10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

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

For the quarterly period ended June 30, 2017

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 our charter)

Delaware	No. 81-0578975
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
717 17th St., 5th Floor Denver, CO	80202
(Address of Principal Executive Offices)	(Zip Code)

(720) 889-8500

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Class	Outstanding as of July 31, 2017
Common Stock	89,189,275

Explanatory Note

This Amendment No. 1 on Form 10-Q/A (this "Amendment") amends the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, originally filed with the Securities and Exchange Commission on August 7, 2017 (the "Original Filing").

The Company is filing this Amendment solely to correct a clerical error in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Investing Activities section. In reference to the six months ended June 30, 2017, we originally disclosed that “Property and equipment additions include $0.2 million of capitalized internal-use software development cost.”  The correct disclosure should have been “Property and equipment additions include $6.8 million of capitalized internal-use software development cost.”

For the convenience of the reader, this Form 10-Q/A sets forth the Quarterly Report on Form 10-Q as of June 30, 2017 in its entirety. Except for the correction noted in the immediately preceding paragraph, this Amendment does not alter or restate any of the information presented or disclosed in the Original Filing. Forward-looking statements made in the Original Filing have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing.

As required, currently-dated certifications from the Company's Chief Executive and Chief Financial Officer have been included as exhibits to this Amendment.

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SERVICESOURCE INTERNATIONAL, INC.

Form 10-Q

INDEX

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	4
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016	5
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2017 and 2016	6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25
Signatures	26
Exhibit Index	27

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SERVICESOURCE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	39,664		$	47,692
Short-term investments	139,472			137,881
Accounts receivable, net	52,534			63,289
Prepaid expenses and other	7,864			7,607
Total current assets	239,534			256,469
Property and equipment, net	36,688			38,180
Deferred income taxes, net of current portion	69			64
Goodwill and intangibles, net	7,176			7,932
Other assets, net	3,386			3,445
Total assets	$	286,853		$	306,090
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,109		$	1,916
Accrued taxes	738			1,388
Accrued compensation and benefits	17,143			21,579
Deferred revenue	3,033			4,152
Accrued expenses	5,895			5,891
Other current liabilities	2,304			2,958
Total current liabilities	30,222			37,884
Convertible notes, net	139,333			134,775
Other long-term liabilities	7,033			6,495
Total liabilities	176,588			179,154
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock; $0.0001 par value; 1,000,000 shares authorized; 88,137 shares issued and 89,016 shares outstanding as of June 30, 2017; 88,304 shares issued and 88,183 shares outstanding as of December 31, 2016	8			8
Treasury stock	(441		)	(441		)
Additional paid-in capital	351,971			344,521
Accumulated deficit	(241,086		)	(216,361		)
Accumulated other comprehensive income	(187		)	(791		)
Total stockholders’ equity	110,265			126,936
Total liabilities and stockholders’ equity	$	286,853		$	306,090

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

4

SERVICESOURCE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net revenue	$	58,262		$	61,969		$	114,970		$	121,719
Cost of revenue	39,517			40,344			80,926			81,778
Gross profit	18,745			21,625			34,044			39,941
Operating expenses:
Sales and marketing	8,620			11,326			16,960			21,779
Research and development	1,243			2,016			3,485			4,180
General and administrative	13,505			11,552			27,486			23,595
Restructuring and other	5,715			—			5,715			—
Total operating expenses	29,083			24,894			53,646			49,554
Loss from operations	(10,338		)	(3,269		)	(19,602		)	(9,613		)
Interest expense and other, net	(2,646		)	(1,700		)	(4,717		)	(3,209		)
Loss before income taxes	(12,984		)	(4,969		)	(24,319		)	(12,822		)
Income tax provision	117			249			406			1,537
Net loss	$	(13,101	)	$	(5,218	)	$	(24,725	)	$	(14,359	)
Net loss per share, basic and diluted	$	(0.15	)	$	(0.06	)	$	(0.28	)	$	(0.17	)
Weighted average common shares outstanding, basic and diluted	88,813			85,413			88,600			85,747

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

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SERVICESOURCE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net loss	$	(13,101	)	$	(5,218	)	$	(24,725	)	$	(14,359	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	628			(703		)	499			(1,119		)
Unrealized gain (loss) on short-term investments	32			(169		)	105			930
Other comprehensive income (loss), net of tax	660			(872		)	604			(189		)
Total comprehensive loss, net of tax	$	(12,441	)	$	(6,090	)	$	(24,121	)	$	(14,548	)

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

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SERVICESOURCE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities
Net loss	$	(24,725	)	$	(14,359	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	10,801			7,564
Amortization of debt discount and issuance costs	4,557			4,247
Accretion of premium on short-term investments	(114		)	554
Deferred income taxes	148			855
Stock-based compensation	6,912			5,195
Restructuring and other	2,901			—
Changes in operating assets and liabilities:
Accounts receivable, net	12,239			2,287
Deferred revenue	(1,119		)	(303		)
Prepaid expenses and other	(37		)	303
Accounts payable	(825		)	766
Accrued taxes	(664		)	(231		)
Accrued compensation and benefits	(5,164		)	317
Accrued expenses	(1,508		)	1,031
Other liabilities	(364		)	336
Net cash provided by operating activities	3,038			8,562
Cash flows from investing activities
Acquisition of property and equipment	(9,080		)	(14,316		)
Purchases of short-term investments	(37,806		)	(55,133		)
Sales of short-term investments	33,457			53,361
Maturities of short-term investments	3,025			350
Net cash used in investing activities	(10,404		)	(15,738		)
Cash flows from financing activities
Repayment on capital leases obligations	(34		)	(103		)
Repurchase of common stock	—			(8,921		)
Proceeds from common stock issuances	616			739
Minimum tax withholding requirement	(322		)	(242		)
Net cash provided by (used in) financing activities	260			(8,527		)
Net decrease in cash and cash equivalents	(7,106		)	(15,703		)
Effect of exchange rate changes on cash and cash equivalents	(922		)	(1,335		)
Cash and cash equivalents at beginning of period	47,692			72,334
Cash and cash equivalents at end of period	$	39,664		$	55,296

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

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SERVICESOURCE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Description of Business and Basis of Presentation

ServiceSource International, Inc. (together with its subsidiaries, the “Company”) is a global leader in outsourced, performance-based customer success and revenue growth solutions. Through the Company’s people, processes and technology, the Company grows and retains revenue on behalf of its clients-some of the world’s leading business-to-business companies-in more than 35 languages. The Company’s solutions help its clients strengthen their customer relationships, drive improved customer adoption, expansion and retention and minimize churn. The Company’s technology platform and best-practice business processes combined with its highly-trained, client-focused revenue delivery professionals and data from over 15 years of operating experience enable the Company to provide its clients greater value for its customer success services than attained by its clients' in-house customer success teams.

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

The accompanying unaudited interim condensed consolidated financial statements (“condensed consolidated financial statements”) include the accounts of ServiceSource International, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

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

In the opinion of management, these condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for a fair statement of the Company's financial position, operating results, and cash flows for the interim periods presented. Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Also, the results for the interim periods are not necessarily indicative of results for the entire year.

Recent Accounting Pronouncements

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

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method, also known as the cumulative catch-up transition method).  The updates are effective for the Company for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for annual periods beginning after December 15, 2016.

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The Company continues to assess the impacts of the standard, and has not yet determined whether the standard will have a material impact on our consolidated financial statements. However, we currently believe the most significant impact is from the timing of recognition of sales commission expenses, which upon adoption will be recognized as costs over a period of time instead of immediately. We are also in the process of assessing the impact of the new standard on certain of our contracts that include performance-based fees. We currently recognize such fees in the period when the performance criteria have been met; however, under the new standard we would estimate the variable fees and recognize amounts for which it is probable that a significant reversal would not occur. For certain contracts, this could result in acceleration of recognition of the performance-based fees. We do not currently expect our recurring revenue management fees, based on a fixed percentage of overall sales value associated with the service contracts, to be significantly impacted by the new standard.

We will adopt the standard in the first quarter of 2018 and preliminarily expect to use the modified prospective method. However, we are continuing to evaluate the impact of the standard, and our adoption method is subject to change. We expect to complete our assessment process, including impacts on our processes, systems and financial statement disclosures, by the end of the third quarter of 2017.

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

Reclassifications

Amounts shown in Financing activities - Minimum tax withholding requirement in the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 have been reclassified from Operating activities - Prepaid expenses and other, to reflect the current period presentation as a result of the adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which requires shares withheld for employee taxes to be reclassified from operating activities to financing activities.

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

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

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

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June 30, 2017

	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash	$	39,596	$	—	$	—		$	39,596
Cash equivalents:
Money market mutual funds	68		—		—			68
Total cash and cash equivalents	39,664		—		—			39,664
Short-term investments:
Corporate bonds	55,404		60		(115		)	55,349
U.S. agency securities	34,649		1		(245		)	34,405
Asset-backed securities	23,852		7		(29		)	23,830
U.S. Treasury securities	26,150		—		(262		)	25,888
Total short-term investments	140,055		68		(651		)	139,472
Cash, cash equivalents and short-term investments	$	179,719	$	68	$	(651	)	$	179,136

December 31, 2016

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

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

	Amortized Cost		Estimated Fair Value
Less than 1 year	$	16,105	$	16,108
Due in 1 to 3 years	124,018		123,432
Total	$	140,123	$	139,540

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

Note 3 — Fair Value of Financial Instruments

The Company measures certain financial instruments at fair value on a recurring basis. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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

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

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

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

The following table presents information about the Company’s financial instruments that are measured at fair value as of June 30, 2017 and indicates the fair value hierarchy of the valuation (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	68	$	68	$	—
Total cash equivalents	68		68		—
Short-term investments:
Corporate bonds	55,349		—		55,349
U.S. agency securities	34,405		—		34,405
Asset-backed securities	23,830		—		23,830
U.S. Treasury securities	25,888		—		25,888
Total short-term investments	139,472		—		139,472
Cash equivalents and short-term investments	$	139,540	$	68	$	139,472

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

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	632	$	632	$	—
Total cash equivalents	632		632		—
Short-term investments:
Corporate bonds	54,658		—		54,658
U.S. agency securities	34,377		—		34,377
Asset-backed securities	26,433		—		26,433
U.S. Treasury securities	22,413		—		22,413
Total short-term investments	137,881		—		137,881
Cash equivalents and short-term investments	$	138,513	$	632	$	137,881

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The convertible notes issued by the Company in August 2013 are shown on the accompanying consolidated balance sheets at their original issuance value, net of unamortized discount and issuance costs, and are not marked to market each period. The approximate fair value of the convertible notes as of June 30, 2017 and December 31, 2016 was $145.9 million and $143.8 million, respectively. The fair value of the convertible notes was determined using quoted market prices for similar securities, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.

