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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 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)
Delaware81-0578975
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
707 17th Street, 25th Floor
Denver,Colorado80202
(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 SymbolName of each exchange on which registered
Common Stock, $0.0001 Par ValueSREVThe 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 October 23, 2020, 96,595,951 shares of common stock of ServiceSource International, Inc. were outstanding.


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Table of Contents

Item 1. Financial Statements (unaudited)
ServiceSource International, Inc.
Consolidated Balance Sheets
(in thousands, except per share and par value amounts)
(unaudited)
September 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$39,180 $27,089 
Accounts receivable, net33,366 41,754 
Prepaid expenses and other6,914 7,296 
Total current assets79,460 76,139 
Property and equipment, net31,319 36,149 
ROU assets31,733 36,396 
Contract acquisition costs995 1,602 
Goodwill6,334 6,334 
Other assets3,983 4,844 
Total assets$153,824 $161,464 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$993 $4,392 
Accrued expenses2,411 3,366 
Accrued compensation and benefits17,754 16,700 
Revolver15,000  
Operating lease liabilities10,741 9,652 
Other current liabilities1,085 2,218 
Total current liabilities47,984 36,328 
Operating lease liabilities, net of current portion28,129 33,716 
Other long-term liabilities2,313 2,983 
Total liabilities78,426 73,027 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 20,000 shares authorized and none issued and outstanding
  
Common stock; $0.0001 par value; 1,000,000 shares authorized; 96,684 shares issued and 96,563 shares outstanding as of September 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 capital378,309 374,525 
Accumulated deficit(302,943)(286,066)
Accumulated other comprehensive income463 410 
Total stockholders’ equity75,398 88,437 
Total liabilities and stockholders’ equity$153,824 $161,464 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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ServiceSource International, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
  For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020201920202019
Net revenue$45,790 $53,395 $143,542 $161,264 
Cost of revenue33,210 37,871 103,415 115,696 
Gross profit12,580 15,524 40,127 45,568 
Operating expenses:
Sales and marketing5,638 7,499 19,048 22,934 
Research and development1,489 1,165 4,186 3,702 
General and administrative10,537 10,129 31,844 32,081 
Restructuring and other related costs 630 703 1,836 
Total operating expenses17,664 19,423 55,781 60,553 
Loss from operations(5,084)(3,899)(15,654)(14,985)
Interest and other expense, net(500)(419)(1,050)(967)
Loss before provision for income taxes(5,584)(4,318)(16,704)(15,952)
Provision for income tax benefit (expense)6 (119)(173)(239)
Net loss$(5,578)$(4,437)$(16,877)$(16,191)
Net loss per common share:
Basic and diluted$(0.06)$(0.05)$(0.18)$(0.17)
Weighted-average common shares outstanding:
Basic and diluted95,963 94,228 95,437 93,637 
The accompanying notes are an integral part of these Consolidated Financial Statements.
4

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ServiceSource International, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
  For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020201920202019
Net loss$(5,578)$(4,437)$(16,877)$(16,191)
Other comprehensive income (loss)
Foreign currency translation adjustments102 73 53 (111)
Other comprehensive income (loss)102 73 53 (111)
Comprehensive loss$(5,476)$(4,364)$(16,824)$(16,302)
The accompanying notes are an integral part of these Consolidated Financial Statements.
