Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
—————————————————
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20182019
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 001-35108
—————————————————
 SERVICESOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in our charter)
Delaware 81-0578975
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
  
717 17th 17th Street, 5th5th Floor

Denver, Colorado
 80202
(Address of principal executive offices) (Zip Code)
(720) 889-8500
(Registrant’s telephone number, including area code)
(720) 889-8500
(Registrant’s telephone number, including area code)
—————————————————
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 x   No  ¨o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x   No  ¨o
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¨oAccelerated filerx
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
o
Smaller reporting company¨o
 


Emerging growth company
¨

o
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.    ¨o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨x    No  xo
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.0001 Par ValueSREVThe Nasdaq Stock Market LLC
(Title of each class)(Trading Symbol)(Name of each exchange on which registered)
As of April 30, 2018, 90,969,1182019, 93,307,941 shares of common stock of ServiceSource International, Inc. were outstanding.


SERVICESOURCE INTERNATIONAL, INC.
Form 10-Q
INDEX
 
 
Page
No.
 
  
  
  
  
  
 
  
  
  
  
  
  
  


ServiceSource International, Inc.
Condensed Consolidated Balance Sheets
(in thousands, expect per share amounts)
(unaudited)
ServiceSource International, Inc.ServiceSource International, Inc.
Consolidated Balance SheetConsolidated Balance Sheet
(in thousands, except per share amounts)(in thousands, except per share amounts)
(unaudited)(unaudited)
March 31,
2018
 December 31,
2017
March 31, 2019 December 31, 2018
Assets      
Current assets:      
Cash and cash equivalents$51,750
 $51,389
$24,807
 $26,535
Short-term investments133,465
 137,181
Accounts receivable, net49,776
 56,516
50,935
 54,284
Prepaid expenses and other7,561
 6,112
7,079
 5,653
Total current assets242,552
 251,198
82,821
 86,472
      
Property and equipment, net33,975
 34,119
35,744
 36,593
Contract acquisition costs3,350
 
2,371
 2,660
Deferred income taxes, net of current portion73
 70
Goodwill and intangible assets, net6,334
 6,419
Right-of-use assets36,944
 
Goodwill6,334
 6,334
Other assets3,983
 3,566
4,823
 4,521
Total assets$290,267
 $295,372
$169,037
 $136,580
      
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable$1,767
 $4,574
$2,129
 $2,424
Accrued taxes337
 651
Accrued expenses2,429
 3,380
Accrued compensation and benefits16,807
 19,257
17,657
 15,509
Convertible notes, net146,589
 144,167
Deferred revenue
 1,282
Accrued expenses7,650
 6,625
Operating lease liabilities8,504
 
Other current liabilities2,886
 2,104
5,993
 6,894
Total current liabilities176,036
 178,660
36,712
 28,207
      
Operating lease liabilities, net of current portion30,918
 
Other long-term liabilities5,015
 4,603
3,512
 6,540
Total liabilities181,051
 183,263
71,142
 34,747
      
Commitments and contingencies (Note 5)
 
Commitments and contingencies (Note 7)
 
      
Stockholders’ equity:
 
   
Preferred stock, $0.001 par value; 20,000 shares authorized and none issued and outstanding
 

 
Common stock; $0.0001 par value; 1,000,000 shares authorized; 90,583 shares issued and 90,462 shares outstanding as of March 31, 2018; 90,380 shares issued and 90,259 shares outstanding as of December 31, 20178
 8
Common stock; $0.0001 par value; 1,000,000 shares authorized; 93,263 shares issued and 93,142 shares outstanding as of March 31, 2019; 92,895 shares issued and 92,774 shares outstanding as of December 31, 20189

9
Treasury stock(441) (441)(441) (441)
Additional paid-in capital362,870
 359,347
370,951
 369,246
Accumulated deficit(254,150) (246,207)(273,102) (267,383)
Accumulated other comprehensive income (loss)929
 (598)
Accumulated other comprehensive income478
 402
Total stockholders’ equity109,216
 112,109
97,895
 101,833
Total liabilities and stockholders’ equity$290,267
 $295,372
$169,037
 $136,580
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

ServiceSource International, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
ServiceSource International, Inc.ServiceSource International, Inc.
Consolidated Statement of OperationsConsolidated Statement of Operations
(in thousands, except per share amounts)(in thousands, except per share amounts)
(unaudited)(unaudited)
 For the Three Months Ended
March 31,
 For the Three Months Ended
March 31,
2018 20172019 2018
Net revenue$58,585
 $56,708
$55,511
 $58,585
Cost of revenue41,724
 41,409
39,476
 41,724
Gross profit16,861
 15,299
16,035
 16,861
Operating expenses:     
Sales and marketing9,238
 8,340
7,949
 9,238
Research and development1,516
 2,243
1,263
 1,516
General and administrative12,889
 13,980
10,982
 12,889
Restructuring and other53
 
Restructuring and other related costs1,058
 53
Total operating expenses23,696
 24,563
21,252
 23,696
Loss from operations(6,835) (9,264)(5,217) (6,835)
Interest expense and other, net(2,846) (2,070)
Interest and other expense, net(490) (2,846)
Impairment loss on investment securities(1,958) 

 (1,958)
Loss before income taxes(11,639) (11,334)(5,707) (11,639)
Provision for income tax expense(13) (290)(12) (13)
Net loss$(11,652) $(11,624)$(5,719) $(11,652)
Net loss per common share:   
Net loss per common share   
Basic and diluted$(0.13) $(0.13)$(0.06) $(0.13)
Weighted-average common shares outstanding:      
Basic and diluted90,358
 88,385
92,914
 90,358
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

ServiceSource International, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
ServiceSource International, Inc.ServiceSource International, Inc.
Consolidated Statements of Comprehensive LossConsolidated Statements of Comprehensive Loss
(in thousands)(in thousands)
(unaudited)(unaudited)
 For the Three Months Ended
March 31,
 For the Three Months Ended
March 31,
2018 20172019 2018
Net loss$(11,652) $(11,624)$(5,719) $(11,652)
Other comprehensive loss, net of tax:
 
Other comprehensive income
 
Available for sale securities:
 
   
Unrealized loss on short-term investments1,253
 73

 (705)
Reclassification adjustment for impairment loss included in net loss(1,958) 

 1,958
Net decrease from available for sale securities(705) 73
Net change in available for sale debt securities
 1,253
Foreign currency translation adjustments273
 (130)76
 274
Other comprehensive loss, net of tax(432) (57)
Comprehensive loss, net of tax$(12,084) $(11,681)
Other comprehensive income76
 1,527
Comprehensive loss$(5,643) $(10,125)
The accompanying notes are an integral part of these CondensedConsolidated Financial Statements.

ServiceSource International, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
            
 Common Stock Treasury Shares/Stock Additional
Paid-in
Capital
 Accumulated Deficit Accumulated Other Comprehensive Income Total
 Shares Amount Shares Amount     
Balance at January 1, 201992,895
 $9
 (121) $(441) $369,246
 $(267,383) $402
 $101,833
Net loss
 
 
 
 
 (5,719) 
 (5,719)
Other comprehensive income
 
 
 
 
 
 76
 76
Stock-based compensation
 
 
 
 1,564
 
 
 1,564
Issuance of common stock, restricted stock units229
 
 
 
 
 
 
 
Proceeds from the exercise of stock options and employee stock purchase plan139
 
 
 
 141
 
 
 141
Balance at March 31, 201993,263
 $9
 (121) $(441) $370,951
 $(273,102) $478
 $97,895
                
 Common Stock Treasury Shares/Stock Additional
Paid-in
Capital
 Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total
 Shares Amount Shares Amount 
Balance at December 31, 201790,380
 $8
 (121) $(441) $359,347
 $(246,207) $(598) $112,109
Cumulative effect of ASC 606 - initial adoption
 
 
 
 
 3,709
 
 3,709
Adjusted balance at January 1, 201890,380
 $8
 (121) $(441) $359,347
 $(242,498) $(598) $115,818
Net loss
 
 
 
 
 (11,652) 
 (11,652)
Other comprehensive income
 
 
 
 
 
 1,527
 1,527
Stock-based compensation
 
 
 
 3,223
 
 
 3,223
Issuance of common stock, restricted stock units84
 
 
 
 
 
 
 
Proceeds from the exercise of stock options and employee stock purchase plan119
 
 
 
 353
 
 
 353
Net cash paid for payroll taxes on restricted stock unit releases
 
 
 
 (53) 
 
 (53)
Balance at March 31, 201890,583
 $8
 (121) $(441) $362,870
 $(254,150) $929
 $109,216
The accompanying notes are an integral part of these Consolidated Financial Statements.


ServiceSource International, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
  
 For the Three Months Ended March 31,
 2019 2018
Cash flows from operating activities:   
Net loss$(5,719) $(11,652)
Adjustments to reconcile net loss to net cash provided by operating activities   
Depreciation and amortization3,285
 4,803
Amortization of debt discount and issuance costs18
 2,421
Amortization of contract acquisition costs400
 426
Amortization of premium on short-term investments
 115
Amortization of right-of-use assets2,239
 
Stock-based compensation1,570
 3,111
Restructuring and other related costs1,041
 196
Impairment loss on investment securities
 1,958
Other
 80
Net changes in operating assets and liabilities

 

Accounts receivable, net3,258
 6,923
Prepaid expenses and other assets(1,277) (1,523)
Contract acquisition costs(108) (430)
Accounts payable(18) (2,809)
Accrued compensation and benefits1,094
 (2,654)
Operating lease liabilities(2,338) 
Accrued expenses(1,023) (367)
Other liabilities(338) 1
Net cash provided by operating activities2,084
 599
Cash flows from investing activities:   
Acquisition of property and equipment(2,898) (3,469)
Purchases of short-term investments
 7
Sales of short-term investments
 2,064
Maturities of short-term investments
 825
Net cash used in investing activities(2,898) (573)
Cash flows from financing activities:   
Repayment on finance lease obligations(190) (43)
Proceeds from issuance of common stock141
 353
Payments related to minimum tax withholdings on restricted stock unit releases
 (53)
Net cash (used in) provided by financing activities(49) 257
Effect of exchange rate changes on cash and cash equivalents and restricted cash185
 78
Net change in cash and cash equivalents and restricted cash(678) 361
Cash and cash equivalents and restricted cash, beginning of period27,779
 52,633
Cash and cash equivalents and restricted cash, end of period$27,101
 $52,994
Supplemental disclosures of cash flow information:   
Cash paid for interest$66
 $1,146
Supplemental disclosures of non-cash activities:   
Acquisition of property and equipment accrued in accounts payable and accrued expenses$208
 $196
Increase in contract acquisition costs and benefit to accumulated deficit related to adoption of ASC 606$
 $3,346
Increase in prepaid expenses and other, other liabilities and benefit to accumulated deficit related to adoption of ASC 606$
 $363
Increase in operating lease liabilities related to the adoption of ASC 842$41,760
 $
Increase in right-of-use assets related to the adoption of ASC 842$39,183
 $
Decrease in prepaids and other assets related to the adoption of ASC 842$(749) $
Decrease in other liabilities related to the adoption of ASC 842$(3,308) $
The accompanying notes are an integral part of these Consolidated Financial Statements.

