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Form 8-K SERVICESOURCE INTERNATIO For: Nov 05

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November 5, 2015 4:14 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K
________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 5, 2015
________________
ServiceSource International, Inc.
(Exact name of Registrant as specified in its charter)
________________
Delaware
 
001-35108
 
81-0578975
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)

760 Market Street, 4th floor
San Francisco, California 94102
(Address of principal executive offices, including zip code)
(415) 901-6030
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On November 5, 2015, ServiceSource International, Inc. issued a press release announcing its results for the quarter ended September 30, 2015. A copy of the press release is attached as Exhibit 99.1 to this current report on Form 8-K and is incorporated by reference herein.




The information in this current report on Form 8-K and the exhibits attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1
 
Press release dated November 5, 2015


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 5, 2015
 
 
 
 
 
 
 
 
 
 
SERVICESOURCE INTERNATIONAL, INC.
 
 
 
 
 
By: /s/ MATTHEW GOLDBERG
 
 
Name : Matthew Goldberg
 
 
Title : Vice President, General Counsel




EXHIBIT INDEX
Exhibit
Number
 
Description
99.1
 
Press release dated November 5, 2015






ServiceSource Reports Third Quarter 2015 Financial Results


SAN FRANCISCO, November 5, 2015 - ServiceSource® (Nasdaq: SREV), the global leader in recurring revenue management, today announced financial results for the third quarter ended September 30, 2015.

“The team at ServiceSource delivered another solid quarter as we continue strong progress on our turnaround.  With revenue near the high-end of guidance and continued cost management, we exceeded our expectations on profitability and improved our adjusted EBITDA by $6 million year-over-year.  Our client-facing teams continued their great work tightening relationships with current clients, growing deal sizes, and expanding the pipeline," said Christopher Carrington, CEO of ServiceSource.  “Additionally, we announced our plans to open a service center in the Philippines, an important move to meet increasing demand for RLM and our future growth.  With a new executive management team driving a revitalized culture, I remain confident our team will continue to make the operational improvements necessary to return ServiceSource to growth and profitability.”

GAAP revenue was $59.4 million in the third quarter, representing a 8.2% decrease from the $64.7 million delivered in same the period in the prior year. Non-GAAP revenue, which excludes the impact of the reduction of deferred revenue in connection with our acquisition of Scout Analytics, was $59.5 million, reflecting a 8.5% decrease from the same period in the prior year.

For the third quarter of fiscal year 2015, adjusted EBITDA was a loss of $1.3 million, compared with a loss of $7.4 million for the same period last year. GAAP net loss in the quarter was $10.9 million, or $0.13 per share, compared with GAAP net loss of $41.8 million, or $0.50 per share, for the same period last year. Non-GAAP net loss in the quarter was $2.1 million compared with a net loss of $6.3 million for the same period last year. Non-GAAP EPS was a $0.02 loss per basic and diluted share, compared with a loss of $0.08 per basic and 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 third quarter 2015 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: 61294941. 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 business opportunities, challenges, market position and new service center. 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 those expressed or implied in our forward-looking statements. Those risks and uncertainties include, without limitation, fluctuations in our quarterly results of operations; our technology; the risk of material defects or errors in our software offerings or their failure to meet customer expectations; migrating customers to our SaaS offerings and the ability to integrate such offerings with other third-party applications used by our customers; errors in estimates as to the renewal rate improvements and/or service revenue we can generate for our customers; our ability to grow the market for service revenue management; changes in market conditions that impact our ability to sell our SaaS 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; demand for our offering that falls short of expectations; the potential effect of mergers and acquisitions on our customer base; 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; our ability to achieve our expected benefits from international expansion; our ability to protect our intellectual property rights; the risk of claims that our offerings infringe the intellectual property rights of others; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our periodic reports and registration statements 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 we assume no obligation to update these forward-looking statements.

