Ladies and gentlemen, thank you for standing by and welcome to the Rimini Street’s Fourth Quarter and Fiscal 2019 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Dean Pohl, VP of Investor Relations. Please go ahead, sir.

Thank you, operator. I would like to welcome everyone to Rimini Street’s fourth quarter and fiscal year 2019 earnings conference call. On the call with me today is Seth Ravin, our CEO and Stanley Mbugua, our Chief Accounting Officer. Today we issued our fourth quarter and fiscal year ended December 31, 2019 earnings press release, which can be found on our website. A reconciliation of GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in this press release. An explanation of these measures and why we believe they are meaningful is also included in the press release under the heading About Non-GAAP Financial Measures and Certain Key Metrics. A copy of the press release and financial tables, including the GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from the Investor Relations section of our website under Investor Events. As a reminder, today’s discussion will include forward-looking statements that reflect our current outlook. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We encourage you to review our most recent SEC filings, including our Form 10-Q for the full year of 2019 that will be filed by March 16, 2020 for a discussion of risks that may affect our future results or stock price. Before taking questions, we will begin with prepared remarks. With that, I would like to turn the call over to Seth.

Thank you, Dean and thank you everyone for joining us today. For 2019, we achieved record fourth quarter and fiscal year revenue that exceeded management guidance, increased our gross margins and continued to improve our balance sheet with reduced debt and increased cash. Additionally, we experienced improved performance from investments in global sales, the launch of new products and services and expanded geographic operations. For the fourth quarter and fiscal year ended December 31, 2019, we generated revenue of $76.1 million and $281.1 million, year-over-year increases of 11.7% and 10.9% respectively. Gross margin was 62.6% for the full year 2019, up from 62.1% for the full year 2018. We exited the fourth quarter with annualized subscription revenue of $302 million. Revenue retention rate for subscriptions which makes up most of our revenue remained above 90% with more than 70% of subscription revenue non-cancelable for at least 12 months on a rolling basis. For the full year 2019, our global service delivery team closed over 31,000 support cases across 55 countries and delivered more than 70,000 tax, legal, and regulatory updates to clients in 38 countries. We achieved an average client satisfaction rating of 4.8 out of 5.0 on the company’s support delivery, where 5.0 rating is considered excellent. In 2019, we were honored with 34 awards, including 2 awards for company of the year, 1 award for customer service outstanding performance of the year and 24 other awards for customer service excellence. Also in 2019, the Rimini Street Foundation funded exclusively by Rimini Street Inc. and its subsidiaries, proudly partnered with 68 charities around the world to provide financial contributions, in-kind donations and hundreds of employee volunteer hours to those in need. The year end employee count totaled approximately 1,270, a year-over-year increase of 17%. We ended the year with…

Thank you, Seth. Let me begin with the summary of the impact of the adoption of the new revenue accounting standard also known ASC 606 revenue from contracted customers. We adopted this new accounting standard in the fourth quarter of 2019 on a full retrospective basis effective January 1, 2017 applying the adjustments in each prior period reported starting with full year 2017 to September 30, 2019. The fourth quarter and full year 2019 were reported under ASC 606. A summary reconciliation from 605 to ASC 606 is included in our earnings press release and additional details will be provided in our SEC Form 10-K. The analysis that follows including guidance is based on these new accounting standards. Generally speaking, revenues now recognized taking into account the contract economics over the entire non-cancelable period as opposed to revenue recognition for each service period separately. The ASC 606 revenue adjustment for the previously reported 9 months ended September 30, 2019 was an increase of $1.8 million. Full year 2018 revenue adjustment for 606 was an increase to revenue of $700,000, which includes an increase of $400,000 for the fourth quarter of 2018. In addition, cost to obtain a contract largely sales commission are now capitalized and recognized into expense over 4 years, which is the estimated customer life. Prior to ASC 606, commissions were expensed when incurred. As of December 31 2019, we had $28 million in deferred contract costs to be recorded as expense in fiscal 2020 and beyond. Now, let’s discuss the results and guidance. Revenue for the fourth quarter was $76.1 million and full year revenue was $281.1 million, year-over-year increases of 11.7% and 10.9% respectively. Q4 annualized subscription revenue was approximately $302 million, up 11.4% year-over-year. For the full year 2019, clients within the United States comprised…

[Operator Instructions] Our first question comes from the line of Derrick Wood with Cowen & Company. Your line is now open.

