ServiceSource Reports Third Quarter 2018 Financial Results

DENVER – NOV. 7, 2018 – ServiceSource (NASDAQ: SREV), a global leader in outsourced inside sales, customer success and recurring revenue retention solutions, today announced financial results for the three months ended September 30, 2018, following its release of preliminary results on October 18, 2018.

“Our third quarter financial results and updated outlook for the year are disappointing, particularly given the recent underlying progress and momentum in the business,” said Christopher M. Carrington, CEO of ServiceSource. “In Q3 we experienced instances of volatility and different purchasing behavior by end users at three clients in particular that impacted the accuracy of our previous forecast. We anticipate these factors will likely persist with these clients in the coming quarters and we are adjusting our expectations accordingly.”

Mr. Carrington added, “Longer-term we believe dynamics in the marketplace support durable opportunity for ServiceSource. As companies progress through their digital go-to-market transformations, our model is squarely aligned to help them rationalize legacy channel models, migrate from field sales to inside sales models, and deploy customer success at scale to improve customer retention and lifetime value in a subscription and consumption world. We remain focused on positioning the Company to capture this opportunity in a way that will create sustainable value for all stakeholders.”

Key Financial Results

• GAAP revenue for Q3 2018 was $57.2 million, a decrease of 1.7%, compared with $58.1 million reported for Q3 2017.
• GAAP net loss for Q3 2018 was $6.6 million or $0.07 per diluted share, unfavorable compared with GAAP net loss of $5.2 million or $0.06 per diluted share reported for Q3 2017.
• Non-GAAP net income for Q3 2018 was $0.7 million or $0.01 per diluted share, compared with non-GAAP net income of $2.0 million or $0.02 per diluted share reported for Q3 2017.
• Adjusted EBITDA for Q3 2018 was $3.1 million, compared with $5.7 million reported for Q3 2017.

A reconciliation of GAAP to non-GAAP financial measures is provided following the Consolidated Financial Statement tables contained within this press release.

Key Business Highlights

• Recruitment of inside sales and customer success visionary Debbie Dunnam to the executive leadership team.
• Solid sales momentum with year-over-year growth in transaction value, inclusive of four new logo wins and 13 expansion transactions.
• Signing of a multi-million dollar expansion into EMEA and APJ for a nine-year tenured client.
• More than 50% of team members now located in lower cost markets, with 90% year-over-year growth in the Manila and Sofia offices.

Fourth Quarter 2018 Outlook

For Q4 2018, ServiceSource is providing the following guidance:

• Revenue of $60.0 million to $63.0 million.
• GAAP net loss per share of $0.01 to $0.03; non-GAAP net income per share of $0.02 to $0.04.
• Adjusted EBITDA of $4.0 million to $6.0 million.

Fiscal 2018 Outlook

Considering the year-to-date results and Q4 2018 outlook, ServiceSource anticipates the following full-year financial results that are based on a number of assumptions that management believes are reasonable at the time of this earnings release:

• Revenue of $237.0 million to $240.0 million.
• GAAP gross margin of 30.0% to 31.0%; non-GAAP gross margin of 34.0% to 35.0%.
• GAAP operating expenses of 38.5% to 39.0%; non-GAAP operating expenses of 32.0% to 32.5%.
• GAAP net loss of $28.2 million to $30.2 million; non-GAAP net income of $2.5 million to $4.0 million.
• GAAP net loss per share of $0.31 to $0.33; non-GAAP net income per share of $0.03 to $0.04.
• Adjusted EBITDA of $12.0 million to $14.0 million.

Please see the third quarter 2018 Earnings Call Deck on the Events and Presentations section of the Investor Relations website (http://ir.servicesource.com/events-and-presentations) for a reconciliation between GAAP and non-GAAP measures in our guidance.

Quarterly Conference Call

ServiceSource will discuss its third quarter 2018 results and financial guidance today via teleconference at 1:30 p.m. Pacific Time. To access the call within the U.S., please dial (877) 293-5486, or outside the U.S. (914) 495-8592, at least five minutes prior to the start time. Conference ID number: 2783779. In addition, a live webcast of the call will also be available on the Investor Relations section of the ServiceSource website under Events and Presentations. A replay of the webcast will also be available on the Company’s website at http://ir.servicesource.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding our expectations for financial and operational performance, whether our go-forward model will produce anticipated benefits, and whether our improved execution and emerging capabilities will translate into desired results. These forward-looking statements are based on our current assumptions and beliefs, and involve risks and uncertainties that could cause our results to differ materially from our forward-looking statements. Those risks and uncertainties include: a decline in client renewals, the loss of one or more of our key clients or the contraction in our revenue from one or more of our key clients, in each case resulting in churn, or our clients not expanding their relationships with us; the risk of problems implementing our technologies or that our technologies will not meet customer expectations; that the market for our solution is underdeveloped and may not grow; errors in estimates as to the renewal rate improvements and/or service revenue we can generate for our customers; changes in market conditions that impact our ability to sell our solutions and/or generate service revenue on our customers’ behalf; the possibility that our estimates of service revenue, opportunity under management, and other metrics may prove inaccurate; our ability to keep customer data and other confidential information secure; our ability to adapt our solution to changes in the market or new competition; problems encountered by our clients in their business that may cause them to cancel or reduce their business with us; our ability to achieve our expected benefits from international expansion; economic or other adverse events or conditions affecting the technology industry; our ability to protect our intellectual property rights; the risk of claims that our offerings infringe the intellectual property rights of others; and other risks and uncertainties described more fully in our periodic reports filed with the Securities and Exchange Commission, which can be obtained online at the Commission’s website at http://www.sec.gov. All forward-looking statements in this press release are based on information currently available to us, and except as may be legally required we assume no obligation to update these forward-looking statements.

About ServiceSource

ServiceSource International, Inc. (NASDAQ:SREV) helps the world’s leading brands grow closer to their customers. As a global leader in outsourced inside sales, customer success and recurring revenue growth and retention solutions, ServiceSource expands customer lifetime value by helping companies to more efficiently and effectively find, convert, grow and retain their B2B customer relationships. Trusted by global market leaders in the cloud/XaaS, software, technology hardware, medical device & diagnostic equipment and industrial IoT sectors, ServiceSource sells, manages or renews $9 billion of revenue annually on behalf of its clients. Leveraging a robust technology suite, predictive data models and more than 3,000 revenue delivery professionals speaking 45 languages, only ServiceSource brings to market nearly 20 years of expertise and the ability to drive recurring revenue growth to more than 170 countries.

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