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Table of Contents

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 June 30, 2020
or
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission file number 001-35108
 SERVICESOURCE INTERNATIONAL, INC.
 
(Exact name of registrant as specified in its charter)
Delaware
 
81-0578975
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
707 17th Street, 25th Floor
 
 
Denver,
Colorado
 
80202
(Address of principal executive offices)
 
(Zip Code)
(720)
889-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.0001 Par Value
 
SREV
 
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 Yes ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 Yes ☒   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
☐
 
Accelerated Filer
 
☒
 
 
 
 
Non-accelerated filer
 
☐
 
Smaller reporting company
 
☒
 
 
 
 
 
 
 
Emerging growth company
 
☐
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ☐    No  ☒
As of July 24, 2020, 95,616,859 shares of common stock of ServiceSource International, Inc. were outstanding.

Table of Contents

TABLE OF CONTENTS
 
Page
 
 
 
3
3
4
5
6
7
8
 
 
17
 
 
24
 
 
24
 
 
 
 
 
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
25
 
 
26
 
 
27

2
Table of Contents


Item 1. Financial Statements (unaudited)
ServiceSource International, Inc.
Consolidated Balance Sheets
(in thousands, except per share and par value amounts)
(unaudited)
 
June 30, 2020
 
December 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
40,924

 
$
27,089

Accounts receivable, net
40,023

 
41,754

Prepaid expenses and other
5,975

 
7,296

Total current assets
86,922

 
76,139

 
 
 
 
Property and equipment, net
31,958

 
36,149

ROU assets
31,736

 
36,396

Contract acquisition costs
1,204

 
1,602

Goodwill
6,334

 
6,334

Other assets
4,791

 
4,844

Total assets
$
162,945

 
$
161,464

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,922

 
$
4,392

Accrued expenses
2,458

 
3,366

Accrued compensation and benefits
15,823

 
16,700

Revolver
20,000

 
—

Operating lease liabilities
10,550

 
9,652

Other current liabilities
1,659

 
2,218

Total current liabilities
52,412

 
36,328

 
 
 
 
Operating lease liabilities, net of current portion
28,565

 
33,716

Other long-term liabilities
2,459

 
2,983

Total liabilities
83,436

 
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; 95,700 shares issued and 95,579 shares outstanding as of June 30, 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
376,944

 
374,525

Accumulated deficit
(297,365
)
 
(286,066
)
Accumulated other comprehensive income
361

 
410

Total stockholders’ equity
79,509

 
88,437

Total liabilities and stockholders’ equity
$
162,945

 
$
161,464

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

3
Table of Contents

ServiceSource International, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
 
 
 
 
 For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Net revenue
$
47,638

 
$
52,358

 
$
97,752

 
$
107,869

Cost of revenue
34,645

 
38,349

 
70,205

 
77,825

Gross profit
12,993

 
14,009

 
27,547

 
30,044

Operating expenses:
 
 

 
 
 

Sales and marketing
6,142

 
7,486

 
13,410

 
15,435

Research and development
1,516

 
1,274

 
2,697

 
2,537

General and administrative
10,619

 
10,970

 
21,307

 
21,952

Restructuring and other related costs
236

 
148

 
703

 
1,206

Total operating expenses
18,513

 
19,878

 
38,117

 
41,130

Loss from operations
(5,520
)
 
(5,869
)
 
(10,570
)
 
(11,086
)
Interest and other income (expense), net
324

 
(58
)
 
(550
)
 
(548
)
Loss before provision for income taxes
(5,196
)
 
(5,927
)
 
(11,120
)
 
(11,634
)
Provision for income tax expense
(161
)
 
(108
)
 
(179
)
 
(120
)
Net loss
$
(5,357
)
 
$
(6,035
)
 
$
(11,299
)
 
$
(11,754
)
Net loss per common share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.06
)
 
$
(0.06
)
 
$
(0.12
)
 
$
(0.13
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
95,369

 
93,712

 
95,169

 
93,315

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

4
Table of Contents

ServiceSource International, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
 
 
 
 
 For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Net loss
$
(5,357
)
 
$
(6,035
)
 
$
(11,299
)
 
$
(11,754
)
Other comprehensive loss
 
 
 
 
 
 
 
Foreign currency translation adjustments
(547
)
 
(260
)
 
(49
)
 
(184
)
Other comprehensive loss
(547
)
 
(260
)
 
(49
)
 
(184
)
Comprehensive loss
$
(5,904
)
 
$
(6,295
)
 
$
(11,348
)
 
$
(11,938
)
The accompanying notes are an integral part of these Consolidated Financial Statements.

5
Table of Contents

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    
 
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

Net loss
—

 
—

 
—

 
—

 
—

 
(5,357
)
 
—

 
(5,357
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(547
)
 
(547
)
Stock-based compensation
—

 
—

 
—

 
—

 
1,278

 
—

 
—

 
1,278

Issuance of common stock, RSUs
438

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at June 30, 2020
95,700

 
$
10

 
(121
)
 
$
(441
)
 
$
376,944

 
$
(297,365
)
 
$
361

 
$
79,509

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Shares/Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
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

Net loss
—

 
—

 
—

 
—

 
—

 
(6,035
)
 
—

 
(6,035
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(260
)
 
(260
)
Stock-based compensation
—

 
—

 
—

 
—

 
1,269

 
—

 
—

 
1,269

Issuance of common stock, RSUs
947

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net cash paid for payroll taxes on restricted stock unit releases
—

 
—

 
—

 
—

 
(19
)
 
—

 
—

 
(19
)
Balance at June 30, 2019
94,210

 
$
9

 
(121
)
 
$
(441
)
 
$
372,201

 
$
(279,137
)
 
$
218

 
$
92,850

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

6
Table of Contents

ServiceSource International, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
 
For the Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(11,299
)
 
$
(11,754
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
6,819

 
6,994

Amortization of contract acquisition costs
515

 
868

Amortization of ROU assets
4,690

 
4,725

Stock-based compensation
2,320

 
2,806

Restructuring and other related costs
645

 
1,166

Other
35

 
38

Net changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
1,704

 
11,328

Prepaid expenses and other assets
1,299

 
(898
)
Contract acquisition costs
(129
)
 
(249
)
Accounts payable
(2,452
)
 
(263
)
Accrued compensation and benefits
(1,431
)
 
(1,934
)
Operating lease liabilities
(4,385
)
 
(4,767
)
Accrued expenses
(823
)
 
(797
)
Other liabilities
(578
)
 
(546
)
Net cash (used in) provided by operating activities
(3,070
)
 
6,717

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(2,596
)
 
(6,095
)
Net cash used in investing activities
(2,596
)
 
(6,095
)
Cash flows from financing activities:
 
 
 
Repayment on finance lease obligations
(481
)
 
(421
)
Proceeds from Revolver
27,000

 
—

Repayment of Revolver
(7,000
)
 
—

Proceeds from issuance of common stock
76

 
141

Payments related to minimum tax withholdings on RSU releases
—

 
(19
)
Net cash provided by (used in) financing activities
19,595

 
(299
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(68
)
 
(156
)
Net change in cash and cash equivalents and restricted cash
13,861

 
167

Cash and cash equivalents and restricted cash, beginning of period
29,383

 
27,779

Cash and cash equivalents and restricted cash, end of period
$
43,244

 
$
27,946

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
226

 
$
136

Supplemental disclosures of non-cash activities:
 
 
 
Purchases of property and equipment accrued in accounts payable and accrued expenses
$
71

 
$
419

ROU assets obtained in exchange for new lease liabilities
$
204

 
$
10,420

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.

