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, ~~2018~~2019

¨ 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 17^th17th Street, 5^th5th 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	¨o	Accelerated filer	x
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 Value	SREV	The Nasdaq Stock Market LLC
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

As of April 30, ~~2018, 90,969,118~~2019, 93,307,941 shares of common stock of ServiceSource International, Inc. were outstanding.

SERVICESOURCE INTERNATIONAL, INC.

Form 10-Q

INDEX



	Page ~~No.~~
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	3
~~Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017~~ (unaudited)	3
~~Condensed~~ Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	3
Consolidated Statements of Operations for the three months ended March 31, ~~2018~~2019 and ~~2017 (unaudited)~~2018	4
~~Condensed~~ Consolidated Statements of Comprehensive Loss for the three months ended March 31, ~~2018~~2019 and ~~2017 (unaudited)~~2018	5
~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018	6
Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2019 and ~~2017 (unaudited)~~2018	67
Notes to ~~Condensed~~ Consolidated Financial Statements ~~(unaudited)~~	78

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2218

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3023

Item 4. Controls and Procedures	3024

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	3125

Item 1A. Risk Factors	3125

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3125

Item 3. Defaults Upon Senior Securities	3125

Item 4. Mine Safety Disclosures	3125

Item 5. Other Information	3125

Item 6. Exhibits	3125

~~ServiceSource International, Inc.~~

~~Condensed Consolidated Balance Sheets~~

~~(in thousands, expect per share amounts)~~

~~(unaudited)~~


ServiceSource International, Inc.							ServiceSource International, Inc.
Consolidated Balance Sheet							Consolidated 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 investments	133,465			137,181
Accounts receivable, net	49,776			56,516			50,935			54,284
Prepaid expenses and other	7,561			6,112			7,079			5,653
Total current assets	242,552			251,198			82,821			86,472

Property and equipment, net	33,975			34,119			35,744			36,593
Contract acquisition costs	3,350			—			2,371			2,660
Deferred income taxes, net of current portion	73			70
Goodwill and intangible assets, net	6,334			6,419
Right-of-use assets							36,944			—
Goodwill							6,334			6,334
Other assets	3,983			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 taxes	337			651
Accrued expenses							2,429			3,380
Accrued compensation and benefits	16,807			19,257			17,657			15,509
Convertible notes, net	146,589			144,167
Deferred revenue	—			1,282
Accrued expenses	7,650			6,625
Operating lease liabilities							8,504			—
Other current liabilities	2,886			2,104			5,993			6,894
Total current liabilities	176,036			178,660			36,712			28,207

Operating lease liabilities, net of current portion							30,918			—
Other long-term liabilities	5,015			4,603			3,512			6,540
Total liabilities	181,051			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, 2017	8			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, 2018							9			9
Treasury stock	(441		)	(441		)	(441		)	(441		)
Additional paid-in capital	362,870			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 income							478			402
Total stockholders’ equity	109,216			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 Operations							Consolidated 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			2017			2019			2018
Net revenue	$	58,585		$	56,708		$	55,511		$	58,585
Cost of revenue	41,724			41,409			39,476			41,724
Gross profit	16,861			15,299			16,035			16,861
Operating expenses:
Sales and marketing	9,238			8,340			7,949			9,238
Research and development	1,516			2,243			1,263			1,516
General and administrative	12,889			13,980			10,982			12,889
Restructuring and other	53			—
Restructuring and other related costs							1,058			53
Total operating expenses	23,696			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 diluted	90,358			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 Loss							Consolidated 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			2017			2019			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 investments	1,253			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 adjustments	273			(130		)	76			274
Other comprehensive loss, net of tax	(432		)	(57		)
Comprehensive loss, net of tax	$	(12,084	)	$	(11,681	)
Other comprehensive income							76			1,527
Comprehensive loss							$	(5,643	)	$	(10,125	)