ServiceSource International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Three Months Ended March 31,
 2018 2017
Cash flows from operating activities   
Net loss$(11,652) $(11,624)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization4,803
 4,731
Amortization of debt discount and issuance costs2,421
 2,241
Amortization of contract acquisition costs - ASC 606 initial adoption426
 
Amortization of premium on short-term investments115
 (94)
Deferred income taxes
 95
Stock-based compensation3,111
 3,218
Restructuring and other196
 
Impairment loss on investment securities1,958
 
Other80
 
Changes in operating assets and liabilities:
  
Accounts receivable, net6,923
 10,470
Deferred revenue176
 1,134
Prepaid expenses and other(1,523) 1,888
Contract acquisition costs(430) 
Accounts payable(2,809) (104)
Accrued taxes(319) (337)
Accrued compensation and benefits(2,654) (4,176)
Accrued expenses(48) 1,021
Other liabilities(175) (1,095)
Net cash provided by operating activities599
 7,368
Cash flows from investing activities:   
Acquisition of property and equipment(3,469) (4,432)
Purchases of short-term investments7
 (18,059)
Sales of short-term investments2,064
 16,513
Maturities of short-term investments825
 925
Net cash used in investing activities(573) (5,053)
Cash flows from financing activities

  
Repayment on capital lease obligations(43) (16)
Proceeds from issuance of common stock353
 616
Payments related to minimum tax withholding on restricted stock unit releases(53) (131)
Net cash provided by financing activities257
 469
Net increase in cash, cash equivalents and restricted cash283
 2,784
Effect of exchange rate changes on cash, cash equivalents and restricted cash78
 (131)
Cash, cash equivalents and restricted cash, beginning of period52,633
 48,936
Cash, cash equivalents and restricted cash, end of period$52,994
 $51,589
Supplemental disclosure of non-cash activities:   
Acquisition of property and equipment accrued in accounts payable and accrued expenses$196
 $287
Increase in contract acquisition costs and benefit to accumulated deficit related to adoption of ASC 606$3,346

$
Increase in prepaid expenses and other and other liabilities and benefit to accumulated deficit related to adoption of ASC 606$363

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

ServiceSource International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 — The Company
ServiceSource International, Inc. is a global leader in outsourced, performance-based customer success and revenue growth solutions. Through our people, processes and technology, we grow and retain revenue on behalf of our clients — some of the world’s leading business-to-business companies — in more than 45 languages. Our solutions help our clients strengthen their customer relationships, drive improved customer adoption, expansion and retention and minimize churn. Our technology platform and best-practice business processes combined with our highly-trained, client-focused revenue delivery professionals and data from nearly 20 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our clients' in-house customer success teams.
“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.
The Company’s pay-for-performance model allows its clients to pay for the services through either flat-rate or variable commissions based on the revenue generated by the Company on their behalf. Fixed-fee arrangements are typically used in quick deployments to address discrete target areas of our clients’ needs. The Company also earns revenue through its professional services teams, who assist clients with data optimization. The Company’s corporate headquarters is located in Denver, Colorado. The Company has additional U.S. offices in California and Tennessee, and international offices in Bulgaria, Ireland, Japan, Malaysia, Philippines, Singapore and the United Kingdom.

Note 2 — Summary of Significant Accounting Policies
Interim Financial InformationBasis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all the information required by GAAP for annual financial statements. The unaudited Condensed Consolidated Balance Sheet as of December 31, 20172018 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, 20172018 filed with the Securities and Exchange Commission on March 2, 2018.February 28, 2019. In the opinion of management, these Condensed 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 Condensed 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, 2017,2018, included in our annual report on Form 10-K. Interim results are not necessarily indicative of results for the entire year.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim Condensed Consolidated Financial Statements include the accounts of ServiceSource International, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
PreparationThe preparation of financial statementsthe Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities, the Company’s Condenseddisclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and accompanying notes.the reported amount of net revenue and expenses during the reporting period.
The Company’s significant accounting judgments and estimates include, but are not limited to: revenue recognition, the valuation and recognition of stock-based compensation, the recognition and measurement of current and deferred income tax assets and liabilities and uncertain tax positions, the provision for bad debts and impairment of goodwill and long-lived assets.
The Company bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and estimates and judgments routinely require adjustment. Actual results couldand outcomes may differ materially from thoseour estimates.

Reclassifications
Certain items on the Consolidated Statement of Cash Flows for the three months ended March 31, 2018 have been reclassified to conform to the current year presentation. These reclassifications did not affect the Company's Consolidated Balance Sheet as of December 31, 2018 or the Company's Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss or Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2018.
New Accounting Standards Issued but not yet Adopted
Leases
In February 2016, the Financial Accounting Standard Board ("FASB") issued an Accounting Standard Update ("ASU") that modifies existing accounting standards2016-02, Leases (Topic 842), which requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and will also require significant additional disclosures about the amount, timing, and uncertainty of cash flows from leases. Substantially all leases, including current operating leases, will be recognized by lessees on their balance sheet as a lease asset for lease accounting. The new standard requires a lesseeits right to record a leaseuse the underlying asset and a lease liability onfor the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whethercorresponding lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. Leases in which the Company is the lessee will generally be accounted for as operating leases and we will record a lease asset and a lease liability.obligation. The guidancestandard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The standard requires a modified retrospective transition approach for all capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with an option to use certain transition relief. The Company expects to adopt this standard effective January 1, 2019, and is in the process of assessing the impact of this standard.
Comprehensive Income
In February 2018, the FASB issued an ASU that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The guidance is effective for fiscal years beginning after December 15, 2018, andincluding interim periods within those fiscal years with early adoption permitted. The guidance should be applied either inyears. ASU 2016-02 initially required entities to adopt the period of adoption or retrospectively to each period in which the effect of the change in federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is in the process of evaluating this guidance.
New Accounting Standards Adopted
Restricted Cash
standard using a modified retrospective transition method. In November 2016,July 2018, the FASB issued an ASU that requires2018-11, Leases (Topic 842) Targeted Improvements, which provide transition practical expedients allowing companies to combine restricted cash and restricted cash equivalentsadopt the new standard with cash and cash equivalents when reconcilinga cumulative effect adjustment as of the beginning of the year of adoption with prior year comparative financial information and end of period total amounts on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted.disclosures remaining as previously reported. The Company adopted this standard effective January 1, 2019 and elected the package of practical expedients, accounting for leases with contractual terms less than 12 months as short-term leases and the transition relief option to apply legacy GAAP to periods prior to the standard’s effective date. Upon initial adoption of the standard, the Company recorded a $29.5 million right-of-use asset ("ROU") and a $32.1 million operating lease liability to the Consolidated Balance Sheet as of January 1, 2019.
Cloud Computing Implementation Costs
In August 2018, the FASB issued an ASU that provides guidance on the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, with early adoption permitted. The Company early adopted this standard effective January 1, 2019 and the effects of this standard were applied retrospectivelyprospectively to all prior periods presented within these Condensedeligible costs incurred on or after January 1, 2019. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements. As a result, we include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning and end of period balances on our Condensed Consolidated Statements of Cash Flows. For the year ended December 31, 2017 and for the three months ended March 31, 2018 the effect of the change in accounting principle was the increase in cash, cash equivalents and restricted cash of $1.2 million, on our Condensed Consolidated Statements of Cash Flows.
Revenue Recognition
In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers" which amended the existing FASB Accounting Standards Codification Topic 605 (“ASC 605” or “legacy GAAP") and created Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606"). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in amounts that reflect the consideration the entity expects to receive in exchange for those goods or services. ASC 606 also specifies the incremental costs of obtaining a contract with a customer and the costs of fulfilling a contract with a customer (if those costs are not within the scope of another Topic or Sub-Topic) should be deferred and recognized over the appropriate period of contract performance if they are expected to be recovered. In addition, ASC 606 requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The most significant impact to the Company's financial position and results of operations is the timing of expense recognition for certain sales commissions and to a lesser extent, the timing of revenue recognition for certain contracts that include certain performance-based fees. See Impact of Changes in Accounting Policies for additional information regarding the application of this new standard and its impact on our Condensed Consolidated Financial Statements.
The Company adopted this standard effective January 1, 2018 utilizing the modified retrospective approach, or the cumulative catch-up transition method and applied ASC 606 to all contracts not completed as of January 1, 2018. The initial adoption impact to the Company’s financial position was not material. Under the transition guidance, the Company recorded a $3.3 million contract acquisition asset and corresponding offset to the opening accumulated deficit balance related to previously expensed sales commissions. The $3.3 million asset will be expensed over the next four years as follows: $1.5 million in 2018, $0.9 million in 2019, $0.6 million in 2020, and $0.3 million in 2021. Additionally, the Company recorded a $0.4 million net contract asset and corresponding offset to the opening accumulated deficit balance related to previously unrecognized revenue under legacy GAAP which would have been recognized in periods prior to 2018 under ASC 606.

New Accounting Policies upon Adoption of ASC 606842
Revenue RecognitionLeases
TheAt the inception of a contract, the Company providesdetermines whether the contract is or contains a comprehensive suite of sellinglease. ROU assets represent the Company's right to use an underlying asset over the lease term and professional services to its clients. Selling services involves three categories of selling motions: recurring revenue management, customer success activitieslease liabilities represent our remaining payment obligation under the lease. ROU assets and inside sales efforts. Recurring revenue management includes hardware and software maintenance contract renewals, subscription renewals and extensions, asset and contract opportunity management, and sales enablement and quoting solutions. Customer success activities include onboarding, product adoption, health checks, account management and certain service support. Inside sales efforts include lead generation and conversion, cross-sell and upsell activities, technology refresh, warranty conversion, win-backs and recaptures, cloud migration, and client and asset management. Professional services involves providing data integration at scale with our systems and processes, combined with client data enhancement, enablement and optimization.
The Company derives all of its revenue from contracts with clients. Revenue is measuredliabilities are recognized upon the lease commencement based on the consideration specified in a contract. The Company’s contracts typically contain two distinct performance obligations that are sold on a variable and/or fixed consideration basis. These two distinct performance obligations are identified as selling services and professional services, the naturepresent value of which are described in the paragraph above. The typical length of a selling services contract is 2-3 years, while professional services performance obligations are generally fulfilled within 90 days. The Company generally invoices its clients for services on a monthly or quarterly basis with 30-day payment terms. The Company recognizes revenue when it satisfies the performance obligations identified in the contract, which is achieved through the transfer of controllease payments over the services tolease term. ROU assets are adjusted for any prepaid or accrued lease payments and unamortized lease incentives or initial direct costs. As most of the client.
TheCompany's leases do not provide an implicit rate, the Company accounts for individual services within a single contract separately only if they are considered distinct. A service is distinct if it is separately identifiable from other services inuses an incremental borrowing rate, the contract and if a client can benefit fromvariable interest rate on the service on its own or with other resources that are readily available to the client. The total contract consideration, or transaction price, is allocated between the separate services identified in the contractrevolving line of credit (the “Revolver”), based on their stand-alone selling price ("SSP"). SSP is determined based on a cost plus margin analysis for selling services and a standard hourly rate card for professional services. For professional services that are contractually priced different from SSP, the Company estimates the SSP using a standard hourly rate card and allocates a portion of the total contract consideration to reflect professional services revenue at SSP.
The Company’s performance obligations are satisfied over time and revenue is recognized based on monthly or quarterly time increments (output method) and the variable volume of closed bookings during the periodinformation available at the contractual commission rates for selling services, or proportional performance during the period at the SSP for professional services. Because the client simultaneously receives and consumes the benefit of the Company’s selling and professional services as it is provided, the time increment output method faithfully depicts the measure of progress in transferring control of services to the client.
While multiple selling motions in a contract are performed at various times and patterns throughout the month or quarter and the number of closed bookings vary in any given period, each time increment of a service activity is substantially the same and has the same pattern of transfer to the client, and therefore, represents a series of distinct performance obligations that form a single performance obligation. As a result, the Company allocates all variable consideration in a contract to the selling services performance obligation in accordance with the variable consideration allocation exception provisions in ASC 606 (less amounts for which it is probable a significant reversal of revenue will occur when the uncertainties related to the variability are resolved) and applies a single measure of progress to record revenue in the period based on when the output of the variable number of closed bookings occurs or when the variable performance metric is achieved. The Company also applies the optional disclosure exemptions related to variable consideration and the requirement to disclose the remaining transaction price allocated to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
Contract Acquisition Costs
To obtain contracts with clients, the Company pays its sales team certain commissions based in part on the estimated value of the contract. Because these sales commissions are incurred and paid solely upon contract execution and would not have otherwise been due or payable, they are considered incremental costs to acquire the contract; and if expected to be recoverable, are capitalized as contract acquisition costs in the period the contract is executed. Capitalized sales commissions are amortized to sales and marketing expense based on the pattern of transfer of goods or services to which the asset relates over the estimated contract term, generally 2-3 years for a new client or five years for long-standing client relationships. The contract acquisition costs asset is evaluated for recoverability and impairment each reporting period throughout the amortization period. The Company does not capitalize incremental acquisition costs for contracts if the amortization period of the asset would otherwise have been one year or less.