7
Table of Contents

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. The Company has considered the effects of the COVID-19 pandemic in determining its estimates. However, future events are difficult to predict and subject to change, especially with the risks and uncertainties related to the impact of the COVID-19 pandemic, which could cause estimates and judgments to require adjustment. Actual results and outcomes may differ from our estimates.
Reclassifications
Certain items on the Consolidated Statements of Cash Flows for the six months ended June 30, 2019 have been reclassified to conform to the current year presentation. These reclassifications did not affect the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss or Consolidated Statements of Stockholders' Equity.

8
Table of Contents

Government Assistance
During 2020, ServiceSource received a grant from the Singapore government pursuant to its Job Support Scheme, which assists enterprises in retaining their local employees during the COVID-19 pandemic. ServiceSource received approximately $0.4 million from the grant during the three and six months ended June 30, 2020 and is expected to receive an additional $0.7 million during the second half of 2020. Government grants are recognized in the Company's Consolidated Statements of Operations during the same period that the expenses related to the grant are incurred if there is reasonable assurance the grant will be received, and the Company has complied with any conditions attached to the grant.  
New Accounting Standards Issued but Not yet Adopted
Financial Instruments - Credit Losses
In June 2016, the FASB issued an ASU that amends the measurement of credit losses on financial instruments and requires measurement and recognition of expected versus incurred credit losses for financial assets held. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2022, with early adoption permitted. This standard will apply to the Company's accounts receivable and contract assets. Based on our current analysis, the Company does not expect the adoption to have a material impact on the Consolidated Financial Statements as credit losses from trade receivables have historically been insignificant. The Company will adopt this standard effective January 1, 2023.
Income Taxes
In December 2019, the FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2020, with early adoption permitted. Based on our current analysis, the Company does not expect the adoption to have a material impact on the Consolidated Financial Statements. The Company will adopt this standard effective January 1, 2021.
Note 3 — Fair Value of Financial Instruments
The Company follows a three-tier fair value hierarchy, which is described in detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
The following table presents the Company's cash and cash equivalents and restricted cash by significant investment category measured at fair value:
 
June 30, 2020
 
December 31, 2019
 
 
 
 
 
(in thousands)
Level 1:
 
 
 
Cash
$
13,394

 
$
9,142

Money market mutual funds
27,530

 
17,947

Cash and cash equivalents
$
40,924

 
$
27,089

 
 
 
 
Restricted cash
$
2,320

 
$
2,294


The Company did not have any other financial instruments or debt measured at fair value as of June 30, 2020 and 2019. There were no transfers between levels during the six months ended June 30, 2020 and 2019.
Note 4 — Debt
Revolving Line of Credit
In July 2018, the Company entered into a $40.0 million Revolver that allows it and the other Borrowers named therein to borrow against its domestic receivables as defined in the Credit Agreement. The Revolver matures July 2021 and bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings.

9

During March 2020, the Company borrowed $27.0 million under the Revolver through a six-month Eurodollar borrowing at an effective interest rate of 3.07%. As of June 30, 2020, the Company repaid $7.0 million of the outstanding balance and converted the remaining $20.0 million of borrowings into a one-month Eurodollar borrowing at an effective interest rate of 2.18% maturing July 2020. An additional $6.5 million was available for borrowing under the Revolver as of June 30, 2020. 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. Subsequent to June 30, 2020, the one-month $20.0 million Eurodollar borrowing was extended at an effective interest rate of 2.17% maturing August 2020.
The obligations under the Credit Agreement are secured by substantially all of the assets of the Borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has financial covenants which the Company was in compliance with as of June 30, 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 June 30, 2020 and December 31, 2019.
Interest expense related to the amortization of debt issuance costs and interest expense associated with the Company's debt obligation was $0.2 million and $0.04 million for the three months ended June 30, 2020 and 2019, respectively and $0.3 million and $0.1 million for the six months ended June 30, 2020 and 2019, respectively.
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 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 June 30, 2020
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
Operating lease cost
$
2,924

 
$
3,116

 
$
6,031

 
$
5,997

 
 
 
 
 
 
 
 
Finance lease cost:
 
 
 
 
 
 
 
Amortization of leased assets
163

 
171

 
351

 
322

Interest on lease liabilities
25

 
45

 
56

 
86

Total finance lease cost
188

 
216

 
407

 
408

 
 
 
 
 
 
 
 
Sublease income
(895
)
 
(468
)
 
(1,787
)
 
(936
)
Net lease cost
$
2,217

 
$
2,864

 
$
4,651

 
$
5,469




10
Table of Contents

Supplemental balance sheet information related to leases was as follows:
 
June 30, 2020
 
December 31, 2019
 
(in thousands)
Operating leases:
 
 
 
ROU assets
$
31,736

 
$
36,396

 
 
 
 
Operating lease liabilities
$
10,550

 
$
9,652

Operating lease liabilities, net of current portion
28,565

 
33,716

Total operating lease liabilities
$
39,115

 
$
43,368

 
 
 
 
Finance leases:
 
 
 
Property and equipment
$
2,839

 
$
3,480

Accumulated depreciation
(1,520
)
 
(1,823
)
Property and equipment, net
$
1,319

 
$
1,657

 
 
 
 
Other current liabilities
$
786

 
$
952

Other long-term liabilities
356

 
671

Total finance lease liabilities
$
1,142

 
$
1,623


Lease term and discount rate information was as follows:
 
For the Six Months Ended June 30,
 
2020
 
2019
Weighted-average remaining lease term (in years):
 
 
 
Operating lease
5.8

 
5.0

Finance lease
1.4

 
2.3

Weighted-average discount rate:
 
 
 
Operating lease
6.4
%
 
6.5
%
Finance lease
7.5
%
 
8.2
%

Maturities of lease liabilities were as follows as of June 30, 2020:
 
Operating Leases
 
Operating Sublease
 
Finance Leases
 
Total
 
 
 
 
 
 
 
 
 
(in thousands)
Remainder of 2020
$
6,662

 
$
(1,819
)
 
$
503

 
$
5,346

2021
12,010

 
(2,631
)
 
633

 
10,012

2022
8,515

 
(2,538
)
 
64

 
6,041

2023
3,579

 
(623
)
 
—

 
2,956

2024
2,635

 
—

 
—

 
2,635

Thereafter
13,702

 
—

 
—

 
13,702

Total lease payments
47,103

 
(7,611
)
 
1,200

 
40,692

Less: interest
(7,952
)
 
—

 
(58
)
 
(8,010
)
Less: tenant improvement reimbursements(1)
(36
)
 
—

 
—

 
(36
)
Total
$
39,115

 
$
(7,611
)
 
$
1,142

 
$
32,646

(1) Relates to tenant improvement reimbursements incurred by the Company after lease commencement, but not received from landlord as of June 30, 2020.

