ServiceSource International, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ServiceSource first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there may be a question and answer session. To ask a question during the session, you need to press star then 1 on your telephone keypad. As a reminder, this conference call is being recorded. If you require any further assistance, please press star then 0. At this time, I would like to turn the conference over to Ms. Elise Brassell, Head of Corporate Communications.

Thank you, Operator. We appreciate everyone joining us today, and welcome to Service Sources Earnings Call to discuss our results for the first quarter ended March 31, 2021. On the call today are Gary Moore, ServiceSource's Chairman and CEO, and Chad Lyons, our CFO. As a reminder, our SEC filings and the earnings release we issued yesterday after market close are available on our website at www.ir.servicesource.com. In addition, we have posted earnings slides to accompany our comments today. Shortly after this call, we will post an audio replay and a copy of our prepared remarks to our website. Before we begin, I would like to remind you that during the call, we will make projections or forward-looking statements that involve risks related to future events. All statements made during the call reflect our views as of today, April 29th, 2021, and are based upon the information currently available to us. All projections and forward-looking statements should be considered in conjunction with the cautionary statements in the earnings press release and the risk factors included in our SEC filings including our report on Form 10Q. These documents contain and identify important factors that could cause actual events and results to materially differ from those contained in our projections and forward-looking statements, and we disclaim any duty to revise or update any forward-looking statements. In addition, during the call, we will also be discussing certain non-GAAP financial measures, which we believe provide additional information to enhance the understanding of how management assesses the operating performance of the business. The reconciliation of the gap and non-gap measures can be found in the earnings release that accompanied this call. And with that, I'll turn the call over to Gary.

Thank you, Elise, and welcome everyone to our earnings conference call for the first quarter of 2021. I'm happy to join you today to discuss our first quarter results. In our last call, we shared our expectations that our path to growth and improved profitability would become more apparent later in the year based on anticipated improvement in our go-to-market and operational execution. Today, I'm pleased to share that we continue to make progress on our objectives and we are gaining greater confidence to reach the future we envision. While there are certainly still elevated levels of uncertainty globally, we are encouraged by early signs of strengthening in the markets we serve. Market research firm Gartner this month raised their global IT forecast for 2021 from 6.2% year-over-year growth to 8.4%. And we share this optimism that conditions will continue to recover as the year progresses. Perhaps part of this belief is due to technology's ability to connect all of us. It's worth noting that the events of the last year have reminded everyone of the value of personal connection and relationships. Social and business networks have gotten smaller and more focused on those that add value to our daily lives. Our clients, too, are focused on getting closer to their customers and fortifying the value of their existing relationships. As a company that enhances and preserves relationships, ServiceSource has seen underlying momentum from this alignment of market need with our business strategy. We have focused on solid execution across the business to start the year and also on our ability to successfully deliver the deeper, stronger connections that our clients need well beyond the pandemic. In our first quarter business highlights, you can see the evidence of our relentless focus on creating quality relationships between our clients and their customers. Overall, for Q1, we performed broadly in line with the cadence we shared with you in February, while we also had some areas of outperformance compared to our internal expectations. From a financial snapshot perspective, We adjusted quickly to be responsive to the revenue headwinds we told you we would face in the first half of the year. Our non-GAAP expense reductions offset about 98% of our year-over-year revenue contraction, and we accreted cash in the quarter. Chad will give you a closer look at these factors in the financial section of our call. Turning to our client-centric results, I'm pleased to see that the work we're doing to instill a clients-for-life mentality in everything we do is taking hold. While clients-for-life is not a new concept, it's an important one that we are bringing front and center in our culture. We often counsel our clients on the value of nurturing installed-based accounts, and we also practice this advice ourselves. Our top 10 clients have been with us approximately 11 years And over the trailing 12 months through Q1, we've grown revenue with half of them. In the quarter, we've secured new expansion wins with six of our top 10 and expect to take on more work for them throughout the year. In addition, we focused heavily on renewals in the quarter with more than $50 million of contract value up for renewal. I'm pleased to say that we renewed, or extended more than 95% of this total value. Within this effort, we brought home two important wins at different ends of the size spectrum that I want to highlight. First, one of the top three accounts in the software and cloud vertical who has been with us for about 12 years, we set a goal not only to renew the relationship, but to secure a multi-year renewal in Q1. our team completed a complex multi-quarter negotiation that successfully ended with a renewal of our book of business for a three-year term and expansion to support recent acquisitions and their ongoing push into the cloud. I'm really proud of the team for bringing this in, especially during a time when the technology industry is generally seeing shorter-term commitments. At the other end of the spectrum, a global medical device client that provides diagnostic imaging and other mission-critical medical equipment was also up for renewal. This client relationship has been in place since 2017, centered around high-margin service contract renewal and warranty conversion. Our team worked for several quarters with this client to ultimately secure renewal with new commercial terms that expands the scope of our work by more than 30%. There's a common driving force behind both of these client renewals, and