SERVICESOURCE INTERNATIONAL, INC. (Form: 10-Q, Received: 05/07/2020 16:17:10)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 31, 2020



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

For the transition period from to

Commission file number 001-35108

SERVICESOURCE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



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

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



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

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



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

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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



Large accelerated filer	☐	Accelerated Filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☐

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

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

Yes ☐ No ☒

As of April 30, 2020, 95,134,350 shares of common stock of ServiceSource International, Inc. were outstanding.

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SERVICESOURCE INTERNATIONAL, INC.

Form 10-Q

For the Fiscal Quarter Ended March 31, 2020

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Comprehensive Loss	5
Consolidated Statements of Stockholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22

Item 4. Controls and Procedures	22

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	24

Item 1A. Risk Factors	24

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

Item 3. Defaults Upon Senior Securities	24

Item 4. Mine Safety Disclosures	24

Item 5. Other Information	24

Item 6. Exhibits	25

Glossary	26

Table of Contents



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

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

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

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

Commitments and contingencies (Note 10)

Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000 shares authorized and none issued and outstanding	—			—
Common stock; $0.0001 par value; 1,000,000 shares authorized; 95,262 shares issued and 95,141 shares outstanding as of March 31, 2020; 94,972 shares issued and 94,851 shares outstanding as of December 31, 2019	10			9
Treasury stock	(441		)	(441		)
Additional paid-in capital	375,666			374,525
Accumulated deficit	(292,008		)	(286,066		)
Accumulated other comprehensive income	908			410
Total stockholders’ equity	84,135			88,437
Total liabilities and stockholders’ equity	$	176,566		$	161,464

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

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

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

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

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

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ServiceSource International, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)

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




	Common Stock			Treasury Shares/Stock					Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares		Amount			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Total
Balance at January 1, 2019	92,895	$	9	(121	)	$	(441	)	$	369,246	$	(267,383	)	$	402	$	101,833
Net loss	—	—		—		—			—		(5,719		)	—		(5,719		)
Other comprehensive income	—	—		—		—			—		—			76		76
Stock-based compensation	—	—		—		—			1,564		—			—		1,564
Issuance of common stock, RSUs	229	—		—		—			—		—			—		—
Proceeds from the exercise of stock options and ESPP	139	—		—		—			141		—			—		141
Balance at March 31, 2019	93,263	$	9	(121	)	$	(441	)	$	370,951	$	(273,102	)	$	478	$	97,895

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

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

	For the Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(5,942	)	$	(5,719	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	3,396			3,285
Amortization of contract acquisition costs	279			400
Amortization of ROU assets	2,313			2,239
Stock-based compensation	1,045			1,570
Restructuring and other related costs	431			1,041
Other	18			18
Net changes in operating assets and liabilities:
Accounts receivable, net	(1,722		)	3,258
Prepaid expenses and other assets	1,323			(1,277		)
Contract acquisition costs	9			(108		)
Accounts payable	(3,253		)	(18		)
Accrued compensation and benefits	(1,210		)	1,094
Operating lease liabilities	(1,838		)	(2,338		)
Accrued expenses	223			(1,023		)
Other liabilities	(741		)	(338		)
Net cash (used in) provided by operating activities	(5,669		)	2,084
Cash flows from investing activities:
Purchases of property and equipment	(1,557		)	(2,898		)
Net cash used in investing activities	(1,557		)	(2,898		)
Cash flows from financing activities:
Repayment on finance lease obligations	(238		)	(190		)
Proceeds from Revolver	27,000			—
Proceeds from issuance of common stock	76			141
Net cash provided by (used in) financing activities	26,838			(49		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	480			185
Net change in cash and cash equivalents and restricted cash	20,092			(678		)
Cash and cash equivalents and restricted cash, beginning of period	29,383			27,779
Cash and cash equivalents and restricted cash, end of period	$	49,475		$	27,101
Supplemental disclosures of cash flow information:
Cash paid for interest	$	55		$	66
Supplemental disclosures of non-cash activities:
Purchase of property and equipment accrued in accounts payable and accrued expenses	$	10		$	208
ROU assets obtained in exchange for new lease liabilities	$	204		$	9,656
Increase in operating lease liabilities related to the adoption of ASC 842	$	—		$	32,104
Increase in ROU assets related to the adoption of ASC 842	$	—		$	29,526
Decrease in prepaids and other assets related to the adoption of ASC 842	$	—		$	(749	)
Decrease in other liabilities related to the adoption of ASC 842	$	—		$	(3,327	)

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

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ServiceSource International, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1 — The Company

