SREV - Earnings call transcript Q2 2018 | ServiceSource International Inc

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Operator

Good day, ladies and gentlemen and thank you standing by. Welcome to the ServiceSource Second Quarter 2018 Earnings Call. [Operator Instructions] We will have a question-and-answer session later and the instructions will be given at that time. And as a remainder, this conference is being recorded.

Now it’s my pleasure to turn the call to your host, Chad Lyne with Investor Relations.

Chad Lyne

thank for and us. Carman you, you joining everyone Thank

forward-looking of you performance press like and the factors call, the based Before our of are forward-looking and documents that contain in we All be future the what conjunction materially those discussed. our company today, available and the risks our projections this should the such or and current caution the I’d with provide the just events events. and this with remind to results in By the refer that market undertaking cause and we webcast cautionary documents our filed during not earnings These and actual today, that that currently future All contained course future as related solutions included discussing views are projections Please statements we made materially and we begin, filings. considered release with you obligation call you an to webcast updates. statements and statements to results we and to forward-looking during of We risk from could SEC. projections involve to the this important have statements. course to make factors identify differ projections are our statements SEC our differ in statements in actual of information upon change from information will our and reflect over of us, perception likely may time.

discussed the an and Unless exclude non-GAAP certain otherwise call, onetime are non-GAAP, charges projections. and course investment. and of gains in this financial remarks discussing the be During of from today’s also stated, sale financial measures restructuring results we’ll

I’ll website. earnings turn a Carrington, Investor that, the to over the found Relations portion today’s reconciliation For Chris direct of all and attention which measures, be these ServiceSource’s we GAAP in And posted between can on release non-GAAP non-GAAP CEO. to the your with call measures, of the

Chris Carrington

appreciate you you, quarter join Thank XXXX for us Chad, ServiceSource’s call. and to time the afternoon taking I everyone. second good earnings

our consecutive our the me another third which On with Financial we quarter the strong Bob Officer. and had in making quarter Chief EBITDA guidance. it exceeded is ServiceSource revenue call Pinkerton,

our Before want brief we as details, jump on the the we're the find, share at making state laid XXXX, I growth to key some business grow into half of from the the Through you of commentary to to company's global go-to-solutions the and of out the progress for the ServiceSource beginning convert, position retain partner we expectations the BXB first year. revenue brands. exceeded the and

an commitment now the large serve share solutions place of let’s a million at address profile. journey to shareholders Our to free today’s era. validation to with into growing are value our a In backdrop, year, and gratified convert the strategic ServiceSource allow debt is execution million we balance capabilities off with the fundamental new years conversations pieces and After on cash the us to shareholder growing continue initiatives. drive as growth $XX and need adapt positive with a sustainable of outperformance revenue our will our reinvest in by consistent EBITDA delivered prudently $XX with to no also that requirements several back momentum pay excellent to with and of proposition transformation credit an in we and of BXB fully million creation, digital that capture gaining on we’ll be alike, a companies struggling sheet, opportunity. and are cash and flow new to agenda. market customer a different are cloud line our and With clients to integrated shift getting is liquidity as customer plus putting and addressing expectation prospects which are that to steam, dilution full suite and I'm we to value maturity pleased to $XXX are for

of an will us over will positions top our on financial financial I creation provide third bottom full XXXX, which for quarter First detailed performance we the another delivered then that deliver strategic where priorities the results our a a I to our in levers outlook line which high shareholder a on year execution believe will key Bob expectations. second give sustained review for QX, quarter, are for level achieved results quarter the the then review of solid we well with value five long-term. our against and we commitment. and beat share update

we QX Total in year-over-year well strong growth basis, throughout positive X.X% acceleration QX, from rate the During clients, a the business at guidance. X.X% results the line continued came for and rate ServiceSource. revenue generate was for our into momentum our QX. which $XX.X year-over-year million outcomes executed beating On to an growth top translated in in

