ServiceSource® (Nasdaq: SREV), a global leader in
outsourced customer success and revenue growth solutions, today
announced financial results for the third quarter ended
September 30, 2017.
"With all key financial metrics beating guidance, ServiceSource
delivered a solid quarter in Q3. Our teams executed well on
multiple fronts, with another strong quarter of new logo and
expansion sales complemented by improved performance and outcomes
for our installed base," said Christopher M. Carrington, CEO of
ServiceSource. "While Q4 revenue will be muted from our earlier
expectations, we continue to see improvements in the underlying
long-term fundamentals of the business."
GAAP revenue was $58.1 million in the third quarter,
representing a 7.0% decrease from the $62.5 million delivered in
the same period in the prior year.
For the third quarter of fiscal year 2017, GAAP net loss in the
quarter was $5.2 million, or $0.06 per share, compared with GAAP
net loss of $9.3 million, or $0.11 per share, for the same period
last year. Non-GAAP net income in the quarter was $2.0 million
compared with Non-GAAP net income of $1.3 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 $0.02 per basic
and diluted share for the same period last year. Adjusted EBITDA
was income of $5.7 million, compared with income of $4.1 million
for the same period last year.
A reconciliation of GAAP to non-GAAP financial measures has been
provided following the financial statement tables included in this
press release.
For the fourth quarter of fiscal 2017, ServiceSource is
providing the following guidance:
- Revenue of $61 million to $64
million
- GAAP gross margin of 31.3% to 34.5%;
non-GAAP gross margin of 36.5% to 39.5%
- GAAP operating expenses of $24 million
to $25 million; non-GAAP operating expenses of $20 million to $21
million
- GAAP net loss of $5.5 million to $7.5
million; non-GAAP net income of $1.5 million to $3.5 million
For the fiscal 2017, ServiceSource is reaffirming its
guidance:
- Revenue of $234 million to $237
million
- GAAP gross margin of 31% to 32%;
non-GAAP gross margin of 36% to 37%
- GAAP operating expenses of $99 million
to $100 million; non-GAAP operating expenses of $78 million to $79
million
- GAAP net loss of $39.5 million to $41.5
million; non-GAAP net income of $3.5 million to $5.5 million
- Adjusted EBITDA of $15 to $17
million
Please see the third 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 third quarter 2017 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: 1122868. 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, 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 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 except as may be legally
required we assume no obligation to update these forward-looking
statements.
About ServiceSource
ServiceSource (NASDAQ: SREV) is a global leader in providing
outsourced, performance-based revenue growth and customer success
outcomes. ServiceSource's Revenue-as-a-Service platform is designed
to measurably accelerate customer ROI by helping companies to more
efficiently and effectively find, convert, grow and retain their
B2B customer relationships. Trusted by more than 65 global market
leaders in the cloud/XaaS, software, technology hardware,
healthcare & life sciences and industrial sectors,
ServiceSource sells, manages or renews $9+ billion of revenue
annually on behalf of its clients. By leveraging a robust
technology suite, predictive data models and more than 3,000
revenue delivery professionals, only ServiceSource brings to market
over 15 years of expertise and the ability to drive recurring
revenue growth in 35 languages to more than 170 countries. To learn
more, visit http://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
ServiceSource International, Inc. Condensed
Consolidated Statements of Operations (In thousands, except per
share amounts) (Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017
2016 2017 2016 Net revenue $ 58,132 $ 62,514 $
173,103 $ 184,233 Cost of revenue (1) 40,803 40,789
121,729 122,568 Gross profit 17,329 21,725
51,374 61,665 Operating expenses: Sales and
marketing (1) 7,829 8,847 24,790 30,626 Research and development
(1) 1,048 1,952 4,534 6,132 General and administrative (1) 12,543
14,638 40,029 38,233 Restructuring and other (1) 545 —
6,259 — Total operating expenses 21,965
25,437 75,612 74,991 Loss from operations
(4,636 ) (3,712 ) (24,238 ) (13,326 ) Interest expense and other,
net (2,839 ) (2,291 ) (7,555 ) (5,499 ) Gain (loss) on cost basis
