ServiceSource (NASDAQ: SREV), the digital customer journey experience
company, today announced financial results for the three months ended
March 31, 2019.
“We made solid progress on multiple fronts in the first quarter, with
disciplined execution on our digital transformation strategy which is
setting the foundation to deliver on our long-term roadmap,” said Gary
B. Moore, Chairman and CEO of ServiceSource. “Our larger installed base
clients grew with us year-over-year, we had a healthy level of renewals
and new business wins – including an eight-figure expansion and a
multi-million dollar new logo win – and we were able to exceed our
expectations for profitability and cashflow while also making meaningful
and required growth-oriented investments throughout the business.”
Key Financial Results – First Quarter 2019
-
GAAP revenue was $55.5 million, compared with $58.6 million reported
for Q1 2018. -
GAAP net loss was $5.7 million or $0.06 per diluted share, compared
with GAAP net loss of $11.7 million or $0.13 per diluted share
reported for Q1 2018. -
Non-GAAP net loss was $1.1 million or $0.01 per diluted share,
compared with non-GAAP net loss of $0.5 million or $0.01 per diluted
share reported for Q1 2018. -
Adjusted EBITDA was $1.0 million, compared with $1.6 million reported
for Q1 2018. -
Ended the quarter with $27.1 million of cash and cash equivalents and
restricted cash and no 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 2019
-
Expanded revenue with seven of the top 10 clients in Q1 2019, with
cumulative trailing twelve month revenue growth of 6.9% across the top
10. -
Successfully renewed and extended more than 90% of the value that was
up for renewal during the quarter. -
Won multiple new lines of business with a global leader in the cloud
infrastructure-as-a-service market, representing in excess of $10
million of expected annualized revenue once fully ramped for a top
five client. -
Signed a three-year, multi-million dollar new logo win for a leading
global information services company. -
Realigned and rationalized approximately 200 roles to create internal
investment capacity for higher ROI initiatives and activities
throughout the year.
“We closed Q1 with a debt-free balance sheet, a healthy cash profile,
and strong alignment throughout the organization on the actions that we
expect to drive shareholder value,” said Richard G. Walker, CFO of
ServiceSource. “While we see encouraging indicators that we are on the
right path, our teams remain vigilant and focused on a broad set of
initiatives that underpin our transformation objectives over a
multi-quarter horizon. Given our performance in Q1, our current
visibility into the balance of the year, and the targeted platform, data
and people investments we will continue to make, we affirm our full-year
2019 expectation of approximately breakeven Adjusted EBITDA on a range
of approximately 3-5% lower revenue year-over-year.”
Quarterly Conference Call
ServiceSource will discuss its first quarter 2019 results today via
teleconference at 4:30 p.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:
2949158. 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. 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 digital transformation strategy 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
client 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 clients;
changes in market conditions that impact our ability to sell our
solutions and/or generate service revenue on our clients’ behalf; the
possibility that our estimates of service revenue, contract value,
bookings, 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 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.
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 March 31, |
||||||||||
| 2019 | 2018 | |||||||||
| Net revenue | $ | 55,511 | $ | 58,585 | ||||||
| Cost of revenue(1) | 39,476 | 41,724 | ||||||||
| Gross profit | 16,035 | 16,861 | ||||||||
| Operating expenses: | ||||||||||
| Sales and marketing(1) | 7,949 | 9,238 | ||||||||
| Research and development(1) | 1,263 | 1,516 | ||||||||
| General and administrative(1) | 10,982 | 12,889 | ||||||||
| Restructuring and other related costs | 1,058 | 53 | ||||||||
| Total operating expenses | 21,252 | 23,696 | ||||||||
| Loss from operations | (5,217 | ) | (6,835 | ) | ||||||
| Interest and other expense, net | (490 | ) | (2,846 | ) | ||||||
| Impairment loss on investment securities | — | (1,958 | ) | |||||||
| Loss before income taxes | (5,707 | ) | (11,639 | ) | ||||||
| Provision for income tax expense | (12 | ) | (13 | ) | ||||||
| Net loss | $ | (5,719 | ) | $ | (11,652 | ) | ||||
| Net loss per common share, basic and diluted | $ | (0.06 | ) | $ | (0.13 | ) | ||||
| Weighted-average common shares outstanding, basic and diluted | 92,914 | 90,358 | ||||||||
|
(1) Reported amounts include stock-based compensation expense as follows: |
