Other current liabilities were comprised of the ~~valuation (in thousands):~~following:



	June 30, 2019		December 31, 2018

	(in thousands)
Legal reserve	$	3,730	$	3,750
Finance lease obligations	959		954
Contract liability	549		873
Other liabilities	201		198
Employee stock purchase plan withholdings	251		384
Deferred rent	—		735
Total	$	5,690	$	6,894

Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)
Cash equivalents:
Money market mutual funds $ 632
$ 632
$ —
Total cash equivalents 632
632
—
Short-term investments:
Corporate bonds 54,658
—
54,658
U.S. agency securities 34,377
—
34,377
Asset-backed securities 26,433
—
26,433
U.S. Treasury securities 22,413
—
22,413
Total short-term investments 137,881
—
137,881
Cash equivalents and short-term investments $ 138,513
$ 632
$ 137,881

~~The convertible notes issued by~~Other long-term liabilities were comprised of the following:



	June 30, 2019		December 31, 2018

	(in thousands)
Asset retirement obligations	$	1,397	$	1,368
Finance lease obligations	1,142		1,510
Accrued restructuring costs	593		716
Deferred tax liability	289		268
Other accrued costs	116		105
Deferred rent	—		2,573
Total	$	3,537	$	6,540

Note 5 — Debt

Revolving Line of Credit

In July 2018, the Company entered into a $40.0 million senior secured Revolver that allows us to borrow against our domestic receivables as defined in ~~August 2013 are shown~~the credit agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the ~~accompanying consolidated balance sheets at their original issuance value, net of unamortized discount and issuance costs, and are not marked to market each period. The approximate fair value~~greater of the ~~convertible notes as~~prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of ~~September~~1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. As of June 30, ~~2017 and December 31, 2016 was $146.1 million and $143.8 million, respectively. The fair value of~~2019, the ~~convertible notes was determined using quoted market prices for similar securities, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.~~

~~The~~ Company did not have any ~~other financial instruments or long-term debt measured at fair value~~borrowings outstanding on the Revolver and therefore has no future obligations.

The obligations under the credit agreement are secured by substantially all assets of the borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has covenants with which the Company was in compliance as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016.~~2018.

Deferred Debt Issuance Costs

Discounts and premiums to the principal amounts are included in the carrying value of debt and amortized to "Interest and other expense, net" over the remaining life of the underlying debt. Unamortized debt issuance costs related to the Revolver were $0.1 million and $0.2 million as of June 30, 2019 and December 31, 2018, respectively. The amortization of all premiums and discounts related to the convertible notes that matured August 2018 was $2.3 million and $4.5 million for the three and six months ended June 30, 2018, respectively.

Interest expense related to the amortization of debt issuance costs, interest expense associated with the Company's debt obligations and accretion of the Company's debt discount was $0.04 million and $3.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.1 million and $6.0 million for the six months ended June 30, 2019 and 2018, respectively.

Note 46 — ~~Debt~~

~~Senior Convertible Notes~~

In August 2013, the Company issued senior convertible notes due 2018 (the “Notes”) in exchange for gross proceeds of $150.0 million. The Notes will mature on August 1, 2018 and are recorded in current liabilities as ~~Convertible notes, net~~.

The Notes are governed by an indenture, dated August 13, 2013 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee. The Notes bear interest at a rate of 1.50% per year payable semi-annually in arrears on February 1 and August 1, beginning February 1, 2014.

The Notes are convertible at an initial conversion rate of 61.6770 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $16.21 per share of common stock, subject to anti-dilution adjustments upon certain specified events as defined in the Indenture. Upon conversion, the Notes will be settled in cash, shares of the Company’s common stock, or any combination thereof, at the Company’s option.

~~Prior to February 1, 2018, the Notes are convertible only upon the following circumstances:~~

during any calendar quarter commencing after December 31, 2013 (and only during such calendar quarter), if for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate on each such trading day; or

~~upon the occurrence of specified corporate events described in the Indenture.~~

Holders of the Notes may convert their Notes at any time on or after February 1, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.

The holders of the Notes may require the Company to repurchase all or a portion of their Notes at a cash repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, upon a fundamental change as defined in the Indenture. In addition, upon certain events of default as defined in the Indenture, the trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, on all the Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest on the Notes will automatically become due and payable. The Notes were not subject to conversion or repurchase at September 30, 2017.

To account for the Notes at issuance, the Company separated the Notes into debt and equity components pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion. The fair value of debt component was estimated using an interest rate for nonconvertible debt, with terms similar to the Notes, excluding the conversion feature. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The excess of the principal amount of the Notes over the fair value of the debt component was recorded as a debt discount and a corresponding increase in additional paid-in capital. The debt discount is accreted to interest expense over the term of the Notes using the interest method. The amount recorded to additional paid-in capital is not to be remeasured as long as it continues to meet the conditions of equity classification. Upon issuance of the $150.0 million of Notes, the Company recorded $111.5 million to debt and $38.5 million to additional paid-in capital.Leases

The Company ~~incurred transaction costs of approximately $4.9 million related~~has operating leases for office space and finance leases for certain equipment under non-cancelable agreements with various expiration dates through April 2030. Certain office leases include the option to the issuance of the Notes. In accounting for these costs, the Company allocated the costs to the debt and equity components in proportion to the allocation of proceeds from the issuance of the Notes to such components. Transaction costs allocated to the debt component of $3.6 million are

~~recorded within~~ ~~Convertible notes, net, and amortized to interest expense over~~extend the term between three to seven years and certain office leases include the option to terminate the lease upon written notice within one to eight years after lease commencement. Leases with an initial term of 12 months or less are not recorded on the ~~Notes. The transaction costs allocated to the equity component of $1.3 million were recorded to additional paid-in capital.~~balance sheet.

~~The net carrying amount of the liability component of the Notes consists of the following (in thousands):~~

September 30, 2017
December 31, 2016
Principal amount $ 150,000
$ 150,000
Unamortized debt discount (7,569 ) (13,928 )
Unamortized debt issuance costs (705 ) (1,297 )
Net carrying amount $ 141,726
$ 134,775

~~The following table presents the interest expense recognized related to the Notes (in thousands):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Contractual interest expense at 1.5% per annum $ 563
$ 563
$ 1,688
$ 1,688
Amortization of debt issuance costs 204
189
592
551
Accretion of debt discount 2,190
2,028
6,359
5,913
Total $ 2,957
$ 2,780
$ 8,639
$ 8,152

The net proceeds from the Notes were approximately $145.1 million after payment of the initial purchasers’ discount and offering expense. The Company used approximately $31.4 million of the net proceeds from the Notes to pay the cost of the Note Hedges described below, which was partially offset by $21.8 million of the proceeds from the Company’s sale of the Warrants also described below.

~~Note Hedges~~

~~Concurrent with the issuance of the Notes,~~In January 2018, the Company entered into ~~note hedges (“Note Hedges”)~~a sublease with ~~certain bank counterparties, with respect to its common stock.~~a third-party for the San Francisco office space through the remaining term of the lease of November 30, 2022. The Company ~~paid $31.4 million~~recognizes rent expense and sublease income on a straight-line basis over the lease period and accrues for rent expense and sublease income incurred but not paid.

Rent expense for the ~~Note Hedges. The Note Hedges cover approximately 9.25~~three and six months ended June 30, 2018 was $3.1 million ~~shares~~and $5.8 million, respectively. Rent income for the three and six months ended June 30, 2018 was $0.5 million and $0.6 million, respectively.

Supplemental income statement information related to leases was as follows:



	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019

	(in thousands)
Operating lease cost	$	3,116		$	5,997

Finance lease cost:
Amortization of leased assets	171			322
Interest on lease liabilities	45			86
Total finance lease cost	216			408

Sublease income	(468		)	(936		)
Net lease cost	$	2,864		$	5,469

Supplemental balance sheet information related to leases was as follows:



	June 30, 2019
	(in thousands)
Operating leases:
Right-of-use assets	$	33,190

Operating lease liabilities	$	8,419
Operating lease liabilities, net of current portion	28,684
Total operating lease liabilities	$	37,103

Finance leases:
Property and equipment	$	3,479
Accumulated depreciation	(1,463		)
Property and equipment, net	$	2,016

Other current liabilities	$	959
Other long-term liabilities	1,142
Total finance lease liabilities	$	2,101

Lease term and discount rate information related to leases was as follows:



	June 30, 2019
Weighted-average remaining lease term (in years):
Operating lease	5.0
Finance lease	2.3
Weighted-average discount rate:
Operating lease	6.5	%
Finance lease	8.2	%

Maturities of lease liabilities were as follows as of June 30, 2019:



	Operating Leases			Operating Sublease			Finance Leases

	(in thousands)
Remainder of 2019	$	4,882		$	(942	)	$	555
2020	11,030			(1,932		)	1,040
2021	10,562			(1,989		)	633
2022	7,126			(1,878		)	64
2023	2,218			—			—
Thereafter	8,769			—			—
Total lease payments	44,587			(6,741		)	2,292
Less: interest	(6,828		)	—			(191		)
Less: tenant improvements reimbursement	(656		)	—			—
Total	$	37,103		$	(6,741	)	$	2,101

Subsequent to June 30, 2019, the Company entered into a sublease agreement with a third party for the San Francisco office space through the remaining term of the ~~Company’s common stock at a strike price~~lease, November 30, 2023, with total sublease income of ~~$16.21 per share. The~~ approximately $2.8 million.

Note ~~Hedges will expire upon the maturity~~7 — Commitments and Contingencies

Letter of ~~the Notes. The Note Hedges are intended to reduce the potential dilution to the Company’s common stock upon conversion~~Credit

In connection with two of ~~the Notes and/or offset the cash payment in excess of the principal amount of the Notes~~our leased facilities, the Company is required to ~~make~~maintain two letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in ~~the event that the~~money market ~~value per share of the Company’s common stock at the time of exercise is greater than the conversion price of the Notes.~~

~~Warrants~~

~~Separately, the Company entered into warrant transactions, whereby it sold warrants to the same bank counterparties~~accounts, which are classified as the Note Hedges to acquire approximately 9.25 million shares of the Company’s common stock at an initial strike price of $21.02 per share (“Warrants”), subject to anti-dilution adjustments. The Company received proceeds of approximately $21.8 million from the sale of the Warrants. If the fair value per share of the Company’s common stock exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on earnings per share, unless the Company elects, subject to certain conditions, to settle the Warrantsrestricted cash in ~~cash.~~

~~The amounts paid and received for the Note Hedges and the Warrants have been recorded~~"Other assets" in ~~additional paid-in capital. The fair value of the Note Hedges and the Warrants are not remeasured through earnings each reporting period.~~

~~Note 5 — Commitments and Contingencies~~our Consolidated Balance Sheets.