Significant Estimates and Judgments
Significant estimates and judgments for revenue recognition and contract acquisition cost capitalization include: identifying and determining distinct performances obligations in contracts with clients, determining the timing of the satisfaction of performance obligations, estimating the timing and amount of variable consideration in a contract and assessing whether it should be constrainedlease commencement in determining the total contract consideration, determining SSP for each performance obligationspresent value of lease payments. The Company's lease terms include options to extend or terminate the lease when it is reasonably certain it will exercise the option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense and the methodology to allocate the total contract consideration to the distinct performance obligations.
Our revenue contracts often include promises to transfer services involving multiple selling motions to a client. Determining whether those services are considered distinct performance obligations and qualify as a series of distinct performance obligations that represent a single performance obligation requires significant judgment. Also, due to the continuous nature of providing services to our clients, judgmentsublease income is required in determining when control of the services is passed to the client.
A significant portion of our contracts are basedrecognized on a pay-for-performance model that provides the Company with commissions and revenue based on a volume of closed bookings each time period and variable consideration if certain performance targets are achieved during a given period of time (such as exceeding quarterly closure rate thresholds or achieving absolute dollar volume sales targets). Significant judgment is required to determine if this type of variable consideration should be constrained, and to what extent, until the risk of a significant revenue reversal is not probable.
We also enter into contracts with multiple performance obligations that incorporate fixed consideration, pay-for-performance commissions and variable bonus commissions. Judgment is required to estimate the amount of variable consideration to include when estimating the total contract consideration and how to allocate the consideration if one of the distinct performance obligations is not sold at SSP.
Impact of Changes in Accounting Policies
The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective approach by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening accumulated deficit balance as of January 1, 2018. As a result, the comparative information throughout these financial statements has not been adjusted and continues to be reported under legacy GAAP as disclosed in our 2017 annual report on Form 10-K. As described above, the Company changed its accounting policy for revenue recognition and certain sales commissions. The qualitative impact of the changes is discussed below and the quantitative impact of ASC 606 adoption on the Company’s Condensed Consolidated Financial Statements for the three months ended March 31, 2018 is presented in the tables below.
Selling Services
The Company historically recognized all performance based fees in the period when the specific performance criteria was achieved; however, under ASC 606, in certain circumstances the Company estimates the variable fees for which it is probable that a significant reversal will not occur and recognizes these estimated variable feesstraight-line basis over the estimated contract life. For certain contracts, this could result in the recognition of the performance-based fees sooner than under ASC 605.
Professional Services
Prior to the adoption of ASC 606, the Company recognized revenue from professional services at the best estimated selling price upon client acceptance at the end of the implementation or data integration event due to the short-term nature of the services, which was typically 90 days from the start of the services. Under ASC 606, the Company recognizes revenue at SSP over time as control of the service is transferred to the client, resulting in the recognition of professional services fees sooner than under ASC 605.
Sales Commissions
The Company previously recognized a portion of certain sales commissions as sales and marketing expense when it was earned by the employee upon obtaining and executing a contract. Under ASC 606, the Company capitalizes this portion of certain sales commissions as contract acquisition costs and amortizes the amount ratably over the contract term for new clients or the estimated life of the client for long-standing client relationships. As a result, sales and marketing expenses are recognized later and over a longer period of time than under ASC 605.

lease term.
The following tables summarize the impacts of adopting ASC 606 on the Company's Condensed Consolidated Financial StatementsCompany has lease agreements with lease and non-lease components, which are accounted for the three months ended March 31, 2018:separately.  See “
 As reported ASC 606 adjustments Balances without adoption of ASC 606
Assets     
Current assets:     
Cash and cash equivalents$51,750
 $
 $51,750
Short-term investments133,465
 
 133,465
Accounts receivable, net49,776
 80
 49,856
Prepaid expenses and other7,561
 (154) 7,407
Total current assets242,552
 (74) 242,478
      
Property and equipment, net33,975
 
 33,975
Contract acquisition costs3,350
 (3,350) 
Deferred income taxes, net of current portion73
 
 73
Goodwill and intangible assets, net6,334
 
 6,334
Other assets3,983
 (118) 3,865
Total assets$290,267
 $(3,542) $286,725
      
Liabilities and Stockholders’ Equity     
Current liabilities:     
Accounts payable$1,767
 $
 $1,767
Accrued taxes337
 
 337
Accrued compensation and benefits16,807
 
 16,807
Convertible notes, net146,589
 
 146,589
Deferred revenue
 1,782
 1,782
Accrued expenses7,650
 
 7,650
Other current liabilities2,886
 (1,450) 1,436
Total current liabilities176,036
 332
 176,368
      
Other long-term liabilities5,015
 
 5,015
Total liabilities181,051
 332
 181,383
      
Commitments and contingencies (Note 5)
 
 
      
Stockholders’ equity:     
Preferred stock, $0.001 par value; 20,000 shares authorized and none issued and outstanding
 
 
Common stock; $0.0001 par value; 1,000,000 shares authorized; 90,583 shares issued and 90,462 shares outstanding as of March 31, 20188
 
 8
Treasury stock(441) 
 (441)
Additional paid-in capital362,870
 
 362,870
Accumulated deficit(254,150) (3,874) (258,024)
Accumulated other comprehensive income (loss)929
 
 929
Total stockholders’ equity109,216
 (3,874) 105,342
Total liabilities and stockholders’ equity$290,267
 $(3,542) $286,725

 As Reported ASC 606 adjustments Balances without adoption of ASC 606
Net revenue$58,585
 $(161) $58,424
Cost of revenue41,724
 
 41,724
Gross profit16,861
 (161) 16,700
Operating expenses:     
Sales and marketing9,238
 4
 9,242
Research and development1,516
 
 1,516
General and administrative12,889
 
 12,889
Restructuring and other53
 
 53
Total operating expenses23,696
 4
 23,700
Loss from operations(6,835) (165) (7,000)
Interest expense and other, net(2,846) 
 (2,846)
Impairment loss on investment securities(1,958) 
 (1,958)
Loss before income taxes(11,639) (165) (11,804)
Provision for income tax expense(13) 
 (13)
Net loss$(11,652) $(165) $(11,817)
Net loss per common share:     
Basic and diluted$(0.13)
$

$(0.13)
Weighted-average common shares outstanding:







Basic and diluted90,358



90,358

 As Reported ASC 606 adjustments Balances without adoption of ASC 606
Cash flows from operating activities     
Net loss$(11,652) $(165) $(11,817)
Adjustments to reconcile net loss to net cash provided by operating activities:     
Depreciation and amortization4,803
 
 4,803
Amortization of debt discount and issuance costs2,421
 
 2,421
Amortization of contract acquisition cost - ASC 606 initial adoption426
 (426) 
Amortization of premium on short-term investments115
 
 115
Stock-based compensation3,111
 
 3,111
Restructuring and other196
 
 196
Impairment loss on investment securities1,958
 
 1,958
Other80
 
 80
Changes in operating assets and liabilities:    

Accounts receivable, net6,923
 (80) 6,843
Deferred revenue176
 1,782
 1,958
Contract acquisition costs(430) 430
 
Prepaid expenses and other(1,523) (91) (1,614)
Accounts payable(2,809) 
 (2,809)
Accrued taxes(319) 
 (319)
Accrued compensation and benefits(2,654) 
 (2,654)
Accrued expenses(48) 
 (48)
Other liabilities(175) (1,450) (1,625)
Net cash provided by operating activities599
 
 599
Cash flows from investing activities:     
Acquisition of property and equipment(3,469) 
 (3,469)
Purchases of short-term investments7
 
 7
Sales of short-term investments2,064
 
 2,064
Maturities of short-term investments825
 
 825
Net cash used in investing activities(573) 
 (573)
Cash flows from financing activities     
Repayment on capital lease obligations(43) 
 (43)
Proceeds from issuance of common stock353
 
 353
Repayment related to minimum tax withholding on restricted stock unit releases(53) 
 (53)
Net cash provided by financing activities257
 
 257
Net increase in cash, cash equivalents and restricted cash283
 
 283
Effect of exchange rate changes on cash, cash equivalents and restricted cash78
 
 78
Cash, cash equivalents and restricted cash, beginning of period52,633
 
 52,633
Cash, cash equivalents and restricted cash, end of period$52,994
 $
 $52,994

Note 6 — Leases” for additional information.


Note 3 — Fair Value of Financial Instruments
Cash, Cash EquivalentsThe 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, 2018. There were no transfers between levels during the three months ended March 31, 2019 and Short-Term Investments2018.
Cash equivalents consist of highly liquid fixed-income investments with original maturities of three months or less at the time of purchase.  Cash and cash equivalents are classified within Level 1.

Short-term investments consist of readily marketable debt securities with a remaining maturity of more than three months from the time of purchase. The Company classifiesliquidated its cash equivalents and short-term investments as “available for sale,” as these investments are free of trading restrictions and are available for use in the Company's daily operations. These marketableinvestment securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as accumulated other comprehensive loss and included as a separate component of stockholders’ equity. Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method. The Company’s realized gains and losses for the three months ended March 31, 2017 were insignificant. There were no transfers between levels during the three months ended March 31,first half of 2018 and 2017.
The Company typically invests in highly-rated securities, and its investment policy generally limitsto repay the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and$150.0 million convertible notes that matured August 1, 2018. Based on the Company’s intentdecision to sell or whether it is more-likely-than-not it will be required to sell thethese investment before recovery of the investment’s cost basis. The Company intends to sell our investment securities, in 2018 and determined an other-than-temporary impairment occurred as of March 31, 2018. Consequently,and a $2.0 million impairment loss was recorded in ourthe Consolidated Statement of Operations as offor the three months ended March 31, 2018, which represents2018. Realized gains and losses were immaterial for the difference between the investment securities' amortized cost basis and fair value.