11
Table of Contents

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 June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
Selling services
$
46,545

 
$
51,916

 
$
95,718

 
$
107,044

Professional services
1,093

 
442

 
2,034

 
825

Total revenue
$
47,638

 
$
52,358

 
$
97,752

 
$
107,869

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 June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
NALA
$
27,558

 
$
29,595

 
$
56,031

 
$
62,796

EMEA
12,846

 
13,418

 
26,853

 
27,054

APJ
7,234

 
9,345

 
14,868

 
18,019

Total revenue
$
47,638

 
$
52,358

 
$
97,752

 
$
107,869

Revenue by Contract Pricing
 
 For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
Variable consideration
$
33,813

 
$
33,530

 
$
70,179

 
$
69,312

Fixed consideration
13,825

 
18,828

 
27,573

 
38,557

Total revenue
$
47,638

 
$
52,358

 
$
97,752

 
$
107,869


Contract Balances
As of June 30, 2020 and December 31, 2019, contract asset balances were insignificant and as of June 30, 2020 and December 31, 2019, contract liability balances totaled $0.6 million and $0.8 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
As of June 30, 2020, assuming none of the Company’s current contracts with fixed consideration are renewed, we estimate receiving approximately $40.6 million in future selling services fixed consideration and recognizing approximately $0.9 million in professional services fixed consideration through the remainder of 2020.
Contract Acquisition Costs
As of June 30, 2020 and December 31, 2019, capitalized contract acquisition costs were $1.2 million and $1.6 million, respectively. The Company recorded amortization expense related to capitalized contract acquisition costs of $0.2 million and $0.6 million for the three months ended June 30, 2020 and 2019, respectively, and $0.5 million and $0.9 million for the six months ended June 30, 2020 and 2019, respectively.
Impairment recognized on contract costs was insignificant for the three and six months ended June 30, 2020 and 2019.

12
Table of Contents

Note 7 — Stock-Based Compensation
2020 Equity Incentive Plan
The 2020 Plan was approved by the Company’s stockholders on May 14, 2020 and expires March 4, 2025. The 2020 Plan provides for a reserve of 6,200,000 shares of the Company's common stock that may be issued pursuant to awards under the 2020 Plan. Permitted awards include, but are not limited to, options, stock appreciation rights, restricted stock units, performance stock units and other cash and stock-based awards.
On May 14, 2020, following the approval of the 2020 Plan, the Company’s board of directors terminated the 2011 Plan with the effect that no additional awards may be issued under the 2011 Plan and all outstanding awards under the 2011 Plan shall continue on and be unaffected by the termination of the 2011 Plan.
2020 PSU Awards
During May 2020, the Company granted PSUs to certain executives under the 2011 Plan. The aggregate target number of shares subject to vest under these awards is 0.9 million, with an aggregate grant date fair value of $1.2 million. The number of shares ultimately received related to these awards ranges from 0% to 150% of the participant's target award depending on the Company's achievement of specified adjusted EBITDA and net bookings targets over a two-year performance period and will vest on the third anniversary of the grant date.
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 June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
Cost of revenue
$
90

 
$
129

 
$
135

 
$
288

Sales and marketing
444

 
429

 
821

 
872

Research and development
1

 
18

 
19

 
12

General and administrative
740

 
660

 
1,345

 
1,634

Total stock-based compensation
$
1,275

 
$
1,236

 
$
2,320

 
$
2,806


The above table does not include capitalized stock-based compensation related to internal-use software that was insignificant for the three and six months ended June 30, 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
(160
)
 
$
3.88

 
 
 
 
Outstanding as of June 30, 2020
4,006

 
$
2.09

 
7.56
 
$
1,281

Exercisable as of June 30, 2020
2,265

 
$
2.77

 
6.76
 
$
519


The weighted-average fair value of options granted during the six months ended June 30, 2020 and 2019 was $0.63 and $0.51, respectively. As of June 30, 2020, there was $1.0 million of unrecognized compensation expense related to previously granted stock options, which is expected to be recognized over a weighted-average period of 2.1 years.

13
Table of Contents

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
2,664

 
$
1.36

Vested
(616
)
 
$
3.23

Forfeited
(467
)
 
$
1.89

Non-vested as of June 30, 2020
6,886

 
$
1.56


As of June 30, 2020, there was $8.2 million of unrecognized compensation expense related to previously granted RSUs and PSUs, which is expected to be recognized over a weighted-average period of 2.1 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 PSUs shares to be purchased under our ESPP. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 5.2 million and 7.6 million shares for the three months ended June 30, 2020 and 2019, respectively, and 4.3 million and 8.9 million shares for the six months ended June 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive.
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 the Consolidated Balance Sheets as of June 30, 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 $0.2 million and $0.1 million for the three months ended June 30, 2020 and 2019, respectively, and $0.7 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively. The Company expects to incur nominal costs related to this restructuring through the remainder of 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
703

 
—

 
703

Cash paid
(854
)
 
—

 
(854
)
Change in estimates and non-cash charges
(19
)
 
—

 
(19
)
Balance as of June 30, 2020
$
12

 
$
—

 
$
12



14
Table of Contents

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 June 30, 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
—

 
(84
)
 
—

 
(84
)
Change in estimates and non-cash charges
—

 
(39
)
 
—

 
(39
)
Balance as of June 30, 2020
$
—

 
$
593

 
$
—

 
$
593


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 June 30, 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 and six months ended June 30, 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 the Consolidated Balance Sheets.

15
Table of Contents

Non-cancelable Service Contract Commitments
Future minimum payments under non-cancelable service contract commitments were as follows:
 
June 30, 2020
 
(in thousands)
Remainder of 2020
$
4,418

2021
10,200

2022
9,122

2023
7,450

2024
821

Thereafter
—

Total
$
32,011



16
Table of Contents

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, including the risks and uncertainties related to the impact and duration of the COVID-19 pandemic, as well as those discussed in the sections of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 19, 2020 entitled “Forward Looking Statements” and “Risk Factors”, in the section of our Quarterly Report on Form 10-Q for the period ended March 31, 2020 filed with the SEC on April 30, 2020 entitled “Risk Factors”, and in our other filings with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by applicable law.
Overview
ServiceSource is a leading provider of BPaaS solutions that enable the transformation of go-to-market organizations and functions for global technology clients. We design, deploy, and operate a suite of innovative solutions and complex processes that support and augment our clients’ B2B customer acquisition, engagement, expansion and retention activities. Our clients - ranging from Fortune 500 technology titans to high-growth disruptors and innovators - rely on our holistic customer engagement methodology and process excellence, global scale and delivery footprint, and data analytics and business insights to deliver trusted business outcomes that have a meaningful and material positive impact to their long-term revenue and profitability objectives. Through our unique integration of people, process and technology - leveraged against our 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.
Impact of the COVID-19 Pandemic
With the global outbreak of COVID-19 and the declaration of a pandemic by the World Health Organization on March 11, 2020, we created a dedicated crisis team to proactively implement our business continuity plans.  By March 19, 2020, more than 95% of our employees had moved from an in-office to a work-from-home environment and as of April 1, 2020, we transitioned to a 100% virtual operating model, 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 June 30, 2020, we had total available liquidity of $47.4 million consisting of cash on hand and our Revolver. See "Liquidity and Capital Resources" for additional information.
Although there was no material adverse impact on the results of operations for the first half of 2020 as a result of COVID-19, 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 and customer payments, but on the other hand, we have seen some clients experience heightened levels of demand for their products and services. We have incurred and expect to continue to incur costs directly related to the COVID-19 pandemic such as costs for enhanced cleaning of our facilities, investing capital to allow our employees to function in our virtual, work-from-home operating model and increased paid time off costs resulting from employees taking less paid time off. However, we are also benefiting from decreases in certain costs related to our facilities and reduced travel and entertainment costs. We do not currently anticipate that these items will have a material adverse impact on our overall business and financial results.

