SERVICESOURCE INTERNATIONAL, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE - May 9, 2013

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ServiceSource Reports First Quarter 2013 Financial Results

SAN FRANCISCO, May 9, 2013 - ServiceSource® (Nasdaq: SREV), the global leader in recurring revenue management, today announced its financial results for the first quarter ended March 31, 2013.

  • Revenue: $61.1 million dollars
  • Adjusted EBITDA: loss of $0.5 million dollars
  • Record amount of cash and cash equivalents totaling $117.7 million dollars
  • Four new Renew OnDemand subscription deals signed
  • Successful Spring 2013 release of Renew OnDemand with enhanced analytics

"With several new Renew OnDemand subscriptions, we are excited by the strong momentum this gives us to start the year," said Mike Smerklo, ServiceSource's Chairman and Chief Executive Officer.  "We remain focused on the evolution of our business to lead with our world-class SaaS solution, purpose-built for recurring revenue, and we will continue to invest appropriately to capture this new growth opportunity."

Revenue for the first quarter of fiscal 2013 was $61.1 million, a 6% increase over the $57.6 million delivered in the same period of 2012.

Adjusted EBITDA in the quarter, which excludes stock-based compensation, was a loss of $0.5 million, compared with $3.4 million for the same period last year.

GAAP net loss in the quarter was $10.5 million, or $0.14 per share, compared with a net loss of $1.3 million, or $0.02 per share for the same period last year.

Non-GAAP net loss in the quarter was $1.5 million, or $0.02 per share, compared with a net income of approximately $1.0 million, or $0.01 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 second 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 is the global leader in recurring revenue management. The world's most successful companies rely on us to maximize subscription, maintenance and support revenue, improve customer retention and increase business predictability and insight. ServiceSource delivers results with Renew OnDemand, the world's only cloud application built specifically to manage and grow recurring revenue, which can be combined with our industry-leading services.

With over a decade of experience focused exclusively in growing recurring revenue, our services and applications are based on proven best practices and global benchmarks. The company is headquartered in San Francisco, and has over $8 billion under management for customers in more than 150 countries and 40 languages.

ServiceSource, Renew OnDemand and any ServiceSource product or service names or logos above are trademarks of ServiceSource International, Inc. All other trademarks used herein belong to their respective owners.

For more information on ServiceSource, visit http://www.servicesource.com. To connect with ServiceSource, visit us on Twitter, LinkedIn and YouTube.

ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
         
  Three Months Ended  
  March 31,  
  2013   2012  
         
Net revenue $ 61,121    $ 57,574   
Cost of revenue (1) 38,498    32,576   
Gross profit 22,623    24,998   
Operating expenses        
     Sales and marketing (1) 14,808    13,477   
     Research and development (1) 6,248    4,581   
     General and administrative (1) 11,222    10,075   
Total operating expenses 32,278    28,133   
Loss from operations (9,655)   (3,135)  
Other expense, net (107)   (91)  
Loss before income taxes (9,762)   (3,226)  
Income tax provision (benefit) 693    (1,950)  
Net loss $ (10,455)   $ (1,276)  
         
Net loss per common share:        
     Basic $ (0.14)   $ (0.02)  
     Diluted $ (0.14)   $ (0.02)  
         
Weighted-average shares used in computing net         
loss per common share:        
     Basic 75,610    73,212   
     Diluted 75,610    73,212   
         
(1) Includes stock-based compensation expense as follows:  
  Three Months Ended  
  March 31,  
  2013   2012  
Cost of revenue $ 732    $ 572   
Sales and marketing 2,534    1,674   
Research and development 486    363   
General and administrative 2,169    1,638   
Total stock-based compensation $ 5,921    $ 4,247   

Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
           
          March 31,       December 31,
      2013   2012
Assets          
Current assets:          
     Cash and cash equivalents     $ 67,947    $ 76,568 
     Short-term investments     49,755    32,874 
     Accounts receivable, net     59,039    65,238 
     Current portion of deferred income taxes     177    389 
     Prepaid expenses and other     5,089    5,178 
Total current assets     182,007    180,247 
Property and equipment, net     32,342    34,513 
Deferred income taxes, net of current portion     2,069    2,321 
Other assets, net     735    1,057 
Goodwill     6,334    6,334 
Total assets     $ 223,487    $ 224,472 
           
Liabilities and Stockholders' Equity          
Current liabilities:          
     Accounts payable     5,319    $ 3,293 
     Accrued taxes     269    1,056 
     Accrued compensation and benefits     14,677    15,738 
     Other accrued liabilities     11,074    10,403 
     Current portion of capital lease obligations     325    326 
Total current liabilities     31,664    30,816 
Long-term liabilities     5,548    6,729 
Total liabilities     37,212    37,545 
Stockholders' equity:          
     Common stock     8    8 
     Treasury stock     (441)   (441)
     Additional paid-in capital     220,357    210,650 
     Accumulated deficit     (33,853)   (23,398)
     Accumulated other comprehensive income     204    108 
Total stockholders' equity     186,275    186,927 
Total liabilities and stockholders' equity     $ 223,487    $ 224,472 

ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
    Three Months Ended
    March 31,
    2013   2012
Cash flows from operating activities        
Net loss   $ (10,455)   $ (1,276)
     Adjustments to reconcile net loss to net cash        
          provided by (used in) operating activities:        
          Depreciation and amortization   3,206    2,268 
          Loss on disposal of fixed assets   29    28 
          Provision for doubtful accounts   (67)   -  
          Amortization of deferred financing costs   12    27 
          Accretion on premium on short-term investments   174    154 
          Deferred income taxes   461    (873)
          Stock-based compensation   5,921    4,247 
          Income tax charge from stock-based compensation   181    362 
     Changes in operating assets and liabilities:        
          Accounts receivable   5,863    (5,084)
          Prepaid expenses and other   415    (2,407)
          Accounts payable   2,077    (1,257)
          Accrued taxes   (779)   490 
          Accrued compensation and benefits   (890)   (6,783)
          Other accrued liabilities   (268)   3,780 
Net cash provided by (used in) operating activities   5,880    (6,324)
         
Cash flows used in investing activities        
Acquisition of property and equipment   (1,232)   (6,631)
Purchases of short-term investments   (18,034)   (8,390)
Sales of short-term investments   508    1,430 
Maturities of short-term investments   500    4,890 
Net cash used in investing activities   (18,258)   (8,701)
         
Cash flows from financing activities        
Repayments of capital leases   (80)   (80)
Proceeds from common stock issuances   3,741    5,821 
Income tax charge from stock-based compensation   (181)   (362)
Net cash provided by financing activities   3,480    5,379 
         
Net decrease in cash and cash equivalents   (8,898)   (9,646)
Effect of exchange rate changes on cash and cash equivalents   277    (232)
Cash and cash equivalents at beginning of period   76,568    65,983 
Cash and cash equivalents at end of period   $ 67,947    $ 56,105 

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 income (loss) plus stock-based compensation, amortization of internally-developed software 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 income (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.
Reconciliation of Net Loss to Adjusted EBITDA
(In thousands)
(Unaudited)
             
      Three Months Ended
      March 31,
      2013     2012
       
Net loss     $ (10,455)     $ (1,276)
Income tax provision (benefit)     693      (1,950)
Other expense, net     107      91 
Depreciation     3,206      2,268 
EBITDA     (6,449)     (867)
Stock-based compensation     5,921      4,247 
Adjusted EBITDA     $ (528)     $ 3,380 

ServiceSource International, Inc.
GAAP To Non-GAAP Reconciliation
(Dollars in thousands, except per share amounts)
(unaudited)
               
        Three Months Ended
        March 31,
        2013   2012
Gross Profit        
     GAAP gross profit   $ 22,623    $ 24,998 
     Non-GAAP adjustments:        
          Stock-based compensation       (A) 732    572 
          Amortization of internally-developed software       (B) 820    140 
     Non-GAAP gross profit         $ 24,175    $ 25,710 
               
Gross Profit %        
     GAAP gross profit   37%   43%
     Non-GAAP adjustments:        
          Stock-based compensation       (A) 1%   1%
          Amortization of internally-developed software       (B) 1%   0%
     Non-GAAP gross profit         40%   45%
Certain totals do not add due to rounding              
Operating Expenses        
GAAP operating expenses         $ 32,278    $ 28,133 
Stock-based compensation (A) (5,189)   (3,675)
Amortization of internally-developed software (B) (451)   (495)
Non-GAAP operating expenses         $ 26,638    $ 23,963 
               
Net Income (Loss)        
     GAAP net loss         $ (10,455)   $ (1,276)
     Non-GAAP adjustments:        
          Stock-based compensation       (A) 5,921    4,247 
          Amortization of internally-developed software       (B) 1,271    635 
          Income tax effect on non-GAAP adjustments and               
          impact of normalizing the effective income tax rate       (C) 1,721    (2,612)
Non-GAAP net income (loss)         $ (1,542)   $ 994 
               
Diluted Net Income (Loss) Per Share        
     GAAP net loss per share          $ (0.14)   $ (0.02)
     Non-GAAP adjustments:        
          Stock-based compensation       (A) 0.08    0.05 
          Amortization of internally-developed software       (B) 0.02    0.01 
          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 (loss) per share using a fully-diluted share count       (C) 0.02    (0.03)
     Non-GAAP diluted net income (loss) per share          $ (0.02)   $ 0.01 
Shares used in calculating diluted net income (loss) per               
share on a non-GAAP basis         75,610    79,176 

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)

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 and C 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.
Revenue by Segment
(In thousands)
(unaudited)
                 
    Three Months Ended March 31,
    2013   2012
        % of       % of
    $   Revenue   $   Revenue
                 
NALA   $ 37,807    62%    $ 36,112    63% 
EMEA   17,520    29%    15,748    27% 
APJ   5,794    9%    5,714    10% 
    $ 61,121    100%    $ 57,574    100% 

Investor Relations Contact for ServiceSource:

Anne Bawden
ServiceSource International, Inc.
(415) 901-4182
 abawden@servicesource.com

 

 

 

SERVICESOURCE INTERNATIONAL, INC. Reports