SERVICESOURCE INTERNATIONAL, INC. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 29, 2020

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8-K - 8-K - SERVICESOURCE INTERNATIONAL, INC.pressrelease6302020.htm


ServiceSource Reports Second Quarter 2020 Financial Results
Total Revenue of $47.6 million
GAAP Net Loss of $5.4 million; Non-GAAP Net Loss of $1.2 million
Adjusted EBITDA of negative $0.4 million
DENVER, July 29, 2020 - ServiceSource (NASDAQ: SREV), the digital customer journey experience company, today announced financial results for the three months ended June 30, 2020.
“We performed well in the second quarter as we supported and enabled our clients through a time of ongoing and unprecedented global economic disruption,” said Gary B. Moore, ServiceSource’s chairman and chief executive officer. “Our teams embraced our new virtual operating model, executed well against areas within our control, and operated with a client-centric philosophy to deliver year-over-year gains on multiple financial and operational metrics. Although we anticipate the current recessionary environment and uncertainty will present some near-term challenges, we expect to maintain prudent financial management while aligning to longer-term opportunities by continuing to invest in our strategic priorities and digital transformation initiatives.”
Key Financial Results – Second Quarter 2020
•
GAAP revenue was $47.6 million, compared with $52.4 million reported for Q2 2019.
•
GAAP net loss was $5.4 million or $0.06 per diluted share, compared with GAAP net loss of $6.0 million or $0.06 per diluted share reported for Q2 2019.
•
Non-GAAP net loss was $1.2 million or $0.01 per diluted share, compared with non-GAAP net loss of $2.1 million or $0.02 per diluted share reported for Q2 2019.
•
Adjusted EBITDA, a non-GAAP financial measure, was negative $0.4 million, compared with negative $0.5 million reported for Q2 2019.
•
Ended the quarter with $43.2 million of cash and cash equivalents and restricted cash, with $20.0 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 – Second Quarter 2020
•
On a year-to-date basis, renewed or extended more than 90% of the contract value that was up for renewal.
•
Signed expansion wins in excess of $1 million each with three existing clients.
•
Successfully launched and went live with three new logo wins signed in the first and second quarter.
•
Grew revenue with five of the top 10 clients on a trailing twelve-month basis.
•
Executed with a 100% virtual operating model to support remotely hiring, onboarding, training, and ramping more than 140 new employees in the quarter.




COO Transition
ServiceSource also announced that Debbie Dunnam is stepping down from her role as Chief Operating Officer to assume an opportunity outside of ServiceSource. She will remain at the Company through August 7, 2020 and will be available to support with the transition through August 31, 2020.
During her time at ServiceSource, Ms. Dunnam helped build and develop a strong leadership team with a deep bench of tenured and experienced professionals. Key members of this team will continue in their roles on the Company’s executive leadership team and will assume expanded scope and responsibility. As a result, ServiceSource does not plan to backfill the COO role.
“We are grateful for Debbie’s many contributions during her time with us and we wish her the very best in her next endeavor,” said Moore. “Her team has helped strengthen many aspects of our operating model to drive improved client performance, consistency, and outcomes. I look forward to working more directly with these leaders and continuing the important progress we are making as an organization.”
Quarterly Conference Call
ServiceSource will discuss its second quarter 2020 results on July 30, 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: 3242228. 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 financial management and our expectation to continue to invest in our strategic priorities and digital transformation initiatives. 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 (CJXTM), 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.
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)
 
 
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Net revenue
$
47,638

 
$
52,358

 
$
97,752

 
$
107,869

Cost of revenue(1)
34,645

 
38,349

 
70,205

 
77,825

Gross profit
12,993

 
14,009

 
27,547

 
30,044

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing(1)
6,142

 
7,486

 
13,410

 
15,435

Research and development(1)
1,516

 
1,274

 
2,697

 
2,537

General and administrative(1)
10,619

 
10,970

 
21,307

 
21,952

Restructuring and other related costs
236

 
148

 
703

 
1,206

Total operating expenses
18,513

 
19,878

 
38,117

 
41,130

Loss from operations
(5,520
)
 
(5,869
)
 
(10,570
)
 
(11,086
)
Interest and other income (expense), net
324

 
(58
)
 
(550
)
 
(548
)
Loss before provision for income taxes
(5,196
)
 
(5,927
)
 
(11,120
)
 
(11,634
)
Provision for income tax expense
(161
)
 
(108
)
 
(179
)
 
(120
)
Net loss
$
(5,357
)
 
$
(6,035
)
 
$
(11,299
)
 
$
(11,754
)
Net loss per share, basic and diluted
$
(0.06
)
 