17

During 2020, ServiceSource received a grant from the Singapore government pursuant to its Job Support Scheme, which assists enterprises in retaining their local employees during the COVID-19 pandemic.  ServiceSource received approximately $0.4 million from the grant during the three and six months ended June 30, 2020 and is expected to receive an additional $0.7 million during the second half of 2020. 
The situation surrounding COVID-19 remains fluid and the potential for a negative impact on our financial condition and results of operations increases the longer the virus impacts the economic activity in the U.S. and globally. See Part II, Item 1A - “Risk Factors” for additional information.
Key Financial Results for the Three Months Ended June 30, 2020
•
GAAP revenue was $47.6 million compared with $52.4 million reported for the same period in 2019.
•
GAAP net loss was $5.4 million or $0.06 per diluted share, compared with GAAP net loss of $6.0 million or $0.06 per diluted share reported for the same period in 2019.
•
Adjusted EBITDA, a non-GAAP financial measure, was negative $0.4 million compared with negative $0.5 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 $43.2 million of cash and cash equivalents and restricted cash and $20.0 million of borrowings under the Company’s $40.0 million Revolver.
Results of Operations
For the Three Months Ended June 30, 2020 Compared to the Same Period Ended June 30, 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 expenses which consist of depreciation, amortization of internally developed software, facility and technology costs.
 
For the Three Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Net revenue
$
47,638

 
100
%
 
$
52,358

 
100
%
 
$
(4,720
)
 
(9
)%
Cost of revenue
34,645

 
73
%
 
38,349

 
73
%
 
(3,704
)
 
(10
)%
Gross profit
$
12,993

 
27
%
 
$
14,009

 
27
%
 
$
(1,016
)
 
(7
)%
Net revenue decreased $4.7 million, or 9%, for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to client churn and lower bookings.
Cost of revenue decreased $3.7 million, or 10%, for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to the following:
•
$2.5 million decrease in employee related costs associated with a reduction in headcount, the receipt of the Singapore government grant and lower travel and entertainment expenditures, partially offset by increased paid time off costs resulting from employees taking less paid time off during the global pandemic;
•
$1.0 million decrease in facility related costs primarily related to sublease income, reduced headcount and transitioning to a work-from-home operating model; and
•
$0.4 million decrease in information technology costs due to lower headcount; partially offset by
•
$0.3 million increase in depreciation and amortization expense.

18

Operating Expenses
 
For the Three Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
$
6,142

 
13
%
 
$
7,486

 
14
%
 
$
(1,344
)
 
(18
)%
Research and development
1,516

 
3
%
 
1,274

 
2
%
 
242

 
19
 %
General and administrative
10,619

 
22
%
 
10,970

 
21
%
 
(351
)
 
(3
)%
Restructuring and other related costs
236

 
—
%
 
148

 
—
%
 
88

 
59
 %
Total operating expenses
$
18,513

 
39
%
 
$
19,878

 
38
%
 
$
(1,365
)
 
(7
)%
Sales and Marketing
Sales and marketing expenses primarily consist of compensation expense and sales commissions to our sales and marketing employees, amortization of contract acquisition costs, marketing programs and events, as well as allocated expenses, which consist of depreciation, amortization of internally developed software, facility and technology costs.
Sales and marketing expenses decreased $1.3 million, or 18%, for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a $0.9 million decrease in employee related costs associated with lower bookings and lower travel and entertainment expenditures and a $0.2 million decrease in facility related costs related to sublease income and transitioning to a work-from-home operating model.
Research and Development
Research and development expenses primarily consist of employee compensation expense.
Research and development expenses increased $0.2 million, or 19%, for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a $0.4 million increase due to a reduction in third party capitalizable software development costs, partially offset by a $0.2 million decrease in facility related costs related to sublease income and transitioning to a work-from-home operating model.
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 $0.4 million, or 3%, for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to the following:
•
$0.6 million decrease in depreciation and amortization expense; and
•
$0.3 million decrease in professional fees; partially offset by
•
$0.6 million increase in information technology support and other operating 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 increased $0.1 million, or 59% for the three months ended June 30, 2020 compared to the same period in 2019, due to timing of headcount reductions related to the 2019 restructuring effort that resulted in a reduction of headcount and office lease costs.

19

Interest and Other Income (Expense), Net
Interest and other income (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 June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Interest expense
$
(235
)
 
—
 %
 
$
(120
)
 
—
 %
 
$
(115
)
 
(96
)%
Other income, net
$
559

 
1
 %
 
$
62

 
—
 %
 
$
497

 
*

* Not considered meaningful.
Interest expense increased $0.1 million, or 96%, for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to borrowings on the Company's Revolver during 2020.
Other income, net increased $0.5 million for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to foreign currency fluctuations.
Provision for Income Tax Expense
 
For the Three Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Provision for income tax expense
$
(161
)
 
—
 %
 
$
(108
)
 
—
 %
 
$
(53
)
 
(49
)%
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 June 30, 2020 compared to the same period in 2019, due to an increase in profitable operations in certain foreign jurisdictions.
For the Six Months Ended June 30, 2020 Compared to the Same Period Ended June 30, 2019
Net Revenue, Cost of Revenue and Gross Profit
 
For the Six Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Net revenue
$
97,752

 
100
%
 
$
107,869

 
100
%
 
$
(10,117
)
 
(9
)%
Cost of revenue
70,205

 
72
%
 
77,825

 
72
%
 
(7,620
)
 
(10
)%
Gross profit
$
27,547

 
28
%
 
$
30,044

 
28
%
 
$
(2,497
)
 
(8
)%
Net revenue decreased $10.1 million, or 9%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to client churn and lower bookings.
Cost of revenue decreased $7.6 million, or 10%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to the following:
•
$5.6 million decrease in employee related costs associated with a reduction in headcount, the receipt of the Singapore government grant and lower travel and entertainment expenditures, partially offset by increased paid time off costs resulting from employees taking less paid time off during the global pandemic;
•
$1.9 million decrease in facility related costs primarily related to sublease income, reduced headcount and transitioning to a work-from-home operating model; and
•
$0.7 million decrease in information technology costs due to lower headcount; partially offset by
•
$0.6 million increase in depreciation and amortization expense.

20

Operating Expenses
 
For the Six Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
$
13,410

 
14
%
 
$
15,435

 
14
%
 
$
(2,025
)
 
(13
)%
Research and development
2,697

 
3
%
 
2,537

 
2
%
 
160

 
6
 %
General and administrative
21,307

 
22
%
 
21,952

 
20
%
 
(645
)
 
(3
)%
Restructuring and other related costs
703

 
1
%
 
1,206

 
1
%
 
(503
)
 
(42
)%
Total operating expenses
$
38,117

 
39
%
 
$
41,130

 
38
%
 
$
(3,013
)
 
(7
)%
Sales and Marketing
Sales and marketing expenses decreased $2.0 million, or 13%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to a $1.5 million decrease in employee related costs associated with lower bookings and lower travel and entertainment expenditures and a $0.2 million decrease in facility related costs related to sublease income and transitioning to a work-from-home operating model.
Research and Development
Research and development expenses increased $0.2 million, or 6%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to $0.4 million increase due to a reduction in third party capitalizable software development costs, partially offset by a $0.2 million decrease in facility related costs related to sublease income and transitioning to a work-from-home operating model.
General and Administrative
General and administrative expenses decreased $0.6 million, or 3%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to the following:
•
$0.8 million decrease in depreciation and amortization expense;
•
$0.4 million decrease in employee related costs primarily due to lower travel and entertainment expenditures and recruiting costs, partially offset by merit increases and increased paid time off costs resulting from employees taking less paid time off during the global pandemic; and
•
$0.4 million decrease in professional fees; partially offset by
•
$1.0 million increase in information technology support and other operating costs.
Restructuring and Other Related Costs
Restructuring and other related costs decreased $0.5 million, or 42% for the six months ended June 30, 2020 compared to the same period in 2019, due to decreased costs incurred related to the 2019 restructuring effort that resulted in a reduction of headcount and office lease costs.
Interest and Other Income (Expense), Net
 
For the Six Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Interest expense
$
(316
)
 
—
 %
 
$
(212
)
 
—
 %
 
$
(104
)
 
(49
)%
Other expense, net
$
(234
)
 
—
 %
 
$
(336
)
 
—
 %
 
$
102

 
30
 %
Interest expense increased $0.1 million, or 49%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to borrowings on the Company’s Revolver during 2020.
Other expense, net decreased $0.1 million, or 30%, for the six months ended June 30, 2020 compared to the same period in 2019, primarily due to foreign currency fluctuations.