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

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

For a summary of commonly used industry terms and abbreviations used in this report, see Glossary of Terms located at the end of this report.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements include the accounts of ServiceSource International, Inc. and its wholly-owned subsidiaries and have been prepared in accordance with GAAP and with the instructions to Form 10-Q and Article 8 of Regulation S-X for interim financial information. All intercompany balances and transactions have been eliminated in consolidation. These financial statements do not include all the information required by GAAP for annual financial statements. The unaudited Consolidated Balance Sheet as of December 31, 2019 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, 2019 filed with the SEC on February 19, 2020. In the opinion of management, these Consolidated Financial Statements reflect all adjustments, including normal recurring adjustments, management considers necessary for a fair presentation of the Company’s financial position, operating results, and cash flows for the interim periods presented. These Consolidated Financial Statements and accompanying notes should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2019, included in our annual report on Form 10-K. Interim results are not necessarily indicative of results for the entire year.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amount of net revenue and expenses during the reporting period.

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

Reclassifications

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

New Accounting Standards Issued but Not yet Adopted

Financial Instruments - Credit Losses

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

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This standard will apply to the Company's accounts receivables and contract assets. Based on our current analysis, the Company does not expect the adoption to have a material impact on its Consolidated Financial Statements as credit losses associated from trade receivables have historically been insignificant. The Company will adopt this standard effective January 1, 2023.

Income Taxes

In December 2019, the FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2020, with early adoption permitted. Based on our current analysis, the Company does not expect the adoption to have a material impact on its Consolidated Financial Statements. The Company will adopt this standard effective January 1, 2021.

Note 3 — Fair Value of Financial Instruments

The Company follows a three-tier fair value hierarchy, which is described in detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The following table presents the Company's cash and cash equivalents and restricted cash by significant investment category measured at fair value:



	March 31, 2020		December 31, 2019

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

Restricted cash	$	2,294	$	2,294

The Company did not have any other financial instruments or debt measured at fair value as of March 31, 2020 and 2019. There were no transfers between levels during the three months ended March 31, 2020 and 2019.

Note 4 — Debt

Revolving Line of Credit

In July 2018, the Company entered into a $40.0 million Revolver that allows us to borrow against our domestic receivables as defined in the credit agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. As of March 31, 2020, the Company had $27.0 million of borrowings outstanding under the Revolver through a six-month Eurodollar borrowing at an effective interest rate of 3.07% maturing September 2020 and an additional $2.3 million available for borrowing under the Revolver. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if our borrowing base decreases below our current amount outstanding during the term of the Eurodollar borrowing.

The obligations under the credit agreement are secured by substantially all assets of the borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has covenants with which the Company was in compliance as of March 31, 2020 and December 31, 2019.

Deferred Debt Issuance Costs and Interest Expense

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

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

Note 5 — Leases

The Company has operating leases for office space and finance leases for certain equipment under non-cancelable agreements with various expiration dates through May 2030. Certain office leases include the option to extend the term between one to

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seven years and certain office leases include the option to terminate the lease upon written notice within one to eight years after lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

In January 2020, the Company entered into a one-year sublease agreement with a third-party for one floor of its Manila office space, with total sublease income of approximately $1.1 million. In July 2019, the Company entered into a sublease with a third-party for its San Francisco office space leased during 2018 through the remaining term of the lease, November 30, 2023. The Company recognizes rent expense and sublease income on a straight-line basis over the lease period and accrues for rent expense and sublease income incurred but not paid.

Supplemental income statement information related to leases was as follows:



	For the Three Months Ended March 31,
	2020			2019

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

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

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

Supplemental balance sheet information related to leases was as follows:



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

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

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

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

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



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

Maturities of lease liabilities were as follows as of March 31, 2020:



	Operating Leases			Operating Sublease			Finance Leases			Total

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

⁽¹⁾Relates to tenant improvement reimbursements incurred by the Company after lease commencement, but not received from landlord as of March 31, 2020.

Note 6 — Revenue Recognition

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

Revenue by Performance Obligation



	For the Three Months Ended March 31,
	2020		2019

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

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Revenue by Geography

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



	For the Three Months Ended March 31,
	2020		2019

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

Revenue by Contract Pricing



	For the Three Months Ended March 31,
	2020		2019

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

Contract Balances

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

Transaction Price Allocated to Remaining Performance Obligations

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

Contract Acquisition Costs

Under the transition guidance, the Company recorded a $3.3 million contract acquisition asset and corresponding offset to the opening accumulated deficit balance related to previously expensed sales commissions. The Company recorded $0.2 million and $0.3 million in amortization expense related to this amount for the three months March 31, 2020 and 2019, respectively.