$
(0.06
)
 
$
(0.12
)
 
$
(0.13
)
Weighted-average common shares outstanding, basic and diluted
95,369

 
93,712

 
95,169

 
93,315

 
 
 
 
 
 
 
 
(1) Reported amounts include stock-based compensation expense as follows:
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Cost of revenue
$
90

 
$
129

 
$
135

 
$
288

Sales and marketing
444

 
429

 
821

 
872

Research and development
1

 
18

 
19

 
12

General and administrative
740

 
660

 
1,345

 
1,634

Total stock-based compensation
$
1,275

 
$
1,236

 
$
2,320

 
$
2,806





ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
 
 
June 30, 2020
 
December 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
40,924

 
$
27,089

Accounts receivable, net
40,023

 
41,754

Prepaid expenses and other
5,975

 
7,296

Total current assets
86,922

 
76,139

 
 
 
 
Property and equipment, net
31,958

 
36,149

ROU assets
31,736

 
36,396

Contract acquisition costs
1,204

 
1,602

Goodwill
6,334

 
6,334

Other assets
4,791

 
4,844

Total assets
$
162,945

 
$
161,464

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,922

 
$
4,392

Accrued expenses
2,458

 
3,366

Accrued compensation and benefits
15,823

 
16,700

Revolver
20,000

 
—

Operating lease liabilities
10,550

 
9,652

Other current liabilities
1,659

 
2,218

Total current liabilities
52,412

 
36,328

 
 
 
 
Operating lease liabilities, net of current portion
28,565

 
33,716

Other long-term liabilities
2,459

 
2,983

Total liabilities
83,436

 
73,027

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock
—

 
—

Common stock
10

 
9

Treasury stock
(441
)
 
(441
)
Additional paid-in capital
376,944

 
374,525

Accumulated deficit
(297,365
)
 
(286,066
)
Accumulated other comprehensive income
361

 
410

Total stockholders’ equity
79,509

 
88,437

Total liabilities and stockholders’ equity
$
162,945

 
$
161,464





ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
 
For the Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(11,299
)
 
$
(11,754
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
6,819

 
6,994

Amortization of contract acquisition costs
515

 
868

Amortization of ROU assets
4,690

 
4,725

Stock-based compensation
2,320

 
2,806

Restructuring and other related costs
645

 
1,166

Other
35

 
38

Net changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
1,704

 
11,328

Prepaid expenses and other assets
1,299

 
(898
)
Contract acquisition costs
(129
)
 
(249
)
Accounts payable
(2,452
)
 
(263
)
Accrued compensation and benefits
(1,431
)
 
(1,934
)
Operating lease liabilities
(4,385
)
 
(4,767
)
Accrued expenses
(823
)
 
(797
)
Other liabilities
(578
)
 
(546
)
Net cash (used in) provided by operating activities
(3,070
)
 
6,717

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(2,596
)
 
(6,095
)
Net cash used in investing activities
(2,596
)
 
(6,095
)
Cash flows from financing activities:
 
 
 
Repayment on finance lease obligations
(481
)
 
(421
)
Proceeds from Revolver
27,000

 
—

Repayment of Revolver
(7,000
)
 
—

Proceeds from issuance of common stock
76

 
141

Payments related to minimum tax withholdings on RSU releases
—

 
(19
)
Net cash provided by (used in) financing activities
19,595

 
(299
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(68
)
 
(156
)
Net change in cash and cash equivalents and restricted cash
13,861

 
167

Cash and cash equivalents and restricted cash, beginning of period
29,383

 
27,779

Cash and cash equivalents and restricted cash, end of period
$
43,244

 
$
27,946





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, non-GAAP net income (loss), non-GAAP 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”), 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 and amortization of contract acquisition costs related to the initial adoption of ASC 606.
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
June 30,
 
For the Six Months Ended June 30,
 
 
 
2020
 
2019
 
2020
 
2019
Net revenue
 
$
47,638

 
$
52,358

 
$
97,752

 
$
107,869

 
 
 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
 
GAAP gross profit
 
$
12,993

 
$
14,009

 
$
27,547

 
$
30,044

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
90

 
129

 
135

 
288

 
Amortization of internally developed software
(B)
1,313

 
999

 
2,566

 
1,893

  Non-GAAP gross profit
 
$
14,396

 
$
15,137

 
$
30,248

 
$
32,225

 
 
 
 
 
 
 
 
 
 
Gross profit %
 
 
 
 
 
 
 