equity investment 2,100 (2,300 ) 2,100 (2,300 ) Loss
before income taxes (5,375 ) (8,303 ) (29,693 ) (21,125 ) Income
tax (benefit) provision (180 ) 968 227 2,505
Net loss $ (5,195 ) $ (9,271 ) $ (29,920 ) $ (23,630 ) Net loss per
share, basic and diluted $ (0.06 ) $ (0.11 ) $ (0.34 ) $ (0.27 )
Weighted average common shares outstanding, basic and diluted
89,511 86,283 88,907 85,981 (1)
Includes stock-based compensation expense as follows:
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017 2016 Cost of revenue $
385 $ 299 $ 969 $ 1,146 Sales and marketing 982 565 2,834 2,152
Research and development 42 106 107 448 General and administrative
2,074 1,276 6,486 3,695 Restructuring and other 352 —
352 — Total stock-based compensation $ 3,835 $
2,246 $ 10,748 $ 7,441
ServiceSource
International, Inc. Condensed Consolidated Balance
Sheets (In thousands) (Unaudited)
September 30,2017
December 31,2016
Assets Current assets: Cash and cash equivalents $ 39,585 $
47,692 Short-term investments 140,188 137,881 Accounts receivable,
net 53,061 63,289
Prepaid expenses and other
7,326
7,607
Total current assets 240,160 256,469 Property and equipment,
net 35,703 38,180 Deferred income taxes, net of current portion 69
64 Goodwill and intangibles, net 6,797 7,932 Other assets, net
3,556 3,445 Total assets $ 286,285 $ 306,090
Liabilities and Stockholders’ Equity Current
liabilities: Accounts payable $ 1,129 $ 1,916 Accrued taxes 387
1,388 Accrued compensation and benefits 17,470 21,579 Convertible
notes, net 141,726 — Deferred revenue 1,713 4,152 Accrued expenses
6,127 5,891 Other current liabilities 1,241 2,958
Total current liabilities 169,793 37,884 Convertible notes, net —
134,775 Other long-term liabilities 7,127 6,495 Total
liabilities 176,920 179,154
Stockholders' equity:
Common stock 8 8 Treasury stock (441 ) (441 ) Additional paid-in
capital 355,969 344,521 Accumulated deficit (246,281 ) (216,361 )
Accumulated other comprehensive income 110 (791 )
Total stockholders' equity
109,365 126,936
Total liabilities and stockholders'
equity
$ 286,285 $ 306,090
ServiceSource
International, Inc. Condensed Consolidated Statements of
Cash Flows (In thousands) (Unaudited)
Nine Months EndedSeptember
30,
2017 2016 Cash flows from operating
activities Net loss $ (29,920 ) $ (23,630 ) Adjustments to
reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 17,167 11,636 Amortization of debt
discount and issuance costs 6,951 6,464 Amortization of premium on
short-term investments (172 ) 888 Deferred income taxes 177 1,698
Stock-based compensation 10,396 7,441 Restructuring and other 2,522
— (Gain) loss on cost basis equity investment (2,100 ) 2,300
Changes in operating assets and liabilities: Accounts receivable,
net 12,307 2,778 Deferred revenue (2,440 ) (805 ) Prepaid expenses
and other 387 1,306 Accounts payable (813 ) 407 Accrued taxes
(1,019 ) (627 ) Accrued compensation and benefits (4,713 ) (1,509 )
Accrued expenses (839 ) 1,670 Other liabilities (1,375 ) (311 ) Net
cash provided by operating activities 6,516 9,706
Cash flows from investing activities Acquisition of property
and equipment (13,843 ) (21,203 ) Proceeds from sale of cost basis
equity investment 2,100 — Purchases of short-term investments
(56,589 ) (86,365 ) Sales of short-term investments 51,119 83,331
Maturities of short-term investments 3,506 350 Net
cash used in investing activities (13,707 ) (23,887 )
Cash flows
from financing activities Repayment on capital lease
obligations (52 ) (120 ) Repurchase of common stock — (8,921 )
Proceeds from common stock issuances 1,062 5,034 Minimum tax
withholding requirement (735 ) (770 ) Net cash provided by (used
in) financing activities 275 (4,777 ) Net decrease in cash
and cash equivalents (6,916 ) (18,958 ) Effect of exchange rate
changes on cash and cash equivalents (1,191 ) (1,681 ) Cash and
cash equivalents at beginning of period 47,692 72,334
Cash and cash equivalents at end of period $ 39,585 $ 51,695
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 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 and
other related costs, litigation reserve, (gain) loss on 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 (benefit)
expense. Adjusted EBITDA consists of EBITDA plus non-cash
stock-based compensation expense, restructuring and other related
costs, litigation reserve and (gain) loss on cost basis equity
investment. 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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017 2016
Net Revenue GAAP net revenue $ 58,132 $ 62,514