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



	For the Three Months Ended March 31,
	2020			2019

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

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

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

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Note 7 — Stock-Based Compensation

Stock-Based Compensation Expense

The following table presents stock-based compensation expense as allocated within the Company's Consolidated Statements of Operations:



	For the Three Months Ended March 31,
	2020		2019

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

The above table does not include capitalized stock-based compensation related to internal-use software that was immaterial for the three months ended March 31, 2020 and 2019.

Stock Awards

A summary of the Company's stock option activity and related information was as follows:



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

The weighted-average fair value of options granted during the three months ended March 31, 2020 and 2019 was $0.63 and $0.53, respectively. As of March 31, 2020, there was $1.2 million of unrecognized compensation expense related to stock options granted under the 2011 Plan, which is expected to be recognized over a weighted-average period of 2.3 years.

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



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

As of March 31, 2020, there was $6.6 million of unrecognized compensation expense related to RSUs and PSUs granted under the 2011 Plan, which is expected to be recognized over a weighted-average period of 2.2 years.

Potential shares of common stock that are not included in the determination of diluted net loss per share because they are anti-dilutive for the periods presented consist of stock options, unvested RSUs and shares to be purchased under our ESPP. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 4.2 million and 10.4 million shares for the three months ended March 31, 2020 and 2019, respectively, because their effect would have been anti-dilutive.

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Note 8 — Restructuring and Other Related Costs

The Company has undergone restructuring efforts to better align its cost structure with its business and market conditions. These restructuring efforts include severance and other employee costs, lease and other contract termination costs and asset impairments. Severance and other employee costs include severance payments, related employee benefits, stock-based compensation related to the accelerated vesting of certain equity awards and employee-related legal fees. Lease and other contract termination costs include charges related to lease consolidation and abandonment of spaces no longer utilized and the cancellation of certain contracts with outside vendors. Asset impairments include charges related to leasehold improvements and furniture in spaces vacated or no longer in use. The restructuring plans and future cash outlays are recorded in "Accrued expenses", "Accrued compensation and benefits" and "Other long-term liabilities" in our Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019.

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

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



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

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

The following table presents a reconciliation of the beginning and ending fair value liability balance related to the May 2017 restructuring effort:



	Severance and Other Employee Costs			Lease and Other Contract Termination Costs			Asset Impairments			Total

	(in thousands)
Balance as of January 1, 2017	$	—		$	—		$	—		$	—
Restructuring and other related costs	3,483			2,939			886			7,308
Cash paid	(3,060		)	(1,185		)	—			(4,245		)
Change in estimates and non-cash charges	—			—			(886		)	(886		)
Acceleration of stock-based compensation expense in additional paid-in capital	(352		)	—			—			(352		)
Balance as of December 31, 2017	71			1,754			—			1,825
Restructuring and other related costs	120			89			—			209
Cash paid	(188		)	(1,133		)	—			(1,321		)
Change in estimates and non-cash charges	(3		)	252			—			249
Balance as of December 31, 2018	—			962			—			962
Cash paid	—			(183		)	—			(183		)
Change in estimates and non-cash charges	—			(63		)	—			(63		)
Balance as of December 31, 2019	—			716			—			716
Cash paid	—			(44		)	—			(44		)
Change in estimates and non-cash charges	—			(17		)	—			(17		)
Balance as of March 31, 2020	$	—		$	655		$	—		$	655

Note 9 — Income Taxes

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on the Company’s net operating losses and foreign tax rate differences. The "Provision for income tax expense" in the Consolidated Statements of Operations primarily consists of income and withholding taxes for foreign and state jurisdictions where the Company has profitable operations, as well as valuation allowance adjustments for certain U.S. tax jurisdictions. No tax benefit was provided for losses incurred in the U.S., Ireland and Singapore because those losses are offset by a full valuation allowance. The tax years 2012 through 2020 generally remain subject to examination by federal, state and foreign tax authorities.

The gross amount of the Company’s unrecognized tax benefits was $1.0 million as of March 31, 2020 and December 31, 2019, none of which, if recognized, would affect the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the three months ended March 31, 2020 and 2019, interest and penalties recognized were insignificant.

Note 10 — Commitments and Contingencies

Letters of Credit

In connection with two of our leased facilities, the Company is required to maintain two letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market accounts, which are classified as restricted cash in "Other assets" in our Consolidated Balance Sheets.

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Non-cancelable Service Contract Commitments

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



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

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

The following MD&A should be read in conjunction with our unaudited Consolidated Financial Statements and notes thereto which appear elsewhere in this quarterly report on Form 10-Q.

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

Overview

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

For a summary of commonly used industry terms and abbreviations used in this report, see Glossary of Terms located at the end of this report.

