UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~

x~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For the quarterly period ended September 30, 2017~~

¨~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For the transition period from~~ to

~~Commission file number 001-35108~~

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~(Exact name of registrant as specified in our charter)~~



☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2020



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-35108

SERVICESOURCE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



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

~~717 17~~^th ~~St., 5~~^th707 17th Street, 25th Floor
Denver, CO	Colorado		80202
(Address of ~~Principal Executive Offices)~~principal executive offices)			(Zip Code)

~~(720)~~



(720)	889-8500
(Registrant’s telephone number, including area code)

~~(Registrant’s Telephone Number, Including Area Code)~~

Securities registered pursuant to Section 12(b) of the Act:



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes x☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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

Non-accelerated filer		☐		Smaller reporting company		☒

Emerging growth company	¨	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨☐ No x☒

~~Indicate number~~As of April 30, 2020, 95,134,350 shares ~~outstanding of each of the issuer’s classes~~ of common stock as of ~~the latest practical date:~~



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

ServiceSource International, Inc. were outstanding.

SERVICESOURCE INTERNATIONAL, INC.

Form 10-Q

~~INDEX~~For the Fiscal Quarter Ended March 31, 2020

TABLE OF CONTENTS



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

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517

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~~Glossary	2426

~~PART I. FINANCIAL INFORMATION~~



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

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(In thousands)~~

~~(Unaudited)~~



ServiceSource International, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	47,181		$	27,089
Accounts receivable, net	43,354			41,754
Prepaid expenses and other	5,939			7,296
Total current assets	96,474			76,139

Property and equipment, net	34,242			36,149
ROU assets	33,450			36,396
Contract acquisition costs	1,302			1,602
Goodwill	6,334			6,334
Other assets	4,764			4,844
Total assets	$	176,566		$	161,464

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,115		$	4,392
Accrued expenses	3,456			3,366
Accrued compensation and benefits	15,746			16,700
Revolver	27,000			—
Operating lease liabilities	10,132			9,652
Other current liabilities	1,662			2,218
Total current liabilities	59,111			36,328

Operating lease liabilities, net of current portion	30,800			33,716
Other long-term liabilities	2,520			2,983
Total liabilities	92,431			73,027

Commitments and contingencies (Note 10)

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; 95,262 shares issued and 95,141 shares outstanding as of March 31, 2020; 94,972 shares issued and 94,851 shares outstanding as of December 31, 2019	10			9
Treasury stock	(441		)	(441		)
Additional paid-in capital	375,666			374,525
Accumulated deficit	(292,008		)	(286,066		)
Accumulated other comprehensive income	908			410
Total stockholders’ equity	84,135			88,437
Total liabilities and stockholders’ equity	$	176,566		$	161,464

The accompanying notes are an integral part of these Consolidated Financial Statements.

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.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
	For the Three Months Ended March 31,
	2020			2019
Net revenue	$	50,114		$	55,511
Cost of revenue	35,560			39,476
Gross profit	14,554			16,035
Operating expenses:
Sales and marketing	7,268			7,949
Research and development	1,181			1,263
General and administrative	10,688			10,982
Restructuring and other related costs	467			1,058
Total operating expenses	19,604			21,252
Loss from operations	(5,050		)	(5,217		)
Interest and other expense, net	(874		)	(490		)
Loss before provision for income taxes	(5,924		)	(5,707		)
Provision for income tax expense	(18		)	(12		)
Net loss	$	(5,942	)	$	(5,719	)
Net loss per common share:
Basic and diluted	$	(0.06	)	$	(0.06	)
Weighted-average common shares outstanding:
Basic and diluted	94,968			92,914

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net revenue $ 58,132
$ 62,514
$ 173,103
$ 184,233
Cost of revenue 40,803
40,789
121,729
122,568
Gross profit 17,329
21,725
51,374
61,665
Operating expenses:
Sales and marketing 7,829
8,847
24,790
30,626
Research and development 1,048
1,952
4,534
6,132
General and administrative 12,543
14,638
40,029
38,233
Restructuring and other 545
—
6,259
—
Total operating expenses 21,965
25,437
75,612
74,991
Loss from operations (4,636 ) (3,712 ) (24,238 ) (13,326 )
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 )
Loss before income taxes (5,375 ) (8,303 ) (29,693 ) (21,125 )
Income tax (benefit) provision (180 ) 968
227
2,505
Net loss $ (5,195 ) $ (9,271 ) $ (29,920 ) $ (23,630 )
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



ServiceSource International, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
	For the Three Months Ended March 31,
	2020			2019
Net loss	$	(5,942	)	$	(5,719	)
Other comprehensive income
Foreign currency translation adjustments	498			76
Other comprehensive income	498			76
Comprehensive loss	$	(5,444	)	$	(5,643	)

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

~~SERVICESOURCE INTERNATIONAL, INC.~~



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, 2020	94,972	$	9	(121	)	$	(441	)	$	374,525		$	(286,066	)	$	410	$	88,437
Net loss	—	—		—		—			—			(5,942		)	—		(5,942		)
Other comprehensive income	—	—		—		—			—			—			498		498
Stock-based compensation	—	—		—		—			1,066			—			—		1,066
Issuance of common stock, RSUs	178	1		—		—			(1		)	—			—		—
Proceeds from the exercise of stock options and ESPP	112	—		—		—			76			—			—		76
Balance at March 31, 2020	95,262	$	10	(121	)	$	(441	)	$	375,666		$	(292,008	)	$	908	$	84,135

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~




	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, RSUs	229	—		—		—			—		—			—		—
Proceeds from the exercise of stock options and ESPP	139	—		—		—			141		—			—		141
Balance at March 31, 2019	93,263	$	9	(121	)	$	(441	)	$	370,951	$	(273,102	)	$	478	$	97,895

~~(In thousands)~~

~~(Unaudited)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net loss $ (5,195 ) $ (9,271 ) $ (29,920 ) $ (23,630 )
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 285
(110 ) 783
(1,229 )
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 )

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

~~SERVICESOURCE INTERNATIONAL, INC.~~



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

	For the Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(5,942	)	$	(5,719	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	3,396			3,285
Amortization of contract acquisition costs	279			400
Amortization of ROU assets	2,313			2,239
Stock-based compensation	1,045			1,570
Restructuring and other related costs	431			1,041
Other	18			18
Net changes in operating assets and liabilities:
Accounts receivable, net	(1,722		)	3,258
Prepaid expenses and other assets	1,323			(1,277		)
Contract acquisition costs	9			(108		)
Accounts payable	(3,253		)	(18		)
Accrued compensation and benefits	(1,210		)	1,094
Operating lease liabilities	(1,838		)	(2,338		)
Accrued expenses	223			(1,023		)
Other liabilities	(741		)	(338		)
Net cash (used in) provided by operating activities	(5,669		)	2,084
Cash flows from investing activities:
Purchases of property and equipment	(1,557		)	(2,898		)
Net cash used in investing activities	(1,557		)	(2,898		)
Cash flows from financing activities:
Repayment on finance lease obligations	(238		)	(190		)
Proceeds from Revolver	27,000			—
Proceeds from issuance of common stock	76			141
Net cash provided by (used in) financing activities	26,838			(49		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	480			185
Net change in cash and cash equivalents and restricted cash	20,092			(678		)
Cash and cash equivalents and restricted cash, beginning of period	29,383			27,779
Cash and cash equivalents and restricted cash, end of period	$	49,475		$	27,101
Supplemental disclosures of cash flow information:
Cash paid for interest	$	55		$	66
Supplemental disclosures of non-cash activities:
Purchase of property and equipment accrued in accounts payable and accrued expenses	$	10		$	208
ROU assets obtained in exchange for new lease liabilities	$	204		$	9,656
Increase in operating lease liabilities related to the adoption of ASC 842	$	—		$	32,104
Increase in ROU assets related to the adoption of ASC 842	$	—		$	29,526
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	$	—		$	(3,327	)