Litigation

The Company is subject to various legal proceedings and claims arising in the ordinary course of our business, including the cases discussed below. Although the results of litigation and claims cannot be predicted with certainty, the Company is currently not aware of any litigation or threats of litigation in which the final outcome could have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies. As of ~~September~~June 30, ~~2017,~~2019 and December 31, 2018, the Company ~~has~~ accrued a ~~$1.5~~$3.7 million and $3.8 million, respectively, reserve relating to our potential liability for currently pending disputes, reflected in ~~Accrued Expenses~~"Other current liabilities" in the ~~accompanying condensed consolidated balance sheets.~~

Consolidated Balance Sheets.

On August 23, 2016, the United States District Court for the Middle District of Tennessee granted conditional class certification in a lawsuit originally filed on September 21, 2015 by three former senior sales representatives. The lawsuit, Sarah Patton, et al v. ServiceSource Delaware, Inc., asserts a claim under the Fair Labor Standards Act alleging that certain ~~sales account representatives and senior sales representatives~~non-exempt employees in our Nashville location were not paid for all hours worked and were not properly paid for overtime hours worked. The complaint also asserts claims under Tennessee state law for breach of contract and unjust enrichment; ~~however,~~and, on September 28, 2018, the plaintiffs ~~have not yet~~ filed a motion to certify the state law breach of contract and unjust enrichment claims as a class action. A settlement of all claims has been reached and the settlement amounts will be paid in phases. The Company anticipates settlement payments will ~~continue to vigorously defend itself against these claims.~~be completed by the end of 2019.

Non-cancelable Service Contract Commitments

Future minimum payments under non-cancelable service contract commitments were as follows:



	June 30, 2019
	(in thousands)
Remainder of 2019	$	3,886
2020	9,091
2021	7,986
2022	7,431
2023	8,237
Thereafter	—
Total	$	36,631

Note 68 — ~~Share Repurchase Program~~Revenues, Contract Asset and ~~Stock-Based Compensation~~

In August 2015, the Board authorized a stock repurchase program (the “Program”) with a maximum authorization to repurchase up to $30.0 million worth of common stock of the Company. This Program expired on August 17, 2017. No shares were repurchased under the Program during the quarter ended September 30, 2017.Liability Balances and Contract Acquisition Costs

The following tables present the disaggregation of revenue from contracts with our clients:

Revenue by Performance Obligation



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018

	(in thousands)
Professional services	$	442	$	692	$	825	$	2,699
Selling services	51,916		60,419		107,044		116,997
Total revenue	$	52,358	$	61,111	$	107,869	$	119,696

Revenue by Geography



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018

	(in thousands)
APJ	$	9,345	$	9,255	$	18,019	$	16,849
EMEA	13,418		14,669		27,054		30,191
NALA	29,595		37,187		62,796		72,656
Total revenue	$	52,358	$	61,111	$	107,869	$	119,696

Revenue by Contract Pricing



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018

	(in thousands)
Fixed consideration	$	18,828	$	20,683	$	38,557	$	38,425
Variable consideration	33,530		40,428		69,312		81,271
Total revenue	$	52,358	$	61,111	$	107,869	$	119,696

Contract Balances

Once the Company obtains a client contract, the timing of satisfying performance obligations and the receipt of client consideration can be different and will give rise to contract assets and contract liabilities. As of June 30, 2019 and December 31, 2018, the contract asset balance totaled $0.1 million and $0.2 million, respectively, and the contract liability balance totaled $0.5 million and $0.9 million, respectively. Contract assets and contract liabilities are reflected in "Prepaid expenses and other", "Other assets" and "Other current liabilities" in the Consolidated Balance Sheets.

Transaction Price Allocated to Remaining Performance Obligations

The Company maintains contracts with fixed consideration that are generally with long-standing client relationships and typically renew annually. Assuming none of the Company’s current contracts with fixed consideration are renewed, we estimate receiving approximately $42.5 million in future selling services fixed consideration as of June 30, 2019. Professional services revenues from fixed consideration are based on proportional performance which is typically concluded within 90 days of contract execution. The Company typically bills professional services upfront upon obtaining a client contract. As of June 30, 2019, we estimate $0.2 million in professional services fixed consideration revenue to be recognized through the remainder of 2019.

Contract Acquisition Costs

Certain commissions paid to the Company's sales team upon obtaining a client contract are incremental and recoverable, and capitalized as contract acquisition costs. Under the transition guidance, the Company recorded a $3.3 million contract acquisition asset and corresponding offset to the opening accumulated deficit balance related to previously expensed sales commissions. The Company expensed $1.5 million of the $3.3 million of contract acquisition asset during 2018 and will expense the remainder of the asset over the next five years as follows: $0.4 million remaining in 2019, $0.6 million in 2020 and $0.3 million in 2021 and beyond. The Company recorded $0.2 million and $0.5 million, respectively, in amortization expense for the three and six months ended June 30, 2019 and $0.4 million and $0.8 million, respectively, of amortization for the three and six months ended June 30, 2018 related to amounts capitalized upon the adoption of ASC 606.

Subsequent to the adoption of ASC 606, the Company capitalized an additional $0.2 million and $1.1 million as of June 30, 2019 and December 31, 2018, respectively, of sales commissions as contract acquisition costs related to contracts obtained during the period. The Company recorded amortization expense of $0.3 million and $0.4 million, respectively, for the three and six months ended June 30, 2019 and $0.1 million for the three and six months ended June 30, 2018 related to the amounts capitalized. As of June 30, 2019, the weighted-average remaining amortization period related to these capitalized costs was approximately 2.4 years.

Impairment recognized on contract costs was insignificant for the three and six months ended June 30, 2019 and 2018.

Applying the practical expedient for amortization periods one year or less, the Company recognizes any incremental costs of obtaining contracts as expense when the cost is incurred. These costs are included in "Sales and marketing" in the Consolidated Statements of Operations.

Note 9 — Stockholders' Equity

Stock-Based Compensation Expense

The following table ~~summarizes the consolidated~~presents stock-based compensation expense ~~included in~~as allocated within the ~~condensed consolidated statements~~Company's Consolidated Statements of ~~operations (in thousands):~~Operations:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018

	(in thousands)
Cost of revenue	$	129	$	279	$	288	$	558
Sales and marketing	429		833		872		1,719
Research and development	18		58		12		122
General and administrative	660		2,257		1,634		4,139
Total stock-based compensation	$	1,236	$	3,427	$	2,806	$	6,538

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Cost of revenue $ 385
$ 299
$ 969
$ 1,146
Sales and marketing 982
565
2,834
2,152
Research and development 42
106
107
448
General and administrative 2,074
1,276
6,486
3,695
Restructuring and other 352
—
352
—
Total stock-based compensation $ 3,835
$ 2,246
$ 10,748
$ 7,441

The above table does not include ~~$0.1 million of~~ capitalized stock-based compensation related to internal-use software ~~during the three months ended September 30, 2017 and 2016, respectively, and $0.4~~of $0.03 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~$0.1 million and $0.2 million for the three and six months ended June 30, 2018, respectively.

~~Equity Incentive Plan~~

~~Option~~Stock Awards Issued to Employees

The following table summarizes information related to stock options:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Intrinsic Value
	(in thousands)					(in thousands)
Outstanding as of December 31, 2018	7,516		$	3.34		$	—
Granted	182		$	1.03
Expired and/or forfeited	(3,589	)	$	4.17
Outstanding as of June 30, 2019	4,109		$	2.51	7.89	$	—
Exercisable as of June 30, 2019	1,232		$	5.17	4.46	$	—

The weighted-average fair value of options granted during the six months ended June 30, 2019 and ~~restricted~~2018 was $0.51 and $1.84, respectively. As of June 30, 2019, there was $1.7 million of unrecognized compensation expense related to stock ~~activity~~options granted under the 2011 Equity Incentive Plan ~~for the nine months ended September 30, 2017 was as follows (shares in thousands):~~(the "2011 Plan"), which is expected to be recognized over a weighted-average period of 2.7 years.

Options Outstanding Restricted Stock
Outstanding
Shares and Units
Available
for Grant Number
of Shares Weighted-
Average
Exercise
Price Number
of Shares
December 31, 2016 10,406
7,495
$ 4.63
4,237
Additional shares reserved under the 2011 Equity Incentive Plan 3,527
—
—
—
Granted (2,973 ) 145
3.65
2,828
PSU Additional Goal Shares Achieved (242 ) —
—
242
Options exercised/Restricted stock released —
(14 ) 4.86
(1,834 )
RSU shares withheld for taxes 193
—
—
—
Canceled/Forfeited 1,499
(922 ) 5.47
(577 )
September 30, 2017 12,410
6,704
$ 4.49
4,896

The weighted average grant-date fair value of employee stock options granted during the three months ended September 30, 2017 and 2016 was $1.74 and $2.30 per share, respectively, and $1.90 and $2.03 per share for the nine months ended September 30, 2017 and 2016, respectively. The unamortized grant date fair value of both stock options andfollowing table summarizes information related to restricted stock ~~awards totaled $18.0~~units and performance-based restricted stock units:



	Units		Weighted-Average Grant Date Fair Value
	(in thousands)
Non-vested as of December 31, 2018	5,669		$	3.29
Granted	325		$	1.03
Vested⁽¹⁾	(1,195	)	$	3.78
Forfeited	(995	)	$	3.79
Non-vested as of June 30, 2019	3,804		$	2.81

⁽¹⁾ 1,175 thousand shares of common stock were issued for restricted stock units vested and the remaining 20 thousand shares were withheld for taxes.

As of June 30, 2019, there was $8.6 million ~~at September 30, 2017.~~of unrecognized compensation expense related to non-vested restricted stock units and performance-based restricted stock units granted under the 2011 Plan, which is expected to be recognized over a weighted-average period of 2.4 years.

Potential shares of common stock that are not included in the determination of diluted net loss per share because they are anti-dilutive for the periods presented consist of ~~weighted~~ stock options, ~~non-vested~~unvested restricted stock and shares to be purchased under our 2011 Employee Stock Purchase ~~Plan having an anti-dilutive effect of 7.0~~Plan. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 7.6 million and ~~4.6~~5.1 million shares for the

three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~5.8~~8.9 million and ~~10.4~~5.7 million shares for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively.~~2018, respectively, because their effect would have been anti-dilutive.

Note 710 — Income Taxes

The Company is subject to taxation in the ~~United States~~U.S. and various state and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on the Company’s net operating losses and foreign tax rate differences. ~~Income~~The "Provision for income tax ~~expense~~expense" in the Consolidated Statements of Operations primarily ~~consists~~consist of income and withholding taxes for foreign and state jurisdictions where the Company has profitable operations, as well as valuation allowance adjustments for certain U.S. tax jurisdictions. No tax benefit was provided for losses incurred in ~~United States~~the U.S., Ireland and Singapore because those losses are offset by a full valuation allowance. The tax years ~~2010~~2011 through ~~2017~~2019 generally remain subject to examination by federal, state and foreign tax authorities.

The gross amount of the Company’s unrecognized tax benefits was $1.0 million and $0.9 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, none of which, if recognized, would affect the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the three and six months ended June 30, 2019 and 2018, interest and penalties recognized were insignificant.