The accompanying notes are an integral part of these ~~Condensed~~Consolidated 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			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total
Balance at January 1, 2019	92,895	$	9	(121	)	$	(441	)	$	369,246		$	(267,383	)	$	402		$	101,833
Net loss	—	—		—		—			—			(5,719		)	—			(5,719		)
Other comprehensive income	—	—		—		—			—			—			76			76
Stock-based compensation	—	—		—		—			1,564			—			—			1,564
Issuance of common stock, restricted stock units	229	—		—		—			—			—			—			—
Proceeds from the exercise of stock options and employee stock purchase plan	139	—		—		—			141			—			—			141
Balance at March 31, 2019	93,263	$	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			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2017	90,380	$	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, 2018	90,380	$	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 units	84	—		—		—			—			—			—			—
Proceeds from the exercise of stock options and employee stock purchase plan	119	—		—		—			353			—			—			353
Net cash paid for payroll taxes on restricted stock unit releases	—	—		—		—			(53		)	—			—			(53		)
Balance at March 31, 2018	90,583	$	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 amortization	3,285			4,803
Amortization of debt discount and issuance costs	18			2,421
Amortization of contract acquisition costs	400			426
Amortization of premium on short-term investments	—			115
Amortization of right-of-use assets	2,239			—
Stock-based compensation	1,570			3,111
Restructuring and other related costs	1,041			196
Impairment loss on investment securities	—			1,958
Other	—			80
Net changes in operating assets and liabilities
Accounts receivable, net	3,258			6,923
Prepaid expenses and other assets	(1,277		)	(1,523		)
Contract acquisition costs	(108		)	(430		)
Accounts payable	(18		)	(2,809		)
Accrued compensation and benefits	1,094			(2,654		)
Operating lease liabilities	(2,338		)	—
Accrued expenses	(1,023		)	(367		)
Other liabilities	(338		)	1
Net cash provided by operating activities	2,084			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 stock	141			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 cash	185			78
Net change in cash and cash equivalents and restricted cash	(678		)	361
Cash and cash equivalents and restricted cash, beginning of period	27,779			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 amortization 4,803
4,731
Amortization of debt discount and issuance costs 2,421
2,241
Amortization of contract acquisition costs - ASC 606 initial adoption 426
—
Amortization of premium on short-term investments 115
(94 )
Deferred income taxes —
95
Stock-based compensation 3,111
3,218
Restructuring and other 196
—
Impairment loss on investment securities 1,958
—
Other 80
—
Changes in operating assets and liabilities:

Accounts receivable, net 6,923
10,470
Deferred revenue 176
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 activities 599
7,368
Cash flows from investing activities:
Acquisition of property and equipment (3,469 ) (4,432 )
Purchases of short-term investments 7
(18,059 )
Sales of short-term investments 2,064
16,513
Maturities of short-term investments 825
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 stock 353
616
Payments related to minimum tax withholding on restricted stock unit releases (53 ) (131 )
Net cash provided by financing activities 257
469
Net increase in cash, cash equivalents and restricted cash 283
2,784
Effect of exchange rate changes on cash, cash equivalents and restricted cash 78
(131 )
Cash, cash equivalents and restricted cash, beginning of period 52,633
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 Information~~Basis 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, ~~2017~~2018 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, ~~2017~~2018 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

~~Preparation~~The preparation of ~~financial statements~~the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts ~~reported in~~of assets and liabilities, the ~~Company’s Condensed~~disclosure 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 ~~could~~and outcomes may differ ~~materially~~ from ~~those~~our 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 standards~~2016-02, 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 lessee~~its right to ~~record a lease~~use 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 whether~~corresponding 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 ~~guidance~~standard 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 in~~years. 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 requires~~2018-11, Leases (Topic 842) Targeted Improvements, which provide transition practical expedients allowing companies to ~~combine restricted cash and restricted cash equivalents~~adopt the new standard with ~~cash and cash equivalents when reconciling~~a 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 ~~retrospectively~~prospectively to ~~all prior periods presented within these Condensed~~eligible 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 ~~606~~842

~~Revenue Recognition~~Leases

~~The~~At the inception of a contract, the Company ~~provides~~determines whether the contract is or contains a ~~comprehensive suite of selling~~lease. 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 activities~~lease 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 measured~~liabilities 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 to~~lease 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.~~

~~The~~Company'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 in~~uses an incremental borrowing rate, the ~~contract and if a client can benefit from~~variable 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 obligations~~present 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 based~~recognized 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 Statements~~Company 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 investments 133,465
—
133,465
Accounts receivable, net 49,776
80
49,856
Prepaid expenses and other 7,561
(154 ) 7,407
Total current assets 242,552
(74 ) 242,478