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands)~~

~~(Unaudited)~~

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

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 1 — Description of Business and Basis of Presentation~~

ServiceSource International, Inc. ~~(together with its subsidiaries, the “Company”)~~

Notes to Consolidated Financial Statements

(unaudited)

Note 1 — The Company

ServiceSource is a leading provider of BPaaS (business process-as-a-service) solutions that enable the transformation of go-to-market organizations and functions for global ~~leader in outsourced, performance-based~~technology clients. We design, deploy, and operate a suite of innovative solutions and complex processes that support and augment our clients’ B2B customer ~~success~~acquisition, engagement, expansion and retention activities. Our clients - ranging from Fortune 500 technology titans to high-growth disruptors and innovators - rely on our holistic customer engagement methodology and process excellence, global scale and delivery footprint, and data analytics and business insights to deliver trusted business outcomes that have a meaningful and material positive impact to their long-term revenue ~~growth solutions.~~and profitability objectives. Through ~~the Company’s~~our unique integration of people, ~~processes~~process and technology - leveraged against our 20 years of experience and domain expertise in the ~~Company finds, converts, grows~~cloud, software, hardware, medical device and ~~retains revenue on behalf~~diagnostic equipment, and industrial IoT sectors - we effect and transact billions of ~~its clients—some~~dollars of ~~the world’s leading business-to-business companies—~~B2B commerce in more than ~~35 languages. The Company’s solutions help~~175 countries on our clients’ behalf annually.

“ServiceSource,” “the Company,” “we,” “us,” or “our”, as used herein, refer to ServiceSource International, Inc. and its ~~clients strengthen their customer relationships, drive improved customer adoption, expansion~~wholly-owned subsidiaries, unless the context indicates otherwise.

For a summary of commonly used industry terms and retention and minimize churn. The Company’s technology platform and best-practice business processes combined with its highly-trained, client-focused revenue delivery professionals and data from over 15 years of operating experience enable the Company to provide its clients greater value for its customer success services than attained by its clients’ in-house customer success teams.

The Company’s pay-for-performance model allows its clients to pay for the services through either flat-rate or variable commissions based on the revenue generated by the Company on their behalf. Fixed-fee arrangements are typicallyabbreviations used in ~~quick deployments to address discrete target areas~~this report, see Glossary of ~~our clients’ needs. The Company also earns revenue through its professional services teams, who assist clients with data optimization, as well as through supporting select existing clients with~~Terms located at the Company’s Renew OnDemand application. The Company’s corporate headquarters is located in Denver, Colorado. The Company has additional U.S. offices in California and Tennessee, and international offices in Bulgaria, Ireland, Japan, Malaysia, Philippines, Singapore and the United Kingdom.end of this report.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim ~~condensed consolidated financial statements (“condensed consolidated financial statements”)~~Consolidated Financial Statements include the accounts of ServiceSource International, Inc. and its ~~subsidiaries. Intercompany accounts~~wholly-owned subsidiaries and have been prepared in accordance with GAAP and with the instructions to Form 10-Q and Article 8 of Regulation S-X for interim financial information. All intercompany balances and transactions have been eliminated in consolidation.

These ~~condensed consolidated~~ financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X, without audit. Accordingly, they do not include all of the information required by ~~U.S.~~ GAAP for annual financial statements. The unaudited ~~condensed consolidated balance sheet~~Consolidated Balance Sheet as of December 31, ~~2016~~2019 has been derived from the Company’s audited annual ~~consolidated financial statements~~Consolidated Financial Statements included in our ~~Annual Report~~annual report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the ~~Securities and Exchange Commission (“SEC”)~~SEC on March 6, 2017. These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K.

February 19, 2020. In the opinion of management, these ~~condensed consolidated financial statements~~Consolidated Financial Statements reflect all adjustments, including normal recurring adjustments, management considers necessary for a fair ~~statement~~presentation of the Company’s financial position, operating results, and cash flows for the interim periods presented. ~~Preparation~~These Consolidated Financial Statements and accompanying notes should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2019, included in our annual report on Form 10-K. Interim results are not necessarily indicative of ~~financial statements~~results for the entire year.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with ~~U.S.~~ GAAP requires management to make estimates and assumptions that affect the reported amounts ~~reported in~~of assets and liabilities, the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Also, the results for the interim periods are not necessarily indicative of results for the entire year.

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which amended the existing FASB Accounting Standards Codification. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The standard also specifies that the incremental costs of obtaining a contract with a customer and the costs of fulfilling a contract with a customer (if those costs are not within the scope of another Topic or Sub-Topic) would be deferred and recognized over the appropriate period of contract performance if they are expected to be recovered. In addition, the standard requires disclosure of ~~the nature, amount, timing~~contingent assets and ~~uncertainty of revenue and cash flows arising from contracts with customers.~~

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognizedliabilities at the date of ~~initial application (modified retrospective method, also known as~~ the ~~cumulative catch-up transition method).~~Consolidated Financial Statements and the reported amount of net revenue and expenses during the reporting period.

The Company bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and estimates and judgments routinely require adjustment. Actual results and outcomes may differ from our estimates.

Reclassifications

Certain items on the Consolidated Statements of Cash Flows for the three months ended March 31, 2019 have been reclassified to conform to the current year presentation. These reclassifications did not affect the Consolidated Balance Sheet, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss or Consolidated Statements of Stockholders' Equity.

New Accounting Standards Issued but Not yet Adopted

Financial Instruments - Credit Losses

In June 2016, the FASB issued an ASU ~~2014-09~~that amends the measurement of credit losses on financial instruments and requires measurement and recognition of expected versus incurred credit losses for financial assets held. This ASU is effective for ~~the Company~~annual periods and interim periods for ~~interim and~~those annual periods beginning after December 15, ~~2017.~~2022, with early adoption permitted.

