SERVICESOURCE INTERNATIONAL, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE - February 6, 2013

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ServiceSource Reports Fourth Quarter and Full Year 2012 Financial Results
  • 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

SAN FRANCISCO, February 6, 2013 - ServiceSource® (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 securities   52,050    2,113   
Maturities of short-term securities   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)         $ (1,185)   $ 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

 

 

 

SERVICESOURCE INTERNATIONAL, INC. Reports