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~~March 3031, ~~2021~~2022


☐	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 ~~October~~May 285, ~~2021~~2022, 99,~~067~~938,~~482~~408 shares of common stock of ServiceSource International, Inc. were outstanding.

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TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)		3
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Comprehensive Loss		5
Consolidated Statements of Stockholders’ Equity		6
Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1715
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2621
Item 4. Controls and Procedures		2621
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		2622
Item 1A. Risk Factors		2622
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2627
Item 3. Defaults Upon Senior Securities		2627
Item 4. Mine Safety Disclosures		2627
Item 5. Other Information		27
Item 6. Exhibits		2729
Glossary of Terms		2830

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ServiceSource International, Inc.

Consolidated Balance Sheets

(in thousands, except per share and par value amounts)

(unaudited)


	~~September~~March 3031, ~~2021~~2022		December 31, ~~2020~~2021
Assets
Current assets:
Cash and cash equivalents	$	3029,~~170~~518	$	3428,~~006~~507
Accounts receivable, net		3537,~~464~~938		3843,~~890~~571
Prepaid expenses and other		87,~~599~~858		98,~~275~~995
Total current assets		7475,~~233~~314		8281,~~171~~073

Property and equipment, net		2115,~~540~~898		2918,~~948~~721
ROU assets		2223,~~706~~110		2923,~~798~~043
Contract acquisition costs		~~604~~497		~~872~~558
Goodwill		6,334		6,334
Other assets		42,~~109~~717		32,~~490~~719
Total assets	$	~~129~~123,~~526~~870	$	~~152~~132,~~613~~448

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	31,~~003~~612	$	~~1,204~~832
Accrued expenses		3,~~203~~299		34,~~217~~152
Accrued compensation and benefits		1913,~~147~~955		1819,~~342~~999
Revolver		10,000		1510,000
Operating lease liabilities		97,~~503~~740		108,~~797~~614
Other current liabilities		~~973~~648		~~1,209~~793
Total current liabilities		4537,~~829~~254		4944,~~769~~390

Operating lease liabilities, net of current portion		1820,~~931~~481		2519,~~975~~869
Other long-term liabilities		1,~~893~~180		1,~~593~~155
Total liabilities		6658,~~653~~915		7765,~~337~~414

Commitments and contingencies (Note 9)
Commitments and contingencies (Note 8)

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; 99,162 shares issued and 99,041 shares outstanding as of September 30, 2021; 97,248 shares issued and 97,127 shares outstanding as of December 31, 2020		10		10
Common stock, $0.0001 par value; 1,000,000 shares authorized; 100,059 shares issued and 99,938 shares outstanding as of March 31, 2022; 99,233 shares issued and 99,112 shares outstanding as of December 31, 2021		10		10
Treasury stock		(441)		(441)
Additional paid-in capital		~~384~~388,~~337~~213		~~379~~385,~~696~~827
Accumulated deficit		(~~321~~323,~~924~~710)		(~~304~~319,~~607~~328)
Accumulated other comprehensive income		~~891~~883		~~618~~966
Total stockholders' equity		6264,~~873~~955		7567,~~276~~034
Total liabilities and stockholders' equity	$	~~129~~123,~~526~~870	$	~~152~~132,~~613~~448

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~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

Net revenue

48,~~578~~893

45,~~790~~023

~~139,908~~

~~143,542~~

Cost of revenue

35,~~030~~745

3334,~~210~~067

~~104,492~~

~~103,415~~

Gross profit

13,~~548~~148

1210,~~580~~956

~~35,416~~

~~40,127~~

Operating expenses:

Sales and marketing

43,~~174~~996

54,~~638~~030

~~12,263~~

~~19,048~~

Research and development

1,~~338~~386

1,~~489~~160

~~3,679~~

~~4,186~~

General and administrative

1011,~~801~~321

1012,~~537~~190

~~33,615~~

~~31,844~~

Restructuring and other related costs

—

—920

~~974~~

~~703~~

Total operating expenses

16,~~313~~703

1718,~~664~~300

~~50,531~~

~~55,781~~

Loss from operations

(23,~~765~~555)

(57,~~084~~344)

~~(15,115)~~

~~(15,654)~~

Interest and other expense, net

(~~267~~178)

(~~500~~1,160)

~~(1,791)~~

~~(1,050)~~

Loss before provision for income taxes

(3,~~032~~733)

(58,~~584~~504)

~~(16,906)~~

~~(16,704)~~

Provision for income tax (expense) benefit

(359)

(411)

(173)

Provision for income tax expense

(649)

(331)

Net loss

(34,~~391~~382)

(58,~~578~~835)

~~(17,317)~~

~~(16,877)~~

Net loss per common share:

Basic and diluted

(0.0304)

(0.0609)

~~(0.18)~~

Weighted-average common shares outstanding:

Basic and diluted

9899,~~253~~398

9597,~~963~~234

~~97,703~~

~~95,437~~

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

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ServiceSource International, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

For the Three Months Ended ~~September~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

Net loss

(34,~~391~~382)

(58,~~578~~835)

~~(17,317)~~

~~(16,877)~~

Other comprehensive (loss) income:

Foreign currency translation adjustments

(83)

~~102~~325

~~273~~

Other comprehensive (loss) income:

(83)

~~102~~325

~~273~~

Comprehensive loss

(34,~~474~~465)

(58,~~476~~510)

~~(17,044)~~

~~(16,824)~~

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

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ServiceSource International, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)


											Accumulated
							Additional				Other
	Common Stock			Treasury Shares/Stock			Paid-in		Accumulated-		Comprehensive
	Shares	Amount		Shares	Amount		Capital		Deficit		Income		Total
Balance at January 1, 2021	97,248	$	10	(121)	$	(441)	$	379,696	$	(304,607)	$	618	$	75,276
Balance at January 1, 2022	99,233	$	10	(121)	$	(441)	$	385,827	$	(319,328)	$	966	$	67,034
Net loss	—		—	—		—		—		(84,~~835~~382)		—		(84,~~835~~382)
Other comprehensive income	—		—	—		—		—		—		325		325
Stock-based compensation	—		—	—		—		2,486		—		—		2,486
Issuance of common stock, RSUs	73		—	—		—		—		—		—		—
Proceeds from the exercise of stock options and ESPP	149		—	—		—		132		—		—		132
Balance at March 31, 2021	97,470		10	(121)		(441)		382,314		(313,442)		943		69,384
Net loss	—		—	—		—		—		(5,091)		—		(5,091)
Other comprehensive income	—		—	—		—		—		—		31		31
Stock-based compensation	—		—	—		—		1,085		—		—		1,085
Issuance of common stock, RSUs	485		—	—		—		—		—		—		—
Proceeds from the exercise of stock options	4		—	—		—		4		—		—		4
Balance at June 30, 2021	97,959		10	(121)		(441)		383,403		(318,533)		974		65,413
Net loss	—		—	—		—		—		(3,391)		—		(3,391)
Other comprehensive loss	—		—	—		—		—		—		(83)		(83)
Stock-based compensation	—		—	—		—		12,~~109~~633		—		—		12,~~109~~633
Issuance of common stock, RSUs	1,200		—	—		—		—		—		—		—
Issuance of common stock, RSUs and PSUs	826		—	—		—		—		—		—		—
Proceeds from the exercise of stock options	3		—	—		—		3		—		—		3
Net cash paid for payroll taxes on RSU releases	—		—	—		—		(247)		—		—		(247)
Net cash paid for payroll taxes on RSU releases	—		—	—		—		(178)		—		—		(178)
Balance at March 31, 2022	100,059	$	10	(121)	$	(441)	$	388,213	$	(323,710)	$	883	$	64,955
Balance at September 30, 2021	99,162	$	10	(121)	$	(441)	$	384,337	$	(321,924)	$	891	$	62,873


											Accumulated
							Additional				Other
	Common Stock			Treasury Shares/Stock			Paid-in		Accumulated-		Comprehensive
	Shares	Amount		Shares	Amount		Capital		Deficit		Income		Total
Balance at January 1, 2020	94,972	$	9	(121)	$	(441)	$	374,525	$	(286,066)	$	410	$	88,437
Balance at January 1, 2021	97,248	$	10	(121)	$	(441)	$	379,696	$	(304,607)	$	618	$	75,276
Net loss	—		—	—		—		—		(58,~~942~~835)		—		(58,~~942~~835)
Other comprehensive income	—		—	—		—		—		—		~~498~~325		~~498~~325
Stock-based compensation	—		—	—		—		12,~~066~~486		—		—		12,~~066~~486
Issuance of common stock, RSUs	~~178~~73		1—	—		—		~~(1)~~—		—		—		—
Proceeds from the exercise of stock options and ESPP	~~112~~149		—	—		—		76132		—		—		76132
Balance at March 31, 2020	95,262		10	(121)		(441)		375,666		(292,008)		908		84,135
Balance at March 31, 2021	97,470	$	10	(121)	$	(441)	$	382,314	$	(313,442)	$	943	$	69,384
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
Net loss	—		—	—		—		—		(5,578)		—		(5,578)
Other comprehensive income	—		—	—		—		—		—		102		102
Stock-based compensation	—		—	—		—		1,282		—		—		1,282
Issuance of common stock, RSUs	877		—	—		—		—		—		—		—
Proceeds from the exercise of stock options and ESPP	107		—	—		—		83		—		—		83
Balance at September 30, 2020	96,684	$	10	(121)	$	(441)	$	378,309	$	(302,943)	$	463	$	75,398

