ServiceSource Reports Fourth Quarter and Full Year 2012 Financial Results

ServiceSource Reports Fourth Quarter and Full Year 2012 Financial Results 
SAN FRANCISCO, CA -- (Marketwire) -- 02/06/13 --  ServiceSource(R)
(NASDAQ: SREV)  


 
--  Reports fourth quarter revenue of $67.3 million and full year revenue
    of $243.7 million, up 11% and 19% year-over-year, respectively
--  Achieves 2012 adjusted EBITDA of $20.9 million, up 17% year-over-year,
    and non-GAAP EPS of $0.10 per diluted share
--  Adds Beckman Coulter, Intralinks and Rockwell Automation to growing
    list of customers; notable expansions include Adobe Marketing Cloud,
    Avaya and GE Healthcare, among others
--  Increases Annual Contract Value (ACV) to $270.4 million, up 13%
    year-over-year

  
ServiceSource(R) (NASDAQ: SREV), the global leader in recurring revenue
management, today announced financial results for the fourth quarter
and fiscal year ended December 31, 2012.  
"ServiceSource delivered a record year of revenue in 2012 resulting
in 19% year-over-year growth, despite ACV that was heavily back end
loaded," said Mike Smerklo, ServiceSource's Chairman and Chief
Executive Officer. "Recurring revenue continues to grow as a percent
of total revenue for companies around the world and this trend drives
a growing interest in Renew OnDemand, the world's only cloud
application built specifically to maximize recurring revenue. Our
focus in 2013 is on investing in Renew OnDemand for innovation,
improving productivity in our sales organization and executing with
consistency." 
Revenue was $67.3 million in the fourth quarter, representing an 11%
increase over the $60.8 million delivered in the prior year. Revenue
for the full year 2012 was $243.7 million, up 19% from $205.5 million
in 2011. 
For the fourth quarter of fiscal year 2012, adjusted EBITDA was $8.3
million, compared with $9.3 million for the same period last year.
GAAP net loss in the quarter was $1.2 million, or $0.02 per share,
compared with a profit of $1.7 million, or $0.02 per diluted share
for the same period last year. Non-GAAP net income in the quarter was
$3.6 million compared with $4.6 million for the same period last
year. Non-GAAP EPS was $0.05 per diluted share, compared with $0.06
per diluted share for the same period last year. 
For the full year 2012, adjusted EBITDA was $20.9 million, compared
with $17.8 million for fiscal year 2011. GAAP net loss for the year
was $42.8 million, or $0.58 per share, compared with a profit of
$15.1 million, or $0.21 per diluted share for 2011. Non-GAAP net
income for the year was $7.9 million, compared with $6.5 million in
2011. Non-GAAP EPS was $0.10 per diluted share, compared with $0.09
per diluted share for 2011. 
A reconciliation of GAAP to non-GAAP financial measures has been
provided in the financial statement tables included in this press
release.  
In addition, the company has named Ashley Fieglein Johnson to the
role of Chief Financial Officer effective upon the filing of the
company's fiscal year 2012 Form 10-K. Current CFO, David Oppenheimer,
announced his departure in December of 2012. Previously, Ms. Johnson
held the role of Senior Vice President of Finance at ServiceSource. 
Quarterly Conference Call 
ServiceSource will discuss its quarterly results and provide 2013
financial guidance today via teleconference at 1:30 p.m. Pacific
Time. To access the call within the U.S., please dial (877) 293-5486,
or outside the U.S. (914) 495-8592, at least five minutes prior to
the start time. A live webcast of the call will also be available at
http://ir.servicesource.com/events.cfm under the Events &
Presentations menu. A replay of the webcast will also be available on
the Company's website at http://ir.servicesource.com.  
About ServiceSource International, Inc.  
ServiceSource is the global leader in recurring revenue management.
The world's most successful companies rely on us to maximize
subscription, maintenance and support revenue, improve customer
retention and increase business predictability and insight.
ServiceSource delivers results with Renew OnDemand, the world's only
cloud application built specifically to manage and grow recurring
revenue, which can be combined with our industry-leading services. 
With over a decade of experience focused exclusively in growing
recurring revenue, our services and applications are based on proven
best practices and global benchmarks. The company is headquartered in
San Francisco, and has over $8 billion under management for customers
in more than 150 countries and 40 languages. 
ServiceSource, Renew OnDemand and any ServiceSource product or
service names or logos above are trademarks of ServiceSource
International, Inc. All other trademarks used herein belong to their
respective owners. 
For more information on ServiceSource, visit
http://www.servicesource.com. To connect with ServiceSource, visit us
on Twitter, Facebook, LinkedIn and YouTube.  


