Good day, ladies and gentlemen, and welcome to ServiceSource International Fourth Quarter and 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Ms. Anne Bawden, Manager of Investor Relations. Madame, you may begin.

Thank you for joining us. Before we begin, I'd like to remind you that during the course of this webcast and call, we may make projections or forward-looking statements that reflect our views as of today, and are based upon the information currently available to us. This information will likely change over time. By discussing our current perception of our market and the future performance of the company and our solutions with you today, we are not undertaking an obligation to provide future updates. We caution you that such statements are just projections, and actual events and results may materially differ from what we discuss. Please refer to documents we have filed with the SEC. These documents contain and identify important factors that could cause actual results to materially differ from those contained in our projections and forward-looking statements. During the course of this call, we will also be discussing certain non-GAAP financial results. We direct your attention to our reconciliation between GAAP and non-GAAP measures, which can be found in today's earnings release posted on the Investor Relations portion of the ServiceSource website. And with that, I'll turn the call over to Mike.

Thank you, Anne, and welcome to our Q4 and 2013 earnings call. Today on the call, we're trying a new format via webcast to give you a more visual picture of our business. Post the call, these slides will be posted on our Investor Relations site. On today's call, I'll highlight key financial and customer details from our fourth quarter and full year results, and give you my thoughts on the year; provide insights into the evolution of our business, the market, and how we capitalize on several key trends; also, explain how our acquisition of Scout Analytics fits within our broader strategy; and close with a forward look to our growth pillars for 2014. Let me start with a brief review of Q4 and full year 2013 highlights. Total revenue in our fourth quarter was $77.2 million, resulting in 15% growth over the same period last year. For the full year 2013, we grew revenue by 12% to over $272 million. Our adjusted EBITDA was $8.6 million in Q4, in line with our guidance range of $7 million to $10 million. For the full year, EBITDA was $17.7 million, also in line with our guidance. We exceeded our guidance on free cash flow, and we ended the year with over $275 million on our balance sheet. Ashley will go into further details on our fourth quarter and full year 2013 financial results later in the call. In terms of new ACV signings in the quarter, we saw a mix of expansion deals and new logos. We signed important expansions with 3 Fortune 50 customers and we added 2 new SaaS logos to our business. Other highlights from our fourth quarter include the announcement of new relationships with Accenture and Aria, and we hit a very important milestone of bringing…

Thanks, Mike. Let me begin by providing some of the highlights from our fourth quarter and full year 2013. For the fourth quarter 2013, we delivered $77.2 million in revenue, up 15% from the $67.3 million delivered in Q4 of 2012. This was in line with our guidance of $75.5 million to $79.5 million for the quarter. For the full year 2013, we delivered $272.5 million of revenue, up 12% year-over-year and also in line with our guidance of $271 million to $275 million. For the full year and the fourth quarter, our cloud and data services business represented approximately 6% of our revenue, while managed services represented approximately 94%. As we continue to shift our business to a subscription model with our technology platform, both organically and through acquisition, we expect cloud and data services to represent an increasing percentage of our revenue. Beginning in 2014, we will break out revenue and gross margins for each of these business lines in our quarterly results and guidance. We continue to invest in our operating expenses to build out and grow our technology subscription business. These investments have included growth in our professional services teams, hiring engineers and product management in R&D to develop and expand our product footprint and sustaining our investments in sales and marketing to reposition the company and enhance our market presence. Our non-GAAP gross margin declined on a year-over-year basis, both in Q4 and overall in 2013, due to the increased expenditures for professional services and our SaaS operations cost, as well as the reclassification of some of these expenses from R&D to cost of revenue, as we move from the products being in development to having deployed customers on Renew. Our full year adjusted EBITDA of $17.7 million was in line with our guidance of…

[Operator Instructions] And our first question comes from Jennifer Lowe from Morgan Stanley.

I wanted to ask a little bit about some of the changes in the sales organization, does that happen towards the end of the year? Mike, in your prepared comments, you talked about how some of these new -- the new Renew OnDemand offering requires a different go to market. But can you talk a little bit more just about some of the changes that you've made in leadership and what sort of the aspirations there are for this year?

