stock   8     8  
Treasury stock   (441 )   (441 )
Additional paid-in capital   323,082     312,017  
Accumulated deficit   (164,985 )   (141,409 )
Accumulated other comprehensive income   1,331     1,113  
Total stockholders' equity   158,995     171,288  
Total liabilities and stockholders' equity   $ 325,417     $ 339,846  
                 
ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
    Six months ended
    June 30,
    2015   2014
Cash flows from operating activities        
Net loss   $ (23,577 )   $ (39,832 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Depreciation and amortization   6,783     6,322  
Amortization of debt discount and issuance costs   3,903     3,636  
Amortization of premium on short-term investments   (497 )   40  
Deferred income taxes   980      
Stock-based compensation   7,544     10,932  
Restructuring and other   3,450      
Changes in operating assets and liabilities:        
Accounts receivable, net   11,754     15,504  
Deferred revenue   338     (1,983 )
Prepaid expenses and other   (852 )   (45 )
Accounts payable   (2,064 )   1,030  
Accrued taxes   (555 )   315  
Accrued compensation and benefits   (1,570 )   1,936  
Accrued expense   (2,448 )   2,499  
Other liabilities   125     (446 )
Net cash provided by (used in) operating activities   3,314     (92 )
Cash flows from investing activities        
Acquisition of property and equipment   (5,114 )   (5,577 )
Restricted cash   (1,244 )    
Cash paid for acquisition, net of cash acquired       (32,551 )
Purchases of short-term investments   (51,074 )   (46,926 )
Sales of short-term investments   40,194     23,134  
Maturities of short-term investments   290     3,943  
Net cash used in investing activities   (16,948 )   (57,977 )
Cash flows from financing activities        
Repayment of long-term debt and capital lease obligations   (91 )   (212 )
Proceeds from common stock issuances   944     3,569  
Net cash provided by financing activities   853     3,357  
Net decrease in cash and cash equivalents   (12,781 )   (54,712 )
Effect of exchange rate changes on cash and cash equivalents   444     156  
Cash and cash equivalents at beginning of period   90,382     170,132  
Cash and cash equivalents at end of period   $ 78,045     $ 115,576  
                 

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 revenue is defined as net revenue plus revenue not recognized in the period for Scout Analytics due to the impact of purchase accounting rules related to deferred revenue acquired. Non-GAAP gross profit consists of gross profit plus adjustments to revenue related to purchase accounting, stock based compensation, amortization of purchased intangible assets and amortization of internally-developed software.

Non-GAAP net loss consists of net loss plus adjustments to revenue related to purchase accounting, stock-based compensation, amortization of purchased intangible assets, amortization of internally-developed software, acquisition related costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs, and acquisition bonus payments, restructuring related costs and 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, acquisition related costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs, and acquisition bonus payments, restructuring related costs and adjustments to revenue related to purchase accounting. 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   Six Months Ended
        June 30,   June 30,
        2015   2014   2015   2014
Net Revenue                    
GAAP net revenue       $ 61,613     $ 65,997     $ 127,810     $ 132,813  
Adjustments to revenue   (A)   84     314     194     760  
Non-GAAP net revenue       $ 61,697     $ 66,311     $ 128,004     $ 133,573  
                     
Gross Profit                    
GAAP gross profit       $ 18,921     $ 17,479     $ 39,303     $ 36,700  
Non-GAAP adjustments:                    
Adjustments to revenue   (A)   84     314     194     760  
Stock-based compensation   (B)   659     1,099     1,495     2,133  
Amortization of internally-developed software   (C)   1,016     505     2,021     1,036  
Amortization of purchased intangible assets   (D)   247     348     494     623  
Non-GAAP gross profit       $ 20,927     $ 19,745     $ 43,507     $ 41,252  
                     
Gross Profit %                    
GAAP gross profit       31 %   26 %   31 %   28 %
Non-GAAP adjustments:                    
Adjustments to revenue   (A)   %   1 %   %   1 %
Stock-based compensation   (B)   1 %   2 %   1 %   2 %
Amortization of internally-developed software   (C)   2 %   1 %   2 %   1 %
Amortization of purchased intangible assets   (D)   %   1 %   %   %
Non-GAAP gross profit       34 %   30 %   34 %   31 %
Certain totals do not add due to rounding                    
Operating Expenses                    
GAAP operating expenses       $ 28,500     $ 36,349     $ 57,073     $ 71,601  
Stock-based compensation   (B)   (2,318 )   (4,251 )   (6,049 )   (8,799 )
Amortization of internally-developed software   (C)   (84 )   (83 )   (168 )   (141 )
Amortization of purchased intangible assets   (D)   (131 )   (212 )   (263 )   (377 )
Acquisition related costs   (E)       (175 )       (728 )
Restructuring and other   (F)   (2,988 )       (3,739 )    
Non-GAAP operating expenses       $ 22,979     $ 31,628     $ 46,854     $ 61,556  
                     