Note 811 — Restructuring and Other Related Costs

~~In early May 2017, the~~The Company ~~announced a~~has undergone restructuring ~~effort~~efforts to better align its cost structure with ~~current~~ business and market ~~conditions, including a headcount reduction and the reduction of office space in four locations. The~~conditions. These restructuring ~~plan is accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company recognized restructuring~~efforts included severance and other ~~charges of $0.5 million~~employee costs, lease and ~~$6.3 million during the three~~other contract termination costs and ~~nine months ended September 30, 2017, respectively.~~asset impairments. Severance and other employee costs include ~~stock~~severance payments, related employee benefits, stock-based compensation related to the accelerated vesting of certain equity awards ~~severance payments, related employee benefits~~ and employee-related legal fees. Lease and other contract termination costs include charges related to lease consolidation and abandonment of spaces no longer utilized and the cancellation of certain contracts with outside vendors. Asset impairments include charges related to leasehold improvements and furniture in spaces vacated or no longer in use. The ~~Company expects to have~~ restructuring plans and ~~other related expenses through the remainder of 2017, as restructuring activities targeted at reducing the overall cost structure of the business will continue over several quarters. Also,~~ future cash outlays are recorded in "Accrued expenses", "Accrued compensation and benefits" and "Other long-term liabilities" in our Consolidated Balance Sheetsas of June 30, 2019 and December 31, 2018.

In February 2019, the Company announced a restructuring effort to better align its cost structure with current business and market conditions, resulting in a headcount reduction. The Company recognized charges related to ~~these~~this restructuring ~~activities are expected~~effort of $0.1 million and $1.2 million for the three and six months ended June 30, 2019, respectively, and expects to ~~total $1.3 million. These amounts are reflected~~incur additional costs through September 2019.

The following table presents a reconciliation of the beginning and ending fair value liability balance related to the February 2019 restructuring effort:



	Severance and Other Employee Costs
	(in thousands)
Balance as of January 1, 2019	$	—
Restructuring and other related costs	1,167
Cash paid	(1,117		)
Balance as of June 30, 2019	$	50

In May 2017, the Company announced a restructuring effort to better align its cost structure with current business and market conditions, including a headcount reduction and the reduction of office space in ~~Accounts payable, Accrued compensation~~four locations. The Company recognized charges related to this restructuring effort of $0.04 million for the three and ~~benefits~~six months ended June 30, 2019 and ~~Accrued expenses~~$0.2 million for the three and six months ended June 30, 2018. The Company does not expect to incur additional restructuring charges related to the May 2017 restructuring as of ~~September~~June 30, ~~2017.~~2019.

~~Restructuring~~The following table presents a reconciliation of the beginning and ~~other~~ending fair value liability ~~activities for~~balance related to the ~~period ended September 30,~~May 2017 ~~is summarized as follows (in thousands):~~restructuring effort:



	Severance and Other Employee Costs			Lease and Other Contract Termination Costs			Asset Impairments			Total

	(in thousands)
Balance as of January 1, 2017	$	—		$	—		$	—		$	—
Restructuring and other related costs	3,483			2,939			886			7,308
Cash paid	(3,060		)	(1,185		)	—			(4,245		)
Change in estimates and non-cash charges	—			—			(886		)	(886		)
Acceleration of stock-based compensation expense in additional paid-in capital	(352		)	—			—			(352		)
Balance as of December 31, 2017	71			1,754			—			1,825
Restructuring and other related costs	120			89			—			209
Cash paid	(188		)	(1,133		)	—			(1,321		)
Change in estimates and non-cash charges	(3		)	252			—			249
Balance as of December 31, 2018	—			962			—			962
Restructuring and other related costs	—			39						39
Cash paid	—			(93		)	—			(93		)
Change in estimates and non-cash charges	—			(40		)	—			(40		)
Balance as of June 30, 2019	$	—		$	868		$	—		$	868

Severance and Other Employee Costs Lease and Other Contract Termination Costs Asset Impairments Total
Restructuring and other liability at January 1, 2017 $ —
$ —
$ —
$ —
Restructuring and other charges 3,399
1,974
886
6,259
Cash paid (2,908 ) (830 ) —
(3,738 )
Non-cash impairment charges —
—
(886 ) (886 )
Acceleration of stock-based compensation expense in additional paid-in capital (352 ) —
—
(352 )
Restructuring and other liability at September 30, 2017 $ 139
$ 1,144
$ —
$ 1,283

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our unaudited ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto which appear elsewhere in this ~~Quarterly Report~~quarterly report on Form 10-Q.

This report, including this MD&A, includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of ~~1934.~~1934, as amended.Forward looking statements may appear throughout this report. These forward-looking statements are generally ~~are~~ identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely ~~result,”~~result” and variations of such words or similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those identified elsewhere in this report and those discussed in the sections of our Annual Report on Form 10-K entitled ~~“Special Note Regarding Forward~~“Forward Looking ~~Statements and Industry Data”~~Statements” and “Risk Factors” and in our other filings with the Securities and Exchange Commission (“SEC”). Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

~~All dollar amounts expressed as numbers in this MD&A are in millions unless otherwise noted.~~

~~OVERVIEW~~Overview

ServiceSource International, Inc. is a global leader in outsourced, performance-based customer success and revenue growth solutions. Through our people, processes and technology, we ~~find, convert,~~ grow and retain revenue on behalf of our ~~clients—~~clients — some of the world’s leading business-to-business ~~companies—~~companies — in more than 3545 languages. Our solutions help our clients strengthen their customer relationships, drive improved customer adoption, expansion and retention and minimize churn. Our technology platform and best-practice business processes combined with our highly-trained, client-focused revenue delivery professionals and data from ~~over 15~~20 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our ~~clients’~~clients' in-house customer success teams.

“ServiceSource,” “the Company,” “we,” “us,” or “our”, as used herein, refer to ServiceSource International, Inc. and its wholly-owned subsidiaries, unless the context indicates otherwise.

~~Basis~~Key Financial Results For the Three Months Ended June 30, 2019

GAAP revenue was $52.4 million compared with $61.1 million reported for the same period in 2018.

GAAP net loss was $6.0 million or $0.06 per diluted share, compared with GAAP net loss of ~~Presentation~~$8.9 million or $0.10 per diluted share reported for the same period in 2018.

Adjusted EBITDA was negative $0.5 million compared with positive Adjusted EBITDA of $3.2 million reported for the same period in 2018. See “Non-GAAP Financial Measurements” below for a reconciliation of Adjusted EBITDA from "Net loss."

Ended the quarter with $27.9 million of cash and cash equivalents and restricted cash and no borrowings under the Company’s $40.0 million revolving line of credit.

Results of Operations

For the Three Months Ended June 30, 2019 Compared to the Same Period Ended June 30, 2018

Net Revenue, Cost of Revenue and Gross Profit

~~Substantially all of our net~~Net revenue is primarily attributable to commissions we earn from the sale of renewals of maintenance, support and subscription agreements on behalf of our clients. We ~~generally invoice~~also generate revenues from selling professional services. Historically, we earned a small percentage of our clients for our services in arrears on a monthly basis for sales commissions, and on a quarterly basis for certain performance sales commissions; accordingly, we typically have no deferred revenue related to these services. We do not set the price, terms or scope of services in the service contracts with end customers and do not have any obligations related to the underlying service contracts between our clients and their end customers.

~~We also earn~~total revenue from the sale of subscriptions to our cloud-based applications. To date, subscription revenue has been a small percentage of total revenue. We expect revenues generated from subscriptions of Renew OnDemand to continue declining for the remainder of 2017. Subscription fees are accounted for separately from commissions, and they are billed in advance over a monthly, quarterly or annual basis. Subscription revenue is recognized ratably over the related subscription term.

We have generated a significant portion of our revenue from a limited number of clients. Our top ten customers accounted for 67% and 65% of our net revenue for the nine months ended September 30, 2017 and 2016, respectively.

~~The loss~~Cost of revenue from any of our top clients for any reason, including the failure to renew our contracts, termination of some or all of our services, a change of relationship with any of our key clients or their acquisition, can cause a significant decrease in our revenue.

Our business is geographically diversified. Through the first three quarters of 2017, 64% of our net revenue was earned in North America and Latin America (“NALA”), 24% in Europe, Middle East and Africa (“EMEA”) and 12% in Asia Pacific Japan (“APJ”). Net revenue for a particular geography generally reflects commissions earned from sales of service contracts managed from our revenue delivery centers in that geography. Predominantly all of the service contracts sold and managed by our revenue delivery centers relate to end customers located in the same geography. In addition, our Kuala Lumpur, Manila and Sofia locations are revenue delivery centers where we have centralized, for our worldwide operations, the key contract renewal processes that do not require regional expertise, such as client data management and quoting.

~~Cost of Revenue and Gross Profit~~

~~Our cost of revenue expenses include~~includes employee compensation, technology costs, including those related to the delivery of our cloud-based technologies and allocated overhead costs. ~~Compensation~~



	For the Three Months Ended June 30,
	2019				2018
	Amount		% of Net Revenue		Amount		% of Net Revenue		$ Change			% Change
	(in thousands)				(in thousands)				(in thousands)
Net revenue	$	52,358	100	%	$	61,111	100	%	$	(8,753	)	(14	)%
Cost of revenue	38,349		73	%	42,463		69	%	(4,114		)	(10	)%
Gross profit	$	14,009	27	%	$	18,648	31	%	$	(4,639	)	(25	)%

Net revenue decreased by $8.8 million or 14%, for the three months ended June 30, 2019 compared to the same period in 2018, primarily due to client churn and lower bookings.

Cost of revenue decreased $4.1 million, or 10%, for the three months ended June 30, 2019 compared to the same period in 2018, primarily due to the following:

$2.8 million decrease in employee related costs primarily due to lower bonus and commissions driven by lower revenue attainment, lower salary costs driven by headcount remaining consistent with increase in lower cost locations and lower travel and entertainment expenditures; and

$1.8 million decrease in depreciation and amortization expense ~~includes salary, bonus, benefits and stock-based compensation for our dedicated service sales teams. Our allocated overhead includes costs for facilities,~~primarily due to internally developed software fully amortized as of July 2018; partially offset by

$0.6 million increase in information technology and depreciation, including amortization of internal-use software associated with our service revenue technology platform and cloud applications. Allocated costs for facilities consist of rent, maintenance and compensation of personnel in our facilities departments. Our allocated costs for information technology include costs associated with third-party data centers where we maintain our data servers, compensation of our information technology personnel and the cost of support and maintenance contracts associated with computer hardware and software. To the extent our client base or business with our existing client base expands, we may need to hire additional service sales personnel and invest in infrastructure to support such growth. Our cost of revenue may fluctuate significantly and increase or decrease on an absolute basis and as a percentage of revenue in the near term, including for the reasons discussed under, “Factors Affecting Our Performance—Implementation Cycle” in our 2016 Annual Report on Form 10-K.costs.