~~The~~This standard will apply to the Company's accounts receivables and contract assets. Based on our current analysis, the Company ~~continues~~does not expect the adoption to ~~assess the impact of the standard, and has not yet determined whether the standard will~~ have a material impact on ~~our consolidated financial statements. However, we currently believe the most significant impact is~~its Consolidated Financial Statements as credit losses associated from the timing of recognition of certain sales commission expenses, which upon adoption will be recognized as costs over a period of time instead of immediately. We are also in the process of assessing the impact of the new standard on certain of our contracts that include performance-based fees. We currently recognize such fees in the period when the performance criteriatrade receivables have historically been met; however, under the new standard we would estimate the variable fees and recognize amounts as control of the promised deliverable is transferred to the client for which it is probable that a significant reversal would not occur. For certain contracts, this could result in accelerated recognition of the performance-based fees. We do not currently expect our recurring revenue management fees, based on a fixed percentage of overall sales value associated with the service contracts, to be significantly impacted by the new standard.

Weinsignificant. The Company will adopt ~~the~~this standard in the first quarter of 2018 using the modified prospective method. We expect to complete our assessment process, including impacts on our processes, systems and financial statement disclosures, by the end of the fourth quarter of 2017.effective January 1, 2023.

Income Taxes

In ~~February 2016,~~December 2019, the FASB issued an ASU ~~No. 2016-02 Leases (Topic 842). This standard requires entities~~ that ~~lease assets~~simplifies the accounting for income taxes by eliminating certain exceptions to ~~recognize on~~ the ~~balance sheet~~guidance in ASC 740 related to the ~~assets~~approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for ~~the rights and obligations created by those leases. The standard~~outside basis differences. This ASU is effective for ~~fiscal years~~annual periods and ~~the~~ interim periods ~~within~~for those ~~fiscal years~~annual periods beginning after December 15, ~~2018. The guidance is required~~2020, with early adoption permitted. Based on our current analysis, the Company does not expect the adoption to ~~be applied by the modified retrospective transition approach. Early adoption is permitted.~~have a material impact on its Consolidated Financial Statements. The Company ~~continues to assess the impact of the adoption of~~will adopt this ~~authoritative guidance on its consolidated financial statements.~~

~~Cost Basis Equity Investment~~

In 2013, the Company made an equity investment in a private company for $4.5 million, which represented less than 5% of the outstanding equity of that company. Based on unfavorable growth trends and declining financial performance of this private company, the Company determined that its investment was fully impaired and recorded a $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, the Company sold this investment for $2.1 million in cash and recorded the proceeds as a gain in ~~Gain (loss) on cost basis equity investment.~~standard effective January 1, 2021.

~~Note 2 — Cash, Cash Equivalents and Short-Term Investments~~

Cash equivalents consist of highly liquid fixed-income investments with original maturities of three months or less at the time of purchase, including money market funds. Short-term investments consist of readily marketable securities with a remaining maturity of more than three months from time of purchase. The Company classifies all of its cash equivalents and short-term investments as “available for sale,” as these investments are free of trading restrictions and are available for use in the Company’s daily operations. These marketable securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as accumulated other comprehensive income and included as a separate component of stockholders’ equity. Gains and losses are recognized when realized. When the Company determines that other-than-temporary declines in fair value have occurred, the amount of the decline that is related to a credit loss is recognized in earnings. Gains and losses are determined using the specific identification method. The Company’s realized gains and losses in the three and nine months ended September 30, 2017 and 2016 were insignificant.

~~Cash and cash equivalents and short-term investments consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):~~

~~September 30, 2017~~

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

~~December 31, 2016~~

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Cash $ 47,060
$ —
$ —
$ 47,060
Cash equivalents:
Money market mutual funds 632
—
—
632
Total cash and cash equivalents 47,692
—
—
47,692
Short-term investments:
Corporate bonds 54,827
19
(188 ) 54,658
U.S. agency securities 34,658
—
(281 ) 34,377
Asset-backed securities 26,431
25
(23 ) 26,433
U.S. Treasury securities 22,701
—
(288 ) 22,413
Total short-term investments 138,617
44
(780 ) 137,881
Cash, cash equivalents and short-term investments $ 186,309
$ 44
$ (780 ) $ 185,573

The following table summarizes the amortized cost and estimated fair value of money market mutual funds and short-term fixed income securities classified as short-term investments based on stated maturities as of September 30, 2017 (in thousands):

Amortized
Cost

Estimated
Fair Value
Less than 1 year $ 12,303
$ 12,302
Due in 1 to 3 years 128,520
127,957
Total $ 140,823
$ 140,259

~~As of September 30, 2017, the Company did not consider any of its investments to be other-than-temporarily impaired.~~

Note 3 — Fair Value of Financial Instruments

The Company ~~measures certain financial instruments at fair value on a recurring basis. The Company uses~~follows a three-tier fair value hierarchy, which ~~prioritizes the inputs used~~is described in detail in the ~~valuation methodologies in measuring fair value:~~Company's Annual Report on Form 10-K for the year ended December 31, 2019.

~~Level 1 valuations are based on quoted prices in active markets for identical assets or liabilities.~~

Level 2 valuations are based on inputs that are observable, either directly or indirectly, other than quoted prices included within Level 1. Such inputs used in determining fair value for Level 2 valuations include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

~~Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.~~

~~All of the Company’s cash equivalents and short-term investments are classified within Level 1 or Level 2.~~

The following table presents ~~information about~~ the ~~Company’s financial instruments that are~~Company's cash and cash equivalents and restricted cash by significant investment category measured at fair ~~value as of September 30, 2017 and indicates the fair value hierarchy of the valuation (in thousands):~~value:



	March 31, 2020		December 31, 2019

	(in thousands)
Level 1:
Cash	$	11,202	$	9,142
Money market mutual funds	35,979		17,947
Cash and cash equivalents	$	47,181	$	27,089

Restricted cash	$	2,294	$	2,294

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

~~The Company has restricted cash of $1.2 million within~~ ~~Other assets, net~~ ~~as of September 30, 2017 and December 31, 2016. The restricted cash is classified within Level 1.~~

The following table presents information about the Company’s financial instruments that are measured at fair value as of December 31, 2016 and indicates the fair value hierarchy of the valuation (in thousands):

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 the Company in August 2013 are shown 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 of the convertible notes as of September 30, 2017 and December 31, 2016 was $146.1 million and $143.8 million, respectively. The fair value of 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 as of ~~September 30, 2017~~March 31, 2020 and ~~December~~2019. There were no transfers between levels during the three months ended March 31, ~~2016.~~2020 and 2019.

Note 4 — Debt

~~Senior Convertible Notes~~Revolving Line of Credit

In ~~August 2013,~~July 2018, 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~~entered into 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$40.0 million Revolver that allows us to ~~anti-dilution adjustments upon certain specified events~~borrow against our domestic receivables as defined in the ~~Indenture. Upon conversion,~~credit agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the ~~Notes will be settled in cash, shares~~greater of the ~~Company’s common stock,~~prime rate, the Federal Funds rate plus 0.50% 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~~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. As of March 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~~2020, the Company ~~to repurchase all or~~had $27.0 million of borrowings outstanding under the Revolver through a ~~portion~~six-month Eurodollar borrowing at an effective interest rate of ~~their Notes at a cash repurchase price equal to 100% of~~3.07% maturing September 2020 and an additional $2.3 million available for borrowing under 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.Revolver. 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~~Eurodollar borrowings may be ~~fully~~extended upon maturity, converted into a base rate borrowing upon maturity or ~~partially settled in cash upon conversion. The fair value of debt component was estimated using~~require an ~~interest rate for nonconvertible debt, with terms similar to the Notes, excluding the conversion feature. The carrying~~incremental payment if our borrowing base decreases below our current 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 overoutstanding during the term of the ~~Notes using~~Eurodollar borrowing.