5

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ServiceSource International, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
Common StockTreasury Shares/StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal
SharesAmountSharesAmount    
Balance at January 1, 202094,972 $9 (121)$(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, RSUs178 1 — — (1)— —  
Proceeds from the exercise of stock options and ESPP112 — — — 76 — — 76 
Balance at March 31, 202095,262 $10 (121)$(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, RSUs438 — — — — — —  
Balance at June 30, 202095,700 $10 (121)$(441)$376,944 $(297,365)$361 $79,509 
Net loss— — — — — (5,578)— (5,578)
Other comprehensive income— — — — — — 102 102 
Stock-based compensation— — — — 1,282 — — 1,282 
Issuance of common stock, RSUs877 — — — — — —  
Proceeds from the exercise of stock options and ESPP107 — — — 83 — — 83 
Balance at September 30, 202096,684 $10 (121)$(441)$378,309 $(302,943)$463 $75,398 
Common StockTreasury Shares/StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal
SharesAmountSharesAmount
Balance at January 1, 201992,895 $9 (121)$(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, RSUs229 — — — — — —  
Proceeds from the exercise of stock options and ESPP139 — — — 141 — — 141 
Balance at March 31, 201993,263 $9 (121)$(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, RSUs947 — — — — — —  
Net cash paid for payroll taxes on restricted stock unit releases— — — — (19)— — (19)
Balance at June 30, 201994,210 $9 (121)$(441)$372,201 $(279,137)$218 $92,850 
Net loss— — — — — (4,437)— (4,437)
Other comprehensive income— — — — — — 73 73 
Stock-based compensation— — — — 1,203 — — 1,203 
Issuance of common stock, RSUs265 — — — — — —  
Proceeds from the exercise of stock options and employee stock purchase plan124 — — — 82 — — 82 
Balance at September 30, 201994,599 $9 (121)$(441)$373,486 $(283,574)$291 $89,771 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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ServiceSource International, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net loss$(16,877)$(16,191)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization10,331 10,158 
Amortization of contract acquisition costs 798 1,239 
Amortization of ROU assets7,255 7,222 
Stock-based compensation3,586 3,985 
Restructuring and other related costs633 1,785 
Other54 (200)
Net changes in operating assets and liabilities:
Accounts receivable, net8,544 10,238 
Prepaid expenses and other assets1,226 507 
Contract acquisition costs(195)(362)
Accounts payable(3,597)(365)
Accrued compensation and benefits317 (1)
Operating lease liabilities(7,299)(6,949)
Accrued expenses(831)316 
Other liabilities(1,081)(4,144)
Net cash provided by operating activities2,864 7,238 
Cash flows from investing activities:
Purchases of property and equipment(5,124)(9,243)
Net cash used in investing activities(5,124)(9,243)
Cash flows from financing activities:
Repayment on finance lease obligations(730)(666)
Proceeds from Revolver27,000  
Repayment of Revolver(12,000) 
Proceeds from issuance of common stock159 223 
Payments related to minimum tax withholdings on RSU releases (19)
Net cash provided by (used in) financing activities14,429 (462)
Effect of exchange rate changes on cash and cash equivalents and restricted cash(52)125 
Net change in cash and cash equivalents and restricted cash12,117 (2,342)
Cash and cash equivalents and restricted cash, beginning of period29,383 27,779 
Cash and cash equivalents and restricted cash, end of period$41,500 $25,437 
Supplemental disclosures of cash flow information:
Cash paid for interest$408 $203 
Supplemental disclosures of non-cash activities:
Purchases of property and equipment accrued in accounts payable and accrued expenses$203 $1 
ROU assets obtained in exchange for new lease liabilities$2,271 $19,603 
Increase in operating lease liabilities related to the adoption of ASC 842$ $32,104 
Increase in ROU assets related to the adoption of ASC 842$ $29,526 
Decrease in prepaids and other assets related to the adoption of ASC 842$ $(749)
Decrease in other liabilities related to the adoption of ASC 842$ $(3,327)
The accompanying notes are an integral part of these Consolidated Financial Statements.
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ServiceSource International, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 — The Company
ServiceSource is a leading provider of BPaaS (business process-as-a-service) solutions that enable the transformation of go-to-market organizations and functions for global technology clients. We design, deploy, and operate a suite of innovative solutions and complex processes that support and augment our clients’ B2B customer acquisition, engagement, expansion and retention activities. Our clients - ranging from Fortune 500 technology titans to high-growth disruptors and innovators - rely on our holistic customer engagement methodology and process excellence, global scale and delivery footprint, and data analytics and business insights to deliver trusted business outcomes that have a meaningful and material positive impact to their long-term revenue and profitability objectives. Through our unique integration of people, process and technology - leveraged against our 20 years of experience and domain expertise in the cloud, software, hardware, medical device and diagnostic equipment, and industrial IoT sectors - we effect and transact billions of dollars of B2B commerce in more than 175 countries on our clients’ behalf annually.
“ServiceSource,” “the Company,” “we,” “us,” or “our”, as used herein, refer to ServiceSource International, Inc. and its wholly owned subsidiaries, unless the context indicates otherwise.
For a summary of commonly used industry terms and abbreviations used in this quarterly report on Form 10-Q, see the Glossary of Terms.
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 nine months ended September 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.