that is we have proven ourselves to be a valuable asset to our clients in times of business growth and change. As our clients grow through acquisition or charted course to build market share in new sectors, they need partners that understand the go-to-market implications for their business and can ramp quickly to attack new opportunities. Our top clients have stayed with us as long as they have in part because of our proven ability to flex and scale to support new opportunities and be a true strategic partner on their transformation journey. By living this clients for life mentality, it creates a valuable feedback loop for our sales organization as well with our clients demonstrating an increased willingness to be advocates and positive references for prospects in our pipeline. Our new bookings had strong improvement compared to last year and it's clear that our performance and execution here continues to accelerate. On a trailing 12-month basis through Q1, Our bookings were up approximately 30% year over year. Our sales team also added a very attractive new logo to our client roster in the first quarter. This client, which is a high growth data and analytics market leader, fits into our cloud and software vertical and is a recently acquired business of a marquee client who was a strong reference for us throughout the sales cycle. We announced last week that we are now live and in production for this client with Renewals Management Services. The goals of the relationship fit well with our strengths. We'll be working to modernize the renewals process by moving the client's customers from perpetual license contracts to subscription-based models. The shift in IT from perpetual to subscription relationships requires a level of sales expertise and proactive engagement that many companies simply can't manage alone. We have the expertise and scale to execute this properly, which are the key reasons why we won the opportunity to help this client create a new path for success. I'm encouraged by our solid performance with our clients in the quarter and also by the perspective, new logos, we have in the late stage pipeline that we expect to close in Q2 and Q3. We will continue to tune and refine the dials of our go-to-market execution engine, but I'm pleased to see our enhanced focus and discipline bearing fruit. We invested in building a new account-based marketing strategy, fully staffed our marketing team, enhanced our MarTech stack, and brought greater rigor to our lead generation and qualification process. With these changes in investments, we are optimistic that our go-to-market foundation is in a solid position to help us grow. In addition to these market-facing investments, we have also devoted meaningful resources to enhance our capabilities and pioneer new innovations that we expect will continue to differentiate our business. From a digital transformation perspective, we've begun to see early success from deploying advanced efficiency technologies such as robotic process automation and click to renew. Both technologies replace manual and repetitive production tasks and empower our valuable selling resources to focus on higher leverage activities for our clients. In one client example, since August of 2020, we have processed more than 20,000 quotes through our RPA system. This is significant because quoting seems like a simple task, but in reality can involve thousands of SKUs and pricing and discount information scattered across dozens of client systems. We're starting to see success with our RPA efforts, reducing manual intervention by 30% for our pilot clients. While RPA enables a faster time to quote, Click to Renew offers a faster time to buy. For one of our early Click to Renew clients, hundreds of thousands of their customers are now receiving automated self-service online quotes each quarter, and we are growing this efficient, no-touch revenue stream for our clients by nearly 40% year over year. Through these automation strategies, we are quoting and closing long tail, lower dollar renewals faster and more efficiently than ever before, improving client service while increasing job satisfaction for our teams. It's the strength and resilience of our teams that enables us to build upon the position as a strategic partner to leading brands across the world. As I reflect on our accomplishments, I know that behind every success, small or large, are dedicated sourcers. From a leadership perspective, we are doing our part to care for our team in the workplace and in their lives. From a workplace standpoint, our teams are working virtually worldwide. As the pandemic clears, we will continue to be a virtual-first company. In our annual employee survey, nearly 80% of our team members so that they enjoy the work-from-home model. In 2021, if we are able to safely open our office locations, we will do so, but we will keep our home offices as our primary work locations. Our intent is to transform and reconfigure our office spaces as collaboration and innovation hubs for our teams and clients. As a general rule, day-to-day production work and individual activities will be delivered remotely while we use our site for specific activities such as employee and client onboarding, executive briefings, and business reviews, team building, and collaboration. This combination of virtual offices and in-person collaboration spaces offers a hybrid model that we see many of our clients moving toward. To make sure the virtual first model continues to work for our employees, we are taking steps to enhance and build our culture. In February, we held our annual service source cares week, dedicated to showing gratitude towards each other and supporting the communities where we live and work. During the week, sources worldwide gave their time and resources to support many important causes and nonprofits throughout the world. Additionally, we launched a Be Well initiative to support not only the physical health of our employees, but also holistically provide resources to care for the entire person, from mental health to finances and relationships. We undertake these initiatives because they speak to the heart of our culture of caring for each other and the communities around us, and also to cultivate a thriving virtual environment for our diverse and inclusive workforce. To wrap up, I'd like to say I'm as convinced as ever that our strategy, priorities, and team are on the right path to building a future that we'll all be proud of. We executed well in the quarter, saw areas of accelerating momentum in the business, and believe the market backdrop will continue to improve. I remain optimistic that the areas of stronger execution in recent quarters will begin to translate into enhanced financial results as we progress throughout the year. With that, I'll turn to Chad to cover the financials.