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~~


☒	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~~

March 31, 2022


☐	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~~its charter)


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

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


	(720) 889-8500
~~717 17~~^th ~~St., 5~~^th ~~Floor~~ ~~Denver, CO~~ (Registrant’s telephone number, including area code)

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

	~~80202~~
~~(Address~~ Title of ~~Principal Executive Offices)~~each class	~~(Zip Code)~~	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 Par Value		SREV	The Nasdaq Stock Market LLC

~~(720) 889-8500~~

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

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.

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 May 5, 2022, 99,938,408 shares ~~outstanding of each of the issuer’s classes~~ of common stock as of ~~the latest practical date:~~ServiceSource International, Inc. were outstanding.

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TABLE OF CONTENTS



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

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~Form 10-Q~~

~~INDEX~~



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

Item 1. Financial Statements (unaudited)		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 Stockholders’ Equity		6
Consolidated Statements of Cash Flows ~~for the nine months ended September 30, 2017 and 2016~~	6	7
Notes to ~~Unaudited Condensed~~ Consolidated Financial Statements	7	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22	21

Item 4. Controls and Procedures	22	21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	24	22

Item 1A. Risk Factors	24	22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24	27

Item 3. Defaults Upon Senior Securities	24	27

Item 4. Mine Safety Disclosures	24	27

Item 5. Other Information	24	27

Item 6. Exhibits	X	29
Glossary of Terms
~~Signatures~~	25

~~Exhibit Index~~	24 30

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PART I. FINANCIAL INFORMATION



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

Item 1. Financial Statements (unaudited)

ServiceSource International, Inc.

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

Consolidated Balance Sheets

(~~In thousands)~~

~~(Unaudited)~~

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

in thousands, except per share and par value amounts)

(unaudited)


	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	29,518	$	28,507
Accounts receivable, net		37,938		43,571
Prepaid expenses and other		7,858		8,995
Total current assets		75,314		81,073

Property and equipment, net		15,898		18,721
ROU assets		23,110		23,043
Contract acquisition costs		497		558
Goodwill		6,334		6,334
Other assets		2,717		2,719
Total assets	$	123,870	$	132,448

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,612	$	832
Accrued expenses		3,299		4,152
Accrued compensation and benefits		13,955		19,999
Revolver		10,000		10,000
Operating lease liabilities		7,740		8,614
Other current liabilities		648		793
Total current liabilities		37,254		44,390

Operating lease liabilities, net of current portion		20,481		19,869
Other long-term liabilities		1,180		1,155
Total liabilities		58,915		65,414

Commitments and contingencies (Note 8)

Stockholders' equity:
Preferred stock, $0.0001 par value; 20,000 shares authorized and NaN issued and outstanding		—		—
Common stock, $0.0001 par value; 1,000,000 shares authorized; 100,059 shares issued and 99,938 shares outstanding as of March 31, 2022; 99,233 shares issued and 99,112 shares outstanding as of December 31, 2021		10		10
Treasury stock		(441)		(441)
Additional paid-in capital		388,213		385,827
Accumulated deficit		(323,710)		(319,328)
Accumulated other comprehensive income		883		966
Total stockholders' equity		64,955		67,034
Total liabilities and stockholders' equity	$	123,870	$	132,448

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

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

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ServiceSource International, Inc.

Consolidated Statements of Operations

(Inin 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

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
Net revenue	$	48,893	$	45,023
Cost of revenue		35,745		34,067
Gross profit		13,148		10,956
Operating expenses:
Sales and marketing		3,996		4,030
Research and development		1,386		1,160
General and administrative		11,321		12,190
Restructuring and other related costs		—		920
Total operating expenses		16,703		18,300
Loss from operations		(3,555)		(7,344)
Interest and other expense, net		(178)		(1,160)
Loss before provision for income taxes		(3,733)		(8,504)
Provision for income tax expense		(649)		(331)
Net loss	$	(4,382)	$	(8,835)
Net loss per common share:
Basic and diluted	$	(0.04)	$	(0.09)
Weighted-average common shares outstanding:
Basic and diluted		99,398		97,234

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

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~

~~(In thousands)~~

~~(Unaudited)~~

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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 )

ServiceSource International, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
Net loss	$	(4,382)	$	(8,835)
Other comprehensive (loss) income:
Foreign currency translation adjustments		(83)		325
Other comprehensive (loss) income:		(83)		325
Comprehensive loss	$	(4,465)	$	(8,510)

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

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~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

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ServiceSource International, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)


											Accumulated
							Additional				Other
	Common Stock			Treasury Shares/Stock			Paid-in		Accumulated-		Comprehensive
	Shares	Amount		Shares	Amount		Capital		Deficit		Income		Total
Balance at January 1, 2022	99,233	$	10	(121)	$	(441)	$	385,827	$	(319,328)	$	966	$	67,034
Net loss	—		—	—		—		—		(4,382)		—		(4,382)
Other comprehensive loss	—		—	—		—		—		—		(83)		(83)
Stock-based compensation	—		—	—		—		2,633		—		—		2,633
Issuance of common stock, RSUs and PSUs	826		—	—		—		—		—		—		—
Net cash paid for payroll taxes on RSU releases	—		—	—		—		(247)		—		—		(247)
Balance at March 31, 2022	100,059	$	10	(121)	$	(441)	$	388,213	$	(323,710)	$	883	$	64,955


											Accumulated
							Additional				Other
	Common Stock			Treasury Shares/Stock			Paid-in		Accumulated-		Comprehensive
	Shares	Amount		Shares	Amount		Capital		Deficit		Income		Total
Balance at January 1, 2021	97,248	$	10	(121)	$	(441)	$	379,696	$	(304,607)	$	618	$	75,276
Net loss	—		—	—		—		—		(8,835)		—		(8,835)
Other comprehensive income	—		—	—		—		—		—		325		325
Stock-based compensation	—		—	—		—		2,486		—		—		2,486
Issuance of common stock, RSUs	73		—	—		—		—		—		—		—
Proceeds from the exercise of stock options and ESPP	149		—	—		—		132		—		—		132
Balance at March 31, 2021	97,470	$	10	(121)	$	(441)	$	382,314	$	(313,442)	$	943	$	69,384

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

~~SERVICESOURCE INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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ServiceSource International, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(4,382)	$	(8,835)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		3,522		3,657
Amortization of contract acquisition costs		90		167
Amortization of ROU assets		2,051		2,391
Stock-based compensation		2,620		2,475
Restructuring and other related costs		—		902
Other		15		265
Net changes in operating assets and liabilities:
Accounts receivable, net		5,557		4,131
Prepaid expenses and other assets		1,088		(2,099)
Contract acquisition costs		(31)		(51)
Accounts payable		808		3,952
Accrued compensation and benefits		(5,913)		(3,673)
Operating lease liabilities		(2,359)		(2,738)
Accrued expenses		(828)		(511)
Other liabilities		(59)		504
Net cash provided by operating activities		2,179		537
Cash flows from investing activities:
Purchases of property and equipment		(741)		(1,019)
Net cash used in investing activities		(741)		(1,019)
Cash flows from financing activities:
Repayment on finance lease obligations		(52)		(161)
Proceeds from Revolver		10,000		—
Repayment of Revolver		(10,000)		—
Proceeds from issuance of common stock		—		132
Payments related to minimum tax withholdings on RSU releases		(247)		—
Net cash used in financing activities		(299)		(29)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(128)		650
Net change in cash and cash equivalents and restricted cash		1,011		139
Cash and cash equivalents and restricted cash, beginning of period		30,801		36,326
Cash and cash equivalents and restricted cash, end of period	$	31,812	$	36,465
Supplemental disclosures of cash flow information:
Cash paid for interest	$	87	$	105
Supplemental disclosures of non-cash activities:
Purchases of property and equipment accrued in accounts payable and accrued expenses	$	2	$	9
ROU assets obtained in exchange for new lease liabilities	$	2,334	$	618

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

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ServiceSource International, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1 — ~~Description~~The Company

ServiceSource is a leading provider of ~~Business~~BPaaS solutions that enable the transformation of go-to-market organizations and ~~Basis~~functions for global technology clients. We design, deploy, and operate a suite of ~~Presentation~~

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 more than 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. ~~(together with~~and its wholly owned subsidiaries, unless the ~~“Company”) is~~context indicates otherwise.