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~~Three Months Ended ~~September~~March 3031,
	~~2021~~2022		~~2020~~2021
Cash flows from operating activities:
Net loss	$	(174,~~317~~382)	$	(168,~~877~~835)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		103,~~969~~522		103,~~331~~657
Amortization of contract acquisition costs		~~434~~90		~~798~~167
Amortization of ROU assets		72,~~046~~051		72,~~255~~391
Stock-based compensation		42,~~649~~620		32,~~586~~475
Restructuring and other related costs		~~935~~—		~~633~~902
Other		~~364~~15		54265
Net changes in operating assets and liabilities:
Accounts receivable, net		35,~~193~~557		84,~~544~~131
Prepaid expenses and other assets		~~(553)~~1,088		1(2,~~226~~099)
Contract acquisition costs		(~~167~~31)		(~~195~~51)
Accounts payable		~~1,810~~808		(3,~~597)~~952
Accrued compensation and benefits		~~185~~(5,913)		~~317~~(3,673)
Operating lease liabilities		(82,~~154~~359)		(72,~~299~~738)
Accrued expenses		(6828)		(~~831~~511)
Other liabilities		~~573~~(59)		~~(1,081)~~504
Net cash provided by operating activities		32,~~961~~179		~~2,864~~537
Cash flows from investing activities:
Purchases of property and equipment		(~~2,682~~741)		(51,~~124~~019)
Net cash used in investing activities		(~~2,682~~741)		(51,~~124~~019)
Cash flows from financing activities:
Repayment on finance lease obligations		(~~485~~52)		(~~730~~161)
Debt issuance costs		(97)		—
Proceeds from Revolver		10,000		—
Proceeds from Revolver		13,500		27,000
Repayment of Revolver		(10,000)		—
Repayment of Revolver		(18,500)		(12,000)
Proceeds from issuance of common stock		—		132
Proceeds from issuance of common stock		139		159
Payments related to minimum tax withholdings on RSU releases		(247)		—
Payments related to minimum tax withholdings on RSU releases		(178)		—
Net cash used in financing activities		(299)		(29)
Net cash (used in) provided by financing activities		(5,621)		14,429
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(128)		650
Effect of exchange rate changes on cash and cash equivalents and restricted cash		480		(52)
Net change in cash and cash equivalents and restricted cash		1,011		139
Net change in cash and cash equivalents and restricted cash		(3,862)		12,117
Cash and cash equivalents and restricted cash, beginning of period		30,801		36,326
Cash and cash equivalents and restricted cash, beginning of period		36,326		29,383
Cash and cash equivalents and restricted cash, end of period	$	31,812	$	36,465
Cash and cash equivalents and restricted cash, end of period	$	32,464	$	41,500
Supplemental disclosures of cash flow information:
Cash paid for interest	$	~~288~~87	$	~~408~~105
Supplemental disclosures of non-cash activities:
Purchases of property and equipment accrued in accounts payable and accrued expenses	$	252	$	~~203~~9
ROU assets obtained in exchange for new lease liabilities	$	~~618~~2,334	$	~~2,271~~618

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 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 more than 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, ~~2020~~2021 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, ~~2020~~2021 filed with the SEC on February 2423, ~~2021~~2022. 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, ~~2020~~2021, 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 and Russia’s invasion of Ukraine 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~~Russia’s toinvasion ~~require~~of ~~adjustment. Actual results and outcomes may differ from our estimates.~~

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Ukraine, which could cause estimates and judgments to require adjustment. Actual results and outcomes may differ from our estimates.

Cash Equivalents and Restricted Cash

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, ~~2020~~2021.

Cash equivalents consist of highly liquid investments with original maturities of three months or less at the time of purchase and are classified as a Level 1 investment.

Restricted cash consists of cash in money market accounts that are used to secure letters of credit in connection with two of our leased facilities. Restricted cash is recorded within “Prepaid expenses and other” and "Other assets" in the Consolidated Balance Sheets and is classified as a Level 1 investment. The Company had restricted cash of $2.3 million as of ~~September~~March 3031, ~~2021~~2022 and December 31, ~~2020~~2021.

The Company did not have any other financial instruments or debt measured at fair value as of ~~September~~March 3031, ~~2021~~2022 and December 31, ~~2020~~2021. There were no transfers between levels during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 and ~~2020~~2021.

~~Government~~New ~~Assistance~~Accounting Standards Issued but Not Yet Adopted

During 2020, ServiceSource received various grants from the Singapore government, including the Job Support Scheme, which assists enterprises in retaining their local employees during the COVID-19 pandemic. The Company received and recognized income related to the grants of approximately $0.2 million and $0.5 million for the three months ended September 30, 2021 and 2020, respectively, and $0.3 million and $0.9 million for the nine months ended September 30, 2021 and 2020, respectively. There are no conditions to repay the grants. The Company does not expect to receive additional support related to these grants. 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 the conditions attached to the grant.

New Accounting Standards Adopted

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. The Company adopted this standard effective January 1, 2021 and the effects of this standard were applied prospectively to eligible costs incurred on or after January 1, 2021. The adoption of this standard did not have a material impact on the Consolidated Financial Statements.

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~~expects to adopt this standard effective January 1, 2023.

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Note 3 — Debt

Revolving Line of Credit

In July 2018, ServiceSource, together with its wholly owned subsidiary, ServiceSource Delaware, Inc., entered into the 2018 Credit Agreement, providing for a $40.0 million revolving line of credit allowing each borrower to borrow against its domestic receivables as defined in the 2018 Credit Agreement. The Revolver in the 2018 Credit Agreement was scheduled to mature in July 2021 and was repaid in full in connection with the Company’s entry into the 2021 Credit Agreement.

In July 2021, ServiceSource, together with its wholly owned subsidiary, ServiceSource Delaware, Inc., entered into the 2021 Credit Agreement, which provides for a $35.0 million revolving line of credit allowing each borrower to borrow against its receivables subject to the terms and conditions set forth in the 2021 Credit Agreement. At the Company’s request and subject to customary conditions, the aggregate commitments under the 2021 Credit Agreement may be increased up to an additional $10.0 million, for a total maximum commitment amount of $45.0 million. The Revolver in the 2021 Credit Agreement matures in July 2024 and bears interest at a rate equal to BSBY plus 2.00% to 2.50% per annum or, at our election, an alternate base rate plus 1.00% to 1.50% per annum.

As of ~~September~~March 3031, ~~2021~~2022, the Company had $10.0 million of borrowings under the Revolver in the 2021 Credit Agreement through a ~~three~~six-month BSBY borrowing at an effective interest rate of 23.4204% maturing ~~November 2021~~August 2022. An additional $1214.26 million was available for borrowing under the Revolver as of ~~September~~March 3031, ~~2021~~2022. The BSBY borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the borrowing base decreases below the current amount outstanding during the term of the BSBY borrowing.

The obligations under the 2021 Credit Agreement are secured by substantially all assets of ServiceSource and certain of its subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The 2021 Credit Agreement has financial covenants that the Company was in compliance with as of ~~September~~March 3031, ~~2021~~2022.

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Interest Expense

~~Interest~~Unamortized ~~expense related to the amortization of~~ debt issuance costs ~~and~~related ~~interest~~to ~~expense associated with~~ the ~~Company’s~~2021 ~~debt~~Revolver ~~obligation was~~were $0.1 million ~~for~~as ~~the~~of March ~~three months ended September 30~~31, ~~2021~~2022 and ~~2020~~December ~~and $0.3 million and $0.4 million for the nine months ended September 30~~31, 2021 ~~and 2020, respectively~~.

Interest expense related to the amortization of debt issuance costs and interest expense associated with the Company’s debt obligation was $0.1 million for the three months ended March 31, 2022 and 2021.

Note 4 — 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~~December ~~2030~~2032. 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 year after lease commencement. Leases with an initial term of 12 months or less are not recorded on the ~~balance~~Consolidated ~~sheet~~Balance Sheets.

During 2021, the Company extended its agreement to sublease one floor of office space at one of its locations in Manila, Philippines to a third-party through the end of the original lease term in September 2023, entered into an agreement to sublease two floors of office space at a second location in Manila, Philippines to a third-party through the end of the original lease term in December 2021, and extended its lease for reduced office space at its location in Yokohama, Japan through May 2024.