21

Provision for Income Tax Expense
 
For the Six Months Ended June 30,
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Amount
 
% of Net Revenue
 
Amount
 
% of Net Revenue
 
$ Change
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Provision for income tax expense
$
(179
)
 
—
 %
 
$
(120
)
 
—
 %
 
$
(59
)
 
(49
)%
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 six months ended June 30, 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.
We have considered the effects of the COVID-19 pandemic, including customer purchasing and renewal decisions and any delay in customer payments, in our assessment of the sufficiency of our liquidity and capital resources. We will continue to monitor our financial position as pandemic-related challenges develop over time.
As of June 30, 2020, we had cash and cash equivalents of $40.9 million, which primarily consisted of demand deposits and money market mutual funds. Included in cash and cash equivalents was $8.0 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 June 30, 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.
During March 2020, the Company borrowed $27.0 million under the Revolver through a six-month Eurodollar borrowing at an effective interest rate of 3.07%. As of June 30, 2020, the Company repaid $7.0 million of the outstanding balance and converted the remaining $20.0 million of borrowings into a one-month Eurodollar borrowing at an effective interest rate of 2.18% maturing July 2020. An additional $6.5 million was available for borrowing under the Revolver as of June 30, 2020. 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. Subsequent to June 30, 2020, the one-month $20.0 million Eurodollar borrowing was extended at an effective interest rate of 2.17% and maturing August 2020. Proceeds from the Revolver are used for working capital and general corporate purposes.
Obligations under the Credit Agreement are secured by substantially all of the assets of the Borrowers and certain of their subsidiaries, including pledges of equity in certain of the Company's subsidiaries. The Revolver has financial covenants which the Company was in compliance with as of June 30, 2020 and December 31, 2019.
Letters of Credit and Restricted Cash
In connection with two of our leased facilities, the Company is required to maintain two letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market accounts, which are classified as restricted cash in "Other assets" in the Consolidated Balance Sheets.

22

Cash Flows
The following table presents a summary of our cash flows:
 
For the Six Months Ended June 30,
 
2020
 
2019
 
 
 
 
 
(in thousands)
Net cash (used in) provided by operating activities
$
(3,070
)
 
$
6,717

Net cash used in investing activities
(2,596
)
 
(6,095
)
Net cash provided by (used in) financing activities
19,595

 
(299
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(68
)
 
(156
)
Net change in cash and cash equivalents and restricted cash
$
13,861

 
$
167

Depreciation and amortization expense were comprised of the following:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
Internally developed software amortization
$
1,849

 
$
1,407

 
$
3,614

 
$
2,666

Property and equipment depreciation
1,574

 
2,302

 
3,205

 
4,328

Total depreciation and amortization
$
3,423

 
$
3,709

 
$
6,819

 
$
6,994

Operating Activities
Net cash used in operating activities increased $9.8 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily as a result of decreased cash collections from customers during the current period compared to the prior period and a decrease in earnings, partially offset by lower cash payments made during the current period compared to the prior period related to operating costs accrued for previously.
Investing Activities
Net cash used in investing activities decreased $3.5 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily as a result of a decrease in cash outflows related to the purchases of property and equipment during the six months ended June 30, 2020.
Financing Activities
Net cash provided by financing activities increased $19.9 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily as a result of $20.0 million in net cash inflows from borrowings on the Revolver during the six months ended June 30, 2020.
Off-Balance Sheet Arrangements
As of June 30, 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 and six months ended June 30, 2020 and are consistent with the year ended December 31, 2019.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements.

23

Non-GAAP Financial Measurements
ServiceSource believes net income (loss), as defined by GAAP, is the most appropriate financial measure of our operating performance; however, ServiceSource considers Adjusted EBITDA to be useful supplemental, non-GAAP financial measure of our operating performance. We believe Adjusted EBITDA can assist investors in understanding and assessing our operating performance on a consistent basis, as it removes the impact of the Company's capital structure and other non-cash or non-recurring items from operating results and provides an additional tool to compare ServiceSource's financial results with other companies in the industry, many of which present similar non-GAAP financial measures.
EBITDA consists of net income (loss) plus provision for income tax expense (benefit), interest and other expense (income), net and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus stock-based compensation, restructuring and other related costs and amortization of contract acquisition costs related to the initial adoption of ASC 606.
This non-GAAP measure should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP.
The following table presents the reconciliation of "Net Loss" to Adjusted EBITDA:
 
 For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
(in thousands)
Net loss
$
(5,357
)
 
$
(6,035
)
 
$
(11,299
)
 
$
(11,754
)
Provision for income tax expense
161

 
108

 
179

 
120

Interest and other (income) expense, net
(324
)
 
58

 
550

 
548

Depreciation and amortization
3,423

 
3,709

 
6,819

 
6,994

EBITDA
(2,097
)
 
(2,160
)
 
(3,751
)
 
(4,092
)
Stock-based compensation
1,275

 
1,236

 
2,320

 
2,806

Restructuring and other related costs
236

 
148

 
703

 
1,206

Amortization of contract acquisition asset costs - ASC 606 initial adoption
162

 
255

 
380

 
512

Adjusted EBITDA
$
(424
)
 
$
(521
)
 
$
(348
)
 
$
432

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies as defined by Item 10(f)(1) of Regulation S-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our CEO and CFO concluded that our disclosure controls and procedures are designed to, and are effective to, provide at a reasonable assurance level, that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

24

Changes in Internal Control Over Financial Reporting
We continue to monitor the design and operating effectiveness of our internal controls for any effect resulting from the COVID-19 pandemic. There has not been any change in our internal control over financial reporting during the quarter covered by this report that materially affected or is reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
For a summary of factors which could affect results and cause results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf, see “Risk Factors” in Part 1I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2019 and “Risk Factors” in Part II, Item 1A of our quarterly report on Form 10-Q for the period ended March 31, 2020. 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 and our quarterly report on Form 10-Q for the period ended March 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.

25

Item 6. Exhibits
Exhibit Number
 
Description of Document
 
 
 
10.1+
 
 
 
 
10.2+*
 
 
 
 
31.1*
 
 
 
 
31.2*
 
 
 
 
32.1**
 
 
 
 
32.2**
 
 
 
 
101.SCH*
 
Inline XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL*
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF*
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB*
 
Inline XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE*
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
104*
 
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.
+ Management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.