For a ~~global leader in outsourced, performance-based customer success~~summary of commonly used industry terms and revenue growth solutions. Through the Company’s people, processes and technology, the Company finds, converts, grows and retains revenue on behalf of its clients—some of the world’s leading business-to-business companies—in more than 35 languages. The Company’s solutions help its clients strengthen their customer relationships, drive improved customer adoption, expansion 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 quarterly report on Form 10-Q, see the 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 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.

Terms.

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~~2021 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~~2021 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 23, 2022. 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, 2021, 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). ASU 2014-09 is effective for~~Consolidated Financial Statements and the ~~Company for interim~~reported amount of net revenue and ~~annual periods beginning after December 15, 2017.~~

expenses during the reporting period.

The Company ~~continues~~bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. The Company has considered the effects of the COVID-19 pandemic and Russia’s invasion of Ukraine in determining its estimates. However, future events are difficult to ~~assess~~predict and subject to change, especially with the risks and uncertainties related to the impact of the ~~standard,~~COVID-19 pandemic and ~~has not yet determined whether the standard will have a material impact on~~Russia’s invasion of

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Ukraine, which could cause estimates and judgments to require adjustment. Actual results and outcomes may differ from our consolidated financial statements. However, we currently believe the most significant impact is 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 criteria have 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.

We will adopt the 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.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2018. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. The Company continues to assess the impact of the adoption of 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.~~

~~Note 2 — Cash,~~ estimates.

Cash Equivalents and ~~Short-Term Investments~~

Restricted Cash

The Company follows a three-tier fair value hierarchy, which is described in detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Cash equivalents consist of highly liquid ~~fixed-income~~ investments with original maturities of three months or less at the time of purchase ~~including~~and are classified as a Level 1 investment.

Restricted cash consists of cash in money market ~~funds. Short-term investments consist~~accounts that are used to secure letters of ~~readily marketable securities~~credit in connection with 2 of our leased facilities. Restricted cash is recorded within “Prepaid expenses and other” and "Other assets" in the Consolidated Balance Sheets and is classified as a ~~remaining maturity of more than three months from time of purchase.~~Level 1 investment. The Company ~~classifies all~~had restricted cash 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~~$2.3 million as of ~~September 30, 2017~~March 31, 2022 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 a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

~~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 measured at fair value as of September 30, 2017 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 $ 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.

2021.

The Company did not have any other financial instruments or ~~long-term~~ debt measured at fair value as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016.~~

~~Note 4 — Debt~~

~~Senior Convertible Notes~~

2021. There were no transfers between levels during the three months ended March 31, 2022 and 2021.

New Accounting Standards Issued but Not Yet Adopted

Financial Instruments - Credit Losses

In ~~August 2013,~~June 2016, the FASB issued an ASU 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 annual periods and interim periods for those annual periods beginning after December 15, 2022, with early adoption permitted. This standard will apply to the Company’s accounts receivable and contract assets. Based on our current analysis, the Company ~~issued senior convertible notes due 2018 (the “Notes”)~~does not expect the adoption to have a material impact on the Consolidated Financial Statements as credit losses from trade receivables have historically been insignificant. The Company expects to adopt this standard effective January 1, 2023.

Note 3 — Debt

Revolving Line of Credit

In July 2021, ServiceSource, together with its wholly owned subsidiary, ServiceSource Delaware, Inc., entered into the 2021 Credit Agreement, which provides for a $35.0 million revolving line of credit allowing each borrower to borrow against its receivables subject to the terms and conditions set forth in ~~exchange~~the 2021 Credit Agreement. At the Company’s request and subject to customary conditions, the aggregate commitments under the 2021 Credit Agreement may be increased up to an additional $10.0 million, for ~~gross proceeds~~a total maximum commitment amount of ~~$150.0~~$45.0 million. The ~~Notes will mature on August 1, 2018~~Revolver in the 2021 Credit Agreement matures in July 2024 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~~bears interest at a rate ofequal to BSBY plus 2.00% to 2.50% per annum or, at our election, an alternate base rate plus 1.00% to 1.50% per ~~year payable semi-annually~~annum.

As of March 31, 2022, the Company had $10.0 million of borrowings under the Revolver in ~~arrears on February 1 and August 1, beginning February 1, 2014.~~

~~The Notes are convertible~~the 2021 Credit Agreement through a six-month BSBY borrowing at an ~~initial conversion~~effective interest rate of ~~61.6770 shares~~3.04% maturing August 2022. An additional $14.6 million was available for borrowing under the Revolver as of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $16.21 per share of common stock, subject to anti-dilution adjustments upon certain specified events as defined in the Indenture. Upon conversion, the Notes will be settled in cash, shares of the Company’s common stock, or any combination thereof, at the Company’s option.

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

~~during any calendar quarter commencing after December~~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.

2022. The holders of the Notes may require the Company to repurchase all or a portion of their Notes at a cash repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, upon a fundamental change as defined in the Indenture. In addition, upon certain events of default as defined in the Indenture, the trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, on all the Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest on the Notes will automatically become due and payable. The Notes were not subject to conversion or repurchase at September 30, 2017.

~~To account for the Notes at issuance, the Company separated the Notes into debt and equity components pursuant to the accounting standards for convertible debt instruments that~~BSBY 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~~incremental payment if the ~~Notes, excluding~~borrowing base decreases below the ~~conversion feature. The carrying~~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~~BSBY 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 the conditions~~2021 Credit Agreement are secured by substantially all assets of ServiceSource and certain of its subsidiaries, including pledges of equity ~~classification. Upon issuance~~in certain of the ~~$150.0 million of Notes,~~Company’s subsidiaries. The 2021 Credit Agreement has financial covenants that the Company ~~recorded $111.5 million to~~was in compliance with as of March 31, 2022.

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Interest Expense

Unamortized debt ~~and $38.5 million to additional paid-in capital.~~

~~The Company incurred transaction~~issuance costs ~~of approximately $4.9 million~~ related to the 2021 Revolver were $0.1 million as of March 31, 2022 and December 31, 2021.

Interest expense related to the amortization of debt issuance costs and interest expense associated with the Company’s debt obligation was $0.1 million for the three months ended March 31, 2022 and 2021.

Note 4 — Leases

The Company has operating leases for office space and finance leases for certain equipment under non-cancelable agreements with various expiration dates through December 2032. Certain office leases include the option to extend the term between one to seven years and certain office leases include the option to terminate the lease upon written notice within one year after lease commencement. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets.