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Supplemental income statement information related to leases was as follows:

For the Three Months Ended ~~September~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

Operating lease cost

2,~~780~~458

32,~~090~~941

~~8,574~~

~~9,121~~

Finance lease cost:

Amortization of leased assets

9853

~~213~~159

~~364~~

~~564~~

Interest on lease liabilities

1911

Total finance lease cost

~~102~~54

~~232~~170

~~386~~

~~639~~

Sublease income

(~~1,259~~887)

(~~905~~1,098)

~~(3,644)~~

~~(2,692)~~

Net lease cost

1,~~623~~625

2,~~417~~013

~~5,316~~

~~7,068~~

Supplemental balance sheet information related to leases was as follows:


	~~September~~March 3031, ~~2021~~2022		December 31, ~~2020~~2021
	(in thousands)
Operating leases:
ROU assets	$	2223,~~706~~110	$	2923,~~798~~043

Operating lease liabilities	$	97,~~503~~740	$	108,~~797~~614
Operating lease liabilities, net of current portion		1820,~~931~~481		2519,~~975~~869
Total operating lease liabilities	$	28,~~434~~221	$	3628,~~772~~483

Finance leases:
Property and equipment	$	2,~~861~~852	$	2,~~880~~861
Accumulated depreciation		(2,~~318~~442)		(12,~~963~~397)
Property and equipment, net	$	~~543~~410	$	~~917~~464

Other current liabilities	$	~~186~~11	$	~~608~~63
Other long-term liabilities		—		63—
Total finance lease liabilities	$	~~186~~11	$	~~671~~63

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Lease term and discount rate information was as follows:


	For the ~~Nine~~Three Months Ended ~~September~~March 3031,
	~~2021~~2022			~~2020~~2021
Weighted-average remaining lease term (in years):
Operating lease		5.76		5.76
Finance lease		0.32		10.28
Weighted-average discount rate:
Operating lease		65.29	%	6.2	%
Finance lease		6.5	%	76.05	%

Maturities of lease liabilities were as follows as of March 31, 2022:


	Operating Leases		Operating Sublease		Finance Leases		Total

	(in thousands)
Remainder of 2022	$	7,548	$	(2,646)	$	11	$	4,913
2023		5,738		(1,399)		—		4,339
2024		4,376		—		—		4,376
2025		4,016		—		—		4,016
2026		3,300		—		—		3,300
Thereafter		8,398		—		—		8,398
Total lease payments		33,376		(4,045)		11		29,342
Less: interest		(5,155)		—		—		(5,155)
Total⁽¹⁾	$	28,221	$	(4,045)	$	11	$	24,187

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Maturities of lease liabilities were as follows as of September 30, 2021:


	Operating Leases		Operating Sublease		Finance Leases		Total
	(in thousands)
Remainder of 2021	$	3,119	$	(1,292)	$	125	$	1,952
2022		9,329		(3,588)		64		5,805
2023		4,390		(1,410)		—		2,980
2024		3,000		—		—		3,000
2025		2,950		—		—		2,950
Thereafter		11,222		—		—		11,222
Total lease payments		34,010		(6,290)		189		27,909
Less: interest		(5,576)		—		(3)		(5,579)
Total	$	28,434	$	(6,290)	$	186	$	22,330

(1)

In March 2022 the Company entered into a ten-year lease agreement in Nashville, Tennessee with future undiscounted lease payments, net of tenant improvement reimbursements, totaling $10.1 million. This lease had not yet commenced, and is not included in the lease liabilities, as of March 31, 2022.

Note 5 — 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~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

Selling services

4748,~~746~~281

44,~~840~~328

~~137,683~~

~~140,558~~

Professional services

~~832~~612

~~950~~695

~~2,225~~

~~2,984~~

Total revenue

48,~~578~~893

45,~~790~~023

~~139,908~~

~~143,542~~

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Revenue by Geography

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

For the Three Months Ended ~~September~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

NALA

2725,~~215~~325

2725,~~204~~334

~~78,064~~

~~83,235~~

EMEA

1315,~~529~~776

1112,~~984~~769

~~39,616~~

~~38,837~~

APJ

7,~~834~~792

6,~~602~~920

~~22,228~~

~~21,470~~

Total revenue

48,~~578~~893

45,~~790~~023

~~139,908~~

~~143,542~~

Revenue by Contract Pricing

For the Three Months Ended ~~September~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

Variable consideration

3432,~~499~~321

33,~~188~~211

~~101,848~~

~~103,367~~

Fixed consideration

1416,~~079~~572

1211,~~602~~812

~~38,060~~

~~40,175~~

Total revenue

48,~~578~~893

45,~~790~~023

~~139,908~~

~~143,542~~

Contract Balances

As of ~~September~~March 3031, ~~2021,~~2022 ~~contract assets~~ and ~~liabilities were $0.0 million and $0.6 million, respectively. As of~~ December 31, ~~2020~~2021, contract ~~assets and~~ liabilities were $0.54 million and $0.45 million, respectively.

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Transaction Price Allocated to Remaining Performance Obligations

As of ~~September~~March 3031, ~~2021~~2022, assuming none of the Company’s current contracts with fixed consideration are renewed, the Company estimates receiving approximately $3833.8 million in future selling services fixed consideration and approximately $0.4 million in professional services fixed consideration, the majority to be received within one year.

Contract Acquisition Costs

As of ~~September~~March 3031, ~~2021~~2022 and December 31, ~~2020~~2021, capitalized contract acquisition costs were $0.65 million and $0.96 million, respectively. The Company recorded amortization expense related to capitalized contract acquisition costs of $0.1 million and $0.32 million for the three months ended ~~September~~March 3031, ~~2021~~2022 and ~~2020, respectively, and $0.4 million and $0.8 million for the nine months ended September 30,~~ 2021 ~~and 2020~~, respectively.

Impairment recognized on contract costs was insignificant for the three and nine months ended September 30, 2021.

Note 6 — Stock-Based Compensation

~~ESPP~~2022 PSU Awards

During March 2022, the Company granted PSUs under the 2020 Plan to certain executives in which the number of shares ultimately received depends on the Company’s achievement of two performance goals for fiscal year 2022 and a rTSR modifier based on the Company’s rTSR for fiscal years 2022, 2023, and 2024 compared to a peer group. The aggregate target number of shares subject to these awards is 0.8 million. The awards were valued on the grant date using a Monte Carlo simulation for the rTSR modifier and using the Company’s ~~previously~~closing ~~offered~~stock price for the performance metrics for an ~~ESPP~~aggregate ~~until~~grant ~~its~~date ~~expiration~~fair invalue ~~February~~of $1.1 ~~2021~~million. The number of shares ultimately received related to these awards will range from 0% to 173% of the participant’s target award and will vest on the third anniversary of the grant date. The Company’s expense will be recognized over the service period and adjusted based on estimated achievement of the performance goals.

~~2021 PSU Awards~~12

During March 2021, the Company granted PSUs under the 2020 Plan to certain executives in which the number of shares ultimately received depends on the Company’s achievement of two performance goals for fiscal year 2021 and a rTSR modifier based on the Company’s rTSR for fiscal years 2021, 2022, and 2023 compared to a peer group. The aggregate target number of shares subject to these awards is 0.8 million. The awards were valued on the grant date using a Monte Carlo simulation for the rTSR modifier and using the Company’s closing stock price for the performance metrics for an aggregate grant date fair value of $1.2 million. The number of shares ultimately received related to these awards will range from 0% to 173% of the participant’s target award and will vest on the third anniversary of the grant date. The Company’s expense will be recognized over the service period and adjusted based on estimated achievement of the performance goals.

Additionally, certain of the Company’s senior leaders elected to receive a portion of their annual cash corporate incentive plan in PSUs. The Company granted the PSUs under the 2020 Plan during March 2021. The number of shares ultimately received depends on the Company’s achievement of specified revenue, Adjusted EBITDA, and free cash flow performance goals for fiscal year 2021. The aggregate target number of shares subject to these awards is 0.4 million. The awards were valued using the Company’s closing stock price on the grant date and had an aggregate grant date fair value of $0.6 million. The number of shares ultimately received related to these awards ranges from 0% to 200% of the participant’s target award and will vest on the first anniversary of the grant date. The Company’s expense will be recognized over the service period and adjusted based on estimated achievement of the performance targets.

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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~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

Cost of revenue

~~245~~138

~~110~~130

~~663~~

~~245~~

Sales and marketing

~~141~~346

~~200~~191

~~500~~

~~1,021~~

Research and development

224

1415

General and administrative

~~712~~2,112

~~942~~2,139

~~3,452~~

~~2,287~~

Total stock-based compensation

12,~~100~~620

12,~~266~~475

~~4,649~~

~~3,586~~

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~~March 3031, ~~2021~~2022 and ~~2020~~2021.