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

Note 4 — Debt

Senior Convertible Notes

In August 2013, the Company issued senior convertible notes (the “Notes”) in exchange for gross proceeds of $150.0 million.

The Notes are governed by an Indenture, dated August 13, 2013 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee. The Notes will mature on August 1, 2018, unless earlier repurchased or converted, and bear interest at a rate of 1.50% per year payable semi-annually in arrears on February 1 and August 1, beginning February 1, 2014.

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

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

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

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

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

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

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

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

The Company incurred transaction costs of approximately $4.9 million related to the issuance of the Notes. In accounting for these costs, the Company allocated the costs to the debt and equity components in proportion to the allocation of proceeds from the issuance of the Notes to such components. Transaction costs allocated to the debt component of $3.6 million are

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recorded within Convertible notes, net, and amortized to interest expense over the term of the Notes. The transaction costs allocated to the equity component of $1.3 million were recorded to additional paid-in capital.

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

	June 30, 2017			December 31, 2016
Principal amount	$	150,000		$	150,000
Unamortized debt discount	(9,758		)	(13,928		)
Unamortized debt issuance costs	(909		)	(1,297		)
Net carrying amount	$	139,333		$	134,775

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Contractual interest expense at 1.5% per annum	$	563	$	563	$	1,125	$	1,125
Amortization of debt issuance costs	197		183		388		362
Accretion of debt discount	2,119		1,961		4,169		3,886
Total	$	2,879	$	2,707	$	5,682	$	5,373

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

Note Hedges

Concurrent with the issuance of the Notes, the Company entered into note hedges (“Note Hedges”) with certain bank counterparties, with respect to its common stock. The Company paid $31.4 million for the Note Hedges. The Note Hedges cover approximately 9.25 million shares of the Company's common stock at a strike price of $16.21 per share. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential dilution to the Company's common stock upon conversion of the Notes and/or offset the cash payment in excess of the principal amount of the Notes the Company is required to make in the event that the market value per share of the Company's common stock at the time of exercise is greater than the conversion price of the Notes.

Warrants

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

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

Note 5 — Commitments and Contingencies

Litigation

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

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

Note 6 — Share Repurchase Program and Stock-Based Compensation

In August 2015, the Board authorized a stock repurchase program (the "program") with a maximum authorization to repurchase up to $30.0 million worth of common stock of the Company. The program expires in August 17, 2017. The aggregate amount available under the program was approximately $19.9 million as of June 30, 2017. The share repurchase program does not obligate the Company to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. The Company cash settles with the program broker periodically and reflects any unsettled amounts as a current liability at each period end. No shares were repurchased under the program during the quarter ended June 30, 2017.

The following table summarizes the consolidated stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017		2016
Cost of revenue	$	294		$	379	$	584	$	847
Sales and marketing	970			726		1,852		1,588
Research and development	(35		)	144		65		341
General and administrative	2,466			1,087		4,411		2,419
Total stock-based compensation	$	3,695		$	2,336	$	6,912	$	5,195

The above table does not include $0.1 million of capitalized stock-based compensation related to internal-use software during the three months ended June 30, 2017 and 2016, respectively, and $0.2 million and $0.3 million for the six months ended June 30, 2017 and 2016, respectively.

Equity Incentive Plan

During the second quarter of 2017, the Company granted performance-based restricted stock unit awards under the Company’s 2011 Equity Incentive Plan to certain key executives (the “2017 PSU Awards”). For each 2017 PSU Award, a number of restricted stock units became eligible to vest based on the levels of achievement of the performance-based conditions, and those restricted stock units that became eligible to vest will vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date, except as otherwise provided under certain termination and change-in-control provisions in each award agreement. The aggregate target number of restricted stock units subject to the 2017 PSU Awards was 1.0 million with an aggregate grant date fair value of $3.7 million.

The performance-based conditions are based upon the Company’s revenue and adjusted EBITDA performance in fiscal year 2017 against the target goals for such metrics under the Company’s 2017 corporate incentive plan (in each case, “Performance Achievement”), which will each be determined on the date the Company files its Annual Report on Form 10-K for fiscal year 2017. The target number of restricted stock units for each 2017 PSU Award will be divided equally between the two performance metrics. For each performance metric, the number of restricted stock units that become eligible to vest will be: (i) if the applicable Performance Achievement is less than 90% of the target revenue goal or less than 69% of the target EBITDA goal, no restricted stock units for such performance metric, (ii) if the applicable Performance Achievement is equal to 90% of the target revenue goal or 69% of the target EBITDA goal, 50% of the target number of restricted stock units for such performance metric, (iii) if the applicable Performance Achievement is equal to 100% of the target revenue and EBITDA goals, 100% of the target number of restricted stock units for such performance metric, or (iv) if the applicable Performance Achievement is at least 107% of the target revenue goal or 146% of the target EBITDA goal, 150% of the target number of restricted stock units for such performance metric. For each performance metric, if the applicable Performance Achievement falls between any of the thresholds (ii), (iii), and (iv) specified in the previous sentence, the number of restricted stock units that become eligible to vest for such performance metric will be determined via linear interpolation. +

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Under the time-based vesting condition, 50% of the restricted stock units that have become eligible to vest will vest on the first anniversary of the grant date, and 50% of the restricted stock units that have become eligible to vest will vest on the second anniversary of the grant date, except as otherwise provided under certain termination and change-in-control provisions in each award agreement governing a 2017 PSU Award. Such provisions will determine the number of restricted stock units that become eligible to vest and when and how many restricted stock units will actually vest in connection with the specified terminations of employment and changes in-control.

Option and restricted stock activity under the 2011 Equity Incentive Plan for the six months ended June 30, 2017 was as follows (shares in thousands):

			Options Outstanding				Restricted Stock Outstanding
	Shares and Units Available for Grant		Number of Shares		Weighted- Average Exercise Price		Number of Shares
December 31, 2016	10,406		7,495		$	4.63	4,644
Additional shares reserved under the 2011 equity incentive plan	3,527		—		—		—
Granted	(2,888	)	103		3.75		2,786
PSU Additional Goal Shares Achieved	(243	)	—		—		243
Options exercised/ Restricted stock released	—		(10	)	5.45		(738	)
RSU shares withheld for taxes	77		—		—		77
Canceled/Forfeited	814		(405	)	5.49		(409	)
June 30, 2017	11,693		7,183		$	4.57	6,603

The weighted average grant-date fair value of employee stock options granted during the three months ended June 30, 2017 and 2016 was $1.73 and $1.88 per share, respectively, and $1.96 and $1.99 per share for the six months ended June 30, 2017 and 2016, respectively. The unamortized grant date fair value of both stock options and restricted stock awards totaled $23.0 million at June 30, 2017.

Potential shares of common stock that are not included in the determination of diluted net loss per share because they are anti-dilutive for the periods presented consist of weighted stock options, non-vested restricted stock and shares to be purchased under our Employee Stock Purchase Plan having an anti-dilutive effect of 7.9 million and 10.7 million shares for the three months ended June 30, 2017 and 2016, respectively, and 6.0 million and 10.8 million shares for the six months ended June 30, 2017 and 2016, respectively.

Note 7 — Income Taxes

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

The gross amount of the Company's unrecognized tax benefits was $0.9 million as of June 30, 2017 and December 31, 2016, none of which, if recognized, would affect the Company’s effective tax rate.

Note 8 — Restructuring and Other

In early May 2017, the Company announced a restructuring effort to better align our cost structure with current business and market conditions, including a headcount reduction and the reduction of office space in four locations. The restructuring plan is accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company recognized restructuring and other charges of $5.7 million during the quarter. Severance and other employee costs include severance payments, related employee benefits and employee-related legal fees. Lease and other contract termination costs include charges related to lease consolidation and abandonment of spaces no longer utilized and cancellation of certain contracts with

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outside vendors. Asset impairments include charges related to leasehold improvements and furniture in spaces vacated or no longer in use. The Company expects to have restructuring and other expenses through the remainder of 2017, as restructuring activities targeted at reducing the overall cost structure of the business will continue over several quarters. Also, future cash outlays related to these restructuring activities are expected to total $2.0 million. These amounts are reflected in Accounts payable, Accrued compensation and benefits and Accrued expenses as of June 30, 2017.

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

	Severance and Other Employee Costs			Lease and Other Contract Termination Costs			Asset Impairments			Total
Restructuring and other liability at January 1, 2017	$	—		$	—		$	—		$	—
Restructuring and other charge	2,970			1,859			886			5,715
Cash paid	(2,508		)	(306		)	—			(2,814		)
Non-cash impairment charges	—			—			(886		)	(886		)
Restructuring and other liability at June 30, 2017	$	462		$	1,553		$	—		$	2,015

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

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

This report, including this MD&A, includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those identified elsewhere in this report and those discussed in the sections of our Annual Report on Form 10-K entitled “Special Note Regarding Forward Looking Statements and Industry Data” and “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.

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

OVERVIEW

ServiceSource International, Inc. is a global leader in outsourced, performance-based customer success and revenue growth solutions. Through our people, processes and technology, we grow and retain revenue on behalf of our clients—some of the world’s leading business-to-business companies—in more than 35 languages. Our solutions help our clients strengthen their customer relationships, drive improved customer adoption, expansion and retention and minimize churn. Our technology platform and best-practice business processes combined with our highly-trained, client-focused revenue delivery professionals and data from over 15 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our clients' in-house customer success teams.