The following tables present the Company's cash, cash equivalents and short-term investments by significant investment category measured at fair value on a recurring basis (in thousands):
For the Three Months Endedthree months ended March 31, 2018:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Level 1(1):
       
Cash$45,314
 $
 $
 $45,314
Cash equivalents:       
Money market mutual funds43
 
 
 43
Total cash and cash equivalents45,357
 
 
 45,357
Level 2(2):
       
Cash equivalents:






U.S. Treasury securities5,395





5,395
Commercial Paper998





998
Total cash equivalents6,393





6,393
Short-term investments:       
Corporate bonds54,045
 
 
 54,045
U.S. agency securities34,144
 
 
 34,144
Asset-backed securities19,441
 
 
 19,441
U.S. Treasury securities25,835
 
 
 25,835
Total short-term investments133,465
 
 
 133,465
Cash, cash equivalents and short-term investments$185,215
 $
 $
 $185,215
For2018. Gains and losses on available-for-sale securities are recorded in "Interest and other expense, net" in the Year Ended December 31, 2017:
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Level 1(1):
       
Cash$48,712
 $
 $
 $48,712
Cash equivalents:       
Money market mutual funds2,677
 
 
 2,677
Total cash and cash equivalents51,389
 
 
 51,389
Level 2(2):
       
Short-term investments:       
Corporate bonds55,763
 1
 (346) 55,418
U.S. agency securities34,640
 
 (410) 34,230
Asset-backed securities21,739
 
 (127) 21,612
U.S. Treasury securities26,292
 
 (371) 25,921
Total short-term investments138,434
 1
 (1,254) 137,181
Cash, cash equivalents and short-term investments$189,823
 $1
 $(1,254) $188,570
(1) Level 1 valuations are based on quoted prices in active markets for identical assets or liabilities.
(2) Level 2 valuations are based on inputs that are observable, either directly or indirectly, other than quoted prices included within Level 1.

The following table summarizes the amortized cost and estimated fair valueConsolidated Statements of money market mutual funds and short-term fixed income securities classified as short-term investments based on stated maturities as of March 31, 2018 (in thousands):
 
Amortized
Cost
 
Estimated
Fair Value
Less than 1 year$30,585
 $30,585
Due in 1 to 3 years109,316
 109,316
Total$139,901
 $139,901
Operations.
The Company had restricted cash of $1.2 million in "Other assets" in the Condensed Consolidated Balance Sheets as of March 31, 20182019 and December 31, 2017. The restricted2018 of $2.3 million and $1.2 million, respectively. Restricted cash is classified within Level 1.
The convertible notes issued by the Company in August 2013 are included in the Condensed Consolidated Balance Sheets at their original issuance value, net of unamortized discount and issuance costs, and are not marked to market each period. The fair value of the convertible notes was approximately $145.9 million as of March 31, 2018 and December 31, 2017. The fair value of the convertible notes was determined using quoted market prices for similar securities and are considered Level 2 inputs due to limited trading activity.
The Company did not have any other financial instruments or debt measured at fair value as of March 31, 2018 and December 31, 2017.

Note 4 — DebtOther Current and Long-Term Liabilities
Senior Convertible Notes
In August 2013, the Company issued senior convertible notes (the "Notes") in exchange for gross proceeds of $150.0 million. The Notes matures on August 1, 2018 and are recorded inOther current liabilities in "Convertible notes" in our Condensed Consolidated Balance Sheets.
The Notes are governed by an indenture, dated August 13, 2013 (the "Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. The Notes bear interest at a rate of 1.50% per year payable semi-annually in arrears on February 1 and August 1, beginning February 1, 2014.
The Notes are convertible at an initial conversion rate of 61.6770 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $16.21 per share of common stock, subject to anti-dilution adjustments upon certain specified events as defined in the Indenture. Upon conversion, the Notes will be settled in cash, shareswere comprised of the Company’s common stock, or any combination thereof, at the Company’s option. The Notesfollowing:
 March 31, 2019 December 31, 2018
    
 (in thousands)
Legal reserve$3,750
 $3,750
Finance lease obligations918
 954
Contract liability826
 873
Other liabilities375
 198
Employee stock purchase plan withholdings124
 384
Deferred rent
 735
Total$5,993
 $6,894
Other long-term liabilities were not subject to repurchase as of March 31, 2018. However, holderscomprised of the Notes may convert their Notes at any time on or after February 1, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.
The net carrying amount of the liability component of the Notes consists of the following (in thousands):following:
 March 31, 2018 December 31, 2017
Principal amount$150,000
 $150,000
Unamortized debt discount(3,121) (5,336)
Unamortized debt issuance costs(290) (497)
Net carrying amount$146,589
 $144,167
The following table presents interest expense recognized related to the Notes (in thousands):
 For the Three Months Ended March 31,
 2018 2017
Contractual interest expense at 1.5% per annum$563
 $563
Amortization of debt issuance costs206
 191
Accretion of debt discount2,215
 2,050
Total$2,984
 $2,804

Letter of Credit
On February 3, 2015, the Company issued a $1.2 million letter of credit in connection with a lease for a new San Francisco office facility. The letter of credit is secured by $1.2 million of cash in a money market account which is classified as restricted cash in "Other assets" in the Condensed Consolidated Balance Sheets.
 March 31, 2019 December 31, 2018
    
 (in thousands)
Asset retirement obligations$1,381
 $1,368
Finance lease obligations1,256
 1,510
Accrued restructuring costs654
 716
Deferred tax liability110
 268
Other accrued costs111
 105
Deferred rent
 2,573
Total$3,512
 $6,540
Note 5 — CommitmentsDebt
Revolving Line of Credit
In July 2018, the Company entered into a $40.0 million senior secured Revolver that allows us to borrow against our domestic receivables as defined in the credit agreement. The Revolver matures July 2021 and Contingencies
Operating Leasesbears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. As of March 31, 2019, the Company did not have any borrowings outstanding on the Revolver and therefore has no future obligations.
The Company leases its office spaceobligations under the credit agreement are secured by substantially all assets of the borrowers and certain equipment under non-cancelable operating lease agreementsof their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has covenants with various expiration dates throughwhich the Company was in compliance as of March 31, 2019 and December 2022. Rent31, 2018.
Deferred Debt Issuance Costs
Discounts and premiums to the principal amounts are included in the carrying value of debt and amortized to "Interest and other expense, net" over the remaining life of the underlying debt. Unamortized debt issuance costs were $0.2 million as of March 31, 2019 and December 31, 2018. The amortization of all premiums and discounts related to the convertible notes that matured August 2018 was $2.2 million as of March 31, 2018.

Interest expense during the three months ended March 31, 20182019 and 2017,2018 was approximately $2.6$0.1 million and $2.8$3.0 million, respectively. respectively, related to the amortization of debt issuance costs, interest expense associated with the Company's debt obligations and accretion of the Company's debt discount.

Note 6 — Leases
The Company recognizes rent expense on a straight-line basis overhas operating leases for office space and finance leases for certain equipment under non-cancelable agreements with various expiration dates through April 2030. Certain office leases include the option to extend the term between three to seven years and certain office leases include the option to terminate the lease period and accrues for rent expense incurred butupon written notice within one to eight years after lease commencement. Leases with an initial term of 12 months or less are not paid.recorded on the balance sheet.
In January 2018, the Company entered into a sublease with a third-party for ourthe San Francisco office space forthrough the remaining term of the lease.lease of November 30, 2022. The total minimum paymentsCompany recognizes rent expense and sublease income on a straight-line basis over the lease period and accrues for rent expense and sublease income incurred but not paid. Rent expense and sublease income during the three months ended March 31, 2018 was approximately $2.6 million and $0.2 million, respectively.
Supplemental income statement information related to leases was as follows:
 For the Three Months Ended March 31, 2019
 (in thousands)
Operating lease cost$2,881
  
Finance lease cost: 
Amortization of leased assets151
Interest on lease liabilities41
Total finance lease cost192
  
Sublease income(468)
Net lease cost$2,605


Supplemental balance sheet information related to leases was as follows:
 March 31, 2019
 (in thousands)
Operating leases: 
Right-of-use assets$36,944
  
Operating lease liabilities$8,504
Operating lease liabilities, net of current portion30,918
Total operating lease liabilities$39,422
  
Finance leases: 
Property and equipment$3,303
Accumulated depreciation(1,283)
Property and equipment, net$2,020
  
Other current liabilities$918
Other long-term liabilities1,256
Total finance lease liabilities$2,174


Lease term and discount rate information related to leases were as follows:
For the Three Months Ended March 31, 2019
Weighted-average remaining lease term (in years):
Operating lease5.3
Finance lease2.5
Weighted-average discount rate:
Operating lease6.5%
Finance lease8.3%

Maturities of lease liabilities were as follows as of March 31, 2018 through November 30, 2022 under the original lease total approximately $8.9 million and sublease rental income totals approximately $8.9 million over the same period.2019:
In January 2018,
 
Operating Leases(1)
 Operating Sublease Finance Leases
      
 (in thousands)
Remainder of 2019$7,630
 $(1,413) $810
202010,531
 (1,932) 976
202110,377
 (1,989) 569
20227,130
 (1,878) 36
20232,217
 
 
Thereafter8,769
 
 
Total lease payments46,654
 (7,212) 2,391
Less: interest(7,232) 
 (217)
Total$39,422
 $(7,212) $2,174
(1) During February 2019, the Company entered into a contract to finance a software license. As of March 31, 2018, the Company recorded a $1.2 million capital lease reflected in "Accrued expenses and Other long-term liabilities" in the Condensed Consolidated Balance Sheet. Future payments through December 31, 2020 total approximately $1.0 million.
In April 2018, the Company entered into a non-cancelable operatingtwo year lease agreement for approximately 7,215 rentable square feet in San Francisco. Future minimum lease payments through November 30, 2023 under the San Francisco non-cancelable operating lease total approximately $3.3 millionJapan that had not yet commenced as of March 31, 2018.2019 with future undiscounted lease payments totaling approximately $0.8 million.
There have been no other material changes
Note 7 — Commitments and Contingencies
Letter of Credit
In connection with two of our leased facilities, the Company is required to maintain two letters of credit totaling $2.3 million. The letters of credit are secured by $2.3 million of cash in money market accounts, which are classified as restricted cash in "Other assets" in our contractual obligations and purchase commitments other than in the ordinary course of business since December 31, 2017.Consolidated Balance Sheets.
Litigation
The Company is subject to various legal proceedings and claims arising in the ordinary course of our business, including the cases discussed below.  Although the results of litigation and claims cannot be predicted with certainty, the Company is currently not aware of any litigation or threats of litigation in which the final outcome could have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies. As of March 31, 2019 and December 31, 2018, the Company accrued a $1.5$3.8 million reserve relating to our potential liability for currently pending disputes, reflected in "Accrued expenses""Other current liabilities" in the Condensed Consolidated Balance Sheets.
On August 23, 2016, the United States District Court for the Middle District of Tennessee granted conditional class certification in a lawsuit originally filed on September 21, 2015 by three former senior sales representatives. The lawsuit, Sarah Patton, et al v. ServiceSource Delaware, Inc., asserts a claim under the Fair Labor Standards Act alleging that certain sales account representatives and senior sales representativesnon-exempt employees in our Nashville location were not paid for all hours worked and were not properly paid for overtime hours worked.  The complaint also asserts claims under Tennessee state law for breach of contract and unjust enrichment; however,and, on September 28, 2018, the plaintiffs have not yet filed a motion to certify the state law breach of contract and unjust enrichment claims as a class action.  A settlement of all claims was reached at mediation, and the motion for required court approval of the settlement was filed on January 24, 2019.  The Company will continue to vigorously defend itself against these claims.anticipates Court approval of the settlement and conclusion of the lawsuit in the coming months.