Operating Expenses



	For the Three Months Ended June 30,
	2019				2018
	Amount		% of Net Revenue		Amount		% of Net Revenue		$ Change			% Change
	(in thousands)				(in thousands)				(in thousands)
Operating expenses:
Sales and marketing	$	7,486	14	%	$	9,252	15	%	$	(1,766	)	(19	)%
Research and development	1,274		2	%	1,780		3	%	(506		)	(28	)%
General and administrative	10,970		21	%	13,157		22	%	(2,187		)	(17	)%
Restructuring and other related costs	148		—	%	156		—	%	(8		)	(5	)%
Total operating expenses	$	19,878	38	%	$	24,345	40	%	$	(4,467	)	(18	)%

Sales and ~~Marketing.~~ Marketing

Sales and marketing expenses ~~are a significant component of our operating costs and~~primarily consist ~~primarily~~ of compensation expenses and sales commissions for our sales and marketing staff, amortization of contract acquisition costs, allocated expenses and marketing programs and events. ~~We sell~~

Sales and marketing expense decreased $1.8 million, or 19%, for the three months ended June 30, 2019 compared to the same period in 2018, primarily due to a decrease in employee related costs associated with employee attrition, lower revenue attainment and our ~~solutions through~~restructuring effort to better align our ~~global sales organization, which is organized across three geographic regions: NALA, EMEA~~cost structure with current business and ~~APJ. Our commission plans provide that payment of commissions to our sales representatives is contingent on their continued employment, and we recognize expense over~~market conditions as well as a period that is generally between the contract signing date and twelve to fourteen months following the execution of the applicable contract. When commissions are paid upon contract signing and are not contingent on future payments and continued employment, we consider that portion of the commission to be earned and therefore expensed at contract signing.decrease in travel costs.

Research and ~~Development.~~ Development

Research and development expenses primarily consist ~~primarily~~ of employee compensation expense, allocated costs and the cost of third-party service providers. ~~We focus our research~~

Research and development ~~efforts on developing new products and applications related to our technology platform. We capitalize certain expenditures related~~expense decreased $0.5 million, or 28%, for the three months ended June 30, 2019 compared to the ~~development~~same period in 2018, primarily due to a decrease in employee related costs driven by our restructuring effort to better align our cost structure with current business and ~~enhancement of internal-use software related~~market conditions as well as a decrease in bonus expense due to ~~our technology platform.~~lower revenue attainment.

General and ~~Administrative.~~ Administrative

General and administrative expenses primarily consist ~~primarily~~ of employee compensation expense for our executive, human resources, finance and legal functions and ~~related~~ expenses for professional fees for accounting, tax and legal services, as well as allocated expenses, which ~~consists~~consist of depreciation, amortization of internally developed software, ~~facilities~~facility and technology costs.

General and administrative expense decreased $2.2 million, or 17%, for the three months ended June 30, 2019 compared to the same period in 2018, primarily due to the following:

$3.0 million decrease in employee related costs primarily due to changes in executive management, decrease in bonus expense due to lower revenue attainment and decreases in travel costs and recruitment services; partially offset by

$0.6 million increase in depreciation and amortization expense; and

$0.4 million increase in information technology costs.

Restructuring and ~~Other.~~Other Related Costs

Restructuring and other ~~expenses~~related costs primarily consist ~~primarily~~ of ~~employees’~~ severance ~~payments,~~and other employee costs.

Restructuring and other related ~~employee benefits, stock compensation related~~costs remained relatively flat for the three months ended June 30, 2019 compared to the ~~accelerated vesting of certain equity awards, related legal fees, asset impairment charges and charges related to leases~~same period in 2018.

Other Expenses

Interest and other ~~contract termination costs.~~

~~Interest Expense and Other, Net and Gain (Loss) on Cost Basis Equity Investment~~

~~Interest expense.~~ ~~Interest~~ expense, net primarily consists of amortization of debt issuance costs, interest expense associated with ~~our convertible~~the Company's debt ~~imputed interest from capital lease payments,~~obligations, accretion of the Company's debt discount, and amortization of debt issuance costs. We recognize accretion of debt discount and amortization of interest costs using the effective interest method. We expect our interest expense to increase slightly for the remainder of 2017 from accretion of debt discount, amortization of deferred financing costs and contractual interest costs as a result of our August 2013 issuance of $150.0 million aggregate principal amount of convertible notes due August 2018.

~~Other, net.~~ ~~Other, net consists primarily of foreign exchange gains and losses and the~~ interest income earned on our cash and cash equivalents and marketable securities, ~~investments. We expect other~~imputed interest from our finance lease payments and foreign exchange gains and losses.



	For the Three Months Ended June 30,
	2019					2018
	Amount			% of Net Revenue		Amount			% of Net Revenue		$ Change			% Change
	(in thousands)					(in thousands)					(in thousands)
Interest expense	$	(120	)	—	%	$	(3,106	)	(5	)%	$	2,986		(96	)%
Other income, net	$	62		—	%	$	330		1	%	$	(268	)	(81	)%

Interest expense decreased $3.0 million, or 96%, for the three months ended June 30, 2019 compared to the same period in 2018, primarily due to the maturity and payoff of our $150.0 million convertible notes in August 2018.

Other income, net decreased $0.3 million, or 81% for the three months ended June 30, 2019 compared to ~~vary depending~~the same period in 2018, primarily due to a decrease in interest income earned on ~~the movement in~~our short-term investments and foreign currency ~~exchange rates~~fluctuations.

Provision for Income Tax Expense



	For the Three Months Ended June 30,
	2019					2018
	Amount			% of Net Revenue		Amount			% of Net Revenue		$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Provision for income tax expense	$	(108	)	—	%	$	(414	)	(1	)%	$	306	(74	)%

Provision for income tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax expense decreased $0.3 million, or 74% for the three months ended June 30, 2019 compared to the same period in 2018, due to a decrease in profitable operations in certain foreign jurisdictions.

For the Six Months Ended June 30, 2019 Compared to the Same Period Ended June 30, 2018

Net Revenue, Cost of Revenue and Gross Profit



	For the Six Months Ended June 30,
	2019				2018
	Amount		% of Net Revenue		Amount		% of Net Revenue		$ Change			% Change
	(in thousands)				(in thousands)				(in thousands)
Net revenue	$	107,869	100	%	$	119,696	100	%	$	(11,827	)	(10	)%
Cost of revenue	77,825		72	%	84,187		70	%	(6,362		)	(8	)%
Gross profit	$	30,044	28	%	$	35,509	30	%	$	(5,465	)	(15	)%

Net revenue decreased by $11.8 million or 10%, for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to client churn and lower bookings.

Cost of revenue decreased $6.4 million, or 8%, for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to the following:

$3.8 million decrease in employee related ~~impact~~costs primarily due to lower bonus and commissions driven by lower revenue attainment, lower salary costs driven by headcount remaining consistent with increase in lower cost locations and lower travel and entertainment expenditures;

$3.7 million decrease in depreciation and amortization expense primarily due to internally developed software fully amortized as of July 2018; and

$0.5 million decrease in professional service fees; partially offset by

$1.6 million increase in information technology and facilities costs.

Operating Expenses



	For the Six Months Ended June 30,
	2019				2018
	Amount		% of Net Revenue		Amount		% of Net Revenue		$ Change			% Change
	(in thousands)				(in thousands)				(in thousands)
Operating expenses:
Sales and marketing	$	15,435	14	%	$	18,490	15	%	$	(3,055	)	(17	)%
Research and development	2,537		2	%	3,296		3	%	(759		)	(23	)%
General and administrative	21,952		20	%	26,046		22	%	(4,094		)	(16	)%
Restructuring and other related costs	1,206		1	%	209		—	%	997			*
Total operating expenses	$	41,130	38	%	$	48,041	40	%	$	(6,911	)	(14	)%

* Not considered meaningful.

Sales and Marketing

Sales and marketing expense decreased $3.1 million, or 17%, for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to a decrease in employee related costs associated with employee attrition, lower revenue attainment and our restructuring effort to better align our cost structure with current business and market conditions as well as a decrease in travel costs.

Research and Development

Research and development expense decreased $0.8 million, or 23%, for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to a decrease in employee related costs driven by our restructuring effort to better align our cost structure with current business and market conditions as well as a decrease in bonus expense due to lower revenue attainment.

General and Administrative

General and administrative expense decreased $4.1 million, or 16%, for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to the following:

$4.6 million decrease in employee related costs primarily due to changes in executive management, decrease in bonus expense due to lower revenue attainment and decreases in temporary labor, recruitment services and travel costs; and

$0.9 million decrease in professional service fees; partially offset by

$0.9 million increase in depreciation and amortization expense; and

$0.7 million increase in information technology costs.

Restructuring and Other Related Costs

Restructuring and other related costs increased $1.0 million for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to costs incurred during the six months ended June 30, 2019 related to the February 2019 restructuring effort to better align our cost structure with current business and market conditions, resulting in a headcount reduction in our sales and marketing and research and development teams.

Other Expenses



	For the Six Months Ended June 30,
	2019					2018
	Amount			% of Net Revenue		Amount			% of Net Revenue		$ Change			% Change
	(in thousands)					(in thousands)					(in thousands)
Interest expense	$	(212	)	—	%	$	(6,128	)	(5	)%	$	5,916		(97	)%
Other (expense) income, net	$	(336	)	—	%	$	506		—	%	$	(842	)	*
Impairment loss on investment securities	$	—		—	%	$	(1,958	)	(2	)%	$	1,958		(100	)%

* Not considered meaningful.

Interest expense decreased $5.9 million, or 97%, for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to the maturity and payoff of our $150.0 million convertible notes in August 2018.

Other (expense) income, net decreased $0.8 million for the six months ended June 30, 2019 compared to the same period in 2018, primarily due to a decrease in interest income earned on our short-term investments and foreign ~~exchange gain (loss) and~~currency fluctuations.

During 2018, we determined to liquidate the ~~return~~majority of ~~interest~~our investment securities to have sufficient cash on hand to repay our $150.0 million convertible notes due August 1, 2018. Based on our ~~investments.~~decision to sell these investment securities, we determined an other-than-temporary impairment occurred as of March 31, 2018. Consequently, a $2.0 million impairment loss was recorded in our Consolidated Statements of Operations for the six months ended June 30, 2018.

~~Gain (loss) on cost basis equity investment.~~ ~~In 2013,~~Provision for Income Tax Expense



	For the Six Months Ended June 30,
	2019					2018
	Amount			% of Net Revenue		Amount			% of Net Revenue		$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Provision for income tax expense	$	(120	)	—	%	$	(427	)	—	%	$	307	(72	)%

Provision for income tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax expense decreased $0.3 million, or 72% for the six months ended June 30, 2019 compared to the same period in 2018, due to a decrease in profitable operations in certain foreign jurisdictions.

Liquidity and Capital Resources

Our primary operating cash requirements include the payment of compensation and related costs and costs for our facilities and information technology infrastructure. Historically, we ~~made an equity investment in a private company for $4.5~~have financed our operations from cash provided by our operating activities and cash proceeds from the exercise of stock options and our employee stock purchase plan. We believe our existing cash and cash equivalents and available funds from our senior secured revolving line of credit (the “Revolver”) will be sufficient to meet our working capital and capital expenditure needs over the next twelve months.