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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 $0.5 million and $0.9 million from the grant during the three and nine months ended September 30, 2020 and is expected to receive an additional $0.4 million through July 2021. 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:
September 30, 2020December 31, 2019
(in thousands)
Level 1:
Cash$10,761 $9,142 
Money market mutual funds28,419 17,947 
Cash and cash equivalents$39,180 $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 September 30, 2020 and December 31, 2019. There were no transfers between levels during the nine months ended September 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.
As of September 30, 2020, the Company had $15.0 million of borrowings under the Revolver through a one-month Eurodollar borrowing at an effective interest rate of 2.15% maturing October 2020. An additional $14.0 million was available for borrowing under the Revolver as of September 30, 2020. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the Company's borrowing base decreases below the current amount outstanding during the term of the Eurodollar borrowing.
9


Subsequent to September 30, 2020, the one-month $15.0 million Eurodollar borrowing was extended at an effective interest rate of approximately 2.15% maturing November 2020.
The obligations under the Credit Agreement are secured by substantially all 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 September 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 September 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 $0.1 million and $0.04 million for the three months ended September 30, 2020 and 2019, respectively and $0.4 million and $0.1 million for the nine months ended September 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.
During 2020, the Company entered into a 22 month sublease agreement with a third-party for one floor of its Manila office space through October 2021, extended its lease for two of its five floors in the Kuala Lumpur office space through December 2023, and extended its lease for one of its three floors in the Sofia office space through February 2026. 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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Operating lease cost$3,090 $2,897 $9,121 $8,894 
Finance lease cost:
Amortization of leased assets213 164 564 486 
Interest on lease liabilities19 41 75 127 
Total finance lease cost232 205 639 613 
Sublease income(905)(602)(2,692)(1,538)
Net lease cost$2,417 $2,500 $7,068 $7,969 

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Supplemental balance sheet information related to leases was as follows:
September 30, 2020December 31, 2019
(in thousands)
Operating leases:
ROU assets$31,733 $36,396 
Operating lease liabilities$10,741 $9,652 
Operating lease liabilities, net of current portion28,129 33,716 
Total operating lease liabilities$38,870 $43,368 
Finance leases:
Property and equipment$2,858 $3,480 
Accumulated depreciation(1,766)(1,823)
Property and equipment, net$1,092 $1,657 
Other current liabilities$707 $952 
Other long-term liabilities186 671 
Total finance lease liabilities$893 $1,623 
Lease term and discount rate information was as follows:
For the Nine Months Ended September 30,
20202019
Weighted-average remaining lease term (in years):
Operating lease5.75.9
Finance lease1.22.0
Weighted-average discount rate:
Operating lease6.2 %6.5 %
Finance lease7.0 %8.1 %
Maturities of lease liabilities were as follows as of September 30, 2020:
Operating LeasesOperating SubleaseFinance LeasesTotal
(in thousands)
Remainder of 2020$3,442 $(919)$235 $2,758 
202112,594 (3,552)633 9,675 
20229,168 (2,538)64 6,694 
20234,221 (623) 3,598 
20242,928   2,928 
Thereafter14,243   14,243 
Total lease payments46,596 (7,632)932 39,896 
Less: interest(7,690)— (39)(7,729)
Less: tenant improvement reimbursements(1)
(36)—  (36)
Total$38,870 $(7,632)$893 $32,131 
(1) Relates to tenant improvement reimbursements incurred by the Company after lease commencement, but not received from the landlord as of September 30, 2020.
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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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Selling services$44,840 $52,663 $140,558 $159,707 
Professional services950 732 2,984 1,557 
Total revenue$45,790 $53,395 $143,542 $161,264 
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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
NALA$27,204 $32,153 $83,235 $94,949 
EMEA11,984 12,918 38,837 39,972 
APJ6,602 8,324 21,470 26,343 
Total revenue$45,790 $53,395 $143,542 $161,264 
Revenue by Contract Pricing
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Variable consideration$33,188 $37,577 $103,367 $106,889 
Fixed consideration12,602 15,818 40,175 54,375 
Total revenue$45,790 $53,395 $143,542 $161,264 
Contract Balances
As of September 30, 2020 and December 31, 2019, contract asset balances were insignificant and as of September 30, 2020 and December 31, 2019, contract liability balances totaled $0.3 million and $0.8 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2020, assuming none of the Company’s current contracts with fixed consideration are renewed, the Company estimates receiving approximately $40.3 million in future selling services fixed consideration and approximately $0.5 million in professional services fixed consideration.
