ServiceSource Reports First Quarter 2020 Financial Results

Total Revenue of $50.1 million

GAAP Net Loss of $5.9 million; Non-GAAP Net Loss of $1.7 million

Adjusted EBITDA of $0.1 million

DENVER–(BUSINESS WIRE)–#Earnings–ServiceSource (NASDAQ: SREV), the digital customer journey experience company, today announced financial results for the three months ended March 31, 2020.

“In the face of dynamic macroeconomic conditions brought about by the COVID-19 pandemic, we delivered a strong quarter with solid execution throughout the business. We performed well against our financial objectives, delivered impressive results and outcomes for our clients, and made further progress on our strategic priorities,” said Gary B. Moore, ServiceSource’s chairman and chief executive officer. “I am incredibly proud of how our leadership team and our employees around the world transitioned to a 100% virtual work-from-home environment in a matter of days. We demonstrated the strength and resilience of our operating model and ensured uninterrupted service for the market-leading brands that rely on us. As we move forward, we will continue prioritizing the safety and well-being of our employees, supporting and leading our clients through this period of uncertainty, and investing in our business for the long term.”

Key Financial Results – First Quarter 2020

  • GAAP revenue was $50.1 million, compared with $55.5 million reported for Q1 2019.
  • GAAP net loss was $5.9 million or $0.06 per diluted share, compared with GAAP net loss of $5.7 million or $0.06 per diluted share reported for Q1 2019.
  • Non-GAAP net loss was $1.7 million or $0.02 per diluted share, compared with $1.1 million or $0.01 per diluted share reported for Q1 2019.
  • Adjusted EBITDA was $0.1 million, compared with $1.0 million reported for Q1 2019.
  • Ended the quarter with $49.5 million of cash and cash equivalents and restricted cash, with $27.0 million of borrowings under the Company’s $40.0 million revolving line of credit.

A reconciliation of GAAP to non-GAAP financial measures is provided following the Condensed Consolidated Financial Statement tables contained within this press release.

Key Business Highlights – First Quarter 2020

  • Migrated all employees worldwide from an in-office to a work-from-home environment.
  • Successfully transitioned to a virtual operating model encompassing 100% remote sourcing, hiring, onboarding, training and operational delivery.
  • Successfully renewed or extended approximately 95% of the contract value that was up for renewal during the quarter.
  • Announced one new logo win in the first quarter and closed two additional new logos through the first month of the second quarter.
  • Grew revenue with six of the top 10 clients on a trailing twelve-month basis and closed up-sell and expansion wins with four of the top five clients.

2020 Outlook

As a result of the COVID-19 pandemic and the increasing level of uncertainty on the size or duration of its global economic impact, ServiceSource is withdrawing the fiscal year 2020 contextual outlook that was provided on February 20, 2020.

Quarterly Conference Call

ServiceSource will discuss its first quarter 2020 results on May 8, 2020, via teleconference at 9:30 a.m. Eastern 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: 5588446. In addition, a live webcast of the call will also be available on the Investor Relations section of the ServiceSource website under Events and Presentations. The related slide presentation and 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 and whether our investments will produce anticipated benefits. 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, the contraction in our revenue from one or more of our key clients – either in the ordinary course of business or as a result of macroeconomic conditions resulting from the COVID-19 pandemic – in each case resulting in churn, or our clients not expanding their relationships with us; economic or other adverse events or conditions affecting the technology industry, including as a result of the COVID-19 pandemic; 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 International, Inc. (NASDAQ: SREV) brings the world’s greatest brands closer to their customers through digitally-enabled solutions and data-driven insights that personalize and power the moments that matter. Backed by 20 years of experience, an industry-leading technology platform, a robust global footprint and a powerful suite of solutions that enhance every touchpoint along the Customer Journey Experience (CJX™), we deliver impactful revenue growth for global market leaders. Operating out of eight countries with more than 3,000 sales delivery professionals speaking 45 languages, ServiceSource drives billions of dollars in client value annually. To learn more about how we help our clients more effectively find, convert, nurture, grow and retain their customers, visit www.servicesource.com.