26

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
2020 Plan
2020 Equity Incentive Plan
APJ
Asia Pacific-Japan
ASC 606
Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
ASC 740
Accounting Standards Codification Topic 740, Income Taxes
ASC 842
Accounting Standards Codification Topic 842, Leases
ASU
Accounting Standards Update
B2B
Business-to-business
BPaaS
Business Process-as-a-Service
Borrowers
ServiceSource International, Inc. and ServiceSource Delaware, Inc.
CEO
Chief Executive Officer
CFO
Chief Financial Officer
COVID-19
Coronavirus disease 2019
Credit Agreement
Revolving Loan Credit Agreement, dated as of July 30, 2018, among the Borrowers and Compass Bank, as Lender
EMEA
Europe, Middle East and Africa
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


27

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:
July 29, 2020
By:
/s/ RICHARD G. WALKER
 
 
 
Richard G. Walker
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)

28


Exhibit 10.2
ServiceSource International, Inc.
2011 Equity Incentive Plan

Performance Stock Unit Award Agreement

Participant: [Recipient Name]
We are pleased to inform you that ServiceSource International, Inc. (the “Company”) has made an award of performance-vested restricted stock units to you (the “Performance Stock Units”) as indicated in this Performance Stock Unit Award Agreement (this “Award Agreement”). The Performance Stock Units are issued pursuant to the Company’s 2011 Equity Incentive Plan (the “Plan”) and are subject to and governed by the Plan generally. All capitalized terms not defined herein shall have the meanings given to such terms in the Plan.
Notice of Award
Grant Date
_______________
Grant Number
_______________
Target Performance Stock Units
_______________ (“Target PSUs”)
Maximum Performance Stock Units
_______________ (“Max PSU”)
Performance Period
January 1, 2020 - December 31, 2021
Time-Vesting Date
[●], 2023
Overview
This award of Performance Stock Units entitles you to earn shares of Common Stock based on the satisfaction of the performance goals set forth in Appendix A and your continued employment or service thereafter through the Time-Vesting Date.
General Vesting and Payment Provisions
The actual number of shares of Common Stock earned, if any, is equal to the number of Performance Stock Units that become vested (“Vested PSUs”), determined as follows (except as otherwise set forth herein):
●
First, at the end of the Performance Period, the Company will determine the number of Performance Stock Units that are eligible to vest (the “Conditional PSUs”) by applying the formula(s) in Appendix A taking into account the level of achievement of the relevant performance goals and the Target PSUs awarded to you. The Conditional PSUs, if any, may be greater than or less than the Granted PSUs, but can never exceed the Max PSUs.
●
Next, the Conditional PSUs, if any, shall become Vested PSUs based on your Continuous Service (as defined below) with the Company or its Subsidiaries following the end of the Performance Period through the Time-Vesting Date. The Company shall issue you one share of Common Stock for each Vested PSU, as described in the “Payment” section below.
You have no rights as a stockholder of the Company pursuant to this Agreement until such time, if any, as shares of Common Stock are issued to you.
You have no rights as a stockholder of the Company pursuant to this Agreement until such time, if any, as shares of Common Stock are issued to you.
Award Determination
The Company shall determine the number of your Conditional PSUs as soon as practicable following the end of the Performance Period, generally within ten (10) days following the date on which the Company files its Annual Report on Form 10-K for the fiscal year of the Company ending coincident with the last day of the Performance Period.
Vesting Date
Subject to your Continuous Service with the Company or its Subsidiaries from the Grant Date through the Time-Vesting Date, all Conditional PSUs shall become Vested PSUs on the Time-Vesting Date.




Continuous Service
The term “Continuous Service” shall mean your uninterrupted service to the Company or its Subsidiaries as an Employee, Outside Director, or Consultant. The Administrator shall determine in its discretion whether and when your Continuous Service has ended (including as a result of any leave of absence); provided, however, that your Continuous Service shall not be deemed to have ended in the event you retire or otherwise terminate as an Employee but continue to perform services for the Company as an Outside Director or Consultant.
Termination of Continuous Service
Except as set forth below under the headings “Special Vesting Events” or “Change in Control,” upon the termination of your Continuous Service with the Company or its Subsidiaries for any or no reason prior to the Time-Vesting Date, you shall automatically and immediately forfeit all Performance Stock Units and rights hereunder.
Special Vesting Events
Termination due to Death or Disability
Prior to the End of Performance Period.
 
In the event that your Continuous Service with the Company or its Subsidiaries is terminated during the Performance Period due to death or Disability, the Performance Period shall be deemed to have ended immediately prior to the date of death or Disability, and you shall immediately vest in a pro-rated number of Performance Stock Units, if any, equal to the product of (i) the number of PSUs determined in accordance with Appendix A based on performance through the date of the death or Disability (for avoidance of doubt, the performance goals in Appendix A shall be adjusted in the Administrator’s sole discretion to account for the truncation of the performance period on the date of death or Disability, and the Administrator may adopt reasonable procedures for determining the level of achievement of any financial metrics, such as using audited financial statements from the most recently completed fiscal quarter), multiplied by (ii) a fraction, (A) the numerator of which is the number of days of your Continuous Service between the first day of the Performance Period through the date of death or Disability, and (B) the denominator of which is the total number of days between the first day of the Performance Period and the Time-Vesting Date. Vested PSUs, if any, shall be payable as set forth in the “Payment” section below.
 
On or After the End of the Performance Period.

In the event that your Continuous Service with the Company or its Subsidiaries is terminated following the end of the Performance Period and prior to the Time-Vesting Date due to death or Disability, your Conditional PSUs, if any, shall immediately vest on a pro-rated basis, by multiplying the number of Conditional PSUs, if any, by a fraction, (A) the numerator of which is the number of days of your Continuous Service between the first day of the Performance Period through the date of death or Disability, and (B) the denominator of which is the total number of days between the first day of the Performance Period and the Time-Vesting Date. Vested PSUs, if any, shall be payable as set forth in the “Payment” section below.




Change in Control
Prior to the End of the Performance Period
In the event of a Change in Control prior to the end of the Performance Period, the Performance Period shall be deemed to have ended immediately prior to the Change in Control, and you shall be credited with a number of Conditional PSUs, if any, determined in accordance with Appendix A based on performance through the date of the Change in Control; provided, however, that the performance goals in Appendix A shall be adjusted in the Administrator’s sole discretion to account for the truncation of the performance period on the date of the Change in Control and the Administrator may adopt reasonable procedures for determining the level of achievement of any financial metrics, such as using audited financial statements from the most recently completed fiscal quarter. The Conditional PSUs will vest and become Vested PSUs on the original Time-Vesting Date, subject to your Continuous Service with the Company or its Subsidiaries or any successor corporation through such date. In the event your Continuous Service is terminated as a result of death or Disability on or after a Change in Control but prior to the Time-Vesting Date, the vesting provisions set forth in “Special Vesting Events - Termination Due to Death or Disability - On or After the End of the Performance Period” shall apply. If this award is not assumed by the successor in any Change in Control transaction, your Conditional PSUs shall vest and become Vested PSUs immediately upon the Change in Control.
  
On or After the End of the Performance Period.