Contract Acquisition Costs
As of September 30, 2020 and December 31, 2019, capitalized contract acquisition costs were $1.0 million and $1.6 million, respectively. The Company recorded amortization expense related to capitalized contract acquisition costs of $0.3 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively, and $0.8 million and $1.2 million for the nine months ended September 30, 2020 and 2019, respectively.
Impairment recognized on contract costs was insignificant for the three and nine months ended September 30, 2020 and 2019.
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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 and prior to expiration of the 2011 Plan, the Company granted PSUs to certain executives under the 2011 Plan. The aggregate target number of shares subject to 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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Cost of revenue$110 $126 $245 $414 
Sales and marketing200 518 1,021 1,390 
Research and development14 12 33 24 
General and administrative942 523 2,287 2,157 
Total stock-based compensation$1,266 $1,179 $3,586 $3,985 
The above table does not include capitalized stock-based compensation related to internal-use software that was insignificant for the three and nine months ended September 30, 2020 and 2019.
Stock Awards
A summary of the Company's stock option activity and related information was as follows:
SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Life (Years)Intrinsic Value
(in thousands)(in thousands)
Outstanding as of December 31, 20194,146 $2.16 $1,580 
Granted20 $1.32 
Expired and/or forfeited(609)$3.13 
Outstanding as of September 30, 20203,557 $1.99 7.08$866 
Exercisable as of September 30, 20202,470 $2.33 6.50$501 
The weighted-average fair value of options granted during the nine months ended September 30, 2020 and 2019 was $0.63 and $0.47, respectively. As of September 30, 2020, there was $0.6 million of unrecognized compensation expense related to previously granted stock options, which is expected to be recognized over a weighted-average period of 1.9 years.
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A summary of the Company's RSU and PSU activity and related information was as follows:
UnitsWeighted-Average Grant Date Fair Value
(in thousands)
Non-vested as of December 31, 20195,305 $1.88 
Granted5,602 $1.43 
Vested(1,493)$2.09 
Forfeited(1,180)$1.86 
Non-vested as of September 30, 20208,234 $1.54 
As of September 30, 2020, there was $10.3 million of unrecognized compensation expense related to previously granted RSUs and PSUs, which is expected to be recognized over a weighted-average period of 2.2 years.
Potential shares of common stock that are not included in the determination of diluted net loss per share because they are anti-dilutive for the periods presented consist of stock options, unvested RSUs and PSUs, and shares to be purchased under our ESPP. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 3.2 million and 7.9 million shares for the three months ended September 30, 2020 and 2019, respectively, and 4.1 million and 8.4 million shares for the nine months ended September 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" and "Other long-term liabilities" in the Consolidated Balance Sheets as of September 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 $0.7 million for the nine months ended September 30, 2020 and $0.6 million and $1.8 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, the Company does not expect to incur additional restructuring charges related to the 2019 restructuring.
The following table presents a reconciliation of the beginning and ending fair value liability balance related to the 2019 restructuring effort:
Severance and Other Employee CostsLease Termination CostsTotal
(in thousands)
Balance as of January 1, 2019$ $ $ 
Restructuring and other related costs1,806 123 1,929 
Cash paid(1,624)(123)(1,747)
Balance as of December 31, 2019182  182 
Restructuring and other related costs703  703 
Cash paid(866) (866)
Change in estimates and non-cash charges(19) (19)
Balance as of September 30, 2020$ $ $ 
In May 2017, the Company announced a restructuring effort resulting in a headcount reduction and the reduction of office space in four locations. As of September 30, 2020, the Company does not expect to incur additional restructuring charges related to the May 2017 restructuring.
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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 CostsLease and Other Contract Termination CostsAsset ImpairmentsTotal
(in thousands)
Balance as of January 1, 2017$ $ $ $ 
Restructuring and other related costs3,483 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, 201771 1,754  1,825 
Restructuring and other related costs120 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 (133) (133)
Change in estimates and non-cash charges (51) (51)
Balance as of September 30, 2020$ $532 $ $532 
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 September 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 nine months ended September 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.
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Non-cancelable Service Contract Commitments
Future minimum payments under non-cancelable service contract commitments were as follows:
September 30, 2020
(in thousands)
Remainder of 2020$2,359 
202110,385 
20229,152 
20237,446 
2024821 
Thereafter 
Total$30,163 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following MD&A should be read in conjunction with our unaudited Consolidated Financial Statements and notes thereto which appear elsewhere in this quarterly report on Form 10-Q.
