Good day, ladies and gentlemen, and thank you for standing by. Welcome to ServiceSource Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the conference over to your host, Anne Bawden, Investor Relations Manager. You may begin.

Good afternoon, everyone, and thank you for joining us for ServiceSource's Second Quarter 2013 Earnings Call. Joining me on the call today is our Chairman and CEO, Mike Smerklo; and Chief Financial Officer, Ashley Johnson. Before we begin, I'd like to remind you that during the course of this 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 the 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 updates in the future. We caution you that such statements or projections, and actual events and results may materially differ from what we discuss. Please refer to the documents we have filed with the SEC. These documents contain and identify important factors that could cause actual results to differ materially 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 the 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.

Good afternoon, everyone, and thanks for joining us on today's call. I was pleased with our performance in Q2 and would like to walk you through the results of the quarter, as well as the progress we have made across our key business initiatives. In all 3 regions, the Americas, EMEA and Asia Pacific, results exceeded our expectations, as we saw sound execution across the entire company. Total revenue in the second quarter was $67.7 million, non-GAAP gross margins were 45% and adjusted EBITDA was approximately $4.4 million. Turning to ACV, it was a solid quarter in terms of new signings. Key highlights in the quarter include: The mix between new logo additions and expansion deals in our installed base was in line with our historical average, coming in at a 50-50 split. Average deal size was up considerably in the quarter, with new deals in 4 of our 5 target vertical markets. In particular, we signed 2 more leaders in the SaaS market under our subscription life cycle management solution, and this vertical now represents nearly 20% of our ACV under management. In addition, we signed several expansions in the quarter with customers like Dell, Red Hat and Roche. With this new business, net of churn, we ended up H1 -- we ended H1 up approximately 7% to 8% from our starting ACV of $270 million at the beginning of the year. Importantly, momentum behind Renew OnDemand also continued during Q2. We added 4 new Renew customers, building upon the early strength we demonstrated in Q1. With these new additions, we added approximately $8 million in subscription bookings, an increase of almost 40% from the $20 million of cumulative subscription bookings first mentioned in our last call. Average contact length was in line with our prior average of approximately…

Thank you, Mike. Good afternoon, everyone. As you heard from Mike, Q2 was another strong quarter and a solid finish to H1. I'd now like to walk you through our results from the second quarter, as well as provide context and guidance for our third quarter and full year 2013 outlook. As a reminder, our comments with respect to the non-GAAP metrics do not include noncash expenses related to stock-based compensation and the amortization of internally developed software. You can find the reconciliation of GAAP to non-GAAP metrics in today's press release and on the Investor Relations section of our website. So again, let me walk you through some of the numbers. Revenue for the second quarter totaled $67.7 million, ahead of our guidance and up 13% year-over-year. Our results in the quarter were driven by record performance from our teams around the globe. Specifically, we had a very strong quarter in EMEA and in some of our larger enterprise accounts as well. GAAP gross margins held flat year-over-year at approximately 43%, as scale and outperformance in our managed services business more than offset the increased professional services expenses incurred in the quarter. Non-GAAP gross margins were 45%, also flat year-over-year. Sales and marketing spend increased year-over-year, primarily due to commission expenses on new ACV sales. R&D expenses grew year-over-year, reflecting the fact that we are no longer capitalizing the R&D expense related to the product. As a reminder, for the same period last year, we capitalized $2.3 million of R&D expenses. Adjusted for the capitalization, R&D expense remained relatively flat year-over-year. This is something we expect to change going into H2 as we ramp our engineering efforts on the product. I'll talk more about that as we go in the guidance for the year. Finally, G&A remained relatively flat…

Thanks, Ashley. I'd once again like to thank our employees of their Q2 performance and dedication to our broader realignment efforts around Renew OnDemand. We just finished 4 days of strategic planning with our leadership and sales team in Seattle, and I've never seen the ServiceSource team more focused. As I said at the start of the call, the momentum behind Renew OnDemand drove a strong quarter for ServiceSource. As excited as I am about Renew OnDemand, I want to also emphasize how important our managed service business is to our strategy and future. Our selling services teams are on the frontline in delivering for our customers on a daily basis around the globe. On the direction of Keith Leimbach in the Americas and Martin Moran in international regions, this part of our business is growing profitably, closings sales transactions every 47 seconds on behalf of our customers. Lastly, before I close, I want to move -- I want to announce that we've set the date for our Investor Day as November 21 in San Francisco. And with that, we'll now open the lines for questions. Operator?