$ 173,103 $ 184,233 Non-GAAP net revenue $ 58,132
$ 62,514 $ 173,103 $ 184,233
Gross Profit GAAP gross profit $ 17,329 $ 21,725 $ 51,374 $
61,665 Non-GAAP adjustments: Stock-based compensation (A) 385 299
969 1,146 Amortization of internally-developed software (B) 3,514
1,695 8,998 4,867 Amortization of purchased intangible assets (C)
247 246 741 741
Non-GAAP gross profit
$ 21,475 $ 23,965 $ 62,082 $ 68,419
Gross Profit % GAAP gross profit 30 % 35 % 30 % 33 %
Non-GAAP adjustments: Stock-based compensation (A) 1 % — % 1 % 1 %
Amortization of internally-developed software (B) 6 % 3 % 5 % 3 %
Amortization of purchased intangible assets (C) — % — % — %
—
%
Non-GAAP gross profit 37 % 38 % 36 % 37 % Certain totals do not add
due to rounding
Operating Expenses GAAP operating expenses $
21,965 $ 25,437 $ 75,612 $ 74,991 Stock-based compensation (A)
(3,098 ) (1,947 ) (9,427 ) (6,295 ) Amortization of
internally-developed software (B) (476 ) (194 ) (1,151 ) (449 )
Amortization of purchased intangible assets (C) (131 ) (131 ) (394
) (394 ) Restructuring and other (D) (545 ) — (6,259 ) — Litigation
reserve (E) — (1,500 ) — (1,500 ) Non-GAAP operating
expenses $ 17,715 $ 21,665 $ 58,381 $ 66,353
Net loss GAAP net loss $ (5,195 ) $ (9,271 ) $
(29,920 ) $ (23,630 ) Non-GAAP adjustments: Stock-based
compensation (A) 3,483 2,246 10,396 7,441 Amortization of
internally-developed software (B) 3,990 1,888 10,149 5,316
Amortization of purchased intangible assets (C) 378 377 1,134 1,134
Restructuring and other (D) 545 — 6,259 — Litigation reserve (E) —
1,500 — 1,500 (Gain) loss on cost basis equity investment (F)
(2,100 ) 2,300 (2,100 ) 2,300 Non-cash interest expense (G) 2,394
2,217 6,951 6,464
Income tax effect on non-GAAP adjustments
and impact of normalizing the effective income tax rate
(H) (1,506 ) 78 (1,012 ) 2,813 Non-GAAP net income $
1,989 $ 1,335 $ 1,857 $ 3,338
Diluted Net Loss Per Share GAAP net loss per share $ (0.06 )
$ (0.11 ) $ (0.34 ) $ (0.27 ) Non-GAAP adjustments: Stock-based
compensation (A) 0.04 0.03 0.12 0.09 Amortization of
internally-developed software (B) 0.04 0.02 0.11 0.06 Amortization
of purchased intangible assets (C) — — 0.01 0.01 Restructuring and
other (D) 0.01 — 0.07 — Litigation reserve (E) — 0.02 — 0.02
Gain/(loss) on cost basis equity investment (F) (0.02 ) 0.03 (0.02
) 0.03 Non-cash interest expense (G) 0.03 0.03 0.08 0.08 Income tax
effect on non-GAAP adjustments and impact of normalizing the
effective income tax rate (H) (0.02 ) — (0.01 ) 0.03
Non-GAAP diluted net income per share $ 0.02 $ 0.02 $
0.02 $ 0.04 Certain totals do not add due to rounding
Shares used in calculating diluted net income (loss) per share on a
non-GAAP basis 89,511 86,283 88,907 85,981
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 stock compensation related
to the accelerated vesting of certain equity awards, 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) Litigation reserve. The Company records a contingent
liability when it is probably that a loss has been incurred and the
amount is reasonably estimable in accordance with accounting for
contingencies. As of September 30, 2017 and 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.
(F) (Gain) loss on 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.
Based on unfavorable growth trends and declining financial
performance of this private company, the Company determined that
its investment was fully impaired and recorded a $2.3 million and
$2.2 million impairment charge in the third and fourth quarters of
2016, respectively. During the quarter ended September 30, 2017,
the Company sold this investment for $2.1 million in cash and
recorded the proceeds as a gain.
(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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017 2016 Net
loss $ (5,195 ) $ (9,271 ) $ (29,920 ) $ (23,630 ) Income tax
(benefit) provision (180 ) 968 227 2,505 Interest expense and
other, net 2,839 2,291 7,555 5,499 Depreciation and amortization
6,342 4,072 17,117 11,636 EBITDA 3,806
(1,940 ) (5,021 ) (3,990 ) Stock-based compensation 3,483 2,246
10,396 7,441 Litigation reserve — 1,500 — 1,500 (Gain) loss on cost
basis equity investment (2,100 ) 2,300 (2,100 ) 2,300 Restructuring
and other 545 — 6,259 — Adjusted EBITDA
$ 5,734 $ 4,106 $ 9,534 $ 7,251
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171108006155/en/
Investor Relations Contact for ServiceSource:ServiceSource
International, Inc.Erik Bylinebylin@servicesource.com
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