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements may appear throughout this report. These forward-looking statements are generally identified by the words “believe,” “project,” "target," "forecast", “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and variations of such words or similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those identified elsewhere in this report, 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 Form 10-Q, see the Glossary of Terms.
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 September 30, 2020, we had total available liquidity of $53.2 million consisting of cash on hand and availability under our Revolver. See "Liquidity and Capital Resources" for additional information.
Although there was no material adverse impact on the results of operations for the three and nine months ended September 30, 2020 resulting from 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 benefiting and will continue to benefit from decreases in certain costs related to our facilities and reduced travel and entertainment costs with our virtual-first operating model. We do not currently anticipate that these items will have a material adverse impact on our overall business and financial results.
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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 $0.5 million and $0.9 million from the grant during the three and nine months ended September 30, 2020 and is expected to receive an additional $0.4 million through July 2021.
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 September 30, 2020
GAAP revenue was $45.8 million compared with $53.4 million reported for the same period in 2019.
GAAP net loss was $5.6 million or $0.06 per diluted share, compared with GAAP net loss of $4.4 million or $0.05 per diluted share reported for the same period in 2019.
Adjusted EBITDA, a non-GAAP financial measure, was negative $0.2 million compared with positive $1.1 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 $41.5 million of cash and cash equivalents and restricted cash and $15.0 million of borrowings under the Company’s $40.0 million Revolver.
Results of Operations
For the Three Months Ended September 30, 2020 Compared to the Same Period Ended September 30, 2019
Net Revenue, Cost of Revenue and Gross Profit
Net revenue is primarily attributable to commissions we earn from the sale of renewals of maintenance, support and subscription agreements on behalf of our clients. We also generate revenues from selling professional services. Historically, we earned a small percentage of our total revenue from the sale of subscriptions to our cloud-based applications.
Cost of revenue includes employee compensation, technology costs, including those related to the delivery of our cloud-based technologies, and allocated expenses which consist of depreciation, amortization of internally developed software, facility and technology costs.
 For the Three Months Ended September 30,
 20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Net revenue$45,790 100 %$53,395 100 %$(7,605)(14)%
Cost of revenue33,210 73 %37,871 71 %(4,661)(12)%
Gross profit$12,580 27 %$15,524 29 %$(2,944)(19)%
Net revenue decreased $7.6 million, or 14%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to client churn and lower bookings.
Cost of revenue decreased $4.7 million, or 12%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to the following:
$3.1 million decrease in employee related costs associated with a reduction in headcount, the receipt of the Singapore government grant and lower travel and entertainment expenditures;
$1.1 million decrease in information technology costs due to an increase in capitalizable software development costs and lower headcount; and
$0.7 million decrease in facility related costs primarily related to sublease income, reduced headcount and transitioning to a virtual-first operating model; partially offset by
$0.3 million increase in depreciation and amortization expense.
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Operating Expenses
For the Three Months Ended September 30,
20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Operating expenses:
Sales and marketing$5,638 12 %$7,499 14 %$(1,861)(25)%
Research and development1,489 %1,165 %324 28 %
General and administrative10,537 23 %10,129 19 %408 %
Restructuring and other related costs— — %630 %(630)(100)%
Total operating expenses$17,664 39 %$19,423 36 %$(1,759)(9)%
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, and facility and technology costs.
Sales and marketing expenses decreased $1.9 million, or 25%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to a $1.5 million decrease in employee related costs associated with a reduction in headcount, lower bookings, and lower travel and entertainment expenditures, and a $0.2 million decrease in information technology and facility costs related to transitioning to a virtual-first operating model.
Research and Development
Research and development expenses primarily consist of employee compensation expense and allocated expenses, which consist of amortization of internally developed software, facility and technology costs.
Research and development expenses increased $0.3 million, or 28%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to a $0.5 million reduction in third party capitalizable software development costs, partially offset by a $0.1 million decrease in information technology and facility costs related to transitioning to a virtual-first operating model.
General and Administrative
General and administrative expenses primarily consist of employee compensation expense for our executive, finance, human resources, 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 increased $0.4 million, or 4%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to the following:
$0.3 million increase due to the settlement of the legal contingency in 2019; and
$0.2 million increase in professional fees; partially offset by
$0.1 million decrease 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 decreased $0.6 million, or 100% for the three months ended September 30, 2020 compared to the same period in 2019, due to timing of headcount reductions related to the 2019 restructuring effort that resulted in a reduction of headcount and office lease costs.
