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ServiceSource Reports Second Quarter 2017 Financial Results
Solid Performance Against Guidance
Strong Traction with Inside Sales
Reaffirms Full Year Guidance
"In Q2,
GAAP revenue was
For the second quarter of fiscal year 2017, GAAP net loss in the quarter was
A reconciliation of GAAP to non-GAAP financial measures has been provided following the financial statement tables included in this press release.
For the third quarter of fiscal 2017,
- Revenue of
$55 million to$58 million - GAAP gross margin of 27.9% to 31.3%; non-GAAP gross margin of 33.5% to 36.5%
- GAAP operating expenses of
$22 million to$23 million ; non-GAAP operating expenses of$18 million to$19 million - GAAP net loss of
$8.4 million to$10.4 million ; non-GAAP net income of breakeven to a profit of$2 million
For the fiscal 2017,
- Revenue of
$238 million to$243 million - GAAP gross margin of 30% to 33%; non-GAAP gross margin of 36.5% to 38.5%
- GAAP operating expenses of
$92 million to$96 million ; non-GAAP operating expenses of$80 million to$84 million - GAAP net loss of
$35.2 million to$38.2 million ; non-GAAP net income of$5 million to$7 million - Adjusted EBITDA of
$15 to$18 million
Please see the second quarter presentation on the Events and Presentations section of the Investor Relations web site (http://ir.servicesource.com/events) for a reconciliation between GAAP and non-GAAP measures in our guidance.
Quarterly Conference Call
Forward-Looking Statements
This press release contains forward-looking statements, including statements regarding our expectations for financial and operational performance, whether our go-forward model will produce anticipated benefits, and whether our improved execution and emerging capabilities will translate into desired results. 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 our forward-looking statements. Those risks and uncertainties include: a decline in client renewals, the loss of one or more of our key clients or the contraction in our revenue from one or more of our key clients, in each case resulting in churn, or our clients not expanding their relationships with us; the risk of problems implementing our technologies or that our technologies will not meet customer expectations; that the market for our solution is underdeveloped and may not grow; errors in estimates as to the renewal rate improvements and/or service revenue we can generate for our customers; changes in market conditions that impact our ability to sell our 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; 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; problems encountered by our clients in their business that may cause them to cancel or reduce their business with us; our ability to achieve our expected benefits from international expansion; economic or other adverse events or conditions affecting the technology industry; our ability to protect our intellectual property rights; the risk of claims that our offerings infringe the intellectual property rights of others; and other risks and uncertainties described more fully in our periodic reports filed with the
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| Three Months Ended | Six Months Ended | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net revenue | $ | 58,262 | $ | 61,969 | $ | 114,970 | $ | 121,719 | ||||||||
| Cost of revenue (1) | 39,517 | 40,344 | 80,926 | 81,778 | ||||||||||||
| Gross profit | 18,745 | 21,625 | 34,044 | 39,941 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing (1) | 8,620 | 11,326 | 16,960 | 21,779 | ||||||||||||
| Research and development (1) | 1,243 | 2,016 | 3,485 | 4,180 | ||||||||||||
| General and administrative (1) | 13,505 | 11,552 | 27,486 | 23,595 | ||||||||||||
| Restructuring and other | 5,715 | — | 5,715 | — | ||||||||||||
| Total operating expenses | 29,083 | 24,894 | 53,646 | 49,554 | ||||||||||||
| Loss from operations | (10,338 | ) | (3,269 | ) | (19,602 | ) | (9,613 | ) | ||||||||
| Interest expense and other, net | (2,646 | ) | (1,700 | ) | (4,717 | ) | (3,209 | ) | ||||||||
| Loss before income taxes | (12,984 | ) | (4,969 | ) | (24,319 | ) | (12,822 | ) | ||||||||
| Income tax provision | 117 | 249 | 406 | 1,537 | ||||||||||||
| Net loss | $ | (13,101 | ) | $ | (5,218 | ) | $ | (24,725 | ) | $ | (14,359 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.15 | ) | $ | (0.06 | ) | $ | (0.28 | ) | $ | (0.17 | ) | ||||