Property and equipment, net 33,975
—
33,975
Contract acquisition costs 3,350
(3,350 ) —
Deferred income taxes, net of current portion 73
—
73
Goodwill and intangible assets, net 6,334
—
6,334
Other assets 3,983
(118 ) 3,865
Total assets $ 290,267
$ (3,542 ) $ 286,725

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,767
$ —
$ 1,767
Accrued taxes 337
—
337
Accrued compensation and benefits 16,807
—
16,807
Convertible notes, net 146,589
—
146,589
Deferred revenue —
1,782
1,782
Accrued expenses 7,650
—
7,650
Other current liabilities 2,886
(1,450 ) 1,436
Total current liabilities 176,036
332
176,368

Other long-term liabilities 5,015
—
5,015
Total liabilities 181,051
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, 2018 8
—
8
Treasury stock (441 ) —
(441 )
Additional paid-in capital 362,870
—
362,870
Accumulated deficit (254,150 ) (3,874 ) (258,024 )
Accumulated other comprehensive income (loss) 929
—
929
Total stockholders’ equity 109,216
(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 revenue 41,724
—
41,724
Gross profit 16,861
(161 ) 16,700
Operating expenses:
Sales and marketing 9,238
4
9,242
Research and development 1,516
—
1,516
General and administrative 12,889
—
12,889
Restructuring and other 53
—
53
Total operating expenses 23,696
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 diluted 90,358

—

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 amortization 4,803
—
4,803
Amortization of debt discount and issuance costs 2,421
—
2,421
Amortization of contract acquisition cost - ASC 606 initial adoption 426
(426 ) —
Amortization of premium on short-term investments 115
—
115
Stock-based compensation 3,111
—
3,111
Restructuring and other 196
—
196
Impairment loss on investment securities 1,958
—
1,958
Other 80
—
80
Changes in operating assets and liabilities:

Accounts receivable, net 6,923
(80 ) 6,843
Deferred revenue 176
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 activities 599
—
599
Cash flows from investing activities:
Acquisition of property and equipment (3,469 ) —
(3,469 )
Purchases of short-term investments 7
—
7
Sales of short-term investments 2,064
—
2,064
Maturities of short-term investments 825
—
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 stock 353
—
353
Repayment related to minimum tax withholding on restricted stock unit releases (53 ) —
(53 )
Net cash provided by financing activities 257
—
257
Net increase in cash, cash equivalents and restricted cash 283
—
283
Effect of exchange rate changes on cash, cash equivalents and restricted cash 78
—
78
Cash, cash equivalents and restricted cash, beginning of period 52,633
—
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 Equivalents~~The Company follows a three-tier fair value hierarchy, which is described in detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There were no transfers between levels during the three months ended March 31, 2019 and ~~Short-Term Investments~~2018.

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 ~~classifies~~liquidated 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 limits~~to 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 ~~intent~~decision to sell ~~or whether it is more-likely-than-not it will be required to sell the~~these 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 ~~our~~the Consolidated Statement of Operations ~~as of~~for the three months ended March 31, ~~2018, which represents~~2018. 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 Ended~~three 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 funds 43
—
—
43
Total cash and cash equivalents 45,357
—
—
45,357
Level 2⁽²⁾:

Cash equivalents:

U.S. Treasury securities 5,395

—

—

5,395
Commercial Paper 998

—

—

998
Total cash equivalents 6,393

—

—

6,393
Short-term investments:
Corporate bonds 54,045
—
—
54,045
U.S. agency securities 34,144
—
—
34,144
Asset-backed securities 19,441
—
—
19,441
U.S. Treasury securities 25,835
—
—
25,835
Total short-term investments 133,465
—
—
133,465
Cash, cash equivalents and short-term investments $ 185,215
$ —
$ —
$ 185,215

~~For~~2018. 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 funds 2,677
—
—
2,677
Total cash and cash equivalents 51,389
—
—
51,389
Level 2⁽²⁾:

Short-term investments:
Corporate bonds 55,763
1
(346 ) 55,418
U.S. agency securities 34,640
—
(410 ) 34,230
Asset-backed securities 21,739
—
(127 ) 21,612
U.S. Treasury securities 26,292
—
(371 ) 25,921
Total short-term investments 138,434
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 value~~Consolidated 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 years 109,316
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, ~~2018~~2019 and December 31, ~~2017. The restricted~~2018 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 — ~~Debt~~Other 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 in~~Other 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 Notes~~following:



	March 31, 2019		December 31, 2018

	(in thousands)
Legal reserve	$	3,750	$	3,750
Finance lease obligations	918		954
Contract liability	826		873
Other liabilities	375		198
Employee stock purchase plan withholdings	124		384
Deferred rent	—		735
Total	$	5,993	$	6,894

Other long-term liabilities were ~~not subject to repurchase as of March 31, 2018. However, holders~~comprised 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 costs 206
191
Accretion of debt discount 2,215
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 obligations	1,256		1,510
Accrued restructuring costs	654		716
Deferred tax liability	110		268
Other accrued costs	111		105
Deferred rent	—		2,573
Total	$	3,512	$	6,540

Note 5 — ~~Commitments~~Debt

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 Leases~~bears interest at a variable rate per annum based on the greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in each case, a margin of 1.00% for base rate borrowings or 2.00% for Eurodollar borrowings. As of 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 space~~obligations under the credit agreement are secured by substantially all assets of the borrowers and certain ~~equipment under non-cancelable operating lease agreements~~of their subsidiaries, including pledges of equity in certain of the Company’s subsidiaries. The Revolver has covenants with ~~various expiration dates through~~which the Company was in compliance as of March 31, 2019 and December ~~2022. Rent~~31, 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, ~~2018~~2019 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 over~~has 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 but~~upon 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 ~~our~~the San Francisco office space ~~for~~through the remaining term of the ~~lease.~~lease of November 30, 2022. The ~~total minimum payments~~Company recognizes rent expense and sublease income on a straight-line basis over the lease period and accrues for rent expense and sublease income incurred but not paid. 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 assets	151
Interest on lease liabilities	41
Total finance lease cost	192

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 portion	30,918
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 liabilities	1,256
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 lease	5.3
Finance lease	2.5
Weighted-average discount rate:
Operating lease	6.5	%
Finance lease	8.3	%

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
2020	10,531			(1,932		)	976
2021	10,377			(1,989		)	569
2022	7,130			(1,878		)	36
2023	2,217			—			—
Thereafter	8,769			—			—
Total lease payments	46,654			(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 operating~~two 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 million~~Japan 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 representatives~~non-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
2020	9,018
2021	7,986
2022	8,277
2023	7,391
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 services	2,007
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
EMEA	15,522		13,636		15,522
NALA	35,469		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 consideration	40,843		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, 2018~~balance totaled ~~$0.3~~$0.1 million and ~~$1.2~~$0.2 million, respectively, and ~~are not considered material for further disclosure purposes. These~~the contract ~~balances~~liability 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 end~~through 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 expensed~~expense the remainder of the asset over the next ~~four~~five years as follows: ~~$1.5~~$0.6 million ~~in 2018, $0.9 million~~remaining 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, ~~2018~~2019 related to amounts capitalized upon the adoption of ASC 606.

~~During the three months ended~~As 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 losses~~The Company recorded ~~during~~$0.1 millionof amortization expense for the ~~period and~~three months ended March 31, 2019 related to amounts capitalized. As of March 31, 2019, the ~~weighted average~~weighted-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 "Sales~~insignificant 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 79 — ~~Stock-Based Compensation~~

~~2018 PSU Awards~~

~~During March 2018, the Company granted performance-based restricted stock unit awards under the Company’s 2011~~Stockholders' 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 marketing	886		882		443			886
Research and development	64		99		(6		)	64
General and administrative	1,882		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, 2017 6,511
$ 4.48
$ 7
Granted 84
$ 3.70
$ 1.81

Options exercised (3 ) $ 2.90
$ 1
Expired and/or Forfeited (495 ) $ 4.93

Issued and outstanding as of March 31, 2018 6,097
$ 4.43
6.81 $ 183
Options exercisable as of March 31, 2018 4,509
$ 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, 2018	7,516		$	3.34		$	—
Granted	25		$	1.01
Expired and/or forfeited	(3,334	)	$	4.08
Outstanding as of March 31, 2019	4,207		$	2.74	7.89	$	—
Exercisable as of March 31, 2019	1,422		$	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 vested~~related to restricted stock units and ~~performance~~performance-based restricted stock ~~units (shares in thousands):~~units:

Shares Weighted-Average Grant Date Fair Value
Unvested as of December 31, 2017 5,027
$ 3.98
Granted 1,490
$ 3.85
Vested⁽¹⁾
(96 ) $ 4.29
Forfeited (125 ) $ 4.00
Unvested as of March 31, 2018 6,296
$ 3.94



	Units		Weighted-Average Grant Date Fair Value
	(in thousands)
Non-vested as of December 31, 2018	5,669		$	3.29
Granted	75		$	1.01
Vested	(228	)	$	3.82
Forfeited	(508	)	$	3.82
Non-vested as of March 31, 2019	5,008		$	3.18

⁽¹⁾~~82 shares~~

As of ~~common stock were issued for~~March 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-vested~~unvested 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 ~~6.8~~10.4 million and ~~3.4~~6.8 million shares for the three months ended March 31, ~~2018~~2019 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 recorded~~The "Provision for income tax ~~expense less than $0.1 million. This amount~~expense" in the Consolidated Statements of Operations primarily ~~consists~~consist 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 ~~2010~~2011 through ~~2018~~2019 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, ~~2018~~2019 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 ~~have~~expect 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 of~~expense. During the ~~Act.~~

Atthree months ended March 31, 2019 and 2018, ~~the~~interest and penalties recognized were insignificant.

Note 11 — Restructuring and Other Related Costs

The Company has ~~not completed~~undergone restructuring efforts to better align its ~~accounting for all of the tax effects of the Act~~cost structure with business and ~~has not made an adjustment~~market 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 provision~~accelerated vesting of certain equity awards and employee-related legal fees. Lease and other contract termination costs include charges related to lease consolidation and abandonment of spaces no longer utilized and the cancellation of certain contracts with outside vendors. Asset impairments include charges related to leasehold improvements and furniture in spaces vacated or no longer in use. The restructuring plans are accounted for ~~income taxes~~ in accordance with ~~the Act~~ASC 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 ~~date~~Company 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 Other~~costs 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 costs	1,058
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 charges~~effort 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 ~~expects~~does 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 to~~May 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.

~~Restructuring~~The 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			Total			Severance 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 costs										3,483			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, 2017										71			1,754			—			1,825
Restructuring and other related costs										120			89			—			209
Cash paid										(188		)	(1,133		)	—			(1,321		)
Change in estimates and non-cash charges										(3		)	252			—			249
Balance as of December 31, 2018										—			962			—			962
Cash paid										—			(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

~~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.~~

~~Basis~~Key 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 net~~Net revenue is primarily attributable to commissions we earn from the sale of renewals of maintenance, support and subscription agreements on behalf of our clients. We 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 based~~cloud-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 ~~include~~includes 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 revenue	39,476		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 development	1,263		2	%	1,516		3	%	(253		)	(17	)%
General and administrative	10,982		20	%	12,889		22	%	(1,907		)	(15	)%
Restructuring and other related costs	1,058		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 and~~primarily 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 quarter~~decreased $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 related~~expense decreased $0.3 million, or 17%, for the three months ended March 31, 2019 compared to the ~~development~~same 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, ~~facilities~~facility 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 ~~expenses~~related 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 compensation~~due 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 charges~~February 2019 restructuring effort to better align our cost structure with current business and ~~charges related to leases~~market 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 ~~capital~~our finance lease payments ~~accretion of~~and 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 of~~three 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 decrease~~same 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 ~~consists~~increased $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 and~~due to a decrease in interest income earned on our ~~cash, cash equivalents~~short-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 ~~during~~for 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 revenue 100 % 100 %
Cost of revenue 71 % 73 %
Gross profit 29 % 27 %
Operating expenses:
Sales and marketing 16 % 15 %
Research and development 3 % 4 %
General and administrative 22 % 25 %
Restructuring and other — % — %
Total operating expenses 41 % 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 revenue 41,724
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 development 1,516
3 % 2,243
4 % (727 ) (32 )%
General and administrative 12,889
22 % 13,980
25 % (1,091 ) (8 )%
Restructuring and other 53
— % —
— % 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 development 64
99
(35 )
General and administrative 1,882
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. ~~Income~~Provision for income tax expense decreased ~~$0.3 million,~~8% for the three months ended March 31, ~~2018~~2019 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 investments~~available 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 $7.9~~was $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 Company~~2019, 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 hedges~~a $40.0 million Revolver that allows us to borrow against our domestic receivables as defined in the credit agreement. The Revolver matures July 2021 and ~~separate warrant transactions. The Notes mature~~bears interest at a variable rate per annum based on ~~August 1, 2018, unless converted earlier. Upon conversion,~~ the ~~Notes will be settled~~greater of the prime rate, the Federal Funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%, plus, in ~~cash, shares~~each 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 repurchase~~Revolver has covenants with which we are in compliance as of March 31, ~~2018~~2019 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 letter~~are required to maintain two letters of credit ~~in connection with a lease for a new San Francisco office facility.~~totaling $2.3 million. The ~~letter~~letters of credit isare secured by ~~$1.2~~$2.3 million of cash in a money market ~~account~~accounts, which isare classified as restricted cash in "Other assets" in ~~the~~our 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 cash							185			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 amortization	2,832		2,795			1,259		2,832
Property and equipment depreciation	1,886		1,933			2,026		1,886
Depreciation and amortization	4,803		5,106
Adjustments and other	—		(375		)
Total depreciation and amortization	$	4,803	$	4,731		$	3,285	$	4,803