Supplemental income statement information related to leases was as follows:


	For the Three Months Ended March 31,
	2022		2021

	(in thousands)
Operating lease cost	$	2,458	$	2,941

Finance lease cost:
Amortization of leased assets		53		159
Interest on lease liabilities		1		11
Total finance lease cost		54		170

Sublease income		(887)		(1,098)
Net lease cost	$	1,625	$	2,013

Supplemental balance sheet information related to leases was as follows:


	March 31, 2022		December 31, 2021

	(in thousands)
Operating leases:
ROU assets	$	23,110	$	23,043

Operating lease liabilities	$	7,740	$	8,614
Operating lease liabilities, net of current portion		20,481		19,869
Total operating lease liabilities	$	28,221	$	28,483

Finance leases:
Property and equipment	$	2,852	$	2,861
Accumulated depreciation		(2,442)		(2,397)
Property and equipment, net	$	410	$	464

Other current liabilities	$	11	$	63
Other long-term liabilities		0		0
Total finance lease liabilities	$	11	$	63

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Lease term and discount rate information was as follows:


	For the Three Months Ended March 31,
	2022			2021
Weighted-average remaining lease term (in years):
Operating lease		5.6		5.6
Finance lease		0.2		0.8
Weighted-average discount rate:
Operating lease		5.9	%	6.2	%
Finance lease		6.5	%	6.5	%

Maturities of lease liabilities were as follows as of March 31, 2022:


	Operating Leases		Operating Sublease		Finance Leases		Total

	(in thousands)
Remainder of 2022	$	7,548	$	(2,646)	$	11	$	4,913
2023		5,738		(1,399)		0		4,339
2024		4,376		0		0		4,376
2025		4,016		0		0		4,016
2026		3,300		0		0		3,300
Thereafter		8,398		0		0		8,398
Total lease payments		33,376		(4,045)		11		29,342
Less: interest		(5,155)		0		0		(5,155)
Total⁽¹⁾	$	28,221	$	(4,045)	$	11	$	24,187

(1)

In March 2022 the Company entered into a ten-year lease agreement in Nashville, Tennessee with future undiscounted lease payments, net of tenant improvement reimbursements, totaling $10.1 million. This lease had not yet commenced, and is not included in the lease liabilities, as of March 31, 2022.

Note 5 — 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,
	2022		2021

	(in thousands)
Selling services	$	48,281	$	44,328
Professional services		612		695
Total revenue	$	48,893	$	45,023

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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,
	2022		2021

	(in thousands)
NALA	$	25,325	$	25,334
EMEA		15,776		12,769
APJ		7,792		6,920
Total revenue	$	48,893	$	45,023

Revenue by Contract Pricing


	For the Three Months Ended March 31,
	2022		2021

	(in thousands)
Variable consideration	$	32,321	$	33,211
Fixed consideration		16,572		11,812
Total revenue	$	48,893	$	45,023

Contract Balances

As of March 31, 2022 and December 31, 2021, contract liabilities were $0.4 million and $0.5 million, respectively.

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2022, assuming none of the ~~Notes. In accounting for these costs,~~Company’s current contracts with fixed consideration are renewed, the Company ~~allocated~~estimates receiving approximately $33.8 million in future selling services fixed consideration and approximately $0.4 million in professional services fixed consideration, the majority to be received within one year.

Contract Acquisition Costs

As of March 31, 2022 and December 31, 2021, capitalized contract acquisition costs were $0.5 million and $0.6 million, respectively. The Company recorded amortization expense related to capitalized contract acquisition costs of $0.1 million and $0.2 million for the ~~debt~~three months ended March 31, 2022 and ~~equity components~~2021, respectively.

Note 6 — Stock-Based Compensation

2022 PSU Awards

During March 2022, the Company granted PSUs under the 2020 Plan to certain executives in ~~proportion~~which the number of shares ultimately received depends on the Company’s achievement of 2 performance goals for fiscal year 2022 and a rTSR modifier based on the Company’s rTSR for fiscal years 2022, 2023, and 2024 compared to a peer group. The aggregate target number of shares subject to these awards is 0.8 million. The awards were valued on the ~~allocation~~grant date using a Monte Carlo simulation for the rTSR modifier and using the Company’s closing stock price for the performance metrics for an aggregate grant date fair value of ~~proceeds~~$1.1 million. The number of shares ultimately received related to these awards will range from ~~the issuance~~0% to 173% of the ~~Notes to such components. Transaction costs allocated to~~participant’s target award and will vest on the ~~debt component~~third anniversary of ~~$3.6 million are~~

~~recorded within~~ ~~Convertible notes, net, and amortized to interest~~the grant date. The Company’s expense will be recognized over the ~~term~~service period and adjusted based on estimated achievement of the ~~Notes. The transaction costs allocated to the equity component~~performance goals.

Table of ~~$1.3 million were recorded to additional paid-in capital.~~Contents

~~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

Stock-Based Compensation Expense

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, the Company entered into note hedges (“Note Hedges”) with certain bank counterparties, with respect to its common stock. The Company paid $31.4 million for the Note Hedges. The Note Hedges cover 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, the Company entered into warrant transactions, whereby it sold warrants to the same bank counterparties as the Note Hedges to acquire approximately 9.25 million shares of the Company’s common stock at an initial strike price of $21.02 per share (“Warrants”), subject to anti-dilution adjustments. The Company received proceeds of approximately $21.8 million from the sale of the Warrants. If the fair value per share of the Company’s common stock exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on earnings per share, unless the Company elects, subject to certain conditions, to settle the Warrants in cash.

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

~~Note 5 — Commitments and Contingencies~~

~~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.

~~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.

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

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

Operations:


	For the Three Months Ended March 31,
	2022		2021

	(in thousands)
Cost of revenue	$	138	$	130
Sales and marketing		346		191
Research and development		24		15
General and administrative		2,112		2,139
Total stock-based compensation	$	2,620	$	2,475

The above table does not include ~~$0.1 million of~~ capitalized stock-based compensation related to internal-use software ~~during~~that was insignificant for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016, respectively,~~2021.

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):~~

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

~~The weighted average grant-date fair value~~follows:


					Weighted-
			Weighted-		Average
			Average		Remaining
			Exercise		Contractual
	Shares		Price		Life (Years)		Intrinsic Value
	(in thousands)						(in thousands)
Outstanding as of December 31, 2021		1,876	$	2.18			$	16
Expired and/or forfeited		(17)	$	4.42
Outstanding as of March 31, 2022		1,859	$	2.16		5.91	$	210
Exercisable as of March 31, 2022		1,771	$	2.22		5.84	$	179

As of ~~employee~~March 31, 2022, there was $0.02 million of unrecognized compensation expense related to previously granted stock options, which is expected to be recognized over a weighted-average period of 0.6 years.

A summary of the Company’s RSU and PSU activity and related information was as follows:


			Weighted-
			Average Grant
	Units		Date Fair Value
	(in thousands)
Non-vested as of December 31, 2021		8,231	$	1.49
Granted		2,165	$	1.43
Vested⁽¹⁾		(1,006)	$	1.65
Forfeited		(271)	$	1.46
Non-vested as of March 31, 2022		9,119	$	1.46

(1)

826 shares of common stock were issued for RSUs and PSUs vested and the remaining 180 shares were withheld for taxes.

As of March 31, 2022, there was $6.1 million of unrecognized compensation expense related to previously granted ~~during the three months ended September 30, 2017~~RSUs and ~~2016 was $1.74 and $2.30 per share, respectively, and $1.90 and $2.03 per share for the nine months ended September 30, 2017 and 2016, respectively. The unamortized grant date fair value~~PSUs, which is expected to be recognized over a weighted-average period of ~~both stock options and restricted stock awards totaled $18.0 million at September 30, 2017.~~

1.7 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~~ and ~~shares~~unvested RSUs and PSUs. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to ~~be purchased under our Employee Stock Purchase Plan having an anti-dilutive effect of 7.0~~4.0 million and ~~4.6 million shares for the~~1.2

~~three months ended September 30, 2017 and 2016, respectively, and 5.8 million and 10.4~~

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million shares for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016, respectively.~~

2021, respectively, because their effect would have been anti-dilutive.