[Operator Instructions] Our first question is from Jennifer Lowe from Morgan Stanley.

Mike, I wanted to dig a little bit into the commentary around some of the branding changes around Renew OnDemand. It seems like you've been off to a pretty good start there. So where do you feel like the branding may not have been resonating in the way with your clients that you hope it would, and what are sort of specifically some of the changes that you're hoping to make and the message there?

Yes. Thanks, Jen. So we look at it as, it was really about the unbundling more than anything else and making sure our customers understand 2 things, one -- or process under 2 things, one, that ServiceSource exists as always, and that continues to be a challenge, and we're getting better at it; but two, that we also have multiple offerings in the marketplace, including the only cloud application purpose built for recurring revenue. And so we're trying to bring the Renew brand forward more than it has been in the past. And then I'd also say that the approach here is a holistic one. So we've looked at everything from our website to our brand, all the way to how we can get more active in things like Dreamforce. Dreamforce has become the #1 industry event for cloud applications and cloud companies, and we want to have a more prominent role there so that our story can be told to a wider audience.

Okay, great. And just changing gears a little bit and looking at some of the investments that are being pulled forward, you've been putting a lot of focus on sort of building out this skill set around coming to market with a newish offering for you all in terms of the OnDemand, obviously, been in the works for a while but really hitting the -- putting the rubber to the road there. Can you talk a little bit about, tactically, what some -- I know that there was sort of a quick overview of how that broke out between areas of spend, but just sort of tactically what some of the immediate opportunities you see are that make that spending necessary today versus putting it off for 6 more months.

Yes, sure. I'll give you the high-level strategy, and then Ashley can dig in as well. But I think the first thing is just, it emphasizes the confidence we have in the business and in Renew OnDemand, and it's really about setting up the business for accelerated growth in 2014 and beyond. So that's the real emphasis. Some of the specifics, I would say, on the product side, we really have refreshed the leadership team here to supplement the team we had in place before. We feel like coming out of a quarter where we saw bookings up 40% quarter-over-quarter. It's a good indication that now is the time for us to really capture this market. The market for recurring revenue management, I think, is increasing in awareness. And we think putting some more wood behind the product team, both in terms of product management and engineering capability, to further develop our roadmap is our #1 priority. I mentioned some of the market awareness work earlier. As I said, this is our #1 external challenge, really getting folks to understand that we have an offering here. And so we're doing, as I mentioned, everything across the board and hold us to be looking at how we can step up market awareness. And then the third component of this, which is a minor component or the smallest component of the investments is really around Japan. This is a press release we made earlier this month, and it was customer-lead. The #1 challenge we've had in extension in APJ is around having a sales presence in the Japan theater, the #1 IT market in the world. And so we didn't want to be hamstrung in this region that our customers lead us to this, and that center will go live later in Q3. The ROI on that should be pretty rapid, as we've had with other sales investments, but there is a startup cost component to it.

Our next question is from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: I was wondering as you've been referencing scaling Renew OnDemand, could you elucidate some of the areas where you are investing and technologically, what you need to achieve to be able to help the solution scale?

Yes. So thanks, Ed. There's 2 points to that. First of all, in terms of implementations and deployments, I mentioned we had 6 live by the end of Q2. We actually just had another customer go live this week, so we're up to 7 now. But really, that's about getting the customers live. 15 customers is our goal by the end of the year, giving them referenceable, giving usability at a high level and having them absolutely love the product. So that's really on the, I'd call it, on the professional services and implementation and deployment side. From a technology perspective, the way we're thinking about it is we feel like we have a very solid foundation. We're looking at ways that we can enhance our user experience. We want to make sure that we have -- continue to have the most stable product possible. And we're also looking for ways, in the near term, on how we can increase integration into Renew OnDemand. I think about the near-term priorities coming off the summer release, that's really what we're focused on. And obviously, we expect to have, I think, a really exciting fall release around the Dreamforce event. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: Great. And you had made a comment that you had progress in 5 of the 6 verticals. Could you provide a bit -- just a bit more color in terms of where you're tracking in a couple of those key verticals, and whether there are any areas that you may be focusing on, especially over the next couple of quarters?

