UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2020March 31, 2021
or
| | | | | |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 001-35108
SERVICESOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 81-0578975 |
(State or other jurisdiction of incorporation or 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 |
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, $0.0001 Par Value | | SREV | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☐ | | Accelerated Filer | | ☒ |
| | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☒ |
| | | | | | |
Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of OctoberApril 23, 2020, 96,595,9512021, 97,348,525 shares of common stock of ServiceSource International, Inc. were outstanding.
TABLE OF CONTENTS
| ServiceSource International, Inc. | ServiceSource International, Inc. | ServiceSource International, Inc. |
Consolidated Balance Sheets | Consolidated Balance Sheets | Consolidated Balance Sheets |
(in thousands, except per share and par value amounts) | (in thousands, except per share and par value amounts) | (in thousands, except per share and par value amounts) |
(unaudited) | (unaudited) | (unaudited) |
| | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 39,180 | | | $ | 27,089 | | Cash and cash equivalents | $ | 34,171 | | | $ | 34,006 | |
Accounts receivable, net | Accounts receivable, net | 33,366 | | | 41,754 | | Accounts receivable, net | 34,578 | | | 38,890 | |
Prepaid expenses and other | Prepaid expenses and other | 6,914 | | | 7,296 | | Prepaid expenses and other | 10,876 | | | 9,275 | |
Total current assets | Total current assets | 79,460 | | | 76,139 | | Total current assets | 79,625 | | | 82,171 | |
| Property and equipment, net | Property and equipment, net | 31,319 | | | 36,149 | | Property and equipment, net | 26,998 | | | 29,948 | |
ROU assets | ROU assets | 31,733 | | | 36,396 | | ROU assets | 27,515 | | | 29,798 | |
Contract acquisition costs | Contract acquisition costs | 995 | | | 1,602 | | Contract acquisition costs | 757 | | | 872 | |
Goodwill | Goodwill | 6,334 | | | 6,334 | | Goodwill | 6,334 | | | 6,334 | |
Other assets | Other assets | 3,983 | | | 4,844 | | Other assets | 3,580 | | | 3,490 | |
Total assets | Total assets | $ | 153,824 | | | $ | 161,464 | | Total assets | $ | 144,809 | | | $ | 152,613 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | Liabilities and Stockholders’ Equity | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 993 | | | $ | 4,392 | | Accounts payable | $ | 5,151 | | | $ | 1,204 | |
Accrued expenses | Accrued expenses | 2,411 | | | 3,366 | | Accrued expenses | 2,728 | | | 3,217 | |
Accrued compensation and benefits | Accrued compensation and benefits | 17,754 | | | 16,700 | | Accrued compensation and benefits | 15,313 | | | 18,342 | |
Revolver | Revolver | 15,000 | | | 0 | | Revolver | 15,000 | | | 15,000 | |
Operating lease liabilities | Operating lease liabilities | 10,741 | | | 9,652 | | Operating lease liabilities | 10,365 | | | 10,797 | |
Other current liabilities | Other current liabilities | 1,085 | | | 2,218 | | Other current liabilities | 827 | | | 1,209 | |
Total current liabilities | Total current liabilities | 47,984 | | | 36,328 | | Total current liabilities | 49,384 | | | 49,769 | |
| Operating lease liabilities, net of current portion | Operating lease liabilities, net of current portion | 28,129 | | | 33,716 | | Operating lease liabilities, net of current portion | 23,739 | | | 25,975 | |
Other long-term liabilities | Other long-term liabilities | 2,313 | | | 2,983 | | Other long-term liabilities | 2,302 | | | 1,593 | |
Total liabilities | Total liabilities | 78,426 | | | 73,027 | | Total liabilities | 75,425 | | | 77,337 | |
| Commitments and contingencies (Note 10) | | |
Commitments and contingencies (Note 9) | | Commitments and contingencies (Note 9) | 0 | | 0 |
| Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.0001 par value; 20,000 shares authorized and NaN issued and outstanding | Preferred stock, $0.0001 par value; 20,000 shares authorized and NaN issued and outstanding | 0 | | | 0 | | Preferred stock, $0.0001 par value; 20,000 shares authorized and NaN issued and outstanding | 0 | | | 0 | |
Common stock; $0.0001 par value; 1,000,000 shares authorized; 96,684 shares issued and 96,563 shares outstanding as of September 30, 2020; 94,972 shares issued and 94,851 shares outstanding as of December 31, 2019 | 10 | | | 9 | | |
Common stock; $0.0001 par value; 1,000,000 shares authorized; 97,470 shares issued and 97,349 shares outstanding as of March 31, 2021; 97,248 shares issued and 97,127 shares outstanding as of December 31, 2020 | | Common stock; $0.0001 par value; 1,000,000 shares authorized; 97,470 shares issued and 97,349 shares outstanding as of March 31, 2021; 97,248 shares issued and 97,127 shares outstanding as of December 31, 2020 | 10 | | | 10 | |
Treasury stock | Treasury stock | (441) | | | (441) | | Treasury stock | (441) | | | (441) | |
Additional paid-in capital | Additional paid-in capital | 378,309 | | | 374,525 | | Additional paid-in capital | 382,314 | | | 379,696 | |
Accumulated deficit | Accumulated deficit | (302,943) | | | (286,066) | | Accumulated deficit | (313,442) | | | (304,607) | |
Accumulated other comprehensive income | Accumulated other comprehensive income | 463 | | | 410 | | Accumulated other comprehensive income | 943 | | | 618 | |
Total stockholders’ equity | Total stockholders’ equity | 75,398 | | | 88,437 | | Total stockholders’ equity | 69,384 | | | 75,276 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 153,824 | | | $ | 161,464 | | Total liabilities and stockholders’ equity | $ | 144,809 | | | $ | 152,613 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| ServiceSource International, Inc. | ServiceSource International, Inc. | ServiceSource International, Inc. |
Consolidated Statements of Operations | Consolidated Statements of Operations | Consolidated Statements of Operations |
(in thousands, except per share amounts) | (in thousands, except per share amounts) | (in thousands, except per share amounts) |
(unaudited) | (unaudited) | (unaudited) |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
Net revenue | Net revenue | $ | 45,790 | | | $ | 53,395 | | | $ | 143,542 | | | $ | 161,264 | | Net revenue | | $ | 45,023 | | | $ | 50,114 | |
Cost of revenue | Cost of revenue | 33,210 | | | 37,871 | | | 103,415 | | | 115,696 | | Cost of revenue | | 34,067 | | | 35,560 | |
Gross profit | Gross profit | 12,580 | | | 15,524 | | | 40,127 | | | 45,568 | | Gross profit | | 10,956 | | | 14,554 | |
Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | |
Sales and marketing | Sales and marketing | 5,638 | | | 7,499 | | | 19,048 | | | 22,934 | | Sales and marketing | | 4,030 | | | 7,268 | |
Research and development | Research and development | 1,489 | | | 1,165 | | | 4,186 | | | 3,702 | | Research and development | | 1,160 | | | 1,181 | |
General and administrative | General and administrative | 10,537 | | | 10,129 | | | 31,844 | | | 32,081 | | General and administrative | | 12,190 | | | 10,688 | |
Restructuring and other related costs | Restructuring and other related costs | 0 | | | 630 | | | 703 | | | 1,836 | | Restructuring and other related costs | | 920 | | | 467 | |
Total operating expenses | Total operating expenses | 17,664 | | | 19,423 | | | 55,781 | | | 60,553 | | Total operating expenses | | 18,300 | | | 19,604 | |
Loss from operations | Loss from operations | (5,084) | | | (3,899) | | | (15,654) | | | (14,985) | | Loss from operations | | (7,344) | | | (5,050) | |
Interest and other expense, net | Interest and other expense, net | (500) | | | (419) | | | (1,050) | | | (967) | | Interest and other expense, net | | (1,160) | | | (874) | |
| Loss before provision for income taxes | Loss before provision for income taxes | (5,584) | | | (4,318) | | | (16,704) | | | (15,952) | | Loss before provision for income taxes | | (8,504) | | | (5,924) | |
Provision for income tax benefit (expense) | 6 | | | (119) | | | (173) | | | (239) | | |
Provision for income tax expense | | Provision for income tax expense | | (331) | | | (18) | |
Net loss | Net loss | $ | (5,578) | | | $ | (4,437) | | | $ | (16,877) | | | $ | (16,191) | | Net loss | | $ | (8,835) | | | $ | (5,942) | |
Net loss per common share: | Net loss per common share: | | | | | | | | Net loss per common share: | | | | |
Basic and diluted | Basic and diluted | $ | (0.06) | | | $ | (0.05) | | | $ | (0.18) | | | $ | (0.17) | | Basic and diluted | | $ | (0.09) | | | $ | (0.06) | |
Weighted-average common shares outstanding: | Weighted-average common shares outstanding: | | | | | | | | Weighted-average common shares outstanding: | | | | |
Basic and diluted | Basic and diluted | 95,963 | | | 94,228 | | | 95,437 | | | 93,637 | | Basic and diluted | | 97,234 | | | 94,968 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| ServiceSource International, Inc. | ServiceSource International, Inc. | ServiceSource International, Inc. |
Consolidated Statements of Comprehensive Loss | Consolidated Statements of Comprehensive Loss | Consolidated Statements of Comprehensive Loss |
(in thousands) | (in thousands) | (in thousands) |
(unaudited) | (unaudited) | (unaudited) |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
Net loss | Net loss | $ | (5,578) | | | $ | (4,437) | | | $ | (16,877) | | | $ | (16,191) | | Net loss | | $ | (8,835) | | | $ | (5,942) | |
Other comprehensive income (loss) | | |
Other comprehensive income | | Other comprehensive income | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 102 | | | 73 | | | 53 | | | (111) | | Foreign currency translation adjustments | | 325 | | | 498 | |
Other comprehensive income (loss) | 102 | | | 73 | | | 53 | | | (111) | | |
Other comprehensive income | | Other comprehensive income | | 325 | | | 498 | |
Comprehensive loss | Comprehensive loss | $ | (5,476) | | | $ | (4,364) | | | $ | (16,824) | | | $ | (16,302) | | Comprehensive loss | | $ | (8,510) | | | $ | (5,444) | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| ServiceSource International, Inc. | ServiceSource International, Inc. | ServiceSource International, Inc. |
Consolidated Statements of Stockholders' Equity | Consolidated Statements of Stockholders' Equity | Consolidated Statements of Stockholders' Equity |