Note 7 — 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. and ~~Singapore~~Ireland because those losses are offset by a full valuation allowance. The tax years ~~2010~~2017 through ~~2017~~2021 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, 2022 and December 31, ~~2016, none~~2021, NaN 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, 2022 and 2021 interest and penalties recognized were insignificant.

Note 8 — ~~Restructuring~~Commitments and ~~Other~~

Contingencies

Letters of Credit

In ~~early May 2017,~~connection with 2 of our leased facilities, the Company ~~announced~~is required to maintain 2 letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market accounts, which are classified as restricted cash within “Prepaid expenses and other” and "Other assets" in the Consolidated Balance Sheets.

Non-cancelable Service Contract Commitments

The Company enters into various purchase obligations in the ordinary course of business, generally short-term in nature. Those that are binding primarily relate to non-cancelable service contract commitments. There have not been any significant changes in these commitments since what was disclosed in the last annual report.

Note 9 — Subsequent Event

On May 6, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Concentrix Corporation, a ~~restructuring effort~~Delaware corporation (“Acquirer”), and Concentrix Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Acquirer (“Acquisition Sub”). Pursuant to ~~better align its cost structure~~the Merger Agreement, and subject to the terms and conditions set forth therein, Acquisition Sub will merge with ~~current business~~ and ~~market~~into the Company, which we refer to as the “Merger”, with the Company continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Acquirer.

In the event the Merger is completed, except as otherwise provided in the Merger Agreement, each share of our common stock issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive $1.50 per share in cash, without interest (the “Merger Consideration”).

Consummation of the Merger is subject to customary closing conditions, including, ~~a headcount reduction and~~among other things, the reduction of office space in four locations. The restructuring plan is accounted for 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 structureadoption 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~~ asMerger Agreement by the holders of ~~September 30, 2017.~~a majority of the outstanding shares of our common stock (“Requisite Stockholder Approval”).

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

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

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

The following ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations (“~~MD~~&A”)~~&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, including the risks and uncertainties related to the consummation of the Merger, the impact and duration of the COVID-19 pandemic and fluctuations in general economic conditions including impacts from Russia's invasion of Ukraine, as well as those discussed in the sections of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 23, 2022 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~~required by applicable law.

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 more than 20 years of experience and domain expertise in ~~this MD&A are~~the cloud, software, hardware, medical device and diagnostic equipment, and industrial IoT sectors - we effect and transact billions of dollars of B2B commerce in ~~millions unless otherwise noted.~~

~~OVERVIEW~~

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~~this Form 10-Q, see the Glossary of Terms.

Impact of the COVID-19 Pandemic

On March 11, 2020, we created a dedicated crisis team to proactively implement our business continuity plans in response to COVID-19. By April 1, 2020, we transitioned to a 100% virtual operating model. As a result of this successful work-from-home implementation, we have shifted to a virtual-first operating model whereby our employees primarily work from their home offices and ~~revenue growth solutions. Through~~ our ~~people, processes~~facilities are used for collaboration, innovation, and ~~technology,~~connection. Additionally, this model 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 ~~find, convert, grow~~have not experienced material disruptions in our operations from COVID-19.

We believe we have sufficient liquidity on hand to continue business operations even during periods of volatility such as those experienced since early 2020. As of March 31, 2022, we had total available liquidity of $44.2 million consisting of cash on hand and ~~retain revenue~~borrowing availability under our Revolver. See "Liquidity and Capital Resources" for additional information.

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There was no material adverse impact on ~~behalf~~the results of operations for the three months ended March 31, 2022 as a result of the COVID-19 pandemic. We expect to continue to invest capital to allow our employees to function in our virtual, work-from-home operating model. However, we are benefiting and will continue to benefit from decreases in certain costs related to our facilities and reduced travel and entertainment costs.

The situation surrounding COVID-19 remains fluid and the potential for a negative impact on our financial condition and results of operations increases the longer the virus impacts the economic activity in the U.S. and globally. See “Risk Factors” in Part I, Item 1A of our ~~clients—some~~annual report on Form 10-K for the year ended December 31, 2021 for additional information.

Key Financial Results For the Three Months Ended March 31, 2022

●

GAAP revenue was $48.9 million compared with $45.0 million reported for the same period in 2021.

●

GAAP net loss was $4.4 million or $0.04 per diluted share, compared with GAAP net loss of $8.8 million or $0.09 per diluted share reported for the same period in 2021.

●

Adjusted EBITDA, a non-GAAP financial measure, was $2.6 million compared with negative $0.2 million reported for the same period in 2021. See “Non-GAAP Financial Measurements” below for a reconciliation of Adjusted EBITDA from GAAP net loss.

●

Cash, cash equivalents, and restricted cash of $31.8 million and borrowings under the Revolver of $10.0 million as of March 31, 2022.

Results of Operations

For 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 usThree Months Ended March 31, 2022 Compared to ~~provide our clients greater value for our customer success services than attained by our clients’ in-house customer success teams.~~

~~Basis of Presentation~~

the Same Period Ended March 31, 2021

Net Revenue,

~~Substantially all~~ Cost of ~~our net~~Revenue and Gross Profit

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 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 thesealso generate revenues from selling professional 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 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 and stock-based compensation for our dedicated service sales teams. Our allocated overhead includes costs for facilities, information technology andexpenses which consist of depreciation, ~~including~~ amortization of ~~internal-use~~internally developed software, ~~associated with our service~~facility and technology costs.


	For the Three Months Ended March 31,
	2022					2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Net revenue	$	48,893		100	%	$	45,023		100	%	$	3,870	9	%
Cost of revenue		35,745		73	%		34,067		76	%		1,678	5	%
Gross profit	$	13,148		27	%	$	10,956		24	%	$	2,192	20	%

Net revenue ~~technology platform~~increased $3.9 million, or 9%, for the three months ended March 31, 2022 compared to the same period in 2021, primarily due to increased bookings and ~~cloud applications. Allocated costs for facilities consist~~lower client churn.

Table of rent, maintenance and compensation of personnel in our facilities departments. Our allocated costs for information technology include costs associated with third-party data centers where we maintain our data servers, compensation of our information technology personnel and the cost of support and maintenance contracts associated with computer hardware and software. To the extent our client base or business with our existing client base expands, we may need to hire additional service sales personnel and invest in infrastructure to support such growth. Our costContents

Cost of revenue ~~may fluctuate significantly and increase~~increased $1.7 million, or ~~decrease on an absolute basis and as a percentage of revenue in the near term, including~~5%, for the ~~reasons discussed under, “Factors Affecting Our Performance—Implementation Cycle”~~three months ended March 31, 2022 compared to the same period in ~~our 2016 Annual Report on Form 10-K.~~2021, primarily due to the following:

●

$1.7 million increase in employee related costs primarily due to increased compensation expense associated with an increase in headcount and higher revenue attainment; and

●

$0.5 million increase in amortization expense related to internally developed software; partially offset by

●

$0.5 million decrease in facility costs primarily related to the expiration of various office space leases in connection with transitioning to a virtual-first operating model.

