Press Release

ServiceSource Reports Third 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 third quarter ended September 30, 2013.

  • Revenue: $66.5 million
  • Adjusted EBITDA: $5.3 million
  • Record amount of cash and short term investments: $278.3 million
  • Three new Renew OnDemand subscription deals signed
  • Total subscription bookings up over 300% year-over-year

"During the third quarter, ServiceSource delivered solid progress in several key areas of the business, contributing to revenue and profitability that met or exceeded the high-end of guidance," said Mike Smerklo, ServiceSource's Chairman and Chief Executive Officer. "The shift to the Recurring Revenue Economy has accelerated adoption of our Renew OnDemand application, evidenced by a 300% year over year increase in subscription bookings."

Revenue for the third quarter of fiscal 2013 was $66.5 million, a 13% increase over the $59.1 million delivered in the same period of 2012.

Adjusted EBITDA in the quarter was $5.3 million, compared with $4.8 million for the same period last year.

GAAP net loss in the quarter was $5.5 million, or $0.07 per share, compared with a net loss of $3.6 million, or $0.05 per share for the same period last year.

Non-GAAP net income in the quarter was $2.0 million, or $0.02 per diluted share, compared with a net income of approximately $1.9 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 the benefits of ServiceSource offerings, 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; 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; 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; 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   Nine Months Ended
    September 30,   September 30,
    2013   2012   2013   2012
Net revenue   $ 66,482     $ 59,090     $ 195,300     $ 176,358  
Cost of revenue   39,730     34,544     116,848     101,002  
Gross profit   26,752     24,546     78,452     75,356  
Operating expenses:                
Sales and marketing   13,731     13,512     43,906     41,158  
Research and development   5,500     4,416     18,542     13,295  
General and administrative   11,177     10,000     33,182     30,639  
Total operating expenses   30,408     27,928     95,630     85,092  
Loss from operations   (3,656 )   (3,382 )   (17,178 )   (9,736 )
Other income (expense):                
Interest expense   (1,272 )   (70 )   (1,376 )   (180 )
Other, net   179     190     (119 )   (124 )
Loss before income taxes   (4,749 )   (3,262 )   (18,673 )   (10,040 )
Income tax provision   753     322     2,190     31,589  
Net loss   $ (5,502 )   $ (3,584 )   $ (20,863 )   $ (41,629 )
Net loss per share, basic and diluted   $ (0.07 )   $ (0.05 )   $ (0.27 )   $ (0.56 )
Weighted average common shares outstanding, basic and diluted   79,740     74,667     77,557     73,994  
                 
(1) Includes stock-based compensation expense as follows:                
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2013   2012   2013   2012
Cost of revenue   $ 802     $ 763     $ 2,222     $ 2,050  
Sales and marketing   2,414     2,180     7,396     5,836  
Research and development   753     562     1,758     1,455  
General and administrative   1,989     2,148     5,925     5,919  
Total stock-based compensation   $ 5,958     $ 5,653     $ 17,301     $ 15,260  
                                 
ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
    September 30,   December 31,
    2013   2012
Assets        
Current assets:        
Cash and cash equivalents   $ 174,674     $ 76,568  
Short-term investments   103,604     32,874  
Accounts receivable, net   63,889     65,238  
Deferred income taxes   286     389  
Prepaid expenses and other   5,245     5,178  
Total current assets   347,698     180,247  
Property and equipment, net   28,150     34,513  
Deferred debt issuance costs, net   3,535     71  
Deferred income taxes, net of current portion   1,921     2,321  
Other assets, net   761     986  
Goodwill   6,334     6,334  
Total assets   $ 388,399     $ 224,472  
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable   $ 5,698     $ 3,293  
Accrued taxes   2,168     1,056  
Accrued compensation and benefits   16,988     15,738  
Other accrued liabilities   12,932     10,403  
Current portion of capital lease obligations   333     326  
Total current liabilities   38,119     30,816  
Convertible notes, net   112,302      
Obligations under capital leases, net of current portion   398     638  
Other long-term liabilities   4,692     6,091  
Total liabilities   155,511     37,545  
Stockholders' equity:        
Common stock   8     8  
Treasury stock   (441 )   (441 )
Additional paid-in capital   277,309     210,650  
Accumulated deficit   (44,261 )   (23,398 )
Accumulated other comprehensive income   273     108  
Total stockholders' equity   232,888     186,927  
Total liabilities and stockholders' equity   $ 388,399     $ 224,472  
                 
ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
    Nine Months Ended
    September 30,
    2013   2012
Cash flows from operating activities        
Net loss   $ (20,863 )   $ (41,629 )
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization   9,010     7,092  
Amortization of deferred financing costs   885     135  
Accretion on premium on short-term investments   569     577  
Deferred income taxes   504     32,534  
Stock-based compensation   17,301     15,260  
Income tax charge (benefit) from stock-based compensation   249     (266 )
Changes in operating assets and liabilities:        
Accounts receivable   1,527     (4,237 )
Prepaid expenses and other   (174 )   734  
Accounts payable   2,581     (1,087 )
Accrued taxes   1,110     85  
Accrued compensation and benefits   1,227     (5,094 )
Other accrued liabilities   838     5,050  
Net cash provided by operating activities   14,764     9,154  
Cash flows from investing activities        
Acquisition of property and equipment   (3,108 )   (17,049 )
Purchases of short-term investments   (78,502 )   (31,100 )
Sales of short-term investments   5,336     52,050  
Maturities of short-term investments   2,000     21,415  
Net cash used in (provided by) investing activities   (74,274 )   25,316  
Cash flows from financing activities        
Proceeds from issuance of convertible notes   150,000      
Issuance costs related to the issuance of convertible notes   (4,350 )    
Payments of convertible note hedges   (31,408 )    
Proceeds from the issuance of warrants   21,763      
Repayment on capital leases obligations   (245 )   (234 )
Proceeds from common stock issuances   21,969     10,279  
Income tax charge (benefit) from stock-based compensation   (249 )   266  
Net cash provided by financing activities   157,480     10,311  
Net increase in cash and cash equivalents   97,970     44,781  
Effect of exchange rate changes on cash and cash equivalents   136     (487 )
Cash and cash equivalents at beginning of period   76,568     65,983  
Cash and cash equivalents at end of period   $ 174,674     $ 110,277  
                 

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   Nine Months Ended
        September 30,   September 30,
        2013   2012   2013   2012
Gross Profit                    
GAAP gross profit       $ 26,752     $ 24,546     $ 78,452     $ 75,356  
Non-GAAP adjustments:                    
Stock-based compensation   (A)   802     763     2,222     2,050  
Amortization of internally-developed software   (B)   847     432     2,506     890  
Non-GAAP gross profit       $ 28,401     $ 25,741     $ 83,180     $ 78,296  
Gross Profit %                    
GAAP gross profit       40 %   42 %   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       43 %   44 %   43 %   44 %
Certain totals do not add due to rounding                    
Operating Expenses                    
GAAP operating expenses       $ 30,408     $ 27,928     $ 95,630     $ 85,092  
Stock-based compensation   (A)   (5,156 )   (4,890 )   (15,079 )   (13,210 )
Amortization of internally-developed software   (B)   (424 )   (355 )   (1,306 )   (1,167 )
Non-GAAP operating expenses       $ 24,828     $ 22,683     $ 79,245     $ 70,715  
Net Income (Loss)                    
GAAP net loss       $ (5,502 )   $ (3,584 )   $ (20,863 )   $ (41,629 )
Non-GAAP adjustments:                    
Stock-based compensation   (A)   5,958     5,653     17,301     15,260  
Amortization of internally-developed software   (B)   1,271     787     3,812     2,057  
One-time income tax items   (C)               33,072  
Non-cash interest expense   (D)   924         924      
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate   (E)   (609 )   (949 )   844     (4,394 )
Non-GAAP net income       $ 2,042     $ 1,907     $ 2,018     $ 4,366  
Diluted Net Income Per Share                    
GAAP net loss per share       $ (0.07 )   $ (0.05 )   $ (0.27 )   $ (0.56 )
Non-GAAP adjustments:                    
Stock-based compensation   (A)   0.07     0.07     0.21     0.20  
Amortization of internally-developed software   (B)   0.02     0.01     0.05     0.03  
One-time income tax items   (C)               0.42  
Non-cash interest expense   (D)   0.01         0.01      
Income tax effect on non-GAAP adjustments as well as the impact of normalizing the effective income tax rate   (E)   (0.01 )   (0.01 )   0.01     (0.06 )
Non-GAAP diluted net income per share       $ 0.02     $ 0.02     $ 0.02     $ 0.03  
Certain totals do not add due to rounding                    
Shares used in calculating diluted net income per share on a non-GAAP basis       84,219     79,859     81,290     78,220  

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   Nine Months Ended
    September 30,   September 30,
    2013   2012   2013   2012
Net loss   $ (5,502 )   $ (3,584 )   $ (20,863 )   $ (41,629 )
Income tax provision   753     322     2,190     31,589  
Other expense, net   1,093     (120 )   1,495     304  
Depreciation   2,990     2,504     9,010     7,081  
EBITDA   (666 )   (878 )   (8,168 )   (2,655 )
Stock-based compensation   5,958     5,653     17,301     15,260  
Adjusted EBITDA   $ 5,292     $ 4,775     $ 9,133     $ 12,605  
                                 
ServiceSource International, Inc.
Revenue by Segment
(In thousands)
(unaudited)
    Three Months Ended
September 30,
    2013   2012
        % of       % of
    $   Revenue   $   Revenue
NALA   $ 45,068     68 %   $ 37,647     64 %
EMEA   15,625     23 %   14,159     24 %
APJ   5,789     9 %   7,284     12 %
    $ 66,482     100 %   $ 59,090     100 %
                 
    Nine Months Ended
September 30,
    2013   2012
        % of       % of
    $   Revenue   $   Revenue
NALA   $ 125,357     64 %   $ 110,720     63 %
EMEA   51,383     26 %   45,425     26 %
APJ   18,560     10 %   20,213     11 %
    $ 195,300     100 %   $ 176,358     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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