(in thousands) | (in thousands) | (in thousands) |
(unaudited) | (unaudited) | (unaudited) |
| | | Common Stock | | Treasury Shares/Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total | | Common Stock | | Treasury Shares/Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total |
| | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | |
Balance at January 1, 2020 | 94,972 | | | $ | 9 | | | (121) | | | $ | (441) | | | $ | 374,525 | | | $ | (286,066) | | | $ | 410 | | | $ | 88,437 | | |
Balance at January 1, 2021 | | Balance at January 1, 2021 | 97,248 | | | $ | 10 | | | (121) | | | $ | (441) | | | $ | 379,696 | | | $ | (304,607) | | | $ | 618 | | | $ | 75,276 | |
Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (5,942) | | | — | | | (5,942) | | Net loss | — | | | — | | | — | | | — | | | — | | | (8,835) | | | — | | | (8,835) | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 498 | | | 498 | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 325 | | | 325 | |
Stock-based compensation | Stock-based compensation | — | | | — | | | — | | | — | | | 1,066 | | | — | | | — | | | 1,066 | | Stock-based compensation | — | | | — | | | — | | | — | | | 2,486 | | | — | | | — | | | 2,486 | |
Issuance of common stock, RSUs | Issuance of common stock, RSUs | 178 | | | 1 | | | — | | | — | | | (1) | | | — | | | — | | | 0 | | Issuance of common stock, RSUs | 73 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Proceeds from the exercise of stock options and ESPP | Proceeds from the exercise of stock options and ESPP | 112 | | | — | | | — | | | — | | | 76 | | | — | | | — | | | 76 | | Proceeds from the exercise of stock options and ESPP | 149 | | | — | | | — | | | — | | | 132 | | | — | | | — | | | 132 | |
| Balance at March 31, 2020 | 95,262 | | | $ | 10 | | | (121) | | | $ | (441) | | | $ | 375,666 | | | $ | (292,008) | | | $ | 908 | | | $ | 84,135 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (5,357) | | | — | | | (5,357) | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (547) | | | (547) | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,278 | | | — | | | — | | | 1,278 | | |
Issuance of common stock, RSUs | 438 | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | |
| Balance at June 30, 2020 | 95,700 | | | $ | 10 | | | (121) | | | $ | (441) | | | $ | 376,944 | | | $ | (297,365) | | | $ | 361 | | | $ | 79,509 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (5,578) | | | — | | | (5,578) | | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 102 | | | 102 | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,282 | | | — | | | — | | | 1,282 | | |
Issuance of common stock, RSUs | 877 | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | |
Proceeds from the exercise of stock options and ESPP | 107 | | | — | | | — | | | — | | | 83 | | | — | | | — | | | 83 | | |
| Balance at September 30, 2020 | 96,684 | | | $ | 10 | | | (121) | | | $ | (441) | | | $ | 378,309 | | | $ | (302,943) | | | $ | 463 | | | $ | 75,398 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 97,470 | | | $ | 10 | | | (121) | | | $ | (441) | | | $ | 382,314 | | | $ | (313,442) | | | $ | 943 | | | $ | 69,384 | |
| |
| | | | | Common Stock | | Treasury Shares/Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total | | Common Stock | | Treasury Shares/Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total |
| | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | |
Balance at January 1, 2019 | 92,895 | | | $ | 9 | | | (121) | | | $ | (441) | | | $ | 369,246 | | | $ | (267,383) | | | $ | 402 | | | $ | 101,833 | | |
Balance at January 1, 2020 | | Balance at January 1, 2020 | 94,972 | | | $ | 9 | | | (121) | | | $ | (441) | | | $ | 374,525 | | | $ | (286,066) | | | $ | 410 | | | $ | 88,437 | |
Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (5,719) | | | — | | | (5,719) | | Net loss | — | | | — | | | — | | | — | | | — | | | (5,942) | | | — | | | (5,942) | |
Other comprehensive income | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 76 | | | 76 | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 498 | | | 498 | |
Stock-based compensation | Stock-based compensation | — | | | — | | | — | | | — | | | 1,564 | | | — | | | — | | | 1,564 | | Stock-based compensation | — | | | — | | | — | | | — | | | 1,066 | | | — | | | — | | | 1,066 | |
Issuance of common stock, RSUs | Issuance of common stock, RSUs | 229 | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | Issuance of common stock, RSUs | 178 | | | 1 | | | — | | | — | | | (1) | | | — | | | — | | | 0 | |
Proceeds from the exercise of stock options and ESPP | Proceeds from the exercise of stock options and ESPP | 139 | | | — | | | — | | | — | | | 141 | | | — | | | — | | | 141 | | Proceeds from the exercise of stock options and ESPP | 112 | | | — | | | — | | | — | | | 76 | | | — | | | — | | | 76 | |
| Balance at March 31, 2019 | 93,263 | | | $ | 9 | | | (121) | | | $ | (441) | | | $ | 370,951 | | | $ | (273,102) | | | $ | 478 | | | $ | 97,895 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (6,035) | | | — | | | (6,035) | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (260) | | | (260) | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,269 | | | — | | | — | | | 1,269 | | |
Issuance of common stock, RSUs | 947 | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | |
| Net cash paid for payroll taxes on restricted stock unit releases | — | | | — | | | — | | | — | | | (19) | | | — | | | — | | | (19) | | |
Balance at June 30, 2019 | 94,210 | | | $ | 9 | | | (121) | | | $ | (441) | | | $ | 372,201 | | | $ | (279,137) | | | $ | 218 | | | $ | 92,850 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (4,437) | | | — | | | (4,437) | | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 73 | | | 73 | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,203 | | | — | | | — | | | 1,203 | | |
Issuance of common stock, RSUs | 265 | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | |
Proceeds from the exercise of stock options and employee stock purchase plan | 124 | | | — | | | — | | | — | | | 82 | | | — | | | — | | | 82 | | |
| Balance at September 30, 2019 | 94,599 | | | $ | 9 | | | (121) | | | $ | (441) | | | $ | 373,486 | | | $ | (283,574) | | | $ | 291 | | | $ | 89,771 | | |
Balance at March 31, 2020 | | Balance at March 31, 2020 | 95,262 | | | $ | 10 | | | (121) | | | $ | (441) | | | $ | 375,666 | | | $ | (292,008) | | | $ | 908 | | | $ | 84,135 | |
| |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| ServiceSource International, Inc. | ServiceSource International, Inc. | | ServiceSource International, Inc. | |
Consolidated Statements of Cash Flows | Consolidated Statements of Cash Flows | | Consolidated Statements of Cash Flows | |
(in thousands) | (in thousands) | | (in thousands) | |
(unaudited) | (unaudited) | | (unaudited) | |
| | | For the Nine Months Ended September 30, | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net loss | Net loss | $ | (16,877) | | | $ | (16,191) | | | Net loss | $ | (8,835) | | | $ | (5,942) | | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | |
Depreciation and amortization | Depreciation and amortization | 10,331 | | | 10,158 | | | Depreciation and amortization | 3,657 | | | 3,396 | | |
Amortization of contract acquisition costs | Amortization of contract acquisition costs | 798 | | | 1,239 | | | Amortization of contract acquisition costs | 167 | | | 279 | | |
| Amortization of ROU assets | Amortization of ROU assets | 7,255 | | | 7,222 | | | Amortization of ROU assets | 2,391 | | | 2,313 | | |
Stock-based compensation | Stock-based compensation | 3,586 | | | 3,985 | | | Stock-based compensation | 2,475 | | | 1,045 | | |
Restructuring and other related costs | Restructuring and other related costs | 633 | | | 1,785 | | | Restructuring and other related costs | 902 | | | 431 | | |
| Other | Other | 54 | | | (200) | | | Other | 265 | | | 18 | | |
Net changes in operating assets and liabilities: | Net changes in operating assets and liabilities: | | | Net changes in operating assets and liabilities: | | |
Accounts receivable, net | Accounts receivable, net | 8,544 | | | 10,238 | | | Accounts receivable, net | 4,131 | | | (1,722) | | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 1,226 | | | 507 | | | Prepaid expenses and other assets | (2,099) | | | 1,323 | | |
Contract acquisition costs | Contract acquisition costs | (195) | | | (362) | | | Contract acquisition costs | (51) | | | 9 | | |
Accounts payable | Accounts payable | (3,597) | | | (365) | | | Accounts payable | 3,952 | | | (3,253) | | |
Accrued compensation and benefits | Accrued compensation and benefits | 317 | | | (1) | | | Accrued compensation and benefits | (3,673) | | | (1,210) | | |
Operating lease liabilities | Operating lease liabilities | (7,299) | | | (6,949) | | | Operating lease liabilities | (2,738) | | | (1,838) | | |
Accrued expenses | Accrued expenses | (831) | | | 316 | | | Accrued expenses | (511) | | | 223 | | |
Other liabilities | Other liabilities | (1,081) | | | (4,144) | | | Other liabilities | 504 | | | (741) | | |
Net cash provided by operating activities | 2,864 | | | 7,238 | | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 537 | | | (5,669) | | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Purchases of property and equipment | Purchases of property and equipment | (5,124) | | | (9,243) | | | Purchases of property and equipment | (1,019) | | | (1,557) | | |
| Net cash used in investing activities | Net cash used in investing activities | (5,124) | | | (9,243) | | | Net cash used in investing activities | (1,019) | | | (1,557) | | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
Repayment on finance lease obligations | Repayment on finance lease obligations | (730) | | | (666) | | | Repayment on finance lease obligations | (161) | | | (238) | | |
| Proceeds from Revolver | Proceeds from Revolver | 27,000 | | | 0 | | | Proceeds from Revolver | 0 | | | 27,000 | | |
Repayment of Revolver | (12,000) | | | 0 | | | |
| Proceeds from issuance of common stock | Proceeds from issuance of common stock | 159 | | | 223 | | | Proceeds from issuance of common stock | 132 | | | 76 | | |
Payments related to minimum tax withholdings on RSU releases | 0 | | | (19) | | | |