Basis of Presentation

Net Revenue

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

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

We have generated a significant portion of our revenue from a limited number of clients. Our top ten customers accounted for 68% and 63% of our net revenue for the six months ended June 30, 2017 and 2016, respectively.

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

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Our business is geographically diversified. Through the first half of 2017, 63% of our net revenue was earned in North America and Latin America (“NALA”), 25% in Europe, Middle East and Africa (“EMEA”) and 12% in Asia Pacific-Japan (“APJ”). Net revenue for a particular geography generally reflects commissions earned from sales of service contracts managed from our revenue delivery centers in that geography. Predominantly all of the service contracts sold and managed by our revenue delivery centers relate to end customers located in the same geography. APJ is our newest region, and as a result accounts for less of our net revenue. In addition, our Kuala Lumpur, Manila and Sofia locations are revenue delivery centers where we have centralized, for our worldwide operations, the key contract renewal processes that do not require regional expertise, such as client data management and quoting.

Cost of Revenue and Gross Profit

Our cost of revenue expenses include employee compensation, technology costs, including those related to the delivery of our cloud-based technologies, and allocated overhead costs. Compensation expense includes salary, bonus, benefits and stock-based compensation for our dedicated service sales teams. Our allocated overhead includes costs for facilities, information technology and depreciation, including amortization of internal-use software associated with our service revenue technology platform and cloud applications. Allocated costs for facilities consist of rent, maintenance and compensation of personnel in our facilities departments. Our allocated costs for information technology include costs associated with third-party data centers where we maintain our data servers, compensation of our information technology personnel and the cost of support and maintenance contracts associated with computer hardware and software. To the extent our client base or Opportunity Under Management expands, we may need to hire additional service sales personnel and invest in infrastructure to support such growth. Our cost of revenue may fluctuate significantly and increase or decrease on an absolute basis and as a percentage of revenue in the near term, including for the reasons discussed under, “Factors Affecting Our Performance—Implementation Cycle” in our 2016 Annual Report on Form 10-K.

Operating Expenses

Sales and Marketing. Sales and marketing expenses are a significant component of our operating costs and consist primarily of compensation expenses and sales commissions for our sales and marketing staff, allocated expenses and marketing programs and events. We sell our solutions through our global sales organization, which is organized across three geographic regions: NALA, EMEA and APJ. Our commission plans provide that payment of commissions to our sales representatives is contingent on their continued employment, and we recognize expense over a period that is generally between the contract signing date and twelve to fourteen months following the execution of the applicable contract. When commissions are paid upon contract signing and are not contingent on future payments and continued employment, we consider that portion of the commission to be earned and therefore expensed at contract signing.

Research and Development. Research and development expenses consist primarily of employee compensation expense, allocated costs and the cost of third-party service providers. We focus our research and development efforts on developing new products and applications related to our technology platform. We capitalize certain expenditures related to the development and enhancement of internal-use software related to our technology platform.

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

Restructuring and Other. Restructuring and other expenses consist primarily of employees' severance payments, related employee benefits, related legal fees, asset impairment charges and charges related to leases and other contract termination costs.

Interest Expense and Other, Net

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

Other, net. Other, net consists primarily of foreign exchange gains and losses and the interest income earned on our cash, cash equivalents and marketable securities investments. We expect other income to vary depending on the movement in foreign currency exchange rates and the related impact on our foreign exchange gain (loss) and the return of interest on our investments.

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Income Tax Provision (Benefit)

We account for income taxes using an asset and liability method, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our taxable subsidiaries’ assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

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

We account for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. We record an income tax liability, if any, for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax returns. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made. The reserves are adjusted in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

Results of Operations

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(as % of net revenue)
Net revenue	100	%	100	%	100	%	100	%
Cost of revenue	68	%	65	%	70	%	67	%
Gross profit	32	%	35	%	30	%	33	%
Operating expenses:
Sales and marketing	15	%	18	%	15	%	18	%
Research and development	2	%	3	%	3	%	3	%
General and administrative	23	%	19	%	24	%	19	%
Restructuring and other	10	%	—	%	5	%	—	%
Total operating expenses	50	%	40	%	47	%	40	%
Loss from operations	(18	)%	(5	)%	(17	)%	(7	)%

Three and Six Months Ended June 30, 2017 and 2016.

Net Revenue, Cost of Revenue and Gross Profit

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	Three Months Ended June 30,									Six Months Ended June 30,
	2017		2016		Change			% Change		2017		2016		Change			% Change
	(in thousands)									(in thousands)
Net Revenue	$	58,262	$	61,969	$	(3,707	)	(6	)%	$	114,970	$	121,719	$	(6,749	)	(6	)%
Cost of Revenue	39,517		40,344		(827		)	(2	)%	80,926		81,778		(852		)	(1	)%
Gross Profit	$	18,745	$	21,625	$	(2,880	)	(13	)%	$	34,044	$	39,941	$	(5,897	)	(15	)%

Net revenue decreased $3.7 million, or 6%, for the second quarter of 2017 compared to the second quarter of 2016. The overall decrease was due to contractions and lower production with certain existing customers that was not offset by production related to expansions and new business in the second quarter of 2017.

Our cost of revenue in the second quarter of 2017 decreased by $0.8 million, or 2%, compared to the second quarter of 2016 reflects a $1.1 million decrease in employee related costs as a result of shifting headcount to lower cost offices and locations, all related to our continuous efforts to better align employee costs with revenue, a decrease of $0.2 million in temporary labor and consulting costs, $0.2 million in travel costs, $0.2 million in recruitment costs, $0.4 million decrease in information technology, offset by a $0.8 million increase in depreciation and amortization costs and $0.2 million of overhead allocations.

Gross profit in the second quarter of 2017decreased by $2.9 million, or 13%, compared to the same period in 2016 which is consistent with the decrease in revenue.

Net revenue decreased $6.7 million, or 6%, for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. The overall decrease was due to contractions and lower production with certain existing customers that was not offset by production related to expansions and new business.

The $0.9 million, or 1%, decrease in our cost of revenue in the six months ended June 30, 2017 compared to the six months ended June 30, 2016 reflects a $1.7 million decrease in employee related costs as a result of shifting headcount to lower cost offices and locations, all related to our continuous efforts to better align employee costs with revenue, a decrease of $1.0 million in both temporary labor and consulting costs, $0.4 million decrease in recruitment costs, $0.5 million decrease in information technology costs, offset by a $1.4 million increase in depreciation and amortization costs and $1.3 million of overhead allocations.

Gross profit in the six months ended June 30, 2017 decreased by $5.9 million, or 15%, compared to the same period in 2016 which is in line with the decrease in revenue and proportionate reduction in employee related costs.

Operating Expenses

	Three Months Ended June 30,										Six Months Ended June 30,
	2017			2016		Change			% Change		2017		2016		Change			% Change
	(in thousands)										(in thousands)
Operating expenses:
Sales and marketing	$	8,620		$	11,326	$	(2,706	)	(24	)%	$	16,960	$	21,779	$	(4,819	)	(22	)%
Research and development	1,243			2,016		(773		)	(38	)%	3,485		4,180		(695		)	(17	)%
General and administrative	13,505			11,552		1,953			17	%	27,486		23,595		3,891			16	%
Restructuring and other	5,715			—		5,715			100	%	5,715		—		5,715			100	%
Total operating expenses	$	29,083		$	24,894	$	4,189		17	%	$	53,646	$	49,554	$	4,092		8	%
Includes stock-based compensation of:
Sales and marketing	$	970		$	726	$	244				$	1,852	$	1,588	$	264
Research and development	(35		)	144		(179		)			65		341		(276		)
General and administrative	2,466			1,087		1,379					4,411		2,419		1,992
Total stock-based compensation	$	3,401		$	1,957	$	1,444				$	6,328	$	4,348	$	1,980

Sales and marketing expenses

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The $2.7 million, or 24%, decrease in sales and marketing expenses in the second quarter of 2017 compared to the second quarter of 2016 resulted from a $1.7 million decrease in employee related costs and a $0.4 million decrease in travel costs. Offsetting this decrease was a $0.2 million increase in marketing costs.

The $4.8 million, or 22%, decrease in sales and marketing expenses in the six months ended June 30, 2017 compared to the six months ended June 30, 2016 resulted from a $3.8 million decrease in employee related costs, $0.9 million decrease in travel costs, $0.1 million decrease in recruitment and $0.2 million of overhead allocation. These decreases were offset by a $0.3 million increase in marketing programs costs.

Research and development expenses

The $0.8 million, or 38%, decrease in research and development expense in the second quarter of 2017 compared to the second quarter of 2016 was primarily due to a $0.7 million decrease in employee related costs associated with higher internal-use software development capitalization rates and a $0.1 million decrease in temporary labor and consulting costs offset by a $0.1 million increase in information technology costs.

Internal-use software development capitalization was flat for the three months ended June 30, 2017 compared to the three months ended June 30, 2016, primarily due to continued development efforts related to our internal managed services platforms and to a lesser extent Renew OnDemand.

The $0.7 million, or 17%, decrease in research and development expense in the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily due to $1.0 million decrease in employee related costsassociated with a decrease in headcount offset by a $0.2 million increase in temporary labor and consulting costs and $0.1 million increase in information technology costs and overhead allocations, respectively.

Internal-use software development capitalization increased by $0.4 million for the six months ended June 30, 2017 compared to the six months ended June 30, 2016, primarily due to continued development efforts related to our internal managed services platforms and Renew OnDemand.

General and administrative expenses

The $2.0 million, or 17%, increase in general and administrative expense in the second quarter of 2017 compared to the second quarter of 2016 reflected a $0.4 million increase in employee related costs, $0.5 million increase in temporary labor and consulting costs, a $0.3 increase in recruitment costs, $0.3 million increase in bad debt expense and $1.0 million increase in depreciation expense. Offsetting this increase was a $0.2 million decrease in travel costs, a $0.3 million decrease in rent and facility expenses and a $0.1 million decrease in overhead allocations.