Operating Activities

~~For~~Net 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 ~~net~~primarily as a result of lower cash ~~provided~~payments 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 depreciation~~less 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 $4.5~~increased $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 million~~as a result of a decrease in cash ~~outflows related to~~inflows from the ~~purchase~~sale and maturity of our short-term investments during ~~2017; and~~

~~$1.0 million~~2018, 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, ~~2018~~2019.

Financing Activities

Net cash used in financing activities increased $0.3 million for the three months ended March 31, 2019 compared to ~~$0.5 million~~the 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, 2017~~2019 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 agreements~~and finance leases for office space and ~~computer~~certain equipment ~~convertible notes, purchase commitments~~ and ~~unrecognized tax benefits during~~non-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 payments~~contractual obligations as of March 31, ~~2018 through November 30, 2022 under~~2019:



	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 obligations	39,422			8,491			17,580			6,420			6,931
Operating sublease income	(7,212		)	(1,889		)	(3,950		)	(1,373		)	—
Service contracts	39,042			8,625			24,874			5,543			—
Restructuring and other related costs	1,265			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 million~~table is the income tax liability we recorded for the difference between the benefit recognized and ~~total sublease rental income totals approximately $8.9 million over~~measured and the ~~same period.~~

~~In January 2018, the Company entered into a contract~~tax 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 our~~The contractual ~~obligations and purchase commitments other than~~commitment amounts in the ~~ordinary course~~table 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, ~~2018~~2019 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 Customers~~842, Lease Accounting (“ASC ~~606"~~842") as of January 1, ~~2018.~~2019.

Recent Accounting Pronouncements

~~The information contained in~~For 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 expense	12			13
Interest and other expense, net	490			2,846
Depreciation and amortization	3,285			4,803
EBITDA	(1,932		)	(3,990		)
Stock-based compensation	1,570			3,111
Amortization of contract acquisition asset costs - ASC 606 initial adoption	257			426
Restructuring and other related costs	1,058			53
Impairment loss on investment securities	—			1,958
Adjusted EBITDA	$	953		$	1,558

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~We believe there~~There 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 elsewhere~~to 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 caption~~see “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		Employment Agreement dated as of January 22, 2019, between the Company and Gary B. Moore (incorporated by reference to Exhibit 10.1 to the Form 8-K/A filed by the Company on January 28, 2019).

31.1*		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the ~~Condensed~~ Consolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, (ii) the ~~Condensed~~ Consolidated Statement of Operations for the three months ended March 31, ~~2018~~2019 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.