Net cash provided by (used in) financing activities | 14,429 | | | (462) | | | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (29) | | | 26,838 | | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (52) | | | 125 | | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | 650 | | | 480 | | |
Net change in cash and cash equivalents and restricted cash | Net change in cash and cash equivalents and restricted cash | 12,117 | | | (2,342) | | | Net change in cash and cash equivalents and restricted cash | 139 | | | 20,092 | | |
Cash and cash equivalents and restricted cash, beginning of period | Cash and cash equivalents and restricted cash, beginning of period | 29,383 | | | 27,779 | | | Cash and cash equivalents and restricted cash, beginning of period | 36,326 | | | 29,383 | | |
Cash and cash equivalents and restricted cash, end of period | Cash and cash equivalents and restricted cash, end of period | $ | 41,500 | | | $ | 25,437 | | | Cash and cash equivalents and restricted cash, end of period | $ | 36,465 | | | $ | 49,475 | | |
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | | | Supplemental disclosures of cash flow information: | | | | |
Cash paid for interest | Cash paid for interest | $ | 408 | | | $ | 203 | | | Cash paid for interest | $ | 105 | | | $ | 55 | | |
| Supplemental disclosures of non-cash activities: | Supplemental disclosures of non-cash activities: | | | Supplemental disclosures of non-cash activities: | | |
Purchases of property and equipment accrued in accounts payable and accrued expenses | Purchases of property and equipment accrued in accounts payable and accrued expenses | $ | 203 | | | $ | 1 | | | Purchases of property and equipment accrued in accounts payable and accrued expenses | $ | 9 | | | $ | 10 | | |
ROU assets obtained in exchange for new lease liabilities | ROU assets obtained in exchange for new lease liabilities | $ | 2,271 | | | $ | 19,603 | | | ROU assets obtained in exchange for new lease liabilities | $ | 618 | | | $ | 204 | | |
| Increase in operating lease liabilities related to the adoption of ASC 842 | $ | 0 | | | $ | 32,104 | | | |
Increase in ROU assets related to the adoption of ASC 842 | $ | 0 | | | $ | 29,526 | | | |
Decrease in prepaids and other assets related to the adoption of ASC 842 | $ | 0 | | | $ | (749) | | | |
Decrease in other liabilities related to the adoption of ASC 842 | $ | 0 | | | $ | (3,327) | | | |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
ServiceSource International, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 — The Company
ServiceSource is a leading provider of BPaaS (business process-as-a-service) solutions that enable the transformation of go-to-market organizations and functions for global 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 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”,“our,” as used herein, refer to ServiceSource International, Inc. and its wholly owned subsidiaries, unless the context indicates otherwise.
For a summary of commonly used industry terms and abbreviations used in this quarterly report on Form 10-Q, see the Glossary of Terms.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim Consolidated Financial Statements include the accounts of ServiceSource International, Inc. and its 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 financial statements do not include all the information required by GAAP for annual financial statements. The unaudited Consolidated Balance Sheet as of December 31, 20192020 has been derived from the Company’s audited annual Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 19, 2020.24, 2021. In the opinion of management, these Consolidated Financial Statements reflect all adjustments, including normal recurring adjustments, management considers necessary for a fair presentation of the Company’s financial position, operating results, and cash flows for the interim periods presented. These Consolidated Financial Statements and accompanying notes should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2019,2020, included in our annual report on Form 10-K. Interim results are not necessarily indicative of results for the entire year.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amount of net revenue and expenses during the reporting period.
The Company bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. The Company has considered the effects of the COVID-19 pandemic in determining its estimates. However, future events are difficult to predict and subject to change, especially with the risks and uncertainties related to the impact of the COVID-19 pandemic, which could cause estimates and judgments to require adjustment. Actual results and outcomes may differ from our estimates.
ReclassificationsCash Equivalents and Restricted Cash
Certain itemsThe Company follows a three-tier fair value hierarchy, which is described in detail in the Company's Annual Report on the Consolidated Statements of Cash FlowsForm 10-K for the nineyear ended December 31, 2020.
Cash equivalents consist of highly liquid investments with original maturities of three months ended September 30, 2019 have been reclassifiedor less at the time of purchase and are classified as a Level 1 investment.
Restricted cash consists of cash in money market accounts that are used to conform to the current year presentation. These reclassifications did not affectsecure letters of credit in connection with 2 of our leased facilities. Restricted cash is recorded within "Other assets" in the Consolidated Balance Sheets Consolidated Statementsand is classified as a Level 1 investment. The Company had restricted cash of Operations, Consolidated Statements$2.3 million as of Comprehensive Loss or Consolidated Statements of Stockholders' Equity.March 31, 2021 and December 31, 2020.
The Company did not have any other financial instruments or debt measured at fair value as of March 31, 2021 and December 31, 2020. There were no transfers between levels during the three months ended March 31, 2021 and 2020.
Government Assistance
During 2020, ServiceSource received a grantvarious grants from the Singapore government, pursuant to itsincluding the Job Support Scheme, which assists enterprises in retaining their local employees during the COVID-19 pandemic. ServiceSource received approximately $0.5$1.3 million and $0.9 million from the grantrelated to these grants during the three and nine monthsyear ended September 30,December 31, 2020 and is expected to receive an additional $0.4$0.2 million through JulyAugust 2021. There are no conditions to repay the grants. Government grants are recognized in the Company's Consolidated Statements of Operations during the same period that the expenses related to the grant are incurred if there is reasonable assurance the grant will be received, and the Company has complied with any conditions attached to the grant.
New Accounting Standards Adopted
Income Taxes
In December 2019, the FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard effective January 1, 2021 and the effects of this standard were applied prospectively to eligible costs incurred on or after January 1, 2021. The adoption of this standard did not have a material impact on the Consolidated Financial Statements.
New Accounting Standards Issued but Not yet Adopted
Financial Instruments - Credit Losses
In 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 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 will adopt this standard effective January 1, 2023.
Income Taxes
In December 2019, the FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2020, with early adoption permitted. Based on our current analysis, the Company does not expect the adoption to have a material impact on the Consolidated Financial Statements. The Company will adopt this standard effective January 1, 2021.
Note 3 — Fair Value of Financial Instruments
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, 2019.
The following table presents the Company's cash and cash equivalents and restricted cash by significant investment category measured at fair value:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| | | |
| (in thousands) |
Level 1: | | | |
Cash | $ | 10,761 | | | $ | 9,142 | |
Money market mutual funds | 28,419 | | | 17,947 | |
Cash and cash equivalents | $ | 39,180 | | | $ | 27,089 | |
| | | |
Restricted cash | $ | 2,320 | | | $ | 2,294 | |
The Company did not have any other financial instruments or debt measured at fair value as of September 30, 2020 and December 31, 2019. There were no transfers between levels during the nine months ended September 30, 2020 and 2019.
Note 4 — Debt
Revolving Line of Credit
In July 2018, the Company entered into a $40.0 million Revolver that allows it and the other BorrowersBorrower named therein to borrow against itstheir domestic receivables as defined in the Credit Agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings.
As of September 30, 2020,March 31, 2021, the Company had $15.0 million of borrowings under the Revolver through a one-month Eurodollar borrowing at an effective interest rate of 2.15%2.11% maturing October 2020.April 2021. An additional $14.0$14.7 million was available for borrowing under the Revolver as of September 30, 2020.March 31, 2021. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the Company's borrowing base decreases below the current amount outstanding during the term of the Eurodollar borrowing.
Subsequent to September 30, 2020,March 31, 2021, the one-month $15.0 million Eurodollar borrowing was extended at an effective interest rate of approximately 2.15%2.11% maturing November 2020.May 2021.
The obligations under the Credit Agreement are secured by substantially all the assets of the Borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has financial covenants which the Company was in compliance with as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
Deferred Debt Issuance Costs and Interest Expense
Unamortized debt issuance costs related to the Revolver were $0.1 million as of September 30, 2020 and December 31, 2019.
Interest expense related to the amortization of debt issuance costs and interest expense associated with the Company's debt obligation was $0.1 million and $0.04$0.1 million for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively and $0.4 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively.