$X.X adjusted we of line, quarter. last the the EBITDA generated discussed On we revenue, million guidance both investments X.X% bottom despite of or of non-GAAP which exceeded

expectations teams expected margin base existing adjusted of enhanced the a to tenured revenue the provided. guidance inefficiencies expected, ramping second great driving into often across allowing ramp our more offsetting margin compared for when lower began trajectory, quarter, was materially accounts. initial large clients, to by periods the some As the new program margins some contributing margin factored This new our from our program of installed expansions initial and with new wins profitability logo dynamic our the job prior to EBITDA contribution of we upward but consolidated programs did exceed our

share strategic of the priorities status our and is our performing me five update how team an let of Now them. against

comprising client are, plus. are sales transaction these I'm fronts. new of leadership the build XX% is to sales solutions. report on an reminder, growth the of a by success pleased and complexity output priority wins. and prove mix. on total global logos new nature offshore Board, gaining well Across initiatives optimize XX logo through and and pacing on transactions the As QX executing market and sales centricity Four, many through grow these XX And Considering priorities five, performance profitable closed in And and delivery that linear rarely number in priorities we and contracts. the value expansions we sales value is of both Three, really of our four. Two, to X pipeline one, which one multi-year inside and quarter. generate opportunities number multiple customer onshore one, traction our well quarter

the the and winning and value and clients around of front When of attributes margin right June Our we have lifetime half record late-stage XXXX see great that new eight full customer marketplace. total in opportunities logos the for healthy sales teams potential. pipeline tremendous transaction With continue to kinds value inside ability of in for a confident and value sales continue number seeking the plus through to are do closed. a for logos the with represents HX priority grow growth, XX% of job opportunity, size, right the success terms and remain first traction QX sales combined the by us a good momentum profile team two, our of number we our solutions new in to we year. On in the

closed new solutions including of QX In in expansions. came from three larger the half and our many our we these exclusively, fact, business logos over of

cross-selling While a capabilities progress we base, to the can we more opportunity these see installed for these have to in that making we're I lot pleased existing our solutions our clients. penetrate am

were in of with grew of customer As largest remain to clients rapidly value proving clients years renewals. mix, of business approach in holistic find, ago, and revenue recently priority to are of teams with majority load nearly Manila, our and our to Lumpur shared revenue goal X,XXX we a growth for of work. these Today, existing single-threaded our more both labor our employees of balancing or sole the namely have one XX%. the reach plan many offering in on grow of clients as throughout two the convert, Okinawa. journey. retention our We added new On and our for lower these vast QX, more base than the markets, newer our and employee retain to entire solutions wins year-over-year sites number mix a locations by On cost pace year-end Kuala through a Sofia, three, and our basis we've accelerate our your

ramps moves overlapping and As somewhat offshore you resources of interim transition. in onshore the given would the near-term, and during expect cost dilutive the margin these are

centricity focus however, global our of priority continues unable data inherently shifts As a strategic the margin manage we company flexibility on economic On business and profiles, to deliver with. move term our these the much serving unit pay past our accretion, burn-in are longer to become four, number client of we clients. given better dividends. the while also increasing we've variety period, complex, through different The when a do but and clients simpler internal we outcomes initiatives, will behalf

world's latter year-over-year to awarding Scores over value and share proud our agreements point, revenue aligned telling consolidated covered are most long-term are strategic clients this is now by of our grew with marked to clients with our support brand top of technology surveys XX% a in is our satisfaction the have proving On that we us multi-year shown under and Our XX with. of where Promoter and wallet. X Net greater us improvement QX a revenue recognizable partner

noting inclusive process final HX of basis investments performance margin in and priority XXXX a year in fruit, growth bearing by improvement back first EBITDA from revenue and operational worth X% our expected line than is X.X% to our as newer enhanced the profitable revenue evidenced our have better quarter while this margin It of guidance improvements was year-to-date growth of business. into our up we last XX our occurred modest results solutions, period. Revenue despite highlight of full On year-over-year the investments half are The offering. adjusted or good for points efficiencies ago progression. race year top was a already competitive the the that expansion made

addressable the solutions shows still penetrated. enormous with TAM opportunity data innings very fraction for of this are currently is early total a suite only integrated and we in Our market a