Yes, super questions. We had good progress in 4 of the 5. I would say that we're seeing good activity across the board. And it's always a good quarter for us looking at, not only a good split between new logos and existing customers, I mentioned the ACV was about 50-50, but also seeing it across the verticals. To your question on the -- if there's one vertical where we're seeing the most activity and the most interest and success would be around the Software-as-a-Service or SaaS marketplace. We added 2 additional customers in this space, in this vertical. And we now, as I mentioned in the call, have almost 20% of our ACV coming from our subscription life cycle management solution. And that's really important to note that, that part of our business was almost 0 ACV just a couple of years ago. So a lot of growth there, a lot of interest. And I also think it helps investors understand that our solution is even more valuable, I've asserted for a while now, in the recurring revenue or in the SaaS and cloud marketplace, even more so than in the traditional maintenance and support, and that's bearing out in the success we're seeing there.

Our next question is from Pat Walravens from JMP Group.

Mike, I guess, 2 questions for you and then a quick one for Ashley, so I'll just lay them all out at the beginning. So Mike, the 2 for you, and number one is, sometimes when companies talk about needing to spend more on marketing and build awareness, that means they're not very happy in terms of what they see in their pipeline, and I'm guessing that is not the case for you, but I'd love it if you just address that. And then secondly, Mike, you made a comment about the close rates -- closing rates being flat, and it sounds like maybe you're hoping for more. And then, Ashley, if you could just touch on -- I think at our conference, you gave sort of a rough percentage of the ACV that was from Renew OnDemand, and it was around 10%. I was wondering if you could update that.

Yes, thanks. I would love to be really clear, on the first point, I would say it's 108 degrees of what you asserted on sales and marketing. When I look at the pipeline and the interest, if anything, the incremental investment is based off of momentum, positive momentum versus the other way around. We have been in a situation, as you all know, the last 1.5 years, building out our sales team. We now have over 80% of our reps that are ramped. That's bearing itself out in the new ACV signings, clearly coming off, as I mentioned, the quarter where we saw -- we were pleasantly surprised to see the bookings go up for Renew as much as they did 40% quarter-over-quarter. If anything or if it is, it is playing into a strength a saying, this market, recurring revenue management, the interest is going up, we see a phenomenal wide space and we want to take every advantage of it. So that's really the emphasis behind it. On the second question on the close rates, yes, I guess, who knows? Maybe I'll never be satisfied. I'm excited by the pipeline increase and I'm excited about the results. I think for all of us in the executive team and the sales leadership, we just want to see a higher conversion. And to be clear, we're not losing deals, it's just taking longer, at some point, to close deals. So it's still bearing itself out to a large enough pipeline. You can overcome conversion rates that aren't exactly where you want them to be. So I think that would describe the first half. But in our quest to get better, we would like to see that number get up, and we'll continue to focus on it.

And as it relates to the percentage of ACV that's from Renew, we've been trending up. So this quarter, closer to 20%, of the new ACV in the quarter. And I said that's attributable to the fact that the rest are now leading with Renew in the sales...

Our next question is from Mark Murphy from Piper Jaffray.

Mike, regarding ACV, you're saying it's up 7% to 8% through the first half and that you had a strong quarter for ACV signing, but the close rates were sequentially flat. I guess, thinking that one through, to me, it seems to imply that the pipeline is bigger than expected. But I was wondering if you could clarify being up 7% to 8% through the first half, how does that compare to your original plan, which was calling for up 20% on the year and to be back-half weighted? Are you -- is this where you wanted to be, slightly ahead, slightly behind?