Note 54 — Leases
The Company has operating leases for office space and finance leases for certain equipment under non-cancelable agreements with various expiration dates through May 2030. Certain office leases include the option to extend the term between one to
seven years and certain office leases include the option to terminate the lease upon written notice within one to eight years year after lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
During 2020,2021, the Company entered into a 22 month sublease agreement through the end of the original lease term with a third-partythird party for one floortwo floors of its Manila office space through October 2021, extended its lease for two of its five floors in the Kuala Lumpur office space through December 2023, and extended its lease for onea portion of its three floors in the SofiaYokohama office space through February 2026. The Company recognizes rent expense and sublease income on a straight-line basis over the lease period and accrues for rent expense and sublease income incurred but not paid.May 2024.
Supplemental income statement information related to leases was as follows:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (in thousands) | | | (in thousands) |
Operating lease cost | Operating lease cost | $ | 3,090 | | | $ | 2,897 | | | $ | 9,121 | | | $ | 8,894 | | Operating lease cost | | $ | 2,941 | | | $ | 3,107 | |
| Finance lease cost: | Finance lease cost: | | Finance lease cost: | | |
Amortization of leased assets | Amortization of leased assets | 213 | | | 164 | | | 564 | | | 486 | | Amortization of leased assets | | 159 | | | 188 | |
Interest on lease liabilities | Interest on lease liabilities | 19 | | | 41 | | | 75 | | | 127 | | Interest on lease liabilities | | 11 | | | 31 | |
Total finance lease cost | Total finance lease cost | 232 | | | 205 | | | 639 | | | 613 | | Total finance lease cost | | 170 | | | 219 | |
| Sublease income | Sublease income | (905) | | | (602) | | | (2,692) | | | (1,538) | | Sublease income | | (1,098) | | | (892) | |
Net lease cost | Net lease cost | $ | 2,417 | | | $ | 2,500 | | | $ | 7,068 | | | $ | 7,969 | | Net lease cost | | $ | 2,013 | | | $ | 2,434 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| | | |
| (in thousands) |
Operating leases: | | | |
ROU assets | $ | 27,515 | | | $ | 29,798 | |
| | | |
Operating lease liabilities | $ | 10,365 | | | $ | 10,797 | |
Operating lease liabilities, net of current portion | 23,739 | | | 25,975 | |
Total operating lease liabilities | $ | 34,104 | | | $ | 36,772 | |
| | | |
Finance leases: | | | |
Property and equipment | $ | 2,868 | | | $ | 2,880 | |
Accumulated depreciation | (2,119) | | | (1,963) | |
Property and equipment, net | $ | 749 | | | $ | 917 | |
| | | |
Other current liabilities | $ | 499 | | | $ | 608 | |
Other long-term liabilities | 11 | | | 63 | |
Total finance lease liabilities | $ | 510 | | | $ | 671 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| | | |
| (in thousands) |
Operating leases: | | | |
ROU assets | $ | 31,733 | | | $ | 36,396 | |
| | | |
Operating lease liabilities | $ | 10,741 | | | $ | 9,652 | |
Operating lease liabilities, net of current portion | 28,129 | | | 33,716 | |
Total operating lease liabilities | $ | 38,870 | | | $ | 43,368 | |
| | | |
Finance leases: | | | |
Property and equipment | $ | 2,858 | | | $ | 3,480 | |
Accumulated depreciation | (1,766) | | | (1,823) | |
Property and equipment, net | $ | 1,092 | | | $ | 1,657 | |
| | | |
Other current liabilities | $ | 707 | | | $ | 952 | |
Other long-term liabilities | 186 | | | 671 | |
Total finance lease liabilities | $ | 893 | | | $ | 1,623 | |
Lease term and discount rate information was as follows:
| | | For the Nine Months Ended September 30, | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Weighted-average remaining lease term (in years): | Weighted-average remaining lease term (in years): | | | | Weighted-average remaining lease term (in years): | | | |
Operating lease | Operating lease | 5.7 | | 5.9 | | Operating lease | 5.6 | | 5.9 | |
Finance lease | Finance lease | 1.2 | | 2.0 | | Finance lease | 0.8 | | 1.6 | |
Weighted-average discount rate: | Weighted-average discount rate: | | Weighted-average discount rate: | |
Operating lease | Operating lease | 6.2 | | % | | 6.5 | | % | Operating lease | 6.2 | | % | | 6.4 | | % |
Finance lease | Finance lease | 7.0 | | % | | 8.1 | | % | Finance lease | 6.5 | | % | | 7.8 | | % |
Maturities of lease liabilities were as follows as of September 30, 2020:March 31, 2021:
| | | Operating Leases | | Operating Sublease | | Finance Leases | | Total | | Operating Leases | | Operating Sublease | | Finance Leases | | Total |
| | | (in thousands) | | (in thousands) |
Remainder of 2020 | $ | 3,442 | | | $ | (919) | | | $ | 235 | | | $ | 2,758 | | |
2021 | 12,594 | | | (3,552) | | | 633 | | | 9,675 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 9,584 | | | $ | (3,789) | | | $ | 461 | | | $ | 6,256 | |
2022 | 2022 | 9,168 | | | (2,538) | | | 64 | | | 6,694 | | 2022 | 9,406 | | | (2,538) | | | 64 | | | 6,932 | |
2023 | 2023 | 4,221 | | | (623) | | | 0 | | | 3,598 | | 2023 | 4,434 | | | (623) | | | 0 | | | 3,811 | |
2024 | 2024 | 2,928 | | | 0 | | | 0 | | | 2,928 | | 2024 | 3,020 | | | 0 | | | 0 | | | 3,020 | |
2025 | | 2025 | 2,970 | | | 0 | | | 0 | | | 2,970 | |
Thereafter | Thereafter | 14,243 | | | 0 | | | 0 | | | 14,243 | | Thereafter | 11,281 | | | 0 | | | 0 | | | 11,281 | |
Total lease payments | Total lease payments | 46,596 | | | (7,632) | | | 932 | | | 39,896 | | Total lease payments | 40,695 | | | (6,950) | | | 525 | | | 34,270 | |
Less: interest | Less: interest | (7,690) | | | — | | | (39) | | | (7,729) | | Less: interest | (6,591) | | | — | | | (15) | | | (6,606) | |
Less: tenant improvement reimbursements(1) | (36) | | | — | | | 0 | | | (36) | | |
Total | Total | $ | 38,870 | | | $ | (7,632) | | | $ | 893 | | | $ | 32,131 | | Total | $ | 34,104 | | | $ | (6,950) | | | $ | 510 | | | $ | 27,664 | |
(1) Relates to tenant improvement reimbursements incurred by the Company after lease commencement, but not received from the landlord as of September 30, 2020.
Note 65 — Revenue Recognition
The following tables present the disaggregation of revenue from contracts with our clients:
Revenue by Performance Obligation
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (in thousands) | | | (in thousands) |
| Selling services | Selling services | $ | 44,840 | | | $ | 52,663 | | | $ | 140,558 | | | $ | 159,707 | | Selling services | | $ | 44,328 | | | $ | 49,173 | |
Professional services | Professional services | 950 | | | 732 | | | 2,984 | | | 1,557 | | Professional services | | 695 | | | 941 | |
| Total revenue | Total revenue | $ | 45,790 | | | $ | 53,395 | | | $ | 143,542 | | | $ | 161,264 | | Total revenue | | $ | 45,023 | | | $ | 50,114 | |
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 September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (in thousands) | | | (in thousands) |
| NALA | NALA | $ | 27,204 | | | $ | 32,153 | | | $ | 83,235 | | | $ | 94,949 | | NALA | | $ | 25,334 | | | $ | 28,473 | |
EMEA | EMEA | 11,984 | | | 12,918 | | | 38,837 | | | 39,972 | | EMEA | | 12,769 | | | 14,007 | |
APJ | APJ | 6,602 | | | 8,324 | | | 21,470 | | | 26,343 | | APJ | | 6,920 | | | 7,634 | |
Total revenue | Total revenue | $ | 45,790 | | | $ | 53,395 | | | $ | 143,542 | | | $ | 161,264 | | Total revenue | | $ | 45,023 | | | $ | 50,114 | |
Revenue by Contract Pricing
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (in thousands) | | | (in thousands) |
| Variable consideration | Variable consideration | $ | 33,188 | | | $ | 37,577 | | | $ | 103,367 | | | $ | 106,889 | | Variable consideration | | $ | 33,211 | | | $ | 36,366 | |
Fixed consideration | Fixed consideration | 12,602 | | | 15,818 | | | 40,175 | | | 54,375 | | Fixed consideration | | 11,812 | | | 13,748 | |
Total revenue | Total revenue | $ | 45,790 | | | $ | 53,395 | | | $ | 143,542 | | | $ | 161,264 | | Total revenue | | $ | 45,023 | | | $ | 50,114 | |
Contract Balances
As of September 30, 2020March 31, 2021, contract assets and liabilities were $0.0 million and $0.2 million, respectively. As of December 31, 2019,2020, contract asset balancesassets and liabilities were insignificant and as of September 30, 2020 and December 31, 2019, contract liability balances totaled $0.3$0.5 million and $0.8$0.4 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2020,March 31, 2021, assuming none of the Company’s current contracts with fixed consideration are renewed, the Company estimates receiving approximately $40.3$29.5 million in future selling services fixed consideration and approximately $0.5$0.2 million in professional services fixed consideration.
Contract Acquisition Costs
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, capitalized contract acquisition costs were $1.0$0.8 million and $1.6$0.9 million, respectively. The Company recorded amortization expense related to capitalized contract acquisition costs of $0.3 million and $0.4$0.2 million for the three months ended September 30, 2020March 31, 2021 and 2019, respectively, and $0.8 million and $1.2 million for the nine months ended September 30, 2020 and 2019, respectively.2020.