Non-cancelable Service Contract Commitments
Future minimum payments under non-cancelable service contract commitments were as follows:
 March 31, 2019
 (in thousands)
Remainder of 2019$6,370
20209,018
20217,986
20228,277
20237,391
Thereafter
Total$39,042

Note 68 — Revenues, Contract Asset and Liability Balances and Contract Acquisition Costs
The following tables present the disaggregation of revenue for the three months ended March 31, 2018 from contracts with our clients as follows (in thousands):clients:
Revenue by Performance Obligation
For the Three Months Ended
March 31,
2019 2018
   
(in thousands)
Professional services$383
 $2,007
Selling services$56,578
55,128
 56,578
Professional services2,007
Total revenue$58,585
$55,511
 $58,585
Revenue by Geography
For the Three Months Ended
March 31,
2019 2018
   
(in thousands)
APJ$7,594
$8,674
 $7,594
EMEA15,522
13,636
 15,522
NALA35,469
33,201
 35,469
Total revenue$58,585
$55,511
 $58,585
Revenue by Contract Pricing
For the Three Months Ended
March 31,
2019 2018
   
(in thousands)
Fixed consideration$17,742
$19,729
 $17,742
Variable consideration40,843
35,782
 40,843
Total revenue$58,585
$55,511
 $58,585
Contract Balances
Once the Company obtains a client contract, the timing of satisfying performance obligations and the receipt of client consideration can be different and will give rise to contract assets and contract liabilities. Contract assets relate to the Company’s conditional rights to consideration for services provided but not yet billable at the reporting date. Accounts receivable balances reflected in the Condensed Consolidated Balance Sheet asAs of March 31, 2019 and December 31, 2018, represent the Company’s unconditional rights to consideration for services provided. Contract asset amounts are transferred to accounts receivables when the rights become unconditional, typically in the same period control of services is transferred to the client and the amount is contractually billable. Contract liabilities primarily relate to the advance consideration received from clients for fixed consideration contracts where transfer of control of the services has not yet occurred. Contract liability balances generally convert to revenue upon either the satisfaction of professional services obligations or when services under fixed consideration contracts are transferred to the client, typically within six months of being recorded. The contract asset and liability balances as of March 31, 2018balance totaled $0.3$0.1 million and $1.2$0.2 million, respectively, and are not considered material for further disclosure purposes. Thesethe contract balancesliability balance totaled $0.8 million and $0.9 million, respectively. Contract assets and contract liabilities are reflected in "Prepaid expenses and other", "Other assets" and "Other current liabilities" and "Other assets" in the Condensed Consolidated Balance Sheet as of March 31, 2018.Sheets.

Transaction Price Allocated to Remaining Performance Obligations
The Company applies the optional disclosure exemption related to variable consideration and the requirement to disclose the remaining transaction price allocated to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation. However, formaintains contracts structured with fixed consideration this optional disclosure is not available. The Company typically invoices selling services fixed consideration in monthly or quarterly installments over the contract term, which is typically 12 months or less. Contracts with fixed considerationthat are generally with long-standing client relationships and typically renew annually. Assuming none of the Company’s current contracts with fixed consideration are renewed, we estimate receiving approximately $32.3$53.5 million in future selling services fixed consideration as of March 31, 2018.2019. Professional services revenues from fixed consideration are based on proportional performance which is typically concluded within 90 days of contract execution. The Company typically bills professional services upfront upon obtaining a client contract. As of March 31, 2018,2019, we estimate $0.5$0.3 million in professional services fixed consideration revenue to be recognized by endthrough the remainder of 2018.


2019.
Contract Acquisition Costs
Certain commissions paid to the Company's sales team upon obtaining a client contract are incremental and recoverable, and therefore, capitalized as contract acquisition costs. Under the transition guidance, the Company recorded a $3.3 million contract acquisition asset and corresponding offset to the opening accumulated deficit balance related to previously expensed sales commissions. The Company expensed $1.5 million of the $3.3 million of contract acquisition asset during 2018 and will be expensedexpense the remainder of the asset over the next fourfive years as follows: $1.5$0.6 million in 2018, $0.9 millionremaining in 2019, $0.6 million in 2020 and $0.3 million in 2021.2021 and beyond. The Company recorded $0.4$0.3 million ofin amortization for the three months ended March 31, 20182019 related to amounts capitalized upon the adoption of ASC 606.
During the three months endedAs of March 31, 2019 and December 31, 2018, the Company capitalized an additional $0.4$0.1 million and $1.1 million, respectively, of sales commissions as contract acquisition costs related to contracts obtained during the period. There were no impairment indicators or lossesThe Company recorded during$0.1 millionof amortization expense for the period andthree months ended March 31, 2019 related to amounts capitalized. As of March 31, 2019, the weighted averageweighted-average remaining amortization period related to these capitalized costs is approximately 1.8 years.
Impairment recognized on contract costs was 2.3 years. Contract acquisition costs amortization is included in "Salesinsignificant for the three months ended March 31, 2019 and marketing" in the Condensed Consolidated Statements of Operations.2018.
Applying the practical expedient for amortization periods one year or less, the Company recognizes any incremental costs of obtaining contracts as expense when the cost is incurred. These costs are included in "Sales and marketing" in the Condensed Consolidated Statements of Operations.

Note 79Stock-Based Compensation
2018 PSU Awards
During March 2018, the Company granted performance-based restricted stock unit awards under the Company’s 2011Stockholders' Equity Incentive Plan to certain key executives (the “2018 PSU Awards”). For each 2018 PSU Award, a number of restricted stock units became eligible to vest based on the levels of achievement of the performance-based conditions, and those restricted stock units that became eligible to vest will vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date, except as otherwise provided under certain termination and change-in-control provisions in each award agreement. The aggregate target number of restricted stock units subject to the 2018 PSU Awards was 1.0 million, with an aggregate grant date fair value of $3.9 million.
The performance-based conditions are based upon the Company’s revenue and adjusted EBITDA performance in fiscal year 2018 against the target goals for such metrics under the Company’s 2018 corporate incentive plan (in each case, “Performance Achievement”), which will each be determined on the date the Company files its Annual Report on Form 10-K for fiscal year 2018. The target number of restricted stock units for each 2018 PSU Award will be divided equally between the two performance metrics. For each performance metric, the number of restricted stock units that become eligible to vest will be: (i) if the applicable Performance Achievement is less than 95.10% of the target revenue goal or less than 70.59% of the target EBITDA goal, no restricted stock units for such performance metric, (ii) if the applicable Performance Achievement is equal to 95.10% of the target revenue goal or 70.95% of the target EBITDA goal, 50% of the target number of restricted stock units for such performance metric, (iii) if the applicable Performance Achievement is equal to 100% of the target revenue and EBITDA goals, 100% of the target number of restricted stock units for such performance metric, or (iv) if the applicable Performance Achievement is at least 103.40% of the target revenue goal or 163.03% of the target EBITDA goal, 150% of the target number of restricted stock units for such performance metric. For each performance metric, if the applicable Performance Achievement falls between any of the thresholds (ii), (iii), and (iv) specified in the previous sentence, the number of restricted stock units that become eligible to vest for such performance metric will be determined via linear interpolation.
Stock-Based Compensation Expense
The following table presents stock-based compensation expense as allocated within the Company's Condensed Consolidated Statements of Operations (in thousands):
Operations:
For the Three Months Ended
March 31,
2019 2018
For the Three Months Ended March 31,   
2018 2017(in thousands)
Cost of revenue$279
 $291
$159
 $279
Sales and marketing886
 882
443
 886
Research and development64
 99
(6) 64
General and administrative1,882
 1,946
974
 1,882
Total stock-based compensation$3,111
 $3,218
$1,570
 $3,111
The above table does not include $0.1 million of capitalized stock-based compensation related to internal-use software for the three months ended March 31, 2018 and 2017.2018.

Stock Awards Issued to Employees
The following table presents total options outstanding, granted, exercised, expired or forfeited, as well as total options exercisable (shares and aggregate intrinsic value in thousands):
summarizes information related to stock options:
 Shares Weighted-Average Option Price Per Share Weighted-Average Fair Value of Options Granted During the Year Weighted-Average Remaining Contractual Life (Years) Intrinsic Value
Issued and outstanding as of December 31, 20176,511
 $4.48
     $7
Granted84
 $3.70
 $1.81
    
Options exercised(3) $2.90
     $1
Expired and/or Forfeited(495) $4.93
      
Issued and outstanding as of March 31, 20186,097
 $4.43
   6.81 $183
Options exercisable as of March 31, 20184,509
 $4.54
   6.57 $101
 Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (Years) Intrinsic Value
 (in thousands)     (in thousands)
Outstanding as of December 31, 20187,516
 $3.34
   $
Granted25
 $1.01
    
Expired and/or forfeited(3,334) $4.08
    
Outstanding as of March 31, 20194,207
 $2.74
 7.89 $
Exercisable as of March 31, 20191,422
 $5.26
 4.66 $
The weighted-average fair value of options granted during the three months ended March 31, 2019 and 2018 was $0.53 and $1.81, respectively. As of March 31, 2019 there was $1.8 million of unrecognized compensation expense related to stock options granted under the 2011 Equity Incentive Plan (the "2011 Plan"), which is expected to be recognized over a weighted-average period of 2.8 years.
The following table summarizes additional information concerning our vestedrelated to restricted stock units and performanceperformance-based restricted stock units (shares in thousands):units:
 Shares Weighted-Average Grant Date Fair Value
Unvested as of December 31, 20175,027
 $3.98
Granted1,490
 $3.85
Vested(1)
(96) $4.29
Forfeited(125) $4.00
Unvested as of March 31, 20186,296
 $3.94
 Units Weighted-Average Grant Date Fair Value
 (in thousands)  
Non-vested as of December 31, 20185,669
 $3.29
Granted75
 $1.01
Vested(228) $3.82
Forfeited(508) $3.82
Non-vested as of March 31, 20195,008
 $3.18
(1) 82 shares
As of common stock were issued forMarch 31, 2019 there was $11.2 million of unrecognized compensation expense related to non-vested restricted stock units vested and performance-based restricted stock units granted under the remaining 14 shares were withheld for taxes.2011 Plan, which is expected to be recognized over a weighted-average period of 2.5 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, non-vestedunvested restricted stock and shares to be purchased under our 2011 Employee Stock Purchase Plan. The Company excluded from diluted earnings per share the weighted-average common share equivalents related to 6.810.4 million and 3.46.8 million shares for the three months ended March 31, 20182019 and 2017,2018, respectively, because their effect would have been anti-dilutive.

Note 810 — 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. For the three months ended March 31, 2018, the Company recordedThe "Provision for income tax expense less than $0.1 million. This amountexpense" in the Consolidated Statements of Operations primarily consistsconsist 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 20102011 through 20182019 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 and $0.9 million as of March 31, 20182019 and December 31, 2017,2018 respectively, none of which, if recognized, would affect the Company’s effective tax rate.
FASB issued ASU 2018-05, Income Taxes (Topic 740): "Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118" to address the application of GAAP in situations when a registrant The Company does not haveexpect its unrecognized tax benefits to change significantly over the necessary information available, prepared, or analyzed (including computations)next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in reasonable detail to complete the accounting for certain income tax effects ofexpense. During the Act. 
Atthree months ended March 31, 2019 and 2018, theinterest and penalties recognized were insignificant.