Stock Awards

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


					Weighted-
			Weighted-		Average
			Average		Remaining
			Exercise		Contractual
	Shares		Price		Life (Years)		Intrinsic Value
	(in thousands)						(in thousands)
Outstanding as of December 31, 2020		3,030	$	2.09			$	1,372
Outstanding as of December 31, 2021		1,876	$	2.18			$	16
Exercised		(275)	$	1.18
Expired and/or forfeited		(17)	$	4.42
Expired and/or forfeited		(808)	$	2.02
Outstanding as of March 31, 2022		1,859	$	2.16		5.91	$	210
Outstanding as of September 30, 2021		1,947	$	2.25		6.19	$	283
Exercisable as of March 31, 2022		1,771	$	2.22		5.84	$	179
Exercisable as of September 30, 2021		1,843	$	2.31		6.10	$	245

As of ~~September~~March 3031, ~~2021~~2022, there was $0.102 million of unrecognized compensation expense related to previously granted stock options, which is expected to be recognized over a weighted-average period of 10.16 years.

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


			Weighted-
			Average Grant
	Units		Date Fair Value
	(in thousands)
Non-vested as of December 31, 2021		8,231	$	1.49
Granted		2,165	$	1.43
Vested⁽¹⁾		(1,006)	$	1.65
Forfeited		(271)	$	1.46
Non-vested as of March 31, 2022		9,119	$	1.46


			Weighted-
			Average Grant
	Units		Date Fair Value
	(in thousands)
Non-vested as of December 31, 2020		7,015	$	1.55
Granted		4,791	$	1.52
Vested(1)		(1,882)	$	1.65
Forfeited		(1,439)	$	1.61
Non-vested as of September 30, 2021		8,485	$	1.50

(1)

826 shares of common stock were issued for RSUs and PSUs vested and the remaining 180 shares were withheld for taxes.

(1) 1,758 shares of common stock were issued for RSUs and PSUs vested and the remaining 124 shares were withheld for taxes.

As of ~~September~~March 3031, ~~2021~~2022, there was $86.01 million of unrecognized compensation expense related to previously granted RSUs and PSUs, which is expected to be recognized over a weighted-average period of 1.97 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 and unvested RSUs and PSUs. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 14.50 million and 31.2

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million shares for the three months ended ~~September~~March 3031, ~~2021~~2022 and ~~2020, respectively, and 1.3 million and 4.1 million shares for the nine months ended September 30,~~ 2021 ~~and 2020~~, respectively, because their effect would have been anti-dilutive.

Note 7 — 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 "Other long-term liabilities" in the Consolidated Balance Sheet as of December 31, 2020. There are no future restructuring plans and future cash outlays as of September 30, 2021.

During 2020, the Company announced a restructuring effort to align with its virtual-first operating model and reduce the operating cost structure resulting in a reduction of headcount and office lease costs. The Company recognized charges related to this restructuring effort of $1.0 million for the nine months ended September 30, 2021. The Company does not expect to incur additional charges related to this restructuring effort as of September 30, 2021.

The following table presents a reconciliation of the beginning and ending fair value liability balance related to the 2020 restructuring effort:


	Severance and Other		Lease Termination
	Employee Costs		Costs		Total
	(in thousands)
Balance as of January 1, 2020	$	—	$	—	$	—
Restructuring and other related costs		780		59		839
Cash paid		(442)		—		(442)
Balance as of December 31, 2020		338		59		397
Restructuring and other related costs		897		77		974
Cash paid		(1,235)		(136)		(1,371)
Balance as of September 30, 2021	$	—	$	—	$	—

Note 7 — 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. and Ireland because those losses are offset by a full valuation allowance. The tax years 2017 through 2021 generally remain subject to examination by federal, state, and foreign tax authorities.

The gross amount of the Company’s unrecognized tax benefits was $1.0 million as of March 31, 2022 and December 31, 2021, none of which, if recognized, would affect the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the three months ended March 31, 2022 and 2021 interest and penalties recognized were insignificant.

Note 8 — Commitments and Contingencies

Note 8 — 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, 2021 and December 31, 2020, 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, 2021 and 2020, interest and penalties recognized were insignificant.

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Note 9 — 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 inwithin “Prepaid expenses and other” and "Other assets" in the Consolidated Balance Sheets.

Non-cancelable Service Contract Commitments

~~Future~~The ~~minimum~~Company ~~payments~~enters ~~under~~into various purchase obligations in the ordinary course of business, generally short-term in nature. Those that are binding primarily relate to non-cancelable service contract commitments. ~~were~~There ashave ~~follows:~~not been any significant changes in these commitments since what was disclosed in the last annual report.


	September 30, 2021
	(in thousands)
Remainder of 2021	$	3,669
2022		10,220
2023		8,183
2024		828
Thereafter		—
Total	$	22,900

Note 9 — Subsequent Event

On May 6, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Concentrix Corporation, a Delaware corporation (“Acquirer”), and Concentrix Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Acquirer (“Acquisition Sub”). Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Acquisition Sub will merge with and into the Company, which we refer to as the “Merger”, with the Company continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Acquirer.

In the event the Merger is completed, except as otherwise provided in the Merger Agreement, each share of our common stock issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive $1.50 per share in cash, without interest (the “Merger Consideration”).

Consummation of the Merger is subject to customary closing conditions, including, among other things, the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of our common stock (“Requisite Stockholder Approval”).

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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 consummation of the Merger, the impact and duration of the COVID-19 pandemic and fluctuations in general economic conditions including impacts from Russia's invasion of Ukraine, as well as those discussed in the sections of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on February 2423, ~~2021~~2022 entitled “Forward Looking Statements” and “Risk Factors” and in our other filings with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by applicable law.

Overview

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~~On ~~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~~ response to ~~a work~~COVID-~~from-home~~19. ~~environment~~By ~~and as of~~ April 1, 2020, we transitioned to a 100% virtual operating model. As a result of this successful work-from-home implementation, we have shifted to a virtual-first operating model whereby our employees ~~will continue to~~ primarily work from their home offices and our facilities ~~will~~are be used for collaboration, innovation, and connection. Additionally, this model 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 from COVID-19.

We believe we have sufficient liquidity on hand to continue business operations even during periods of volatility such as those experienced since early 2020. As of ~~September~~March 3031, ~~2021~~2022, we had total available liquidity of $4244.42 million consisting of cash on hand and borrowing availability under our Revolver. See "Liquidity and Capital Resources" for additional information.

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There was no material adverse impact on the results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022 as a result of the COVID-19 pandemic. We expect to continue to invest capital to allow our employees to function in our virtual, work-from-home operating model. However, we are benefiting and will continue to benefit from decreases in certain costs related to our facilities and reduced travel and entertainment costs.

~~During~~The ~~2020,~~situation ~~ServiceSource~~surrounding ~~received~~COVID-19 ~~various~~remains ~~grants~~fluid ~~from~~and the ~~Singapore~~potential ~~government,~~for ~~including~~a ~~the~~negative ~~Job~~impact ~~Support~~on ~~Scheme,~~our ~~which~~financial ~~assists~~condition ~~enterprises~~and inresults ~~retaining~~of ~~their~~operations ~~local~~increases ~~employees~~the ~~during~~longer the ~~COVID-19~~virus ~~pandemic.~~impacts ~~The~~the ~~Company~~economic ~~received~~activity ~~and~~in ~~recognized income related to~~ the ~~grants of approximately $0~~U.2S. ~~million~~ and $0globally.~~5 million~~ ~~for~~See ~~the~~“Risk ~~three~~Factors” ~~months~~in ~~ended September 30~~Part I, ~~2021~~Item 1A ~~and~~of ~~2020,~~our ~~respectively,~~annual ~~and~~report ~~$0.3~~on ~~million and $0.9~~Form ~~million~~10-K for the year ~~nine months~~ ended ~~September~~December 3031, 2021 ~~and~~for ~~2020, respectively. The Company does not expect to receive~~ additional ~~support related to these grants as of September 30, 2021~~information.

~~The~~Key ~~situation~~Financial ~~surrounding~~Results ~~COVID-19~~For ~~remains fluid and~~ the ~~potential~~Three ~~for~~Months aEnded ~~negative~~March 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 “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, ~~2020 for additional information.~~2022

~~Key~~● ~~Financial~~GAAP ~~Results~~revenue ~~For~~was ~~the~~$48.9 ~~Three~~million ~~Months~~compared ~~Ended~~with ~~September~~$45.0 ~~30,~~million reported for the same period in 2021.

● GAAP ~~revenue~~net loss was $484.64 million or $0.04 per diluted share, compared with GAAP net loss of $458.8 million or $0.09 per diluted share reported for the same period in ~~2020~~2021.

● Adjusted EBITDA, a non-GAAP ~~net~~financial ~~loss~~measure, was $32.46 million orcompared with negative $0.032 ~~per~~million ~~diluted~~reported ~~share,~~for ~~compared~~the ~~with~~same ~~GAAP~~period ~~net~~in ~~loss~~2021. ofSee ~~$5.6~~“Non-GAAP ~~million~~Financial orMeasurements” ~~$0.06~~below ~~per~~for ~~diluted~~a ~~share~~reconciliation ~~reported~~of ~~for~~Adjusted ~~the~~EBITDA ~~same~~from ~~period~~GAAP innet ~~2020~~loss.