 
                                                                            
                     ServiceSource International, Inc.                      
              Condensed Consolidated Statements of Operations               
                  (In thousands, except per share amounts)                  
                                (Unaudited)                                 
                                                                            
                                  Three Months Ended        Years Ended     
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
Net revenue                      $  67,345  $  60,779  $ 243,703  $ 205,501 
Cost of revenue (1)                 35,319     31,007    136,321    113,406 
                                 ---------  ---------  ---------  --------- 
Gross profit                        32,026     29,772    107,382     92,095 
                                 ---------  ---------  ---------  --------- 
Operating expenses                                                          
  Sales and marketing (1)           15,767     13,856     56,925     48,520 
  Research and development (1)       5,960      3,423     19,255     13,073 
  General and administrative (1)    10,496      8,955     41,135     33,647 
                                 ---------  ---------  ---------  --------- 
Total operating expenses            32,223     26,234    117,315     95,240 
                                 ---------  ---------  ---------  --------- 
Loss from operations                  (197)     3,538     (9,933)    (3,145)
Interest expense                       (56)       (51)      (236)      (503)
Other income (expense), net           (414)       (65)      (538)      (624)
                                 ---------  ---------  ---------  --------- 
Loss before income taxes              (667)     3,422    (10,707)    (4,272)
Income tax provision (benefit)         518      1,769     32,107    (19,383)
                                 ---------  ---------  ---------  --------- 
Net income (loss)                $  (1,185) $   1,653  $ (42,814) $  15,111 
                                 =========  =========  =========  ========= 
                                                                            
Net income (loss) per common              
                                  
 share:                                                                     
  Basic                          $   (0.02) $    0.02  $   (0.58) $    0.23 
                                 =========  =========  =========  ========= 
  Diluted                        $   (0.02) $    0.02  $   (0.58) $    0.21 
                                 =========  =========  =========  ========= 
                                                                            
Weighted-average shares used in                                             
 computing net income (loss) per                                            
 common share:                                                              
  Basic                             75,090     71,602     74,270     66,656 
                                 =========  =========  =========  ========= 
  Diluted                           75,090     77,823     74,270     73,585 
                                 =========  =========  =========  ========= 
                                                                            
(1) Includes stock-based                                                    
 compensation expense as                                                    
 follows:                                                                   
                                  Three Months Ended        Years Ended     
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
Cost of revenue                  $     722  $     591  $   2,772  $   1,877 
Sales and marketing                  2,310      1,475      8,146      4,456 
Research and development               425        303      1,880      1,167 
General and administrative           2,158      1,126      8,077      4,099 
                                 ---------  ---------  ---------  --------- 
Total stock-based compensation   $   5,615  $   3,495  $  20,875  $  11,599 
                                 ---------  ---------  ---------  --------- 
                                                                            
                                                                            
                     ServiceSource International, Inc.                      
                   Condensed Consolidated Balance Sheets                    
                               (In thousands)                               
                                (Unaudited)                                 
                                                                            