Note 11 — Restructuring and Other Related Costs
The Company has not completedundergone restructuring efforts to better align its accounting for all of the tax effects of the Actcost structure with business and has not made an adjustmentmarket conditions. These restructuring efforts included 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 provisional tax benefit recorded under SAB 118 at December 31, 2017.  We have estimated our provisionaccelerated 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 are accounted for income taxes in accordance with the ActASC 420, Exit or Disposal Cost Obligations and guidance available future cash outlays are recorded in "Accrued expenses", "Accrued compensation and benefits" and "Other long-term liabilities" in our Consolidated Balance Sheetsas of March 31, 2019 and December 31, 2018.
In February 2019, the dateCompany announced a restructuring effort to better align its cost structure with current business and market conditions, resulting in a headcount reduction. The Company recognized charges related to this restructuring effort of this filing.  Our estimated annual effective tax

rate may be adjusted in subsequent interim periods, due$1.1 million for the three months ended March 31, 2019 and expects to among other things,incur additional analysis, changes in interpretations and assumptions we have made, and additional regulatory guidance that may be issued.

Note 9 — Restructuring and Othercosts through September 2019.
The following table presents restructuring and other related costs related to the February 2019 restructuring effort:
 Severance and Other Employee Costs
 (in thousands)
Balance as of January 1, 2019$
Restructuring and other related costs1,058
Cash paid(693)
Balance as of March 31, 2019$365
In early May 2017, the Company announced a restructuring effort to better align its cost structure with current business and market conditions, including a headcount reduction and the reduction of office space in four locations. The restructuring plan is accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company recognized charges related to this restructuring and other chargeseffort of $0.1 million for the three months ended March 31, 2018. Severance and other employee costs include severance payments, related employee benefits 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. The Company expectsdoes not expect to incur additional restructuring charges during the first half of 2018 related to the relocation and decommissioning of our San Francisco office space. Future cash outlays related toMay 2017 restructuring activities are expected to total approximately $1.2 million. These amounts are reported in "Accounts payable, Accrued compensation and benefits and Accrued expenses" in our Condensed Consolidated Balance Sheetas of March 31, 2018.2019.
RestructuringThe following table presents restructuring and other reserve activities are summarized as follows (in thousands):related costs related to the May 2017 restructuring effort:
Severance and Other Employee Costs Lease and Other Contract Termination Costs TotalSeverance and Other Employee Costs Lease and Other Contract Termination Costs Asset Impairments Total
Balance as of December 31, 2017$71
 $1,754
 $1,825
Restructuring and other charges
 53
 53
       
(in thousands)
Balance as of January 1, 2017$
 $
 $
 $
Restructuring and other related costs3,483
 2,939
 886
 7,308
Cash paid(68) (783) (851)(3,060) (1,185) 
 (4,245)
Change in estimates and non-cash charges(2) 145
 143

 
 (886) (886)
Balance as of March 31, 2018$1
 $1,169
 $1,170
Acceleration of stock-based compensation expense in additional paid-in capital(352) 
 
 (352)
Balance as of December 31, 201771
 1,754
 
 1,825
Restructuring and other related costs120
 89
 
 209
Cash paid(188) (1,133) 
 (1,321)
Change in estimates and non-cash charges(3) 252
 
 249
Balance as of December 31, 2018
 962
 
 962
Cash paid
 (45) 
 (45)
Change in estimates and non-cash charges
 (17) 
 (17)
Balance as of March 31, 2019$
 $900
 $
 $900

Note 1012 — Subsequent Events
GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued (“subsequent events”) as well as the date through which an entity has evaluated subsequent events. There are two types of subsequent events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (“recognized subsequent events”). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (“nonrecognized subsequent events”). No significant recognized or nonrecognized subsequent events were noted other than those mentioned in “Note 5 - Commitments and Contingencies.”noted.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes thereto which appear elsewhere in this quarterly report on Form 10-Q.
This report, including this MD&A, 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,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” and variations of such words or similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those identified elsewhere in this report and those discussed in the sections of our Annual Report on Form 10-K entitled “Special Note Regarding Forward“Forward Looking Statements and Industry Data”Statements” and “Risk Factors” and in our other filings with the Securities and Exchange Commission (“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.

Overview
ServiceSource International, Inc. is a global leader in outsourced, performance-based customer success and revenue growth solutions. Through our people, processes and technology, we grow and retain revenue on behalf of our clients — some of the world’s leading business-to-business companies — in more than 45 languages. Our solutions help our clients strengthen their customer relationships, drive improved customer adoption, expansion and retention and minimize churn. Our technology platform and best-practice business processes combined with our highly-trained, client-focused revenue delivery professionals and data from nearly 20 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our clients' in-house customer success teams.
“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.
Our CEO manages and allocates resources on a company-wide basis as a single segment that is focused on service offerings which integrate data, processes and software technologies.
BasisKey Financial Results – First Quarter 2019
GAAP revenue was $55.5 million, compared with $58.6 million reported for Q1 2018.
GAAP net loss was $5.7 million or $0.06 per diluted share, unfavorable compared with GAAP net loss of Presentation$11.7 million or $0.13 per diluted share reported for Q1 2018.
Adjusted EBITDA was $1.0 million, compared with $1.6 million reported for Q1 2018.
Ended the quarter with $27.1 million of cash and cash equivalents and restricted cash and no borrowings under the Company’s $40.0 million revolving line of credit.
Results of Operations
For the Three Months Ended March 31, 2019 Compared to the Same Period Ended March 31, 2018
Net Revenue, Cost of Revenue and Gross Profit
Substantially all of our netNet 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 generally invoice our clients for our selling services on a monthly basis for sales commissions, and on a quarterly basis for certain performance sales commissions. We do not set the price, terms or scope of services in the service contracts with end customers and do not have any obligations related to the underlying service contracts between our clients and their end customers. We also generate revenues from selling professional services. Professional services involves providing data integration at scale with our systems and processes, combined with client data enhancement, enablement and optimization. We typically invoice our clients for professional services on a recurring monthly basis.

Historically, we earned a small percentage of our total revenue from the sale of subscriptions to our cloud basedcloud-based applications. To date, subscription revenue has been a small percentage of total revenue. We have terminated most of our subscription contracts and expect revenues generated from subscriptions to be insignificant in 2018.
We have generated a significant portion of our revenue from a limited number of clients. Our top ten clients accounted for 66% and 67% of our net revenue for the three months ended March 31, 2018 and 2017, respectively.
The loss of revenue from any of our top clients for any reason, including the failure to renew our contracts, termination of some or all of our services, a change of relationship with any of our key clients or their acquisition, can cause a significant decrease in our revenue.
Our business is geographically diversified. Through the first three months of 2018, 61% of our net revenue was earned in North America and Latin America (“NALA”), 26% in Europe, Middle East and Africa (“EMEA”) and 13% in Asia Pacific Japan (“APJ”). Net revenue for a particular geography generally reflects commissions earned from sales of service contracts managed from our revenue delivery center in that geography. Predominantly all of the service contracts sold and managed by our revenue delivery centers relate to end customers located in the same geography. In addition, our Kuala Lumpur location is a revenue delivery centers where we have centralized, for our worldwide operations, the key contract renewal processes that do not require regional expertise, such as client data management and quoting.
Cost of Revenue and Gross Profit
Our cost of revenue includeincludes employee compensation, technology costs, including those related to the delivery of our cloud-based technologies and allocated overhead costs. Employee compensation includes salary,
 For the Three Months Ended March 31,    
 2019 2018    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Net revenue$55,511
 100% $58,585
 100% $(3,074) (5)%
Cost of revenue39,476
 71% 41,724
 71% (2,248) (5)%
Gross profit$16,035
 29% $16,861
 29% $(826) (5)%
Net revenue decreased by $3.1 million or 5%, for the three months ended March 31, 2019 compared to the same period in 2018 primarily due to client churn.
Cost of revenue decreased $2.2 million, or 5%, for the three months ended March 31, 2019 compared to the same period in 2018, primarily due to the following:
$1.8 million decrease in depreciation and amortization expense primarily due to internally developed software fully amortized as of July 2018; and
$1.0 million decrease in employee related costs primarily due to lower bonus benefits and stock-based compensation for our dedicated service sales teams. Our allocated overhead includes costs for facilities,commissions driven by lower revenue attainment and lower travel and entertainment expenditures.
$0.7 million increase in information technology and depreciation, including amortization of internal-use software associated with our selling services revenue technology platform and cloud applications. Allocated costs for facilities consist of rent, maintenance and compensation of personnel in our facilities departments. Our allocated costs for information technology include costs associated with third-party data centers where we maintain our data servers, compensation of our information technology personnel and the cost of support and maintenance contracts associated with computer hardware and software. To the extent our client base or business with our existing client base expands, we may need to hire additional service sales personnel and invest in infrastructure to support such growth. Our cost of revenue may fluctuate significantly and increase or decrease on an absolute basis and as a percentage of revenue in the near term, including for the reasons discussed under, “Factors Affecting Our Performance-Implementation Cycle” in our 2017 annual report on Form 10-K.costs.
Operating Expenses
 For the Three Months Ended March 31,    
 2019 2018    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Operating expenses:           
Sales and marketing$7,949
 14% $9,238
 16% $(1,289) (14)%
Research and development1,263
 2% 1,516
 3% (253) (17)%
General and administrative10,982
 20% 12,889
 22% (1,907) (15)%
Restructuring and other related costs1,058
 2% 53
 % 1,005
 *
Total operating expenses$21,252
 38% $23,696
 40% $(2,444) (10)%
* Not considered meaningful.
Sales and Marketing. Marketing
Sales and marketing expenses are a significant component of our operating costs andprimarily consist primarily of compensation expenses and sales commissions for our sales and marketing staff, amortization of contract acquisition costs, allocated expenses and marketing programs and events. We sell our solutions through our global sales organization, which is organized across three geographic regions: NALA, EMEA and APJ. Our commission plans generally provide multiple payments of commissions to our sales representatives based in part on the execution of a client contract and then on a percentage of revenue recorded during the first 18 to 21 months of the contract term. Commissions paid as a percentage of recorded revenue is contingent on the sales representatives' continued employment. We generally capitalize the amounts payable upon contract execution and amortize ratably to
Sales and Marketing expense over the estimated contract term for new clients or estimated life of the client for long-stand client relationships. Revenue based commissions are expensed to sales and marketing expense each quarterdecreased $1.3 million, or 14%, for the three months ended March 31, 2019 compared to the same period in 2018, primarily due to the following:
$1.4 million decrease in employee related costs associated with employee attrition and our restructuring effort to better align our cost structure with current business and market conditions as revenue is recorded.well as a decrease in travel costs; partially offset by
$0.1 million increase in information technology costs.
Research and Development. Development
Research and development expenses primarily consist primarily of employee compensation expense, allocated costs and the cost of third-party service providers. We focus our research

Research and development efforts on developing new products and applications related to our technology platform. We capitalize certain expenditures relatedexpense decreased $0.3 million, or 17%, for the three months ended March 31, 2019 compared to the developmentsame period in 2018, primarily due to a decrease in employee related costs driven by our restructuring effort to better align our cost structure with current business and enhancement of internal-use software related to our technology platform.market conditions.
General and Administrative. Administrative
General and administrative expenses primarily consist primarily of employee compensation expense for our executive, human resources, finance and legal functions and related expenses for professional fees for accounting, tax and legal services, as well as allocated expenses, which consist of depreciation, amortization of internally developed software, facilitiesfacility and technology costs.
General and administrative expense decreased $1.9 million, or 15%, for the three months ended March 31, 2019 compared to the same period in 2018, primarily due to the following:
$1.6 million decrease in employee related costs primarily due to changes in executive management and decreases in recruitment services and temporary labor; and
$0.9 million decrease in professional fees, partially offset by
$0.4 million increase in information technology spend; and
$0.3 million increase in depreciation and amortization expense.
Restructuring and Other.Other Related Costs
Restructuring and other expensesrelated costs primarily consist of severance and other employee costs.
Restructuring and other related costs increased $1.0 million for the three months ended March 31, 2019 compared to the same period in 2018 primarily of employees’ severance payments and related employee benefits, stock-based compensationdue to costs incurred during the three months ended March 31, 2019 related to the accelerated vesting of certain equity awards, related legal fees, asset impairment chargesFebruary 2019 restructuring effort to better align our cost structure with current business and charges related to leasesmarket conditions, resulting in a headcount reduction in our sales and marketing and research and development teams.
Other Expenses
Interest and other contract termination costs.

