Signed 12 new clients in 2016
Expanded FY2016 gross margins by 3 percentage
points
ServiceSource® (Nasdaq: SREV), a global leader in
customer success and revenue lifecycle management solutions, today
announced financial results for the fourth quarter and full year
ended December 31, 2016.
“Our investments in 2016 in our people, platforms, and global
Revenue Delivery Centers improved the results we delivered for our
clients and helped us win 12 new logos last year. As we accelerate
our digital transformation in 2017, we believe our solutions around
customer success, inside sales, channel management, and renewals
will drive even deeper value for new and existing clients. While we
were strengthening our foundation with these investments, we also
drove a 3 percentage point improvement to gross margin for the
second year in a row and increased adjusted EBITDA by $11.5
million," said Christopher M. Carrington, CEO of ServiceSource.
“The foundation we built this past year will serve us well moving
forward as we expand our offerings to help clients find, convert,
grow, and retain revenue at all points along their customers’
journey.”
GAAP revenue was $68.7 million in the fourth quarter,
representing a 5.7% increase from the $65.0 million delivered in
the same period in the prior year. Non-GAAP revenue was $68.7
million, reflecting a 5.6% increase from the same period in the
prior year.
For the fourth quarter of fiscal year 2016, GAAP net loss in the
quarter was $8.5 million, or $0.10 per share, compared with GAAP
net loss of $6.0 million, or $0.07 per share, for the same period
last year. Non-GAAP net income in the quarter was $1.7 million
compared with Non-GAAP net income of $0.3 million for the same
period last year. Non-GAAP net income was $0.02 per basic and
diluted share, compared with non-GAAP net income of $0.00 per basic
and diluted share for the same period last year. Adjusted EBITDA
was $5.7 million, compared with $2.3 million for the same period
last year.
For the full year 2016, GAAP revenue was $252.9 million,
compared with $252.2 million for fiscal year 2015. GAAP
net loss for the year was $32.1 million, or $0.37 per share,
compared with a GAAP net loss of $40.6 million,
or $0.48 per share for 2015. Non-GAAP net income for the
year was $3.6 million, compared with non-GAAP net loss
of $4.2 million in 2015. Non-GAAP net income for the year
was $0.04 per basic and diluted share, compared with non-GAAP net
loss of $0.05 per basic and diluted share for 2015. Adjusted
EBITDA was $12.9 million, compared with adjusted EBITDA of $1.4
million for fiscal year 2015.
A reconciliation of GAAP to non-GAAP financial measures has been
provided in the financial statement tables included in this press
release.
With respect to Q1 and full year guidance, while ServiceSource
remains confident in its market position and future growth
prospects, in the first quarter of 2017 the Company has experienced
churn substantially above industry norms driven by several clients.
This churn is having an impact on revenue in Q1 and will materially
affect 2017 growth expectations.
For the first quarter of fiscal 2017, ServiceSource is providing
the following guidance:
- Revenue of $55 million to $58
million
- GAAP gross margin of 26% to 29%;
non-GAAP gross margin of 31% to 34%
- GAAP operating expenses of
approximately $27 million; non-GAAP operating expenses of
approximately $23 million
- GAAP net loss of $11.5 million to $14.5
million; non-GAAP net loss of $1.5 million to $3.5 million
- Adjusted EBITDA loss of $1 million to
$4 million
For the fiscal 2017, ServiceSource is providing the following
guidance:
- Revenue of $248 million to $258
million
- GAAP gross margin of 32% to 34%;
non-GAAP gross margin of 38% to 40%
- GAAP operating expenses of $109 million
to $117 million; non-GAAP operating expenses of $92 million to $98
million
- GAAP net loss of $35.5 million to $39.5
million; non-GAAP net income of $2 million to $5 million
- Adjusted EBITDA of $11 million to $15
million
Please see the fourth 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
ServiceSource will discuss its fourth quarter 2016 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: 56067655. 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 expectations for financial and
operational performance. 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 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 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 (NASDAQ: SREV) provides the world's leading B2B
companies with expert, technology-enabled solutions and
best-practice processes proven to grow and retain revenue from
existing customers. With a holistic approach to the entire revenue
lifecycle, ServiceSource solutions help companies drive customer
adoption, expansion and renewal. Only ServiceSource brings to
market more than 15 years of exclusive focus on customer success
and revenue growth, global deployments across 35 languages, and a
powerful, purpose-built Revenue Lifecycle Management technology
platform. For more information, go to
http://www.servicesource.com.