Yes, sure, Jen. We've been really excited. I think what we're looking for -- we just came back from last week, we had all of our customer-facing teams together for a couple days off-site. A tremendous amount of energy. I think with the new leadership, Tom Bonos, reporting into Jay and having a consolidated view of both new ACV acquisition and ARR acquisition as well as customer, is going to serve us well. I think the synergy is already playing out. We felt that -- it looks like we're off to a good start, a strong January. And really, I think, the focus for us is to leverage the investment we've made over the last couple of years on the Sale side and put more tools in the bag of our sales folks. We have continued with the unbundling approach. But now with having Scout in the bag, so to speak, as well as partnerships on the Product side with the likes of Aria and go to market with Accenture, we believe that plus a more close alignment with the unbundling to the value proposition, it's going to serve us well. So we're off to a strong start in 2014, and I think there is a higher level of energy than there was just a few months ago.

Okay. And then just one more for me. I think on the Q3 call you talked about mid-teens to maybe even high teens ACV growth for the year. And on the Scout Analytics call, I think there was a reference to ACV growth being a little bit slower than that. Can you just talk through the ACV dynamics in Q4 and what might have caused that to under-pace a little bit?

Yes, sure. So when we look at the year and the 13% growth, which was all organic, it ended up being -- we expected more of a back-end-loaded year. It was -- the second half was about the same or a little bit less, but pretty good compared to the first half, it just didn't get to the back-end weighted that we thought. I think our learnings are, one, it's still going to be -- there was a big transition last year and our solution is going to be lumpy. One of the neat adds about Scout is it does give us a lower ASP to sell and a little bit easier foot in the door, so we think that's going to broaden the solution. I mean, we're also happy that we saw 200%-plus growth increase in subscription. But netting it out, we looked at the second half of last year and it was okay, but we expected it to be great. We're taking those learnings, putting them forward into this year and, as I said, they will be reflected in the session that we had last week and kicking off this year.

And our next question comes from Ed Maguire from CL.

I was wondering if you could discuss the investment plans this year? Actually, your guidance assumes that there is -- it really reflects this change in the model. And it's -- I'm interested to get a bit of color in terms of how much of the impact to gross margin is from the broader shift toward software-as-a-service? How much of it is from the Scout Analytics acquisition? And how much of some of the new business that you guys are going to be booking may end up showing up as -- in the deferred revenue line, and whether that might become a new way to measure the business?

Sure, Scott. So in terms of gross margin, the biggest compressing effect that we see -- sorry, I was looking at a different list, sorry. In terms of the gross margin impact, the primary factor is the fact that we are continuing the investment in professional services. And really, focusing on adoption with Aria customers, to make sure the early -- we mentioned 15 customers live on the platform -- that it's not just get them up and move on to the next customer, but really make sure that they're adopting and using the product as it's intended, and that they're achieving the ROIs that we set out. So that is something that we expect. As the business scales, it will be less of a factor, but it's something we're certainly anticipating in 2014. And then on the managed services side of the house, it's a combination of the seasonality that you see in Q1, as well as new business ramping, obviously, always has the compressing impact on gross margin. So those are the primary factors around gross margin. And then overall for the business, we are investing, as you mentioned, in Scout, and then in driving sales and sales synergies for that business, as well as continuing to invest in R&D for both of the platforms.

Okay. And I did have a follow-up, as well, on the industry initiatives, which have not been quite as much front and center over the last year. But as you make this -- the transition towards more software-as-a-service, how does that impact at all the focus that you guys have had historically on high tech and some of the other industries? I know that Scout gives you -- gets you into a completely new vertical and media, but would love to get your updated thinking on that.

Yes. I think the great part about adding Scout to the portfolio, and it really does expand what we're -- the markets we're serving. And so we look at it now as having 7 core markets that we're serving over $600 billion of addressable market. It's something we've highlighted. We tried this format for the investors to show the business problems that are unique to traditional business models, unique to subscription, and then those that are -- really when you're in a -- in a hybrid model. Our general belief in what we're seeing, to answer this question specifically, is an increased focus on recurring revenue across all the verticals. As I look at our pipeline activity and our new starts, it's a really interesting mix. And while we continue to see strengthen the core technology, maintenance support business, the new conversations we're having in industrial, in health care, in digital media are really exciting, and then a whole host of conversations with companies that are in the middle of a transition. So we believe that adding information services and media to our core verticals and having additional capability to sell is really strong. Another thing I'd add on, it's really early, but having a partner like Accenture, that is literally in deep with every senior executive in just about every major vertical, is really also triggering some very interesting conversations. So it's been fun to see early days on this evolution, but I think having more to sell and having more people helping you sell is going to prove to be a real strong -- strength for us in 2014.

And our next question comes from Mark Murphy from Piper Jaffray.

This is Matt Coss on for Mark Murphy. I just had a couple of questions. One, actually a clarification. Did you say that Cloud revenue was 6% of revenue for Q4, or was that all of 2013?