| Weighted average common shares outstanding, basic and diluted | 88,813 | 85,413 | 88,600 | 85,747 | ||||||||||||
| (1) Includes stock-based compensation expense as follows: | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Cost of revenue | $ | 294 | $ | 379 | $ | 584 | $ | 847 | ||||||||
| Sales and marketing | 970 | 726 | 1,852 | 1,588 | ||||||||||||
| Research and development | (35 | ) | 144 | 65 | 341 | |||||||||||
| General and administrative | 2,466 | 1,087 | 4,411 | 2,419 | ||||||||||||
| Total stock-based compensation | $ | 3,695 | $ | 2,336 | $ | 6,912 | $ | 5,195 | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
|
|
||||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 39,664 | $ | 47,692 | ||||
| Short-term investments | 139,472 | 137,881 | ||||||
| Accounts receivable, net | 52,534 | 63,289 | ||||||
| Prepaid expenses and other | 7,864 | 7,607 | ||||||
| Total current assets | 239,534 | 256,469 | ||||||
| Property and equipment, net | 36,688 | 38,180 | ||||||
| Deferred income taxes, net of current portion | 69 | 64 | ||||||
| 7,176 | 7,932 | |||||||
| Other assets, net | 3,386 | 3,445 | ||||||
| Total assets | $ |
286,853 |
$ | 306,090 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,109 | $ | 1,916 | ||||
| Accrued taxes | 738 | 1,388 | ||||||
| Accrued compensation and benefits | 17,143 | 21,579 | ||||||
| Deferred revenue | 3,033 | 4,152 | ||||||
| Accrued expenses | 5,895 | 5,891 | ||||||
| Other current liabilities | 2,304 | 2,958 | ||||||
| Total current liabilities | 30,222 | 37,884 | ||||||
| Convertible notes, net | 139,333 | 134,775 | ||||||
| Other long-term liabilities | 7,033 | 6,495 | ||||||
| Total liabilities | 176,588 | 179,154 | ||||||
| Stockholders' equity: | ||||||||
| Common stock | 8 | 8 | ||||||
| (441 | ) | (441 | ) | |||||
| Additional paid-in capital | 351,971 | 344,521 | ||||||
| Accumulated deficit | (241,086 | ) | (216,361 | ) | ||||
| Accumulated other comprehensive income | (187 | ) | (791 | ) | ||||
| Total stockholders' equity | 110,265 | 126,936 | ||||||
| Total liabilities and stockholders' equity | $ | 286,853 | $ | 306,090 | ||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (24,725 | ) | $ | (14,359 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 10,801 | 7,564 | ||||||
| Amortization of debt discount and issuance costs | 4,557 | 4,247 | ||||||
| Accretion of premium on short-term investments | (114 | ) | 554 | |||||
| Deferred income taxes | 148 | 855 | ||||||
| Stock-based compensation | 6,912 | 5,195 | ||||||
| Restructuring and other | 2,901 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 12,239 | 2,287 | ||||||
| Deferred revenue | (1,119 | ) | (303 | ) | ||||
| Prepaid expenses and other | (37 | ) | 303 | |||||
| Accounts payable | (825 | ) | 766 | |||||
| Accrued taxes | (664 | ) | (231 | ) | ||||
| Accrued compensation and benefits | (5,164 | ) | 317 | |||||
| Accrued expenses | (1,508 | ) | 1,031 | |||||
| Other liabilities | (364 | ) | 336 | |||||
| Net cash provided by operating activities | 3,038 | 8,562 | ||||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | (9,080 | ) | (14,316 | ) | ||||
| Purchases of short-term investments | (37,806 | ) | (55,133 | ) | ||||
| Sales of short-term investments | 33,457 | 53,361 | ||||||
| Maturities of short-term investments | 3,025 | 350 | ||||||
| Net cash used in investing activities | (10,404 | ) | (15,738 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment on capital lease obligations | (34 | ) | (103 | ) | ||||
| Repurchase of common stock | — | (8,921 | ) | |||||
| Proceeds from common stock issuances | 616 | 739 | ||||||
| Minimum tax withholding requirement | (322 | ) | (242 | ) | ||||
| Net cash provided by (used in) financing activities | 260 | (8,527 | ) | |||||
| Net decrease in cash and cash equivalents | (7,106 | ) | (15,703 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (922 | ) | (1,335 | ) | ||||
| Cash and cash equivalents at beginning of period | 47,692 | 72,334 | ||||||
| Cash and cash equivalents at end of period | $ | 39,664 | $ | 55,296 | ||||
Use of Non-GAAP Financial Measures
To supplement its financial statements presented in accordance with generally accepted accounting principles, or GAAP,
Non-GAAP revenue is defined as net revenue plus revenue not recognized in the period due to the impact of purchase accounting rules related to deferred revenue acquired.