Net loss                    
GAAP net loss       $ (13,407 )   $ (21,092 )   $ (23,577 )   $ (39,832 )
Non-GAAP adjustments:                    
Adjustments to revenue   (A)   84     314     194     760  
Stock-based compensation   (B)   2,977     5,350     7,544     10,932  
Amortization of internally-developed software   (C)   1,100     588     2,189     1,177  
Amortization of purchased intangible assets   (D)   378     560     756     1,000  
Acquisition related costs   (E)       175         728  
Restructuring and other   (F)   2,988         3,739      
Non-cash interest expense   (G)   1,989     1,877     3,913     3,665  
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate   (H)   2,210     4,907     2,830     8,725  
Non-GAAP net loss       $ (1,681 )   $ (7,321 )   $ (2,412 )   $ (12,845 )
                     
Diluted Net Loss Per Share                    
GAAP net loss per share       $ (0.16 )   $ (0.25 )   $ (0.28 )   $ (0.48 )
Non-GAAP adjustments:                    
Adjustments to revenue   (A)               0.01  
Stock-based compensation   (B)   0.03     0.06     0.09     0.13  
Amortization of internally-developed software   (C)   0.01     0.01     0.03     0.01  
Amortization of purchased intangible assets   (D)       0.01     0.01     0.01  
Acquisition related costs   (E)               0.01  
Restructuring and other   (F)   0.04         0.04      
Non-cash interest expense   (G)   0.02     0.02     0.05     0.04  
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate   (H)   0.03     0.06     0.03     0.11  
Non-GAAP diluted net loss per share       $ (0.02 )   $ (0.09 )   $ (0.03 )   $ (0.16 )
Certain totals do not add due to rounding                    
Shares used in calculating diluted net income (loss) per share on a non-GAAP basis       85,072     82,784     84,665     82,432  
                             

Footnotes to GAAP to Non-GAAP Reconciliation

(A) Adjustments to revenue - Due to purchase accounting rules, upon acquisition, we recorded an adjustment of $1.7 million to reduce the balance of deferred revenue related to the assumed client contracts acquired from Scout Analytics. As a result of this adjustment, $0.1 million of revenue was not recognized for the three months ended June 30, 2015. Therefore, revenue is adjusted by an increase of $0.1 million to arrive at non-GAAP revenue for the three months ended June 30, 2015.

(B) 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.

(C) 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.

(D) Amortization of Purchased Intangibles. Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. We believe amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.

(E) Acquisition related costs. Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs and acquisition bonus payments. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

(F) Restructuring and other expense. Included in our GAAP presentation, we will incur expenses with our ongoing restructuring effort to reduce expenses to better match revenues. We expect this restructuring effort to continue over the next several quarters. These costs would incur employee severance costs and also costs related to cancellation of contracts or loss of future benefit. These are one-time in nature costs that are not indicative of our core operating performance.

(G) 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.

(H) Income tax effect on non-GAAP adjustments as well as the impact of normalizing the effective income tax rate. This adjusts (i) the provision for income taxes to reflect the effect of the non-GAAP items A, B, C, D, E, F, and G noted above on our non-GAAP net 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   Six months ended
    June 30,   June 30,
    2015   2014   2015   2014
             
Net loss   $ (13,407 )   $ (21,092 )   $ (23,577 )   $ (39,832 )
Income tax provision   1,089     26     1,223     161  

Interest expense and other, net

  2,739     2,196     4,584     4,770  
Depreciation and amortization   3,300     3,293     6,800     6,322  
EBITDA   (6,279 )   (15,577 )   (10,970 )   (28,579 )
Stock-based compensation   2,977     5,350     7,544     10,932  
Adjustments to revenue   84     314     194     760  
Acquisition related costs       175         728  
Restructuring and other   2,988         3,739      
Adjusted EBITDA   $ (230 )   $ (9,738 )   $ 507     $ (16,159 )
                                 
ServiceSource International, Inc.
Reporting Segments
(In thousands)
(unaudited)
    Three Months Ended June 30,
    2015   2014
    Managed Services  

Cloud and Business
Intelligence

  Managed Services  

Cloud and Business
Intelligence

Net Revenue   $ 56,223     $ 5,390     $ 58,575     $ 7,422
Cost of Revenue   38,909     3,783     42,589     5,929
Gross Profit   $ 17,314     $ 1,607     $ 15,986     $ 1,493
                 
                 
    Six Months Ended June 30,
    2015   2014
    Managed Services  

Cloud and Business
Intelligence

  Managed Services  

Cloud and Business
Intelligence

Net Revenue   $ 114,237     $ 13,573     $ 117,144     $ 15,669
Cost of Revenue   80,905     7,602     83,895     12,218
Gross Profit   $ 33,332     $ 5,971     $ 33,249     $ 3,451

 

Investor Relations Contact for ServiceSource:
ServiceSource International, Inc.
Erik Bylin, 415-901-4182
ebylin@servicesource.com

Source: ServiceSource International, Inc.

 

 

News Provided by Acquire Media