Strong Q4 with Outperformance on All Key
Financial Metrics
Record Year for New Logo Wins
Under the 2018 Outlook section, 8th bullet should read: GAAP
loss per share of $0.20 to $0.24; non-GAAP net income per share of
$0.09 to $0.11 (instead of GAAP loss per share of $0.20 to $0.24;
non-GAAP loss per share of $0.09 to $0.11).
The corrected release reads:
SERVICESOURCE REPORTS FOURTH QUARTER AND
FULL-YEAR 2017 FINANCIAL RESULTS
Strong Q4 with Outperformance on All Key
Financial Metrics
Record Year for New Logo Wins
ServiceSource (NASDAQ: SREV), a global leader in outsourced
inside sales, customer success and recurring revenue growth and
retention solutions, today announced financial results for the
three months and year ended December 31, 2017.
“With a strong finish to 2017, ServiceSource has reached an
inflection point and is positioned well to return to growth in
2018,” said Christopher M. Carrington, CEO of ServiceSource. “On
the financial side, we turned in sequential revenue growth of 13.6%
and achieved the highest Adjusted EBITDA in the history of the
company. On the sales front, we wrapped up another impressive year
by signing seven new logos in the quarter and 15 for the year,
while also earning long-term contract extensions from two of our
top-five clients. I continue to be pleased with the positive
response we are receiving for our market-leading solution set of
inside sales, customer success and revenue retention. Our
transformation is moving forward and we continue to gain momentum
in the marketplace as the go-to partner to help our clients grow
closer to their customers, achieve faster revenue growth and drive
higher customer lifetime value.”
Key Financial Results – Fourth Quarter
2017
- GAAP revenue for Q4 2017 was $66.0
million, compared with $68.7 million reported for Q4 2016.
- GAAP net income for Q4 2017 was $0.1
million or $0.00 per diluted share, compared with GAAP net loss of
$8.5 million or $0.10 per diluted share reported for Q4 2016.
- Non-GAAP net income for Q4 2017 was
$5.1 million or $0.06 per diluted share, compared with $1.7 million
or $0.02 per diluted share reported for Q4 2016.
- Adjusted EBITDA for Q4 2017 was income
of $10.3 million, compared with income of $5.7 million reported for
Q4 2016.
Key Financial Results – Full Year
2017
- For the year ended December 31, 2017,
GAAP revenue was $239.1 million, compared with $252.9 million
reported for the year ended December 31, 2016.
- GAAP net loss for the year ended
December 31, 2017 was $29.8 million or $0.33 per diluted share,
compared with $32.1 million or $0.37 per diluted share reported for
the year ended December 31, 2016.
- Non-GAAP net income for the year ended
December 31, 2017 was $7.0 million or $0.08 per diluted share,
compared with $3.6 million or $0.04 per diluted share reported for
the year ended December 31, 2016.
- Adjusted EBITDA for the year ended
December 31, 2017 was income of $19.9 million, compared with income
of $12.9 million reported for the year ended December 31,
2016.
A reconciliation of GAAP to non-GAAP financial measures is
provided following the consolidated financial statement tables
contained within this press release.
2018 Outlook
For Q1 2018, ServiceSource is providing the following
guidance:
- Revenue of $53.5 million to $55.5
million
- GAAP loss per share of $0.13 to $0.15;
non-GAAP loss per share of $0.01 to $0.03
- Adjusted EBITDA of negative $1.50
million to positive $0.50 million
For fiscal 2018, ServiceSource is providing the following
guidance:
- Revenue of $243.0 million to $246.0
million
- GAAP gross margin of 34.0% to 35.0%;
non-GAAP gross margin of 36.5% to 37.5%
- GAAP operating expenses of $92.1
million to $95.1 million; non-GAAP operating expenses of $78.0
million to $80.0 million
- GAAP net loss of $18.8 million to $21.8
million; non-GAAP net income of $8.0 million to $10.0 million
- GAAP loss per share of $0.20 to $0.24;
non-GAAP net income per share of $0.09 to $0.11
- Adjusted EBITDA of $19.0 million to
$22.0 million
Please see the fourth quarter 2017 Earnings Call Deck on the
Events and Presentations section of the Investor Relations website
(http://ir.servicesource.com/events)
for a reconciliation between GAAP and non-GAAP measures in our
guidance.
