SOURCE: ServiceSource

ServiceSource

February 06, 2013 16:05 ET

ServiceSource Reports Fourth Quarter and Full Year 2012 Financial Results

SAN FRANCISCO, CA--(Marketwire - Feb 6, 2013) - ServiceSource® (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® (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)       $ (1,185 )   $ 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 %

Contact Information

  • Investor Relations Contact for ServiceSource:

    Mike Magaro
    ServiceSource International, Inc.
    (415) 901-1168
    mmagaro@servicesource.com