                                                           December 31,     
                                                          2012       2011   
                                                       ---------  --------- 
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents                            $  76,568  $  65,983 
  Short-term investments                                  32,874     42,882 
  Accounts receivable, net                                65,238     54,095 
  Current portion of deferred income taxes                   389      3,526 
  Prepaid expenses and other                               5,178      7,945 
                                                       ---------  --------- 
Total current assets                                     180,247    174,431 
Property and equipment, net                               34,513     26,840 
Deferred income taxes, net of current portion              2,321     30,238 
Other assets, net                                          1,057      1,118 
Goodwill                                                   6,334      6,334 
                                                       ---------  --------- 
Total assets                                           $ 224,472  $ 238,961 
                                                       =========  ========= 
                                                                            
Liabilities and Stockholders' Equity                                        
Current liabilities:                                                        
  Accounts payable                                     $   3,293  $   8,617 
  Accrued taxes                                            1,056        924 
  Accrued compensation and benefits                       15,738     21,749 
  Other accrued liabilities (including deferred                             
   revenue of $2,295 and $1,132 at December 31, 2012                        
   and December 31, 2011, respectively)                   10,403      7,639 
  Current portion of capital lease obligations               326        706 
                                                       ---------  --------- 
Total current liabilities                                 30,816     39,635 
Long-term liabilities                                      6,729      2,310 
                                                       ---------  --------- 
Total liabilities                                     
    37,545     41,945 
                                                       ---------  --------- 
Stockholders' equity:                                                       
  Common stock                                                 8          7 
  Treasury stock                                            (441)      (441)
  Additional paid-in capital                             210,650    177,796 
  Retained earnings (accumulated deficit)                (23,398)    19,416 
  Accumulated other comprehensive income                     108        238 
                                                       ---------  --------- 
Total stockholders' equity                               186,927    197,016 
                                                       ---------  --------- 
Total liabilities and stockholders' equity             $ 224,472  $ 238,961 
                                                       ---------  --------- 
                                                                            
                                                                            
                     ServiceSource International, Inc.                      
              Condensed Consolidated Statements of Cash Flows               
                              (In thousands)                                
                                (Unaudited)                                 
                                                           Years Ended      
                                                          December 31,      
                                                      --------------------  
                                                         2012       2011    
                                                      ---------  ---------  
Cash flows from operating activities                                        
Net income (loss)                                     $ (42,814) $  15,111  
Adjustments to reconcile net income (loss) to net                           
 cash used in operating activities:                                         
  Depreciation and amortization                          10,014      9,372  
  Loss on disposal of fixed assets                            -         46  
  Amortization of deferred financing costs                  147        351  
  Accretion on premium on short-term investments            577        276  
  Deferred income taxes                                  31,682    (19,259) 
  Stock-based compensation                               20,875     11,599  
  Tax benefit from stock-based compensation              (1,488)    (2,835) 
Changes in operating assets and liabilities:                                
  Accounts receivable                                   (10,714)    (4,972) 
  Prepaid expenses and other                              4,067     (3,164) 
  Accounts payable                                       (2,477)     2,235  
  Accrued taxes                                            (802)     2,064  
  Accrued compensation and benefits                      (5,290)     6,617  
  Accrued payables to customers                               -    (30,640)*
  Other accrued liabilities                               6,859      1,968  
                                                      ---------  ---------  
Net cash provided by (used in) operating activities      10,636    (11,231) 
                                                      ---------  ---------  
                                                                            
Cash flows from investing activities                                        
Acquisition of property and equipment                   (19,986)   (14,050) 
Purchases of short-term investments                     (64,000)   (53,795) 
Sales of short-term investments                          52,050      2,113  
Maturities of short-term investments                     21,415      8,190  
                                                      ---------  ---------  
Net cash used in investing activities                   (10,521)   (57,542) 
                                                      ---------  ---------  
                                                                            