Impact of the COVID-19 Pandemic

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

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

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

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


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


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


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


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

Results of Operations

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

Net Revenue, Cost of Revenue and Gross Profit

Net revenue is primarily attributable to commissions we earn from the sale of renewals of maintenance, support and subscription agreements on behalf of our clients. We also generate revenues from selling professional services. Historically, we earned a small percentage of our total revenue from the sale of subscriptions to our cloud-based applications.

Cost of revenue includes employee compensation, technology costs, including those related to the delivery of our cloud-based technologies, and allocated overhead costs.



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

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

Cost of revenue decreased $3.9 million, or 10%, for the three months ended March 31, 2020 compared to the same period in 2019, primarily due to the following:


•	$3.1 million decrease in employee related costs associated with a reduction in headcount, lower revenue attainment and lower travel and entertainment expenditures;


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


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


•	$0.3 million increase in depreciation and amortization expense.

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Operating Expenses



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

Sales and Marketing

Sales and marketing expenses primarily consist of compensation expenses and sales commissions for our sales and marketing staff, amortization of contract acquisition costs, allocated expenses and marketing programs and events.

Sales and marketing expenses decreased $0.7 million, or 9%, for the three months ended March 31, 2020 compared to the same period in 2019, primarily due to a decrease in employee related costs associated with lower revenue attainment and lower travel and entertainment expenditures.

Research and Development

Research and development expenses primarily consist of employee compensation expense.

Research and development expenses decreased $0.1 million, or 6%, for the three months ended March 31, 2020 compared to the same period in 2019, primarily due to a decrease in facility related costs.

General and Administrative

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

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


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


•	$0.2 million decrease in depreciation and amortization expense; and


•	$0.1 million decrease in professional fees; partially offset by


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

Restructuring and Other Related Costs

Restructuring and other related costs consist primarily of employees’ severance payments and related employee benefits, related legal fees and charges related to lease termination costs.

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

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Interest and Other Expense, Net

Interest and other expense, net consists of interest expense associated with our Revolver, imputed interest from finance lease payments, interest income earned on our cash and cash equivalents, amortization of debt issuance costs and foreign exchange gains and losses.



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

Interest expense decreased 12%, for the three months ended March 31, 2020 compared to the same period in 2019.

Other expense, net increased $0.4 million for the three months ended March 31, 2020 compared to the same period in 2019, primarily due to foreign currency fluctuations.

Provision for Income Tax Expense



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

Provision for income tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax expense increased for the three months ended March 31, 2020 compared to the same period in 2019, due to an increase in profitable operations in certain foreign jurisdictions.

Liquidity and Capital Resources

Our primary operating cash requirements include the payment of compensation and related costs and costs for our facilities and information technology infrastructure. Historically, we have financed our operations from cash provided by our operating activities. We believe our existing cash and cash equivalents and available funds from the Revolver will be sufficient to meet our working capital and capital expenditure needs over the next twelve months.

As of March 31, 2020, we had cash and cash equivalents of $47.2 million, which primarily consisted of demand deposits and money market mutual funds. Included in cash and cash equivalents was $6.0 million held by our foreign subsidiaries used to satisfy their operating requirements. We consider the undistributed earnings of ServiceSource Europe Ltd. and ServiceSource International Singapore Pte. Ltd. permanently reinvested in foreign operations and have not provided for U.S. income taxes on such earnings. As of March 31, 2020, the Company had no unremitted earnings from our foreign subsidiaries.

During July 2018, the Company entered into a $40.0 million Revolver that allows us to borrow against our domestic receivables as defined in the credit agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. Proceeds from the Revolver are used for working capital and general corporate purposes.

As of March 31, 2020, we had $27.0 million of borrowings outstanding under the Revolver through a six-month Eurodollar borrowing at an effective interest rate of 3.07% maturing September 2020 and an additional $2.3 million available for borrowing under the Revolver. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if our borrowing base decreases below our current amount outstanding during the term of the Eurodollar borrowing. Proceeds from the Revolver are used for working capital and general corporate purposes. Obligations under the credit agreement are secured by substantially all assets of the borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company's subsidiaries. The Revolver has covenants with which we are in compliance as of March 31, 2020 and December 31, 2019.

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Letters of Credit and Restricted Cash

Cash Flows

The following table presents a summary of our cash flows:



	For the Three Months Ended March 31,
	2020			2019

	(in thousands)
Net cash (used in) provided by operating activities	$	(5,669	)	$	2,084
Net cash used in investing activities	(1,557		)	(2,898		)
Net cash provided by (used in) financing activities	26,838			(49		)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	480			185
Net change in cash and cash equivalents and restricted cash	$	20,092		$	(678	)

Depreciation and amortization expense were comprised of the following:



	For the Three Months Ended March 31,
	2020		2019

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

Operating Activities

Net cash used in operating activities increased $7.8 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily as a result of decreased cash collections from customers during the current period compared to the prior period, higher cash payments made during the current period compared to the prior period related to operating costs previously accrued for and a decrease in Adjusted EBITDA.