Non-GAAP gross profit consists of gross profit plus adjustments to stock-based compensation, amortization of purchased intangible assets and amortization of internally-developed software.
Non-GAAP net income (loss) consists of net loss plus stock-based compensation, amortization of purchased intangible assets, amortization of internally-developed software, restructuring related costs, non-cash interest expense and applying an income tax rate of 40% on non-GAAP adjustments as well as the impact of normalizing the effective income tax rate. 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 and restructuring related costs.
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
| GAAP To Non-GAAP Reconciliation | ||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||
| (unaudited) | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||
| Net Revenue | ||||||||||||||||||
| GAAP net revenue | $ | 58,262 | $ | 61,969 | $ | 114,970 | $ | 121,719 | ||||||||||
| Non-GAAP net revenue | $ | 58,262 | $ | 61,969 | $ | 114,970 | $ | 121,719 | ||||||||||
| Gross Profit | ||||||||||||||||||
| GAAP gross profit | $ | 18,745 | $ | 21,625 | $ | 34,044 | $ | 39,941 | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||
| Stock-based compensation | (A) | 294 | 379 | 584 | 847 | |||||||||||||
| Amortization of internally-developed software | (B) | 2,986 | 1,597 | 5,483 | 3,173 | |||||||||||||
| Amortization of purchased intangible assets | (C) | 247 | 247 | 494 | 494 | |||||||||||||
| Non-GAAP gross profit | $ | 22,272 | $ | 23,848 | $ | 40,605 | $ | 44,455 | ||||||||||
| Gross Profit % | ||||||||||||||||||
| GAAP gross profit | 32 | % | 35 | % | 30 | % | 33 | % | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||
| Stock-based compensation | (A) | 1 | % | 1 | % | 1 | % | 1 | % | |||||||||
| Amortization of internally-developed software | (B) | 5 | % | 3 | % | 5 | % | 3 | % | |||||||||
| Amortization of purchased intangible assets | (C) | — | % | — | % | — | % | — | % | |||||||||
| Non-GAAP gross profit | 38 | % | 38 | % | 35 | % | 37 | % | ||||||||||
|
Certain totals do not add due to rounding |
||||||||||||||||||
| Operating Expenses | ||||||||||||||||||
| GAAP operating expenses | $ | 29,083 | $ | 24,894 | $ | 53,646 | $ | 49,554 | ||||||||||
| Stock-based compensation | (A) | (3,401 | ) | (1,958 | ) | (6,328 | ) | (4,348 | ) | |||||||||
| Amortization of internally-developed software | (B) | (378 | ) | (143 | ) | (676 | ) | (255 | ) | |||||||||
| Amortization of purchased intangible assets | (C) | (131 | ) | (131 | ) | (263 | ) | (263 | ) | |||||||||
| Restructuring and other | (D) | (5,715 | ) |
— |
(5,715 | ) |
— |
|||||||||||
| Non-GAAP operating expenses | $ | 19,458 | $ | 22,662 | $ | 40,664 | $ | 44,688 | ||||||||||
| Net loss | ||||||||||||||||||
| GAAP net loss | $ | (13,101 | ) | $ | (5,218 | ) | $ | (24,725 | ) | $ | (14,359 | ) | ||||||
| Non-GAAP adjustments: | ||||||||||||||||||
| Stock-based compensation | (A) | 3,695 | 2,336 | 6,912 | 5,195 | |||||||||||||
| Amortization of internally-developed software | (B) | 3,363 | 1,741 | 6,159 | 3,428 | |||||||||||||
| Amortization of purchased intangible assets | (C) | 378 | 378 | 756 | 756 | |||||||||||||