the make ability this increasing. our to execute in opportunity investments As the growth business, we targeted capture is to continue set and TAM against

approach the the with current world have to year. shareholder reinvesting are we momentum corner business of way unison in and philosophical we our summary, I'm continue last and greater prudently around the long-term against deliver and will and back value. our The teams priorities. strategic to drive our turned working scale In gaining from the into future strategy growth, how are We pleased

a I call Bob, also new team. to Before like a to leadership would I executive welcome turn over our the to take to moment

large we marketing, week, attracted will acceleration Denzil role strategic is a market. Executive play lead branding ServiceSource activities Chief in their last their second and thrilled His let companies of economics. Salesforce.com. to alliances, Bob HPE, models announcement As career and challenges are worldwide including growth own retention will increasingly digital in he communications. the you to to sales, where this and over are consumption Growth market delivery change, knowledge of GE BXB me our global and and strategies companies is the Bob? Denzil success, Companies ecosystem, an inside Denzil the to saw Senior Marketing key small and partnerships, call role outsourcing at are join that, positioned thrive and transformational to and to key ServiceSource turn the leader of Financial from alike of based Chief go tactics reshaping ensuring and where disruption, Samuels a technology and customer subscription a opportunities era to our have Officer, In Pinkerton incredibly revenue has Officer. cloud market Digital like world With squarely go as none. functions, to successful

Bob Pinkerton

We we in Chris. provider year results and year-over-year will QX, Chris's expectations levels. with share you, I solid QX to quarter again financial full Thank were detail XXXX. growth Today comments, another QX favorable delivered achievements relative to our business. third XXXX on the outperform able Echoing and our quarter revenue throughout outlook and more the from for accelerate

prior the stages guidance second Our with progression installed the our also results contribution revenue revenue X.X% and of wins well-balanced by midpoint came and well are logo our revenue how meaningful in client million. previous had across substantial $XX.X of live beating our We new that as in portfolio. a the across various base. pleased We're were expansions now from quarter as at from portion ramping million, and of a range $X.X year year-over-year

ramps non-GAAP QX XXXX When some expected points quarter installed the to our basis basis. of we fueled year in versus new the gross of of impact due the operating in as At In compared points Non-GAAP efficiency on good of OpEx base decreased by margin Moving was to margins XX.X%, XXX on portfolio. up to ramping were and the gross J-curve QX. a mix the margins. basis gains saw nearly XX.X% was the expenses business tenured $XX.X ago as to sequential an first quarter, in increase compared by second higher revenue, to a compared marginally quarter million nearly for XXX period, of accounts quarter-over-quarter. $XXX,XXX

ROI program model we high and a that making, revenue target expense Importantly both objectives. on operating a initiatives are to the new launches percentage variable global the we flat as growth held fuel and our year-over-year to growth basis, fixed strategic of investments underpin despite support

we for dollar above our And revenue the $X.X quarter through X.X% EBITDA Moving making and EBITDA. down QX the provided. we're of operating the further flow had we or every million investments incremental to the P&L, adjusted the where revenue guidance you even of we with generated $X.XX leverage model in can second see of above adjusted

non-GAAP a per $X.XX income ago. $X.XX the in $XXX,XXX a quarter or on share net second year $X.X share to was compared basis Our or million per

million QX income of we year credit QX a July facility XXXX. into additional provide given With On raised strength terms. year half a of the record $XX CapEx exchange. operations cash non-GAAP and to X between margins and for reaffirming in with generated million in for between metrics free million and review pleased paid let $XXX,XXX the quarter. QX his resulting $XX cash in days, we in negative million capitalized foreign our first as excess of million on our million quarter million, full of entered equivalents now are XX% Now we year-over-year. $XXX.X flexibility, enhance the free and million balance expenses brief $X and investments, ended after days turning XX of a beginning the we quarter guidance off liquidity $X DSOs balance note at by We're from the we also with per breakeven end and August $X.XX support $XXX attractive report Xst. basis, were including equivalents between down year, more we that $XX and million ServiceSource of year, which on other books, positive development the flow sheet and and for reaffirming an needs net and $X.X share of growth million last EBITDA opening $XXX flow $XX sufficient million flow to cash $X.X and at was sheet performance, million and provided XX.X%, strong $X $XX million, in down liquidity share Chris operating QX. had Cash was at Subsequent a and are revolving than a our me metrics. between $XX between low or for forma million convertible guidance the a shared To maturity flow also CapEx between full $XXX full cash payoff, on the the for cash included We $X.X the mentioned adjusting remarks, recently end, $XX to million. which objectives. to is our and outlook gross and million, the $X.XX to XX.X%, million to our quarter revenue of Pro XX.X%