● ~~Adjusted EBITDA~~Cash, acash ~~non-GAAP financial measure~~equivalents, ~~was~~and ~~positive~~restricted ~~$2.0~~cash ~~million~~of ~~compared with negative~~ $031.28 million ~~reported~~and ~~for~~borrowings under the ~~same~~Revolver ~~period~~of ~~in 2020~~$10.0 ~~See~~million ~~“Non-GAAP~~as ~~Financial Measurements” below for a reconciliation~~ of ~~Adjusted~~March ~~EBITDA~~31, ~~from net loss~~2022.

● Ended the quarter with $32.5 million of cash and cash equivalents and restricted cash and $10.0 million of borrowings under the Company’s $35.0 million Revolver.

Results of Operations

For the Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to the Same Period Ended ~~September~~March 3031, ~~2020~~2021

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.

Cost of revenue includes employee compensation, technology costs, including those related to the delivery of our cloud-based technologies, and allocated overhead expenses which consist of depreciation, amortization of internally developed software, facility and technology costs.


	For the Three Months Ended ~~September~~March 3031,
	~~2021~~2022					~~2020~~2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Net revenue	$	48,~~578~~893		100	%	$	45,~~790~~023		100	%	$	23,~~788~~870	69	%
Cost of revenue		35,~~030~~745		7273	%		3334,~~210~~067		7376	%		1,~~820~~678	5	%
Gross profit	$	13,~~548~~148		2827	%	$	1210,~~580~~956		2724	%	$	~~968~~2,192	820	%

Net revenue increased $23.89 million, or 69%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to increased bookings and lower client churn.

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Cost of revenue increased $1.87 million, or 5%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to the following:

● $1.7 million increase in employee related costs primarily due to increased compensation expense associated with ~~higher revenue attainment and~~ an increase in headcount and higher revenue attainment; and

● $0.65 million increase in ~~depreciation and~~ amortization expense related to internally developed software; ~~and~~partially offset by

● $0.5 million ~~increase~~decrease in ~~information~~facility ~~technology~~ costs; ~~partially~~primarily ~~offset~~related byto the expiration of various office space leases in connection with transitioning to a virtual-first operating model.

● $1.1 million decrease in facility costs primarily related to transitioning to a virtual-first operating model and sublease income.

Operating Expenses


	For the Three Months Ended ~~September~~March 3031,
	~~2021~~2022					~~2020~~2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Operating expenses:
Sales and marketing	$	43,~~174~~996		98	%	$	54,~~638~~030		129	%	$	(~~1,464~~34)	(261)	%
Research and development		1,~~338~~386		3	%		1,~~489~~160		3	%		~~(151)~~226	~~(10)~~19	%
General and administrative		1011,~~801~~321		2223	%		1012,~~537~~190		2327	%		~~264~~(869)	3(7)	%
Total operating expenses	$	16,313		34	%	$	17,664		39	%	$	(1,351)	(8)	%
Restructuring and other related costs		—		—	%		920		2	%		(920)	(100)	%
Total operating expenses	$	16,703		34	%	$	18,300		41	%	$	(1,597)	(9)	%

Sales and Marketing

Sales and marketing expenses primarily consist of employee compensation expense and sales commissions paid to our sales and marketing employees, amortization of contract acquisition costs, marketing programs and events, and allocated overhead expenses, which consist of depreciation, amortization of internally developed software, and facility and technology costs.

Sales and marketing expenses ~~decreased~~remained ~~$1.5~~flat ~~million, or 26%,~~ for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020, primarily due to a $0~~2021.8 million decrease in employee related costs associated with a reduction in headcount and a $0.7 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, third-party consultant costs and allocated overhead expenses, which consist of amortization of internally developed software, facility and technology costs.

Research and development expenses ~~decreased~~increased $0.2 million, or 1019%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to ~~$0.2 million decrease in information technology costs and~~ a ~~$0.2~~reduction ~~million decrease~~ in ~~professional~~third-party ~~fees,~~capitalizable ~~partially~~software ~~offset~~development ~~by a $0.3 million increase in employee related~~ costs ~~primarily due to increased compensation expense associated with higher revenue attainment~~.

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 overhead expenses, which consist of depreciation, amortization of internally developed software, facility and technology costs.

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General and administrative expenses ~~increased~~decreased $0.39 million, or 37%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to the following:

● $10.26 million ~~increase~~decrease in ~~information~~employee ~~technology~~related ~~and~~costs ~~facility~~associated ~~costs~~with a reduction in headcount; and

● $0.96 million ~~increase~~decrease in ~~employee~~depreciation ~~related~~expense ~~costs~~ primarily ~~due~~related to ~~increased~~the ~~compensation~~expiration ~~expense~~of ~~associated~~various office space leases in connection with ~~higher~~transitioning ~~revenue~~to ~~attainment~~a virtual-first operating model; partially offset by

● $0.93 million ~~decrease~~increase in ~~employee~~facility ~~related~~ costs ~~associated with a reduction in headcount;~~.

●Restructuring ~~$0.5 million decrease in depreciation~~ and ~~amortization~~Other ~~expense;~~Related ~~and~~Costs

●Restructuring ~~$0.5~~and ~~million~~other ~~decrease~~related incosts ~~professional~~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 $0.9 million, or 100% for the three months ended March 31, 2022 compared to the same period in 2021, due to completion of the restructuring efforts resulting in a reduction of headcount and office lease costs during the three months ended March 31, 2021. The Company did not incur any charges related to this restructuring effort during the three months ended March 31, 2022 and does not expect to incur additional charges related to this restructuring effort.

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~~March 3031,
	~~2021~~2022					~~2020~~2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Interest expense	$	(97107)		—	%	$	(~~161~~158)		—	%	$	6451	~~(40)~~32	%
Other expense, net	$	(~~170~~71)		—	%	$	(~~339~~1,002)		(12)	%	$	~~169~~931	~~(50)~~93	%

Interest expense decreased $0.1 million, or 4032%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to ~~the~~lower ~~timing of~~ borrowings on the Revolver.

Other expense, net decreased $0.29 million, or 5093%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to foreign currency fluctuations.

Provision for Income Tax


	For the Three Months Ended ~~September~~March 3031,
	~~2021~~2022					~~2020~~2021
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Provision for income tax (expense) benefit	$	(359)		(0)	%	$	6		—	%	$	(365)	*	%
Provision for income tax expense	$	(649)		(1)	%	$	(331)		(1)	%	$	(318)	(96)	%

* Not considered meaningful.

Provision for income tax (expense) ~~benefit resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax~~ increased $0.43 million, or 96%, for the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period in ~~2020~~2021, primarily due to an increase in profitable operations in certain foreign jurisdictions.

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For the Nine Months Ended September 30, 2021 Compared to the Same Period Ended September 30, 2020

Net Revenue, Cost of Revenue and Gross Profit


	For the Nine Months Ended September 30,
	2021					2020
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Net revenue	$	139,908		100	%	$	143,542		100	%	$	(3,634)	(3)	%
Cost of revenue		104,492		75	%		103,415		72	%		1,077	1	%
Gross profit	$	35,416		25	%	$	40,127		28	%	$	(4,711)	(12)	%

Net revenue decreased $3.6 million, or 3%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to client churn and lower bookings.

Cost of revenue increased $1.1 million, or 1%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to the following:

● $1.9 million increase in depreciation and amortization expense;

● $1.4 million increase in employee related costs primarily due to increased compensation expense associated with higher revenue attainment; and

● $0.7 million increase in information technology costs; partially offset by

● $2.9 million decrease in facility costs primarily related to transitioning to a virtual-first operating model and sublease income.

Operating Expenses


	For the Nine Months Ended September 30,
	2021					2020
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Operating expenses:
Sales and marketing	$	12,263		9	%	$	19,048		13	%	$	(6,785)	(36)	%
Research and development		3,679		3	%		4,186		3	%		(507)	(12)	%
General and administrative		33,615		24	%		31,844		22	%		1,771	6	%
Restructuring and other related costs		974		1	%		703		—	%		271	39	%
Total operating expenses	$	50,531		36	%	$	55,781		39	%	$	(5,250)	(9)	%

Sales and Marketing

Sales and marketing expenses decreased $6.8 million, or 36%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to a $4.4 million decrease in employee related costs primarily associated with a reduction in headcount, lower bookings and lower travel and entertainment expenditures, a $2.2 million decrease in information technology and facility costs related to transitioning to a virtual-first operating model, and a $0.2 million decrease in marketing cost.