The $3.9 million, or 16%, increase in general and administrative expense in the six months ended June 30, 2017 compared to the six months ended June 30, 2016 reflected a $2.4 million increase in employee related costs, $0.6 million increase in recruitment costs, a $0.5 increase in information technology, $1.8 million increase in depreciation expense and a $0.1 million increase in temporary labor and consulting. Offsetting this increase was a $0.5 million decrease in travel costs and a $1.2 million decrease in overhead allocations.

Restructuring and other expenses

The $5.7 million increase in restructuring and other in the three and six months ended June 30, 2017 compared to the three and six months ended 2016 was related to our recognition of restructuring and other charges during the second quarter of 2017 when we announced an effort to better align our cost structure with current revenue levels.

Interest Expense and Other, Net

	Three Months Ended June 30,											Six Months Ended June 30,
	2017			2016			Change			% Change		2017			2016			Change			% Change
	(in thousands)											(in thousands)
Interest expense	$	2,889		$	2,719		$	170		6	%	$	5,707		$	5,400		$	307		6	%
Other, net	(243		)	(1,019		)	(776		)	(76	)%	(990		)	(2,191		)	(1,201		)	(55	)%

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

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Other, net decreased by $0.8 million, or 76%, in the three months ended June 30, 2017 compared to the three months ended June 30, 2016, primarily due to foreign currency fluctuations.

Interest expense increased by $0.3 million, or 6%, in the six months ended June 30, 2017 compared to the six months ended June 30, 2016 and was due to the increased accretion of debt discount under the effective interest method related to the convertible notes issued in August 2013.

Other, net decreased by $1.2 million, or 55%, in the six months ended June 30, 2017 compared to the six months ended June 30, 2016, primarily due to foreign currency fluctuations.

Income Tax Provision

	Three Months Ended June 30,								Six Months Ended June 30,
	2017		2016		Change			% Change	2017		2016		Change			% Change
	(in thousands)								(in thousands)
Income tax provision	$	117	$	249	$	(132	)	*	$	406	$	1,537	$	(1,131	)	*

*Not considered meaningful.

For the second quarter of 2017, we recorded income tax expense of approximately $0.1 million. This amount primarily represents anticipated taxes in jurisdictions where we have profitable operations, including certain U.S. states and foreign jurisdictions. Income tax expense decreased in the second quarter 2017 by $0.1 million compared to the second quarter of 2016 primarily due to state deferred tax assets.

For the six months ended June 30, 2017, we recorded income tax expense of approximately $0.4 million. This amount primarily represents anticipated taxes in jurisdictions where we have profitable operations, including certain U.S. states and foreign jurisdictions. Income tax expense decreased in the second quarter 2017 by $1.1 million compared to the second quarter of 2016 primarily due to certain state deferred tax assets.

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

Liquidity and Capital Resources

At June 30, 2017, we had cash, cash equivalents and short-term investments of $179.1 million, which primarily consisted of demand deposits, money market mutual funds, corporate bonds and United States government obligations held by well-capitalized financial institutions. In addition, at June 30, 2017, we had cash and cash equivalents of $7.0 million held outside of the U.S. by our foreign subsidiaries that was generated by such subsidiaries and which is used to satisfy their current operating requirements. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested in foreign operations and we do not have current plans to repatriate these earnings to fund our U.S. operations as we have sufficient cash, cash-equivalents and short-term investments held in the United States.

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

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

22

Share Repurchase Program

In August 2015, the Board authorized a stock repurchase program with a maximum authorization repurchase up to $30.0 million worth of common stock of the Company. The program expires in August 2017. The aggregate amount available under the program was approximately $19.9 million at June 30, 2017. The program does not obligate the Company to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

Letter of Credit and Restricted Cash

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

Summary Cash Flows

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

	Six Months Ended June 30,
	2017			2016
Net cash provided by operating activities	$	3,038		$	8,562
Net cash used in investing activities	(10,404		)	(15,738		)
Net cash provided (used in) by financing activities	260			(8,527		)
Net decrease in cash and cash equivalents, net of impact of exchange rate changes on cash	(8,028		)	(17,038		)

Operating Activities

Net cash provided by operating activities was $3.0 million during the six months ended June 30, 2017. Net loss during the period was $24.7 million adjusted by non-cash charges of $10.8 million for depreciation and amortization, $4.6 million of amortization of debt discount and issuance costs, $0.1 million for deferred income taxes, $6.9 million for stock-based compensation and $2.9 million for restructuring and other costs. Cash provided by operations as a result of the changes in our working capital include a $12.2 million decrease in accounts receivable, net. Uses of cash were related to a $1.1 million decrease in deferred revenue, a $0.8 million decrease in accounts payable, a $1.5 million decrease in accrued expenses, $5.1 million decrease in accrued compensation and a $0.4 million decrease in other liabilities.

Net cash provided by operating activities was $8.6 million during the six months ended June 30, 2016. Net loss during the period was $14.4 million adjusted by non-cash charges of $7.6 million for depreciation and amortization, $4.2 million of amortization of debt discount and issuance costs, $0.9 million for deferred income taxes and $5.2 million for stock-based compensation. Cash provided by operations as a result of the changes in our working capital include a $2.3 million decrease in accounts receivable, net, a $0.3 million decrease in deferred revenue, a $0.8 million increase in accounts payable, a $0.3 million increase in accrued compensation and benefits and a $1.0 million increase in accrued expenses.

Investing Activities

During the six months ended June 30, 2017 cash used in investing activities was principally related to the net purchase, sale and maturities of short-term investments of $1.3 million and property and equipment additions of $9.1 million. Property and equipment additions include $6.8 million of capitalized internal-use software development cost.

During the six months ended June 30, 2016 cash used in investing activities was principally related to the net purchase, sale and maturities of short-term investments of $1.4 million and property and equipment additions of $14.3 million. Property and equipment additions include $6.3 million of capitalized internal-use software development cost.

Financing Activities

Cash provided by financing activities of $0.3 million in the six months ended June 30, 2017 primarily resulted from the exercise of common stock options and the purchase of common stock under our employee stock purchase plan of $0.6 million.

Cash used in financing activities of $8.6 million in the six months ended June 30, 2016 primarily resulted from the $8.9 million repurchase of common stock offset by the exercise of common stock options and the purchase of common stock under our employee stock purchase plan of $0.7 million.

Off-Balance Sheet Arrangements

23

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

Contractual Obligations and Commitments

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

Critical Accounting Policies and Estimates

Management has determined that our most critical accounting policies are those related to revenue recognition, stock-based compensation, goodwill and intangible assets and income taxes. There have been no material changes in our critical accounting policies and estimates during the six months ended June 30, 2017 as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies and Estimates” of our Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on March 6, 2017.

Recent Accounting Pronouncements

The information contained in Note 1 to our condensed consolidated financial statements in Item 1 under the heading, “Recent Accounting Pronouncements,” is incorporated by reference into this Item 2.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We believe that there have been no significant changes in our market risk exposures for the six months ended June 30, 2017, as compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Item 4.Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures

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

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

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

(b)Changes in Internal Control Over Financial Reporting

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

24

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

For a discussion of legal proceedings in which we are involved, see Note 5 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

ITEM 1A. Risk Factors

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

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

See the Exhibit Index, which follows the signature page to this report.

25

SIGNATURES

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

		SERVICESOURCE INTERNATIONAL, INC. (Registrant)
Date:	August 11, 2017	By:	/s/ ROBERT N. PINKERTON
			Robert N. Pinkerton Chief Financial Officer (Principal Financial and Accounting Officer)

26

INDEX TO EXHIBITS

Exhibit Number	Description of Document
31.1	Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2017 and 2016, (iii) the Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2017 and 2016, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 and (v) the Notes to Condensed Consolidated Financial Statements.

* Furnished herewith.

27

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher M. Carrington, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ServiceSource International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:	August 11, 2017	By:	/s/ CHRISTOPHER M. CARRINGTON
			Name: Christopher M. Carrington
			Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert N. Pinkerton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ServiceSource International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:	August 11, 2017	By:	/s/ ROBERT N. PINKERTON
			Name: Robert N. Pinkerton
			Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Based on my knowledge, I, Christopher M. Carrington, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ServiceSource International, Inc. on Form 10-Q for the quarter ended June 30, 2017, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ServiceSource International, Inc.

Date:	August 11, 2017	By:	/s/ CHRISTOPHER M. CARRINGTON
			Name: Christopher M. Carrington
			Title: Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Based on my knowledge, I, Robert N. Pinkerton, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ServiceSource International, Inc. on Form 10-Q for the quarter ended June 30, 2017, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ServiceSource International, Inc.