Yes. Thanks, Mark. On the first point, you're absolutely right. I think in terms of the pipeline is up more than we expected, and that even though close rates weren't as high as we'd like -- and I'm not talking about a massive delta there from where we want to be, but it does -- we overcome that. So you're right on that logic. What I would say on the ACV is, first of all, we wanted to give investors the number so that they could take the speculation around that part of our business out. We were pleased and feel like we're right on track for our plan based on that number. Said a different way, we -- the 20% net ACV growth, as we've said, has been -- always been back-half loaded, and we feel that getting to a 7% to 8%, and we can tell you a little bit why the range, but getting to that level puts us in very good position to hit that number on the second half, in the second half. Obviously, we have to execute and execute the way we did last year and then continue to have high customer retention. Those factors on it. But we feel very good about that and know what we need to do in the second half.

Okay, great. And then as a follow-up on the Renew OnDemand side of things, I believe you said 6 are live as of the end of Q2 and then, I guess, another 1 this week, and then the goal is 15 by year end. Can you remind us how many Renew OnDemand customers are booked and maybe how many you think would be booked by year end?

I'll take that question, Mark. In terms of the number of Renew OnDemand customers that we've booked, we haven't really given the number externally. But as Mike said, we're tracking the count as we get them live and certainly giving you guys visibility to that progress. And in terms of how many we hope to book by the end of the year, it's really early days on the product. And as Mike said, while we feel really good about the momentum we saw in the first half of the year, we expect it to be lumpy in terms of how many customers we sign in at any quarter and how much subscription bookings that translates into. But at this point, we're not comfortable giving specific guidance around those figures.

[indiscernible]. Go ahead, Mark.

Yes, Mike, I wanted to ask you as well, just in terms of the transactional renewal rates on the maintenance contracts for all of your end customers, can you give us any comment on that? In other words, I'm interested in any read-through to the health of broader-type economy that you might ascribe to that, and maybe on that basis, what do you see coming here in the second half of the year?

Yes. So we've not seen any deterioration, I should say, major deterioration when we look across our portfolio. At this point, we're over 145 engagements, so it's a pretty broad perspective. There are certain pockets and we've said before, they are coming in more pressure from alternatives, or competitive dynamics, but when we aggregate, our customer base. We've not seen any slippage. In fact, we're just doing some operating views this week, and I think Q2 was our highest production quarter in terms of renewal transactions and renewal rates that we've seen in several quarters. We don't see any reason for that to change. And if anything, I think that customers continue to increase -- understand whether if you're in a traditional maintenance and support business or in a cloud and/or SaaS business. The customer retention component and managing this part of their business is getting more competitive, and it actually plays better for us because our solution really can help regardless of the economic environment.

Okay. And then, Ashley, just -- I guess because it kind of ties onto that, in terms of the geos, I was surprised to see that EMEA, I believe it's up 18% year-over-year for you. And also, APJ is down 3% year-over-year, though, it looks to be kind of a uniquely tough comp. But is there anything worth commenting there in terms of the kind of transactional renewal rates across the geographies?

No. I said, generally speaking, we were really pleased with the performance of the teams around the world and particularly, internationally. You're right, in terms of APJ, it's tough comparison. And last year, when we spoke to some of the churn in the business, some of that hit in APJ, we're off to battling a little bit the lost small numbers. But we obviously feel good about that as a strategic region for us and, thus, the investments that we've made into Japan to drive further growth there.

Our next question is from Bhavan Suri from William Blair. Bhavan Suri - William Blair & Company L.L.C., Research Division: Mike, first, just to touch on it, you've commented about the -- or maybe it was Ashley who commented about the sales force now leading with Renew. Can you just give us a little color on sort of a, are they starting to leap with Renew; and then, how is that affecting sort of the follow-up sale of the traditional managed services business? Or have you sort of split the sales force, or are they compensated differently? Just a little color on how that's going to work.