Investing Activities

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

Financing Activities

Net cash provided by financing activities increased $26.9 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily as a result of $27.0 million in cash inflow due to borrowing on the Revolver during the three months ended March 31, 2020.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any off balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. The Company's significant accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2019. These policies were followed in preparing the Consolidated Financial Statements for the three months ended March 31, 2020 and are consistent with the year ended December 31, 2019.

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Recent Accounting Pronouncements

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

Non-GAAP Financial Measurements

ServiceSource believes net income (loss), as defined by GAAP, is the most appropriate financial measure of our operating performance; however, ServiceSource considers Adjusted EBITDA to be a useful supplemental, non-GAAP financial measure of our operating performance. We believe Adjusted EBITDA can assist investors in understanding and assessing our operating performance on a consistent basis, as it removes the impact of the Company's capital structure and other non-cash or non-recurring items from operating results and provides an additional tool to compare ServiceSource's financial results with other companies in the industry, many of which present similar non-GAAP financial measures.

EBITDA consists of net income (loss) plus provision for income tax expense (benefit), interest and other expense (income), net and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus stock-based compensation, restructuring and other related costs, amortization of contract acquisition costs related to the initial adoption of ASC 606 and incremental and non-recurring costs incurred outside of normal operations as a result of COVID-19.

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

The following table presents the calculation of Adjusted EBITDA reconciled from “Net loss”:



	For the Three Months Ended March 31,
	2020			2019

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies as defined by Rule 12b-2 of the Exchange Act.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.

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

Based on management’s evaluation, our CEO and CFO concluded that our disclosure controls and procedures are designed to, and are effective to, provide at a reasonable assurance level, that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in

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SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings in which we are involved, see Note 10 - "Commitments and Contingencies" to the Consolidated Financial Statements in Item 1.

Item 1A. Risk Factors

For a summary of factors which could affect results and cause results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf, see “Risk Factors” in Part 1, Item 1A of our annual report on Form 10-K for the year ended December 31, 2019. Except as provided below, there have been no material changes to the risk factors as disclosed in our annual report on Form 10-K for the year ended December 31, 2019.

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

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

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

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

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits



Exhibit Number		Description of Document

10.1*		Non-employee Director Deferred Compensation Plan

31.1*		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

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

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

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

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

104		Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101)

* Filed or furnished herewith.

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GLOSSARY OF TERMS

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



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

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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:	May 7, 2020	By:	/s/ RICHARD G. WALKER
			Richard G. Walker Chief Financial Officer and Director (Principal Financial and Accounting Officer)

SERVICESOURCE INTERNATIONAL, INC. NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN (Effective March 5, 2020)

SERVICESOURCE INTERNATIONAL, INC. NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN ServiceSource International, Inc., a Delaware corporation, hereby adopts this ServiceSource International, Inc. Non-Employee Director Deferred Compensation Plan (the “Plan”) for the benefit of the Non-Employee Directors (defined below) of the Company. The Plan is designed to allow the Non-Employee Directors of the Company to defer both cash director fees and the receipt of certain director equity awards. The Plan will be effective as of March 5, 2020. ARTICLE I DEFINITIONS Section 1.1 Definitions. Whenever used in the Plan, the following capitalized words and phrases shall have the meanings set forth below: (a) “Administrator” means the Board, or if and to the extent the Board does not administer the Plan, the Committee. (b) “Beneficiary” or “Beneficiaries” means the individuals, trusts or other entities designated by a Participant in writing pursuant to Section 6.2(a) of the Plan as being entitled to receive any benefit payable under the Plan following the death of a Participant, or, in the absence of such designation, the persons specified in Section 6.2(b) of the Plan. (c) “Benefit” or “Benefits” means the Restricted Stock Units, Director Cash Compensation, and other amounts credited to a Participant’s Account pursuant to the Participant’s Deferred Compensation Election, as adjusted pursuant to Sections 3.2 and 3.3. (d) “Board” means the Board of Directors of the Company as constituted at the relevant time. (e) “Change in Control” means the occurrence of any of the following events: (i) Change in Ownership: A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. - 1 -

(ii) Change in Effective Control: A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control. (iii) Change in Ownership of Substantial Assets: A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. (iv) Persons Acting as a Group. For purposes of this Section 1.1(e), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. The foregoing definition of Change of Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treasury Regulation §1.409A- 3(i)(5) or any successor provision. (f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. References to a Code Section shall be deemed to be that section or to any successor to that section. (g) “Committee” means the Compensation Committee of the Board. - 2 -