Operating Expenses


	For the Three Months Ended March 31,
	2022					2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Operating expenses:
Sales and marketing	$	3,996		8	%	$	4,030		9	%	$	(34)	(1)	%
Research and development		1,386		3	%		1,160		3	%		226	19	%
General and administrative		11,321		23	%		12,190		27	%		(869)	(7)	%
Restructuring and other related costs		—		—	%		920		2	%		(920)	(100)	%
Total operating expenses	$	16,703		34	%	$	18,300		41	%	$	(1,597)	(9)	%

Sales and ~~Marketing.~~ Marketing

Sales and marketing expenses ~~are a significant component~~primarily consist of ~~our operating costs and consist primarily of~~employee compensation ~~expenses~~expense and sales commissions ~~for~~paid to our sales and marketing ~~staff, allocated expenses and~~employees, amortization of contract acquisition costs, marketing programs and ~~events. We sell our solutions through our global sales organization,~~events, and allocated overhead expenses, which ~~is organized across~~consist of depreciation, amortization of internally developed software, and facility and technology costs.

Sales and marketing expenses remained flat for the three ~~geographic regions: NALA, EMEA and APJ. Our commission plans provide that payment of commissions~~months ended March 31, 2022 compared to ~~our sales representatives is contingent on their continued employment, and we recognize expense over a~~the same 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.

in 2021.

Research and ~~Development.~~ Development

Research and development expenses primarily consist ~~primarily~~ of employee compensation expense, ~~allocated~~third-party consultant costs and ~~the cost~~allocated overhead expenses, which consist of ~~third-party service providers. We focus our research~~amortization of internally developed software, facility and technology costs.

Research and development ~~efforts on developing new products and applications related to our technology platform. We capitalize certain expenditures related~~expenses increased $0.2 million, or 19%, for the three months ended March 31, 2022 compared to the same period in 2021, primarily due to a reduction in third-party capitalizable software development ~~and enhancement of internal-use software related to our technology platform.~~

costs.

General and ~~Administrative.~~ Administrative

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

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General and administrative expenses decreased $0.9 million, or 7%, for the three months ended March 31, 2022 compared to the same period in 2021, primarily due to the following:

●

$0.6 million decrease in employee related costs associated with a reduction in headcount; and

●

$0.6 million decrease in depreciation expense primarily related to the expiration of various office space leases in connection with transitioning to a virtual-first operating model; partially offset by

●

$0.3 million increase in 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 costs.~~

related costs decreased $0.9 million, or 100% for the three months ended March 31, 2022 compared to the same period in 2021, due to completion of the restructuring efforts resulting in a reduction of headcount and office lease costs during the three months ended March 31, 2021. The Company did not incur any charges related to this restructuring effort during the three months ended March 31, 2022 and does not expect to incur additional charges related to this restructuring effort.

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:~~

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

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

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

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

~~Net revenue~~losses.


	For the Three Months Ended March 31,
	2022					2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Interest expense	$	(107)		—	%	$	(158)		—	%	$	51	32	%
Other expense, net	$	(71)		—	%	$	(1,002)		(2)	%	$	931	93	%

Interest expense decreased ~~$4.4~~$0.1 million, or 7%32%, 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, 2022 compared to the same period in ~~2016 which is consistent with~~2021, primarily due to lower borrowings on the ~~decrease in revenue.~~

~~Net revenue~~Revolver.

Other expense, net decreased ~~$11.1~~$0.9 million, or 6%93%, for the ~~nine~~three 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%,~~March 31, 2022 compared to the same period in ~~2016, which is in line with the decrease in revenue.~~

~~Operating Expenses~~

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

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

Restructuring and other 352
—
352
352
—
352

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

~~Sales and marketing expenses~~

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

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

~~Research and development expenses~~

~~The $0.9 million, or 46%, decrease in research and development expense in the third quarter of 2017 compared to the third quarter of 2016 was~~2021, primarily due to ~~a $0.6~~foreign currency fluctuations.

Provision for Income Tax


	For the Three Months Ended March 31,
	2022					2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Provision for income tax expense	$	(649)		(1)	%	$	(331)		(1)	%	$	(318)	(96)	%

Provision for income tax expense increased $0.3 million, ~~decrease in employee related costs associated with decrease in headcount and a $0.2 million decrease in temporary labor and $0.1 million decrease in overhead allocations.~~

~~Internal-use software development capitalization decreased $0.4 million~~or 96%, for the three months ended ~~September 30, 2017~~ March 31, 2022 compared to the ~~three months ended September 30, 2016,~~same period in 2021, primarily due to ~~decreased development efforts related to our Renew OnDemand platform.~~

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

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

~~General and administrative expenses~~

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

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

~~Restructuring and other expenses~~

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

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

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

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

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

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

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

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

~~Income Tax (Benefit) Provision~~

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

*Not considered meaningful.

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

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

Table of ~~2017 by $2.3 million compared to the third quarter of 2016 primarily due to certain state deferred tax assets.~~Contents

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 employee 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~~ will be sufficient to meet our working capital and capital expenditure needs ~~for at least~~over the next twelve months.

We have considered the effects of the COVID-19 pandemic, including customer purchasing and renewal decisions, in our assessment of the sufficiency of our liquidity and capital resources. We will continue to monitor our financial position to the extent that pandemic-related challenges continue.

As of March 31, 2022, we had cash and cash equivalents of $29.5 million, which primarily consist of demand deposits and money market mutual funds. Included in cash and cash equivalents was $6.4 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, 2022, the Company had no unremitted earnings from our foreign subsidiaries.

In ~~August 2013, we issued $150~~July 2021, ServiceSource, together with its wholly owned subsidiary, ServiceSource Delaware, Inc., entered into the 2021 Credit Agreement, which provides for a $35.0 million revolving line of credit allowing each borrower to borrow against its receivables as defined in the 2021 Credit Agreement. At the Company’s request and subject to customary conditions, the aggregate ~~principal~~commitments under the 2021 Credit Agreement may be increased up to an additional $10.0 million, for a total maximum commitment amount of ~~1.50% convertible notes due August 1, 2018 (the “Notes”)~~$45.0 million. The Revolver in the 2021 Credit Agreement matures in July 2024 and concurrently entered into convertible notes hedges and separate warrant transactions. The Notes will mature on August 1, 2018, unless converted earlier. Upon conversion, the Notes will be settled in cash, shares of our stock,bears interest at a rate equal to BSBY plus 2.00% to 2.50% per annum or, ~~any combination thereof,~~ at our ~~option. We received proceeds~~election, an alternate base rate plus 1.00% to 1.50% per annum.

As of ~~$145.1~~March 31, 2022, the Company had $10.0 million of borrowings under the Revolver through a six-month BSBY borrowing at an effective interest rate of 3.04% maturing August 2022. An additional $14.6 million was available for borrowing under the Revolver as of March 31, 2022. The BSBY borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the borrowing base decreases below the current amount outstanding during the term of the BSBY borrowing. Proceeds from the ~~issuance~~Revolver are used for working capital and general corporate purposes.

The obligations under the 2021 Credit Agreement are secured by substantially all the assets of ServiceSource and certain of its subsidiaries, including pledges of equity in certain of the ~~convertible notes, net~~Company’s subsidiaries. The 2021 Credit Agreement has financial covenants, which the Company was in compliance with as of associated fees, received $21.8 million from the issuance of the warrants and paid $31.4 million for the note hedges. The Notes were not subject to conversion or repurchase at September 30, 2017 and are classified as a current liability on our condensed consolidated balance sheet. We believe we will have sufficient cash and liquid short-term investments to repay the Note at maturity.

~~Letter~~March 31, 2022.

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 within “Prepaid expenses and other” and "Other assets" in ~~our condensed consolidated balance sheet as~~the Consolidated Balance Sheets.