Research and Development

Research and development expenses decreased $0.5 million, or 12%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to a $0.6 million decrease in information technology costs and a $0.4 million decrease in professional fees, partially offset by a $0.3 million increase in employee related costs primarily

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due to increased compensation expense associated with higher revenue attainment and a $0.3 million reduction in third-party capitalizable software development costs.

General and Administrative

General and administrative expenses increased $1.8 million, or 6%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to the following:

● $3.0 million increase in information technology and facility costs; and

● $1.2 million increase in stock-based compensation costs; partially offset by

● $1.2 million decrease in depreciation and amortization expense;

● $0.7 million decrease in employee related costs primarily associated with a reduction in headcount; and

● $0.5 million decrease in professional fees.

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 $0.3 million, or 39%, for the nine months ended September 30, 2021 compared to the same period in 2020, due to timing of headcount reductions related to the 2019 and 2020 restructuring efforts resulting in a reduction of headcount and office lease costs compared to the nine months ended September 30, 2020.

Interest and Other Expense, Net


	For the Nine Months Ended September 30,
	2021					2020
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Interest expense	$	(362)		—	%		(477)		—	%	$	115	(24)	%
Other expense, net	$	(1,429)		(1)	%		(573)		—	%	$	(856)	149	%

Interest expense decreased $0.1 million, or 24%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to the timing of borrowings on the Revolver.

Other expense, net increased $0.9 million, or 149%, for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to foreign currency fluctuations.

Provision for Income Tax


	For the Nine Months Ended September 30,
	2021					2020
			% of Net					% of Net
	Amount		Revenue			Amount		Revenue			$ Change		% Change
	(in thousands)					(in thousands)					(in thousands)
Provision for income tax expense	$	(411)		(0)	%	$	(173)		—	%	$	(238)	138	%

Provision for income tax expense for the nine months ended September 30, 2021 resulted primarily from profitable jurisdictions where no valuation allowance has been provided. Provision for income tax increased $0.2 million for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to an increase in profitable operations in certain foreign jurisdictions.

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Liquidity and Capital Resources

Our primary operating cash requirements include the payment of compensation and related employee 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 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, in our assessment of the sufficiency of our liquidity and capital resources. We will continue to monitor our financial position to the extent that pandemic-related challenges continue.

As of ~~September~~March 3031, ~~2021~~2022, we had cash and cash equivalents of $3029.25 million, which primarily consist of demand deposits and money market mutual funds. Included in cash and cash equivalents was $6.24 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~~March 3031, ~~2021~~2022, the Company had no unremitted earnings from our foreign subsidiaries.

In July 2021, ServiceSource, together with its wholly owned subsidiary, ServiceSource Delaware, Inc., entered into the 2021 Credit Agreement, which provides for a $35.0 million revolving line of credit allowing each borrower to borrow against its receivables as defined in the 2021 Credit Agreement. At the Company’s request and subject to customary conditions, the aggregate commitments under the 2021 Credit Agreement may be increased up to an additional $10.0 million, for a total maximum commitment amount of $45.0 million. The Revolver in the 2021 Credit Agreement matures in July 2024 and bears interest at a rate equal to BSBY plus 2.00% to 2.50% per annum or, at our election, an alternate base rate plus 1.00% to 1.50% per annum.

As of ~~September~~March 3031, ~~2021~~2022, the Company had $10.0 million of borrowings under the Revolver through a ~~three~~six-month BSBY borrowing at an effective interest rate of 23.4204% maturing ~~November 2021~~August 2022. An additional $1214.26 million was available for borrowing under the Revolver as of ~~September~~March 3031, ~~2021~~2022. The BSBY borrowings may be extended upon maturity, converted into a base rate borrowing upon maturity or require an incremental payment if the borrowing base decreases below the current amount outstanding during the term of the BSBY borrowing. Proceeds from the Revolver are used for working capital and general corporate purposes.

The obligations under the 2021 Credit Agreement are secured by substantially all the assets of ServiceSource and certain of its subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The 2021 Credit Agreement has financial covenants, which the Company was in compliance with as of ~~September~~March 3031, ~~2021~~2022.

Letters of Credit and Restricted Cash

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Cash Flows

The following table presents a summary of our cash flows:


	For the ~~Nine~~Three Months Ended ~~September~~March 3031,
	~~2021~~2022		~~2020~~2021
	(in thousands)
Net cash provided by operating activities	$	32,~~961~~179	$	~~2,864~~537
Net cash used in investing activities		(~~2,682~~741)		(51,~~124~~019)
Net cash (used in) provided by financing activities		(5,621)		14,429
Net cash used in financing activities		(299)		(29)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		~~480~~(128)		~~(52)~~650
Net change in cash and cash equivalents and restricted cash	$	(31,~~862)~~011	$	~~12,117~~139

Depreciation and amortization expense were comprised of the following:

For the Three Months Ended ~~September~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

Internally developed software amortization

2,~~407~~596

12,~~983~~192

~~6,895~~

~~5,597~~

Property and equipment depreciation

~~1,263~~926

1,~~529~~465

~~4,074~~

~~4,734~~

Total depreciation and amortization

3,~~670~~522

3,~~512~~657

~~10,969~~

~~10,331~~

Operating Activities

Net cash provided by operating activities increased $1.16 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021, primarily as a result of improved cash collections from our clients and lower cash payments made related to costs previously accrued for during the current period compared to the prior period.

Investing Activities

Net cash used in investing activities decreased $20.43 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021, due to decreased cash outflows from purchases of property and equipment during the current period compared to the prior period.

Financing Activities

Net cash ~~provided~~used byin financing activities ~~decreased~~increased $200.13 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021, primarily due to ~~$5.0~~payments ~~million~~related ~~in net cash outflows from repayments on the Revolver during the current period compared~~ to ~~$15.0~~minimum ~~million~~tax inwithholdings ~~net cash inflows from borrowings~~ on ~~the~~RSU ~~Revolver during the prior period~~releases.

Off-Balance Sheet Arrangements

As of ~~September~~March 3031, ~~2021~~2022, 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, ~~2020~~2021. These policies were followed in preparing the Consolidated Financial Statements for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022 and are consistent with the year ended December 31, ~~2020~~2021.

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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 a useful supplemental, non-GAAP financial measure of our operating performance. We believe Adjusted EBITDA can assist investors in understanding and assessing our operating performance on a consistent basis, as it removes the impact of the Company’s capital structure and other non-cash or non-recurring items from operating results and provides an additional tool to compare ServiceSource’s financial results with other companies in the industry, many of which present similar non-GAAP financial measures.

EBITDA consists of net income (loss) plus provision for income tax expense (benefit), interest and other expense (income), net, and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus stock-based compensation, restructuring and other related costs, 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 ~~September~~March 3031,

~~For the Nine Months Ended September 30,~~

~~2021~~2022

~~2020~~2021

~~2021~~

~~2020~~

(in thousands)

Net loss

(34,~~391~~382)

(58,~~578~~835)

~~(17,317)~~

~~(16,877)~~

Provision for income tax expense (benefit)

359

(6)

411

173

Provision for income tax expense

649

331

Interest and other expense, net

~~267~~178

~~500~~1,160

~~1,791~~

~~1,050~~

Depreciation and amortization

3,~~670~~522

3,~~512~~657

~~10,969~~

~~10,331~~

EBITDA

~~905~~(33)

(13,~~572~~687)

~~(4,146)~~

~~(5,323)~~

Stock-based compensation

12,~~100~~620

12,~~266~~475

~~4,649~~

~~3,586~~

Restructuring and other related costs

—

—920

~~974~~

~~703~~

Amortization of contract acquisition asset costs - ASC 606 initial adoption

4315

~~134~~84

~~195~~

~~514~~

Adjusted EBITDA

2,~~048~~602

(~~172~~208)

~~1,672~~

~~(520)~~

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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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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.

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 I, Item 1A of our annual report on Form 10-K for the year ended December 31, ~~2020~~2021. ~~There~~Except as set forth 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, ~~2020~~2021.

Risks Related to Our Business

Global economic, political and social conditions may harm our ability to do business, increase our costs, and negatively affect our stock price.

Worldwide economic conditions remain uncertain due to various global disruptions, including geopolitical events, such as war, the threat of war (including collateral damage from cyberwarfare), or terrorist activity; natural disasters; power shortages or outages; major public health issues, including pandemics; and significant local, national, or global events capturing the attention of a large part of the population, which could prevent or hinder our ability to do business, increase our costs, and negatively affect our stock price. Adverse consequences resulting from the United States and China trade negotiations, Russia’s recent invasion of Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries, and various other market issues may have broader implications on economies outside the region, including increased instability in the worldwide financial markets and economy, increases in inflation, and enhanced volatility in foreign currency exchange rates. These uncertainties may cause our clients or potential clients to delay or reduce spending, which could negatively impact our revenue and operating results and make it difficult for us to accurately plan future business activities.

Risks Related to the Proposed Merger

The consummation of the Merger is subject to approval of our stockholders as well as the satisfaction of other closing conditions, some or all of which may not be satisfied or waived in a timely manner or at all.