As of June 30, 2019, we had cash and cash equivalents of $25.7 million, which ~~represented less than 5%~~primarily consisted of ~~the outstanding equity of that company. Based on unfavorable growth trends~~demand deposits and declining financial performance of this private company, we determined this investment was fully impaired and recorded a $2.3 million and $2.2 million impairment charge in the third and fourth quarters of 2016, respectively. During the quarter ended September 30, 2017, we sold this investment for $2.1 millionmoney market mutual funds. Included in cash and ~~recorded~~cash equivalents was $5.0 million held by our foreign subsidiaries used to satisfy their operating requirements. We consider the ~~proceeds~~undistributed earnings of ServiceSource Europe Ltd. and ServiceSource International Singapore Pte. Ltd. permanently reinvested in foreign operations and have not provided for U.S. income taxes on such earnings. As of June 30, 2019, we had no unremitted earnings from our foreign subsidiaries.

During July 2018, we entered into a $40.0 million Revolver that allows us to borrow against our domestic receivables as defined in the credit agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. Proceeds from the credit facility are used for working capital and general corporate purposes.

As of June 30, 2019, we did not have any borrowings outstanding under the Revolver. Obligations under the credit agreement are secured by substantially all assets of the borrowers and certain of their subsidiaries, including pledges of equity in certain of our subsidiaries. The Revolver has covenants with which we are in compliance as of June 30, 2019 and December 31, 2018.

Letter of Credit and Restricted Cash

In connection with two of our leased facilities, we are required to maintain two letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market accounts, which are classified as restricted cash in "Other assets" in our Consolidated Balance Sheets.

Cash Flows

The following table presents a summary of our cash flows:



	For the Six Months Ended June 30,
	2019			2018

	(in thousands)
Net cash provided by operating activities	$	6,717		$	2,402
Net cash (used in) provided by investing activities	(6,095		)	130,412
Net cash used in financing activities	(299		)	(126		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(156		)	243
Net change in cash and cash equivalents and restricted cash	$	167		$	132,931

Our total depreciation and amortization expense was comprised of the following:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018

	(in thousands)
Purchased intangible asset amortization	$	—	$	—	$	—	$	85
Internally developed software amortization	1,407		3,044		2,666		5,876
Property and equipment depreciation	2,302		1,897		4,328		3,783
Total depreciation and amortization	$	3,709	$	4,941	$	6,994	$	9,744

Operating Activities

Net cash provided by operating activities increased $4.3 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily as a ~~gain~~.result of improved cash collections from customers during the current period compared to the prior period andlower cash payments made during the current period compared to the prior period related to operating costs previously accrued for; offset by a decrease in Adjusted EBITDA.

Investing Activities

Net cash provided by investing activities decreased $136.5 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily as a result of a decrease in cash inflows from the sale and maturity of our short-term investments during 2018, offset by a decrease in cash outflows related to the acquisition of property and equipment during the six months ended June 30, 2019.

~~Income Tax Provision (Benefit)~~Financing Activities

~~We account for income taxes using an asset and liability method, which requires the recognition of taxes payable or refundable~~Net cash used in financing activities increased $0.2 million for the ~~current year~~six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily as a result of a reduction in proceeds from the issuance of common stock and ~~deferred~~an increase in cash outflows from the repayment of finance lease obligations during the six months ended June 30, 2019, offset by a decrease in payments related to minimum tax ~~assets~~withholdings on restricted stock unit releases.

Off-Balance Sheet Arrangements

As of June 30, 2019 we did not have any off balance sheet arrangements.

Contractual Obligations and ~~liabilities~~Commitments

Our contractual obligations primarily consist of obligations under operating and finance leases for ~~the expected~~office space and certain equipment and non-cancelable service contracts.

The following table summarizes future ~~tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis~~payments of our ~~taxable subsidiaries’ assets and liabilities using~~contractual obligations as of June 30, 2019:



	Total			Less than 1 year			1- 3 years			4- 5 years			More than 5 years

	(in thousands)
Finance lease obligations	$	2,101		$	959		$	1,142		$	—		$	—
Operating lease obligations	37,103			7,977			17,663			4,742			6,721
Operating sublease income⁽²⁾	(6,741		)	(1,903		)	(3,980		)	(858		)	—
Service contracts	36,631			8,431			24,081			4,119			—
Restructuring and other related costs	918			325			491			102			—
Total⁽¹⁾	$	70,012		$	15,789		$	39,397		$	8,105		$	6,721

⁽¹⁾Excluded from the ~~enacted tax rates in effect for~~table is the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

We evaluate our ability to realize the tax benefits associated with deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of our deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability level of more than 50 percent) that they will not be realized. In assessing the realization of our deferred tax assets, we consider all available evidence, both positive and negative, and place significant emphasis on guidance contained in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.”

We account for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. We record an income tax liability ~~if any,~~we recorded for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax returns. ToAs of June 30, 2019, our liability for unrecognized tax benefits was $1.0 million. Reasonably reliable estimate of the ~~extent that~~amounts and periods of related future payments cannot be made at this time.

⁽²⁾ Subsequent to June 30, 2019, the ~~assessment~~Company entered into a sublease agreement with a third party for the San Francisco office space through the remaining term of ~~such tax positions change,~~ the ~~change in estimate is recorded~~lease, November 30, 2023, with total sublease income of approximately $2.8 million.

The contractual commitment amounts in the ~~period in which the determination is made. The reserves~~table above are ~~adjusted in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves~~associated with agreements that are ~~considered appropriate.~~

~~Results~~enforceable and legally binding, which specify significant terms, included payment terms, related services and the approximate timing of ~~Operations~~

~~The following table sets forth our operating results as~~the transaction. Obligations under contracts that we may cancel without a ~~percentage of net revenue:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(as % of net revenue)
Net revenue 100 % 100 % 100 % 100 %
Cost of revenue 70 % 65 % 70 % 67 %
Gross profit 30 % 35 % 30 % 33 %
Operating expenses:
Sales and marketing 13 % 14 % 14 % 17 %
Research and development 2 % 3 % 3 % 3 %
General and administrative 22 % 23 % 23 % 21 %
Restructuring and other 1 % — % 4 % — %
Total operating expenses 38 % 40 % 44 % 41 %
Loss from operations (8 )% (5 )% (14 )% (8 )%

~~Three and Nine Months Ended September 30, 2017 and 2016.~~

~~Net Revenue, Cost of Revenue and Gross Profit~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Change % Change 2017 2016 Change % Change
(in thousands) (in thousands)
Net Revenue $ 58,132
$ 62,514
$ (4,382 ) (7 )% $ 173,103
$ 184,233
$ (11,130 ) (6 )%
Cost of Revenue 40,803
40,789
14
— % 121,729
122,568
(839 ) (1 )%
Gross Profit $ 17,329
$ 21,725
$ (4,396 ) (20 )% $ 51,374
$ 61,665
$ (10,291 ) (17 )%

Net revenue decreased $4.4 million, or 7%, for the third quarter of 2017 compared to the third quarter of 2016. The overall decrease was due to contractions and lower production with certain existing customers that wassignificant penalty are not ~~offset by production related to expansions and new business~~included in the ~~third quarter of 2017.~~

Our cost of revenue in the third quarter of 2017 was consistent with the third quarter of 2016 as a result of a $0.9 million decrease in employee related costs as a result of shifting headcount to lower cost offices and locations, all related to our continuous efforts to better align employee costs with revenue, a decrease of $0.5 million in temporary labor and consulting costs, $0.2 million decrease in recruitment costs, $0.4 million decrease in information technology, offset by a $1.2 million increase in depreciation and amortization costs and $0.8 million of overhead allocations.

~~Gross profit in the third quarter of 2017 decreased by $4.4 million, or 20%, compared to the same period in 2016 which is consistent with the decrease in revenue.~~

Net revenue decreased $11.1 million, or 6%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The overall decrease was due to contractions and lower production with certain existing customers that was not offset by production related to expansions and new business.

The $0.8 million, or 1%, decrease in our cost of revenue in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 reflects a $2.6 million decrease in employee related costs as a result of shifting headcount to lower cost offices and locations, all related to our continuous efforts to better align employee costs with revenue, a decrease of $1.5 million in temporary labor and consulting costs, $0.6 million decrease in recruitment costs, $0.9 million decrease in information technology costs, offset by a $2.6 million increase in depreciation and amortization costs and $2.1 million of overhead allocations.

~~Gross profit in the nine months ended September 30, 2017 decreased by $10.3 million, or 17%, compared to the same period in 2016, which is in line with the decrease in revenue.~~

~~Operating Expenses~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Change % Change 2017 2016 Change % Change
(in thousands) (in thousands)
Operating expenses:
Sales and marketing $ 7,829
$ 8,847
$ (1,018 ) (12 )% $ 24,790
$ 30,626
$ (5,836 ) (19 )%
Research and development 1,048
1,952
(904 ) (46 )% 4,534
6,132
(1,598 ) (26 )%
General and administrative 12,543
14,638
(2,095 ) (14 )% 40,029
38,233
1,796
5 %
Restructuring and other 545
—
545
100 % 6,259
—
6,259
100 %
Total operating expenses $ 21,965
$ 25,437
$ (3,472 ) (14 )% $ 75,612
$ 74,991
$ 621
1 %
Includes stock-based compensation of:
Sales and marketing $ 982
$ 565
$ 417
$ 2,834
$ 2,152
$ 682

Research and development 42
106
(64 ) 107
448
(341 )
General and administrative 2,074
1,276
798
6,486
3,695
2,791

Restructuring and other 352
—
352
352
—
352

Total stock-based compensation $ 3,450
$ 1,947
$ 1,503
$ 9,779
$ 6,295
$ 3,484

~~Sales and marketing expenses~~

The $1.0 million, or 12%, decrease in sales and marketing expenses in the third quarter of 2017 compared to the third quarter of 2016 resulted from a $0.7 million decrease in employee related costs, a $0.4 million decrease in travel costs and $0.1 million in overhead allocations, offset by a $0.2 million increase in marketing programs.

The $5.8 million, or 19%, decrease in sales and marketing expenses in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 resulted from a $4.5 million decrease in employee related costs, a $1.3 million decrease in travel costs, a $0.1 million decrease in temporary labor and consulting costs, a $0.1 million decrease in recruitment expense and $0.3 million of overhead allocation. These decreases were offset by a $0.6 million increase in marketing programs costs.

~~Research and development expenses~~

The $0.9 million, or 46%, decrease in research and development expense in the third quarter of 2017 compared to the third quarter of 2016 was primarily due to a $0.6 million decrease in employee related costs associated with decrease in headcount and a $0.2 million decrease in temporary labor and $0.1 million decrease in overhead allocations.

Internal-use software development capitalization decreased $0.4 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to decreased development efforts related to our Renew OnDemand platform.

The $1.6 million, or 26%, decrease in research and development expense in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily due to $1.5 million decrease in employee related costs associated with a decrease in headcount, a $0.1 million decrease in travel costs and a $0.1 million decrease in rent and facility expense. These decreases were offset by a $0.1 million increase in information technology costs.