Date:	August 11, 2017	By:	/s/ ROBERT N. PINKERTON
			Name: Robert N. Pinkerton
			Title: Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 31, 2017
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Trading Symbol	SREV
Entity Registrant Name	SERVICESOURCE INTERNATIONAL, INC.
Entity Central Index Key	0001310114
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common stock, shares outstanding		89,189,275

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 39,664	$ 47,692
Short-term investments	139,472	137,881
Accounts receivable, net	52,534	63,289
Prepaid expenses and other	7,864	7,607
Total current assets	239,534	256,469
Property and equipment, net	36,688	38,180
Deferred income taxes, net of current portion	69	64
Goodwill and intangibles, net	7,176	7,932
Other assets, net	3,386	3,445
Total assets	286,853	306,090
Current liabilities:
Accounts payable	1,109	1,916
Accrued taxes	738	1,388
Accrued compensation and benefits	17,143	21,579
Deferred revenue	3,033	4,152
Accrued expenses	5,895	5,891
Other current liabilities	2,304	2,958
Total current liabilities	30,222	37,884
Convertible notes, net	139,333	134,775
Other long-term liabilities	7,033	6,495
Total liabilities	176,588	179,154
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock; $0.0001 par value; 1,000,000 shares authorized; 88,137 shares issued and 89,016 shares outstanding as of June 30, 2017; 88,304 shares issued and 88,183 shares outstanding as of December 31, 2016	8	8
Treasury stock	(441)	(441)
Additional paid-in capital	351,971	344,521
Accumulated deficit	(241,086)	(216,361)
Accumulated other comprehensive income	(187)	(791)
Total stockholders’ equity	110,265	126,936
Total liabilities and stockholders’ equity	$ 286,853	$ 306,090

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	1,000,000,000	1,000,000,000
Common stock, shares issued (in shares)	88,137,000	88,304,000
Common stock, shares outstanding (in shares)	89,016,000	88,183,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Net revenue	$ 58,262	$ 61,969	$ 114,970	$ 121,719
Cost of revenue	39,517	40,344	80,926	81,778
Gross profit	18,745	21,625	34,044	39,941
Operating expenses:
Sales and marketing	8,620	11,326	16,960	21,779
Research and development	1,243	2,016	3,485	4,180
General and administrative	13,505	11,552	27,486	23,595
Restructuring and other	5,715	0	5,715	0
Total operating expenses	29,083	24,894	53,646	49,554
Loss from operations	(10,338)	(3,269)	(19,602)	(9,613)
Interest expense and other, net	(2,646)	(1,700)	(4,717)	(3,209)
Loss before income taxes	(12,984)	(4,969)	(24,319)	(12,822)
Income tax provision	117	249	406	1,537
Net loss	$ (13,101)	$ (5,218)	$ (24,725)	$ (14,359)
Net loss per share, basic and diluted (in dollars per share)	$ (0.15)	$ (0.06)	$ (0.28)	$ (0.17)
Weighted average common shares outstanding, basic and diluted (in shares)	88,813	85,413	88,600	85,747

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
Net loss	$ (13,101)	$ (5,218)	$ (24,725)	$ (14,359)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	628	(703)	499	(1,119)
Unrealized gain (loss) on short-term investments	32	(169)	105	930
Other comprehensive income (loss), net of tax	660	(872)	604	(189)
Total comprehensive loss, net of tax	$ (12,441)	$ (6,090)	$ (24,121)	$ (14,548)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities
Net loss	$ (24,725)	$ (14,359)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	10,801	7,564
Amortization of debt discount and issuance costs	4,557	4,247
Accretion of premium on short-term investments	(114)	554
Deferred income taxes	148	855
Stock-based compensation	6,912	5,195
Restructuring and other	2,901	0
Changes in operating assets and liabilities:
Accounts receivable, net	12,239	2,287
Deferred revenue	(1,119)	(303)
Prepaid expenses and other	(37)	303
Accounts payable	(825)	766
Accrued taxes	(664)	(231)
Accrued compensation and benefits	(5,164)	317
Accrued expenses	(1,508)	1,031
Other liabilities	(364)	336
Net cash provided by operating activities	3,038	8,562
Cash flows from investing activities
Acquisition of property and equipment	(9,080)	(14,316)
Purchases of short-term investments	(37,806)	(55,133)
Sales of short-term investments	33,457	53,361
Maturities of short-term investments	3,025	350
Net cash used in investing activities	(10,404)	(15,738)
Cash flows from financing activities
Repayment on capital leases obligations	(34)	(103)
Repurchase of common stock	0	(8,921)
Proceeds from common stock issuances	616	739
Minimum tax withholding requirement	(322)	(242)
Net cash provided by (used in) financing activities	260	(8,527)
Net decrease in cash and cash equivalents	(7,106)	(15,703)
Effect of exchange rate changes on cash and cash equivalents	(922)	(1,335)
Cash and cash equivalents at beginning of period	47,692	72,334
Cash and cash equivalents at end of period	$ 39,664	$ 55,296

XML

Description of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

ServiceSource International, Inc. (together with its subsidiaries, the “Company”) is a global leader in outsourced, performance-based customer success and revenue growth solutions. Through the Company’s people, processes and technology, the Company grows and retains revenue on behalf of its clients-some of the world’s leading business-to-business companies-in more than 35 languages. The Company’s solutions help its clients strengthen their customer relationships, drive improved customer adoption, expansion and retention and minimize churn. The Company’s technology platform and best-practice business processes combined with its highly-trained, client-focused revenue delivery professionals and data from over 15 years of operating experience enable the Company to provide its clients greater value for its customer success services than attained by its clients' in-house customer success teams.

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

The accompanying unaudited interim condensed consolidated financial statements (“condensed consolidated financial statements”) include the accounts of ServiceSource International, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

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

In the opinion of management, these condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for a fair statement of the Company's financial position, operating results, and cash flows for the interim periods presented. Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Also, the results for the interim periods are not necessarily indicative of results for the entire year.

Recent Accounting Pronouncements

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

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method, also known as the cumulative catch-up transition method).  The updates are effective for the Company for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for annual periods beginning after December 15, 2016.

The Company continues to assess the impacts of the standard, and has not yet determined whether the standard will have a material impact on our consolidated financial statements. However, we currently believe the most significant impact is from the timing of recognition of sales commission expenses, which upon adoption will be recognized as costs over a period of time instead of immediately. We are also in the process of assessing the impact of the new standard on certain of our contracts that include performance-based fees. We currently recognize such fees in the period when the performance criteria have been met; however, under the new standard we would estimate the variable fees and recognize amounts for which it is probable that a significant reversal would not occur. For certain contracts, this could result in acceleration of recognition of the performance-based fees. We do not currently expect our recurring revenue management fees, based on a fixed percentage of overall sales value associated with the service contracts, to be significantly impacted by the new standard.

We will adopt the standard in the first quarter of 2018 and preliminarily expect to use the modified prospective method. However, we are continuing to evaluate the impact of the standard, and our adoption method is subject to change. We expect to complete our assessment process, including impacts on our processes, systems and financial statement disclosures, by the end of the third quarter of 2017.

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

Reclassifications

Amounts shown in Financing activities - Minimum tax withholding requirement in the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 have been reclassified from Operating activities - Prepaid expenses and other, to reflect the current period presentation as a result of the adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which requires shares withheld for employee taxes to be reclassified from operating activities to financing activities.

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Cash, Cash Equivalents and Short-Term Investments

6 Months Ended

Jun. 30, 2017

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents and Short-Term Investments

Cash, Cash Equivalents and Short-Term Investments

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

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

June 30, 2017

	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash	$	39,596	$	—	$	—		$	39,596
Cash equivalents:
Money market mutual funds	68		—		—			68
Total cash and cash equivalents	39,664		—		—			39,664
Short-term investments:
Corporate bonds	55,404		60		(115		)	55,349
U.S. agency securities	34,649		1		(245		)	34,405
Asset-backed securities	23,852		7		(29		)	23,830
U.S. Treasury securities	26,150		—		(262		)	25,888
Total short-term investments	140,055		68		(651		)	139,472
Cash, cash equivalents and short-term investments	$	179,719	$	68	$	(651	)	$	179,136

December 31, 2016

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

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

	Amortized Cost		Estimated Fair Value
Less than 1 year	$	16,105	$	16,108
Due in 1 to 3 years	124,018		123,432
Total	$	140,123	$	139,540

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

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company measures certain financial instruments at fair value on a recurring basis. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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

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

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

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

The following table presents information about the Company’s financial instruments that are measured at fair value as of June 30, 2017 and indicates the fair value hierarchy of the valuation (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	68	$	68	$	—
Total cash equivalents	68		68		—
Short-term investments:
Corporate bonds	55,349		—		55,349
U.S. agency securities	34,405		—		34,405
Asset-backed securities	23,830		—		23,830
U.S. Treasury securities	25,888		—		25,888
Total short-term investments	139,472		—		139,472
Cash equivalents and short-term investments	$	139,540	$	68	$	139,472

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

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	632	$	632	$	—
Total cash equivalents	632		632		—
Short-term investments:
Corporate bonds	54,658		—		54,658
U.S. agency securities	34,377		—		34,377
Asset-backed securities	26,433		—		26,433
U.S. Treasury securities	22,413		—		22,413
Total short-term investments	137,881		—		137,881
Cash equivalents and short-term investments	$	138,513	$	632	$	137,881

The convertible notes issued by the Company in August 2013 are shown on the accompanying consolidated balance sheets at their original issuance value, net of unamortized discount and issuance costs, and are not marked to market each period. The approximate fair value of the convertible notes as of June 30, 2017 and December 31, 2016 was $145.9 million and $143.8 million, respectively. The fair value of the convertible notes was determined using quoted market prices for similar securities, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.

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

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Debt

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Debt

Debt

Senior Convertible Notes

In August 2013, the Company issued senior convertible notes (the “Notes”) in exchange for gross proceeds of $150.0 million.

The Notes are governed by an Indenture, dated August 13, 2013 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee. The Notes will mature on August 1, 2018, unless earlier repurchased or converted, and bear interest at a rate of 1.50% per year payable semi-annually in arrears on February 1 and August 1, beginning February 1, 2014.

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

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

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

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

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

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

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

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

The Company incurred transaction costs of approximately $4.9 million related to the issuance of the Notes. In accounting for these costs, the Company allocated the costs to the debt and equity components in proportion to the allocation of proceeds from the issuance of the Notes to such components. Transaction costs allocated to the debt component of $3.6 million are recorded within Convertible notes, net, and amortized to interest expense over the term of the Notes. The transaction costs allocated to the equity component of $1.3 million were recorded to additional paid-in capital.

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

	June 30, 2017			December 31, 2016
Principal amount	$	150,000		$	150,000
Unamortized debt discount	(9,758		)	(13,928		)
Unamortized debt issuance costs	(909		)	(1,297		)
Net carrying amount	$	139,333		$	134,775

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Contractual interest expense at 1.5% per annum	$	563	$	563	$	1,125	$	1,125
Amortization of debt issuance costs	197		183		388		362
Accretion of debt discount	2,119		1,961		4,169		3,886
Total	$	2,879	$	2,707	$	5,682	$	5,373

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

Note Hedges

Concurrent with the issuance of the Notes, the Company entered into note hedges (“Note Hedges”) with certain bank counterparties, with respect to its common stock. The Company paid $31.4 million for the Note Hedges. The Note Hedges cover approximately 9.25 million shares of the Company's common stock at a strike price of $16.21 per share. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential dilution to the Company's common stock upon conversion of the Notes and/or offset the cash payment in excess of the principal amount of the Notes the Company is required to make in the event that the market value per share of the Company's common stock at the time of exercise is greater than the conversion price of the Notes.