Cash flows from financing activities                                        
Net proceeds from issuance of common stock in initial                       
 public offering and follow-on offering                       -    110,753  
Proceeds from revolving credit facility                       -     23,424  
Repayment of revolving credit facility                        -    (23,424) 
Repayments of long-term debt and capital leases            (725)   (16,252) 
Payments of deferred debt issuance costs                   (141)      (200) 
Proceeds from common stock issuances                     10,387     15,045  
Tax benefit from stock-based compensation                 1,488      2,835  
                                                      ---------  ---------  
Net cash provided by financing activities                11,009    112,181  
                                                      ---------  ---------  
                                                                            
Net increase in cash and cash equivalents                11,124     43,408  
Effect of exchange rate changes on cash and cash                            
 equivalents                                               (539)       (77) 
Cash and cash equivalents at beginning of period         65,983     22,652  
                                                      ---------  ---------  
Cash and cash equivalents at end of period            $  76,568  $  65,983  
                                                      =========  =========  
                                                                            
* Activity in 2011 resulted from $18.1 million in                           
 payments to Oracle/Sun and the related settlement of                       
 accrued payables owed to Oracle/Sun and amounts owed                       
 to the Company by Oracle/Sun.                                              

 
Use of Non-GAAP Financial Measures 
To supplement its financial statements presented in accordance with
generally accepted accounting principles, or GAAP, ServiceSource also
provides investors with non-GAAP gross profit, net income, net income
per share and Adjusted EBITDA. A reconciliation of these non-GAAP
financial measures to the closest GAAP financial measure is presented
in the financial tables below under the heading, "GAAP to Non-GAAP
Reconciliation." 
ServiceSource believes that the non-GAAP financial information
provided in this release can assist investors in understanding and
assessing its on-going core operations and prospects for the future
and provides an additional tool for investors to use in comparing
ServiceSource's financial results with other companies in the
industry, many of which present similar non-GAAP financial measures
to investors. 
Non-GAAP gross profit consists of gross profit plus stock based
compensation and amortization of internally-developed software. 
Non-GAAP net income consists of net income (loss) plus stock-based
compensation, amortization of internally-developed software and
applying an income tax rate of 40% reflecting our estimated tax
expense on our core operations. Accordingly, our non-GAAP calculation
of net income has excluded a one-time, non-cash income tax charge of
$33.1 million recorded during the period ended June 30, 2012 related
to a valuation allowance for a substantial portion of the company's
deferred tax assets. Results for the year ended December 31, 2011
reflect a one-time tax benefit related to the conversion of
ServiceSource from a limited liability corporation to a Delaware
corporation, which has also been excluded from the calculation of
non-GAAP net income. Stock-based compensation expense is expected to
vary depending on the number of new grants issued, changes in the
company's stock price, stock market volatility, expected option lives
and risk-free rates of return, all of which are difficult to
estimate. 
EBITDA consists of net income (loss) plus depreciation and
amortization, interest expense, other expenses, net, and income tax
expense. Adjusted EBITDA consists of EBITDA plus non-cash,
stock-based compensation expense. ServiceSource uses Adjusted EBITDA
as a measure of operating performance because it assists the company
in comparing performance on a consistent basis, as it removes from
the operating results the impact of the company's capital structure. 
These non-GAAP measures should not be considered a substitute for, or
superior to, financial measures calculated in accordance with
generally accepted accounting principles in the United States.  


 
                                                                            
                     ServiceSource International, Inc.                      
           Reconciliation of Net Income (Loss) to Adjusted EBITDA   
        
                               (In thousands)                               
                                (Unaudited)                                 
                                                                            
                                   Three Months Ended       Years Ended     
                                      December 31,         December 31,     
                                  -------------------- -------------------- 
                                     2012       2011      2012       2011   
                                  ---------  --------- ---------  --------- 
                                                                            