Internal-use software development capitalization increased by $0.1 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to continued development efforts related to our internal managed services platforms.

~~General and administrative expenses~~

The $2.1 million, or 14%, decrease in general and administrative expense in the third quarter of 2017 compared to the third quarter of 2016 reflected a $1.0 million decrease in employee related costs, a $0.5 million decrease in temporary labor and consulting costs, a $0.2 decrease in rent and facility costs, a $0.3 decrease in travel costs, a $0.7 million decrease in overhead allocations and a $1.5 million decrease due to a non-recurring legal reserve recorded in the third quarter of 2016. Offsetting these decreases was a $0.4 million increase in marketing programs, a $0.3 million increase in recruitment costs, $0.3 million increase in information technology costs and a $1.1 million increase in depreciation and amortization costs.

The $1.8 million, or 5%, increase in general and administrative expense in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 reflected a $1.3 million increase in employee related costs, $0.9 million increase in recruitment costs, a $0.8 increase in information technology, a $2.9 million increase in depreciation expense and a $0.4 million increase in marketing costs. Offsetting these increases was a $0.8 million decrease in travel costs, $0.4 million decrease in temporary labor and consulting fees, $1.5 million decrease related to a non-recurring legal reserve recorded in the third quarter of 2016 and a $1.9 million decrease in overhead allocations.

~~Restructuring and other expenses~~

The $0.5 million and $6.3 million increase in restructuring and other in the three and nine months ended September 30, 2017, respectively, compared to the three and nine months ended September 30, 2016 was related to our recognition of restructuring and other charges during the second and third quarter of 2017. During the second quarter we announced an effort to better align our cost structure with current revenue levels.

~~Interest Expense and Other, Net and (Gain) Loss on Cost Basis Equity Investment~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Change % Change 2017 2016 Change % Change
(in thousands) (in thousands)
Interest expense $ 2,965
$ 2,792
$ 173
6 % $ 8,672
$ 8,191
$ 481
6 %
Other, net (126 ) (501 ) (375 ) (75 )% (1,117 ) (2,692 ) (1,575 ) (59 )%
(Gain) loss on cost basis equity investment (2,100 ) 2,300
(4,400 ) 191 % (2,100 ) 2,300
(4,400 ) 191 %

Interest expense increased by $0.2 million, or 6%, in the third quarter of 2017 compared to the third quarter of 2016 and was due to the increased accretion of debt discount under the effective interest method related to the convertible notes issued in August 2013.

~~Other, net decreased by $0.4 million, or 75%, in the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to foreign currency fluctuations.~~

Interest expense increased by $0.5 million, or 6%, in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 and was due to the increased accretion of debt discount under the effective interest method related to the convertible notes issued in August 2013.

~~Other, net decreased by $1.6 million, or 59%, in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to foreign currency fluctuations.~~

(Gain) loss on cost basis equity investment of $2.1 million in the three and nine months ended September 30, 2017 is related to the sale of our equity investment in a private company which was originally purchased for $4.5 million we made in 2013. Based on unfavorable growth trends and declining financial performance of this private company, we determined this investment was fully impaired and recorded a $2.3 million and $2.2 million impairment charge in the third and fourth quarters of 2016, respectively.

~~Income Tax (Benefit) Provision~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Change % Change 2017 2016 Change % Change
(in thousands) (in thousands)
Income tax (benefit) provision $ (180 ) $ 968
$ (1,148 ) * $ 227
$ 2,505
$ (2,278 ) *

*Not considered meaningful.

For the third quarter of 2017, we recorded an income tax benefit of approximately $0.2 million. The tax benefit resulted primarily from a taxable loss in a foreign affiliate. Income tax expense decreased in the third quarter of 2017 by $1.1 million compared to the third quarter of 2016 primarily due to state valuation allowance recorded in 2016.

For the nine months ended September 30, 2017, we recorded income tax expense of approximately $0.2 million. This amount primarily represents anticipated taxes in jurisdictions where we have profitable operations, including certain U.S. states and foreign jurisdictions. Income tax expense decreased in the third quarter of 2017 by $2.3 million compared to the third quarter of 2016 primarily due to certain state deferred tax assets.

As of September 30, 2017, we have recorded a full valuation allowance on our state deferred tax assets. No benefit was provided for losses incurred in U.S. and Singapore because those losses are offset by a full valuation allowance.

~~Liquidity and Capital Resources~~

At September 30, 2017, we had cash, cash equivalents and short-term investments of $179.8 million, which primarily consisted of demand deposits, money market mutual funds, corporate bonds and United States government obligations held by well-capitalized financial institutions. In addition, at September 30, 2017, we had cash and cash equivalents of $6.5 million held outside of the U.S. by our foreign subsidiaries that was generated by such subsidiaries and which is used to satisfy their current operating requirements. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested in foreign operations and we do not have current plans to repatriate these earnings to fund our U.S. operations as we have sufficient cash, cash equivalents and short-term investments held in the United States.

Our primary operating cash requirements include the payment of compensation and related costs, working capital requirements related to accounts receivable and accounts payable, as well as costs for our facilities and information technology infrastructure. Historically, we have financed our operations principally from cash provided by our operating activities, proceeds from stock offerings and the exercise of stock options. We believe our existing cash, cash equivalents and short-term investments will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months.

In August 2013, we issued $150 million aggregate principal amount of 1.50% convertible notes due August 1, 2018 (the “Notes”) and concurrently entered into convertible notes hedges and separate warrant transactions. The Notes will mature on August 1, 2018, unless converted earlier. Upon conversion, the Notes will be settled in cash, shares of our stock, or any combination thereof, at our option. We received proceeds of $145.1 million from the issuance of the convertible notes, net of associated fees, received $21.8 million from the issuance of the warrants and paid $31.4 million for the note hedges. The Notes were not subject to conversion or repurchase at September 30, 2017 and are classified as a current liability on our condensed consolidated balance sheet. We believe we will have sufficient cash and liquid short-term investments to repay the Note at maturity.

~~Letter of Credit and Restricted Cash~~

In connection with one of our leased facilities, the Company is required to maintain a $1.2 million letter of credit. The letter of credit is secured by $1.2 million of a money market account which is classified as ~~Other assets, net~~ ~~in our condensed consolidated balance sheet as of September 30, 2017.~~

~~Summary Cash Flows~~

~~The following table sets forth a summary of our cash flows (in thousands):~~

Nine Months Ended
September 30,
2017 2016
Net cash provided by operating activities $ 6,516
$ 9,706
Net cash used in investing activities (13,707 ) (23,887 )
Net cash provided by (used in) financing activities 275
(4,777 )
Net decrease in cash and cash equivalents, net of impact of exchange rate changes on cash (8,107 ) (20,639 )

~~Operating Activities~~

Net cash provided by operating activities was $6.5 million during the nine months ended September 30, 2017. Net loss during the period was $29.9 million adjusted by non-cash charges of $17.2 million for depreciation and amortization, $7.0 million of amortization of debt discount and issuance costs, $0.2 million for deferred income taxes, $10.4 million for stock-based compensation, $2.5 million for restructuring and other costs and a $2.1 million gain on the sale of our cost basis equity investment. Cash provided by operations as a result of the changes in our working capital include a $12.3 million decrease in accounts receivable, net. Uses of cash were related to a $2.4 million decrease in deferred revenue, a $0.8 million decrease in accounts payable, a $0.8 million decrease in accrued expenses, $1.0 million decrease in accrued taxes, $4.7 million decrease in accrued compensation and benefits and a $1.4 million decrease in other liabilities.

Net cash provided by operating activities was $9.7 million during the nine months ended September 30, 2016. Net loss during the period was $23.6 million adjusted by non-cash charges of $11.6 million for depreciation and amortization, $6.5 million of amortization of debt discount and issuance costs, $1.7 million for deferred income taxes, $7.4 million for stock-based compensation and a $2.3 million loss on our cost basis equity investment. Cash provided by operations as a result of the changes in our working capital include a $2.8 million decrease in accounts receivable, net, a $0.4 million increase in accounts payable and a $1.7 million increase in accrued expenses. Uses of cash were related to a $0.8 million decrease in deferred revenue and a $1.5 million decrease in accrued compensation and benefits

~~Investing Activities~~

During the nine months ended September 30, 2017, cash used in investing activities was principally related to the proceeds from the sale of cost basis equity investment of $2.1 million, net purchase, sale and maturities of short-term investments of $2.0 million and property and equipment additions of $13.8 million. Property and equipment additions include $9.8 million of capitalized internal-use software development cost.

During the nine months ended September 30, 2016, cash used in investing activities was principally related to the net purchase, sale and maturities of short-term investments of $2.7 million and property and equipment additions of $21.2 million. Property and equipment additions include $9.7 million of capitalized internal-use software development cost.

~~Financing Activities~~

Cash provided by financing activities of $0.3 million in the nine months ended September 30, 2017 primarily resulted from the exercise of common stock options and the purchase of common stock under our employee stock purchase plan of $1.1 million offset by the minimum tax withholding requirement of $0.7 million.

Cash used in financing activities of $4.8 million in the nine months ended September 30, 2016 primarily resulted from the $8.9 million repurchase of common stock offset by the exercise of common stock options and the purchase of common stock under our employee stock purchase plan of $5.0 million.

~~Off-Balance Sheet Arrangements~~

We do not have any relationships with other entities or financial partnerships such as entities often referred to as structured finance or special-purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

~~Contractual Obligations and Commitments~~

~~There have been no material changes in our contractual obligations and commercial commitments other than in the ordinary course of business since the end of fiscal 2016.~~above table.

Critical Accounting Policies and Estimates

~~Management has determined that our most critical~~The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires management to use judgment in the application of accounting policies, ~~are those related to revenue recognition, stock-based compensation, goodwill~~including making estimates and ~~intangible assets and income taxes. There have been no material changes in our critical~~assumptions. The Company's significant accounting policies and estimates ~~during the nine months ended September 30, 2017 as compared to the critical accounting policies and estimates disclosed~~are described in ~~“Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations–~~Operations - Critical Accounting Policies and ~~Estimates” of~~Estimates" in our Annual Report on Form 10-K for the year ended December 31, ~~2016 as filed~~2018. These policies were followed in preparing the Consolidated Financial Statements for the three and six months ended June 30, 2019 and are consistent with the ~~SEC on March 6, 2017.~~year ended December 31, 2018, except for the new accounting policies related to the adoption and application of Accounting Standards Codification Topic 842, Lease Accounting (“ASC 842") as of January 1, 2019.

Recent Accounting Pronouncements

~~The information contained in~~For a discussion of recent accounting pronouncements, see Note 12 - "Summary of Significant Accounting Policies" to our ~~condensed consolidated~~Consolidated Financial Statements.