Warrants

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

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

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Litigation

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

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

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Share Repurchase Program and Stock-Based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share Repurchase Program and Stock-Based Compensation

Share Repurchase Program and Stock-Based Compensation

In August 2015, the Board authorized a stock repurchase program (the "program") with a maximum authorization to repurchase up to $30.0 million worth of common stock of the Company. The program expires in August 17, 2017. The aggregate amount available under the program was approximately $19.9 million as of June 30, 2017. The share repurchase program does not obligate the Company to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. The Company cash settles with the program broker periodically and reflects any unsettled amounts as a current liability at each period end. No shares were repurchased under the program during the quarter ended June 30, 2017.

The following table summarizes the consolidated stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017		2016
Cost of revenue	$	294		$	379	$	584	$	847
Sales and marketing	970			726		1,852		1,588
Research and development	(35		)	144		65		341
General and administrative	2,466			1,087		4,411		2,419
Total stock-based compensation	$	3,695		$	2,336	$	6,912	$	5,195

The above table does not include $0.1 million of capitalized stock-based compensation related to internal-use software during the three months ended June 30, 2017 and 2016, respectively, and $0.2 million and $0.3 million for the six months ended June 30, 2017 and 2016, respectively.

Equity Incentive Plan

During the second quarter of 2017, the Company granted performance-based restricted stock unit awards under the Company’s 2011 Equity Incentive Plan to certain key executives (the “2017 PSU Awards”). For each 2017 PSU Award, a number of restricted stock units became eligible to vest based on the levels of achievement of the performance-based conditions, and those restricted stock units that became eligible to vest will vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date, except as otherwise provided under certain termination and change-in-control provisions in each award agreement. The aggregate target number of restricted stock units subject to the 2017 PSU Awards was 1.0 million with an aggregate grant date fair value of $3.7 million.

The performance-based conditions are based upon the Company’s revenue and adjusted EBITDA performance in fiscal year 2017 against the target goals for such metrics under the Company’s 2017 corporate incentive plan (in each case, “Performance Achievement”), which will each be determined on the date the Company files its Annual Report on Form 10-K for fiscal year 2017. The target number of restricted stock units for each 2017 PSU Award will be divided equally between the two performance metrics. For each performance metric, the number of restricted stock units that become eligible to vest will be: (i) if the applicable Performance Achievement is less than 90% of the target revenue goal or less than 69% of the target EBITDA goal, no restricted stock units for such performance metric, (ii) if the applicable Performance Achievement is equal to 90% of the target revenue goal or 69% of the target EBITDA goal, 50% of the target number of restricted stock units for such performance metric, (iii) if the applicable Performance Achievement is equal to 100% of the target revenue and EBITDA goals, 100% of the target number of restricted stock units for such performance metric, or (iv) if the applicable Performance Achievement is at least 107% of the target revenue goal or 146% of the target EBITDA goal, 150% of the target number of restricted stock units for such performance metric. For each performance metric, if the applicable Performance Achievement falls between any of the thresholds (ii), (iii), and (iv) specified in the previous sentence, the number of restricted stock units that become eligible to vest for such performance metric will be determined via linear interpolation. +

Under the time-based vesting condition, 50% of the restricted stock units that have become eligible to vest will vest on the first anniversary of the grant date, and 50% of the restricted stock units that have become eligible to vest will vest on the second anniversary of the grant date, except as otherwise provided under certain termination and change-in-control provisions in each award agreement governing a 2017 PSU Award. Such provisions will determine the number of restricted stock units that become eligible to vest and when and how many restricted stock units will actually vest in connection with the specified terminations of employment and changes in-control.

Option and restricted stock activity under the 2011 Equity Incentive Plan for the six months ended June 30, 2017 was as follows (shares in thousands):

			Options Outstanding				Restricted Stock Outstanding
	Shares and Units Available for Grant		Number of Shares		Weighted- Average Exercise Price		Number of Shares
December 31, 2016	10,406		7,495		$	4.63	4,644
Additional shares reserved under the 2011 equity incentive plan	3,527		—		—		—
Granted	(2,888	)	103		3.75		2,786
PSU Additional Goal Shares Achieved	(243	)	—		—		243
Options exercised/ Restricted stock released	—		(10	)	5.45		(738	)
RSU shares withheld for taxes	77		—		—		77
Canceled/Forfeited	814		(405	)	5.49		(409	)
June 30, 2017	11,693		7,183		$	4.57	6,603

The weighted average grant-date fair value of employee stock options granted during the three months ended June 30, 2017 and 2016 was $1.73 and $1.88 per share, respectively, and $1.96 and $1.99 per share for the six months ended June 30, 2017 and 2016, respectively. The unamortized grant date fair value of both stock options and restricted stock awards totaled $23.0 million at June 30, 2017.

Potential shares of common stock that are not included in the determination of diluted net loss per share because they are anti-dilutive for the periods presented consist of weighted stock options, non-vested restricted stock and shares to be purchased under our Employee Stock Purchase Plan having an anti-dilutive effect of 7.9 million and 10.7 million shares for the three months ended June 30, 2017 and 2016, respectively, and 6.0 million and 10.8 million shares for the six months ended June 30, 2017 and 2016, respectively.

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Income Taxes

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

The gross amount of the Company's unrecognized tax benefits was $0.9 million as of June 30, 2017 and December 31, 2016, none of which, if recognized, would affect the Company’s effective tax rate.

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Restructuring and Other

6 Months Ended

Jun. 30, 2017

Restructuring and Related Activities [Abstract]

Restructuring and Other

Restructuring and Other

In early May 2017, the Company announced a restructuring effort to better align our cost structure with current business and market conditions, including a headcount reduction and the reduction of office space in four locations. The restructuring plan is accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company recognized restructuring and other charges of $5.7 million during the quarter. Severance and other employee costs include severance payments, related employee benefits and employee-related legal fees. Lease and other contract termination costs include charges related to lease consolidation and abandonment of spaces no longer utilized and cancellation of certain contracts with outside vendors. Asset impairments include charges related to leasehold improvements and furniture in spaces vacated or no longer in use. The Company expects to have restructuring and other expenses through the remainder of 2017, as restructuring activities targeted at reducing the overall cost structure of the business will continue over several quarters. Also, future cash outlays related to these restructuring activities are expected to total $2.0 million. These amounts are reflected in Accounts payable, Accrued compensation and benefits and Accrued expenses as of June 30, 2017.

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

	Severance and Other Employee Costs			Lease and Other Contract Termination Costs			Asset Impairments			Total
Restructuring and other liability at January 1, 2017	$	—		$	—		$	—		$	—
Restructuring and other charge	2,970			1,859			886			5,715
Cash paid	(2,508		)	(306		)	—			(2,814		)
Non-cash impairment charges	—			—			(886		)	(886		)
Restructuring and other liability at June 30, 2017	$	462		$	1,553		$	—		$	2,015

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Description of Business and Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements (“condensed consolidated financial statements”) include the accounts of ServiceSource International, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

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

In the opinion of management, these condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for a fair statement of the Company's financial position, operating results, and cash flows for the interim periods presented. Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Also, the results for the interim periods are not necessarily indicative of results for the entire year.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

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

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method, also known as the cumulative catch-up transition method).  The updates are effective for the Company for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for annual periods beginning after December 15, 2016.

The Company continues to assess the impacts of the standard, and has not yet determined whether the standard will have a material impact on our consolidated financial statements. However, we currently believe the most significant impact is from the timing of recognition of sales commission expenses, which upon adoption will be recognized as costs over a period of time instead of immediately. We are also in the process of assessing the impact of the new standard on certain of our contracts that include performance-based fees. We currently recognize such fees in the period when the performance criteria have been met; however, under the new standard we would estimate the variable fees and recognize amounts for which it is probable that a significant reversal would not occur. For certain contracts, this could result in acceleration of recognition of the performance-based fees. We do not currently expect our recurring revenue management fees, based on a fixed percentage of overall sales value associated with the service contracts, to be significantly impacted by the new standard.

We will adopt the standard in the first quarter of 2018 and preliminarily expect to use the modified prospective method. However, we are continuing to evaluate the impact of the standard, and our adoption method is subject to change. We expect to complete our assessment process, including impacts on our processes, systems and financial statement disclosures, by the end of the third quarter of 2017.

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

Reclassifications

Reclassifications

Amounts shown in Financing activities - Minimum tax withholding requirement in the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 have been reclassified from Operating activities - Prepaid expenses and other, to reflect the current period presentation as a result of the adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which requires shares withheld for employee taxes to be reclassified from operating activities to financing activities.

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

The Company measures certain financial instruments at fair value on a recurring basis. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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

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

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

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

Debt

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

Commitments and Contingencies

The Company is subject to various legal proceedings and claims arising in the ordinary course of our business, including the cases discussed below.  Although the results of litigation and claims cannot be predicted with certainty, the Company is currently not aware of any litigation or threats of litigation in which the final outcome could have a material adverse effect on our business, operating results, financial position, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.

Income Taxes

The Company is subject to taxation in the United States and various state and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on the Company’s net operating losses and foreign tax rate differences. Income tax expense 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.