(h) “Common Stock” means the common stock of the Company, par value $0.0001 per share, or any successor security. (i) “Company” means ServiceSource International, Inc.., a Delaware corporation. (j) “Deferred Compensation Election” means the election to participate and defer Restricted Stock Units and/or Director Cash Compensation which is made by a Participant and delivered to the Company. (k) “Director” means an individual serving as a member of the Board of Directors of the Company. (l) “Director Cash Compensation” means the Non-Employee Director’s annual cash retainer and any cash fees received for performance of the Director’s duties, including cash fees for attendance or participation at meetings and for serving on a Board Committee or as a Board or Board Committee Chair. “Director Cash Compensation” shall not include any other type of direct or indirect compensation, including, but not limited to, expense reimbursements or equity awards of any kind. (m) “Effective Date” means March 5, 2020, the date on which this Plan becomes effective. (n) “Non-Employee Director” means any Director who is not an employee of the Company or any of its affiliates or subsidiaries. (o) “Participant” means a Non-Employee Director of the Company who has a Deferred Compensation Election currently in effect or who has an Account under the Plan. (p) “Plan Year” means January 1 through December 31; provided, however, that the initial Plan Year shall begin on the Effective Date of the Plan and shall end on December 31, 2020. (q) “Restricted Stock Units” means phantom, or notional interests granted to Participants, as compensation for services as a Non-Employee Director, pursuant to the Company’s stockholder approved equity incentive plan(s) that, once vested, entitle the Participant to receive one (1) share of Common Stock for each vested restricted stock unit. Section 1.2 The following capitalized terms are defined in the following Sections of the Plan: Capitalized Term Defined In Account or Deferred Account 3.1 Initial Enrollment Period 2.2(b) - 3 -

Plan Preamble Subsequent Enrollment Period 2.2(c) Parties 9.4 Person 1.1(e)(1) ARTICLE II PARTICIPATION Section 2.1 Eligibility to Participate. Each Non-Employee Director of the Company shall be eligible to participate in this Plan upon the sooner of (i) the Effective Date, or (ii) the date on which the Non-Employee Director commences service as a Non-Employee Director of the Company. Section 2.2 Election to Participate. (a) General. Each Non-Employee Director may become a Participant in the Plan by electing to defer compensation in accordance with the terms and conditions hereof. All elections to defer shall be in writing and shall be made by executing and returning a Deferred Compensation Election to the Administrator. (b) Initial Deferral Elections. All Deferred Compensation Elections for the Plan Year in which the Participant first becomes eligible to participate in the Plan shall be executed and filed with the Administrator within thirty (30) days after the Non-Employee Director first becomes eligible to participate in the Plan pursuant to Section 2.1 (such thirty (30) day period being the “Initial Enrollment Period”). Accordingly, individuals serving as Non-Employee Directors as of the Effective Date of the Plan shall have an Initial Enrollment Period beginning on the Effective Date and ending on the 30th day after the Effective Date. The initial Deferred Compensation Election will apply solely to Director Cash Compensation attributable to services performed after the Deferred Compensation Election is made and to Restricted Stock Units to granted in the initial year of Plan participation on or after the date the Deferred Compensation Election is made. (c) Subsequent Deferral Elections. Deferred Compensation Elections for each subsequent Plan Year shall be made during the period of December 1 to December 31 prior to the relevant Plan Year (each, a “Subsequent Enrollment Period”). Any such Deferred Compensation Election may apply solely to compensation attributable to services performed on or after the first day of the Plan Year that begins immediately following the relevant Subsequent Enrollment Period. Thus, a Deferred Compensation Election pursuant to this paragraph may apply solely to Director Cash Compensation paid for services performed on or after the first day of the Plan Year that begins immediately following the relevant Subsequent Enrollment Period. Similarly, a Deferred Compensation Election pursuant to this paragraph may apply only to Restricted Stock Units that are granted to the Participant in the Plan Year that begins immediately following the relevant Subsequent Enrollment Period. - 4 -