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Interest and Other Expense, Net
Interest and other expense, net consists of interest expense associated with our Revolver, imputed interest from finance lease payments, interest income earned on our cash and cash equivalents, amortization of debt issuance costs and foreign exchange gains and losses. 
For the Three Months Ended September 30,
20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Interest expense$(161)— %$(91)— %$(70)(77)%
Other expense, net$(339)(1)%$(328)(1)%$(11)(3)%
* Not considered meaningful.
Interest expense increased $0.1 million, or 77%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to borrowings on the Company's Revolver during 2020.
Other expense, net increased 3% for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to foreign currency fluctuations.
Provision for Income Tax Expense
For the Three Months Ended September 30,
20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Provision for income tax benefit (expense)$— %$(119)— %$125 105 %
Provision for income tax benefit (expense) resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax decreased for the three months ended September 30, 2020 compared to the same period in 2019, due to a decrease in profitable operations in certain foreign jurisdictions.
For the Nine Months Ended September 30, 2020 Compared to the Same Period Ended September 30, 2019
Net Revenue, Cost of Revenue and Gross Profit
 For the Nine Months Ended September 30,
 20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Net revenue$143,542 100 %$161,264 100 %$(17,722)(11)%
Cost of revenue103,415 72 %115,696 72 %(12,281)(11)%
Gross profit$40,127 28 %$45,568 28 %$(5,441)(12)%
Net revenue decreased $17.7 million, or 11%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to client churn and lower bookings.
Cost of revenue decreased $12.3 million, or 11%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to the following:
$8.7 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;
$2.6 million decrease in facility related costs primarily related to sublease income, reduced headcount and transitioning to a virtual-first operating model; and
$1.8 million decrease in information technology costs due to an increase in capitalizable software development costs and lower headcount; partially offset by
$0.9 million increase in depreciation and amortization expense.
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Operating Expenses
For the Nine Months Ended September 30,
20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Operating expenses:
Sales and marketing$19,048 13 %$22,934 14 %$(3,886)(17)%
Research and development4,186 %3,702 %484 13 %
General and administrative31,844 22 %32,081 20 %(237)(1)%
Restructuring and other related costs703 — %1,836 %(1,133)(62)%
Total operating expenses$55,781 39 %$60,553 38 %$(4,772)(8)%
Sales and Marketing
Sales and marketing expenses decreased $3.9 million, or 17%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to a $3.1 million decrease in employee related costs associated with a reduction in headcount, lower bookings, and lower travel and entertainment expenditures, and a $0.5 million decrease in information technology and facility costs related to sublease income and transitioning to a virtual-first operating model.
Research and Development
Research and development expenses increased $0.5 million, or 13%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to a $0.9 million reduction in third party capitalizable software development costs, partially offset by a $0.4 million decrease in information technology and facility costs related to sublease income and transitioning to a virtual-first operating model.
General and Administrative
General and administrative expenses decreased $0.2 million, or 1%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to the following:
$0.8 million decrease in depreciation and amortization expense;
$0.5 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
$0.1 million decrease in professional fees; partially offset by
$0.9 million increase in information technology support and facility costs due to lower headcount in cost of revenue; and
$0.3 million increase due to the settlement of the legal contingency in 2019.
Restructuring and Other Related Costs
Restructuring and other related costs decreased $1.1 million, or 62% for the nine months ended September 30, 2020 compared to the same period in 2019, due to decreased costs incurred related to the 2019 restructuring effort that resulted in a reduction of headcount and office lease costs.
Interest and Other Expense, Net
For the Nine Months Ended September 30,
20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Interest expense$(477)— %$(303)— %$(174)(57)%
Other expense, net$(573)— %$(664)— %$91 14 %
Interest expense increased $0.2 million, or 57%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to borrowings on the Company’s Revolver during 2020.
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Other expense, net decreased $0.1 million, or 14%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to foreign currency fluctuations.
Provision for Income Tax Expense
For the Nine Months Ended September 30,
20202019
Amount% of Net RevenueAmount% of Net Revenue$ Change% Change
(in thousands)(in thousands)(in thousands)
Provision for income tax expense$(173)— %$(239)— %$66 28 %
Provision for income tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax expense decreased for the nine months ended September 30, 2020 compared to the same period in 2019, due to a decrease 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 September 30, 2020, we had cash and cash equivalents of $39.2 million, which primarily consisted of demand deposits and money market mutual funds. Included in cash and cash equivalents was $7.3 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 September 30, 2020, the Company had no unremitted earnings from our foreign subsidiaries.