Table of ~~September 30, 2017.~~Contents

~~Summary~~

Cash Flows

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

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

flows:


	For the Three Months Ended March 31,
	2022		2021

	(in thousands)
Net cash provided by operating activities	$	2,179	$	537
Net cash used in investing activities		(741)		(1,019)
Net cash used in financing activities		(299)		(29)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(128)		650
Net change in cash and cash equivalents and restricted cash	$	1,011	$	139

Depreciation and amortization expense were comprised of the following:


	For the Three Months Ended March 31,
	2022		2021

	(in thousands)
Internally developed software amortization	$	2,596	$	2,192
Property and equipment depreciation		926		1,465
Total depreciation and amortization	$	3,522	$	3,657

Operating Activities

Net cash provided by operating activities ~~was $6.5~~increased $1.6 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2017. Net loss during~~March 31, 2022 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, 2021, primarily as a result of ~~the changes in~~improved cash collections from our ~~working capital include a $12.3 million decrease in accounts receivable, net. Uses of~~clients and lower cash ~~were~~payments made related to ~~a $2.4 million decrease in deferred revenue, a $0.8 million decrease in accounts payable, a $0.8 million decrease in~~costs previously accrued ~~expenses, $1.0 million decrease in accrued taxes, $4.7 million decrease in accrued compensation and benefits and a $1.4 million decrease in other liabilities.~~

~~Net cash provided by operating activities was $9.7 million~~for during the ~~nine months ended September 30, 2016. Net loss during~~current period 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 operations as a result of the changes in our working capital include a $2.8 million decrease in accounts receivable, net, a $0.4 million increase in accounts payable and a $1.7 million increase in accrued expenses. Uses of cash were related to a $0.8 million decrease in deferred revenue and a $1.5 million decrease in accrued compensation and benefits

prior period.

Investing Activities

~~During the nine months ended September 30, 2017,~~

Net cash used in investing activities ~~was principally related~~decreased $0.3 million for the three months ended March 31, 2022 compared to the ~~proceeds~~three months ended March 31, 2021, due to decreased cash outflows from ~~the sale~~purchases 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~~during the ~~nine months ended September 30, 2016, cash used in investing activities was principally related~~current period compared 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.

prior period.

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~~

Net cash used in financing activities ~~of $4.8~~increased $0.3 million infor the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2022 compared to the three months ended March 31, 2021, 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.~~

due to payments related to minimum tax withholdings on RSU releases.

Off-Balance Sheet Arrangements

~~We do~~

As of March 31, 2022, 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-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~~2021. These policies were followed in preparing the Consolidated Financial Statements for the three months ended March 31, 2022 and are consistent with the ~~SEC on March 6, 2017.~~

year ended December 31, 2021.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 2 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements.

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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, and amortization of contract acquisition costs related to the initial adoption of ASC 606.

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

The ~~information contained in Note 1~~following table presents the reconciliation of "Net loss" to ~~our condensed consolidated financial statements in Item 1 under the heading, “Recent Accounting Pronouncements,” is incorporated by reference into this Item 2.~~

Adjusted EBITDA:


	For the Three Months Ended March 31,
	2022		2021

	(in thousands)
Net loss	$	(4,382)	$	(8,835)
Provision for income tax expense		649		331
Interest and other expense, net		178		1,160
Depreciation and amortization		3,522		3,657
EBITDA		(33)		(3,687)
Stock-based compensation		2,620		2,475
Restructuring and other related costs		—		920
Amortization of contract acquisition asset costs - ASC 606 initial adoption		15		84
Adjusted EBITDA	$	2,602	$	(208)

Item 3.Quantitative and Qualitative Disclosures About Market Risk

~~We believe that there have been no significant changes in our market risk exposures for the nine months ended September 30, 2017,~~

Not applicable to smaller reporting companies as ~~compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.~~

defined by Item 10(f)(1) of Regulation S-K.

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

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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

We continue to monitor the design and operating effectiveness of our internal controls for any effect resulting from the COVID-19 pandemic. 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 5 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.~~

None.

Item 1A.Risk Factors

For 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, Item 1A of our ~~2016 Annual Report~~annual report on Form ~~10-K. There~~10-K for the year ended December 31, 2021. Except as set forth 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, 2021.

Risks Related to Our Business

Global economic, political and social conditions may harm our ability to do business, increase our costs, and negatively affect our stock price.

Worldwide economic conditions remain uncertain due to various global disruptions, including geopolitical events, such as war, the threat of war (including collateral damage from cyberwarfare), or terrorist activity; natural disasters; power shortages or outages; major public health issues, including pandemics; and significant local, national, or global events capturing the attention of a large part of the population, which could prevent or hinder our ability to do business, increase our costs, and negatively affect our stock price. Adverse consequences resulting from the United States and China trade negotiations, Russia’s recent invasion of Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries, and various other market issues may have broader implications on economies outside the region, including increased instability in the ~~nature~~worldwide financial markets and economy, increases in inflation, and enhanced volatility in foreign currency exchange rates. These uncertainties may cause our clients or potential clients to delay or reduce spending, which could negatively impact our revenue and operating results and make it difficult for us to accurately plan future business activities.

Risks Related to the Proposed Merger

The consummation of the Merger is subject to approval of our stockholders as well as the satisfaction of other closing conditions, some or all of which may not be satisfied or waived in a timely manner or at all.

In May 2022, we entered into the Merger Agreement with the Acquirer and Acquisition Sub. Consummation of the Merger is subject to customary closing conditions, including (i) receipt of the Requisite Stockholder Approval, (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration of applicable waiting periods or clearance of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions, (iii) absence of any law or order issued by certain governmental authorities of competent jurisdiction, prohibiting the Merger, and (iv) the absence of a material adverse effect on the Company.

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We intend to pursue the satisfaction or waiver, as applicable, of each condition to the consummation of the Merger, including the receipt of the Requisite Stockholder Approval. However, no assurance can be given that such conditions to the consummation of the Merger will be satisfied or waived in a timely manner, or at all. We also cannot provide any assurance regarding whether the Company will have to comply with any terms or conditions imposed by third parties in order to satisfy or waive the conditions to the consummation of the Merger. Similarly, we cannot provide any assurance that the Acquirer will be able to comply with its obligation to consummate the Merger. Many of the conditions to the consummation of the Merger are not within our control, and we cannot predict if or when these conditions will be satisfied or waived.

The failure to satisfy or obtain waiver of conditions to the consummation of the Merger in a timely manner could delay the consummation of the Merger and exacerbate the risks and uncertainties associated with the announcement and pendency of the Merger, which are discussed below under the headings “The announcement of the Merger Agreement and pendency of the Merger could negatively impact our business, financial condition and results of operations” and “While the Merger remains pending, we will be required to comply with various interim operating covenants that may constrain our business operations and to take certain actions that may divert our management’s focus from our ongoing business.”

In addition, if all of the conditions to the consummation of the Merger are not satisfied or waived, we may be unable to consummate the Merger at all. The risks and uncertainties associated with a failure to consummate the Merger are discussed below under the heading “Failure to consummate the Merger could adversely affect our stock price, business, financial condition and results of operation.”

Future litigation challenging the Merger could prevent the Merger from occurring or adversely affect our business, financial condition or results of operations.

In connection with the announcement of the Merger Agreement, as is common in the context of mergers and acquisitions of publicly-traded companies, the Company (along with its directors and officers) may attract lawsuits seeking to enjoin us from proceeding with or consummating the Merger, or seeking to have the Merger rescinded after its consummation. One of the conditions to the consummation of the Merger is the absence of any order issued by certain governmental authorities of competent jurisdiction prohibiting the Merger. If any future plaintiffs are successful in obtaining an injunction or other order prohibiting the Merger, we may be unable to consummate the Merger. The risks and uncertainties associated with a failure to consummate the Merger are discussed below under the heading “Failure to consummate the Merger could adversely affect our stock price, business, financial condition and results of operation.”

