To supplement its financial statements presented in accordance with generally accepted accounting principles, or GAAP, ServiceSource also provides investors with non-
GAAP gross profit, net income, net income per share and Adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the closest GAAP financial measure is presented in
the financial tables below under the heading, "GAAP to Non-GAAP Reconciliation."
ServiceSource believes that the non-GAAP financial information provided in this release can assist investors in understanding and assessing its on-going core operations and prospects
for the future and provides an additional tool for investors to use in comparing ServiceSource's financial results with other companies in the industry, many of which present similar
non-GAAP financial measures to investors.
Non-GAAP revenue is defined as net revenue plus revenue not recognized in the period for Scout Analytics due to the impact of purchase accounting rules related to deferred revenue
acquired.
Non-GAAP gross profit consists of gross profit plus adjustments to revenue related to purchase accounting, stock based compensation, amortization of purchased intangible assets and
amortization of internally-developed software.
Non-GAAP net loss consists of net loss plus adjustments to revenue related to purchase accounting, stock-based compensation, amortization of purchased intangible assets,
amortization of internally-developed software, acquisition related costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal,
due diligence, integration costs, and acquisition bonus payments, non-cash interest expense and applying an income tax rate of 40% reflecting our estimated tax expense on our core
operations. Stock-based compensation expense is expected to vary depending on the number of new grants issued, changes in the company's stock price, stock market volatility, expected
option lives and risk-free rates of return, all of which are difficult to estimate.
EBITDA consists of net loss plus depreciation and amortization, interest expense, other expenses, net, and income tax expense. Adjusted EBITDA consists of EBITDA plus non-cash,
stock-based compensation expense, acquisition related costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due
diligence, integration costs, and acquisition bonus payments and adjustments to revenue related to purchase accounting. ServiceSource uses Adjusted EBITDA as a measure of operating
performance because it assists the company in comparing performance on a consistent basis, as it removes from the operating results the impact of the company's capital structure.
These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the
United States.
|
ServiceSource International, Inc. |
|
GAAP To Non-GAAP Reconciliation |
|
(Dollars in thousands, except per share amounts) |
|
(unaudited) |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
June 30, |
|
June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net revenue |
|
$ |
65,997 |
|
|
$ |
67,697 |
|
|
$ |
132,813 |
|
|
$ |
128,818 |
|
|
Adjustments to revenue |
(A) |
314 |
|
|
- |
|
|
760 |
|
|
- |
|
|
Non-GAAP net revenue |
|
$ |
66,311 |
|
|
$ |
67,697 |
|
|
$ |
133,573 |
|
|
$ |
128,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross profit |
|
$ |
17,479 |
|
|
$ |
29,077 |
|
|
$ |
36,700 |
|
|
$ |
51,700 |
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to revenue |
(A) |
314 |
|
|
- |
|
|
760 |
|
|
- |
|
|
Stock-based compensation |
(B) |
1,099 |
|
|
688 |
|
|
2,133 |
|
|
1,420 |
|
|
Amortization of internally-developed software |
(C) |
505 |
|
|
838 |
|
|
1,036 |
|
|
1,658 |
|
|
Amortization of purchased intangible assets |
(D) |
348 |
|
|
- |
|
|
623 |
|
|
- |
|
|
Non-GAAP gross profit |
|
$ |
19,745 |
|
|
$ |
30,603 |
|
|
$ |
41,252 |
|
|
$ |
54,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit % |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross profit |
|
26 |
% |
|
43 |
% |
|
28 |
% |
|
40 |
% |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to revenue |
(A) |
- |
% |
|
- |
% |
|
1 |
% |
|
- |
% |
|
Stock-based compensation |
(B) |
2 |
% |
|
1 |
% |
|
2 |
% |
|
1 |
% |
|
Amortization of internally-developed software |
(C) |
1 |
% |
|
1 |
% |
|
1 |
% |
|
1 |
% |
|
Amortization of purchased intangible assets |
(D) |
1 |
% |
|
- |
% |
|
- |
% |
|
- |
% |
|
Non-GAAP gross profit |
|
30 |
% |
|
45 |
% |
|
31 |
% |
|
43 |
% |
|
Certain totals do not add due to rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating expenses |
|
$ |
36,349 |
|
|
$ |
32,944 |
|
|
$ |
71,601 |
|
|
$ |
65,221 |
|
|
Stock-based compensation |
(B) |
(4,249 |
) |
|
(4,735 |
) |
|
(8,799 |
) |
|
(9,923 |
) |
|
Amortization of internally-developed software |
(C) |
(83 |
) |
|
(432 |
) |
|
(141 |
) |
|
(883 |
) |
|
Amortization of purchased intangible assets |
(D) |
(212 |
) |
|
- |
|
|
(377 |
) |
|
- |
|
|
Acquisition related costs |
(E) |
(175 |
) |
|
- |
|
|
(728 |
) |
|
- |
|
|
Non-GAAP operating expenses |
|
$ |
31,630 |
|
|
$ |
27,777 |
|
|
$ |
61,556 |
|
|
$ |
54,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss |
|
$ |
(21,092 |
) |
|
$ |
(4,906 |
) |
|
$ |
(39,832 |
) |
|
$ |