 
   GAAP gross profit
 
27.3
%
 
26.8
%
 
28.2
%
 
27.9
%
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
0.2
%
 
0.2
%
 
0.1
%
 
0.3
%
 
Amortization of internally developed software
(B)
2.8
%
 
1.9
%
 
2.6
%
 
1.7
%
  Non-GAAP gross profit
 
30.2
%
 
28.9
%
 
30.9
%
 
29.9
%
Certain totals do not add due to rounding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
GAAP operating expenses
 
$
18,513

 
$
19,878

 
$
38,117

 
$
41,130

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
(1,185
)
 
(1,107
)
 
(2,185
)
 
(2,518
)
 
Amortization of internally developed software
(B)
(536
)
 
(408
)
 
(1,048
)
 
(773
)
 
Restructuring and other related costs
(C)
(236
)
 
(148
)
 
(703
)
 
(1,206
)
 
Amortization of contract acquisition costs - ASC 606 initial adoption
(D)
(162
)
 
(255
)
 
(380
)
 
(512
)
Non-GAAP operating expenses
 
$
16,394

 
$
17,960

 
$
33,801

 
$
36,121

 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
 
GAAP net loss
 
$
(5,357
)
 
$
(6,035
)
 
$
(11,299
)
 
$
(11,754
)
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
1,275

 
1,236

 
2,320

 
2,806

 
Amortization of internally developed software
(B)
1,849

 
1,407

 
3,614

 
2,666

 
Restructuring and other related costs
(C)
236

 
148

 
703

 
1,206

 
Amortization of contract acquisition costs - ASC 606 initial adoption
(D)
162

 
255

 
380

 
512

 
Non-cash interest expense
(E)
17

 
20

 
35

 
38

 
Income tax effect on non-GAAP adjustments
(F)
600

 
866

 
1,256

 
1,288

Non-GAAP net loss
 
$
(1,218
)
 
$
(2,103
)
 
$
(2,991
)
 
$
(3,238
)
 
 
 
 
 
 
 
 
 
Diluted net loss per share
 
 
 
 
 
 
 
 
GAAP net loss per share
 
$
(0.06
)
 
$
(0.06
)
 
$
(0.12
)
 
$
(0.13
)
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation
(A)
0.01

 
0.01

 
0.02

 
0.03

 
Amortization of internally developed software
(B)
0.02

 
0.02

 
0.04

 
0.03

 
Restructuring and other related costs
(C)
0.00

 
0.00

 
0.01

 
0.01

 
Amortization of contract acquisition costs - ASC 606 initial adoption
(D)
0.00

 
0.00

 
0.00

 
0.01

 
Non-cash interest expense
(E)
0.00

 
0.00

 
0.00

 
0.00

 
Income tax effect on non-GAAP adjustments
(F)
0.01

 
0.01

 
0.01

 
0.01

  Non-GAAP diluted net loss per share
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.03
)
 
$
(0.03
)
Certain totals do not add due to rounding
 
 
 
 
 
 
 
 
Shares used in calculating diluted net loss per share on a non-GAAP basis
(G)
95,369

 
93,712

 
95,169

 
93,315





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) 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.
(F) 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, and E noted above on our non-GAAP net income (loss).
(G) 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 and six months ended June 30, 2020 and 2019.




ServiceSource International, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
 
 
 
 
 
 
 
 For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Net loss
 
$
(5,357
)
 
$
(6,035
)
 
$
(11,299
)
 
$
(11,754
)
Provision for income tax expense
 
161

 
108

 
179

 
120

Interest and other (income) expense, net
 
(324
)
 
58

 
550

 
548

Depreciation and amortization(1)
 
3,423

 
3,709

 
6,819

 
6,994

EBITDA
 
(2,097
)
 
(2,160
)
 
(3,751
)
 
(4,092
)
Stock-based compensation
(A)
1,275

 
1,236

 
2,320

 
2,806

Restructuring and other related costs
(C)
236

 
148

 
703

 
1,206

Amortization of contract acquisition asset costs - ASC 606 initial adoption
(D)
162

 
255

 
380

 
512

Adjusted EBITDA
 
$
(424
)
 
$
(521
)
 
$
(348
)
 
$
432

 
 
 
 
 
 
 
 
 
(1) Depreciation and amortization expense are comprised of the following:
 
 
 
 
 
 
 
 For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Internally developed software amortization
 
$
1,849

 
$
1,407

 
$
3,614

 
$
2,666

Property and equipment depreciation
 
1,574

 
2,302

 
3,205

 
4,328

Depreciation and amortization
 
$
3,423

 
$
3,709

 
$
6,819

 
$
6,994
















Investor Relations Contact for ServiceSource:
Chad Lyne
ServiceSource International, Inc.


SERVICESOURCE INTERNATIONAL, INC. Reports