About ServiceSource
ServiceSource (NASDAQ: SREV) provides the world's leading B2B companies with expert managed services, cloud software and best-practice processes proven to increase customer success, drive revenue growth and decrease churn from existing customers. ServiceSource's solutions help companies with onboarding and adoption, upsell and cross-sell, retention and renewals-the entire revenue lifecycle. Only ServiceSource brings to market more than 15 years of exclusive focus on customer success and revenue growth, global deployments across 40 languages and 150 countries, and a powerful, purpose-built recurring revenue technology platform. For more information, go to 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

Trademarks

ServiceSource, Renew OnDemand, Scout Analytics 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.





ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2015
 
2014
 
2015
 
2014
Net revenue
$
59,432

 
$
64,713

 
$
187,242

 
$
197,526

Cost of revenue (1)
42,568

 
49,218

 
131,076

 
145,331

Gross profit
16,864

 
15,495

 
56,166

 
52,195

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing (1)
10,667

 
14,343

 
31,667

 
47,225

Research and development (1)
3,474

 
6,402

 
12,942

 
19,999

General and administrative (1)
10,912

 
10,932

 
33,778

 
36,053

Restructuring and other
(2
)
 
1,937

 
3,737

 
1,937

Goodwill impairment
—

 
21,000

 
—

 
21,000

Total operating expenses
25,051

 
54,614

 
82,124

 
126,214

Loss from operations
(8,187
)
 
(39,119
)
 
(25,958
)
 
(74,019
)
Interest expense and other, net
(2,513
)
 
(2,867
)
 
(7,097
)
 
(7,638
)
Loss before income taxes
(10,700
)
 
(41,986
)
 
(33,055
)
 
(81,657
)
Income tax provision (benefit)
158

 
(200
)
 
1,380

 
(39
)
Net loss
$
(10,858
)
 
$
(41,786
)
 
$
(34,435
)
 
$
(81,618
)
Net loss per share, basic and diluted
$
(0.13
)
 
$
(0.50
)
 
$
(0.40
)
 
$
(0.99
)
Weighted average common shares outstanding, basic and diluted
85,994

 
83,131

 
85,113

 
82,668

 
 
 
 
 
 
 
 
(1) Includes stock-based compensation expense as follows:
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2015
 
2014
 
2015
 
2014
Cost of revenue
$
704

 
$
1,034

 
$
2,200

 
$
3,168

Sales and marketing
796

 
1,497

 
2,443

 
4,917

Research and development
322

 
695

 
1,314

 
2,131

General and administrative
1,438

 
1,848

 
4,847

 
5,790

Total stock-based compensation
$
3,260

 
$
5,074

 
$
10,804

 
$
16,006







ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
 
 
 
 
 
September 30,
 
December 31,
 
 
2015
 
2014
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
73,829

 
$
90,382

Short-term investments
 
136,769

 
125,000

Accounts receivable, net
 
56,131

 
70,163

Deferred income taxes
 
390

 
398

Prepaid expenses and other
 
7,086

 
6,815

Total current assets
 
274,205

 
292,758

Property and equipment, net
 
25,020

 
25,658

Deferred income taxes, net of current portion
 
1,471

 
2,488

Goodwill and intangibles, net
 
9,823

 
10,957

Other assets, net
 
8,546

 
7,985

Total assets
 
$
319,065

 
$
339,846

 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
1,902

 
$
2,922

Accrued taxes
 
773

 
1,721

Accrued compensation and benefits
 
19,866

 
20,056

Deferred revenue
 
5,942

 
7,018

Accrued expenses
 
5,562

 
8,882

Other current liabilities
 
1,307

 
2,569

Total current liabilities
 
35,352

 
43,168

Convertible notes, net
 
126,178

 
120,730

Other long-term liabilities
 
4,779

 
4,660

Total liabilities
 
166,309

 
168,558

Stockholders’ equity:
 
 
 
 
Common stock
 
8

 
8

Treasury stock
 
(441
)
 
(441
)
Additional paid-in capital
 
327,512

 
312,017

Accumulated deficit
 
(175,843
)
 