Impairment recognized on contract costs was insignificant for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
Note 76 — Stock-Based Compensation
2020 Equity Incentive PlanESPP
The 2020 Plan was approved by the Company’s stockholders on May 14, 2020 and expires March 4, 2025. The 2020 Plan provides for a reserve of 6,200,000 shares of the Company's common stock that may be issued pursuant to awards under the 2020 Plan. Permitted awards include, but are not limited to, options, stock appreciation rights, restricted stock units, performance stock units and other cash and stock-based awards.Company previously offered an ESPP until its expiration in February 2021.
On May 14, 2020, following the approval of the 2020 Plan, the Company’s board of directors terminated the 2011 Plan with the effect that no additional awards may be issued under the 2011 Plan and all outstanding awards under the 2011 Plan shall continue on and be unaffected by the termination of the 2011 Plan.
20202021 PSU Awards
During May 2020 and prior to expiration of the 2011 Plan,March 2021, the Company granted PSUs under the 2020 Plan to certain executives underin which the 2011 Plan.number of shares ultimately received depends on the Company's achievement of 2 performance goals for fiscal year 2021 and a rTSR modifier based on the Company's rTSR for fiscal years 2021, 2022, and 2023 compared to a peer group. The aggregate target number of shares subject to these awards is 0.9 million, with0.8 million. The awards were valued on the 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 $1.2 million. The number of shares ultimately received related to these awards rangeswill range from 0% to 150%173% of the participant's target award depending on the Company's achievement of specified Adjusted EBITDA and net bookings targets over a two-year performance period and will vest on the third anniversary of the grant date. The Company's expense will be recognized over the service period and adjusted based on estimated achievement of the performance goals.
Additionally, certain senior leaders elected to receive a portion of their annual cash corporate incentive plan in PSUs. The Company granted the PSUs under the 2020 Plan during March 2021. The number of shares ultimately received depends on the
Company's achievement of specified revenue, Adjusted EBITDA, and free cash flow performance goals for fiscal year 2021. The aggregate target number of shares subject to these awards is 0.4 million. The awards were valued using the Company's closing stock price on the grant date and had an aggregate grant date fair value of $0.6 million. The number of shares ultimately received related to these awards ranges from 0% to 200% of the participant's target award and will vest on the first anniversary of the grant date. The Company's expense will be recognized over the service period and adjusted based on estimated achievement of the performance targets.
Stock-Based Compensation Expense
The following table presents stock-based compensation expense as allocated within the Company's Consolidated Statements of Operations:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (in thousands) | | | (in thousands) |
Cost of revenue | Cost of revenue | $ | 110 | | | $ | 126 | | | $ | 245 | | | $ | 414 | | Cost of revenue | | $ | 130 | | | $ | 45 | |
Sales and marketing | Sales and marketing | 200 | | | 518 | | | 1,021 | | | 1,390 | | Sales and marketing | | 191 | | | 377 | |
Research and development | Research and development | 14 | | | 12 | | | 33 | | | 24 | | Research and development | | 15 | | | 18 | |
General and administrative | General and administrative | 942 | | | 523 | | | 2,287 | | | 2,157 | | General and administrative | | 2,139 | | | 605 | |
| Total stock-based compensation | Total stock-based compensation | $ | 1,266 | | | $ | 1,179 | | | $ | 3,586 | | | $ | 3,985 | | Total stock-based compensation | | $ | 2,475 | | | $ | 1,045 | |
The above table does not include capitalized stock-based compensation related to internal-use software that was insignificant for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
Stock Awards
A summary of the Company's stock option activity and related information was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (Years) | | Intrinsic Value |
| (in thousands) | | | | | | (in thousands) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding as of December 31, 2019 | 4,146 | | | $ | 2.16 | | | | | $ | 1,580 | |
Granted | 20 | | | $ | 1.32 | | | | | |
| | | | | | | |
Expired and/or forfeited | (609) | | | $ | 3.13 | | | | | |
Outstanding as of September 30, 2020 | 3,557 | | | $ | 1.99 | | | 7.08 | | $ | 866 | |
Exercisable as of September 30, 2020 | 2,470 | | | $ | 2.33 | | | 6.50 | | $ | 501 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (Years) | | Intrinsic Value |
| (in thousands) | | | | | | (in thousands) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding as of December 31, 2020 | 3,030 | | | $ | 2.09 | | | | | $ | 1,372 | |
| | | | | | | |
Exercised | (268) | | | $ | 1.18 | | | | | |
Expired and/or forfeited | (397) | | | $ | 2.03 | | | | | |
Outstanding as of March 31, 2021 | 2,365 | | | $ | 2.21 | | | 5.89 | | $ | 552 | |
Exercisable as of March 31, 2021 | 2,118 | | | $ | 2.33 | | | 5.61 | | $ | 431 | |
The weighted-average fair value of options granted during the nine months ended September 30, 2020 and 2019 was $0.63 and $0.47, respectively. As of September 30, 2020,March 31, 2021, there was $0.6$0.1 million of unrecognized compensation expense related to previously granted stock options, which is expected to be recognized over a weighted-average period of 1.91.5 years.
A summary of the Company's RSU and PSU activity and related information was as follows:
| | | Units | | Weighted-Average Grant Date Fair Value | | Units | | Weighted-Average Grant Date Fair Value |
| | (in thousands) | | | | (in thousands) | | |
Non-vested as of December 31, 2019 | 5,305 | | | $ | 1.88 | | |
Non-vested as of December 31, 2020 | | Non-vested as of December 31, 2020 | 7,015 | | | $ | 1.55 | |
Granted | Granted | 5,602 | | | $ | 1.43 | | Granted | 1,957 | | | $ | 1.59 | |
Vested | Vested | (1,493) | | | $ | 2.09 | | Vested | (73) | | | $ | 1.98 | |
Forfeited | Forfeited | (1,180) | | | $ | 1.86 | | Forfeited | (940) | | | $ | 1.69 | |
Non-vested as of September 30, 2020 | 8,234 | | | $ | 1.54 | | |
Non-vested as of March 31, 2021 | | Non-vested as of March 31, 2021 | 7,959 | | | $ | 1.54 | |
As of September 30, 2020,March 31, 2021, there was $10.3$6.7 million of unrecognized compensation expense related to previously granted RSUs and PSUs, which is expected to be recognized over a weighted-average period of 2.21.8 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 stock options and unvested RSUs and PSUs, and shares to be purchased under our ESPP.PSUs. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 3.21.2 million and 7.94.2 million shares for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and 4.1 million and 8.4 million shares for the nine months ended September 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive.
Note 87 — Restructuring and Other Related Costs
The Company has undergone restructuring efforts to better align its cost structure with its business and market conditions. These restructuring efforts include severance and other employee costs, lease and other contract termination costs and asset impairments. Severance and other employee costs include severance payments, related employee benefits, stock-based compensation related to the accelerated vesting of certain equity awards and employee-related legal fees. Lease and other contract termination costs include charges related to lease consolidation and abandonment of spaces no longer utilized and the cancellation of certain contracts with outside vendors. Asset impairments include charges related to leasehold improvements and furniture in spaces vacated or no longer in use. The restructuring plans and future cash outlays are recorded in "Accrued expenses"expenses," "Accrued compensation," and "Other long-term liabilities" in the Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
During 2019,2020, the Company announced a restructuring effort to align with its virtual-first operating model and reduce the operating cost structure resulting in a reduction of headcount and office lease costs. The Company recognized charges related to this restructuring effort of $0.7 million for the nine months ended September 30, 2020 and $0.6 million and $1.8$0.9 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, the Company does not expectMarch 31, 2021 and expects to incur approximately $0.1 million in additional restructuring charges related to the 2019 restructuring.costs through 2021.
The following table presents a reconciliation of the beginning and ending fair value liability balance related to the 20192020 restructuring effort:
| | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Lease Termination Costs | | | | Total |
| | | (in thousands) | | | | |
Balance as of January 1, 2019 | $ | 0 | | | $ | 0 | | | | | $ | 0 | |
Restructuring and other related costs | 1,806 | | | 123 | | | | | 1,929 | |
Cash paid | (1,624) | | | (123) | | | | | (1,747) | |
| | | | | | | |
Balance as of December 31, 2019 | 182 | | | 0 | | | | | 182 | |
Restructuring and other related costs | 703 | | | — | | | | | 703 | |
Cash paid | (866) | | | 0 | | | | | (866) | |
Change in estimates and non-cash charges | (19) | | | 0 | | | | | (19) | |
Balance as of September 30, 2020 | $ | 0 | | | $ | 0 | | | | | $ | 0 | |
In May 2017, the Company announced a restructuring effort resulting in a headcount reduction and the reduction of office space in 4 locations. As of September 30, 2020, the Company does not expect to incur additional restructuring charges related to the May 2017 restructuring.