The obligations under the ~~interest method. The amount recorded to additional paid-in capital is not to be remeasured as long as it continues to meet~~credit agreement are secured by substantially all assets of the ~~conditions~~borrowers and certain of their subsidiaries, including pledges of equity ~~classification. Upon issuance~~in certain of the ~~$150.0 million of Notes,~~Company’s subsidiaries. The Revolver has covenants with which the Company ~~recorded $111.5~~was in compliance as of March 31, 2020 and December 31, 2019.

Deferred Debt Issuance Costs and Interest Expense

Unamortized debt issuance costs related to the Revolver were $0.1 million as of March 31, 2020 and December 31, 2019.

Interest expense related to the amortization of debt issuance costs and ~~$38.5~~interest expense associated with the Company's debt obligation was $0.1 million ~~to additional paid-in capital.~~for the three months ended March 31, 2020 and 2019.

Note 5 — 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 May 2030. Certain office leases include the option to extend the ~~issuance of the Notes. In accounting for these costs, the Company allocated the costs~~term between one 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~~seven years and certain office leases include the option to terminate the lease upon written notice within ~~Convertible notes, net, and amortized~~one to ~~interest expense over the~~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 2020, the Company entered into ~~note hedges (“Note Hedges”)~~a one-year sublease agreement with ~~certain bank counterparties,~~a third-party for one floor of its Manila office space, with ~~respect to its common stock. The Company paid $31.4 million for the Note Hedges. The Note Hedges cover~~total sublease income of approximately 9.25 million shares of the Company’s common stock at a strike price of $16.21 per share. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential dilution to the Company’s common stock upon conversion of the Notes and/or offset the cash payment in excess of the principal amount of the Notes the Company is required to make in the event that the 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,~~$1.1 million. In July 2019, the Company entered into ~~warrant transactions, whereby it sold warrants to~~a sublease with a third-party for its San Francisco office space leased during 2018 through the ~~same bank counterparties as the Note Hedges to acquire approximately 9.25 million shares~~remaining term of the ~~Company’s common stock at an initial strike price of $21.02 per share (“Warrants”), subject to anti-dilution adjustments.~~lease, November 30, 2023. The Company ~~received proceeds~~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.

Supplemental income statement information related to leases was as follows:



	For the Three Months Ended March 31,
	2020			2019

	(in thousands)
Operating lease cost	$	3,107		$	2,881

Finance lease cost:
Amortization of leased assets	188			151
Interest on lease liabilities	31			41
Total finance lease cost	219			192

Sublease income	(892		)	(468		)
Net lease cost	$	2,434		$	2,605

Supplemental balance sheet information related to leases was as follows:



	March 31, 2020			December 31, 2019
	(in thousands)
Operating leases:
ROU assets	$	33,450		$	36,396

Operating lease liabilities	$	10,132		$	9,652
Operating lease liabilities, net of current portion	30,800			33,716
Total operating lease liabilities	$	40,932		$	43,368

Finance leases:
Property and equipment	$	2,836		$	3,480
Accumulated depreciation	(1,395		)	(1,823		)
Property and equipment, net	$	1,441		$	1,657

Other current liabilities	$	875		$	952
Other long-term liabilities	510			671
Total finance lease liabilities	$	1,385		$	1,623

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



	For the Three Months Ended March 31,
	2020		2019
Weighted-average remaining lease term (in years):
Operating lease	5.9		5.3
Finance lease	1.6		2.5
Weighted-average discount rate:
Operating lease	6.4	%	6.5	%
Finance lease	7.8	%	8.3	%

Maturities of ~~approximately $21.8 million from the sale~~lease liabilities were as follows as 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~~March 31, 2020:



	Operating Leases			Operating Sublease			Finance Leases			Total

	(in thousands)
Remainder of 2020	$	9,361		$	(2,717	)	$	771		$	7,415
2021	11,922			(2,631		)	633			9,924
2022	8,478			(2,538		)	64			6,004
2023	3,555			(623		)	—			2,932
2024	2,619			—			—			2,619
Thereafter	13,634			—			—			13,634
Total lease payments	49,569			(8,509		)	1,468			42,528
Less: interest	(8,601		)	—			(83		)	(8,684		)
Less: tenant improvement reimbursements⁽¹⁾	(36		)	—			—			(36		)
Total	$	40,932		$	(8,509	)	$	1,385		$	33,808

⁽¹⁾Relates to tenant improvement reimbursements incurred by the Company ~~elects, subject to certain conditions, to settle the Warrants in cash.~~

~~The amounts paid and~~after lease commencement, but not received ~~for the Note Hedges and the Warrants have been recorded in additional paid-in capital. The fair value~~from landlord as of ~~the Note Hedges and the Warrants are not remeasured through earnings each reporting period.~~

~~Note 5 — Commitments and Contingencies~~

~~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 30, 2017, the Company has accrued a $1.5 million reserve relating to our potential liability for currently pending disputes, reflected in ~~Accrued Expenses~~ ~~in the accompanying condensed 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 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, the plaintiffs have not yet filed a motion to certify the state law breach of contract and unjust enrichment claims as a class action. The Company will continue to vigorously defend itself against these claims.March 31, 2020.

Note 6 — ~~Share Repurchase Program 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.Revenue Recognition

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

Revenue by Performance Obligation



	For the Three Months Ended March 31,
	2020		2019

	(in thousands)
Selling services	$	49,173	$	55,128
Professional services	941		383
Total revenue	$	50,114	$	55,511

Revenue by Geography

Revenue for each geography generally reflects commissions earned from sales of service contracts managed from revenue delivery centers in that geography and subscription sales and professional services to deploy the Company's solutions. Predominantly all the service contracts sold and managed by the revenue delivery centers relate to end customers located in the same geography. All NALA revenue represents revenue generated within the U.S.



	For the Three Months Ended March 31,
	2020		2019

	(in thousands)
NALA	$	28,473	$	33,201
EMEA	14,007		13,636
APJ	7,634		8,674
Total revenue	$	50,114	$	55,511

Revenue by Contract Pricing



	For the Three Months Ended March 31,
	2020		2019

	(in thousands)
Variable consideration	$	36,366	$	35,782
Fixed consideration	13,748		19,729
Total revenue	$	50,114	$	55,511

Contract Balances

As of March 31, 2020 and December 31, 2019, the contract asset balances totaled $0.02 million and $0.03 million, respectively, and the contract liability balances totaled $0.7 million and $0.8 million, respectively.

Transaction Price Allocated to Remaining Performance Obligations

Assuming none of the Company’s current contracts with fixed consideration are renewed, we estimate receiving approximately $36.1 million in future selling services fixed consideration as of March 31, 2020. As of March 31, 2020, we estimate $1.0 million in professional services fixed consideration revenue to be recognized through the remainder of 2020.