||||||||||
|
For the Three Months Ended |
||||||||||
| 2019 | 2018 | |||||||||
| Cost of revenue | $ | 159 | $ | 279 | ||||||
| Sales and marketing | 443 | 886 | ||||||||
| Research and development | (6 | ) | 64 | |||||||
| General and administrative | 974 | 1,882 | ||||||||
| Total stock-based compensation | $ | 1,570 | $ | 3,111 | ||||||
| ServiceSource International, Inc. | ||||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||
| (in thousands) | ||||||||||||
| (unaudited) | ||||||||||||
|
March 31, 2019 |
December 31, 2018 | |||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 24,807 | $ | 26,535 | ||||||||
| Accounts receivable, net | 50,935 | 54,284 | ||||||||||
| Prepaid expenses and other | 7,079 | 5,653 | ||||||||||
| Total current assets | 82,821 | 86,472 | ||||||||||
| Property and equipment, net | 35,744 | 36,593 | ||||||||||
| Contract acquisition costs | 2,371 | 2,660 | ||||||||||
| Right-of-use assets | 36,944 | — | ||||||||||
| Goodwill | 6,334 | 6,334 | ||||||||||
| Other assets | 4,823 | 4,521 | ||||||||||
| Total assets | $ | 169,037 | $ | 136,580 | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 2,129 | $ | 2,424 | ||||||||
| Accrued expenses | 2,429 | 3,380 | ||||||||||
| Accrued compensation and benefits | 17,657 | 15,509 | ||||||||||
| Operating lease liabilities | 8,504 | — | ||||||||||
| Other current liabilities | 5,993 | 6,894 | ||||||||||
| Total current liabilities | 36,712 | 28,207 | ||||||||||
| Operating lease liabilities, net of current portion | 30,918 | — | ||||||||||
| Other long-term liabilities | 3,512 | 6,540 | ||||||||||
| Total liabilities | 71,142 | 34,747 | ||||||||||
| Stockholders’ equity: | ||||||||||||
| Preferred stock | — | — | ||||||||||
| Common stock | 9 | 9 | ||||||||||
| Treasury stock | (441 | ) | (441 | ) | ||||||||
| Additional paid-in capital | 370,951 | 369,246 | ||||||||||
| Accumulated deficit | (273,102 | ) | (267,383 | ) | ||||||||
| Accumulated other comprehensive income | 478 | 402 | ||||||||||
| Total stockholders’ equity | 97,895 | 101,833 | ||||||||||
| Total liabilities and stockholders’ equity | $ | 169,037 | $ | 136,580 | ||||||||
| ServiceSource International, Inc. | ||||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||||
| (in thousands) | ||||||||||||
| (unaudited) | ||||||||||||
|
For the Three Months Ended |
||||||||||||
| 2019 | 2018 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (5,719 | ) | $ | (11,652 | ) | ||||||
|
Adjustments to reconcile net loss to net cash provided by operating activities |
||||||||||||
| Depreciation and amortization | 3,285 | 4,803 | ||||||||||
| Amortization of debt discount and issuance costs | 18 | 2,421 | ||||||||||
| Amortization of contract acquisition costs | 400 | 426 | ||||||||||
| Amortization of premium on short-term investments | — | 115 | ||||||||||
| Amortization of right-of-use assets | 2,239 | — | ||||||||||
| Stock-based compensation | 1,570 | 3,111 | ||||||||||
| Restructuring and other related costs | 1,041 | 196 | ||||||||||
| Impairment loss on investment securities | — | 1,958 | ||||||||||
| Other | — | 80 | ||||||||||
| Net changes in operating assets and liabilities | ||||||||||||
| Accounts receivable, net | 3,258 | 6,923 | ||||||||||
| Prepaid expenses and other assets | (1,277 | ) | (1,523 | ) | ||||||||
| Contract acquisition costs | (108 | ) | (430 | ) | ||||||||
| Accounts payable | (18 | ) | (2,809 | ) | ||||||||
| Accrued compensation and benefits | 1,094 | (2,654 | ) | |||||||||
| Operating lease liabilities | (2,338 | ) | — | |||||||||
| Accrued expenses | (1,023 | ) | (367 | ) | ||||||||
| Other liabilities | (338 | ) | 1 | |||||||||
| Net cash provided by operating activities | 2,084 | 599 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of property and equipment | (2,898 | ) | (3,469 | ) | ||||||||
| Purchases of short-term investments | — | 7 | ||||||||||
| Sales of short-term investments | — | 2,064 | ||||||||||
| Maturities of short-term investments | — | 825 | ||||||||||
| Net cash used in investing activities | (2,898 | ) | (573 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Repayment on finance lease obligations | (190 | ) | (43 | ) | ||||||||
| Proceeds from issuance of common stock | 141 | 353 | ||||||||||
|
Payments related to minimum tax withholdings on restricted stock unit releases |
— | (53 | ) | |||||||||
| Net cash (used in) provided by financing activities | (49 | ) | 257 | |||||||||
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
185 | 78 | ||||||||||
| Net change in cash and cash equivalents and restricted cash | (678 | ) | 361 | |||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 27,779 | 52,633 | ||||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 27,101 | $ | 52,994 | ||||||||
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 financial tables below under the
heading, “GAAP to Non-GAAP Reconciliation.”