The following table presents a reconciliation of the beginning and ending fair value liability balance related to the May 2017 restructuring effort:
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Lease and Other Contract Termination Costs | | Asset Impairments | | Total |
| | | | | | | |
| (in thousands) |
Balance as of January 1, 2017 | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Restructuring and other related costs | 3,483 | | | 2,939 | | | 886 | | | 7,308 | |
Cash paid | (3,060) | | | (1,185) | | | 0 | | | (4,245) | |
Change in estimates and non-cash charges | 0 | | | 0 | | | (886) | | | (886) | |
Acceleration of stock-based compensation expense in additional paid-in capital | (352) | | | 0 | | | 0 | | | (352) | |
Balance as of December 31, 2017 | 71 | | | 1,754 | | | 0 | | | 1,825 | |
Restructuring and other related costs | 120 | | | 89 | | | 0 | | | 209 | |
Cash paid | (188) | | | (1,133) | | | 0 | | | (1,321) | |
Change in estimates and non-cash charges | (3) | | | 252 | | | 0 | | | 249 | |
Balance as of December 31, 2018 | 0 | | | 962 | | | 0 | | | 962 | |
| | | | | | | |
Cash paid | 0 | | | (183) | | | 0 | | | (183) | |
Change in estimates and non-cash charges | 0 | | | (63) | | | 0 | | | (63) | |
| | | | | | | |
Balance as of December 31, 2019 | 0 | | | 716 | | | 0 | | | 716 | |
| | | | | | | |
Cash paid | 0 | | | (133) | | | 0 | | | (133) | |
Change in estimates and non-cash charges | 0 | | | (51) | | | 0 | | | (51) | |
| | | | | | | |
Balance as of September 30, 2020 | $ | 0 | | | $ | 532 | | | $ | 0 | | | $ | 532 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Lease Termination Costs | | Total | | | | | | |
| | | | | | | | | | | |
| (in thousands) | | | | |
Balance as of January 1, 2020 | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | | | |
Restructuring and other related costs | 780 | | | 59 | | | 839 | | | | | | | |
Cash paid | (442) | | | 0 | | | (442) | | | | | | | |
| | | | | | | | | | | |
Balance as of December 31, 2020 | 338 | | | 59 | | | 397 | | | | | | | |
Restructuring and other related costs | 842 | | | 78 | | | 920 | | | | | | | |
Cash paid | (968) | | | (59) | | | (1,027) | | | | | | | |
| | | | | | | | | | | |
Balance as of March 31, 2021 | $ | 212 | | | $ | 78 | | | $ | 290 | | | | | | | |
Note 98 — Income Taxes
The Company is subject to taxation in the 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. The "Provision for income tax 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 the U.S., Ireland and Singapore because those losses are offset by a full valuation allowance. The tax years 2012 through 2020 generally remain subject to examination by federal, state and foreign tax authorities.
The gross amount of the Company’s unrecognized tax benefits was $1.0 million as of September 30, 2020March 31, 2021 and December 31, 2019, none2020, 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 and nine months ended September 30,March 31, 2021 and 2020, and 2019, interest and penalties recognized were insignificant.
Note 109 — Commitments and Contingencies
Letters of Credit
In connection with 2 of our leased facilities, the Company 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 in "Other assets" in the Consolidated Balance Sheets.
Non-cancelable Service Contract Commitments
Future minimum payments under non-cancelable service contract commitments were as follows:
| | | September 30, 2020 | | March 31, 2021 |
| | (in thousands) | | (in thousands) |
Remainder of 2020 | $ | 2,359 | | |
2021 | 10,385 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 10,308 | |
2022 | 2022 | 9,152 | | 2022 | 10,266 | |
2023 | 2023 | 7,446 | | 2023 | 8,183 | |
2024 | 2024 | 821 | | 2024 | 828 | |
| Thereafter | Thereafter | 0 | | Thereafter | 0 | |
Total | Total | $ | 30,163 | | Total | $ | 29,585 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following MD&A should be read in conjunction with our unaudited Consolidated Financial Statements and notes thereto which appear elsewhere in this quarterly report on Form 10-Q.
This report 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, as amended. Forward looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believe,” “project,” "target," "forecast","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 impact and duration of the COVID-19 pandemic, as well as those discussed in the sections of our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on February 19, 202024, 2021 entitled “Forward Looking Statements” and “Risk Factors”, in the section of our Quarterly Report on Form 10-Q for the period ended March 31, 2020 filed with the SEC on April 30, 2020 entitled “Risk Factors”, and in our other filings with the 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, except as 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 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”,“our,” as used herein, refer to ServiceSource International, Inc. and its wholly owned subsidiaries, unless the context indicates otherwise.
For a summary of commonly used industry terms and abbreviations used in this Form 10-Q, see the Glossary of Terms.
Impact of the COVID-19 Pandemic
With the global outbreak of COVID-19 and the declaration of a pandemic by the World Health Organization on March 11, 2020, we created a dedicated crisis team to proactively implement our business continuity plans. By March 19, 2020, more than 95% of our employees had moved from an in-office to a work-from-home environment and as of 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 whichwhereby our employees will continue to primarily work from their home offices and our facilities will be used for collaboration, innovation, and 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 have not experienced material disruptions in our operations.
We believe we have sufficient liquidity on hand to continue business operations during this volatile period. As of September 30, 2020,March 31, 2021, we had total available liquidity of $53.2$48.9 million consisting of cash on hand and availability under our Revolver. See "Liquidity and Capital Resources" for additional information.
Although thereThere was no material adverse impact on the results of operations for the three and nine months ended September 30, 2020 resulting from COVID-19, the full impactMarch 31, 2021 as a result of the pandemic remains to be seen. By way of example, we have seen some instances of delays in responsiveness from our clients’ customers and end users on making purchasing or renewal decisions and customer payments, but on the other hand, we have seen some clients experience heightened levels of demand for their products and services.COVID-19 pandemic. We have incurred and expect to continue to incur costs directly related to the COVID-19 pandemic such as costs for enhanced cleaning of our facilities, investinginvest capital to allow our employees to function in our virtual, work-from-home operating model and increased paid time off costs resulting from employees taking less paid time off.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 with our virtual-first operating model. We do not currently anticipate that these items will have a material adverse impact on our overall business and financial results.
During 2020, ServiceSource received a grantvarious grants from the Singapore government, pursuant to itsincluding the Job Support Scheme, which assists enterprises in retaining their local employees during the COVID-19 pandemic. ServiceSource received approximately $0.5$1.3 million and $0.9 million from the grantrelated to these grants during the three and nine monthsyear ended September 30,December 31, 2020 and is expected to receive an additional $0.4$0.2 million through JulyAugust 2021.
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 II,I, Item 1A - “Risk Factors”of our annual report on Form 10-K for the year ended December 31, 2020 for additional information.
Key Financial Results for the Three Months Ended September 30, 2020March 31, 2021
•GAAP revenue was $45.8$45.0 million compared with $53.4$50.1 million reported for the same period in 2019.2020.
•GAAP net loss was $5.6$8.8 million or $0.06$0.09 per diluted share, compared with GAAP net loss of $4.4$5.9 million or $0.05$0.06 per diluted share reported for the same period in 2019.2020.
•Adjusted EBITDA, a non-GAAP financial measure, was negative $0.2 million compared with positive $1.1$0.1 million reported for the same period in 2019.2020. See “Non-GAAP Financial Measurements” below for a reconciliation of Adjusted EBITDA from net loss.
•Ended the quarter with $41.5$36.5 million of cash and cash equivalents and restricted cash and $15.0 million of borrowings under the Company’s $40.0 million Revolver.
Results of Operations
For the Three Months Ended September 30, 2020March 31, 2021 Compared to the Same Period Ended September 30, 2019March 31, 2020
Net Revenue, Cost of 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 also generate revenues from selling professional services. Historically, we earned a small percentage of our total revenue from the sale of subscriptions to our cloud-based applications.
Cost of revenue includes employee compensation, technology costs, including those related to the delivery of our cloud-based technologies, and allocated overhead expenses which consist of depreciation, amortization of internally developed software, facility and technology costs.
| | | For the Three Months Ended September 30, | | | For the Three Months Ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
| | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change | | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Net revenue | Net revenue | $ | 45,790 | | | 100 | % | | $ | 53,395 | | | 100 | % | | $ | (7,605) | | | (14) | % | Net revenue | $ | 45,023 | | | 100 | % | | $ | 50,114 | | | 100 | % | | $ | (5,091) | | | (10) | % |
Cost of revenue | Cost of revenue | 33,210 | | | 73 | % | | 37,871 | | | 71 | % | | (4,661) | | | (12) | % | Cost of revenue | 34,067 | | | 76 | % | | 35,560 | | | 71 | % | | (1,493) | | | (4) | % |
Gross profit | Gross profit | $ | 12,580 | | | 27 | % | | $ | 15,524 | | | 29 | % | | $ | (2,944) | | | (19) | % | Gross profit | $ | 10,956 | | | 24 | % | | $ | 14,554 | | | 29 | % | | $ | (3,598) | | | (25) | % |
Net revenue decreased $7.6$5.1 million, or 14%10%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to client churn and lower bookings.
Cost of revenue decreased $4.7$1.5 million, or 12%4%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to the following:
•$3.11.2 million decrease in employee related costs associated with a reduction in headcount the receipt of the Singapore government grant and lower travel and entertainment expenditures;
•$1.1 million decrease in information technology costs due to an increase in capitalizable software development costs and lower headcount; and
•$0.70.8 million decrease in facility related costs primarily related to sublease income, reduced headcount, and transitioning to a virtual-first operating model;model, and sublease income; partially offset by
•$0.30.6 million increase in depreciation and amortization expense.