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 recorded $0.2 million and $0.3 million in amortization expense related to this amount for the three months March 31, 2020 and 2019, respectively.

Detail of contract acquisition costs related to contracts obtained during the period are as follows:



	For the Three Months Ended March 31,
	2020			2019

	(in thousands)
Balance at beginning of period	$	761		$	842
Capitalized costs	(21		)	112
Amortization expense	(61		)	(143		)
Balance at end of period⁽¹⁾	$	679		$	811

⁽¹⁾ The weighted-average remaining amortization period related to these costs was approximately 2.2 years and 1.8 years for the three months March 31, 2020 and 2019, respectively.

Impairment recognized on contract costs was insignificant for the three months ended March 31, 2020 and 2019.

Note 7 — Stock-Based Compensation

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 March 31,
	2020		2019

	(in thousands)
Cost of revenue	$	45	$	159
Sales and marketing	377		443
Research and development	18		(6		)
General and administrative	605		974
Total stock-based compensation	$	1,045	$	1,570

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~~that was immaterial for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively,~~2019.

Stock Awards

A summary of the Company's stock option activity and ~~$0.4 million for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Equity Incentive Plan~~

~~Option and restricted stock activity under the 2011 Equity Incentive Plan for the nine months ended September 30, 2017~~related information was as ~~follows (shares in thousands):~~follows:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Intrinsic Value
	(in thousands)					(in thousands)
Outstanding as of December 31, 2019	4,146		$	2.16		$	1,580
Granted	20		$	1.32
Expired and/or forfeited	(77	)	$	3.51
Outstanding as of March 31, 2020	4,089		$	2.13	7.80	$	—
Exercisable as of March 31, 2020	2,072		$	3.01	6.80	$	—

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~~weighted-average fair value of ~~employee stock~~ options granted during the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 was ~~$1.74~~$0.63 and ~~$2.30 per share, respectively, and $1.90 and $2.03 per share for the nine months ended September 30, 2017 and 2016,~~$0.53, respectively. ~~The unamortized grant date fair value~~As of ~~both~~March 31, 2020, there was $1.2 million of unrecognized compensation expense related to stock options granted under the 2011 Plan, which is expected to be recognized over a weighted-average period of 2.3 years.

A summary of the Company's RSU and ~~restricted stock awards totaled $18.0~~PSU activity and related information was as follows:



	Units		Weighted-Average Grant Date Fair Value
	(in thousands)
Non-vested as of December 31, 2019	5,305		$	1.88
Granted	185		$	1.31
Vested	(178	)	$	3.27
Forfeited	(322	)	$	1.95
Non-vested as of March 31, 2020	4,990		$	1.80

As of March 31, 2020, there was $6.6 million ~~at September 30, 2017.~~of unrecognized compensation expense related to RSUs and PSUs granted under the 2011 Plan, which is expected to be recognized over a weighted-average period of 2.2 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 restricted stock~~unvested RSUs and shares to be purchased under our ~~Employee Stock Purchase Plan having an anti-dilutive effect of 7.0 million and 4.6 million shares for~~ESPP. The Company excluded from diluted earnings per share the

~~three months ended September 30, 2017 and 2016, respectively, and 5.8~~ weighted-average common share equivalents related to 4.2 million and 10.4 million shares for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, respectively, because their effect would have been anti-dilutive.

Note 8 — Restructuring and Other Related Costs

The Company has undergone restructuring efforts to better align its cost structure with its business and market conditions. These restructuring efforts include severance and other employee costs, lease and other contract termination costs and asset impairments. Severance and other employee costs include severance payments, related employee benefits, stock-based compensation related to the accelerated vesting of certain equity awards 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 restructuring plans and future cash outlays are recorded in "Accrued expenses", "Accrued compensation and benefits" and "Other long-term liabilities" in our Consolidated Balance Sheetsas of March 31, 2020 and December 31, 2019.

During 2019, the Company announced a restructuring effort resulting in a reduction of headcount and office lease costs. The Company recognized charges related to this restructuring effort of $0.5 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively, and expects to incur additional costs through 2020.

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



	Severance and Other Employee Costs			Lease Termination Costs			Total
	(in thousands)
Balance as of January 1, 2019	$	—		$	—		$	—
Restructuring and other related costs	1,806			123			1,929
Cash paid	(1,624		)	(123		)	(1,747		)
Balance as of December 31, 2019	182			—			182
Restructuring and other related costs	467			—			467
Cash paid	(503		)	—			(503		)
Change in estimates and non-cash charges	(19		)	—			(19		)
Balance as of March 31, 2020	$	127		$	—		$	127

In May 2017, the Company announced a restructuring effort resulting in a headcount reduction and ~~2016, respectively.~~the reduction of office space in 4 locations. The Company does not expect to incur additional restructuring charges related to the May 2017 restructuring as of March 31, 2020.

The following table presents a reconciliation of the beginning and ending fair value liability balance related to the May 2017 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
Cash paid	—			(183		)	—			(183		)
Change in estimates and non-cash charges	—			(63		)	—			(63		)
Balance as of December 31, 2019	—			716			—			716
Cash paid	—			(44		)	—			(44		)
Change in estimates and non-cash charges	—			(17		)	—			(17		)
Balance as of March 31, 2020	$	—		$	655		$	—		$	655

Note 79 — 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 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~~2012 through ~~2017~~2020 generally remain subject to examination by federal, state and foreign tax authorities.

The gross amount of the Company’s unrecognized tax benefits was ~~$0.9~~$1.0 million as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, 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 months ended March 31, 2020 and 2019, interest and penalties recognized were insignificant.

Note 810 — ~~Restructuring~~Commitments and ~~Other~~Contingencies

Letters of Credit

In ~~early May 2017,~~connection with 2 of our leased facilities, the Company ~~announced a restructuring effort~~is required to ~~better align its cost structure with current business and~~maintain 2 letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market ~~conditions, including a headcount reduction and the reduction of office space~~accounts, which are classified as restricted cash in ~~four locations. The restructuring plan is accounted for~~"Other assets" in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company recognized restructuring and other charges of $0.5 million and $6.3 million during the three and nine months ended September 30, 2017, respectively. Severance and other employee costs include stock 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 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 related to these restructuring activities are expected to total $1.3 million. These amounts are reflected in ~~Accounts payable, Accrued compensation and benefits~~ ~~and~~ ~~Accrued expenses~~ ~~as of September 30, 2017.~~

~~Restructuring and other liability activities for the period ended September 30, 2017 is summarized as follows (in thousands):~~

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
our Consolidated Balance Sheets.

Non-cancelable Service Contract Commitments

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



	March 31, 2020
	(in thousands)
Remainder of 2020	$	6,539
2021	10,057
2022	9,017
2023	7,446
2024	821
Thereafter	—
Total	$	33,880

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”)~~&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,” "target," "forecast", “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely 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”).~~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~~otherwise, except as ~~numbers in this MD&A are in millions unless otherwise noted.~~required by applicable law.