Yes, sure. So this is what we started just in January, and it actually speaks to why we're increasing the brand and marketing spend. We just started this in January in terms of this unbundling. And what that means for us is the sales team, and it is one sales team, they now are able to walk into a prospect and highlight Renew OnDemand and then showcase how they value the managed service offerings. And that's just different than -- a mere 6 months ago when they were walking in with a complete bundled solution and a single price point. So that's the primary difference. What I'd say is it's still early but -- and we are learning -- we're really excited. This has been a huge acceleration. I think the strategy is playing out and giving customers more choices. The deals, as I said, are centered around Renew. But I'd also highlight, and this is really important, we did have -- so Dell was our primary customer we announced in Q3 of last year. They're just now moving into reference. So all of the success that we've had already, has been done with limited reference ability around Renew customers, and that's changing rapidly. But that's a big push for us and a big difference. So if you think about a business in Renew that's gone to $28 million now in total subscription bookings without having a tremendous amount of spend on brand, without having a referenceable customer and really just moving in through a level of maturity that we're seeing now, that's what gets us so excited. The second question, though -- no, I hit the comp. The second question is, what we're seeing is by leading with Renew, it gives a lot more flexibility, but the pull-through rate…

Well, what I'd say is that in terms of our speed to deploy in Renew OnDemand, I'd characterize it as -- I'd differentiate the world in SaaS roughly between enterprise and transactional. Clearly, in the enterprise category, thinking more along the lines of a workday, for example. And so we have seen examples where we've been able to get Renew OnDemand live in short orders, say, 3 to 4 weeks. Our average time now is running in the -- anywhere between 8 to 12 weeks. And that's really a function of the customer readiness and their integration or configuration needs. So it's still pretty fast comparative to traditional enterprise software, but it's never -- it's not going to be the transactional, click-to-download type of approach that you see with different SaaS offerings. Bhavan Suri - William Blair & Company L.L.C., Research Division: No, you wouldn't, given the complexity of the data you're integrating for sure.

That is exactly right. Pulling data from multiple sources and getting into a renewal-ready format is a complex, but then the stickiness goes up dramatically as well. Bhavan Suri - William Blair & Company L.L.C., Research Division: And then one last one, this is just following on Mark Murphy's question a little bit was, one of the things you have seen a couple -- 1.5 years ago or so or sort of even last year a little bit was, as some of the traditional software companies felt competitive pressure or market pressure or cyclical pressure, they have taken some of the work that was given to you and brought it in-house because they have sales teams that weren't actually doing as much as they move guys who might have been in the field in-house. So have you seen a reverse of that trend at all yet or not?

Yes, I don't -- we're not seeing that much at all. I think that all of our customers, our traditional hardware and software companies are all looking at their go-to-market models and how they're going to move cloud or SaaS and things like that. But we're heavily engaged in those conversations. And interesting enough, the combination of Renew OnDemand, plus now having the experience, one of the things I really highlighted with the percentage of our ACV that's now from SaaS, we're quickly finding ourselves in an expert position there. And so we're able to educate them and help them think about it in a way that very few other companies can. So I don't see that as a trend impacting our business negatively. In fact, a lot of our dialogue is going around helping them think about what the movement would like and how they need to modify their customer engagement and how they need to think about their application infrastructure differently.

[Operator Instructions] Our next question is from Scott Berg from Northland Securities.

This is Mark [indiscernible] for Scott Berg. Just touching on the previous question, I was wondering if you can maybe expand a little bit more on the implementation period for the Renew OnDemand process? In terms of time and labor required, were those in line with your expectations? And also, how should we be thinking about the ramp times moving forward for new customers?

Yes, I'll take the first part, and then Ashley can get the second part. As I said, I think they are -- so here's our approach, I mentioned this last quarter. Where we are in the marketplace is all about making sure the customer experience for our customers is phenomenal. And so we've taken a white-glove approach, which means we want to ensure the implementation is as smooth as possible, we want to make sure usability goes up as quickly as possible and the experience is really a pleasant one for our customers. So that's been our approach, and I think that's consistent with other new entrants in the market, would have done well. In terms of the timeline, I would say it's tracking as expected, maybe even a little bit better. In the first half of the year, the team -- Natalie McCullough, we moved over to run this part of our business, has brought in a gentleman named Dave Canelis and other leaders. And they've done an amazing job of building out repeatable templates, getting our customer blueprints in place. And so we've seen already in the first 6 months a pretty significant improvement in both our cost to deploy, as well as the speed to deploy. So we were really happy about that, and I think you'll see that trend to continue into the second half.

Thank you. We have no more questions in queue. Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Everyone, have a great day.