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, amortization of internally-developed software
and amortization of purchased intangible assets.
Non-GAAP net income (loss) consists of net income (loss) plus
stock-based compensation, amortization of internally-developed software,
amortization of purchased intangible assets, 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”), impairment loss
on investment securities, 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
(benefit) expense, interest and other income (expense), net and
depreciation and amortization. Adjusted EBITDA consists of EBITDA plus
non-cash stock-based compensation, amortization of contract acquisition
costs related to the initial adoption of ASC 606, restructuring and
other related costs and impairment loss on investment securities. We are
providing a forward expectation for Adjusted EBITDA only on a non-GAAP
basis because ServiceSource is unable to predict with reasonable
certainty the totality or ultimate outcome or occurrence of adjustments
which historically have been applicable in determining Adjusted EBITDA
for the forward-looking period, which can be dependent on future events
that may not be reliably predicted.
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 |
|||||||||||||
| 2019 | 2018 | ||||||||||||
| Net revenue | $ | 55,511 | $ | 58,585 | |||||||||
| Gross profit | |||||||||||||
| GAAP gross profit | $ | 16,035 | $ | 16,861 | |||||||||
| Non-GAAP adjustments: | |||||||||||||
| Stock-based compensation | (A) | 159 | 279 | ||||||||||
| Amortization of internally-developed software | (B) | 894 | 2,679 | ||||||||||
| Amortization of purchased intangible assets | (C) | — | 55 | ||||||||||
| Non-GAAP gross profit | $ | 17,088 | $ | 19,874 | |||||||||
| Gross profit % | |||||||||||||
| GAAP gross profit | 28.9 | % | 28.8 | % | |||||||||
| Non-GAAP adjustments: | |||||||||||||
| Stock-based compensation | (A) | 0.3 | % | 0.5 | % | ||||||||
| Amortization of internally-developed software | (B) | 1.6 | % | 4.6 | % | ||||||||
| Amortization of purchased intangible assets | (C) | — | % | 0.1 | % | ||||||||
| Non-GAAP gross profit | 30.8 | % | 33.9 | % | |||||||||
| Certain totals do not add due to rounding | |||||||||||||
| Operating expenses | |||||||||||||
| GAAP operating expenses | $ | 21,252 | $ | 23,696 | |||||||||
| Non-GAAP adjustments: | |||||||||||||
| Stock-based compensation | (A) | (1,411 | ) | (2,832 | ) | ||||||||
| Amortization of internally-developed software | (B) | (365 | ) | (153 | ) | ||||||||
| Amortization of purchased intangible assets | (C) | — | (30 | ) | |||||||||
| Restructuring and other related costs | (D) | (1,058 | ) | (53 | ) | ||||||||
| Amortization of contract acquisition costs -ASC 606 initial adoption | (E) | (257 | ) | (426 | ) | ||||||||
| Non-GAAP operating expenses | $ | 18,161 | $ | 20,202 | |||||||||
| Net loss | |||||||||||||
| GAAP net loss | $ | (5,719 | ) | $ | (11,652 | ) | |||||||
| Non-GAAP adjustments: | |||||||||||||
| Stock-based compensation | (A) | 1,570 | 3,111 | ||||||||||
| Amortization of internally-developed software | (B) | 1,259 | 2,832 | ||||||||||
| Amortization of purchased intangible assets | (C) | — | 85 | ||||||||||
| Restructuring and other related costs | (D) | 1,058 | 53 | ||||||||||
| Amortization of contract acquisition costs -ASC 606 initial adoption | (E) | 257 | 426 | ||||||||||
| Impairment loss on investment securities | (F) | — | 1,958 | ||||||||||
| Non-cash interest expense | (G) | 18 | 2,430 | ||||||||||
| Income tax effect on non-GAAP adjustments | (H) | 422 | 210 | ||||||||||
| Non-GAAP net loss | $ | (1,135 | ) | $ | (547 | ) | |||||||
| Diluted net loss per share | |||||||||||||
| GAAP net loss per share | $ | (0.06 | ) | $ | (0.13 | ) | |||||||
| Non-GAAP adjustments: | |||||||||||||
| Stock-based compensation | (A) | 0.02 | 0.03 | ||||||||||