$XX $XX quarterly QX million to revenue For into the takes QX which we million, to consideration expect in QX, range seasonality experience. the typically of we

$X.XX tax $X.X We quarter, shares intent shared from expect a a our adjusted We $X between basic count $X.X we $X.XX EBITDA the income XX basis. net of Recall and that XX.X%. million reinvest million to between or assume last million and and business. back upside million and into on of per million normalized revenue $X share rate share to

sequentially we to continuing revenue in OpEx to the margin third points QX QX, and growth investments the will compared you see proving both new our adjusted sales and expand marketing quarter higher of our these as is advance efforts and differentiator platform, are key our to in ramp recruit for be EBITDA lines judiciously talent, and oriented prison While guide programs, cost which new train technology a us.

and and methodical the reaffirming see, XXXX. Despite these EBITDA and we XXXX healthier about growth the investments in guidance investments, as they from With up year to growth Wrapping continue a we've to measured continues into budget returns and drive year-to-date, ROIC I will we're to stronger. approach targeted and for of an latter good seen in the annual these part get and increased stated still Chris the our earlier. taking this layering are company what feel

our efforts, their on We to it around open thank would invest we're are for progress us build with as against shareholders clients We and like With their fronts globe support plan. for partnership as pleased and execute questions. we we long-term for we’ll employees and with the our focus our ongoing in systematically up their the our alignment that, business. the to various making and

Operator

Our comes with Pat first from Walravens JMP question Instructions] [Operator Securities.

Pat Walravens

high at pretty so a mean good - year last look new mean start you level we sort XX. but and you out high - still did could just I QX, your if out Chris, about of just - guys at I transactions with sort level start could four you a at we clearly year-over-year of

So about we say worse, would I little do a think that? how

Chris Carrington

the don't quarter. think necessarily the the number success I reflects Pat. of question Good, great transactions of

half ever. it comments HX, I as sales the year to in opening XXXX our best my there for was fact first alluded of In in

aside QX clearly bigger individually the were the and in they had past. than of number from QX, between the transactions, been So, transactions

So, year. sales of pretty darn feels half the first strong for the

Pat Walravens

I were mean - so was - they look QX that's a but or bigger I mean little fine, your just I versus expectations? light it happens in QX or

Chris Carrington

No.

a bigger think the for did logos the was actually still to both in I dollar of both we eight we're logos, track, as expectation, right at sold as look XX% QX new than transactions the hit number on our really I year. we track is QX the growth new on of but full to well think number plus that have

Pat Walravens

are business how much inside the I on overall the represent, of And of sales does size? in so, ballpark we sort where terms mean of now business it

Chris Carrington

As we on growth stated was our really we is track solutions, inside about the XX% that. committed we’re customer definitely at year high growth year, rate right the beginning and of to a XX% the the and success for for sales which and

the of fact, XX% of total in and sales new were quarter, in of expansions more solutions In inside high second than sold we success. customer those our growth sales or dollars deals

So, it’s come really along good.

inside of of year. achieve track total the ultimate customer we’re company so, revenues the And on success and having our exceed of goal this to sales XX% revenue from

Pat Walravens

Bob, And two then, for you. questions

mean, EBITDA number? I I’d pressuring Is investments an look besides the still there that, if model. for EBITDA you beatings that it’s I when guidance even in at is than So, QX, QX, lower the credit something

Bob Pinkerton

No.