(141,409
)
Accumulated other comprehensive income
 
1,520

 
1,113

Total stockholders’ equity
 
152,756

 
171,288

Total liabilities and stockholders’ equity
 
$
319,065

 
$
339,846









ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Nine months ended
 
 
September 30
 
 
2015
 
2014
Cash flows from operating activities
 
 
 
 
Net loss
 
$
(34,435
)
 
$
(81,618
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
10,204

 
9,670

Amortization of debt discount and issuance costs
 
5,955

 
5,536

Amortization of premium on short-term investments
 
(205
)
 
72

Deferred income taxes
 
1,020

 
(177
)
Stock-based compensation
 
10,804

 
16,006

Income tax benefit from stock-based compensation
 
—

 
(267
)
Restructuring and other
 
3,518

 
910

Goodwill impairment
 
—

 
21,000

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
12,740

 
14,567

Deferred revenue
 
(1,043
)
 
(1,137
)
Prepaid expenses and other
 
(1,247
)
 
(108
)
Accounts payable
 
(620
)
 
(831
)
Accrued taxes
 
(879
)
 
(593
)
Accrued compensation and benefits
 
(580
)
 
(822
)
Accrued expense
 
(4,031
)
 
3,259

Other liabilities
 
(844
)
 
(1,661
)
Net cash provided by (used in) operating activities
 
357

 
(16,194
)
Cash flows from investing activities
 
 
 
 
Acquisition of property and equipment
 
(8,273
)
 
(7,625
)
Restricted cash
 
(1,244
)
 
—

Cash paid for acquisition, net of cash acquired
 
—

 
(32,550
)
Purchases of short-term investments
 
(73,567
)
 
(70,430
)
Sales of short-term investments
 
61,430

 
46,181

Maturities of short-term investments
 
690

 
4,043

Net cash used in investing activities
 
(20,964
)
 
(60,381
)
Cash flows from financing activities
 
 
 
 
Repayment of long-term debt and capital lease obligations
 
(139
)
 
(321
)
Proceeds from common stock issuances
 
3,476

 
4,380

Income tax benefit from stock-based compensation
 
—

 
267

Net cash provided by financing activities
 
3,337

 
4,326

Net decrease in cash and cash equivalents
 
(17,270
)
 
(72,249
)
Effect of exchange rate changes on cash and cash equivalents
 
717

 
1,039

Cash and cash equivalents at beginning of period
 
90,382

 
170,132

Cash and cash equivalents at end of period
 
$
73,829

 
$
98,922





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 for Scout Analytics due to the impact of purchase accounting rules related to deferred revenue acquired.
Non-GAAP gross profit consists of gross profit plus adjustments to revenue related to purchase accounting, stock based compensation, amortization of purchased intangible assets and amortization of internally-developed software.

Non-GAAP net loss consists of net loss plus adjustments to revenue related to purchase accounting, stock-based compensation, amortization of purchased intangible assets, amortization of internally-developed software, acquisition related costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs, and acquisition bonus payments, restructuring related costs, goodwill impairment and non-cash interest expense 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 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, acquisition related costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs, and acquisition bonus payments, restructuring related costs, goodwill impairment and adjustments to revenue related to purchase accounting. 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 Ended
 
Nine Months Ended
 
 
 
 
September 30
 
September 30
 
 
 
 
2015
 
2014
 
2015
 
2014
Net Revenue
 
 
 
 
 
 
 
 
   GAAP net revenue
 
$
59,432

 
$
64,713

 
$
187,242

 
$
197,526

 
Adjustments to revenue
(A)
81

 
317

 
275

 
1,076

  Non-GAAP net revenue
 
$
59,513

 
$
65,030

 
$
187,517

 
$
198,602

 
 
 
 
 
 
 
 
 
 
 
Gross Profit
 
 
 
 
 
 
 
 
   GAAP gross profit
 
$
16,864

 
$
15,495

 
$
56,166

 
$
52,195

   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Adjustments to revenue
(A)
81