Connect with ServiceSource:
http://www.facebook.com/ServiceSourcehttp://twitter.com/servicesourcehttp://www.linkedin.com/company/servicesourcehttp://www.youtube.com/user/ServiceSourceMKTG
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, 2016 2015 2016
2015 Net revenue $ 68,654 $ 64,960 $ 252,887 $ 252,203 Cost
of revenue (1) 42,502 40,293 165,069 171,369
Gross profit 26,152 24,667 87,818
80,834 Operating expenses: Sales and marketing (1) 11,345
12,419 41,972 44,086 Research and development (1) 2,212 3,538 8,344
16,480 General and administrative (1) 14,763 12,521 52,995 46,299
Restructuring and other — (75 ) — 3,662 Total
operating expenses 28,320 28,403 103,311
110,527 Loss from operations (2,168 ) (3,736 ) (15,493 )
(29,693 ) Interest expense and other, net (3,204 ) (2,218 ) (8,704
) (9,316 ) Impairment of cost basis equity investment (2,200 ) —
(4,500 ) — Loss before income taxes (7,572 ) (5,954 )
(28,697 ) (39,009 ) Income tax provision 924 68 3,429
1,584 Net loss $ (8,496 ) $ (6,022 ) $ (32,126 ) $
(40,593 ) Net loss per share, basic and diluted $ (0.10 ) $ (0.07 )
$ (0.37 ) $ (0.48 ) Weighted average common shares outstanding,
basic and diluted 87,481 86,318 86,318 85,417
(1) Includes stock-based compensation expense as
follows:
Three Months Ended Twelve Months
Ended December 31, December 31, 2016
2015 2016 2015 Cost of revenue $ 338 $ 466 $
1,484 $ 2,666 Sales and marketing 852 950 3,004 3,393 Research and
development 138 — 586 1,299 General and administrative 1,983 1,166
5,678 6,029 Restructuring and other $ — $ — $ —
$ 2,579 Total stock-based compensation $ 3,311
$ 2,582 $ 10,752 $ 15,966
ServiceSource International, Inc. Condensed Consolidated
Balance Sheets (In thousands) (Unaudited)
December 31, December 31, 2016 2015
Assets Current assets: Cash and cash equivalents $ 47,692 $
72,334 Short-term investments 137,881 136,378 Accounts receivable,
net 63,289 56,563 Deferred income taxes — 97 Prepaid expenses and
other 7,607 8,167 Total current assets 256,469
273,539 Property and equipment, net 38,180 25,903 Deferred income
taxes, net of current portion 64 1,759 Goodwill and intangibles,
net 7,932 9,444 Other assets, net 3,445 6,919 Total
assets $ 306,090 $ 317,564
Liabilities and
Stockholders’ Equity Current liabilities: Accounts payable $
1,916 $ 1,067 Accrued taxes 1,388 1,112 Accrued compensation and
benefits 21,579 22,116 Deferred revenue 4,152 5,770 Accrued
expenses
5,892
4,716 Other current liabilities
2,959
2,327 Total current liabilities
37,886
37,108 Obligations under capital leases, net of current portion 113
198 Convertible notes, net 134,775 126,051 Other long-term
liabilities
6,382
6,232 Total liabilities
179,156
169,589 Stockholders’ equity: Common stock 8 8 Treasury stock (441
) (441 ) Additional paid-in capital
344,521
331,922 Accumulated deficit
(216,363
) (183,941 ) Accumulated other comprehensive income (791 ) 427
Total stockholders’ equity
126,934
147,975 Total liabilities and stockholders’ equity $
306,090 $ 317,564
ServiceSource
International, Inc. Condensed Consolidated Statements of
Cash Flows (In thousands) (Unaudited)
Twelve months
ended December 31, 2016 2015
Cash flows from operating activities Net loss $ (32,126 ) $
(40,593 ) Adjustments to reconcile net loss to net cash provided by
operating activities: Depreciation and amortization 16,052 13,736
Amortization of debt discount and issuance costs 8,724 8,048
Accretion of premium on short-term investments and other 1,091 (101
) Deferred income taxes 1,924 969 Stock-based compensation 10,752
13,387 Restructuring and other — 2,579 Impairment of cost basis
equity investment 4,500 — Changes in operating assets and
liabilities: Accounts receivable, net (7,156 ) 12,002 Deferred
revenue (1,589 ) (1,204 ) Prepaid expenses and other (673 ) (1,825