Interest Expense, Other, Net and Impairment Loss on Investment Securities
Interest expense. Interest expense, net primarily consists of amortization of debt issuance costs, interest expense associated with the Company's debt obligations, accretion of the Company's debt discount, interest income earned on our convertible debt,cash and cash equivalents and marketable securities, imputed interest from capitalour finance lease payments accretion ofand foreign exchange gains and losses.
 For the Three Months Ended March 31,    
 2019 2018    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Interest expense$(92)  % $(3,022) (5)% $2,930
 (97)%
Other (expense) income, net$(398) (1)% $176
  % $(574) *
Impairment loss on investment securities$
  % $(1,958) (3)% $1,958
 (100)%
* Not considered meaningful.
Interest expense decreased $2.9 million, or 97%, for the debt discount and amortization of debt issuance costs. We recognize accretion ofthree months ended March 31, 2019 compared to the debt discount and amortization of interest costs using the effective interest rate method. We expect our interest expense to generally decreasesame period in 2018, primarily due to the maturity and payoff of our $150.0 million convertible notes in August 2018.
Other net. Other,(expense) income, net consistsincreased $0.6 million for the three months ended March 31, 2019 compared to the same period in 2018, primarily of foreign exchange gains and losses anddue to a decrease in interest income earned on our cash, cash equivalentsshort-term investments and marketable securities. We expect Other, net to vary depending on the movement in foreign currency exchange rates and the related impact on our foreign exchange gain (loss) and the return of interest on our investments.fluctuations.
Impairment loss on investment securities. When evaluating debt or equity security investments for impairment,During 2018, we review factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and our intent to sell, or whether it is more-likely-than-not we will be required to sell the investment before recovering the investment’s cost basis. We determined to liquidate the majority of our investment securities in the first half of 2018 to have sufficient cash on hand to repay our $150.0 million convertible notes due on August 1, 2018. Based on our decision to sell these investment securities, we determined an other-than-temporary impairment occurred as of March 31, 2018. Consequently, a $2.0 million impairment which was previously reflected in our Condensed Consolidated Statements of Comprehensive Loss as an unrealized loss was recorded in our Condensed Consolidated Statement of Operations duringfor the three months ended March 31, 2018. This impairment loss represents the difference between the investment securities' amortized cost basis and its fair value.

Provision for Income Tax Benefit (Expense)Expense
We account for income taxes using an asset and liability method, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our taxable subsidiaries’ assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
We evaluate our ability to realize the tax benefits associated with deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of our deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not (a probability level of more than 50 percent) that they will not be realized. In assessing the realization of our deferred tax assets, we consider all available evidence, both positive and negative, and place significant emphasis on guidance contained in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.”
We account for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. We record an income tax liability, if any, for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax returns. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made. The reserves are adjusted in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
 For the Three Months Ended March 31,    
 2019 2018    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Provision for income tax expense$(12)  % $(13)  % $1
 (8)%

Results of Operations
The following table sets forth our operating results as a percentage of net revenue:
 For the Three Months Ended March 31,
 2018 2017
Net revenue100 % 100 %
Cost of revenue71 % 73 %
Gross profit29 % 27 %
Operating expenses:   
Sales and marketing16 % 15 %
Research and development3 % 4 %
General and administrative22 % 25 %
Restructuring and other %  %
Total operating expenses41 % 44 %
Loss from operations(12)% (17)%
Three Months Ended March 31, 2018 Compared to March 31, 2017
Net Revenue, Cost of Revenue and Gross Profit
 For the Three Months Ended March 31,    
 2018 2017    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Net revenue$58,585
 100% $56,708
 100% $1,877
 3%
Cost of revenue41,724
 71% 41,409
 73% 315
 1%
Gross profit$16,861
 29% $15,299
 27% $1,562
 10%
Net revenue increased $1.9 million, or 3%, for the three months ended March 31, 2018 compared to the same period in 2017 due to an overall increase in productivity with our existing client base during the first quarter of 2018.
Cost of revenue increased $0.3 million, or 1%, for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to the following:
$0.4 million increase in employee costs related to operational improvements in our business that resulted in an increase in headcount to lower cost locations;
$0.3 million increase in depreciation and amortization expense;
$0.2 million increase in travel costs; partially offset by
$0.3 million decrease in temporary labor and consulting costs; and
$0.3 million decrease in information technology costs.
Gross profit increased $1.6 million, or 10%, for the three months ended March 31, 2018 compared to the same period in 2017, which is in line with the increase in revenue.

Operating Expenses
 For the Three Months Ended March 31,    
 2018 2017    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Operating expenses:           
Sales and marketing$9,238
 16% $8,340
 15% $898
 11 %
Research and development1,516
 3% 2,243
 4% (727) (32)%
General and administrative12,889
 22% 13,980
 25% (1,091) (8)%
Restructuring and other53
 % 
 % 53
 100 %
Total operating expenses$23,696
 41% $24,563
 44% $(867) (4)%
            
Stock-based compensation included in operating expenses:        
 Amount   Amount   $ Change  
 (in thousands)   (in thousands)   (in thousands)  
Sales and marketing$886
   $882
   $4
  
Research and development64
   99
   (35)  
General and administrative1,882
   1,946
   (64)  
Total stock-based compensation$2,832
   $2,927
   $(95)  

Sales and Marketing
Sales and marketing expense increased $0.9 million, or 11%, for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to the following:
$0.6 million increase in employee related costs due to higher commissions from increased performance, offset by lower headcount costs from our efforts to better align our cost structure;
$0.4 million increase in contract acquisition costs due to the adoption of ASC 606, see Notes to the Condensed Consolidated Financial Statements “Note 2 - Summary of Significant Accounting Policies” for additional information; and
$0.2 million increase in travel costs; partially offset by
$0.2 million decrease in marketing costs.
Research and Development
Research and development expense decreased $0.7 million, or 32%, for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to our efforts to refocus and streamline our technology platforms by reducing research and development spend as follows:
$0.5 million decrease in temporary labor and consulting costs;
$0.2 million decrease in facilities costs; and
$0.1 million decrease in employee related costs; partially offset by
$0.2 million increase in information technology costs.
Internal-use software development capitalization decreased $0.7 million, for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to the migration from our Renew OnDemand platform to PRISM. We expect to continue to invest in our technology platforms to support our services offering and thus capitalizing internal-use software costs in the future. However, the amount capitalized will depend on the future level of expenditures on our technology platforms.
General and Administrative
General and administrative expense decreased $1.1 million, or 8%, for three months ended March 31, 2018 compared to the same period in 2017, primarily due to the following:

$1.7 million decrease in employee compensation costs due to lower headcount resulting from our efforts to better align our cost structure; partially offset by
$0.6 million increase in temporary labor and consulting costs.
Restructuring and Other
Restructuring and other expense increased $0.1 million, or 100%, for the three months ended March 31, 2018 compared to the same period in 2017 due to the relocation and decommissioning of our San Francisco office space.
Interest Expense, Other, Net and Impairment Loss on Investment Securities
 For the Three Months Ended March 31,    
 2018 2017    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Interest expense$(3,022) (5)% $(2,817) (5)% $(205) 7 %
Other, net$176
  % $747
 1 % $(571) (76)%
Impairment loss on investment securities$(1,958) (3)% $
  % $(1,958) 100 %
Interest expense increased $0.2 million, or 7%, for the three months ended March 31, 2018 compared to the same period in 2017, due to the accretion of debt discount related to the convertible notes issued in August 2013.
Other, net decreased $0.6 million, or 76%, for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to foreign currency fluctuations.
Impairment loss on investment securities increased $2.0 million, or 100% for the three months ended March 31, 2018 compared to the same period in 2017, due to the Company determining an other-than-temporary-impairment occurred as of March 31, 2018, an impairment loss based on the difference between the investment securities' amortized cost basis and fair value was recorded as of March 31, 2018.
Income Tax Provision
 For the Three Months Ended March 31,    
 2018 2017    
 Amount % of Net Revenue Amount % of Net Revenue $ Change % Change
 (in thousands)   (in thousands)   (in thousands)  
Provision for income tax expense$(13)  % $(290) 1% $277
 *
* Not considered meaningful.
For the three months ended March 31, 2018, the Company recorded income tax expense less than $0.1 million. The tax expense resulted primarily from profitable jurisdictions where no valuation allowance has been provided. IncomeProvision for income tax expense decreased $0.3 million,8% for the three months ended March 31, 20182019 compared to the same period in 2017,2018, due to a decrease in profitable operations in certain foreign jurisdictions.
As of March 31, 2018, we recorded a full valuation allowance on our state deferred tax assets. No benefit was provided for losses incurred in U.S. and Singapore because those losses are offset by a full valuation allowance.
Liquidity and Capital Resources
Our primary operating cash requirements include the payment of employee compensation and related costs and costs for our facilities and information technology infrastructure. Historically, we have financed our operations from cash provided by our operating activities proceeds from common stock offerings and cash proceeds from the exercise of stock options and our employee stock purchase plan. We believe our existing cash and cash equivalents and short-term investmentsavailable funds from our senior secured revolving line of credit (the “Revolver”) will be sufficient to meet our working capital and capital expenditure needs over the next twelve months.