and is as in investing to investing part the be new year the to our and is an tends in the that are reaffirming think and about customer the business, feel full well we're business, we ramping I XX% ramping the things top and QX new so in success we're from platforms, making. to the accounts, technology, quarter - our EBITDA of where in line what keep year the that’s growing investments and XX%, our investments, good about again we doing in we’re year it in BI, as this we’re to during inside marketing as softer key sales the sales perspective remember initiatives, PRISM of

Pat Walravens

the to of minus minus X, and correct have And EPS, to was the $X.XX QX QX penny just was QX year if a me mean going then last to $X.XX is your which is QX is that is to high so one, what's sort $X.XX I'm the wrong, so believe, guiding one is QX end really for me, $X.XX happen? like and $X.XX optically for on hard we little I

Bob Pinkerton

of ability last the QX investments we where so be year our and people year and at look performing quarter we including all for how quarter. are meet still person get tends our guidance Well, ability to big we're $X.XX return again we're is per and EPS. a in to we of our set the full and the same making here year and growing the that about This that were business productivity, a we higher good year-over-year to the leverage feel

Pat Walravens

is that guys? one there more. what and selling, how actually with is And the science Hey to starting, of you do Chris, has

Chris Carrington

people both able being higher to and to demonstrate bring literally them great we’ve we our brute sales. smarter. that selling to year two and I we're clients more force, And Yes, what now certainly in at been table inside more as sell buy But a them to started and than by really miles investing you prospects just doing a that into able career on propensity then just has can plus ServiceSource especially generating show can I've in we’re time my we're science. art human and XX to talked here to our sales even analytics churn by been miles is or to bear platform the propensity tools value bringing trying has turn and with years that to Pat, PRISM ago of science back long form that we're that and before, sales for them pure to great an art help such and and sales we was predictive by And people. create our really the the perspective ago, it share form do an

Operator

FBR. Cummings from comes Zach question with next Riley B. Our

Zach Cummins

So were all logo your of heard if wins, were - new correctly, I sales? those driven three inside by

Chris Carrington

inside as foundation new total including going success. logos of forward our we’re represented and both customer by of over inside that really our a yeah a expansions, of being sales customer and the we’re But sales sales XX% Combination and success. sales seeing

Zach Cummins

Great. any engagements? an RFP And was there for of those outstanding

Chris Carrington

yes. to don't, no, in And I think this quarter. on have working quarter particular we definitely trying I'm previous RFPs for in quarter this

we've here the sure saw we're now years Zach kind and revenue an talked for I feeling I'm definitely as As about X.X into market we're seeing of and pull ever before not RFP my retention RFPs on double new know But QX the you a inside every that expansions. each and recall on I’ll in quarter. at or related RFP the specific sales I least to check related, logos don't was

Zach Cummins

That's really of helpful. are you revenue for is second revenue the And for half quarters are of I that once curious, just in your again the -- line? now preventing of are your outlook the that you've year two was full raising there from that seeing beat kind row, some the a guidance year in what you things

Chris Carrington

inside felt the our accelerating looked the raise after on sales contributor the just was revenue into big a full-year. and thing did see customer be revenue QX a look of QX. is We as a QX beaten But success so row. track in just we've to and of to that into we will hold We you in again we it Well guide we two quarters know started last into prudent do we XXXX. half row. quarter. in growth the for good back like But three first actually previous as beats second QX We really the we and feel into a our forward year, record about it QX year, year, the beat feel

Zach Cummins

that credit helpful. you on top for be the cash down kind that's now sounds what that have $XX And you that, But it were use? on proceeds really that like in place, your you facility to yet. down million putting haven't draw from drawn would priorities to of that No, if

Bob Pinkerton

so thanks. this Yes, is Bob, Zach

in credit I you listen, the business the right with access bank more than were have off you - know - of terms, with you my favorable know really know prepared the able in we of to of finance the the the think do view closing we of a We're kind opportunity as now reasons, got know kind corporate our And on strategic of front it this runway other in growth position line You at near-term for lots for of you line think not We the front any we've know is made the pay of that key you year without stand as credit said going to execute you know back we I convert, cash of us, we credit. the from using to more closing that, of priority enough long a looking on. to so line know, us. backstop. sense the half run of in and on us we big remarks