Net income (loss)                 $  (1,185) $   1,653 $ (42,814) $  15,111 
Income tax provision (benefit)          518      1,769    32,107    (19,383)
Interest expense                         56         51       236        503 
Other income (expense), net             414         65       538        624 
Depreciation                          2,922      2,263    10,003      9,372 
                                  ---------  --------- ---------  --------- 
EBITDA                                2,725      5,801        70      6,227 
Stock-based compensation              5,615      3,495    20,875     11,599 
                                  ---------  --------- ---------  --------- 
Adjusted EBITDA                   $   8,340  $   9,296 $  20,945  $  17,826 
                                  ---------  --------- ---------  --------- 
                                                                            
                                                                            
                     ServiceSource International, Inc.                      
                      GAAP To Non-GAAP Reconciliation                       
              (Dollars in thousands, except per share amounts)              
                                (unaudited)                                 
                                                                            
                                  Three Months Ended        Years Ended     
                                     December 31,          December 31,     
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
Gross Profit                                                                
  GAAP gross profit              $  32,026  $  29,772  $ 107,382  $  92,095 
  Non-GAAP adjustments:                                                     
    Stock-based compensation (A)       722        591      2,772      1,877 
    Amortization of                                                         
     internally-developed                                                   
     software                (B)       577        261      1,467      1,457 
                                 ---------  ---------  ---------  --------- 
  Non-GAAP gross profit          $  33,325  $  30,624  $ 111,621  $  95,429 
                                 =========  =========  =========  ========= 
                                                                            
Gross Profit %                                                              
  GAAP gross profit                     48%        49%        44%        45%
  Non-GAAP adjustments:                                                     
    Stock-based compensation (A)         1%         1%         1%         1%
    Amortization of                                                         
     internally-developed                                                   
     software                (B)         1%         0%         1%         1%
                                 ---------  ---------  ---------  --------- 
  Non-GAAP gross profit                 49%        50%        46%        47%
                                 =========  =========  =========  ========= 
Certain totals do not add                                                   
 due to rounding                                                            
Operating Expenses                                                          
GAAP operating expenses          $  32,223  $  26,234  $ 117,315  $  95,240 
Stock-based compensation     (A)    (4,893)    (2,904)   (18,103)    (9,722)
Amortization of internally-                                                 
 developed software          (B)      (412)      (554)    (1,579)    (2,477)
                                 ---------  ---------  ---------  --------- 
Non-GAAP operating expenses      $  26,918  $  22,776  $  97,633  $  83,041 
                                 =========  =========  =========  ========= 
                                                                            
Net Income (Loss)                                                           
  GAAP net income (loss)         $  (1,1
85) $   1,653  $ (42,814) $  15,111 
  Non-GAAP adjustments:                                                     
    Stock-based compensation (A)     5,615      3,495     20,875     11,599 
    Amortization of                                                         
     internally-developed                                                   
     software                (B)       989        815      3,046      3,934 
    One-time tax items       (C)         -          -     33,072    (20,740)
    Income tax effect on                                                    
     non-GAAP adjustments                                                   
     and impact of                                                          
     normalizing the                                                        
     effective income tax                                                   
     rate                    (D)    (1,857)    (1,324)    (6,251)    (3,417)
                                 ---------  ---------  ---------  --------- 
Non-GAAP net income              $   3,562  $   4,639  $   7,928  $   6,487 
                                 =========  =========  =========  ========= 
                                                                            
Diluted Net Income (Loss)                                                   
 Per Share                                                                  
  GAAP diluted net income                                                   
   (loss) per share              $   (0.02) $    0.02  $   (0.58) $    0.21 
  Non-GAAP adjustments:                                                     
    Stock-based compensation (A)      0.07       0.04       0.26       0.16 
    Amortization of                                                         
     internally-developed                                                   
     software                (B)      0.01       0.01       0.04       0.05 
    One-time tax items       (C)         -          -       
0.42      (0.28)
    Income tax effect on                                                    
     non-GAAP adjustments as                                                
     well as the impact of                                                  
     normalizing the                                                        
     effective income tax                                                   
     rate and calculating                                                   
     non-GAAP net income per                                                
     share using a fully-                                                   
     diluted share count     (D)     (0.02)     (0.01)     (0.05)     (0.05)
                                 ---------  ---------  ---------  --------- 
Non-GAAP diluted net income                                                 
 per share                       $    0.05  $    0.06  $    0.10  $    0.09 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
Shares used in calculating                                                  
 diluted net income per                                                     
 share on a non-GAAP basis          77,831     77,823     79,093     73,585 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
Footnotes to GAAP to Non-GAAP Reconciliation                                
----------------------------------------------------------------------------
                                                                            