Non-GAAP Financial Measurements

ServiceSource believes net income (loss), as defined by GAAP, is the most appropriate financial ~~statements~~measure of our operating performance; however, ServiceSource considers adjusted EBITDA to be a useful supplemental, non-GAAP financial measure of our operating performance. We believe adjusted EBITDA can assist investors in ~~Item 1 under~~understanding and assessing our operating performance on a consistent basis, as it removes the ~~heading, “Recent~~impact of the Company's capital structure and other non-cash or non-recurring items from operating results and provides an additional tool to compare ServiceSource's financial results with other companies in the industry, many of which present similar non-GAAP financial measures.

EBITDA consists of net income (loss) plus provision for income tax (benefit) expense, interest and other expense, net and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus non-cash stock-based compensation, amortization of contract acquisition costs related to the initial adoption of Accounting ~~Pronouncements,” is incorporated by reference into this Item 2.~~Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), restructuring and other related costs and impairment loss on investment securities.

This non-GAAP measure should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP.

The following table presents the calculation of Adjusted EBITDA reconciled from “Net loss”:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018

	(in thousands)
Net loss	$	(6,035	)	$	(8,887	)	$	(11,754	)	$	(20,539	)
Provision for income tax expense	108			414			120			427
Interest and other expense, net	58			2,776			548			5,622
Depreciation and amortization	3,709			4,941			6,994			9,744
EBITDA	(2,160		)	(756		)	(4,092		)	(4,746		)
Stock-based compensation	1,236			3,427			2,806			6,538
Amortization of contract acquisition asset costs - ASC 606 initial adoption	255			420			512			846
Restructuring and other related costs	148			156			1,206			209
Impairment loss on investment securities	—			—			—			1,958
Adjusted EBITDA	$	(521	)	$	3,247		$	432		$	4,805

Item 3.Quantitative and Qualitative Disclosures About Market Risk

~~We believe that there~~There have been no significant changes in our market risk exposures associated with foreign currency risk, inflation risk and interest rate risk for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared with those discussed in our ~~Annual Report~~annual report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2018.

The effective interest rate on our Revolver was 6.50% as of June 30, 2019. As of June 30, 2019, we did not have any borrowings outstanding on the Revolver, therefore a 1% increase in the effective interest rate would not increase interest expense. We may incur additional expense in future periods if we borrow on the Revolver.

Item 4.Controls and Procedures

~~(a)~~Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”).

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

~~(b)~~Changes in Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting during the quarter covered by this report that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

For a discussion of legal proceedings in which we are involved, see Note 57 - Commitments and Contingencies" to ~~our condensed consolidated financial statements appearing elsewhere~~the Consolidated Financial Statements in ~~this Quarterly Report on Form 10-Q.~~Item 1.

Item 1A.Risk Factors

A summary of factors which could affect results and cause results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf, ~~are further described under the caption~~see “Risk Factors” in Part I,1, Item 1A of our ~~2016 Annual Report~~annual report on Form ~~10-K.~~10-K for the year ended December 31, 2018. There have been no material changes in the nature of these factors since December 31, ~~2016.~~2018.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

Item 6.Exhibits



Exhibit Number		Description of Document

31.1*		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the ~~Condensed~~ Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, (ii) the ~~Condensed~~ Consolidated ~~Statement~~Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, (iii) the ~~Condensed~~ Consolidated Statements of Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, (iv) Consolidated Statements of Stockholders’ Equity for the ~~Condensed~~three and six months ended June 30, 2019 and 2018, (v) the Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and ~~(v)~~(vi) the Notes to ~~Condensed~~ Consolidated Financial Statements.

* Filed or Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		SERVICESOURCE INTERNATIONAL, INC. (Registrant)

Date:	~~November 8, 2017~~August 7, 2019	By:	/s/ ~~ROBERT N. PINKERTON~~RICHARD G. WALKER
			~~Robert N. Pinkerton~~Richard G. Walker Chief Financial Officer (Principal Financial and Accounting Officer)

2528



Delaware		81-0578975
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

707 17th Street,	25th Floor	80202
Denver,	Colorado
(Address of principal executive offices)		(Zip Code)



~~Delaware~~(720)	~~No. 81-0578975~~
~~(State or Other Jurisdiction of~~ ~~Incorporation or Organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~

~~717 17~~^th ~~St., 5~~^th ~~Floor~~ ~~Denver, CO~~	~~80202~~889-8500
(~~Address of Principal Executive Offices)~~		~~(Zip Code)~~Registrant’s telephone number, including area code)



Common Stock, $0.0001 Par Value	SREV	The Nasdaq Stock Market LLC
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)



Large accelerated filer	¨☐	Accelerated filer	x☒
Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	¨☐
		Emerging growth company	¨ ☐



~~Class~~	~~Outstanding as of October 31, 2017~~
~~Common Stock~~	~~90,154,059~~



	Page ~~No.~~
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)	3
~~Condensed~~ Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018	3
~~Condensed~~ Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	4
~~Condensed~~ Consolidated Statements of Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	5
~~Condensed~~ Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	6
~~Notes to Unaudited Condensed~~ Consolidated ~~Financial~~ Statements of Cash Flows for the six months ended June 30, 2019 and 2018	7
Notes to Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1518

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22

~~Item 4. Controls and Procedures~~	22

~~PART II. OTHER INFORMATION~~

~~Item 1. Legal Proceedings~~	24

~~Item 1A. Risk Factors~~	24

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~	24

~~Item 3. Defaults Upon Senior Securities~~	24

~~Item 4. Mine Safety Disclosures~~	24

~~Item 5. Other Information~~	24

~~Item 6. Exhibits~~	X

~~Signatures~~	25

~~Exhibit Index~~Item 4. Controls and Procedures	2425

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	27

Item 1A. Risk Factors	27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3. Defaults Upon Senior Securities	27

Item 4. Mine Safety Disclosures	27

Item 5. Other Information	27

Item 6. Exhibits	27



ServiceSource International, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
	June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	25,652		$	26,535
Accounts receivable, net	42,933			54,284
Prepaid expenses and other	6,704			5,653
Total current assets	75,289			86,472

Property and equipment, net	37,029			36,593
Contract acquisition costs	2,041			2,660
Right-of-use assets	33,190			—
Goodwill	6,334			6,334
Other assets	4,801			4,521
Total assets	$	158,684		$	136,580

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,096		$	2,424
Accrued expenses	2,673			3,380
Accrued compensation and benefits	14,735			15,509
Operating lease liabilities	8,419			—
Other current liabilities	5,690			6,894
Total current liabilities	33,613			28,207

Operating lease liabilities, net of current portion	28,684			—
Other long-term liabilities	3,537			6,540
Total liabilities	65,834			34,747

Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000 shares authorized and none issued and outstanding	—			—
Common stock; $0.0001 par value; 1,000,000 shares authorized; 94,210 shares issued and 94,089 shares outstanding as of June 30, 2019; 92,895 shares issued and 92,774 shares outstanding as of December 31, 2018	9			9
Treasury stock	(441		)	(441		)
Additional paid-in capital	372,201			369,246
Accumulated deficit	(279,137		)	(267,383		)
Accumulated other comprehensive income	218			402
Total stockholders’ equity	92,850			101,833
Total liabilities and stockholders’ equity	$	158,684		$	136,580



	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	39,585		$	47,692
Short-term investments	140,188			137,881
Accounts receivable, net	53,061			63,289
Prepaid expenses and other	7,326			7,607
Total current assets	240,160			256,469
Property and equipment, net	35,703			38,180
Deferred income taxes, net of current portion	69			64
Goodwill and intangibles, net	6,797			7,932
Other assets, net	3,556			3,445
Total assets	$	286,285		$	306,090
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,129		$	1,916
Accrued taxes	387			1,388
Accrued compensation and benefits	17,470			21,579
Convertible notes, net	141,726			—
Deferred revenue	1,713			4,152
Accrued expenses	6,127			5,891
Other current liabilities	1,241			2,958
Total current liabilities	169,793			37,884
Convertible notes, net	—			134,775
Other long-term liabilities	7,127			6,495
Total liabilities	176,920			179,154
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock; $0.0001 par value; 1,000,000 shares authorized; 90,266 shares issued and 90,145 shares outstanding as of September 30, 2017; 88,304 shares issued and 88,183 shares outstanding as of December 31, 2016	8			8
Treasury stock	(441		)	(441		)
Additional paid-in capital	355,969			344,521
Accumulated deficit	(246,281		)	(216,361		)
Accumulated other comprehensive income	110			(791		)
Total stockholders’ equity	109,365			126,936
Total liabilities and stockholders’ equity	$	286,285		$	306,090


ServiceSource International, Inc.													ServiceSource International, Inc.
Consolidated Statements of Operations													Consolidated Statements of Operations
(in thousands, except per share amounts)													(in thousands, except per share amounts)
(unaudited)													(unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Net revenue	$	58,132		$	62,514		$	173,103		$	184,233		$	52,358		$	61,111		$	107,869		$	119,696
Cost of revenue	40,803			40,789			121,729			122,568			38,349			42,463			77,825			84,187
Gross profit	17,329			21,725			51,374			61,665			14,009			18,648			30,044			35,509
Operating expenses:
Sales and marketing	7,829			8,847			24,790			30,626			7,486			9,252			15,435			18,490
Research and development	1,048			1,952			4,534			6,132			1,274			1,780			2,537			3,296
General and administrative	12,543			14,638			40,029			38,233			10,970			13,157			21,952			26,046
Restructuring and other	545			—			6,259			—
Restructuring and other related costs													148			156			1,206			209
Total operating expenses	21,965			25,437			75,612			74,991			19,878			24,345			41,130			48,041
Loss from operations	(4,636		)	(3,712		)	(24,238		)	(13,326		)	(5,869		)	(5,697		)	(11,086		)	(12,532		)
Interest expense and other, net	(2,839		)	(2,291		)	(7,555		)	(5,499		)
Gain (loss) on cost basis equity investment	2,100			(2,300		)	2,100			(2,300		)
Interest and other expense, net													(58		)	(2,776		)	(548		)	(5,622		)
Impairment loss on investment securities													—			—			—			(1,958		)
Loss before income taxes	(5,375		)	(8,303		)	(29,693		)	(21,125		)	(5,927		)	(8,473		)	(11,634		)	(20,112		)
Income tax (benefit) provision	(180		)	968			227			2,505
Provision for income tax expense													(108		)	(414		)	(120		)	(427		)
Net loss	$	(5,195	)	$	(9,271	)	$	(29,920	)	$	(23,630	)	$	(6,035	)	$	(8,887	)	$	(11,754	)	$	(20,539	)
Net loss per share, basic and diluted	$	(0.06	)	$	(0.11	)	$	(0.34	)	$	(0.27	)
Weighted average common shares outstanding, basic and diluted	89,511			86,283			88,907			85,981
Net loss per common share
Basic and diluted													$	(0.06	)	$	(0.10	)	$	(0.13	)	$	(0.23	)
Weighted-average common shares outstanding:
Basic and diluted													93,712			91,323			93,315			90,843