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Cash, Cash Equivalents and Short-Term Investments (Tables)

6 Months Ended

Jun. 30, 2017

Cash and Cash Equivalents [Abstract]

Summary of Cash and Cash Equivalents and Short-Term Investments

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

June 30, 2017

	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash	$	39,596	$	—	$	—		$	39,596
Cash equivalents:
Money market mutual funds	68		—		—			68
Total cash and cash equivalents	39,664		—		—			39,664
Short-term investments:
Corporate bonds	55,404		60		(115		)	55,349
U.S. agency securities	34,649		1		(245		)	34,405
Asset-backed securities	23,852		7		(29		)	23,830
U.S. Treasury securities	26,150		—		(262		)	25,888
Total short-term investments	140,055		68		(651		)	139,472
Cash, cash equivalents and short-term investments	$	179,719	$	68	$	(651	)	$	179,136

December 31, 2016

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

Summary of Cost and Estimated Fair Value of Short-Term Fixed Income Securities

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

	Amortized Cost		Estimated Fair Value
Less than 1 year	$	16,105	$	16,108
Due in 1 to 3 years	124,018		123,432
Total	$	140,123	$	139,540

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Summary of Financial Instruments Measured at Fair Value

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

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	632	$	632	$	—
Total cash equivalents	632		632		—
Short-term investments:
Corporate bonds	54,658		—		54,658
U.S. agency securities	34,377		—		34,377
Asset-backed securities	26,433		—		26,433
U.S. Treasury securities	22,413		—		22,413
Total short-term investments	137,881		—		137,881
Cash equivalents and short-term investments	$	138,513	$	632	$	137,881

The following table presents information about the Company’s financial instruments that are measured at fair value as of June 30, 2017 and indicates the fair value hierarchy of the valuation (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market mutual funds	$	68	$	68	$	—
Total cash equivalents	68		68		—
Short-term investments:
Corporate bonds	55,349		—		55,349
U.S. agency securities	34,405		—		34,405
Asset-backed securities	23,830		—		23,830
U.S. Treasury securities	25,888		—		25,888
Total short-term investments	139,472		—		139,472
Cash equivalents and short-term investments	$	139,540	$	68	$	139,472

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Debt (Tables)

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Schedule of Net Carrying Amount of Liability Component

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

	June 30, 2017			December 31, 2016
Principal amount	$	150,000		$	150,000
Unamortized debt discount	(9,758		)	(13,928		)
Unamortized debt issuance costs	(909		)	(1,297		)
Net carrying amount	$	139,333		$	134,775

Schedule of Interest Expense on Notes Recognized

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Contractual interest expense at 1.5% per annum	$	563	$	563	$	1,125	$	1,125
Amortization of debt issuance costs	197		183		388		362
Accretion of debt discount	2,119		1,961		4,169		3,886
Total	$	2,879	$	2,707	$	5,682	$	5,373

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Share Repurchase Program and Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Stock-Based Compensation Expense

The following table summarizes the consolidated stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017		2016
Cost of revenue	$	294		$	379	$	584	$	847
Sales and marketing	970			726		1,852		1,588
Research and development	(35		)	144		65		341
General and administrative	2,466			1,087		4,411		2,419
Total stock-based compensation	$	3,695		$	2,336	$	6,912	$	5,195

Summary of Option and Restricted Stock Activity

Option and restricted stock activity under the 2011 Equity Incentive Plan for the six months ended June 30, 2017 was as follows (shares in thousands):

			Options Outstanding				Restricted Stock Outstanding
	Shares and Units Available for Grant		Number of Shares		Weighted- Average Exercise Price		Number of Shares
December 31, 2016	10,406		7,495		$	4.63	4,644
Additional shares reserved under the 2011 equity incentive plan	3,527		—		—		—
Granted	(2,888	)	103		3.75		2,786
PSU Additional Goal Shares Achieved	(243	)	—		—		243
Options exercised/ Restricted stock released	—		(10	)	5.45		(738	)
RSU shares withheld for taxes	77		—		—		77
Canceled/Forfeited	814		(405	)	5.49		(409	)
June 30, 2017	11,693		7,183		$	4.57	6,603

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Restructuring and Other (Tables)

6 Months Ended

Jun. 30, 2017

Restructuring and Related Activities [Abstract]

Schedule of Restructuring and Other Reserve Activities

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

	Severance and Other Employee Costs			Lease and Other Contract Termination Costs			Asset Impairments			Total
Restructuring and other liability at January 1, 2017	$	—		$	—		$	—		$	—
Restructuring and other charge	2,970			1,859			886			5,715
Cash paid	(2,508		)	(306		)	—			(2,814		)
Non-cash impairment charges	—			—			(886		)	(886		)
Restructuring and other liability at June 30, 2017	$	462		$	1,553		$	—		$	2,015

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Description of Business and Basis of Presentation - Narrative (Details)	6 Months Ended
	Jun. 30, 2017 language
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of languages (more than)	35
Years of operating experience	15 years

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Cash, Cash Equivalents and Short-Term Investments - Summary of Cash and Cash Equivalents and Short-Term Investments (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Total cash and cash equivalents, Amortized Cost	$ 39,664	$ 47,692	$ 55,296	$ 72,334
Total cash and cash equivalents, Unrealized Gains	0	0
Total cash and cash equivalents, Unrealized Losses	0	0
Total cash and cash equivalents, Estimated Fair Value	39,664	47,692
Total short-term investments, Amortized Cost	140,055	138,617
Total short-term investments, Unrealized Gains	68	44
Total short-term investments, Unrealized Losses	(651)	(780)
Total short-term investments, Estimated Fair Value	139,472	137,881
Cash, cash equivalents and short-term investments, Amortized Cost	179,719	186,309
Cash, cash equivalents and short-term investments, Unrealized Gains	68	44
Cash, cash equivalents and short-term investments, Unrealized Losses	(651)	(780)
Cash, cash equivalents and short-term investments, Estimated Fair Value	179,136	185,573
Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Total short-term investments, Amortized Cost	55,404	54,827
Total short-term investments, Unrealized Gains	60	19
Total short-term investments, Unrealized Losses	(115)	(188)
Total short-term investments, Estimated Fair Value	55,349	54,658
U.S. agency securities
Schedule of Available-for-sale Securities [Line Items]
Total short-term investments, Amortized Cost	34,649	34,658
Total short-term investments, Unrealized Gains	1	0
Total short-term investments, Unrealized Losses	(245)	(281)
Total short-term investments, Estimated Fair Value	34,405	34,377
Asset-backed securities
Schedule of Available-for-sale Securities [Line Items]
Total short-term investments, Amortized Cost	23,852	26,431
Total short-term investments, Unrealized Gains	7	25
Total short-term investments, Unrealized Losses	(29)	(23)
Total short-term investments, Estimated Fair Value	23,830	26,433
U.S. Treasury securities
Schedule of Available-for-sale Securities [Line Items]
Total short-term investments, Amortized Cost	26,150	22,701
Total short-term investments, Unrealized Gains	0	0
Total short-term investments, Unrealized Losses	(262)	(288)
Total short-term investments, Estimated Fair Value	25,888	22,413
Cash
Schedule of Available-for-sale Securities [Line Items]
Total cash and cash equivalents, Amortized Cost	39,596	47,060
Total cash and cash equivalents, Unrealized Gains	0	0
Total cash and cash equivalents, Unrealized Losses	0	0
Total cash and cash equivalents, Estimated Fair Value	39,596	47,060
Money market mutual funds
Schedule of Available-for-sale Securities [Line Items]
Total cash and cash equivalents, Amortized Cost	68	632
Total cash and cash equivalents, Unrealized Gains	0	0
Total cash and cash equivalents, Unrealized Losses	0	0
Total cash and cash equivalents, Estimated Fair Value	$ 68	$ 632

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Cash, Cash Equivalents and Short-Term Investments - Summary of Cost and Estimated Fair Values of Short Term Fixed Income Securities (Details) $ in Thousands	Jun. 30, 2017 USD ($)
Amortized Cost
Less than 1 year	$ 16,105
Due in 1 to 3 years	124,018
Total	140,123
Estimated Fair Value
Less than 1 year	16,108
Due in 1 to 3 years	123,432
Total	$ 139,540

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Fair Value of Financial Instruments - Summary of Financial Instruments Measured at Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Short-term investments:
Total short-term investments	$ 139,472	$ 137,881
Fair Value, Measurements, Recurring
Cash equivalents:
Total cash equivalents	68	632
Short-term investments:
Total short-term investments	139,472	137,881
Cash equivalents and short-term investments	139,540	138,513
Fair Value, Measurements, Recurring | Money market mutual funds
Cash equivalents:
Total cash equivalents	68	632
Fair Value, Measurements, Recurring | Corporate bonds
Short-term investments:
Total short-term investments	55,349	54,658
Fair Value, Measurements, Recurring | U.S. agency securities
Short-term investments:
Total short-term investments	34,405	34,377
Fair Value, Measurements, Recurring | Asset-backed securities
Short-term investments:
Total short-term investments	23,830	26,433
Fair Value, Measurements, Recurring | U.S. Treasury securities
Short-term investments:
Total short-term investments	25,888	22,413
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Cash equivalents:
Total cash equivalents	68	632
Short-term investments:
Total short-term investments	0	0
Cash equivalents and short-term investments	68	632
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market mutual funds
Cash equivalents:
Total cash equivalents	68	632
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Corporate bonds
Short-term investments:
Total short-term investments	0	0
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. agency securities
Short-term investments:
Total short-term investments	0	0
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Asset-backed securities
Short-term investments:
Total short-term investments	0	0
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Treasury securities
Short-term investments:
Total short-term investments	0	0
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Cash equivalents:
Total cash equivalents	0	0
Short-term investments:
Total short-term investments	139,472	137,881
Cash equivalents and short-term investments	139,472	137,881
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Money market mutual funds
Cash equivalents:
Total cash equivalents	0	0
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Corporate bonds
Short-term investments:
Total short-term investments	55,349	54,658
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | U.S. agency securities
Short-term investments:
Total short-term investments	34,405	34,377
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Asset-backed securities
Short-term investments:
Total short-term investments	23,830	26,433
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | U.S. Treasury securities
Short-term investments:
Total short-term investments	$ 25,888	$ 22,413

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Fair Value of Financial Instruments - Narrative (Details) - USD ($) $ in Millions	Jun. 30, 2017	Dec. 31, 2016
Significant Other Observable Inputs (Level 2) | Convertible Notes Payable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of convertible notes	$ 145.9	$ 143.8
Other Assets | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Restricted cash	$ 1.2	$ 1.2