(A) Stock-based compensation. Included in our GAAP presentation of cost of  
    revenue and operating expenses, stock-based compensation consists of    
    expenses for stock options and awards and purchase rights under our     
    stock purchase plan. We exclude stock-based compensation expense from   
    our non-GAAP measures because some investors may view it as not         
    reflective of our core operating performance as it is a non-cash        
    expense.                                                                
                                                                            
(B) Amortization of internally-developed software. Included in our GAAP     
    presentation of cost of revenue and operating expenses, amortization of 
    internally-developed software reflects non-cash expense for certain     
    software purchases and software developed or obtained for internal use. 
    We exclude these expenses from our non-GAAP measures because we believe 
    they are not indicative of our core operating performance.              
                                                                            
(C) One-time tax items. We elected to be treated as a corporation under     
    Subchapter C of Chapter 1 of the United States Internal Revenue Code,   
    effective March 1, 2011, and therefore became subject to federal and    
    state tax expense beginning March 1, 2011. As a result of this tax      
    election, we recorded a net deferred tax asset and a one-time non-cash  
    tax benefit of $21.4 million in the first quarter of 2011. During the   
    second quarter of 2012, we recorded a $33.1 million non-cash charge     
    against a substantial portion of our deferred tax assets, much of which 
    was recorded in connection with electing to be treated as a corporation,
    because the recoverability of these items for financial reporting       
    purposes is uncertain. We have excluded these items from our non-GAAP   
    measures because they are non-recurring and unique, they are non-cash in
    nature and are not indicative of our core operating performance.        
                      
                                                      
(D) Income tax effect on non-GAAP adjustments as well as the impact of      
    normalizing the effective income tax rate and calculating non-GAAP net  
    income per share using a fully-diluted share count. This adjusts (i) the
    provision for income taxes to reflect the effect of the non-GAAP items  
    A, B and C noted above on our non-GAAP net income; (ii) the income tax  
    rate to a normalized effective tax rate of 40%; and (iii) non-GAAP      
    earnings per share based on a fully-diluted share count.                
                                                            
                                                            
             ServiceSource International, Inc.              
                     Revenue by Segment                     
                       (In thousands)                       
                        (unaudited)                         
                                                            
                         Three Months Ended December 31,    
                     -------------------------------------- 
                            2012                2011        
                     ------------------  ------------------ 
                                 % of                % of   
                         $      Revenue      $      Revenue 
                     --------- --------  --------- -------- 
                                                            
NALA                 $  39,320       58% $  39,047       64%
EMEA                    21,478       32%    16,732       28%
APJ                      6,547       10%     5,000        8%
                     --------- --------  --------- -------- 
                     $  67,345      100% $  60,779      100%
                     ========= ========  ========= ======== 
                                                            
                                                            
                            Years Ended December 31,        
                     -------------------------------------- 
                            2012                2011        
                     ------------------  ------------------ 
                                 % of                % of   
                         $      Revenue      $      Revenue 
                     --------- --------  --------- -------- 
                                                            
NALA                 $ 150,041       62% $ 127,430       62%
EMEA                    66,902       27%    58,344       28%
APJ                     26,760       11%    19,727       10%
                     --------- --------  --------- -------- 
                     $ 243,703      100% $ 205,501      100%
                     --------- --------  --------- -------- 

  
Investor Relations Contact for ServiceSource: 
Mike Magaro
ServiceSource International, Inc.
(415) 901-1168
mmagaro@servicesource.com