Quarterly Conference Call
ServiceSource will discuss its fourth quarter 2017 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: 1673589. In
addition, a live webcast of the call will also be available on the
Investor Relations section of the ServiceSource web site 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 go-forward model 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 customer
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
customers; changes in market conditions that impact our ability to
sell our 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; 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) helps the
world’s leading brands grow closer to their customers. As a global
leader in outsourced inside sales, customer success and recurring
revenue growth and retention solutions, ServiceSource expands
customer lifetime value by helping companies to more efficiently
and effectively find, convert, grow and retain their B2B customer
relationships. Trusted by global market leaders in the cloud/XaaS,
software, technology hardware, medical device & diagnostic
equipment and industrial IoT sectors, ServiceSource sells, manages
or renews $9+ billion of revenue annually on behalf of its clients.
Leveraging a robust technology suite, predictive data models and
more than 3,000 revenue delivery professionals speaking 45
languages, only ServiceSource brings to market over 15 years of
expertise and the ability to drive recurring revenue growth to more
than 170 countries. To learn more, visit 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
ServiceSource International, Inc. Consolidated
Statements of Operations (in thousands, except per share
amounts) (unaudited)
Three Months
EndedDecember 31, Twelve Months EndedDecember
31, 2017 2016 2017 2016 Net revenue
$ 66,024 $ 68,654 $ 239,127 $ 252,887 Cost of revenue(1) 41,980
42,502 163,709 165,069
Gross profit
24,044 26,152 75,418 87,818 Operating
expenses:
Sales and marketing(1)
8,211 11,345 33,001 41,972 Research and development(1) 1,195 2,212
5,729 8,344 General and administrative(1) 13,058 14,763 53,087
52,995 Restructuring and other(1) 1,049 — 7,308
— Total operating expenses 23,513 28,320
99,125 103,311 Income (loss) from operations
531 (2,168 ) (23,707 ) (15,493 ) Interest expense and other, net
(2,331 ) (3,204 ) (9,886 ) (8,704 ) Impairment loss on cost basis
equity investment — (2,200 ) — (4,500 ) Gain on sale of cost basis
equity investment — — 2,100 — Loss
before income taxes (1,800 ) (7,572 ) (31,493 ) (28,697 ) Provision
for income tax benefit (expense) 1,874 (924 ) 1,647
(3,429 ) Net income (loss) $ 74 $ (8,496 ) $ (29,846 ) $
(32,126 ) Net income (loss) per share, basic and diluted $ 0.00
$ (0.10 ) $ (0.33 ) $ (0.37 ) Weighted average common shares
outstanding, basic and diluted 90,205 87,481 89,234
86,318 (1) Reported amounts includes
stock-based compensation expense as follows:
Three Months
Ended Twelve Months Ended December 31,
December 31, 2017 2016 2017 2016
Cost of revenue $ 367 $ 338 $ 1,335 $ 1,484 Sales and marketing 940
852 3,774 3,004 Research and development 42 138 149 586 General and
administrative 1,938 1,983 8,425 5,678 Restructuring and other —
— 352 — Total stock-based compensation
$ 3,287 $ 3,311 $ 14,035 $ 10,752
*Quarterly amounts may not total to annual amounts due to
rounding.
ServiceSource International, Inc. Consolidated
Balance Sheets (in thousands) (unaudited)
December 31, December 31, 2017 2016
Assets Current assets: Cash and cash equivalents $ 51,389 $
47,692 Short-term investments 137,181 137,881 Accounts receivable,
net 56,516 63,289 Prepaid expenses and other 6,112 7,607
Total current assets 251,198 256,469 Property and equipment,
net 34,119 38,180 Deferred income taxes, net of current portion 70
64 Goodwill and intangible assets, net 6,419 7,932 Other assets
3,566 3,445 Total assets $ 295,372 $ 306,090
Liabilities and Stockholders’ Equity Current
liabilities: Accounts payable $ 4,574 $ 1,916 Accrued taxes 651
1,388 Accrued compensation and benefits 19,257 21,579 Convertible
notes, net 144,167 — Deferred revenue 1,282 4,152 Accrued expenses
6,625 5,891 Other current liabilities 2,104 2,958
Total current liabilities 178,660 37,884 Convertible notes, net —
134,775 Other long-term liabilities 4,603 6,495 Total
liabilities 183,263 179,154 Stockholders’ equity:
Common stock 8 8 Treasury stock (441 ) (441 ) Additional paid-in
capital 359,347 344,521 Accumulated deficit (246,207 ) (216,361 )
Accumulated other comprehensive loss (598 ) (791 ) Total
stockholders’ equity 112,109 126,936 Total
liabilities and stockholders’ equity $ 295,372 $ 306,090
ServiceSource International, Inc.