 
317

 
275

 
1,076

 
Stock-based compensation
(B)
704

 
1,034

 
2,200

 
3,168

 
Amortization of internally-developed software
(C)
1,362

 
517

 
3,383

 
1,553

 
Amortization of purchased intangible assets
(D)
247

 
351

 
741

 
974

  Non-GAAP gross profit
 
$
19,258

 
$
17,714

 
$
62,765

 
$
58,966

 
 
 
 
 
 
 
 
 
 
 
Gross Profit %
 
 
 
 
 
 
 
 
   GAAP gross profit
 
28
%
 
24
%
 
30
%
 
26
%
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Adjustments to revenue
(A)
—
%
 
—
%
 
—
%
 
1
%
 
Stock-based compensation
(B)
1
%
 
2
%
 
1
%
 
2
%
 
Amortization of internally-developed software
(C)
2
%
 
1
%
 
2
%
 
1
%
 
Amortization of purchased intangible assets
(D)
—
%
 
1
%
 
—
%
 
—
%
  Non-GAAP gross profit
 
32
%
 
27
%
 
33
%
 
30
%
Certain totals do not add due to rounding
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
GAAP operating expenses
 
$
25,051

 
$
54,614

 
$
82,124

 
$
126,214

Stock-based compensation
(B)
(2,556
)
 
(4,040
)
 
(8,604
)
 
(12,838
)
Amortization of internally-developed software
(C)
(84
)
 
(105
)
 
(252
)
 
(245
)
Amortization of purchased intangible assets
(D)
(131
)
 
(212
)
 
(394
)
 
(590
)
Acquisition related costs
(E)
—

 
—

 
—

 
(728
)
Restructuring and other
(F)
2

 
(1,937
)
 
(3,737
)
 
(1,937
)
Goodwill impairment
(G)
—

 
(21,000
)
 
—

 
(21,000
)
Non-GAAP operating expenses
 
$
22,282

 
$
27,320

 
$
69,137

 
$
88,876

 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
 
  GAAP net loss
 
$
(10,858
)
 
$
(41,786
)
 
$
(34,435
)
 
$
(81,618
)
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Adjustments to revenue
(A)
81

 
317

 
275

 
1,076

 
Stock-based compensation
(B)
3,260

 
5,074

 
10,804

 
16,006

 
Amortization of internally-developed software
(C)
1,446

 
622

 
3,635

 
1,798

 
Amortization of purchased intangible assets
(D)
378

 
563

 
1,134

 
1,564

 
Acquisition related costs
(E)
—

 
—

 
—

 
728

 
Restructuring and other
(F)
(2
)
 
1,937

 
3,737

 
1,937

 
Goodwill impairment

—

 
21,000

 
—

 
21,000

 
Non-cash interest expense
(H)
2,052

 
1,905

 
5,965

 
5,569

 
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate
(I)
1,552

 
4,028

 
4,382

 
12,752

Non-GAAP net loss
 
$
(2,091
)
 
$
(6,340
)
 
$
(4,503
)
 
$
(19,188
)
 
 
 
 
 
 
 
 
 
Diluted Net Loss Per Share
 
 
 
 
 
 
 
 
  GAAP net loss per share
 
$
(0.13
)
 
$
(0.50
)
 
$
(0.40
)
 
$
(0.99
)
   Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Adjustments to revenue
(A)
—

 
—

 
—

 
0.01

 
Stock-based compensation
(B)
0.04

 
0.06

 
0.13

 
0.19

 
Amortization of internally-developed software
(C)
0.02

 
0.01

 
0.04

 
0.02

 
Amortization of purchased intangible assets
(D)
—

 
0.01

 
0.01

 
0.02

 
Acquisition related costs
(E)
—

 
—

 
—

 
0.01

 
Restructuring and other
(F)
—

 
0.02

 
0.04

 
0.02

 
Goodwill impairment

—

 
0.25

 
—

 
0.25

 
Non-cash interest expense
(H)
0.02

 
0.02

 
0.07

 
0.07

 
Income tax effect on non-GAAP adjustments and impact of normalizing the effective income tax rate
(I)
0.02