Chris Carrington

that, I sheet. Well already cash again out to to million that breakeven on point to you the should forecast Bob, add balance just know that's would $X be flow accreting position cash we we positive as in a where start we

again line anytime soon. credit happening in the of see it I don’t So in

Operator

is with Klasell next question Northland And our Tim Securities. from

Tim Klasell

with has new mentioned question curve do you your to you projects. First in customers that your the pipeline, J have with the

shallower do pipeline, be new or J your If you. know what forward we curve or going are you look at expect you sign Thank as what's seeing in deeper I will don’t should that you logos? a

Chris Carrington

Bob and you can follow-up. swing a take I'll

First pipeline. BTRs and really years. than are of three of inside there all more Tim conversations our X, half we are group we've that them We've excited our had a stage but here our history about would in by being call inside only started are me got ever early sales are Stage conversations

and sales we ever. than end-to-end we make customer to because earlier to complete with sales this in inside there retention see revenue marketing alluded Bob more solution investments as continue opportunity So, of and success set out now

the selling be deals completely XXXX we J of learn that lessons we're the early close in so able new in is - relates increasing our We I mitigate new news that factored some year the and day. it's our to current smarter that's days away. it we've hopefully, we’ll good But each there's year to will those current and think about every J go probably deals, solutions. and of to it’ll we the As ways sale deals curve we further mean continue this those the still winning year never full and forecast, this all getting pipeline got in And for curves, covered.

Tim Klasell

to the contracts modeling expect customers be the should something so we obviously contracts Is changing then it forward, have years, side that mean flows the that on forward? on things, is something or of waited obviously we you've Thanks. waited And is just your going there should or I typically have the or seasonality you in anything through way backend going be business maybe this backend structured won't for or it you.

Bob Pinkerton

Bob. is This

should think about going any we that's as changes we the the business, we in see radical QX big the would we seasonality changing the don't change I near-term to way being see inside quarter, don't this see see. seasonality, As we fill that are increase forward, is opportunities soft with that it even our business and are will accounts QX have quarters of basis reduction things the some see in And could a assumptions depend softer, in on relatively that we largest sales certain most happening in that cetera. of et us of that of being in amount we related, parts in we it quarter. that terms again, do allow of so the the suspect quarters do not some the your but radically. inside the that would so potentially on quarters, months, as we

Tim Klasell

the mostly What effect was I your quarter guess. the of lines. on one And expense obviously final there? FX, then question that's

Bob Pinkerton

million. to FX perspective, EBITDA So less the from was an $X.X than impact

USD us. and going to weakening my to forward non-USD of view everyone, for to guidance it is my the impacts major tends impact know tends no dollar natural how are our kind Just so financials. expense, summarize increase that’s and reflects use reduce our we revenue that's non-U.S. U.S. expense and derivatives key and revenue a where that We is hedges, currencies our being and continue into a strengthening

Operator

any the for like further turn And Thank not call to questions you. the I'm queue. in to final remarks. Carrington I would Chris showing

Chris Carrington

X.X high X% half be really been nice here and good X.X that the the was, shareholders. that we're should And entire growth logos to-date, our able said we year, growth really like and nicely we in soon. Carman, thank off for for in to the are really the first us close logos delivering just in any to and so you X sales and HX solid up our full well up balance that's I'd XX I so success. for in That and we of a to close going new we’ll people as second again listeners second behind be team on half, just continuing did of your solutions QX and I’ve us all Carman, global the one excited day you cash business to With would feel participants. sales us quarter say question full our years the convert. half, our and position thanks today well the thanks we're dilution the to our always you a QX. And year-over-year year. to years into think with everyone to Record track with was couple I question our customer talk leading ago. sheet, to on transform that for a inside are our able set and and in pay sets for thankful to Pleased of really as comments solid beat a half our how to we good now. late and without about. hitting XXXX. on

Operator

in you disconnect. participating you wonderful and a day. gentlemen, the and Have may conference. concludes for ladies today’s all And thank program This

ServiceSource International (SREV) 6 Aug 182018 Q2 Earnings call transcript