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ServiceSource International, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

For the Three Months Ended March 31,

 

2020

 

2019

Net revenue

$

50,114

 

 

$

55,511

 

Cost of revenue(1)

35,560

 

 

39,476

 

Gross profit

14,554

 

 

16,035

 

Operating expenses:

 

 

 

Sales and marketing(1)

7,268

 

 

7,949

 

Research and development(1)

1,181

 

 

1,263

 

General and administrative(1)

10,688

 

 

10,982

 

Restructuring and other related costs

467

 

 

1,058

 

Total operating expenses

19,604

 

 

21,252

 

Loss from operations

(5,050

)

 

(5,217

)

Interest and other expense, net

(874

)

 

(490

)

Loss before provision for income taxes

(5,924

)

 

(5,707

)

Provision for income tax expense

(18

)

 

(12

)

Net loss

$

(5,942

)

 

$

(5,719

)

Net loss per share, basic and diluted

$

(0.06

)

 

$

(0.06

)

Weighted-average common shares outstanding, basic and diluted

94,968

 

 

92,914

 

 

 

 

 

(1) Reported amounts include stock-based compensation expense as follows:

 

For the Three Months Ended March 31,

 

2020

 

2019

Cost of revenue

$

45

 

 

$

159

 

Sales and marketing

377

 

 

443

 

Research and development

18

 

 

(6

)

General and administrative

605

 

 

974

 

Total stock-based compensation

$

1,045

 

 

$

1,570

 

 

ServiceSource International, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

47,181

 

 

$

27,089

 

Accounts receivable, net

43,354

 

 

41,754

 

Prepaid expenses and other

5,939

 

 

7,296

 

Total current assets

96,474

 

 

76,139

 

 

 

 

 

Property and equipment, net

34,242

 

 

36,149

 

ROU assets

33,450

 

 

36,396

 

Contract acquisition costs

1,302

 

 

1,602

 

Goodwill

6,334

 

 

6,334

 

Other assets

4,764

 

 

4,844

 

Total assets

$

176,566

 

 

$

161,464

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

1,115

 

 

$

4,392

 

Accrued expenses

3,456

 

 

3,366

 

Accrued compensation and benefits

15,746

 

 

16,700

 

Revolver

27,000

 

 

 

Operating lease liabilities

10,132

 

 

9,652

 

Other current liabilities

1,662

 

 

2,218

 

Total current liabilities

59,111

 

 

36,328

 

 

 

 

 

Operating lease liabilities, net of current portion

30,800

 

 

33,716

 

Other long-term liabilities

2,520

 

 

2,983

 

Total liabilities

92,431

 

 

73,027

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock

 

 

 

Common stock

10

 

 

9

 

Treasury stock

(441

)

 

(441

)

Additional paid-in capital

375,666

 

 

374,525

 

Accumulated deficit

(292,008

)

 

(286,066

)

Accumulated other comprehensive income

908

 

 

410

 

Total stockholders’ equity

84,135

 

 

88,437

 

Total liabilities and stockholders’ equity

$

176,566

 

 

$

161,464

 

 

ServiceSource International, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

For the Three Months Ended March 31,

 

2020

 

2019

Cash flows from operating activities:

 

 

 

Net loss

$

(5,942

)

 

$

(5,719

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

Depreciation and amortization

3,396

 

 

3,285

 

Amortization of contract acquisition costs

279

 

 

400

 

Amortization of ROU assets

2,313

 

 

2,239

 

Stock-based compensation

1,045

 

 

1,570

 

Restructuring and other related costs

431

 

 

1,041

 

Other

18

 

 

18

 

Net changes in operating assets and liabilities:

 

 

 

Accounts receivable, net

(1,722

)

 

3,258

 

Prepaid expenses and other assets

1,323

 

 

(1,277

)

Contract acquisition costs

9

 

 

(108

)

Accounts payable

(3,253

)

 

(18

)

Accrued compensation and benefits

(1,210

)

 

1,094

 

Operating lease liabilities

(1,838

)

 

(2,338

)

Accrued expenses

223

 

 