Operating Expenses
| | | For the Three Months Ended September 30, | | | For the Three Months Ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
| | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change | | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Sales and marketing | Sales and marketing | $ | 5,638 | | | 12 | % | | $ | 7,499 | | | 14 | % | | $ | (1,861) | | | (25) | % | Sales and marketing | $ | 4,030 | | | 9 | % | | $ | 7,268 | | | 15 | % | | $ | (3,238) | | | (45) | % |
Research and development | Research and development | 1,489 | | | 3 | % | | 1,165 | | | 2 | % | | 324 | | | 28 | % | Research and development | 1,160 | | | 3 | % | | 1,181 | | | 2 | % | | (21) | | | (2) | % |
General and administrative | General and administrative | 10,537 | | | 23 | % | | 10,129 | | | 19 | % | | 408 | | | 4 | % | General and administrative | 12,190 | | | 27 | % | | 10,688 | | | 21 | % | | 1,502 | | | 14 | % |
Restructuring and other related costs | Restructuring and other related costs | — | | | — | % | | 630 | | | 1 | % | | (630) | | | (100) | % | Restructuring and other related costs | 920 | | | 2 | % | | 467 | | | 1 | % | | 453 | | | 97 | % |
Total operating expenses | Total operating expenses | $ | 17,664 | | | 39 | % | | $ | 19,423 | | | 36 | % | | $ | (1,759) | | | (9) | % | Total operating expenses | $ | 18,300 | | | 41 | % | | $ | 19,604 | | | 39 | % | | $ | (1,304) | | | (7) | % |
| | | |
Sales and Marketing
Sales and marketing expenses primarily consist of employee compensation expense and sales commissions paid to our sales and marketing employees, amortization of contract acquisition costs, marketing programs and events, as well asand allocated overhead expenses, which consist of depreciation, amortization of internally developed software, and facility and technology costs.
Sales and marketing expenses decreased $1.9$3.2 million, or 25%45%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to a $1.5$2.3 million decrease in employee related costs associated with a reduction in headcount, lower bookings, and lower travel and entertainment expenditures, and a $0.2$0.8 million decrease in information technology and facility costs related to transitioning to a virtual-first operating model.model, and a $0.2 million decrease in marketing cost.
Research and Development
Research and development expenses primarily consist of employee compensation expense, third-party consultant costs and allocated overhead expenses, which consist of amortization of internally developed software, facility and technology costs.
Research and development expenses increased $0.3 million, or 28%decreased 2%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to a $0.5 million reduction in third party capitalizable software development costs, partially offset by a $0.1$0.2 million decrease in information technology and facility costs related to transitioning to a virtual-first operating model.model, offset by a $0.2 million reduction in third-party capitalizable software development costs and other professional fees.
General and Administrative
General and administrative expenses primarily consist of employee compensation expense for our executive, finance, human resources, and legal functions and expenses for professional fees for accounting, tax and legal services, as well as allocated overhead expenses, which consist of depreciation, amortization of internally developed software, facility and technology costs.
General and administrative expenses increased $0.4$1.5 million, or 4%14%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to the following:
•$0.31.5 million increase due to the settlement of the legal contingency in 2019; andstock-based compensation costs;
•$0.21.0 million increase in professional fees;information technology and facility costs due to lower headcount in cost of revenue; partially offset by
•$0.10.8 million decrease in information technology supportemployee related costs associated with a reduction in headcount; and other operating costs.
•$0.3 million decrease in depreciation and amortization expense.
Restructuring and Other Related Costs
Restructuring and other related costs consist primarily of employees’ severance payments and related employee benefits, related legal fees and charges related to lease termination costs.
Restructuring and other related costs decreased $0.6increased $0.5 million, or 100%97% for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, due to timing of headcount reductions related to the 20192020 restructuring effort that resultedresulting in a reduction of headcount and office lease costs.costs compared to the three months ended March 31, 2020.
Interest and Other Expense, Net
Interest and other expense, net consists of interest expense associated with our Revolver, imputed interest from finance lease payments, interest income earned on our cash and cash equivalents, amortization of debt issuance costs and foreign exchange gains and losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | | | |
| 2020 | | 2019 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Interest expense | $ | (161) | | | — | % | | $ | (91) | | | — | % | | $ | (70) | | | (77) | % |
Other expense, net | $ | (339) | | | (1) | % | | $ | (328) | | | (1) | % | | $ | (11) | | | (3) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
* Not considered meaningful. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, | | | | |
| 2021 | | 2020 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Interest expense | $ | (158) | | | — | % | | $ | (81) | | | — | % | | $ | (77) | | | (95) | % |
Other expense, net | $ | (1,002) | | | (2) | % | | $ | (793) | | | (2) | % | | $ | (209) | | | (26) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest expense increased $0.1 million, or 77%95%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to the timing of borrowings on the Company's Revolver during 2020.Revolver.
Other expense, net increased 3%$0.2 million, or 26%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, primarily due to foreign currency fluctuations.
Provision for Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | | | |
| 2020 | | 2019 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Provision for income tax benefit (expense) | $ | 6 | | | — | % | | $ | (119) | | | — | % | | $ | 125 | | | 105 | % |
Provision for income tax benefit (expense) resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax decreased for the three months ended September 30, 2020 compared to the same period in 2019, due to a decrease in profitable operations in certain foreign jurisdictions.
For the Nine Months Ended September 30, 2020 Compared to the Same Period Ended September 30, 2019
Net Revenue, Cost of Revenue and Gross Profit
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| For the Nine Months Ended September 30, | | | | |
| 2020 | | 2019 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Net revenue | $ | 143,542 | | | 100 | % | | $ | 161,264 | | | 100 | % | | $ | (17,722) | | | (11) | % |
Cost of revenue | 103,415 | | | 72 | % | | 115,696 | | | 72 | % | | (12,281) | | | (11) | % |
Gross profit | $ | 40,127 | | | 28 | % | | $ | 45,568 | | | 28 | % | | $ | (5,441) | | | (12) | % |
Net revenue decreased $17.7 million, or 11%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to client churn and lower bookings.
Cost of revenue decreased $12.3 million, or 11%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to the following:
•$8.7 million decrease in employee related costs associated with a reduction in headcount, the receipt of the Singapore government grant and lower travel and entertainment expenditures, partially offset by increased paid time off costs resulting from employees taking less paid time off during the global pandemic;
•$2.6 million decrease in facility related costs primarily related to sublease income, reduced headcount and transitioning to a virtual-first operating model; and
•$1.8 million decrease in information technology costs due to an increase in capitalizable software development costs and lower headcount; partially offset by
•$0.9 million increase in depreciation and amortization expense.
Operating Expenses
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| For the Nine Months Ended September 30, | | | | |
| 2020 | | 2019 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Operating expenses: | | | | | | | | | | | |
Sales and marketing | $ | 19,048 | | | 13 | % | | $ | 22,934 | | | 14 | % | | $ | (3,886) | | | (17) | % |
Research and development | 4,186 | | | 3 | % | | 3,702 | | | 2 | % | | 484 | | | 13 | % |
General and administrative | 31,844 | | | 22 | % | | 32,081 | | | 20 | % | | (237) | | | (1) | % |
Restructuring and other related costs | 703 | | | — | % | | 1,836 | | | 1 | % | | (1,133) | | | (62) | % |
Total operating expenses | $ | 55,781 | | | 39 | % | | $ | 60,553 | | | 38 | % | | $ | (4,772) | | | (8) | % |
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Sales and Marketing
Sales and marketing expenses decreased $3.9 million, or 17%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to a $3.1 million decrease in employee related costs associated with a reduction in headcount, lower bookings, and lower travel and entertainment expenditures, and a $0.5 million decrease in information technology and facility costs related to sublease income and transitioning to a virtual-first operating model.
Research and Development
Research and development expenses increased $0.5 million, or 13%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to a $0.9 million reduction in third party capitalizable software development costs, partially offset by a $0.4 million decrease in information technology and facility costs related to sublease income and transitioning to a virtual-first operating model.
General and Administrative
General and administrative expenses decreased $0.2 million, or 1%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to the following:
•$0.8 million decrease in depreciation and amortization expense;
•$0.5 million decrease in employee related costs primarily due to lower travel and entertainment expenditures and recruiting costs, partially offset by merit increases and increased paid time off costs resulting from employees taking less paid time off during the global pandemic; and
•$0.1 million decrease in professional fees; partially offset by
•$0.9 million increase in information technology support and facility costs due to lower headcount in cost of revenue; and
•$0.3 million increase due to the settlement of the legal contingency in 2019.
Restructuring and Other Related Costs
Restructuring and other related costs decreased $1.1 million, or 62% for the nine months ended September 30, 2020 compared to the same period in 2019, due to decreased costs incurred related to the 2019 restructuring effort that resulted in a reduction of headcount and office lease costs.
Interest and Other Expense, Net
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| For the Nine Months Ended September 30, | | | | |
| 2020 | | 2019 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Interest expense | $ | (477) | | | — | % | | $ | (303) | | | — | % | | $ | (174) | | | (57) | % |
Other expense, net | $ | (573) | | | — | % | | $ | (664) | | | — | % | | $ | 91 | | | 14 | % |
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Interest expense increased $0.2 million, or 57%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to borrowings on the Company’s Revolver during 2020.
Other expense, net decreased $0.1 million, or 14%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to foreign currency fluctuations.
Provision for Income Tax Expense
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| For the Nine Months Ended September 30, | | | | |
| 2020 | | 2019 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Provision for income tax expense | $ | (173) | | | — | % | | $ | (239) | | | — | % | | $ | 66 | | | 28 | % |
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| For the Three Months Ended March 31, | | | | |
| 2021 | | 2020 | | | | |
| Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | $ Change | | % Change |
| (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Provision for income tax expense | $ | (331) | | | (1) | % | | $ | (18) | | | — | % | | $ | (313) | | | * |
Provision for income tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax expense decreasedincreased $0.3 million for the ninethree months ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, due to a decreasean increase in profitable operations in certain foreign jurisdictions.
* Not considered meaningful.
Liquidity and Capital Resources
Our primary operating cash requirements include the payment of compensation and related employee costs and costs for our facilities and information technology infrastructure. Historically, we have financed our operations from cash provided by our operating activities. We believe our existing cash and cash equivalents and available funds from the Revolver will be sufficient to meet our working capital and capital expenditure needs over the next twelve months.