In May 2022, we entered into the Merger Agreement with the Acquirer and Acquisition Sub. Consummation of the Merger is subject to customary closing conditions, including (i) receipt of the Requisite Stockholder Approval, (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration of applicable waiting periods or clearance of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions, (iii) absence of any law or order issued by certain governmental authorities of competent jurisdiction, prohibiting the Merger, and (iv) the absence of a material adverse effect on the Company.

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We intend to pursue the satisfaction or waiver, as applicable, of each condition to the consummation of the Merger, including the receipt of the Requisite Stockholder Approval. However, no assurance can be given that such conditions to the consummation of the Merger will be satisfied or waived in a timely manner, or at all. We also cannot provide any assurance regarding whether the Company will have to comply with any terms or conditions imposed by third parties in order to satisfy or waive the conditions to the consummation of the Merger. Similarly, we cannot provide any assurance that the Acquirer will be able to comply with its obligation to consummate the Merger. Many of the conditions to the consummation of the Merger are not within our control, and we cannot predict if or when these conditions will be satisfied or waived.

The failure to satisfy or obtain waiver of conditions to the consummation of the Merger in a timely manner could delay the consummation of the Merger and exacerbate the risks and uncertainties associated with the announcement and pendency of the Merger, which are discussed below under the headings “The announcement of the Merger Agreement and pendency of the Merger could negatively impact our business, financial condition and results of operations” and “While the Merger remains pending, we will be required to comply with various interim operating covenants that may constrain our business operations and to take certain actions that may divert our management’s focus from our ongoing business.”

In addition, if all of the conditions to the consummation of the Merger are not satisfied or waived, we may be unable to consummate the Merger at all. The risks and uncertainties associated with a failure to consummate the Merger are discussed below under the heading “Failure to consummate the Merger could adversely affect our stock price, business, financial condition and results of operation.”

Future litigation challenging the Merger could prevent the Merger from occurring or adversely affect our business, financial condition or results of operations.

In connection with the announcement of the Merger Agreement, as is common in the context of mergers and acquisitions of publicly-traded companies, the Company (along with its directors and officers) may attract lawsuits seeking to enjoin us from proceeding with or consummating the Merger, or seeking to have the Merger rescinded after its consummation. One of the conditions to the consummation of the Merger is the absence of any order issued by certain governmental authorities of competent jurisdiction prohibiting the Merger. If any future plaintiffs are successful in obtaining an injunction or other order prohibiting the Merger, we may be unable to consummate the Merger. The risks and uncertainties associated with a failure to consummate the Merger are discussed below under the heading “Failure to consummate the Merger could adversely affect our stock price, business, financial condition and results of operation.”

In addition, responding to any litigation targeting the Merger, even those without merit, will cause us to incur legal costs and expenses, which may negatively impact our financial condition. Responding to lawsuits may also divert the time and attention of our management away from our ongoing business operations and adversely affect our business and results of operations.

Failure to consummate the Merger could adversely affect our stock price, business, financial condition and results of operations.

As noted above, the various conditions to the consummation of the Merger may not be satisfied or waived in a timely manner, or at all. Some of these conditions are not within our control. We cannot provide assurance that any of the conditions to the consummation of the Merger will be satisfied or waived. Pursuant to the Merger Agreement, the Merger will not be consummated until all of the conditions are satisfied or waived.

In addition, either the Company or the Acquirer may terminate the Merger Agreement in certain circumstances, including if (i) the Merger has not been consummated by November 1, 2022, (ii) any of certain governmental authorities of competent jurisdiction has issued a final non-appealable law or order prohibiting the Merger, (iii) the Requisite Stockholder Approval is not obtained at the stockholders’ meeting duly convened therefor, or (iv) the other party materially breaches, and does not cure, any of its representations or covenants in the Merger Agreement that would cause the related condition to such party’s obligation to consummate the Merger to not be satisfied, in each case subject

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to the terms and conditions set forth in the Merger Agreement. The terms and conditions, and other circumstances under which the Merger Agreement may be terminated in accordance with its terms are described in more detail in the Merger Agreement, which is attached as Exhibit 2.1 to the Current Report on Form 8-K we filed with the SEC on May 9, 2022.

If the Merger is not consummated for any reason, holders of our common stock will not receive the Merger Consideration for their shares in connection with the Merger. Instead, our common stock will continue to be listed and traded on the Nasdaq and registered under the Exchange Act, and we will continue to file periodic reports with the SEC on account of our common stock. In addition, we would be subject to a number of risks and uncertainties, including but not limited to:

●

the completion of the Merger on the anticipated terms and timing, including obtaining required stockholder and regulatory approvals, and the satisfaction of other conditions to the completion of the acquisition;

●

potential litigation relating to the Merger that could be instituted against the Company or its directors or officers, including the effects of any outcomes related thereto;

●

the risk that disruptions from the Merger will harm the Company’s business, including current plans and operations;

●

the ability of the Company to retain and hire key personnel;

●

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Merger;

●

continued availability of capital and financing and rating agency actions;

●

legislative, regulatory and economic developments;

●

potential business uncertainty, including changes to existing business relationships, during the pendency of the Merger that could affect the Company’s financial performance;

●

certain restrictions during the pendency of the Merger that may impact the Company’s ability to pursue certain business opportunities or strategic transactions;

●

unpredictability and severity of catastrophic events, including but not limited to acts of terrorism, outbreaks of war or hostilities or the COVID-19 pandemic, as well as management’s response to any of the aforementioned factors;

●

the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and

●

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger, including in circumstances requiring the Company to pay a termination fee or reimburse the Acquirer’s expenses.

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If the Merger is not consummated, the risk and uncertainties described above may materialize and adversely affect our business, financial condition or results of operations.

If the Merger Agreement is terminated, under certain conditions, we may be obligated to reimburse the Acquirer for its expenses and / or pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations.

Subject to the terms and conditions set forth in the Merger Agreement, if the Merger Agreement is terminated because the Requisite Stockholder Approval is not obtained, the Company will have to reimburse the Acquirer for it expenses incurred in connection with the Merger, in an amount not to exceed $1.5 million.

If the Company’s board of directors (the “Board”) (i) withdraws or changes its recommendation that our stockholders approve and adopt the Merger Agreement in a manner adverse to the Acquirer or Acquisition Sub, (ii) fails to include its recommendation in the proxy statement filed by the Company to solicit proxies in connection with the Merger, (iii) approves or recommends a competing acquisition proposal, or (iv) fails to recommend against a competing acquisition proposal under certain circumstances, then the Acquirer will have the right to terminate the Merger Agreement (before the Requisite Stockholder Approval is received) and receive a termination fee in the amount of $5.73 million (the “Termination Fee”) from the Company, subject to the terms and conditions set forth in the Merger Agreement.

In addition, subject to the terms and conditions set forth in the Merger Agreement, the Company would be required to pay the Acquirer the Termination Fee if prior to receiving the Requisite Stockholder Approval the Company terminates the Merger Agreement, and with the authorization of the Board, it enters into an Alternative Acquisition Agreement with respect to a Superior Proposal (as each term is defined in the Merger Agreement).

The Company would also be required to pay the Acquirer the Termination Fee, subject to the terms and conditions set forth in the Merger Agreement, if (i) a third party makes a Competing Proposal (as defined in the Merger Agreement) to the Company or its stockholders, (ii) the Merger Agreement is subsequently terminated by either the Company or the Acquirer because the Company did not obtain the Requisite Stockholder Approval or by the Acquirer because the Company knowingly and intentionally breached any covenant or agreement under the Merger Agreement, which breach would give rise to the failure of any conditions to the Company’s obligations to effect the Merger, and any such Competing Proposal was not withdrawn at least five business days prior to the event that gave rise to such termination, and (iii) within twelve months of such termination, the Company consummates a transaction involving a Competing Proposal or enters into an Alternative Acquisition Agreement providing for the consummation of a Competing Proposal (which is subsequently consummated).

If the Company is required to pay the Termination Fee, the Company may be required to incur additional debt or use funds that it would otherwise have been able to use for general corporate expenses, capital expenditures or for other purposes.

The announcement of the Merger Agreement and pendency of the Merger could negatively impact our business, financial condition and results of operations.

Our business could experience material disruptions due to the announcement of our entry into the Merger Agreement and during the pendency of the Merger. Our current and prospective employees, including certain key personnel, may experience uncertainty regarding their future roles with the Company or desire different employment in anticipation of the consummation of the Merger. As a result, we may not be able to retain such employees, find adequate replacements for any employees we are unable to retain, or otherwise recruit new employees to join the Company. The uncertainty caused by the pendency of the Merger could also negatively impact our employees’ performance. If the announcement or pendency of the Merger causes us to lose and be unable to replace our employees, impairs our ability to attract new employees, or negatively affects the performance of our employees, our business, financial condition and results of operations could suffer.