| Amortization of internally-developed software | (B) | 0.01 | 0.03 | ||||||||||
| Amortization of purchased intangible assets | (C) | 0.00 | 0.00 | ||||||||||
| Restructuring and other related costs | (D) | 0.01 | 0.00 | ||||||||||
| Amortization of contract acquisition costs -ASC 606 initial adoption | (E) | 0.00 | 0.00 | ||||||||||
| Impairment loss on investment securities | (F) | 0.00 | 0.02 | ||||||||||
| Non-cash interest expense | (G) | 0.00 | 0.03 | ||||||||||
| Income tax effect on non-GAAP adjustments | (H) | 0.00 | 0.00 | ||||||||||
| Non-GAAP diluted net loss per share | $ | (0.01 | ) | $ | (0.01 | ) | |||||||
| Certain totals do not add due to rounding | |||||||||||||
|
Shares used in calculating diluted net loss per share on a non-GAAP basis |
(I) | 92,914 | 90,358 | ||||||||||
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) 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 amortization of costs
associated with an acquired company’s research and development efforts,
trade names and customer relationships, are items arising from
pre-acquisition activities and determined at the time of an acquisition.
Although these intangible assets are continually evaluated for
impairment, amortization of purchased intangibles is a static expense
and not typically affected by operations during any particular period.
(D) 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.
(E) 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.
(F) Impairment loss on investment securities. We
liquidated our investment securities during the first half of 2018 to
have sufficient cash on hand to repay our $150.0 million convertible
notes due August 1, 2018. Based on our decision to sell these investment
securities, we determined an other-than-temporary impairment occurred as
of March 31, 2018 and recorded an impairment loss, which represented the
difference between the investment securities’ amortized cost basis and
fair value. This charge is not related to or indicative of ongoing
operating performance.
(G) 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 and debt
premiums or discounts. 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.
(H) 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, F and G noted above on our non-GAAP net
income.
(I) Shares used in calculating diluted net income 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 both the three
months ended March 31, 2019 and 2018.
| ServiceSource International, Inc. | |||||||||||||
| Reconciliation of Net Loss to Adjusted EBITDA | |||||||||||||
| (in thousands) | |||||||||||||
| (unaudited) | |||||||||||||
|
For the Three Months Ended |
|||||||||||||
| 2019 | 2018 | ||||||||||||
| Net loss | $ | (5,719 | ) | $ | (11,652 | ) | |||||||
| Provision for income tax expense | 12 | 13 | |||||||||||
| Interest and other expense, net | 490 | 2,846 | |||||||||||
| Depreciation and amortization(1) | 3,285 | 4,803 | |||||||||||
| EBITDA | (1,932 | ) | (3,990 | ) | |||||||||
| Stock-based compensation | (A) | 1,570 | 3,111 | ||||||||||
|
Amortization of contract acquisition asset costs – ASC 606 initial adoption |
(E) | 257 | 426 | ||||||||||
| Restructuring and other related costs | (D) | 1,058 | 53 | ||||||||||
| Impairment loss on investment securities | (F) | — | 1,958 | ||||||||||
| Adjusted EBITDA | $ | 953 | $ | 1,558 | |||||||||
|
(1) Depreciation and amortization expense is comprised of the following: |
|||||||||||||
|
For the Three Months Ended |
|||||||||||||
| 2019 | 2018 | ||||||||||||
| Purchased intangible asset amortization | $ | — | $ | 85 | |||||||||
| Internally developed software amortization | 1,259 | 2,832 | |||||||||||
| Property and equipment depreciation | 2,026 | 1,886 | |||||||||||
| Depreciation and amortization | $ | 3,285 | $ | 4,803 | |||||||||
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