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Debt - Narrative (Details) $ / shares in Units, shares in Thousands, $ in Thousands	1 Months Ended
	Aug. 31, 2013 USD ($) d $ / shares shares	Jun. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Debt Instrument [Line Items]
Payments of convertible note hedges	$ 31,400
Shares covered under note hedges (in shares) | shares	9,250
Common stock strike price (in dollars per share) | $ / shares	$ 16.21
Warrant
Debt Instrument [Line Items]
Proceeds from the issuance of warrants	$ 21,800
Warrants sold to acquire shares (in shares) | shares	9,250
Exercise price of warrant (in dollars per share) | $ / shares	$ 21.02
Senior Convertible Notes
Debt Instrument [Line Items]
Proceeds from issuance of debt	$ 150,000
Interest rate	1.50%	1.50%
Conversion ratio	0.061677
Conversion price (in dollars per share) | $ / shares	$ 16.21
Threshold consecutive trading days | d	5
Threshold percentage of stock price trigger	98.00%
Threshold business days	5 years
Cash repurchase price	100.00%
Minimum percent held in principal amount of outstanding notes to declare all notes to be due and payable	25.00%
Debt	$ 111,500	$ 139,333	$ 134,775
Additional paid in capital	38,500
Transaction costs, additional paid in capital	4,900
Net proceeds from the Notes	145,100
Senior Convertible Notes | Note Hedges
Debt Instrument [Line Items]
Payments of convertible note hedges	31,400
Senior Convertible Notes | Warrant
Debt Instrument [Line Items]
Proceeds from the issuance of warrants	21,800
Senior Convertible Notes | Other Assets
Debt Instrument [Line Items]
Debt component of transaction costs, gross	3,600
Senior Convertible Notes | Additional Paid-in Capital
Debt Instrument [Line Items]
Transaction costs, additional paid in capital	$ 1,300
Senior Convertible Notes | After December 31, 2013
Debt Instrument [Line Items]
Threshold trading days | d	20
Threshold consecutive trading days | d	30
Threshold percentage of stock price trigger	130.00%

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Debt - Schedule of Net Carrying Amount of Liability Component (Details) - Senior Convertible Notes - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Aug. 31, 2013
Liability Component
Principal amount	$ 150,000	$ 150,000
Unamortized debt discount	(9,758)	(13,928)
Unamortized debt issuance costs	(909)	(1,297)
Net carrying amount	$ 139,333	$ 134,775	$ 111,500

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Debt - Schedule of Interest Expense on Notes Recognized (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Aug. 31, 2013
Interest Expense
Total	$ 2,646	$ 1,700	$ 4,717	$ 3,209
Senior Convertible Notes
Interest Expense
Interest rate	1.50%		1.50%		1.50%
Contractual interest expense at 1.5% per annum	$ 563	563	$ 1,125	1,125
Amortization of debt issuance costs	197	183	388	362
Accretion of debt discount	2,119	1,961	4,169	3,886
Total	$ 2,879	$ 2,707	$ 5,682	$ 5,373

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Commitments and Contingencies - Narrative (Details) $ in Millions	Aug. 23, 2016 plaintiff	Jun. 30, 2017 USD ($)
Operating Leased Assets [Line Items]
Loss contingency accrual | $		$ 1.5
Sarah Patton, et al v. ServiceSource Delaware, Inc | Pending Litigation
Operating Leased Assets [Line Items]
Number of plaintiffs | plaintiff	3

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Share Repurchase Program and Stock-Based Compensation - Narrative (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Aug. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock repurchase program, authorized amount (up to)					$ 30,000,000.0
Stock repurchase program, remaining authorized amount	$ 19,900,000		$ 19,900,000
Stock repurchased during period (in shares)			0
Capitalized stock-based compensation related to internal-use software	$ 100,000	$ 100,000	$ 200,000	$ 300,000
Weighted average grant-date fair value of stock options granted (in dollars per share)	$ 1.73	$ 1.88	$ 1.96	$ 1.99
Grant date fair value	$ 23,000,000		$ 23,000,000
Antidilutive shares excluded from diluted earnings per share calculation (in shares)	7,900,000	10,700,000	6,000,000	10,800,000
Restricted Stock Outstanding | Year One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage			50.00%
Restricted Stock Outstanding | Year Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage			50.00%
Performance Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance-based restricted stock units subject for PSU award (in shares)			1,000,000.0
Performance-based restricted stock units granted, fair value			$ 3,700,000
Percentage of performance achievement target goal, condition one			90.00%
Percentage of performance achievement target EBITDA goal, condition one			69.23%
Percentage of performance achievement target goal, condition two			90.31%
Percentage of performance achievement target EBITDA goal, condition two			69.23%
Percentage of restricted stock units eligible to vest, condition two			50.00%
Percentage of performance achievement target goal, condition three			100.00%
Percentage of restricted stock units eligible to vest, condition three			100.00%
Percentage of performance achievement target goal, condition four			106.59%
Percentage of performance achievement target EBITDA goal, condition four			146.15%
Percentage of restricted stock units eligible to vest, condition four			150.00%
Performance Restricted Stock | Year One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage			50.00%
Performance Restricted Stock | Year Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage			50.00%

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Share Repurchase Program and Stock-Based Compensation - Summary of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation	$ 3,695	$ 2,336	$ 6,912	$ 5,195
Cost of revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation	294	379	584	847
Sales and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation	970	726	1,852	1,588
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation	(35)	144	65	341
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation	$ 2,466	$ 1,087	$ 4,411	$ 2,419

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Share Repurchase Program and Stock-Based Compensation - Summary of Option and Restricted Stock Activity (Details) shares in Thousands	6 Months Ended
	Jun. 30, 2017 $ / shares shares
Options Outstanding, Number of Shares
Shares and Units Available for Grant, Beginning balance (in shares)	10,406
Additional shares reserved under the 2011 equity incentive plan (in shares)	3,527
Shares and units available for grant, granted (in shares)	(2,888)
Shares and Units Available for Grant, PSU Additional Goal Shares Achieved (in shares)	(243)
Shares and Units Available for Grant, Options exercised/ Restricted stock released (in shares)	0
Shares and Units Available for Grant, RSU shares withheld for taxes (in shares)	77
Shares and Units Available for Grant, Options Outstanding, Number of Shares (in shares)	0
Shares and Units Available for Grant, Canceled/Forfeited (in shares)	814
Shares and Units Available for Grant, Ending balance (in shares)	11,693
Options Outstanding, Options, Weighted Average Exercise Price
Options Outstanding, Weighted Average Exercise Price, RSU shares withheld for taxes (in dollars per share) | $ / shares	$ 0.00
Employee Stock Option
Options Outstanding, Number of Shares
Options Outstanding, Number of Shares, Beginning Balance (in shares)	7,495
Additional shares reserved under the 2011 equity incentive plan (in shares)	0
Options Outstanding, Number of Shares, Granted (in shares)	103
Options Outstanding, Number of Shares, PSU Additional Goal Shares Achieved (in shares)	0
Options Outstanding, Number of Shares, Options exercised/ Restricted stock released (in shares)	(10)
Options Outstanding, Number of Shares, Canceled /Forfeited (in shares)	(405)
Options Outstanding, Number of Shares, Ending Balance (in shares)	7,183
Options Outstanding, Options, Weighted Average Exercise Price
Options Outstanding, Weighted Average Exercise Price, Beginning Balance (in dollars per share) | $ / shares	$ 4.63
Options Outstanding, Weighted Average Exercise Price, Granted (in dollars per share) | $ / shares	3.75
Options Outstanding, Weighted Average Exercise Price, Options exercised/ Restricted stock released (in dollars per share) | $ / shares	5.45
Options Outstanding, Weighted Average Exercise Price, Canceled/Forfeited (in dollars per share) | $ / shares	5.49
Options Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share) | $ / shares	$ 4.57
Restricted Stock Outstanding
Options Outstanding, Number of Shares
Restricted Stock Outstanding Number of Shares, Beginning balance (in shares)	4,644
Additional shares reserved under the 2011 equity incentive plan (in shares)	0
Restricted Stock Outstanding Number of Shares, Granted (in shares)	2,786
Restricted Stock Outstanding, Number of Shares, PSU Additional Goal Shares Achieved (in shares)	243
Restricted Stock Outstanding Number of Shares, Options exercised/ Restricted stock released (in shares)	(738)
Shares and Units Available for Grant, Restricted Stock Outstanding, Number of Shares (in shares)	77
Restricted Stock Outstanding Number of Shares, Canceled /Forfeited (in shares)	(409)
Restricted Stock Outstanding Number of Shares, Ending balance (in shares)	6,603

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Income Taxes - Narrative (Details) - USD ($) $ in Millions	Jun. 30, 2017	Dec. 31, 2016
Income Tax Disclosure [Abstract]
Unrecognized tax benefits	$ 0.9	$ 0.9

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Restructuring and Other - Narrative (Details) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	May 31, 2017 location	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)
Restructuring and Related Activities [Abstract]
Number of locations where reduction of headcount and office spaces took place (location) | location	4
Restructuring and other charge		$ 5,715	$ 0	$ 5,715	$ 0
Expected future cash outlays related to restructuring		$ 2,000		$ 2,000

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Restructuring and Other - Schedule of Restructuring and Other Reserve Activities (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Restructuring Reserve [Roll Forward]
Beginning Balance			$ 0
Restructuring and other charge	$ 5,715	$ 0	5,715	$ 0
Cash paid			(2,814)
Non-cash impairment charges			(886)
Ending Balance	2,015		2,015
Severance and Other Employee Costs
Restructuring Reserve [Roll Forward]
Beginning Balance			0
Restructuring and other charge			2,970
Cash paid			(2,508)
Non-cash impairment charges			0
Ending Balance	462		462
Lease and Other Contract Termination Costs
Restructuring Reserve [Roll Forward]
Beginning Balance			0
Restructuring and other charge			1,859
Cash paid			(306)
Non-cash impairment charges			0
Ending Balance	1,553		1,553
Asset Impairments
Restructuring Reserve [Roll Forward]
Beginning Balance			0
Restructuring and other charge			886
Cash paid			0
Non-cash impairment charges			(886)
Ending Balance	$ 0		$ 0