(15,361 |
) |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to revenue |
(A) |
314 |
|
|
- |
|
|
760 |
|
|
- |
|
|
Stock-based compensation |
(B) |
5,348 |
|
|
5,423 |
|
|
10,932 |
|
|
11,343 |
|
|
Amortization of internally-developed software |
(C) |
588 |
|
|
1,270 |
|
|
1,177 |
|
|
2,541 |
|
|
Amortization of purchased intangible assets |
(D) |
560 |
|
|
- |
|
|
1,000 |
|
|
- |
|
|
Acquisition related costs |
(E) |
175 |
|
|
- |
|
|
728 |
|
|
- |
|
|
Non-cash interest expense |
(F) |
1,877 |
|
|
- |
|
|
3,665 |
|
|
- |
|
|
Income tax effect on non-GAAP adjustments and
impact of normalizing the effective income tax rate |
(G) |
4,907 |
|
|
(268 |
) |
|
8,725 |
|
|
1,453 |
|
|
Non-GAAP net income (loss) |
|
$ |
(7,323 |
) |
|
$ |
1,519 |
|
|
$ |
(12,845 |
) |
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Loss Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share |
|
$ |
(0.25 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.20 |
) |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to revenue |
(A) |
- |
|
|
- |
|
|
0.01 |
|
|
- |
|
|
Stock-based compensation |
(B) |
0.06 |
|
|
0.07 |
|
|
0.13 |
|
|
0.15 |
|
|
Amortization of internally-developed software |
(C) |
0.01 |
|
|
0.02 |
|
|
0.01 |
|
|
0.03 |
|
|
Amortization of purchased intangible assets |
(D) |
0.01 |
|
|
- |
|
|
0.01 |
|
|
- |
|
|
Acquisition related costs |
(E) |
- |
|
|
- |
|
|
0.01 |
|
|
- |
|
|
Non-cash interest expense |
(F) |
0.02 |
|
|
- |
|
|
0.04 |
|
|
- |
|
|
Income tax effect on non-GAAP adjustments and
impact of normalizing the effective income tax rate |
(G) |
0.06 |
|
|
- |
|
|
0.11 |
|
|
0.02 |
|
|
Non-GAAP diluted net income (loss) per share |
|
$ |
(0.09 |
) |
|
$ |
0.02 |
|
|
$ |
(0.16 |
) |
|
$ |
- |
|
|
Certain totals do not add due to rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted net loss per share on a non-GAAP basis |
|
82,784 |
|
|
81,855 |
|
|
82,432 |
|
|
76,447 |
|
Footnotes to GAAP to Non-GAAP Reconciliation
(A) Adjustments to revenue - Due to purchase accounting rules, upon acquisition, we recorded an adjustment of $1.65 million to reduce the balance of deferred revenue related to the
assumed client contracts acquired from Scout Analytics. As a result of this adjustment, $0.3 million of revenue was not recognized for the three months ended June 30, 2014 and $0.8
million for the six months ended June 30, 2014. Therefore, revenue is adjusted by an increase of $0.3 million to arrive at non-GAAP revenue for the three months ended June 30, 2014 and
$0.8 million to arrive at non-GAAP revenue for the six months ended June 30, 2014.
(B) Stock-based compensation. Included in our GAAP presentation of cost of revenue and operating expenses, stock-based compensation consists of expenses for stock options and
awards and purchase rights under our stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not
reflective of our core operating performance as it is a non-cash expense.
(C) Amortization of internally-developed software. Included in our GAAP presentation of cost of revenue and operating expenses, amortization of internally-developed software reflects
non-cash expense for certain software purchases and software developed or obtained for internal use. We exclude these expenses from our non-GAAP measures because we believe they
are not indicative of our core operating performance.
(D) Amortization of Purchased Intangibles. Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. We believe
amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names and
customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment,
amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
(E) Acquisition related costs. Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger
and acquisition activities such as legal, due diligence, integration costs and acquisition bonus payments. These are one-time costs that vary significantly in amount and timing and are not
indicative of our core operating performance.
(F) Non-cash interest expense. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the $150 million convertible senior
notes that were issued in August 2013. Accordingly, for GAAP purposes we are required to recognize effective interest expense on our convertible senior notes which includes
interest cost related to the amortization of debt issuance costs and the contractual 1.5% interest rate of the note. The difference between the effective interest expense and the contractual
interest expense is excluded from our assessment of our operating performance because we believe that this non-cash expense is not indicative of ongoing operating performance. We
believe that the exclusion of the non-cash interest expense provides investors a view of our core operating performance.
(G) Income tax effect on non-GAAP adjustments as well as the impact of normalizing the effective income tax rate. This adjusts (i) the provision for income taxes to reflect the effect of
the non-GAAP items A, B, C, D, E and F noted above on our non-GAAP net loss; (ii) the income tax rate to a normalized effective tax rate of 40%; and (iii) non-GAAP earnings per share
based on a fully-diluted share count.