In addition, responding to any litigation targeting the Merger, even those without merit, will cause us to incur legal costs and expenses, which may negatively impact our financial condition. Responding to lawsuits may also divert the time and attention of our management away from our ongoing business operations and adversely affect our business and results of operations.

Failure to consummate the Merger could adversely affect our stock price, business, financial condition and results of operations.

As noted above, the various conditions to the consummation of the Merger may not be satisfied or waived in a timely manner, or at all. Some of these ~~factors since December 31, 2016.~~conditions are not within our control. We cannot provide assurance that any of the conditions to the consummation of the Merger will be satisfied or waived. Pursuant to the Merger Agreement, the Merger will not be consummated until all of the conditions are satisfied or waived.

In addition, either the Company or the Acquirer may terminate the Merger Agreement in certain circumstances, including if (i) the Merger has not been consummated by November 1, 2022, (ii) any of certain governmental authorities of competent jurisdiction has issued a final non-appealable law or order prohibiting the Merger, (iii) the Requisite Stockholder Approval is not obtained at the stockholders’ meeting duly convened therefor, or (iv) the other party materially breaches, and does not cure, any of its representations or covenants in the Merger Agreement that would cause the related condition to such party’s obligation to consummate the Merger to not be satisfied, in each case subject

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to the terms and conditions set forth in the Merger Agreement. The terms and conditions, and other circumstances under which the Merger Agreement may be terminated in accordance with its terms are described in more detail in the Merger Agreement, which is attached as Exhibit 2.1 to the Current Report on Form 8-K we filed with the SEC on May 9, 2022.

If the Merger is not consummated for any reason, holders of our common stock will not receive the Merger Consideration for their shares in connection with the Merger. Instead, our common stock will continue to be listed and traded on the Nasdaq and registered under the Exchange Act, and we will continue to file periodic reports with the SEC on account of our common stock. In addition, we would be subject to a number of risks and uncertainties, including but not limited to:

●

the completion of the Merger on the anticipated terms and timing, including obtaining required stockholder and regulatory approvals, and the satisfaction of other conditions to the completion of the acquisition;

●

potential litigation relating to the Merger that could be instituted against the Company or its directors or officers, including the effects of any outcomes related thereto;

●

the risk that disruptions from the Merger will harm the Company’s business, including current plans and operations;

●

the ability of the Company to retain and hire key personnel;

●

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Merger;

●

continued availability of capital and financing and rating agency actions;

●

legislative, regulatory and economic developments;

●

potential business uncertainty, including changes to existing business relationships, during the pendency of the Merger that could affect the Company’s financial performance;

●

certain restrictions during the pendency of the Merger that may impact the Company’s ability to pursue certain business opportunities or strategic transactions;

●

unpredictability and severity of catastrophic events, including but not limited to acts of terrorism, outbreaks of war or hostilities or the COVID-19 pandemic, as well as management’s response to any of the aforementioned factors;

●

the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and

●

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger, including in circumstances requiring the Company to pay a termination fee or reimburse the Acquirer’s expenses.

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If the Merger is not consummated, the risk and uncertainties described above may materialize and adversely affect our business, financial condition or results of operations.

If the Merger Agreement is terminated, under certain conditions, we may be obligated to reimburse the Acquirer for its expenses and / or pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations.

Subject to the terms and conditions set forth in the Merger Agreement, if the Merger Agreement is terminated because the Requisite Stockholder Approval is not obtained, the Company will have to reimburse the Acquirer for it expenses incurred in connection with the Merger, in an amount not to exceed $1.5 million.

If the Company’s board of directors (the “Board”) (i) withdraws or changes its recommendation that our stockholders approve and adopt the Merger Agreement in a manner adverse to the Acquirer or Acquisition Sub, (ii) fails to include its recommendation in the proxy statement filed by the Company to solicit proxies in connection with the Merger, (iii) approves or recommends a competing acquisition proposal, or (iv) fails to recommend against a competing acquisition proposal under certain circumstances, then the Acquirer will have the right to terminate the Merger Agreement (before the Requisite Stockholder Approval is received) and receive a termination fee in the amount of $5.73 million (the “Termination Fee”) from the Company, subject to the terms and conditions set forth in the Merger Agreement.

In addition, subject to the terms and conditions set forth in the Merger Agreement, the Company would be required to pay the Acquirer the Termination Fee if prior to receiving the Requisite Stockholder Approval the Company terminates the Merger Agreement, and with the authorization of the Board, it enters into an Alternative Acquisition Agreement with respect to a Superior Proposal (as each term is defined in the Merger Agreement).

The Company would also be required to pay the Acquirer the Termination Fee, subject to the terms and conditions set forth in the Merger Agreement, if (i) a third party makes a Competing Proposal (as defined in the Merger Agreement) to the Company or its stockholders, (ii) the Merger Agreement is subsequently terminated by either the Company or the Acquirer because the Company did not obtain the Requisite Stockholder Approval or by the Acquirer because the Company knowingly and intentionally breached any covenant or agreement under the Merger Agreement, which breach would give rise to the failure of any conditions to the Company’s obligations to effect the Merger, and any such Competing Proposal was not withdrawn at least five business days prior to the event that gave rise to such termination, and (iii) within twelve months of such termination, the Company consummates a transaction involving a Competing Proposal or enters into an Alternative Acquisition Agreement providing for the consummation of a Competing Proposal (which is subsequently consummated).

If the Company is required to pay the Termination Fee, the Company may be required to incur additional debt or use funds that it would otherwise have been able to use for general corporate expenses, capital expenditures or for other purposes.

The announcement of the Merger Agreement and pendency of the Merger could negatively impact our business, financial condition and results of operations.

Our business could experience material disruptions due to the announcement of our entry into the Merger Agreement and during the pendency of the Merger. Our current and prospective employees, including certain key personnel, may experience uncertainty regarding their future roles with the Company or desire different employment in anticipation of the consummation of the Merger. As a result, we may not be able to retain such employees, find adequate replacements for any employees we are unable to retain, or otherwise recruit new employees to join the Company. The uncertainty caused by the pendency of the Merger could also negatively impact our employees’ performance. If the announcement or pendency of the Merger causes us to lose and be unable to replace our employees, impairs our ability to attract new employees, or negatively affects the performance of our employees, our business, financial condition and results of operations could suffer.

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In addition, third parties, including our lenders, vendors and customers, may experience uncertainty regarding our business relationships due to the announcement of our entry into the Merger Agreement and during the pendency of the Merger. As a result, such third parties may seek to terminate or renegotiate our existing business relationships in connection with the potential Merger. Such disruptions to our business relationships could negatively impact our business, financial condition and results of operations.

The announcement of the Merger Agreement may also cause regulators to apply additional scrutiny to our business, potentially increasing our regulatory burden, including costs of compliance. If we are required to expend additional employee time or other resources to address such additional scrutiny or increased regulatory burden, our business, financial condition and results of operations could be negatively impacted.

While the Merger remains pending, we will be required to comply with various interim operating covenants that may constrain our business operations and to take certain actions that may divert our management’s focus from our ongoing business.