As of March 31, 2018,2019, we had cash and cash equivalents and short-term investments of $185.2$24.8 million, which primarily consisted of demand deposits and money market mutual funds, corporate bonds and U.S. government obligations held by well-capitalized financial institutions.funds. Included in cash, cash equivalents and short-term investments was cash and cash equivalents of $7.9was $5.5 million held by our foreign subsidiaries used to satisfy their operating requirements. We consider the undistributed earnings of ServiceSource Europe Ltd. &and ServiceSource International Singapore Pte. Ltd. permanently reinvested in foreign operations and have not provided for U.S. income taxes on such earnings. As of March 31, 2018, the Company2019, we had no unremitted earnings from our foreign subsidiaries.
In August 2013,During July 2018, we issued $150.0 million aggregate principal amount of 1.50% convertible notes due August 1, 2018 (the "Notes") and concurrently entered into convertible notes hedgesa $40.0 million Revolver that allows us to borrow against our domestic receivables as defined in the credit agreement. The Revolver matures July 2021 and separate warrant transactions. The Notes maturebears interest at a variable rate per annum based on August 1, 2018, unless converted earlier. Upon conversion, the Notes will be settledgreater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in cash, shareseach case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. Proceeds from the credit facility are used for working capital and general corporate purposes.
As of March 31, 2019, we did not have any borrowings outstanding under the Revolver. Obligations under the credit agreement are secured by substantially all assets of the borrowers and certain of their subsidiaries, including pledges of equity in certain of our stock, or any combination thereof, at our option.subsidiaries. The Notes were not subject to conversion or repurchaseRevolver has covenants with which we are in compliance as of March 31, 20182019 and are classified as a current liability on our Condensed Consolidated Balance Sheet. We believe we have sufficient cash and liquid short-term investments to repay the Notes upon maturity.December 31, 2018.
Letter of Credit and Restricted Cash
On February 3, 2015,In connection with two of our leased facilities, we issued a $1.2 million letterare required to maintain two letters of credit in connection with a lease for a new San Francisco office facility.totaling $2.3 million. The letterletters of credit isare secured by $1.2$2.3 million of cash in a money market accountaccounts, which isare classified as restricted cash in "Other assets" in theour Consolidated Balance Sheets.
Cash Flows
The following table presents a summary of our cash flows:
For the Three Months Ended March 31,
For the Three Months Ended March 31,2019 2018
2018 2017   
(in thousands)(in thousands)
Net cash provided by operating activities$599
 $7,368
$2,084
 $599
Net cash used in investing activities$(573) $(5,053)(2,898) (573)
Net cash provided by financing activities$257
 $469
Net increase in cash, cash equivalents and restricted cash net of the effect of exchange rates on cash, cash equivalents and restricted cash$361
 $2,653
Net cash (used in) provided by financing activities(49) 257
Effect of exchange rate changes on cash and cash equivalents and restricted cash185
 78
Net change in cash and cash equivalents and restricted cash$(678) $361

Our total depreciation and amortization expense was comprised of the following:
For the Three Months Ended March 31,
For the Three Months Ended March 31,2019 2018
2018 2017   
(in thousands)(in thousands)
Purchased intangible asset amortization$85
 $378
$
 $85
Internally developed software amortization2,832
 2,795
1,259
 2,832
Property and equipment depreciation1,886
 1,933
2,026
 1,886
Depreciation and amortization4,803
 5,106
Adjustments and other
 (375)
Total depreciation and amortization$4,803
 $4,731
$3,285
 $4,803
Operating Activities
ForNet cash provided by operating activities increased $1.5 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 netprimarily as a result of lower cash providedpayments made during the current period compared to the prior period related to both employee compensation and other operating costs previously accrued for; offset by operating activities was $0.6 million. Our net loss was $11.7 million, which was impacted by non-cash charges of $4.8 million for depreciationless cash received during the current period compared to the prior period related to lower year over year revenue attainment in the preceding fourth quarters and amortization, $2.4 million of amortization for debt discount and issuance costs, $0.4 million for amortization of contract acquisition costs, $2.0 million from the impairment of our investment securities and $3.1 million for stock-based compensation. Cash provided by operations from changes in our working capital include a $6.9 million decrease in accounts receivable, net, offset by cash used in operations from a $2.8 million decrease in accounts payable, $2.0 million increase in prepaid expenses and other assets, and a $3.2 million decrease in accrued expenses and other liabilities.
For the three months ended March 31, 2017, net cash provided by operating activities was $7.4 million. Our net loss was $11.6 million, which was impacted by non-cash charges of $4.7 million for depreciation and amortization, $2.2 million of amortization for debt discount and issuance costs and $3.2 million for stock-based compensation. Cash provided by operations from changes in our working capital include a $10.5 million decrease in accounts receivable, net, a $1.1 million increase in

deferred revenue and a $1.9 million decrease in prepaid expenses and other assets, offset by cash used in operations from a $4.6 million decrease in accrued expenses and other liabilities and a $0.1 million decrease in accounts payable.Adjusted EBITDA.
Investing Activities
Net cash used in investing activities decreased $4.5increased $2.3 million for the three months ended March 31, 2019 compared to $0.6 million during the three months ended March 31, 2018 compared to $5.1 million during the same period in 2017, primarily due to the following activities:
$18.1 millionas a result of a decrease in cash outflows related toinflows from the purchasesale and maturity of our short-term investments during 2017; and
$1.0 million2018, offset by a decrease in cash outflows related to the acquisition of property and equipment which includes $0.7 million of decreased internally developed software costs; partially offset by
$14.5 million decrease in cash inflows from the sale and maturity of short-term investments.
Financing Activities
Net cash provided by financing activities decreased $0.2 million to $0.3 million during the three months ended March 31, 20182019.
Financing Activities
Net cash used in financing activities increased $0.3 million for the three months ended March 31, 2019 compared to $0.5 millionthe three months ended March 31, 2018 primarily as a result of a reduction in proceeds from the issuance of common stock, offset by an increase in cash outflows from repayment of finance lease obligations during the same period in 2017, primarily due to the following activities:
$0.3 million decrease in cash inflows due to proceeds of approximately $0.6 million from the exercise of stock options and the employee purchase plan during 2017 compared to proceeds of approximately $0.4 million from the exercise of stock options and the employee purchase plan during 2018; partially offset by
$0.1 million decrease in cash outflow due to the minimum tax withholding requirement.

three months ended March 31, 2019.
Off-Balance Sheet Arrangements
As of March 31, 2018 and December 31, 20172019 we did not have any relationships with other entities or financial partnerships such as entities often referred to as structured finance or special-purpose entities, which have been established for the purpose of facilitating off-balanceoff balance sheet arrangements or other contractually narrow or limited purposes.arrangements.
Contractual Obligations and Commitments
Our contractual obligations and commitments primarily consist of obligations under operating lease agreementsand finance leases for office space and computercertain equipment convertible notes, purchase commitments and unrecognized tax benefits duringnon-cancelable service contracts.
The following table summarizes future payments of our normal course of business.
In January 2018, the Company entered into a sublease with a third-party for our San Francisco office space for the remaining term of the lease. The total minimum paymentscontractual obligations as of March 31, 2018 through November 30, 2022 under2019:
 Total Less than 1 year 1- 3 years 4- 5 years More than 5 years
          
 (in thousands)
Finance lease obligations$2,174
 $918
 $1,256
 $
 $
Operating lease obligations39,422
 8,491
 17,580
 6,420
 6,931
Operating sublease income(7,212) (1,889) (3,950) (1,373) 
Service contracts39,042
 8,625
 24,874
 5,543
 
Restructuring and other related costs1,265
 611
 491
 163
 
Total(1)
$74,691
 $16,756
 $40,251
 $10,753
 $6,931
(1)Excluded from the original lease total approximately $8.9 milliontable is the income tax liability we recorded for the difference between the benefit recognized and total sublease rental income totals approximately $8.9 million overmeasured and the same period.

In January 2018, the Company entered into a contracttax position taken or expected to finance a software license. Future payments through December 31, 2020 total approximately $1.0 million.
In April 2018, the Company entered into a non-cancelable operating lease agreement for approximately 7,215 rentable square feet in San Francisco. Future minimum lease payments through November 30, 2023 under the San Francisco non-cancelable operating lease total approximately $3.3 million asbe taken on our tax returns. As of March 31, 2018.2019, our liability for unrecognized tax benefits was $1.0 million. Reasonably reliable estimate of the amounts and periods of related future payments cannot be made at this time.

There have been no other material changes in ourThe contractual obligations and purchase commitments other thancommitment amounts in the ordinary coursetable above are associated with agreements that are enforceable and legally binding, which specify significant terms, included payment terms, related services and the approximate timing of business since December 31, 2017.the transaction. Obligations under contracts that we may cancel without a significant penalty are not included in the above table.

Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements.  Our discussion and analysis of financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. Estimates, judgments and assumptions are based on historical experiences that we believe to be reasonable under the circumstances.  From time to time, we re-evaluate those estimates and assumptions.

The Company's significant accounting policies and estimates are described in "Notes to"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 Condensed Consolidated Financial Statements, Note 2 - Summary of Significant Accounting Policies."year ended December 31, 2018. These policies were followed in preparing the Condensed Consolidated Financial Statements for the three months ended March 31, 20182019 and are consistent with the year ended December 31, 2017,2018, except for the new accounting policies related to the adoption and application of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers842, Lease Accounting (“ASC 606"842") as of January 1, 2018.2019.
Recent Accounting Pronouncements
The information contained inFor a discussion of recent accounting pronouncements, see Note 2 - "Summary of Significant Accounting Policies" to our Condensed Consolidated Financial Statements in Item 1 under the heading, “Recent Accounting Pronouncements,” is incorporated by reference into this Item 2.Statements.
Non-GAAP Financial Measurements
ServiceSource believes net income (loss), as defined by GAAP, is the most appropriate financial measure of our operating performance; however, ServiceSource considers adjusted EBITDA to be a useful supplemental, non-GAAP financial measure of our operating performance. We believe adjusted EBITDA can assist investors in understanding and assessing our operating performance on a consistent basis, as it removes the impact of the Company's capital structure and other non-cash or non-recurring items from operating results and provides an additional tool to compare ServiceSource's financial results with other companies in the industry, many of which present similar non-GAAP financial measures.
EBITDA consists of net income (loss) plus provision for income tax (benefit) expense, interest and other expense, net and depreciation and amortization. Adjusted EBITDA consists of EBITDA plus non-cash stock-based compensation, amortization of contract acquisition costs related to the initial adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), restructuring and other related costs and impairment loss on investment securities.
This non-GAAP measure should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP.
The following table presents the calculation of adjusted EBITDA reconciled from “Net loss”:
 For the Three Months Ended
March 31,
 2019 2018
    
 (in thousands)
Net loss$(5,719) $(11,652)
Provision for income tax expense12
 13
Interest and other expense, net490
 2,846
Depreciation and amortization3,285
 4,803
EBITDA(1,932) (3,990)
Stock-based compensation1,570
 3,111
Amortization of contract acquisition asset costs - ASC 606 initial adoption257
 426
Restructuring and other related costs1,058
 53
Impairment loss on investment securities
 1,958
Adjusted EBITDA$953
 $1,558
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe thereThere have been no significant changes in our market risk exposures associated with foreign currency risk, inflation risk and interest rate risk for the three months ended March 31, 2018,2019, as compared with those discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2017.2018.
The effective interest rate on our Revolver was 6.50% as of March 31, 2019. As of March 31, 2019, we did not have any borrowings outstanding on the Revolver, therefore a 1% increase in the effective interest rate would not increase interest expense. We may incur additional expense in future periods if we borrow on the Revolver.

Item 4. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”).
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 chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable 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 chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
(b)Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting during the quarter covered by this report that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
For a discussion of legal proceedings in which we are involved, see "Notes to the Condensed Consolidated Financial Statements, Note 57 - Commitments and Contingencies" appearing elsewhereto the Consolidated Financial Statements in this quarterly report on Form 10-Q.Item 1.
Item 1A. Risk Factors
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, are further described under the captionsee “Risk Factors” in Part I,1, Item 1A of our 2017 annual report on Form 10-K.10-K for the year ended December 31, 2018. There have been no material changes in the nature of these factors since December 31, 2017.2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits

Exhibit
Number
Description of Document
  
10.1
31.1*
  
31.2*
  
32.1*
  
32.2*
  
101
Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of March 31, 20182019 and December 31, 2017,2018, (ii) the Condensed Consolidated Statement of Operations for the three months ended March 31, 20182019 and 2017,2018, (iii) the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018, (iv) Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2017, (iv)2018, (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 and 2017 and (v)(vi) the Notes to Condensed Consolidated Financial Statements.

* FileFiled or Furnished herewith.



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  
SERVICESOURCE INTERNATIONAL, INC.
(Registrant)
    
Date:May 3, 20188, 2019By:/s/ ROBERT N. PINKERTONRICHARD G. WALKER
   
Robert N. PinkertonRichard G. Walker
Chief Financial Officer
(Principal Financial and Accounting Officer)

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