In the event of a Change in Control on or following the end of the Performance Period, the Company, if it has not done so already, shall promptly determine your Conditional PSUs. Your Conditional PSUs will then become Vested PSUs on the Time-Vesting Date, subject to your Continuous Service with the Company or its Subsidiaries or any successor corporation through such date. In the event your Continuous Service is terminated as a result of death or Disability on or after a Change in Control but prior to the Time-Vesting Date, the vesting provisions set forth in “Special Vesting Events - Termination Due to Death or Disability - On or After the End of the Performance Period” shall apply. If this award is not assumed by the successor in any Change in Control transaction, your Conditional PSUs shall vest and become Vested PSUs immediately upon the Change in Control.
Payment
The Company shall issue to you one share of Common Stock for each Vested PSU, with the delivery of such Common Stock to occur within seventy-four (74) days following the date on which such Performance Stock Units became Vested PSUs.
Employment Agreement
Nothing herein shall diminish any rights to accelerated vesting you may have under your most recent Employment and Confidential Information Agreement between you and the Company, which rights shall be in addition to any vesting rights you may have hereunder.
Other Terms and Conditions
Are set forth in the accompanying Performance Stock Unit Award Terms and Conditions and the Plan.
Acceptance of Award
By your online acceptance, you and the Company agree that the Performance Stock Units granted hereby are granted under and governed by the terms and conditions of the Plan and of this Performance Stock Unit Award Agreement (including the accompanying Performance Stock Unit Award Terms and Conditions) (the “Award Documents”). You hereby represent and acknowledge that you been provided the opportunity to review the Plan and the Award Documents in their entirety, and you hereby agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Award Documents.
Appendix A

Performance Goals
Performance Goals
The actual number of shares of Common Stock earned, if any, is equal to the number of Performance Stock Units that become vested (“Vested PSUs”), determined as follows (except as otherwise set forth herein):




●
Adjusted EBITDA, and
●
Net Bookings.
Adjusted EBITDA and Net Bookings are defined and shall be determined as set forth below.
 
 
Determination of Conditional PSUs
The number of Conditional PSUs with which you are credited, if any, at the end of the Performance Period shall be determined as follows:
Conditional PSUs =
(Target PSUs x 50% x Net Bookings Achievement %)
+
                            (Target PSUs x 50% x Adjusted EBITDA Achievement %)
 
 
Net Bookings Achievement Percentage
The Net Bookings Achievement Percentage (capped at 150%) shall be determined in accordance with the following chart, based on the Company’s Net Bookings over the Performance Period:
 
 
 
Net Bookings as % of Target
Performance Period Net Bookings
Net Bookings Achievement Percentage
 
 
 
 
(Millions of $USD)
 
 
 
 
120%
$113.9 or greater
150%
 
 
 
110%
$104.4
125%
 
 
 
100%
$95.0
100%
 
 
 
93%
$88.6
80%
 
 
 
83%
$79.1
60%
 
 
 
80%
$76.0
50%
 
 
 
 
Less than $76.0
0%
 
 
 
 
 
 
EBITDA Achievement Percentage
The Adjusted EBITDA Achievement Percentage (capped at 150%) shall be determined in accordance with the following chart, based on the Company’s Adjusted EBITDA over the Performance Period:
 
 
 
Adjusted EBITDA as % of Target
Performance Period Adjusted EBITDA
Adjusted EBITDA Achievement Percentage
 
 
 
 
(Millions of $USD)
 
 
 
 
125%
$16.25 or greater
150%
 
 
 
113%
$14.63
125%
 
 
 
100%
$13.00
100%
 
 
 
73%
$9.50
50%
 
 
 
 
$6.00 or less
0%
 
 
 
 
 
 
Linear Interpolation
When Net Bookings or Adjusted EBITDA, as applicable, for the Performance Period falls between any of the hurdle amounts set forth in the charts above, the Net Bookings Achievement % or Adjusted EBITDA Achievement % shall be determined based on linear interpolation.




Definitions
“Adjusted EBITDA” shall be the cumulative adjusted EBITDA of the Company for the Performance Period as defined in the Company’s 10-K and/or earnings press release and 8-K for the Company’s 2020 and 2021 fiscal year ends.
“Net Bookings” shall mean, (a) the annual contract value (ACV) of Total New Bookings signed during the Performance Period, minus (b) the ACV of total Churn confirmed during the Performance Period. Total New Bookings includes the aggregate of recurring, non-recurring, technology services, and professional services bookings.
 
 
Adjustments
If the occurrence of any unbudgeted or unanticipated item during the Performance Period would make fair and equitable measurement of the Company’s Net Bookings and/or Adjusted EBITDA for the Performance Period no longer practical, the Administrator will adjust and modify the performance goals set forth herein to preserve (but not enhance) the incentives contemplated by this Award Agreement. You hereby agree that any such adjustment or modification shall not be deemed to be an amendment to the Award Documents and shall not adversely affect your rights hereunder. For purpose of this paragraph, unbudgeted or unanticipated items shall include, but not be limited to, costs associated with natural disasters, storms or pandemics (including, without limitation, COVID-19), foreign exchange variations, changes in accounting principles, material litigation costs that could not have been reasonably anticipated in the ordinary course of business, costs of severance or other reductions in force, capital markets transactions, restructurings or recapitalizations, business combinations or consolidations, stock splits or reverse splits, extraordinary special stock dividends, rights offerings, spin-offs, or similar transactions.

Performance Stock Unit Award Terms and Conditions

The following terms and conditions apply to the Performance Stock Units granted to you by the Company, as specified in the accompanying Performance Stock Unit Award Agreement (the “Award Agreement”).
1.    Award of Performance Stock Units. The Company has issued to you the Performance Stock Units set forth above in the Award Agreement, effective on the Grant Date, and subject to the terms and conditions set forth in the Award Agreement and the Performance Stock Unit Award Terms and Conditions (together, the “Award Documents”), and the Plan (which is incorporated herein by reference).
2.    Performance Stock Units Non-Transferable. Performance Stock Units (and related rights) may not be sold, assigned, alienated, transferred by gift or otherwise, pledged, hypothecated, or otherwise disposed of, by operation of law or otherwise. Any attempt to assign, alienate, transfer, pledge, sell or otherwise dispose of the Performance Stock Units or its related rights shall be ineffective and, if any such attempt is made, the Performance Stock Units will be forfeited and all of your rights under the Plan and the Award Documents shall immediately terminate without any payment or consideration by the Company.
3.    Vesting. Unless otherwise provided in the Plan, your Performance Stock Units shall vest and become Vested PSUs in accordance with the terms and conditions of the Award Agreement.
4.    Payment. Payment in respect of Vested PSUs shall be made at the time(s) and in the form(s) set forth in the Award Agreement.
5.    Termination of Continuous Service; Forfeiture. Upon the termination of your Continuous Service for any reason, any Performance Stock Units that have not become or are not eligible to become Vested PSUs in accordance with Section 3 and the Award Agreement shall immediately be forfeited. Upon forfeiture, you shall have no further rights with respect to such Performance Stock Units.