(d) Elections to Continue Unless Modified. A deferral election made pursuant to a Deferred Compensation Election shall remain in effect for future Plan Years until modified by the Participant. No modification shall be given effect with respect to a Plan Year to which the modification is intended to apply unless that modification is made during the Subsequent Enrollment Period for such Plan Year. Section 2.3 Cessation of Participation. Participation in the Plan shall continue until all of the Benefits to which the Participant is entitled have been paid in full. ARTICLE III DEFERRED COMPENSATION ACCOUNTS Section 3.1 Establishment of Accounts. The Company shall establish a “Deferred Account” (also referred to as an “Account”) for each Participant, which shall consist of the Director Cash Compensation and Restricted Stock Units deferred into such Account, as adjusted pursuant to Section 3.2 and 3.3. A Participant’s Deferred Account shall be credited with the dollar amount of Director Cash Compensation or the number of Restricted Stock Units deferred by such Participant on the date on which the Director Cash Compensation would otherwise have been payable or on the date on which the Restricted Stock Units would otherwise have vested. Section 3.2 Deemed Investments. Restricted Stock Units credited to the Participant’s Deferred Account shall be deemed invested solely in an equal number of shares of Common Stock and shall be credited with dividends and adjusted for distributions and changes in corporate capitalization in the same manner as actual shares of outstanding Common Stock of the Company. Director Cash Compensation credited to the Participant’s Deferred Account may be credited with earnings, gains or losses pursuant to such deemed investments (including deemed investment in Common Stock) as the Administrator shall determine, if any, in its sole and absolute discretion. Section 3.3 Adjustment for Distributions. A Participant’s Deferred Account shall be debited for all distributions made to such Participant under the Plan. ARTICLE IV VESTING Participants shall be fully vested in their Accounts at all times. ARTICLE V TIMING OF DISTRIBUTIONS Payment of a Participant’s Benefit shall be made within thirty (30) days following the earliest to occur of (A) a Participant’s “separation from service” as defined for purposes of Code Section 409A, (B) the Participant’s death, or (C) a Change in Control. ARTICLE VI DISTRIBUTION OF BENEFITS - 5 -

Section 6.1 Form of Benefit. A Participant shall receive his or her Benefit in a lump sum distribution. Payment in respect of any portion of the Participant’s Account that is deemed invested in Company Common Stock shall be made by distributing to the Participant an equal number of shares of Common Stock issued under the Company’s stockholder-approved equity incentive plan(s); provided, however, that the Administrator may, in its discretion, choose to settle any such amounts by paying to the Participant cash equal to the fair market value of the Common Stock that would otherwise be issuable to the Participant. Payment in respect of any portion of the Participant’s Account not invested in Company Common Stock shall be made in cash. Section 6.2 Beneficiaries. (a) Each Participant has the right to designate primary and contingent Beneficiaries for Benefits payable under the Plan following the Participant’s death. A beneficiary designation by a Participant shall be in writing on a form acceptable to the Company and shall be effective only upon delivery to the Company. A beneficiary designation may be revoked by a Participant at any time by delivering to the Company either written notice of revocation or a new beneficiary designation form. The beneficiary designation form last delivered to the Company prior to the death of a Participant shall control. (b) In the event there is no beneficiary designation on file with the Company, or all Beneficiaries designated by a Participant have predeceased the Participant, the Benefit payable following the death of the Participant shall be paid to the Participant’s spouse, if living; if the Participant does not leave a surviving spouse, to the Participant’s issue by right of representation; or, if there are no such issue then living, to the Participant’s estate. ARTICLE VII NO FUNDING No Participant shall be deemed to have, by virtue of being a Participant in the Plan, any claim to any specific assets of the Company, and the rights of Participants and Beneficiaries to Benefits to which they are otherwise entitled under the Plan shall be those of an unsecured general creditor of the Company. ARTICLE VIII ADMINISTRATION OF THE PLAN Section 8.1 Administrator. The Administrator shall be responsible for the general operation and administration of this Plan and for carrying out the provisions thereof. 1.1 Section 8.2 General Powers of Administration. The Administrator is hereby granted all authority necessary or desirable to administer the Plan, including authority to interpret the Plan, to adopt and revise rules and regulations relating to the Plan, and to make any other determinations that it believes necessary or advisable for the administration of the Plan. The Administrator shall be entitled to rely conclusively upon all tables, valuations, certificates, - 6 -

opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to this Plan. Section 8.3 Claims Procedure. The Administrator shall notify a Participant in writing within ninety (90) days of the Participant’s written application for Benefits or his or her eligibility or non-eligibility for Benefits under the Plan. If the Administrator determines that a Participant is not eligible for Benefits or full Benefits, the notice shall set forth (i) the specific reasons for such denial, (ii) a specific reference to the provision of the Plan on which the denial is based, (iii) a description of any additional information or material necessary for the claimant to perfect his or her claim, a description of why it is needed, and an explanation of the Plan’s claims review procedure and other appropriate information as the steps to be taken if the Participant wishes to have his or her claim reviewed. If the Administrator determines that there are special circumstances requiring additional time to make a decision, the Administrator shall notify the Participant of the special circumstances and the date by which a decision is expected to be made and may extend the time for an additional 90-day period. If a Participant is determined by the Administrator to be not eligible for Benefits, or if the Participant believes that he or she is entitled to greater or different Benefits, he or she shall have the opportunity to have his or her claim reviewed by the Administrator or filing a petition for review with the Administrator within sixty (60) days after receipt by him or her of the notice issued by the Administrator. Said petition shall state that specific reasons the Participant believes he or she is entitled to Benefits or greater or different Benefits. Within sixty (60) days after receipt by the Administrator of said petition, the Administrator shall afford the Participant (and his or her counsel, if any) an opportunity to present his or her position to the Administrator orally or in writing, and such Participant (or his counsel) shall have the right to review the pertinent documents, and the Administrator shall notify the Participant of its decision in writing within said sixty (60) day period, stating specifically the basis of said decision written in a manner calculated to be understood by the Participant and the specific provisions of the Plan on which the decision is based. If, because of the need for a hearing, the sixty (60) day period is not sufficient, the decision may be deferred for up to another sixty (60) day period at the election of the Administrator, but notice of this deferral shall be given to the Participant. ARTICLE IX MISCELLANEOUS Section 9.1 Benefits Inalienable. Except as provided in Section 6.2, the right of any Participant, any Beneficiary, or any other person to the payment of any Benefits under this Plan shall not be assigned, transferred, pledged or encumbered. Section 9.2 Successors and Assigns. This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns and the Participant and his or her heirs, executors, administrators and legal representatives. Section 9.3 Costs of Enforcement. If the Company, the Participant, any Beneficiary, or a successor in interest to any of the foregoing, brings legal action to enforce any of the provisions of this Plan, the prevailing party in such legal action shall be reimbursed by the other party for the prevailing party’s costs of such legal action including, without limitation, - 7 -

reasonable fees of attorneys, accountants and similar advisors and expert witnesses. Section 9.4 Disputes. Any dispute or claim relating to or arising out of this Plan that cannot be resolved pursuant to the internal dispute resolution processes implemented by the Administrator with respect to the Plan shall be resolved in the following manner. The Participant or Beneficiary, as the case may be, on the one hand, and the Administrator or its representative, on the other hand (collective, the “Parties”), shall meet to attempt to resolve such disputes. If the disputes cannot be resolved by the Parties, either Party may make a written demand for formal dispute resolution and specify therein the scope of the dispute. Within thirty (30) days after such written notification, the parties agree to meet for one day with an impartial mediator and consider dispute resolution alternatives other than litigation. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one-day mediation, either party may begin litigation proceedings. Section 9.5 Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to the principles of conflicts of law thereof, to the extent such construction is not pre-empted by any applicable federal law. Section 9.6 Entire Agreement. This Plan constitutes the entire understanding and agreement with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations or warranties among any Participant and the Company other than those set forth or provided for herein. Section 9.7 Amendment and Termination. (a) This Plan may be amended by the Board at any time in its sole discretion; provided, however, any amendment that would alter the irrevocable nature of an election or which would reduce the amount credited to a Participant’s Account on the date of such amendment shall not be effective unless consented to in writing by the Participant or, if the Participant has died or is incompetent, the Participant’s Beneficiary or conservator. (b) Notwithstanding the foregoing paragraph or any other provision in this Plan to the contrary, the Board may terminate the Plan at any time. Distribution of Benefits upon Plan termination may occur if permissible under Code Section 409A, and if so permissible, such distributions of Benefits shall occur at the time or times and in the manner set forth in Treasury Regulation Section 1.409A-3(j)(4)(ix). Section 9.8 409A. The payments and benefits provided hereunder are intended to be compliant with the requirements of Section 409A of the Code. Notwithstanding any provision of this Plan to the contrary, in the event that the Company reasonably determines that any payments or benefits hereunder are not compliant with the requirements of Section 409A of the Code, the Company shall have the right to adopt such amendments to this Plan or adopt such other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that are necessary or appropriate (i) to preserve the intended tax treatment of the payments and benefits provided hereunder, (ii) to preserve the economic benefits with respect to such payments and benefits, and/or (iii) to comply with the requirements - 8 -

of Section 409A of the Code and thereby avoid the application of penalty taxes thereunder; provided, however, that this Section 9.8 does not, and shall not be construed so as to, create any obligation on the part of the Company to adopt any such amendments, policies or procedures or to take any other such actions or to indemnify any Participant for any failure to do so. ARTICLE X TERM OF PLAN The Plan shall remain in effect until terminated by the Board. - 9 -


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


(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:	May 7, 2020	By:	/s/ GARY B. MOORE
			Name: Gary B. Moore
			Title: Chief Executive Officer and Director (Principal Executive Officer)