It's actually for both, I'm rounding. It's -- for the year, it rounds up to 6%; and for the quarter, it rounds down to 6%. So yes, for both. It's the Cloud and Data Services business together, represents about 6%.

Okay. And then, on the -- the pace of hiring in the Cloud's new business is going to grow much more rapidly than managed services. And it seems to me that when -- clearly your existing reps will be selling both solutions as you mentioned. But it seems to me that hiring future reps probably has to take place and with reps that have successfully sold Cloud in the past. Do you think that when you hire new reps to sell Renew OnDemand that they want new [indiscernible]? Are they really going to have a background in selling managed services, or does that -- can that just be sold by using sales reps? Or I guess, how are you going to steer the hiring in the future since the Renew OnDemand business is growing so much faster?

Yes, the interesting part is, Michael, the one thing we found -- the consistent theme is executives and the sales team that can compromise -- or I'm sorry, develop a complex sale, sell a robust business case, and leverage all the attributes we bring to bear. And so I think our pattern -- what we found is by hiring executives, a lot of them came out of enterprise software on the Business Application side, has served us well. Executives that have grown up in the SaaS marketplace and being able to layer on top of Services has also served us well. So that's the general pattern or portfolio of skills that we'll be looking to add. I will say that, one of the areas that you'll see additional investment from us is on the Scout Analytics side. This is, as I mentioned before, is a smaller ASP product. But it's gotten to a decent size with almost no sales investment. So a handful of folks have gotten this business through a pretty healthy clip. I've been amazed at -- as I've gone out and talked to our existing customers, it's almost unbelievable how much interest there is in the ability to do, to provide comprehensive usage analytics and then provide a predictive analytic framework around that. And so you're going to see us also add enterprise-class sales folks to that part of the business, but also some telesales folks, because that is a different sale that can be done for smaller companies over the telephone. So we're going to address heavily in Scout and it will be on both the Enterprise side and more on the SMB category.

And our next question comes from Patrick Walravens from JMP Securities.

It's Peter Lowry in for Pat. I guess can you talk about any indications of early traction with the Accenture relationship?

Yes, what I can say is it's been surprisingly positive. It is a big organization, we've got to get off that ground. And we're looking for an opportunity to get some mutual wins under our belts. But I think the biggest part is this being around recurring revenue and having a blueprint and, especially for large organizations, the transition from a traditional business model to a new business model anchored around recurring revenue is a conversation they're having across the board. And so what we're able to bring to them is, as I said, a blueprint that says how do you bring usage data from Scout, how do you bring an enterprise application for managing recurring revenue. You have Renew OnDemand. Tie that in with some of our partnerships and layer on top our managed services. That's being robust interest from not only the traditional businesses we've been selling into, but we've been pleasantly surprised, early days, around some businesses frankly that wouldn't be necessarily in our camp, where Accenture is having strategic conversations and bringing us into. So I think 2014, it's going to bear a heck of a lot of fruit and there's a lot of energy on both sides going after that.

Okay, great. And then just a follow-up. It looked like North America outperformed relative to Europe and Asia. Can you see -- talk just a bit about what you're seeing from a geographic perspective in terms of performance?

Yes, I think we've talked about this before, it really depends on where new ACV is landing. North America, saw more of the business this year than the other deals, but we still landed some great wins in the EMEA region. And APJ, we talked about this I think on the Q3 call, the focus of our investment in Japan and launching that center, we just hired our first rep and outside sales rep in that region. We really saw having an on-the-ground presence in Japan the key to seeing that region turn around on growth. So that's something that we look forward to 2014 and '15. We hope to see that region turn around.

[Operator Instructions] Your next question comes from Scott Berg from Capital Market.

Given the performance of the managed services business in '13, and I apologize if you already answered this, because I jumped in the call a little late. But how should we think about the growth of that business moving forward? Whether it's this year or over the next 5 years? Mike, you've talked about that being maybe a double-digit growth rate in mid-teens and is that something we can attain on the short-term, or is that something more of medium midterm goal to get back to?