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In addition, third parties, including our lenders, vendors and customers, may experience uncertainty regarding our business relationships due to the announcement of our entry into the Merger Agreement and during the pendency of the Merger. As a result, such third parties may seek to terminate or renegotiate our existing business relationships in connection with the potential Merger. Such disruptions to our business relationships could negatively impact our business, financial condition and results of operations.

The announcement of the Merger Agreement may also cause regulators to apply additional scrutiny to our business, potentially increasing our regulatory burden, including costs of compliance. If we are required to expend additional employee time or other resources to address such additional scrutiny or increased regulatory burden, our business, financial condition and results of operations could be negatively impacted.

While the Merger remains pending, we will be required to comply with various interim operating covenants that may constrain our business operations and to take certain actions that may divert our management’s focus from our ongoing business.

Pursuant to the Merger Agreement, following the execution of the Merger Agreement and until the earlier to occur of (i) the consummation of the Merger or (ii) the termination of the Merger Agreement (the “Interim Operating Period”), we agreed to use reasonable best efforts to conduct our business in the ordinary course of business and to not engage in certain types of actions, subject to certain terms, limitations and exceptions. In particular, among other things, we agreed to refrain from taking certain actions without the Acquirer's consent, including (i) making acquisitions, (ii) incurring indebtedness above a certain threshold, (iii) granting equity awards other than as specified in the Merger Agreement, (iv) entering into, amending or terminating certain material contracts, and (v) declaring or paying dividends to stockholders, in each case subject to the terms, limitations and exceptions set forth in the Merger Agreement. Complying with these obligations could limit our ability to operate our business as previously conducted, to pursue strategic transactions, or to otherwise exploit business opportunities as they arise. Our management will be primarily responsible for ensuring that the Company complies with such obligations during the Interim Operating Period, and this additional responsibility may divert the focus of our management away from our ongoing business operations.

In addition, our management will also need to take certain other actions during the Interim Operating Period in connection with the proposed Merger, including, among other things, convening a meeting of our stockholders for the purpose of considering and voting on the Merger, filing a proxy statement, in both preliminary and definitive form, in connection with our solicitation of proxies from our stockholders for such meeting, using reasonable best efforts to obtain all necessary consents and approvals required in connection with the Merger and to satisfy the other conditions to the consummation of the Merger, addressing any litigation brought against the Company in connection with the Merger, and responding to questions we may receive from our stockholders, employees, vendors and other interested stakeholders regarding the Merger. Taking these actions could require our management to expend time and resources, reducing the time and resources our management could otherwise direct towards our ongoing business operations. If our management is unable to expend the necessary time and resources on our business, our results of operations could be negatively impacted.

The Merger Agreement contains provisions that could make it difficult for a third party to make a superior acquisition proposal.

The Merger Agreement contains certain customary restrictions on our ability to solicit proposals from third parties for an acquisition of the Company during the Interim Operating Period. In addition, subject to certain customary “fiduciary out” exceptions, the Board is required to recommend that our stockholders vote in favor of the approval of the Merger, the Merger Agreement and the transactions contemplated thereby.

As discussed in further detail above under the heading “If the Merger Agreement is terminated, under certain conditions, we may be obligated to pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations,” we would also be required to pay the Acquirer the Termination Fee under certain conditions in connection with the termination of the Merger Agreement.

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These provisions might discourage an otherwise-interested third party from considering or proposing an acquisition of the Company, including proposals that may be deemed to offer greater value to our stockholders than the Merger Consideration of $1.50 per share. Furthermore, even if a third party elects to propose an acquisition, the requirement that we must pay a termination fee to accept any such proposal may cause that third party to offer a lower price to our stockholders than such third party might otherwise have offered.

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.

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Item 5. Other Information

~~None~~On May 6, 2022, we entered into the Merger Agreement with Acquirer and Acquisition Sub. Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Acquisition Sub will merge with and into the Company, with the Company continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Acquirer.

In addition, pursuant to the Merger Agreement, at the Effective Time:

●

each Company stock option, whether or not vested, shall automatically and without any required action on the part of the holder thereof, vest (if unvested) and if not exercised by the holder thereof as of the Effective Time (after notice and a reasonable period to elect the exercise of such Company stock option) be cancelled and, if the exercise price per share is less than the Merger Consideration, be converted into the right to receive an amount in cash, without interest, equal to the product of (i) the excess, if any, of (A) the Merger Consideration over (B) the per-share exercise price for such option, multiplied by (ii) the total number of shares of common stock underlying such option; if the exercise price per share is equal to or greater than the Merger Consideration, such option if not exercised shall be cancelled without any cash payment or other consideration being made in respect thereof;

●

each then-outstanding Company restricted stock unit (“RSU”) will automatically and without any required action on the part of the holder thereof, be assumed by Acquirer and converted into the right to receive an amount of cash, without interest, equal to the product of (i) the total number of shares of common stock underlying such RSU, multiplied by (ii) the Merger Consideration, plus any dividend equivalent amounts accrued with respect to such RSU (the “RSU Consideration”), and each converted RSU held by an individual who is expected to be a continuing employee shall continue to have and be subject to substantially the same terms and conditions as were applicable to such RSU immediately before the Merger, including payment terms and remaining vesting conditions, but with vesting terms adjusted for any right to accelerated vesting that may apply after the Effective Time under the terms of any Company equity plan, equity award agreement, or Company severance plan currently in effect that may be applicable;

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●

each then-outstanding Company performance stock unit (“PSU”) will automatically and without any required action on the part of the holder thereof, be assumed by Acquirer and converted into the right to receive an amount of cash, without interest, equal to the product of (i) the total number of shares of common stock earned under such PSU, with performance measured in accordance with the terms of the applicable governing documents (e.g. based on the attainment of the applicable performance metrics through the date of the Merger) as determined by the board of directors of the Company or a committee thereof after consultation with Acquirer, multiplied by (ii) the Merger Consideration, plus any dividend equivalent amounts accrued with respect to such PSU (the “PSU Consideration”), and each converted PSU held by an individual who is expected to be a continuing employee shall generally continue to have and be subject to substantially the same terms and conditions as were applicable to such PSU immediately before the Merger (aside from terms related to performance vesting that shall no longer apply following the Effective Time), including payment terms and remaining time-vesting conditions, but with vesting terms adjusted for any right to accelerated vesting that may apply after the Effective Time under the terms of any Company equity plan, equity award agreement, or Company severance plan currently in effect that may be applicable; and

●

each RSU and PSU held by an individual (whether an employee, non-employee director, or independent contractor) who is not expected to be a continuing employee shall, automatically and without any required action on the part of the holder thereof, vest (if unvested) and be cancelled and converted into the right to receive an amount in cash, without interest, equal to the RSU Consideration or PSU Consideration, as applicable.

Consummation of the Merger is subject to customary closing conditions, including, among other things, the Requisite Stockholder Approval.

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Item 6. Exhibits


Exhibit Number		Description of Document
10.1		Loan and Security Agreement, dated as of July 23, 2021, among ServiceSource International, Inc. and ServiceSource Delaware, Inc., as Borrowers, and Bank of America, N.A., as Lender. (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company on July 28, 2021).
31.1*		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		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 acronyms		Definition
2020 Plan		2020 Equity Incentive Plan
2021 Credit Agreement		Loan and Security Agreement, dated as of July 23, 2021, among ServiceSource International, Inc. and ServiceSource Delaware, Inc., as the Borrowers, and Bank of America, N.A., as Lender
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
ASU		Accounting Standards Update
B2B		Business-to-business
BPaaS		Business Process-as-a-Service
BSBY		Bloomberg Short-Term Bank Yield Index Rate
CEO		Chief Executive Officer
CFO		Chief Financial Officer
COVID-19		Coronavirus disease 2019
2018 Credit Agreement		Revolving Loan Credit Agreement, dated as of July 30, 2018, among ServiceSource International, Inc. and ServiceSource Delaware, Inc., as the Borrowers, and Compass Bank, as Lender
2021 Credit Agreement		Loan and Security Agreement, dated as of July 23, 2021, among ServiceSource International, Inc. and ServiceSource Delaware, Inc., as the Borrowers, and Bank of America, N.A., as Lender
EMEA		Europe, Middle East and Africa
ESPP		2011 Employee Stock Purchase Plan
Exchange Act		Securities Exchange Act of 1934, as amended
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 pursuant to the ~~2018 Credit Agreement or~~ 2021 Credit Agreement~~, as applicable~~
ROU		Right-of-use
RSU		Restricted stock unit
rTSR		Relative total stockholder return
SEC		Securities and Exchange Commission
U.S.		United States

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SIGNATURE

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


		SERVICESOURCE INTERNATIONAL, INC.
		(Registrant)

Date:	May 10, 2022	By:	/s/ CHAD W. LYNE
Date:	November 2, 2021	By:	/s/ CHAD W. LYNE
			Chad W. Lyne
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

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