| Restructuring and other | (D) | 5,715 | — | 5,715 | — | |||||||||||||
| Non-cash interest expense | (E) | 2,316 | 2,144 | 4,557 | 4,247 | |||||||||||||
| Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate | (F) | (876 | ) | (295 | ) | 494 | 1,323 | |||||||||||
| Non-GAAP net income (loss) | $ | 1,490 | $ | 1,086 | $ | (132 | ) | $ | 590 | |||||||||
| Diluted Net Loss Per Share | ||||||||||||||||||
| GAAP net loss per share | $ | (0.15 | ) | $ | (0.06 | ) | $ | (0.28 | ) | $ | (0.17 | ) | ||||||
| Non-GAAP adjustments: | ||||||||||||||||||
| Stock-based compensation | (A) | 0.04 | 0.03 | 0.08 | 0.06 | |||||||||||||
| Amortization of internally-developed software | (B) | 0.04 | 0.02 | 0.07 | 0.04 | |||||||||||||
| Amortization of purchased intangible assets | (C) | — | — | 0.01 | 0.01 | |||||||||||||
| Restructuring and other | (D) | 0.06 | — | 0.06 | — | |||||||||||||
| Non-cash interest expense | (E) | 0.03 | 0.03 | 0.05 | 0.05 | |||||||||||||
| Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate | (F) | (0.01 | ) | — | 0.01 | 0.02 | ||||||||||||
| Non-GAAP diluted net income (loss) per share | $ | 0.02 | $ | 0.01 | $ | — | $ | 0.01 | ||||||||||
| Certain totals do not add due to rounding | ||||||||||||||||||
| Shares used in calculating diluted net income (loss) per share on a non-GAAP basis | 88,813 | 85,413 | 88,600 | 85,747 | ||||||||||||||
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) 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, are items arising from pre-acquisition activities and therefore are properly determined at the time of an acquisition. Although 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.
(D) Restructuring and other. Included in our GAAP presentation, we incurred expenses related to our restructuring effort to better align our cost structure with current revenue levels. Restructuring and other expenses consist primarily of employees' severance payments, related employee benefits, related legal fees, asset impairment charges and charges related to leases and other contract termination costs. These are one-time in nature costs that are not indicative of our core operating performance.
(E) Non-cash interest expense. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the
(F) 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 and E 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.
| Reconciliation of Net Loss to Adjusted EBITDA | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net loss | $ | (13,101 | ) | $ | (5,218 | ) | $ | (24,725 | ) | $ | (14,359 | ) | ||||
| Income tax provision | 117 | 249 | 406 | 1,537 | ||||||||||||
| Interest expense and other, net | 2,646 | 1,700 | 4,717 | 3,209 | ||||||||||||
| Depreciation and amortization | 5,669 | 3,827 | 10,775 | 7,564 | ||||||||||||
| EBITDA | (4,669 | ) | 558 | (8,827 | ) | (2,049 | ) | |||||||||
| Stock-based compensation | 3,695 | 2,336 | 6,912 | 5,195 | ||||||||||||
| Restructuring and other | 5,715 | — | 5,715 | — | ||||||||||||
| Adjusted EBITDA | $ | 4,741 | $ | 2,894 | $ | 3,800 | $ | 3,146 | ||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170807005815/en/
Investor Relations Contact for
ebylin@servicesource.com
Source:
News Provided by Acquire Media