Consolidated Statements of Cash Flows (in thousands)
(unaudited)
Twelve Months Ended December 31,
2017 2016 Cash flows from operating
activities
Net loss
$ (29,846 ) $ (32,126 ) Adjustments to reconcile net loss to net
cash provided by operating activities: Depreciation and
amortization 22,588 16,052 Amortization of debt discount and
issuance costs 9,392 8,724 Amortization of premium on short-term
investments (12 ) 1,091 Deferred income taxes (1,999 ) 1,924
Stock-based compensation 13,683 10,752 Restructuring and other
3,063 — Impairment loss on cost basis equity investment — 4,500
Gain on sale of cost basis equity investment (2,100 ) — Other 184 —
Changes in operating assets and liabilities: Accounts receivable,
net 9,060 (7,156 ) Deferred revenue (2,872 ) (1,589 ) Prepaid
expenses and other 1,670 (673 ) Accounts payable 2,487 872 Accrued
taxes (762 ) 269 Accrued compensation and benefits (2,940 ) (119 )
Accrued expenses (972 ) 1,182 Other liabilities (827 ) 749
Net cash provided by operating activities 19,797 4,452
Cash flows from investing activities: Acquisition of
property and equipment (17,110 ) (26,337 ) Proceeds from sale of
cost basis equity investment 2,100 — Purchases of short-term
investments (56,626 ) (102,130 ) Sales of short-term investments
53,315 98,028 Maturities of short-term investments 3,506
1,525 Net cash used in investing activities (14,815 )
(28,914 )
Cash flows from financing activities: Repayment on
capital lease obligations (71 ) (131 ) Repurchase of common stock —
(8,921 ) Proceeds from issuance of common stock 1,062 10,866
Minimum tax withholding on restricted stock unit releases (775 )
(877 ) Net cash provided by financing activities 216 937
Net increase (decrease) in cash and cash equivalents 5,198
(23,525 ) Effect of exchange rate changes on cash and cash
equivalents (1,501 ) (1,117 ) Cash and cash equivalents, beginning
of period 47,692 72,334 Cash and cash
equivalents, end of period $ 51,389 $ 47,692
Use of Non-GAAP Financial Measures
To supplement its consolidated financial statements presented in
accordance with generally accepted accounting principles, or GAAP,
ServiceSource provides investors with non-GAAP gross profit, net
income, net income 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 purchased intangible
assets and amortization of internally-developed software.
Non-GAAP net income (loss) consists of net income (loss) plus
stock-based compensation, amortization of purchased intangible
assets, amortization of internally-developed software,
restructuring and other related costs, litigation reserve, gain on
sale of cost basis equity investment, impairment loss on cost basis
equity investment, non-cash interest expense and applying an income
tax rate of 40% on non-GAAP adjustments as well as the impact of
normalizing the effective income tax rate. 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 depreciation and
amortization, interest expense and other income/(expense), and
income tax benefit (expense). Adjusted EBITDA consists of EBITDA
plus non-cash stock-based compensation expense, restructuring and
other related costs, litigation reserve, gain on sale of cost basis
equity investment and impairment loss on cost basis equity
investment. 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 the impact of the
Company's capital structure from operating results.
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)
Three Months Ended
Twelve Months Ended December 31, December 31,
2017 2016 2017 2016
Net revenue
GAAP net revenue
$ 66,024 $ 68,654 $ 239,127 $ 252,887
Non-GAAP net revenue $ 66,024 $ 68,654 $ 239,127
$ 252,887
Gross profit GAAP gross
profit $ 24,044 $ 26,152 $ 75,418 $ 87,818 Non-GAAP adjustments:
Stock-based compensation (A) 367 338 1,335 1,484 Amortization of
internally-developed software (B) 2,934 2,076 11,931 6,943
Amortization of purchased intangible assets (C) 246 247
988 988 Non-GAAP gross profit $ 27,591
$ 28,813 $ 89,672 $ 97,233
Gross
profit % GAAP gross profit 36.4 % 38.1 % 31.5 % 34.7 % Non-GAAP
adjustments: Stock-based compensation (A) 0.6 % 0.5 % 0.6 % 0.6 %
Amortization of internally-developed software (B) 4.4 % 3.0 % 5.0 %
2.7 % Amortization of purchased intangible assets (C) 0.4 % 0.4 %
0.4 % 0.4 % Non-GAAP gross profit 41.8 % 42.0 % 37.5 % 38.4 %
Certain totals do not add due to rounding
Operating
expenses: GAAP operating expenses $ 23,513 $ 28,320 $ 99,125 $
103,311 Stock-based compensation (A) (2,921 ) (2,973 ) (12,348 )
(9,268 ) Amortization of internally-developed software (B) (216 )
(242 ) (1,367 ) (691 ) Amortization of purchased intangible assets
(C) (131 ) (131 ) (525 ) (525 ) Restructuring and other (D) (1,049