) Accounts payable 872 (1,562 ) Accrued taxes 269 (539 ) Accrued
compensation and benefits (119 ) 2,706 Accrued expense 1,182 (3,940
) Other liabilities 833 (66 ) Net cash provided by operating
activities 4,536 3,597
Cash flows from investing
activities Acquisition of property and equipment (26,421 )
(11,975 ) Restricted cash — (1,244 ) Purchases of short-term
investments (102,130 ) (95,421 ) Sales of short-term investments
98,028 82,351 Maturities of short-term investments 1,525
1,095 Net cash used in investing activities (28,998 )
(25,194 )
Cash flows from financing activities Repayment on
capital lease obligations (131 ) (170 ) Repurchase of common stock
(8,921 ) (1,212 ) Proceeds from common stock issuances 10,866 5,703
Minimum tax withholding requirement (877 ) (974 )
Net cash provided by financing
activities
937 3,347 Net decrease in cash and cash equivalents
(23,525 ) (18,250 ) Effect of exchange rate changes on cash and
cash equivalents (1,117 ) 202 Cash and cash equivalents at
beginning of period 72,334 90,382 Cash and cash
equivalents at end of period $ 47,692 $ 72,334
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, restructuring related costs,
litigation reserve, impairment of cost basis equity investment,
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, restructuring related costs, litigation
reserve, impairment of cost basis equity investment 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
Twelve Months Ended December 31, December 31,
2016 2015 2016 2015
Net Revenue GAAP net revenue $ 68,654 $ 64,960 $ 252,887 $
252,203 Adjustments to revenue (A) — 75 — 350
Non-GAAP net revenue $ 68,654 $ 65,035 $
252,887 $ 252,553
Gross Profit GAAP
gross profit $ 26,152 $ 24,667 $ 87,818 $ 80,834 Non-GAAP
adjustments: Adjustments to revenue (A) — 75 — 350 Stock-based
compensation (B) 338 466 1,484 2,666 Amortization of
internally-developed software (C) 2,076 1,100 6,943 4,483
Amortization of purchased intangible assets (D) 247 247
988 988 Non-GAAP gross profit $ 28,813
$ 26,555 $ 97,233 $ 89,321
Gross
Profit % GAAP gross profit 38 % 38 % 35 % 32 % Non-GAAP
adjustments: Adjustments to revenue (A) — % — % — % — % Stock-based
compensation (B) — % 1 % 1 % 1 % Amortization of
internally-developed software (C) 3 % 2 % 3 % 2 % Amortization of
purchased intangible assets (D) — % — % — % — % Non-GAAP gross
profit 42 % 41 % 38 % 35 % Certain totals do not add due to
rounding
Operating Expenses GAAP operating expenses $ 28,320
$ 28,403 $ 103,311 $ 110,527 Stock-based compensation (B) (2,973 )
(2,116 ) (9,268 ) (10,721 ) Amortization of internally-developed
software (C) (242 ) (291 ) (691 ) (542 ) Amortization of purchased
intangible assets (D) (131 ) (131 ) (525 ) (525 ) Restructuring and
other (E) — 75 — (3,662 ) Litigation reserve (F) — —
(1,500 ) — Non-GAAP operating expenses $ 24,974 $
25,940 $ 91,327 $ 95,077
Net
loss GAAP net loss $ (8,496 ) $ (6,022 ) $ (32,126 ) $ (40,593
) Non-GAAP adjustments: Adjustments to revenue (A) — 75 — 350
Stock-based compensation (B) 3,311 2,582 10,752 13,387 Amortization
of internally-developed software (C) 2,317 1,390 7,634 5,025
Amortization of purchased intangible assets (D) 378 378 1,513 1,513
Restructuring and other (E) — (75 ) — 3,662 Litigation reserve (F)
— — 1,500 — Impairment of cost basis equity investment (G) 2,200 —
4,500 — Non-cash interest expense (H) 2,260 2,092 8,724 8,057
Income tax effect on non-GAAP adjustments and impact of normalizing
the effective income tax rate (I) (234 ) (127 ) 1,059 4,390
Non-GAAP net income (loss) $ 1,736 $ 293 $
3,556 $ (4,209 )
Diluted Net Loss Per Share
GAAP net loss per share $ (0.10 ) $ (0.07 ) $ (0.37 ) $ (0.48 )
Non-GAAP adjustments: Adjustments to revenue (A) — — — —
Stock-based compensation (B) 0.04 0.03 0.12 0.16 Amortization of