(1,023

)

Other liabilities

(741

)

 

(338

)

Net cash (used in) provided by operating activities

(5,669

)

 

2,084

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

(1,557

)

 

(2,898

)

Net cash used in investing activities

(1,557

)

 

(2,898

)

Cash flows from financing activities:

 

 

 

Repayment on finance lease obligations

(238

)

 

(190

)

Proceeds from Revolver

27,000

 

 

 

Proceeds from issuance of common stock

76

 

 

141

 

Net cash provided by (used in) financing activities

26,838

 

 

(49

)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

480

 

 

185

 

Net change in cash and cash equivalents and restricted cash

20,092

 

 

(678

)

Cash and cash equivalents and restricted cash, beginning of period

29,383

 

 

27,779

 

Cash and cash equivalents and restricted cash, end of period

$

49,475

 

 

$

27,101

 

 

Use of Non-GAAP Financial Measures

To supplement its Condensed Consolidated Financial Statements presented in accordance with generally accepted accounting principles, or GAAP, ServiceSource provides investors with non-GAAP gross profit, net income (loss), net income (loss) per diluted share and Adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the closest GAAP financial measure is presented in the following financial tables.

ServiceSource believes 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 adjustments to stock-based compensation and amortization of internally-developed software.

Non-GAAP net income (loss) consists of net income (loss) plus stock-based compensation, amortization of internally-developed software, restructuring and other related costs, amortization of contract acquisition costs related to the initial adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), incremental and non-recurring costs incurred outside of normal operations as a result of COVID-19, non-cash interest expense and applying an income tax rate of 26.5% on non-GAAP adjustments. 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 interest rates, all of which are difficult to estimate.

EBITDA consists of net income (loss) plus provision for income tax expense (benefit), interest and other expense (income), net and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus stock-based compensation, restructuring and other related costs, amortization of contract acquisition costs related to the initial adoption of ASC 606 and incremental and non-recurring costs incurred outside of normal operations as a result of COVID-19.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP.

ServiceSource International, Inc.

GAAP To Non-GAAP Reconciliation

(in thousands, except per share amounts)

(unaudited)

 

 

For the Three Months Ended March 31,

 

 

2020

2019

Net revenue

 

$

50,114

 

$

55,511

 

 

 

 

 

Gross profit

 

 

 

GAAP gross profit

 

$

14,554

 

$

16,035

 

Non-GAAP adjustments:

 

 

 

Stock-based compensation

(A)

45

 

159

 

Amortization of internally-developed software

(B)

1,253

 

894

 

Non-GAAP gross profit

 

$

15,852

 

$

17,088

 

 

 

 

 

Gross profit %

 

 

 

GAAP gross profit

 

29.0

%

28.9

%

Non-GAAP adjustments:

 

 

 

Stock-based compensation

(A)

0.1

%

0.3

%

Amortization of internally-developed software

(B)

2.5

%

1.6

%

Non-GAAP gross profit

 

31.6

%

30.8

%

Certain totals do not add due to rounding

 

 

 

 

 

 

 

Operating expenses

 

 

 

GAAP operating expenses

 

$

19,604

 

$

21,252

 

Non-GAAP adjustments:

 

 

 

Stock-based compensation

(A)

(1,000

)

(1,411

)

Amortization of internally-developed software

(B)

(512

)

(365

)

Restructuring and other related costs

(C)

(467

)

(1,058

)

Amortization of contract acquisition costs – ASC 606 initial adoption

(D)

(218

)

(257

)

COVID-19 related costs

(E)

(62

)

 

Non-GAAP operating expenses

 

$

17,345

 

$

18,161

 

 

 

 

 

Net loss

 

 

 

GAAP net loss

 

$

(5,942

)

$

(5,719

)

Non-GAAP adjustments:

 

 

 

Stock-based compensation

(A)

1,045

 

1,570

 

Amortization of internally-developed software

(B)

1,765

 

1,259

 

Restructuring and other related costs

(C)

467

 

1,058

 

Amortization of contract acquisition costs – ASC 606 initial adoption

(D)

218

 

257

 