Pursuant to the Merger Agreement, following the execution of the Merger Agreement and until the earlier to occur of (i) the consummation of the Merger or (ii) the termination of the Merger Agreement (the “Interim Operating Period”), we agreed to use reasonable best efforts to conduct our business in the ordinary course of business and to not engage in certain types of actions, subject to certain terms, limitations and exceptions. In particular, among other things, we agreed to refrain from taking certain actions without the Acquirer's consent, including (i) making acquisitions, (ii) incurring indebtedness above a certain threshold, (iii) granting equity awards other than as specified in the Merger Agreement, (iv) entering into, amending or terminating certain material contracts, and (v) declaring or paying dividends to stockholders, in each case subject to the terms, limitations and exceptions set forth in the Merger Agreement. Complying with these obligations could limit our ability to operate our business as previously conducted, to pursue strategic transactions, or to otherwise exploit business opportunities as they arise. Our management will be primarily responsible for ensuring that the Company complies with such obligations during the Interim Operating Period, and this additional responsibility may divert the focus of our management away from our ongoing business operations.

In addition, our management will also need to take certain other actions during the Interim Operating Period in connection with the proposed Merger, including, among other things, convening a meeting of our stockholders for the purpose of considering and voting on the Merger, filing a proxy statement, in both preliminary and definitive form, in connection with our solicitation of proxies from our stockholders for such meeting, using reasonable best efforts to obtain all necessary consents and approvals required in connection with the Merger and to satisfy the other conditions to the consummation of the Merger, addressing any litigation brought against the Company in connection with the Merger, and responding to questions we may receive from our stockholders, employees, vendors and other interested stakeholders regarding the Merger. Taking these actions could require our management to expend time and resources, reducing the time and resources our management could otherwise direct towards our ongoing business operations. If our management is unable to expend the necessary time and resources on our business, our results of operations could be negatively impacted.

The Merger Agreement contains provisions that could make it difficult for a third party to make a superior acquisition proposal.

The Merger Agreement contains certain customary restrictions on our ability to solicit proposals from third parties for an acquisition of the Company during the Interim Operating Period. In addition, subject to certain customary “fiduciary out” exceptions, the Board is required to recommend that our stockholders vote in favor of the approval of the Merger, the Merger Agreement and the transactions contemplated thereby.

As discussed in further detail above under the heading “If the Merger Agreement is terminated, under certain conditions, we may be obligated to pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations,” we would also be required to pay the Acquirer the Termination Fee under certain conditions in connection with the termination of the Merger Agreement.

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These provisions might discourage an otherwise-interested third party from considering or proposing an acquisition of the Company, including proposals that may be deemed to offer greater value to our stockholders than the Merger Consideration of $1.50 per share. Furthermore, even if a third party elects to propose an acquisition, the requirement that we must pay a termination fee to accept any such proposal may cause that third party to offer a lower price to our stockholders than such third party might otherwise have offered.

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

On May 6, 2022, we entered into the Merger Agreement with Acquirer and Acquisition Sub. Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Acquisition Sub will merge with and into the Company, with the Company continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Acquirer.

In addition, pursuant to the Merger Agreement, at the Effective Time:

●

each Company stock option, whether or not vested, shall automatically and without any required action on the part of the holder thereof, vest (if unvested) and if not exercised by the holder thereof as of the Effective Time (after notice and a reasonable period to elect the exercise of such Company stock option) be cancelled and, if the exercise price per share is less than the Merger Consideration, be converted into the right to receive an amount in cash, without interest, equal to the product of (i) the excess, if any, of (A) the Merger Consideration over (B) the per-share exercise price for such option, multiplied by (ii) the total number of shares of common stock underlying such option; if the exercise price per share is equal to or greater than the Merger Consideration, such option if not exercised shall be cancelled without any cash payment or other consideration being made in respect thereof;

●

each then-outstanding Company restricted stock unit (“RSU”) will automatically and without any required action on the part of the holder thereof, be assumed by Acquirer and converted into the right to receive an amount of cash, without interest, equal to the product of (i) the total number of shares of common stock underlying such RSU, multiplied by (ii) the Merger Consideration, plus any dividend equivalent amounts accrued with respect to such RSU (the “RSU Consideration”), and each converted RSU held by an individual who is expected to be a continuing employee shall continue to have and be subject to substantially the same terms and conditions as were applicable to such RSU immediately before the Merger, including payment terms and remaining vesting conditions, but with vesting terms adjusted for any right to accelerated vesting that may apply after the Effective Time under the terms of any Company equity plan, equity award agreement, or Company severance plan currently in effect that may be applicable;

~~None.~~

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●

each then-outstanding Company performance stock unit (“PSU”) will automatically and without any required action on the part of the holder thereof, be assumed by Acquirer and converted into the right to receive an amount of cash, without interest, equal to the product of (i) the total number of shares of common stock earned under such PSU, with performance measured in accordance with the terms of the applicable governing documents (e.g. based on the attainment of the applicable performance metrics through the date of the Merger) as determined by the board of directors of the Company or a committee thereof after consultation with Acquirer, multiplied by (ii) the Merger Consideration, plus any dividend equivalent amounts accrued with respect to such PSU (the “PSU Consideration”), and each converted PSU held by an individual who is expected to be a continuing employee shall generally continue to have and be subject to substantially the same terms and conditions as were applicable to such PSU immediately before the Merger (aside from terms related to performance vesting that shall no longer apply following the Effective Time), including payment terms and remaining time-vesting conditions, but with vesting terms adjusted for any right to accelerated vesting that may apply after the Effective Time under the terms of any Company equity plan, equity award agreement, or Company severance plan currently in effect that may be applicable; and

●

each RSU and PSU held by an individual (whether an employee, non-employee director, or independent contractor) who is not expected to be a continuing employee shall, automatically and without any required action on the part of the holder thereof, vest (if unvested) and be cancelled and converted into the right to receive an amount in cash, without interest, equal to the RSU Consideration or PSU Consideration, as applicable.

Consummation of the Merger is subject to customary closing conditions, including, among other things, the Requisite Stockholder Approval.

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Item 6.Exhibits


Exhibit Number
~~Exhibit~~ ~~Number~~	Description of Document
31.1*
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*
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**
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**
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.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*		Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

*	Filed herewith.

**	Furnished herewith.

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GLOSSARY OF TERMS

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


Abbreviations or acronyms		Definition
~~101~~ 2020 Plan	~~Interactive data files (XBRL)~~	2020 Equity Incentive Plan
2021 Credit Agreement		Loan and Security Agreement, dated as of July 23, 2021, among ServiceSource International, Inc. and ServiceSource Delaware, Inc., as the Borrowers, and Bank of America, N.A., as Lender
APJ		Asia Pacific-Japan
ASC 606		Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
ASU		Accounting Standards Update
B2B		Business-to-business
BPaaS		Business Process-as-a-Service
BSBY		Bloomberg Short-Term Bank Yield Index Rate
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
Exchange Act		Securities Exchange Act of 1934, as amended
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 pursuant to ~~Rule 405 of Regulation S-T: (i)~~ the ~~Condensed Consolidated Balance Sheets as of September 30, 2017~~2021 Credit Agreement
ROU		Right-of-use
RSU		Restricted stock unit
rTSR		Relative total stockholder return
SEC		Securities 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.Exchange Commission
U.S.		United States

* Furnished herewith.

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~~SIGNATURES~~

SIGNATURE

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)~~
				(Registrant)
Date:	~~November 8, 2017~~ May 10, 2022	By:	/s/ ~~ROBERT N. PINKERTON~~CHAD W. LYNE
			~~Robert N. Pinkerton~~ Chad W. Lyne
			Chief Financial Officer
			(Principal Financial and Accounting Officer)



	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



	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



	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	)%

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