internally-developed software (C) 0.03 0.02 0.09 0.06 Amortization
of purchased intangible assets (D) — — 0.02 0.02 Restructuring and
other (E) — — — 0.04 Litigation reserve (F) — — 0.02 — Impairment
of cost basis equity investment (G) 0.03 — 0.05 — Non-cash interest
expense (H) 0.03 0.02 0.10 0.09 Income tax effect on non-GAAP
adjustments and impact of normalizing the effective income tax rate
(I) — — 0.01 0.05 Non-GAAP diluted net
income (loss) per share $ 0.02 $ — $ 0.04 $
(0.05 ) Certain totals do not add due to rounding Shares used in
calculating diluted net income (loss) per share on a non-GAAP basis
87,481 86,318 86,318 85,417
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 and $0.4 million of revenue was not
recognized for the three and twelve months ended December 31, 2015,
respectively. At December 31, 2016 we have fully realized the
impact of this adjustment in our non-GAAP net revenue
presentation.
(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) Restructuring and other expense. 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,
stock-based compensation related to accelerated vesting of certain
equity awards and charges related to cancellation of contracts.
These are one-time in nature costs that are not indicative of our
core operating performance.
(F) Litigation reserve. The Company records a contingent
liability when it is probable that a loss has been incurred and the
amount is reasonably estimable in accordance with accounting for
contingencies. As of December 31, 2016, the Company has accrued a
$1.5 million reserve relating to our potential liability for
currently pending disputes. These reserves are one-time in nature
charges that are not indicative of our core operating
performance.
(G) Impairment of cost basis equity investment. In 2013 we made
an equity investment in a private company for $4.5 million, which
represented less than 5% of the outstanding equity of the company.
We carry this investment on a cost basis and periodically evaluate
its recoverability to determine if there is an impairment in the
carrying value. Based on unfavorable growth trends and declining
financial performance of this investee, the Company determined that
its investment was impaired during the third quarter of 2016 and
recorded a $2.3 million impairment charge. During the three months
ended December 31, 2016 the Company determined that the investment
was further impaired and recorded a $2.2 million impairment charge
at December 31, 2016. This equity investment is not an asset that
supports or is use in our core operations and the impairment charge
is not indicative of our core operating performance.
(H) 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.
(I) 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, G and H 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 Twelve months
ended December 31, December 31, 2016
2015 2016 2015 Net loss $
(8,496 ) $ (6,022 ) $ (32,126 ) $ (40,593 ) Income tax provision
924 68 3,429 1,584 Interest expense and other, net 3,204 2,218
8,704 9,316 Depreciation and amortization 4,529 3,416
16,165 13,736 EBITDA 161 (320 ) (3,828 ) (15,957 )
Stock-based compensation 3,311 2,582 10,752 13,387 Litigation
reserve — — 1,500 — Impairment of cost basis equity investment
2,200 — 4,500 — Adjustments to revenue — 75 — 350 Restructuring and
other (1) — (75 ) — 3,662 Adjusted EBITDA $
5,672 $ 2,262 $ 12,924 $ 1,442
(1) Restructuring and other includes $2.6 million of stock-based
compensation in the twelve-months ended December 31, 2015.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170221006605/en/
Investor Relations Contact for ServiceSource:ServiceSource
International, Inc.Erik Bylin,
415-901-4182ebylin@servicesource.com
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