~~OVERVIEW~~Overview

ServiceSource is a leading provider of BPaaS solutions that enable the transformation of go-to-market organizations and functions for global technology clients. We design, deploy, and operate a suite of innovative solutions and complex processes that support and augment our clients’ B2B customer acquisition, engagement, expansion and retention activities. Our clients - ranging from Fortune 500 technology titans to high-growth disruptors and innovators - rely on our holistic customer engagement methodology and process excellence, global scale and delivery footprint, and data analytics and business insights to deliver trusted business outcomes that have a meaningful and material positive impact to their long-term revenue and profitability objectives. Through our unique integration of people, process and technology - leveraged against our 20 years of experience and domain expertise in the cloud, software, hardware, medical device and diagnostic equipment, and industrial IoT sectors - we effect and transact billions of dollars of B2B commerce in more than 175 countries on our clients’ behalf annually.

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

For a ~~global leader~~summary of commonly used industry terms and abbreviations used 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~~this report, see Glossary of ~~our clients—some~~Terms located at the end of the world’s leading business-to-business companies—in more than 35 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 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our clients’ in-house customer success teams.this report.

~~Basis~~Impact of ~~Presentation~~the COVID-19 Pandemic

With the global outbreak of COVID-19 and the declaration of a pandemic by the World Health Organization on March 11, 2020, we created a dedicated crisis team to proactively implement our business continuity plans. By March 19, 2020, more than 95% of our employees had moved from in-office to a work-from-home environment and as of April 1, 2020, we transitioned to 100% virtual operating model, which includes virtual sourcing, hiring, and onboarding for new employees as well as a process for driving performance and culture in a virtual environment. As a result of the implementation of these business continuity measures, we have not experienced material disruptions in our operations.

We believe we have sufficient liquidity on hand to continue business operations during this volatile period. As of March 31, 2020, we had total available liquidity of $49.5 million consisting of cash on hand and our revolving credit facility. See "Liquidity and Capital Resources" for additional information.

Although there was no material adverse impact on our first quarter 2020 results of operations, the full impact of the pandemic remains to be seen. By way of example, we have seen some instances of delays in responsiveness from our clients’ customers and end users on making purchasing or renewal decisions, but on the other hand, we have seen some clients experience heightened levels of demand for their products and services. The situation surrounding COVID-19 remains fluid and the potential for an impact on our financial condition and results of operations increases the longer the virus impacts the level of economic activity in the U.S. and globally. See Part II, Item 1A - “Risk Factors.”

Key Financial Results for the Three Months Ended March 31, 2020

GAAP revenue was $50.1 million compared with $55.5 million reported for the same period in 2019.

GAAP net loss was $5.9 million or $0.06 per diluted share, compared with GAAP net loss of $5.7 million or $0.06 per diluted share reported for the same period in 2019.

Adjusted EBITDA was $0.1 million compared with $1.0 million reported for the same period in 2019. See “Non-GAAP Financial Measurements” below for a reconciliation of Adjusted EBITDA from net loss.

Ended the quarter with $49.5 million of cash and cash equivalents and restricted cash and $27.0 million of borrowings under the Company’s $40.0 million Revolver.

Results of Operations

For the Three Months Ended March 31, 2020 Compared to the Same Period Ended March 31, 2019

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 expense includes salary, bonus, benefits~~



	For the Three Months Ended March 31,
	2020				2019
	Amount		% of Net Revenue		Amount		% of Net Revenue		$ Change			% Change
	(in thousands)				(in thousands)				(in thousands)
Net revenue	$	50,114	100	%	$	55,511	100	%	$	(5,397	)	(10	)%
Cost of revenue	35,560		71	%	39,476		71	%	(3,916		)	(10	)%
Gross profit	$	14,554	29	%	$	16,035	29	%	$	(1,481	)	(9	)%

Net revenue decreased $5.4 million, or 10%, for the three months ended March 31, 2020 compared to the same period in 2019, primarily due to client churn and ~~stock-based compensation~~lower bookings.

Cost of revenue decreased $3.9 million, or 10%, for our dedicated service sales teams. Our allocated overhead includes costs for facilities, 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 personnelthe three months ended March 31, 2020 compared to the same period in ~~our facilities departments. Our allocated costs for information technology include~~2019, primarily due to the following:

$3.1 million decrease in employee related costs associated with ~~third-party data centers where we maintain our data servers, compensation of our~~a reduction in headcount, lower revenue attainment and lower travel and entertainment expenditures;

$0.9 million decrease in facility related costs primarily related to subleases and a decrease in headcount; and

$0.3 million decrease in information technology ~~personnel~~costs; partially offset by

$0.3 million increase in depreciation 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.amortization expense.

Operating Expenses



	For the Three Months Ended March 31,
	2020				2019
	Amount		% of Net Revenue		Amount		% of Net Revenue		$ Change			% Change
	(in thousands)				(in thousands)				(in thousands)
Operating expenses:
Sales and marketing	$	7,268	15	%	$	7,949	14	%	$	(681	)	(9	)%
Research and development	1,181		2	%	1,263		2	%	(82		)	(6	)%
General and administrative	10,688		21	%	10,982		20	%	(294		)	(3	)%
Restructuring and other related costs	467		1	%	1,058		2	%	(591		)	(56	)%
Total operating expenses	$	19,604	39	%	$	21,252	38	%	$	(1,648	)	(8	)%

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 our solutions through our global sales organization, which is organized across~~

Sales and marketing expenses decreased $0.7 million, or 9%, for the three ~~geographic regions: NALA, EMEA~~months ended March 31, 2020 compared to the same period in 2019, primarily due to a decrease in employee related costs associated with lower revenue attainment and ~~APJ. Our commission plans provide that payment of commissions to our sales representatives is contingent on their continued employment,~~lower travel and we recognize expense over 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.entertainment expenditures.

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~~expense.

Research and development ~~efforts on developing new products and applications related to our technology platform. We capitalize certain expenditures related~~expenses decreased $0.1 million, or 6%, for the three months ended March 31, 2020 compared to the ~~development and enhancement of internal-use software~~same period in 2019, primarily due to a decrease in facility related ~~to our technology platform.~~costs.

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 expenses decreased $0.3 million, or 3%, for the three months ended March 31, 2020 compared to the same period in 2019, primarily due to the following:

$0.4 million decrease in employee related costs primarily due to lower travel and entertainment expenditures and recruiting costs;

$0.2 million decrease in depreciation and amortization expense; and

$0.1 million decrease in professional fees; partially offset by

$0.3 million increase in information technology support and facility costs.

Restructuring and ~~Other.~~Other Related Costs

Restructuring and other ~~expenses~~related costs consist primarily of employees’ severance payments and related employee benefits, ~~stock compensation related to the accelerated vesting of certain equity awards,~~ related legal fees ~~asset impairment charges~~ and charges related to ~~leases~~lease termination costs.

Restructuring and other ~~contract termination~~related costs decreased $0.6 million, or 56% for the three months ended March 31, 2020 compared to the same period in 2019, due to decreased costs incurred related to the 2019 restructuring effort resulting in a reduction of headcount and office lease costs.