ServiceSource International, Inc.													ServiceSource International, Inc.
Consolidated Statements of Comprehensive Loss													Consolidated Statements of Comprehensive Loss
(in thousands)													(in thousands)
(unaudited)													(unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Net loss	$	(5,195	)	$	(9,271	)	$	(29,920	)	$	(23,630	)	$	(6,035	)	$	(8,887	)	$	(11,754	)	$	(20,539	)
Other comprehensive income (loss), net of tax:
Other comprehensive (loss) income
Available for sale securities:
Unrealized gain (loss) on short-term investments													—			5			—			(700		)
Reclassification adjustment for impairment loss included in net loss													—			—			—			1,958
Net change in available for sale debt securities													—			5			—			1,258
Foreign currency translation adjustments	285			(110		)	783			(1,229		)	(260		)	(210		)	(184		)	64
Unrealized gain (loss) on short-term investments	13			(81		)	118			849
Other comprehensive income (loss), net of tax	298			(191		)	901			(380		)
Total comprehensive loss, net of tax	$	(4,897	)	$	(9,462	)	$	(29,019	)	$	(24,010	)
Other comprehensive (loss) income													(260		)	(205		)	(184		)	1,322
Comprehensive loss													$	(6,295	)	$	(9,092	)	$	(11,938	)	$	(19,217	)



	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities
Net loss	$	(29,920	)	$	(23,630	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	17,167			11,636
Amortization of debt discount and issuance costs	6,951			6,464
Amortization of premium on short-term investments	(172		)	888
Deferred income taxes	177			1,698
Stock-based compensation	10,396			7,441
Restructuring and other	2,522			—
(Gain) loss on cost basis equity investment	(2,100		)	2,300
Changes in operating assets and liabilities:
Accounts receivable, net	12,307			2,778
Deferred revenue	(2,440		)	(805		)
Prepaid expenses and other	387			1,306
Accounts payable	(813		)	407
Accrued taxes	(1,019		)	(627		)
Accrued compensation and benefits	(4,713		)	(1,509		)
Accrued expenses	(839		)	1,670
Other liabilities	(1,375		)	(311		)
Net cash provided by operating activities	6,516			9,706
Cash flows from investing activities
Acquisition of property and equipment	(13,843		)	(21,203		)
Proceeds from sale of cost basis equity investment	2,100			—
Purchases of short-term investments	(56,589		)	(86,365		)
Sales of short-term investments	51,119			83,331
Maturities of short-term investments	3,506			350
Net cash used in investing activities	(13,707		)	(23,887		)
Cash flows from financing activities
Repayment on capital lease obligations	(52		)	(120		)
Repurchase of common stock	—			(8,921		)
Proceeds from common stock issuances	1,062			5,034
Minimum tax withholding requirement	(735		)	(770		)
Net cash provided by (used in) financing activities	275			(4,777		)
Net decrease in cash and cash equivalents	(6,916		)	(18,958		)
Effect of exchange rate changes on cash and cash equivalents	(1,191		)	(1,681		)
Cash and cash equivalents at beginning of period	47,692			72,334
Cash and cash equivalents at end of period	$	39,585		$	51,695



ServiceSource International, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)

	Common Stock			Treasury Shares/Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total
Balance at January 1, 2019	92,895	$	9	(121	)	$	(441	)	$	369,246		$	(267,383	)	$	402		$	101,833
Net loss	—	—		—		—			—			(5,719		)	—			(5,719		)
Other comprehensive income	—	—		—		—			—			—			76			76
Stock-based compensation	—	—		—		—			1,564			—			—			1,564
Issuance of common stock, restricted stock units	229	—		—		—			—			—			—			—
Proceeds from the exercise of stock options and employee stock purchase plan	139	—		—		—			141			—			—			141
Balance at March 31, 2019	93,263	$	9	(121	)	$	(441	)	$	370,951		$	(273,102	)	$	478		$	97,895
Net loss	—	—		—		—			—			(6,035		)	—			(6,035		)
Other comprehensive loss	—	—		—		—			—			—			(260		)	(260		)
Stock-based compensation	—	—		—		—			1,269			—			—			1,269
Issuance of common stock, restricted stock units	947	—		—		—			—			—			—			—
Net cash paid for payroll taxes on restricted stock unit releases	—	—		—		—			(19		)	—			—			(19		)
Balance at June 30, 2019	94,210	$	9	(121	)	$	(441	)	$	372,201		$	(279,137	)	$	218		$	92,850

	Common Stock			Treasury Shares/Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2017	90,380	$	8	(121	)	$	(441	)	$	359,347		$	(246,207	)	$	(598	)	$	112,109
Cumulative effect of ASC 606 - initial adoption	—	—		—		—			—			3,709			—			3,709
Adjusted balance at January 1, 2018	90,380	$	8	(121	)	$	(441	)	$	359,347		$	(242,498	)	$	(598	)	$	115,818
Net loss	—	—		—		—			—			(11,652		)	—			(11,652		)
Other comprehensive income	—	—		—		—			—			—			1,527			1,527
Stock-based compensation	—	—		—		—			3,223			—			—			3,223
Issuance of common stock, restricted stock units	84	—		—		—			—			—			—			—
Proceeds from the exercise of stock options and employee stock purchase plan	119	—		—		—			353			—			—			353
Net cash paid for payroll taxes on restricted stock unit releases	—	—		—		—			(53		)	—			—			(53		)
Balance at March 31, 2018	90,583	$	8	(121	)	$	(441	)	$	362,870		$	(254,150	)	$	929		$	109,216
Net loss	—	—		—		—			—			(8,887		)	—			(8,887		)
Other comprehensive loss	—	—		—		—			—			—			(205		)	(205		)
Stock-based compensation	—	—		—		—			3,525			—			—			3,525
Issuance of common stock, restricted stock units	1,207	—		—		—			—			—			—			—
Proceeds from the exercise of stock options and employee stock purchase plan	32	—		—		—			94			—			—			94
Net cash paid for payroll taxes on restricted stock unit releases	—	—		—		—			(364		)	—			—			(364		)
Balance at June 30, 2018	91,822	$	8	(121	)	$	(441	)	$	366,125		$	(263,037	)	$	724		$	103,379



ServiceSource International, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	For the Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(11,754	)	$	(20,539	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	6,994			9,744
Amortization of debt discount and issuance costs	38			4,923
Amortization of contract acquisition costs	868			930
Amortization of premium on short-term investments	—			(1,197		)
Amortization of right-of-use assets	4,725			—
Stock-based compensation	2,806			6,538
Restructuring and other related costs	1,166			482
Impairment loss on investment securities	—			1,958
Other	—			56
Net changes in operating assets and liabilities
Accounts receivable, net	11,328			5,593
Prepaid expenses and other assets	(898		)	(434		)
Contract acquisition costs	(249		)	(878		)
Accounts payable	(263		)	(2,515		)
Accrued compensation and benefits	(1,934		)	(1,647		)
Operating lease liabilities	(4,767		)	—
Accrued expenses	(797		)	(1,811		)
Other liabilities	(546		)	1,199
Net cash provided by operating activities	6,717			2,402
Cash flows from investing activities:
Acquisition of property and equipment	(6,095		)	(7,268		)
Purchases of short-term investments	—			(480		)
Sales of short-term investments	—			133,920
Maturities of short-term investments	—			4,240
Net cash (used in) provided by investing activities	(6,095		)	130,412
Cash flows from financing activities:
Repayment on finance lease obligations	(421		)	(156		)
Proceeds from issuance of common stock	141			447
Payments related to minimum tax withholdings on restricted stock unit releases	(19		)	(417		)
Net cash used in financing activities	(299		)	(126		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(156		)	243
Net change in cash and cash equivalents and restricted cash	167			132,931
Cash and cash equivalents and restricted cash, beginning of period	27,779			52,633
Cash and cash equivalents and restricted cash, end of period	$	27,946		$	185,564
Supplemental disclosures of cash flow information:
Cash paid for interest	$	136		$	1,178
Supplemental disclosures of non-cash activities:
Acquisition of property and equipment accrued in accounts payable and accrued expenses	$	419		$	389
Increase in contract acquisition costs and benefit to accumulated deficit related to adoption of ASC 606	$	—		$	3,346
Increase in prepaid expenses and other, other liabilities and benefit to accumulated deficit related to adoption of ASC 606	$	—		$	363
Increase in operating lease liabilities related to the adoption of ASC 842	$	41,760		$	—
Increase in right-of-use assets related to the adoption of ASC 842	$	39,183		$	—
Decrease in prepaids and other assets related to the adoption of ASC 842	$	(749	)	$	—
Decrease in other liabilities related to the adoption of ASC 842	$	(3,308	)	$	—



	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash	$	39,514	$	—	$	—		$	39,514
Cash equivalents:
Money market mutual funds	71		—		—			71
Total cash and cash equivalents	39,585		—		—			39,585
Short-term investments:
Corporate bonds	55,874		60		(92		)	55,842
U.S. agency securities	34,644		—		(255		)	34,389
Asset-backed securities	23,937		5		(48		)	23,894
U.S. Treasury securities	26,297		—		(234		)	26,063
Total short-term investments	140,752		65		(629		)	140,188
Cash, cash equivalents and short-term investments	$	180,337	$	65	$	(629	)	$	179,773



	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	71	$	71	$	—
Total cash equivalents	71		71		—
Short-term investments:
Corporate bonds	55,842		—		55,842
U.S. agency securities	34,389		—		34,389
Asset-backed securities	23,894		—		23,894
U.S. Treasury securities	26,063		—		26,063
Total short-term investments	140,188		—		140,188
Cash equivalents and short-term investments	$	140,259	$	71	$	140,188



~~Item 1.~~	~~Financial Statements~~



	September 30, 2017			December 31, 2016
Principal amount	$	150,000		$	150,000
Unamortized debt discount	(7,569		)	(13,928		)
Unamortized debt issuance costs	(705		)	(1,297		)
Net carrying amount	$	141,726		$	134,775



			Options Outstanding				Restricted Stock Outstanding
	Shares and Units Available for Grant		Number of Shares		Weighted- Average Exercise Price		Number of Shares
December 31, 2016	10,406		7,495		$	4.63	4,237
Additional shares reserved under the 2011 Equity Incentive Plan	3,527		—		—		—
Granted	(2,973	)	145		3.65		2,828
PSU Additional Goal Shares Achieved	(242	)	—		—		242
Options exercised/Restricted stock released	—		(14	)	4.86		(1,834	)
RSU shares withheld for taxes	193		—		—		—
Canceled/Forfeited	1,499		(922	)	5.47		(577	)
September 30, 2017	12,410		6,704		$	4.49	4,896



	Three Months Ended September 30,									Nine Months Ended September 30,
	2017		2016		Change			% Change		2017		2016		Change			% Change
	(in thousands)									(in thousands)
Net Revenue	$	58,132	$	62,514	$	(4,382	)	(7	)%	$	173,103	$	184,233	$	(11,130	)	(6	)%
Cost of Revenue	40,803		40,789		14			—	%	121,729		122,568		(839		)	(1	)%
Gross Profit	$	17,329	$	21,725	$	(4,396	)	(20	)%	$	51,374	$	61,665	$	(10,291	)	(17	)%