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.
As of September 30, 2020 the Company had $15.0 million of borrowings under the Revolver through a one-month Eurodollar borrowing at an effective interest rate of 2.15% maturing October 2020. An additional $14.0 million was available for borrowing under the Revolver as of September 30, 2020. The Eurodollar borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the Company's borrowing base decreases below the current amount outstanding during the term of the Eurodollar borrowing.
Subsequent to September 30, 2020, the one-month $15.0 million Eurodollar borrowing was extended at an effective interest rate of approximately 2.15% maturing November 2020.
The obligations under the Credit Agreement are secured by substantially all 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 September 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.
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Cash Flows
The following table presents a summary of our cash flows:
For the Nine Months Ended September 30,
20202019
(in thousands)
Net cash provided by operating activities$2,864 $7,238 
Net cash used in investing activities(5,124)(9,243)
Net cash provided by (used in) financing activities14,429 (462)
Effect of exchange rate changes on cash and cash equivalents and restricted cash(52)125 
Net change in cash and cash equivalents and restricted cash$12,117 $(2,342)
Depreciation and amortization expense were comprised of the following:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Internally developed software amortization$1,983 $1,524 $5,597 $4,190 
Property and equipment depreciation1,529 1,640 4,734 5,968 
Total depreciation and amortization$3,512 $3,164 $10,331 $10,158 
Operating Activities
Net cash provided by operating activities decreased $4.4 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily as a result of decreased revenue and higher cash payments 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 $4.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, due to decreased cash outflows from purchases of property and equipment during the nine months ended September 30, 2020.
Financing Activities
Net cash provided by financing activities increased $14.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily as a result of $15.0 million in net cash inflows from borrowings on the Revolver during the nine months ended September 30, 2020.
Off-Balance Sheet Arrangements
As of September 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 nine months ended September 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.
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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, amortization of contract acquisition costs related to the initial adoption of ASC 606 and costs attributable to establishing a litigation reserve.
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 September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Net loss$(5,578)$(4,437)$(16,877)$(16,191)
Provision for income tax (benefit) expense(6)119 173 239 
Interest and other expense, net500 419 1,050 967 
Depreciation and amortization3,512 3,164 10,331 10,158 
EBITDA(1,572)(735)(5,323)(4,827)
Stock-based compensation1,266 1,179 3,586 3,985 
Restructuring and other related costs— 630 703 1,836 
Amortization of contract acquisition asset costs -
ASC 606 initial adoption
134 277 514 789 
Litigation reserve— (256)— (256)
Adjusted EBITDA$(172)$1,095 $(520)$1,527 
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.
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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. 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.
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Item 6. Exhibits
Exhibit NumberDescription of Document
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.
* Filed herewith.
** Furnished herewith.
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GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-Q are defined below:
Abbreviations or acronymsDefinition
2011 Plan2011 Equity Incentive Plan
2020 Plan2020 Equity Incentive Plan
APJAsia Pacific-Japan
ASC 606Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
ASC 740Accounting Standards Codification Topic 740, Income Taxes
ASC 842Accounting Standards Codification Topic 842, Leases
ASUAccounting Standards Update
B2BBusiness-to-business
BPaaSBusiness Process-as-a-Service
BorrowersServiceSource International, Inc. and ServiceSource Delaware, Inc.
CEOChief Executive Officer
CFOChief Financial Officer
COVID-19Coronavirus disease 2019
Credit AgreementRevolving Loan Credit Agreement, dated as of July 30, 2018, among the Borrowers and Compass Bank, as Lender
EMEAEurope, Middle East and Africa
ESPP2011 Employee Stock Purchase Plan
FASBFinancial Accounting Standards Board
GAAPUnited States Generally Accepted Accounting Principles
IoTInternet of things
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
NALANorth America and Latin America
PSUPerformance-based restricted stock unit
RevolverSenior secured revolving line of credit
ROURight-of-use
RSURestricted stock unit
SECSecurities and Exchange Commission
U.S.United States

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SERVICESOURCE INTERNATIONAL, INC.
(Registrant)
Date: October 28, 2020By:/s/ RICHARD G. WALKER
Richard G. Walker
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
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