Interest ~~Expense~~ and Other Expense, Net

Interest and ~~Gain (Loss) on Cost Basis Equity Investment~~

~~Interest expense.~~ ~~Interest~~other expense, net consists of interest expense associated with our ~~convertible debt,~~Revolver, imputed interest from ~~capital~~finance lease payments, accretion of 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, amortization of debt issuance costs and ~~marketable securities investments. We expect other income to vary depending on the movement in foreign currency exchange rates and the related impact on our~~ foreign exchange ~~gain (loss)~~gains and ~~the return of interest on our investments.~~

~~Gain (loss) on cost basis equity investment.~~ In 2013, we made an equity investment in a private company for $4.5 million, which represented less than 5% of the outstanding equity of that company. 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. During the quarter ended September 30, 2017, we sold this investment for $2.1 million in cash and recorded the proceeds as a gain.

~~Income Tax Provision (Benefit)~~

We account for income taxes using an asset and liability method, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our taxable subsidiaries’ assets and liabilities using the enacted tax rates in effect for 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, for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax returns. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made. The reserves 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 that are considered appropriate.

~~Results of Operations~~

~~The following table sets forth our operating results as a percentage of net revenue:~~losses.

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 )%



	For the Three Months Ended March 31,
	2020					2019
	Amount			% of Net Revenue		Amount			% of Net Revenue		$ Change			% Change
	(in thousands)					(in thousands)					(in thousands)
Interest expense	$	(81	)	—	%	$	(92	)	—	%	$	11		(12	)%
Other expense, net	$	(793	)	(2	)%	$	(398	)	(1	)%	$	(395	)	99	%

~~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~~Interest expense decreased ~~$4.4 million, or 7%~~12%, 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 was not offset by production related to expansions and new business 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%,~~three months ended March 31, 2020 compared to the same period in ~~2016 which is consistent with the decrease in revenue.~~2019.

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 recruitmentOther 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~~net increased $0.4 million for the three months ended ~~September 30, 2017~~March 31, 2020 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~~same period 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,~~2019, primarily due to foreign currency fluctuations.

~~Interest~~Provision for Income Tax Expense



	For the Three Months Ended March 31,
	2020					2019
	Amount			% of Net Revenue		Amount			% of Net Revenue		$ Change			% Change
	(in thousands)					(in thousands)					(in thousands)
Provision for income tax expense	$	(18	)	—	%	$	(12	)	—	%	$	(6	)	50	%

Provision for income tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax expense increased ~~by $0.5 million, or 6%, in~~for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 compared to the ~~nine months ended September 30, 2016 and was~~same period in 2019, due to ~~the increased accretion of debt discount under the effective interest method related to the convertible notes issued~~an increase 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~~in 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.~~activities. We believe our existing cash and cash equivalents and ~~short-term investments~~available funds from the Revolver will be sufficient to meet our working capital and capital expenditure needs ~~for at least~~over the next twelve months.

~~In August 2013,~~As of March 31, 2020, we ~~issued $150~~had cash and cash equivalents of $47.2 million, ~~aggregate principal amount~~which primarily consisted of ~~1.50% convertible notes due August 1,~~demand deposits and money market mutual funds. Included in cash and cash equivalents was $6.0 million held by our foreign subsidiaries used to satisfy their operating requirements. We consider the 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 March 31, 2020, the Company had no unremitted earnings from our foreign subsidiaries.

During July 2018, ~~(the “Notes”) and concurrently~~the Company entered into ~~convertible notes hedges~~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 ~~separate warrant transactions. The Notes will mature~~bears interest at a variable rate per annum based on ~~August 1, 2018, unless converted earlier. Upon conversion,~~ the ~~Notes will be settled~~greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in ~~cash, shares~~each case, a margin of ~~our stock,~~1.00% for base rate borrowings or ~~any combination thereof, at our option. We received proceeds of $145.1 million~~2.00% for Eurodollar borrowings. Proceeds from the ~~issuance~~Revolver are used for working capital and general corporate purposes.

As of March 31, 2020, we had $27.0 million of borrowings outstanding under the Revolver through a six-month Eurodollar borrowing at an effective interest rate of 3.07% maturing September 2020 and an additional $2.3 million available for borrowing under the Revolver. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if our borrowing base decreases below our current amount outstanding during the term of the ~~convertible notes, net of associated fees, received $21.8 million~~Eurodollar borrowing. Proceeds from the ~~issuance~~Revolver are used for working capital and general corporate purposes. Obligations under the credit agreement are secured by substantially all assets of the ~~warrants~~borrowers and ~~paid $31.4 million for~~certain of their subsidiaries, including pledges of equity in certain of the ~~note hedges.~~Company's subsidiaries. The ~~Notes were not subject to conversion or repurchase at September 30, 2017~~Revolver has covenants with which we are in compliance as of March 31, 2020 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.~~December 31, 2019.

~~Letter~~

Letters of Credit and Restricted Cash

In connection with ~~one~~two of our leased facilities, the Company is required to maintain ~~a $1.2 million letter of credit. The letter~~two letters of credit istotaling $2.3 million. The letters of credit are secured by ~~$1.2~~$2.3 million of acash in money market ~~account~~accounts, which isare classified as ~~Other assets, net~~restricted cash in "Other assets" in our ~~condensed consolidated balance sheet as of September 30, 2017.~~Consolidated Balance Sheets.

~~Summary~~ Cash Flows

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

flows:


	Nine Months Ended September 30,						For the Three Months Ended March 31,
	2017			2016			2020			2019
Net cash provided by operating activities	$	6,516		$	9,706

							(in thousands)
Net cash (used in) provided by operating activities							$	(5,669	)	$	2,084
Net cash used in investing activities	(13,707		)	(23,887		)	(1,557		)	(2,898		)
Net cash provided by (used in) financing activities	275			(4,777		)	26,838			(49		)
Net decrease in cash and cash equivalents, net of impact of exchange rate changes on cash	(8,107		)	(20,639		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash							480			185
Net change in cash and cash equivalents and restricted cash							$	20,092		$	(678	)

Depreciation and amortization expense were comprised of the following:



	For the Three Months Ended March 31,
	2020		2019

	(in thousands)
Internally developed software amortization	$	1,765	$	1,259
Property and equipment depreciation	1,631		2,026
Total depreciation and amortization	$	3,396	$	3,285

Operating Activities

Net cash ~~provided by~~used in operating activities ~~was $6.5~~increased $7.8 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2017. Net loss during~~March 31, 2020 compared to 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 operationsthree months ended March 31, 2019, primarily as a result of decreased cash collections from customers during the ~~changes in our working capital include~~current period compared to the prior period, higher cash payments made during the current period compared to the prior period related to operating costs previously accrued for and a ~~$12.3 million~~ decrease in ~~accounts receivable, net. Uses~~Adjusted EBITDA.

Investing Activities

Net cash used in investing activities decreased $1.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily as a result of a decrease in cash ~~were~~outflows 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 compensationthe acquisition of property and ~~benefits and a $1.4 million decrease in other liabilities.~~equipment during the three months ended March 31, 2020.