COVID-19 related costs

(E)

62

 

 

Non-cash interest expense

(F)

18

 

18

 

Income tax effect on non-GAAP adjustments

(G)

639

 

422

 

Non-GAAP net loss

 

$

(1,728

)

$

(1,135

)

 

 

 

 

Diluted net loss per share

 

 

 

GAAP net loss per share

 

$

(0.06

)

$

(0.06

)

Non-GAAP adjustments:

 

 

 

Stock-based compensation

(A)

0.01

 

0.02

 

Amortization of internally-developed software

(B)

0.02

 

0.01

 

Restructuring and other related costs

(C)

0.00

 

0.01

 

Amortization of contract acquisition costs – ASC 606 initial adoption

(D)

0.00

 

0.00

 

COVID-19 related costs

(E)

0.00

 

0.00

 

Non-cash interest expense

(F)

0.00

 

0.00

 

Income tax effect on non-GAAP adjustments

(G)

0.01

 

0.00

 

Non-GAAP diluted net loss per share

 

$

(0.02

)

$

(0.01

)

Certain totals do not add due to rounding

 

 

 

Shares used in calculating diluted net loss per share on a non-GAAP basis

(H)

94,968

 

92,914

 

 

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, stock unit 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 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) Restructuring and other related costs. 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 related costs consist primarily of employees’ severance payments, related employee benefits, related legal fees 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.

(D) Amortization of contract acquisition costs – ASC 606 initial adoption. Upon adoption of ASC 606 using the modified retrospective approach, we capitalized approximately $3.3 million of previously expensed sales commissions from 2015, 2016 and 2017. Amortization of these amounts are included in our GAAP presentation as sales and marketing expense. We believe the non-cash amortization expense is not related to or indicative of our ongoing operating performance.

(E) COVID-19 related costs. Included in our GAAP presentation of operating expenses are capital and operating costs related to incremental and non-recurring costs incurred outside of normal operations as a result of COVID-19. These costs are one-time in nature and are not indicative of our core operating performance.

(F) Non-cash interest expense. Under GAAP, we recognize interest expense at the effective interest rate which includes interest costs related to the amortization of debt issuance costs. The difference between the effective interest rate and the contractual interest rate is excluded from our assessment of our operating performance because we believe 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.

(G) Income tax effect on non-GAAP adjustments. This adjusts the provision for income taxes to reflect the effect of the non-GAAP items A, B, C, D, E and F noted above on our non-GAAP net income (loss).

(H) Shares used in calculating diluted net income (loss) per share on a non-GAAP basis. The share count for basic and diluted earnings per share is the same due to GAAP net losses for the three months ended March 31, 2020 and 2019.

ServiceSource International, Inc.

Reconciliation of Net Loss to Adjusted EBITDA

(in thousands)

(unaudited)

 

 

For the Three Months Ended March 31,

 

 

2020

 

2019

Net loss

 

$

(5,942

)

 

$

(5,719

)

Provision for income tax expense

 

18

 

 

12

 

Interest and other expense, net

 

874

 

 

490

 

Depreciation and amortization(1)

 

3,396

 

 

3,285

 

EBITDA

 

(1,654

)

 

(1,932

)

Stock-based compensation

(A)

1,045

 

 

1,570

 

Restructuring and other related costs

(C)

467

 

 

1,058

 

Amortization of contract acquisition asset costs – ASC 606 initial adoption

(D)

218

 

 

257

 

COVID-19 related costs

(E)

62

 

 

 

Adjusted EBITDA

 

$

138

 

 

$

953

 

 

 

 

 

 

(1) Depreciation and amortization expense are comprised of the following:

 

 

For the Three Months Ended March 31,

 

 

2020

 

2019

Internally-developed software amortization

 

$

1,765

 

 

$

1,259

 

Property and equipment depreciation

 

1,631

 

 

2,026

 

Depreciation and amortization

 

$

3,396

 

 

$

3,285

 

 

Contacts

Investor Relations Contact for ServiceSource:

Chad Lyne

ServiceSource International, Inc.

investorrelations@servicesource.com

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