Well, I think where we are, Scott, is you've seen this strategic shift. It's a changing business model. It's pretty interesting, I think, when you lay out what we have revealed, as we promised, this P&L by business unit. As you see, a Managed Service business that's a good business generating a gross margin in the high 30s. I think the growth this year is going be a little bit truncated just because of the shift we put and the emphasis we put on subscription last year. And if you look at the high end of the guide, you get pretty close to double-digit growth. Our expectation is that it should be -- that's where it should be or higher. So I don't think there's anything major happening in that business where we say, "No, it's turning dramatically in a different direction." But having said that, our emphasis is going to be -- more of our emphasis in investment dollars are going to be on a business that's growing 200% and has margins that are almost double to that of the managed services. So that shift that we've been talking about and now that I have given you more details around is really where our focus is. But I don't think there's anything preventing the Managed Service business from going at those levels. It's really a matter of execution. And actually having a more -- a year of learning on our belt of unbundling, having the competitive dynamics, have that business stand on its own, if you will, last year was the first year we went through it, and I think this year we're much more prepared than we were 12 months ago, and I would say that across the board. So that's how I would vet it out. I don't want to contradict the guidance, but I think there's potential upside there. And it's not a multi-year, it's really a sales execution in 2014.

Great. And then, as you talk about the software, the product, the Renew OnDemand product, the Scout Analytics acquisition, I assume, will give you more opportunity to try to sell that product into the information services and digital media verticals. Do you have to do much to the product to pivot it for those verticals? Or are the changes going to be maybe smaller, cosmetic? Or is that something that's maybe 2 years away, given a larger investment that's required?

I don't think of Renew, that it is a major investment. And I think one of the things we're seeing is if this is really -- it starts with the data layer, which is critical and then the applications on top, and then the vignettes, if you will, for the user are largely consistent. Our near-term focus -- and a reminder, we are going to continue to run Scout for the near-term future as -- largely as a standalone business with the one exception of integrating Scout and Renew. Our belief is independent of industry, that tie again between being able to hold usage data, put it into predictive analytics and have the analytics then drive a recurring revenue sale, that's the power of having Scout and Renew linked together. And I think that's going to play across any industry that's focused on recurring revenue. So to net it out, the near-term focus is really on the integration of the products. First, lightweight and then more deep over time. So that's what the focus on for the next, call it, 1 to 2 quarters.

Great. And then last question for me. Ashley, you talked about additional sales and marketing investments in '14, which I think are more than warranted given the opportunity that's there. But any comment on aggregate quotas and how they're going to be increased this year? And I assume that's a combination of just raising quotas on existing headcount and the new headcount additions. But how should we think about them -- those increasing in '14?

I don't think when you add a new product into the bag that necessarily you dramatically increase quotas. I think what we do, as we always do, is look at the territories and the opportunity and we make quota assessments by that. So philosophically, the way we assign quotas hasn't really changed. It's -- frankly we're just -- we're giving more tools in the reps' bags to break into these customers and get us into some new customers, that's the new market. So it's not a dramatic change in quota assignment, per se.

And we have a question from Pat Walravens from JMP.

And forgive me if this came up already, I joined in late. Are you going to keep a separate sales force for Scout?

What we're planning to do for this year, Pat, is have a little bit of a hybrid model. So we're going to have a separate Scout-only sales team that's focused on the SMB space, as well as information services and media. Essentially, where we didn't have a named rep to an account, that'll be where the Scout focus is. We're going to put investment behind that. As I mentioned earlier in the call, both hiring more Enterprise sales professionals, but also building out some inside sales capabilities, which frankly we know real well. And then, for the rest of the existing sales team, the service our [ph] sales team, if you will, Scout will be put into their bag and so they'll have the ability to bring Scout, Renew OnDemand and the managed services and Professional Services to market.

Okay, great. Show us your kickoff and a little late into the year there, how did the prospects look for maintaining the reps that Boucher recruited? I know that was something to think about before. How's that looking?

Yes, I think that we've seen, in terms of retention and excitement around this, I think it's probably better than we thought. You always have to be nervous around that time of year. But any turnover we've had has been about what we would've expected or average. I just, as I mentioned earlier, we just had a kickoff last week. I think there was a tremendous amount of energy. I think our teams get how leverageable Scout solution is into both our existing installed base and to new prospects, so a lot of energy around that. And I think there's also pretty much a pretty decent excitement around having, as I said earlier, more to sell and more folks to help them sell it, combined with a re-acceleration this year. And we didn't -- second half of the year wasn't as strong as we want it to be, there's no doubt about that. But we're still talking about a guidance that gets us to re-acceleration and a subscription business that's growing at 200% year-over-year. So I think when you get the team focused on that and also probably most importantly, some really excited customers that love what we do, there is a lot of energy and a lot of excitement to get going in 2014. And the year's been off to a strong start.

I'm showing no further questions at this time. I'd like to hand the conference back over for any closing remarks.

Appreciate everyone's time. We recommend that -- as we mentioned, the presentation will be up on the website and we look forward to seeing you all at upcoming events. Thank you.