 
0.05

 
0.05

 
0.15

  Non-GAAP diluted net loss per share
 
$
(0.02
)
 
$
(0.08
)
 
$
(0.05
)
 
$
(0.23
)
Certain totals do not add due to rounding
 
 
 
 
 
 
 
 
Shares used in calculating diluted net income (loss) per share on a non-GAAP basis
 
85,994

 
83,131

 
85,113

 
82,668









Footnotes to GAAP to Non-GAAP Reconciliation                
(A) Adjustments to revenue - Due to purchase accounting rules, upon acquisition, we recorded an adjustment of $1.7 million to reduce the balance of deferred revenue related to the assumed client contracts acquired from Scout Analytics. As a result of this adjustment, $0.1 million of revenue was not recognized for the three months ended September 30, 2015. Therefore, revenue is adjusted by an increase of $0.1 million to arrive at non-GAAP revenue for the three months ended September 30, 2015.
(B) 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.
(C) 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.
(D) 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, as items arising from pre-acquisition activities determined at the time of an acquisition. While 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.
(E) Acquisition related costs. Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs and acquisition bonus payments. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.
(F) Restructuring and other expense.   Included in our GAAP presentation, we will incur expenses with our ongoing restructuring effort to reduce expenses to better match revenues.  Restructuring and other expenses consist primarily of employees' severance payments, related employee benefits, retention bonuses and charges related to cancellation of contracts. These are one-time in nature costs that are not indicative of our core operating performance.

(G) Goodwill impairment. Included in our GAAP presentation, we recorded goodwill impairment related to our Cloud and Business Intelligence unit in 2014. Goodwill impairment is a noncash charge that is one time in nature that is not indicative of our core operating performance.

(H) 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.

(I) 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, G, H and I 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 Ended
 
Nine months ended
 
 
September 30
 
September 30
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
Net loss
 
$
(10,858
)
 
$
(41,786
)
 
$
(34,435
)
 
$
(81,618
)
Income tax provision (benefit)
 
158

 
(200
)
 
1,380

 
(39
)
Interest expense and other, net
 
2,513

 
2,867

 
7,097

 
7,638

Depreciation and amortization
 
3,520

 
3,348

 
10,320

 
9,670

EBITDA
 
(4,667
)
 
(35,771
)
 
(15,638
)
 
(64,349
)
Stock-based compensation
 
3,260

 
5,074

 
10,804

 
16,006

Adjustments to revenue
 
81

 
317

 
275

 
1,076

Acquisition related costs
 
—

 
—

 
—

 
728

Restructuring and other
 
(2
)
 
1,937

 
3,737

 
1,937

Goodwill impairment
 
—

 
21,000

 
—

 
21,000

Adjusted EBITDA
 
$
(1,328
)
 
$
(7,443
)
 
$
(822
)
 
$
(23,602
)

ServiceSource International, Inc.
Reporting Segments
(In thousands)
(unaudited)
 
 
Three Months Ended September 30
 
 
2015
 
2014
 
 
Managed Services
 
Cloud and Business Intelligence
 
Managed Services
 
Cloud and Business Intelligence
Net Revenue
 
$
53,295

 
$
6,137

 
$
56,629

 
$
8,084

Cost of Revenue
 
38,594

 
3,974

 
43,733

 
5,485

Gross Profit
 
$
14,701

 
$
2,163

 
$
12,896

 
$
2,599

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
2015
 
2014
 
 
Managed Services
 
Cloud and Business Intelligence
 
Managed Services
 
Cloud and Business Intelligence
Net Revenue
 
$
167,532

 
$
19,710

 
$
173,773

 
$
23,753

Cost of Revenue
 
119,499

 
11,577

 
127,629

 
17,702

Gross Profit
 
$
48,033

 
$
8,133

 
$
46,144

 
$
6,051


Investor Relations Contact for ServiceSource:
Erik Bylin
ServiceSource International, Inc.
(415) 901-4182







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