We have considered the effects of the COVID-19 pandemic, including customer purchasing and renewal decisions, and any delay in customer payments, in our assessment of the sufficiency of our liquidity and capital resources. We will continue to monitor our financial position asto the extent that pandemic-related challenges develop over time.continue.
As of September 30, 2020,March 31, 2021, we had cash and cash equivalents of $39.2$34.2 million, which primarily consistedconsist of demand deposits and money market mutual funds. Included in cash and cash equivalents was $7.3$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 September 30, 2020,March 31, 2021, the Company had no unremitted earnings from our foreign subsidiaries.
In July 2018, the Company entered into a $40.0 million Revolver that allows it and the other BorrowersBorrower named therein to borrow against its domestic receivables as defined in the Credit Agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings.
As of September 30, 2020March 31, 2021 the Company had $15.0 million of borrowings under the Revolver through a one-month Eurodollar borrowing at an effective interest rate of 2.15%2.11% maturing October 2020.April 2021. An additional $14.0$14.7 million was available for borrowing under the Revolver as of September 30, 2020.March 31, 2021. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the Company's borrowing base decreases below the current amount outstanding during the term of the Eurodollar borrowing.
Subsequent to September 30, 2020,March 31, 2021, the one-month $15.0 million Eurodollar borrowing was extended at an effective interest rate of approximately 2.15%2.11% maturing November 2020.May 2021.
The obligations under the Credit Agreement are secured by substantially all the assets of the Borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has financial covenants which the Company was in compliance with as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
Letters of Credit and Restricted Cash
In connection with two of our leased facilities, the Company is required to maintain two letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market accounts, which are classified as restricted cash in "Other assets" in the Consolidated Balance Sheets.
Cash Flows
The following table presents a summary of our cash flows:
| | | For the Nine Months Ended September 30, | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | | (in thousands) | | (in thousands) |
Net cash provided by operating activities | $ | 2,864 | | | $ | 7,238 | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | $ | 537 | | | $ | (5,669) | |
Net cash used in investing activities | Net cash used in investing activities | (5,124) | | | (9,243) | | Net cash used in investing activities | (1,019) | | | (1,557) | |
Net cash provided by (used in) financing activities | 14,429 | | | (462) | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (29) | | | 26,838 | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (52) | | | 125 | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | 650 | | | 480 | |
Net change in cash and cash equivalents and restricted cash | Net change in cash and cash equivalents and restricted cash | $ | 12,117 | | | $ | (2,342) | | Net change in cash and cash equivalents and restricted cash | $ | 139 | | | $ | 20,092 | |
Depreciation and amortization expense were comprised of the following:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| | | (in thousands) | | (in thousands) |
| Internally developed software amortization | Internally developed software amortization | $ | 1,983 | | | $ | 1,524 | | | $ | 5,597 | | | $ | 4,190 | | Internally developed software amortization | $ | 2,192 | | | $ | 1,765 | | |
Property and equipment depreciation | Property and equipment depreciation | 1,529 | | | 1,640 | | | 4,734 | | | 5,968 | | Property and equipment depreciation | 1,465 | | | 1,631 | | |
Total depreciation and amortization | Total depreciation and amortization | $ | 3,512 | | | $ | 3,164 | | | $ | 10,331 | | | $ | 10,158 | | Total depreciation and amortization | $ | 3,657 | | | $ | 3,396 | | |
Operating Activities
Net cash provided by operating activities decreased $4.4increased $6.2 million for the ninethree months ended September 30, 2020March 31, 2021 compared to the ninethree months ended September 30, 2019,March 31, 2020, primarily as a result of decreased revenue and higherimproved cash paymentscollections from our clients during the current period compared to the prior period related to operating costs accrued for previously.period.
Investing Activities
Net cash used in investing activities decreased $4.1$0.5 million for the ninethree months ended September 30, 2020March 31, 2021 compared to the ninethree months ended September 30, 2019,March 31, 2020, due to decreased cash outflows from purchases of property and equipment during the ninethree months ended September 30, 2020.March 31, 2021.
Financing Activities
Net cash provided by financing activities increased $14.9decreased $26.9 million for the ninethree months ended September 30, 2020March 31, 2021 compared to the ninethree months ended September 30, 2019,March 31, 2020, primarily as a result of $15.0$27.0 million in net cash inflows from borrowings on the Revolver during the ninethree months ended September 30,March 31, 2020.
Off-Balance Sheet Arrangements
As of September 30, 2020,March 31, 2021, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. The Company's significant accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. These policies
were followed in preparing the Consolidated Financial Statements for the three and nine months ended September 30, 2020March 31, 2021 and are consistent with the year ended December 31, 2019.2020.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements.
Non-GAAP Financial Measurements
ServiceSource believes net income (loss), as defined by GAAP, is the most appropriate financial measure of our operating performance; however, ServiceSource considers Adjusted EBITDA to be 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 and costs attributable to establishing a litigation reserve.606.
This non-GAAP measure should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP.
The following table presents the reconciliation of "Net Loss"loss" to Adjusted EBITDA:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (in thousands) | | | (in thousands) |
Net loss | Net loss | $ | (5,578) | | | $ | (4,437) | | | $ | (16,877) | | | $ | (16,191) | | Net loss | | $ | (8,835) | | | $ | (5,942) | |
Provision for income tax (benefit) expense | (6) | | | 119 | | | 173 | | | 239 | | |
Provision for income tax expense | | Provision for income tax expense | | 331 | | | 18 | |
Interest and other expense, net | Interest and other expense, net | 500 | | | 419 | | | 1,050 | | | 967 | | Interest and other expense, net | | 1,160 | | | 874 | |
Depreciation and amortization | Depreciation and amortization | 3,512 | | | 3,164 | | | 10,331 | | | 10,158 | | Depreciation and amortization | | 3,657 | | | 3,396 | |
EBITDA | EBITDA | (1,572) | | | (735) | | | (5,323) | | | (4,827) | | EBITDA | | (3,687) | | | (1,654) | |
Stock-based compensation | Stock-based compensation | 1,266 | | | 1,179 | | | 3,586 | | | 3,985 | | Stock-based compensation | | 2,475 | | | 1,045 | |
Restructuring and other related costs | Restructuring and other related costs | — | | | 630 | | | 703 | | | 1,836 | | Restructuring and other related costs | | 920 | | | 467 | |
Amortization of contract acquisition asset costs - ASC 606 initial adoption | Amortization of contract acquisition asset costs - ASC 606 initial adoption | 134 | | | 277 | | | 514 | | | 789 | | Amortization of contract acquisition asset costs - ASC 606 initial adoption | | 84 | | | 218 | |
Litigation reserve | — | | | (256) | | | — | | | (256) | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | (172) | | | $ | 1,095 | | | $ | (520) | | | $ | 1,527 | | Adjusted EBITDA | | $ | (208) | | | $ | 76 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies as defined by Item 10(f)(1) of Regulation S-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our CEO and 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 Exchange Act, as of the end of the period covered by this 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 CEO and CFO concluded that our disclosure controls and procedures are designed to, and are effective to, provide at a reasonable assurance level, that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
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
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, see “Risk Factors” in Part 1I,I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2019 and “Risk Factors” in Part II, Item 1A of our quarterly report on Form 10-Q for the period ended March 31, 2020. There have been no material changes to the risk factors as disclosed in our annual report on Form 10-K for the year ended December 31, 2019 and our quarterly report on Form 10-Q for the period ended March 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit Number | | Description of Document |
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10.1* | | |
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10.2* | | |
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10.3* | | |
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10.4* | | |
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10.5* | | |
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31.1* | | |
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31.2* | | |
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32.1** | | |
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32.2** | | |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
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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.
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-Q are defined below:
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Abbreviations or acronyms | Definition |
2011 Plan | 2011 Equity Incentive Plan |
2020 Plan | 2020 Equity Incentive Plan |
APJ | Asia Pacific-Japan |
ASC 606 | Accounting Standards Codification Topic 606, Revenue from Contracts with Customers |
ASC 740 | Accounting Standards Codification Topic 740, Income Taxes |
ASC 842 | Accounting Standards Codification Topic 842, Leases |
ASU | Accounting Standards Update |
B2B | Business-to-business |
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BPaaS | Business Process-as-a-Service |
Borrowers | ServiceSource International, Inc. and ServiceSource Delaware, Inc. |
BPaaS | Business Process-as-a-Service |
CEO | Chief Executive Officer |
CFO | Chief Financial Officer |
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COVID-19 | Coronavirus disease 2019 |
Credit Agreement | Revolving Loan Credit Agreement, dated as of July 30, 2018, among the Borrowers and Compass Bank, as Lender |
EMEA | Europe, Middle East and Africa |
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ESPP | 2011 Employee Stock Purchase Plan |
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FASB | Financial Accounting Standards Board |
GAAP | United States Generally Accepted Accounting Principles |
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IoT | Internet of things |
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MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
NALA | North America and Latin America |
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PSU | Performance-based restricted stock unit |
Revolver | Senior secured revolving line of credit |
ROU | Right-of-use |
RSU | Restricted stock unit |
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rTSR | Relative total stockholder return |
SEC | Securities and Exchange Commission |
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U.S. | United States |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | SERVICESOURCE INTERNATIONAL, INC. (Registrant) |
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Date: | OctoberApril 28, 20202021 | By: | /s/ RICHARD G. WALKERCHAD W. LYNE |
| | | Richard G. WalkerChad W. Lyne
Chief Financial Officer and Director (Principal Financial and Accounting Officer) |