) — (7,308 ) — Litigation reserve (E) — — —
(1,500 ) Non-GAAP operating expenses $ 19,196 $ 24,974
$ 77,577 $ 91,327
Net income
(loss) GAAP net income (loss) $ 74 $ (8,496 ) $ (29,846 ) $
(32,126 ) Non-GAAP adjustments: Stock-based compensation (A) 3,287
3,311 13,683 10,752 Amortization of internally-developed software
(B) 3,149 2,317 13,298 7,634 Amortization of purchased intangible
assets (C) 378 378 1,512 1,513 Restructuring and other (D) 1,049 —
7,308 — Litigation reserve (E) — — — 1,500 Impairment loss on cost
basis equity investment (F) — 2,200 — 4,500 Gain on sale of cost
basis equity investment (F) — — (2,100 ) — Non-cash interest
expense (G) 2,441 2,260 9,392 8,724 Income tax effect on non-GAAP
adjustments and impact of normalizing the effective income tax rate
(H) (5,276 ) (234 ) (6,286 ) 1,059 Non-GAAP net income $
5,102 $ 1,736 $ 6,961 $ 3,556
Diluted net income (loss) per share GAAP net income (loss)
per share $ 0.00 $ (0.10 ) $ (0.33 ) $ (0.37 ) Non-GAAP
adjustments: Stock-based compensation (A) 0.04 0.04 0.15 0.12
Amortization of internally-developed software (B) 0.03 0.03 0.15
0.09 Amortization of purchased intangible assets (C) 0.00 0.00 0.02
0.02 Restructuring and other (D) 0.01 0.00 0.08 0.00 Litigation
reserve (E) 0.00 0.00 0.00 0.02 Impairment of cost basis equity
investment (F) 0.00 0.03 0.00 0.05 Gain on sale of cost basis
equity investment (F) 0.00 0.00 (0.02 ) 0.00 Non-cash interest
expense (G) 0.03 0.03 0.11 0.10 Income tax effect on non-GAAP
adjustments and impact of normalizing the effective income tax rate
(H) (0.06 ) 0.00 (0.07 ) 0.01 Non-GAAP diluted net
income per share $ 0.06 $ 0.02 $ 0.08 $ 0.04
Certain totals do not add due to rounding Shares used in
calculating diluted net income (loss) per share on a non-GAAP basis
90,205 87,481 89,234 86,318
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, 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) 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, are
items arising from pre-acquisition activities and therefore are
properly determined at the time of an acquisition. Although 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.
(D) Restructuring and other. 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 expenses consist primarily of stock-based compensation
related to the accelerated vesting of certain equity awards,
employees' severance payments, related employee benefits, related
legal fees, asset impairment charges 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) Litigation reserve. The Company records a contingent
liability when it is probably that a loss has been incurred and the
amount is reasonably estimable in accordance with accounting for
contingencies. As of December 31, 2017 and 2016, the Company
accrued a $1.5 million reserve relating to our potential liability
for currently pending disputes. These reserves are non-recurring in
nature charges that are not indicative of our core operating
performance.
(F) Gain on sale of cost basis equity investment and Impairment
loss on cost basis equity investment. In 2013 we made an equity
investment in a private company for $4.5 million. Based on
unfavorable growth trends and declining financial performance of
this private company, the Company determined that its investment
was fully impaired and recorded a $4.5 million impairment charge
during the year ended December 31, 2016. During the year ended
December 31, 2017, the Company sold this investment for $2.1
million in cash and recorded the proceeds as a gain.
(G) 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.
(H) 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 and G 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 Income (Loss) to Adjusted EBITDA (in thousands)
(unaudited)
Three Months Ended Twelve
Months Ended December 31, December 31,
2017 2016 2017 2016 Net
income (loss) $ 74 $ (8,496 ) $ (29,846 ) $ (32,126 ) Provision for
income tax (benefit) expense (1,874 ) 924 (1,647 ) 3,429 Interest
expense and other, net 2,331 3,204 9,886 8,704 Depreciation and
amortization 5,469 4,529 22,588 16,165
EBITDA 6,000 161 981 (3,828 ) Stock-based compensation 3,287 3,311
13,683 10,752 Litigation reserve — — — 1,500 Impairment loss on
cost basis equity investment — 2,200 — 4,500 Gain on sale of cost
basis equity investment — — (2,100 ) — Restructuring and other
1,049 — 7,308 — Adjusted EBITDA $
10,336 $ 5,672 $ 19,872 $ 12,924
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180212006044/en/
Investor Relations Contact for ServiceSource:Erik
BylinServiceSource International, Inc.ebylin@servicesource.com
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