* ~~File~~Filed 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, 2018~~8, 2019	By:	/s/ ~~ROBERT N. PINKERTON~~RICHARD G. WALKER
			~~Robert N. Pinkerton~~Richard G. Walker Chief Financial Officer (Principal Financial and Accounting Officer)

3226



	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 amortization	4,803			4,731
Amortization of debt discount and issuance costs	2,421			2,241
Amortization of contract acquisition costs - ASC 606 initial adoption	426			—
Amortization of premium on short-term investments	115			(94		)
Deferred income taxes	—			95
Stock-based compensation	3,111			3,218
Restructuring and other	196			—
Impairment loss on investment securities	1,958			—
Other	80			—
Changes in operating assets and liabilities:
Accounts receivable, net	6,923			10,470
Deferred revenue	176			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 activities	599			7,368
Cash flows from investing activities:
Acquisition of property and equipment	(3,469		)	(4,432		)
Purchases of short-term investments	7			(18,059		)
Sales of short-term investments	2,064			16,513
Maturities of short-term investments	825			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 stock	353			616
Payments related to minimum tax withholding on restricted stock unit releases	(53		)	(131		)
Net cash provided by financing activities	257			469
Net increase in cash, cash equivalents and restricted cash	283			2,784
Effect of exchange rate changes on cash, cash equivalents and restricted cash	78			(131		)
Cash, cash equivalents and restricted cash, beginning of period	52,633			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		$	—



	As reported			ASC 606 adjustments			Balances without adoption of ASC 606
Assets
Current assets:
Cash and cash equivalents	$	51,750		$	—		$	51,750
Short-term investments	133,465			—			133,465
Accounts receivable, net	49,776			80			49,856
Prepaid expenses and other	7,561			(154		)	7,407
Total current assets	242,552			(74		)	242,478

Property and equipment, net	33,975			—			33,975
Contract acquisition costs	3,350			(3,350		)	—
Deferred income taxes, net of current portion	73			—			73
Goodwill and intangible assets, net	6,334			—			6,334
Other assets	3,983			(118		)	3,865
Total assets	$	290,267		$	(3,542	)	$	286,725

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,767		$	—		$	1,767
Accrued taxes	337			—			337
Accrued compensation and benefits	16,807			—			16,807
Convertible notes, net	146,589			—			146,589
Deferred revenue	—			1,782			1,782
Accrued expenses	7,650			—			7,650
Other current liabilities	2,886			(1,450		)	1,436
Total current liabilities	176,036			332			176,368

Other long-term liabilities	5,015			—			5,015
Total liabilities	181,051			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, 2018	8			—			8
Treasury stock	(441		)	—			(441		)
Additional paid-in capital	362,870			—			362,870
Accumulated deficit	(254,150		)	(3,874		)	(258,024		)
Accumulated other comprehensive income (loss)	929			—			929
Total stockholders’ equity	109,216			(3,874		)	105,342
Total liabilities and stockholders’ equity	$	290,267		$	(3,542	)	$	286,725



	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Level 1⁽¹⁾:
Cash	$	45,314	$	—	$	—	$	45,314
Cash equivalents:
Money market mutual funds	43		—		—		43
Total cash and cash equivalents	45,357		—		—		45,357
Level 2⁽²⁾:
Cash equivalents:
U.S. Treasury securities	5,395		—		—		5,395
Commercial Paper	998		—		—		998
Total cash equivalents	6,393		—		—		6,393
Short-term investments:
Corporate bonds	54,045		—		—		54,045
U.S. agency securities	34,144		—		—		34,144
Asset-backed securities	19,441		—		—		19,441
U.S. Treasury securities	25,835		—		—		25,835
Total short-term investments	133,465		—		—		133,465
Cash, cash equivalents and short-term investments	$	185,215	$	—	$	—	$	185,215



	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



	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, 2017	6,511		$	4.48				$	7
Granted	84		$	3.70	$	1.81
Options exercised	(3	)	$	2.90				$	1
Expired and/or Forfeited	(495	)	$	4.93
Issued and outstanding as of March 31, 2018	6,097		$	4.43			6.81	$	183
Options exercisable as of March 31, 2018	4,509		$	4.54			6.57	$	101



	Shares		Weighted-Average Grant Date Fair Value
Unvested as of December 31, 2017	5,027		$	3.98
Granted	1,490		$	3.85
Vested⁽¹⁾	(96	)	$	4.29
Forfeited	(125	)	$	4.00
Unvested as of March 31, 2018	6,296		$	3.94