6.    Tax Treatment; Section 409A. You may incur tax liability as a result of the receipt of Performance Stock Units and payments thereunder. You should consult your own tax adviser for tax advice. You acknowledge that the Administrator, in the exercise of its sole discretion and without your consent, may amend or modify the Award Documents in any manner, and delay the payment of any amounts thereunder, to the minimum extent necessary to satisfy the requirements of Section 409A. The Company will provide you with notice of any such amendment or modification. This Section 6 does not, and shall not be construed so as to, create any obligation on the part of the Company to adopt any such amendments or to take any other actions or to indemnify you for any failure to do so.
7.    Tax Withholding. You shall make appropriate arrangements with the Company to provide for payment of all federal, state, local or foreign taxes of any kind required by law to be withheld in respect of your Performance Stock Units. Such arrangements may include, but are not limited to, the payment of cash directly to the Company, withholding by the Company from other cash payments of any kind otherwise due you, or share withholding as described below. Subject to the prior approval of the Administrator, which may be withheld by the Administrator in its sole discretion, you may be permitted to satisfy the minimum statutory withholding obligations, in whole or in part, (i) by having the Company withhold shares otherwise issuable to you or (ii) by delivering to the Company shares of Common Stock already owned by you. The shares delivered or withheld shall have an aggregate Fair Market Value not in excess of the minimum statutory total tax withholding obligations. In addition, to the extent provided by the Plan, you may elect to have the Company perform additional voluntary tax withholding through the withholding or delivery of shares up to the maximum statutory tax rates in your applicable jurisdictions. The Fair Market Value of the shares used for tax withholding purposes shall be determined by the Company as of the date on which taxation occurs. Shares used for tax withholding purposes must be vested and cannot be subject to any repurchase, forfeiture, or other similar requirements. Any election to withhold or deliver shares shall be irrevocable, made in writing, signed by you, and shall be subject to any restrictions or limitations that the Administrator, in its sole discretion, deems appropriate.
8.    Personal Information. The Company and its Subsidiaries may collect, store, disclose, use, or otherwise process certain personal information about you for the purpose of managing and administering the Plan, such as your name, home address and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any shares or directorships held in the Company, details of all Performance Stock Units and other equity awards or any other entitlement to shares awarded, canceled, purchased, vested, unvested or outstanding in your favor (“Data”). The Company and/or its Subsidiaries may disclose Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and the Company and/or any of its Subsidiaries may each further disclose Data to any third parties assisting the Company in the implementation, administration and management of the Plan, including any Plan recordkeeper. These recipients may be located throughout the world, including the United States. You understand and agree that these parties may receive, possess, use, retain, transfer, and otherwise process the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer or disclosure of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares on your behalf to a broker or other third party with whom you may elect to deposit any shares acquired pursuant to the Plan. Notwithstanding anything to the contrary in this Section 8, you acknowledge and agree that the Company and its Subsidiaries may also collect, store, use, disclose, and otherwise process your Data where such processing is necessary to comply with a legal obligation, for the Company or its Subsidiaries’ legitimate business purposes, or with your consent if applicable law requires consent. You may, at any time, request to access, correct, delete or restrict processing of your Data by contacting the Company in writing. Applicable law may allow or require the Company to refuse to provide you with access to or to delete or restrict processing of some or all of the Data that the Company or its Subsidiaries hold about you,




or the Company or its Subsidiaries may have destroyed, erased, or made such Data anonymous in accordance with applicable record retention obligations and practices. If the Company cannot provide you with access to, delete or restrict processing of your Data, the Company will inform you of the reasons why, subject to any legal or regulatory restrictions. For more information on the processing of your Data, contact your human capital representative.
9.    Other Employee Benefits. Except as specifically provided otherwise in any relevant employee benefit plan, program, or arrangement, the Performance Stock Units evidenced hereby are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.
10.    Electronic Delivery. BY YOUR ELECTRONIC ACCEPTANCE OF THIS AWARD, YOU HEREBY CONSENT TO ELECTRONIC DELIVERY OF THE PLAN, AND ANY DISCLOSURE OR OTHER DOCUMENTS RELATED TO THE PLAN, INCLUDING FUTURE AWARD DOCUMENTS (COLLECTIVELY, THE “PLAN DOCUMENTS”). THE COMPANY MAY DELIVER THE PLAN DOCUMENTS ELECTRONICALLY TO YOU BY E-MAIL, BY POSTING SUCH DOCUMENTS ON ITS INTRANET WEBSITE OR BY ANOTHER MODE OF ELECTRONIC DELIVERY AS DETERMINED BY THE COMPANY IN ITS SOLE DISCRETION. YOU ACKNOWLEDGE THAT YOU ARE ABLE TO ACCESS, VIEW AND RETAIN AN E-MAIL ANNOUNCEMENT INFORMING YOU THAT THE PLAN DOCUMENTS ARE AVAILABLE IN HTML, PDF OR SUCH OTHER FORMAT AS THE COMPANY DETERMINES IN ITS SOLE DISCRETION. If you do not accept the Award documents within ninety (90) days of the Grant Date, the Award documents will be null and void following the ninetieth (90th) day after the Grant date and you will have no right or claim to the Award.
11.    Notices. Any notice required or permitted to be given hereunder shall be in writing and shall be given by hand delivery, by e-mail, by facsimile, or by first class registered or certified mail, postage prepaid, addressed, if to the Company, to its Corporate Secretary, and if to you, to your address now on file with the Company, or to such other address as either may designate in writing. Any notice shall be deemed to be duly given as of the date delivered in the case of personal delivery, e-mail, or facsimile, or as of the second day after enclosed in a properly sealed envelope and deposited, postage prepaid, in a United States post office, in the case of mailed notice.
12.    Amendment. The Award Documents may be amended by the Administrator at any time without your consent if such amendment does not impair your rights hereunder or is otherwise permitted herein. In all other cases, the Award Documents may not be amended or otherwise modified unless evidenced in writing and signed by the Company and by you.
13.    Relationship to Plan. Nothing in the Award Documents shall alter the terms of the Plan. If there is a conflict between the terms of the Plan and the terms of the Award Documents, the terms of the Plan shall prevail.
14.    Construction; Severability. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of these Performance Stock Unit Award Terms and Conditions. The invalidity or unenforceability of any provision of the Award Documents shall not affect the validity or enforceability of any other provision thereof, and each other provision thereof shall be severable and enforceable to the extent permitted by law.
15.    Waiver. Any provision contained in the Award Documents may be waived, either generally or in any particular instance, by the Administrator appointed under the Plan, but only to the extent permitted under the Plan.




16.    Binding Effect. The Award Documents shall be binding upon and inure to the benefit of the Company and to you and your respective heirs, executors, administrators, legal representatives, successors and assigns.
17.    Rights to Continuous Service. Nothing contained in the Award Documents shall be construed as giving you any right to be retained in the employ or service of the Company or any of its Subsidiaries, and the Award Documents are limited solely to governing the parties’ rights and obligations with respect to the Performance Stock Units.
18.    Governing Law. The Award Documents shall be governed by and construed in accordance with the choice of law provisions set forth in the Plan.
19.    Company Policies to Apply; Potential Clawback. The sale of any shares of Common Stock received as payment under the Performance Stock Units is subject to the Company’s policies regulating securities trading by employees, all relevant federal and state securities laws and the listing requirements of any stock exchange on which the shares of the Company’s Common Stock are then traded. Participation in the Plan and receipt of remuneration as a result of the Performance Stock Units is also subject in all respects to any laws, regulations, or Company policies related to compensation clawbacks that may be in effect from time to time.
20.    Section 409A Compliance. The Performance Stock Units granted hereunder are intended to comply with or be exempt from the requirements of Section 409A, and the Award Documents shall be interpreted and administered in a manner consistent with such intent. You shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on you in connection with the Performance Stock Units granted hereunder (including any taxes and penalties under Section 409A), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you harmless from any or all of such taxes or penalties.




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, Gary B. Moore, 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:
July 29, 2020
By:
/s/ GARY B. MOORE
 
 
 
Name: Gary B. Moore
 
 
 
Title: Chief Executive Officer and Director
(Principal Executive Officer)





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, Richard G. Walker, 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:
July 29, 2020
By:
/s/ RICHARD G. WALKER
 
 
 
Name: Richard G. Walker
 
 
 
Title: Chief Financial Officer and Director
(Principal Financial and Accounting Officer)





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, Gary B. Moore, 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, 2020, 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:
July 29, 2020
By:
/s/ GARY B. MOORE
 
 
 
Name: Gary B. Moore
 
 
 
Title: Chief Executive Officer and Director
(Principal Executive Officer)





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, Richard G. Walker, 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, 2020, 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:
July 29, 2020
By:
/s/ RICHARD G. WALKER
 
 
 
Name: Richard G. Walker
 
 
 
Title: Chief Financial Officer and Director
(Principal Financial and Accounting Officer)