Financing Activities

Net cash provided by ~~operating~~financing activities ~~was $9.7~~increased $26.9 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2016. Net loss during~~March 31, 2020 compared to 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 operationsthree months ended March 31, 2019, primarily as a result of $27.0 million in cash inflow due to borrowing on 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~~Revolver during the ~~nine~~three 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.March 31, 2020.

Off-Balance Sheet Arrangements

~~We do~~As of March 31, 2020, we did 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-balanceoff 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.~~arrangements.

Critical Accounting Policies and Estimates

~~Management has determined that our most critical~~The preparation of financial statements in conformity with 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~~2019. These policies were followed in preparing the Consolidated Financial Statements for the three months ended March 31, 2020 and are consistent with the ~~SEC on March 6, 2017.~~year ended December 31, 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 financial statements in Item 1 under the heading, “Recent Accounting Pronouncements,” is incorporated by reference into this Item 2.~~Consolidated Financial Statements.

Non-GAAP Financial Measurements

ServiceSource believes net income (loss), as defined by GAAP, is the most appropriate financial 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 understanding and assessing our operating performance on a consistent basis, as it removes the 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 expense (benefit), interest and other expense (income), net and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus stock-based compensation, restructuring and other related costs, amortization of contract acquisition costs related to the initial adoption of ASC 606 and incremental and non-recurring costs incurred outside of normal operations as a result of COVID-19.

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 March 31,
	2020			2019

	(in thousands)
Net loss	$	(5,942	)	$	(5,719	)
Provision for income tax expense	18			12
Interest and other expense, net	874			490
Depreciation and amortization	3,396			3,285
EBITDA	(1,654		)	(1,932		)
Stock-based compensation	1,045			1,570
Restructuring and other related costs	467			1,058
Amortization of contract acquisition asset costs - ASC 606 initial adoption	218			257
COVID-19 related costs	62			—
Adjusted EBITDA	$	138		$	953

Item 3.Quantitative and Qualitative Disclosures About Market Risk

~~We believe that there have been no significant changes in our market risk exposures for~~Not applicable to smaller reporting companies as defined by Rule 12b-2 of the ~~nine months ended September 30, 2017, as compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.~~Exchange Act.

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~~CEO and ~~principal financial officer,~~CFO, 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”)~~ of the end of the period covered by this ~~report (the “Evaluation Date”).~~report.

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~~CEO and ~~chief financial officer~~CFO concluded that our disclosure controls and procedures are designed to, and are effective to, provide ~~assurance~~ at a reasonable assurance 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~~CEO and ~~chief financial officer,~~CFO, 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 510 - "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

AFor 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. There~~10-K for the year ended December 31, 2019. Except as provided below, there have been no material changes to the risk factors as disclosed in our annual report on Form 10-K for the year ended December 31, 2019.

Our revenue will decline if there is a decrease in the ~~nature~~overall demand for our clients’ products and services, which is likely to be exacerbated by the COVID-19 outbreak.

A majority of our revenue is based on a pay-for-performance model, which means that we are paid a commission based on the service contracts we sell on behalf of our clients. If a client’s products or services fail to appeal to its end customers, our revenue will decline for our work with that client. In addition, if end customer demand decreases for other reasons, such as negative news regarding our clients or their products, unfavorable economic conditions, shifts in strategy by our clients away from promoting the service contracts we sell in favor of selling their other products or services to their end customers, or if end customers experience financial constraints and terminate or fail to renew the service contracts we sell, we may experience a decrease in our revenue as the demand for our clients’ service contracts declines. Similarly, if our clients come under economic pressure, they may be more likely to terminate their contracts with us or seek to restructure those contracts, and for clients whose contracts are up for renewal, they may seek to renew those contracts on less favorable terms or choose not to renew at all. The COVID-19 pandemic and resulting economic pressure and purchasing constraints will likely cause a decrease in the overall demand for our clients’ products and services, and may result in a decrease in our revenue. If one or more of our clients is under economic pressure due to decreasing customer demand, negative news, or other issues that impact the demand for their product or services, our business could suffer, and we may experience a significant decrease in our revenue.

The COVID-19 pandemic may have material adverse effect on our business, financial position, results of operations and/or cash flows.

We face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. In recent weeks, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. If significant portions of our workforce are unable to work effectively, including because of illness, lack of available internet capacity, or other restrictions in connection with the COVID-19 pandemic, our operations will likely be impacted. Our costs may increase as a result of the COVID-19 outbreak, and these ~~factors since December 31, 2016.~~costs may not be fully recoverable or adequately covered by insurance. Importantly, the demand for our clients' products may decrease as a result of the global economic slowdown, which would result in a decrease in our revenue.

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

10.1*		Non-employee Director Deferred Compensation Plan

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~~101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 and (v) the Notes to Condensed Consolidated Financial Statements.Data File, formatted in Inline XBRL (included in Exhibit 101)

* ~~Furnished~~Filed or furnished herewith.

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:



Abbreviations or acronyms	Definition
2011 Plan	2011 Equity Incentive Plan
APJ	Asia Pacific-Japan
ASC 606	Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
ASC 740	Accounting Standards Codification Topic 740, Income Taxes
ASC 842	Accounting Standards Codification Topic 842, Leases
ASU	Accounting Standards Update
B2B	Business-to-business
BPaaS	Business Process-as-a-Service
CEO	Chief Executive Officer
CFO	Chief Financial Officer
COVID-19	Coronavirus disease 2019
EMEA	Europe, Middle East and Africa
ESPP	2011 Employee Stock Purchase Plan
FASB	Financial Accounting Standards Board
GAAP	United States Generally Accepted Accounting Principles
IoT	Internet of things
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NALA	North America and Latin America
PSU	Performance-based restricted stock unit
Revolver	Senior secured revolving line of credit
ROU	Right-of-use
RSU	Restricted stock unit
SEC	Securities and Exchange Commission
U.S.	United States

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~~May 7, 2020	By:	/s/ ~~ROBERT N. PINKERTON~~RICHARD G. WALKER
			~~Robert N. Pinkerton~~Richard G. Walker Chief Financial Officer and Director (Principal Financial and Accounting Officer)

2527



	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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net revenue	$	58,132		$	62,514		$	173,103		$	184,233
Cost of revenue	40,803			40,789			121,729			122,568
Gross profit	17,329			21,725			51,374			61,665
Operating expenses:
Sales and marketing	7,829			8,847			24,790			30,626
Research and development	1,048			1,952			4,534			6,132
General and administrative	12,543			14,638			40,029			38,233
Restructuring and other	545			—			6,259			—
Total operating expenses	21,965			25,437			75,612			74,991
Loss from operations	(4,636		)	(3,712		)	(24,238		)	(13,326		)
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		)
Loss before income taxes	(5,375		)	(8,303		)	(29,693		)	(21,125		)
Income tax (benefit) provision	(180		)	968			227			2,505
Net loss	$	(5,195	)	$	(9,271	)	$	(29,920	)	$	(23,630	)
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



	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



	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



	Amortized Cost		Estimated Fair Value
Less than 1 year	$	12,303	$	12,302
Due in 1 to 3 years	128,520		127,957
Total	$	140,823	$	140,259



	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



	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	)%