Great. Thanks. Good afternoon. Seth, you guys delivered some nice upside on revenue, but deferred revenue was well below what we are looking for and the number of net new customers was down quite a bit year on year, but I understand that ASC 606 has some meaningful impact on the deferred side, I think if I look at apples to apples, the short-term deferred revenue growth looks quite a bit better, but could you just unpack how your overall bookings ended for the quarter versus expectations and maybe touch on how you felt about the net new customer number?

Yes, Derrick. Thanks. I think again we did what we wanted to do which is went out there to build out the sales force in 2019, start ramping up capacity getting people trained up, we went out to the market with new marketing messages, we expanded out into new global markets. So I think we did what we wanted to get done in the fourth quarter. There is always a few deals that we wanted to bring in that slip past the date. And as you know in our world of the maintenance side, if we don’t close it by the time we get to a renewal date, then it flips over to be an opportunity for the next year or whenever it’s up next for renewal. So there were probably a few deals more we would have like to have gotten done that we felt were potential. So they were little bit on the stretch side. But other than that I think we got the quarter where we wanted it.

Okay. And Stanley, I mean can you just touch on kind of why there is such a big write-down on deferred under 606 for you guys?

Brian, thanks for your questions. At this point, 606 wasn’t a significant impact to us. The key change is how we recognize revenue generally over the non-cancelable term of our contracts and therefore hasn’t been a big impact. Overall, deferred revenue has grown from the previous years and we don’t expect that 606 at least on the revenue side will be a big impact. On the cost side, commissions are being capitalized and recognized over 4 years.

Right. As you know, Derrick, we have always expensed off the commission so we change those right.

Yes, yes. So I guess staying on that line of thinking with respect to guidance, so it looks like the 606 revenue impact was $2 to $3 million for 2019, I mean looking at 605 versus 606 is that kind of the degree of the impact that we would have assumed for 2020.

Usually about 1% to 3% that will be the range 2019 was actually above $1.4 million impact. A lot of that is just how we change revenue recognition of our longer period of time as opposed to just 1 year.

And on the cost side, how much of a benefit was it for you to go to the deferred commission structure, I don’t know if you can quantify that?

We got [indiscernible] million at the end of the year. We will take it out over 4 years. So it’s going to be about $5 million for the year.

Okay. And then Seth, so nice to see guidance calling for the potential for growth acceleration, but I just wanted to drill on how you guys are thinking about potential macro disruptions. So first, could you just – could you talk about how much your business is high-touch and requires travel in terms of signing new deals versus deals done over the phone or locally, it doesn’t require travel and I guess how much go-to-market change you may need to do to address to the environment right now?

Well, I mean, like everybody else right, this is a story that’s evolving by the day. So we are all – and our guidance is based on a few different things. First, you look at the size of our recurring revenue stream and the fact that here you are getting close to $300 million of recurring revenue, 70% plus is committed for 12 months or more. So, we are starting to see that really good base built in, then you add in the revenue retention rate in the 92%. So when you add all those together, I think you create a nice floor. And when we think about the macro environment not to in any way dismiss how serious everything is, but just from the point of view that we are in a business that benefits from uncertainty whether that’s financial, whether it’s political, all those things when you bring uncertainty into the picture, what happens with uncertainty people push off big investments and changes in these times and we saw this of course during the economic downturn 2005 to ‘08 Rimini Street flourished extensively. As we like to say, we are not a contrary in business in the sense that we do well when things are bad and we don’t do as well when things are good. We do well when things are good. We do really well when things are uncertain. And so we look at the macro economic climate and say what’s the biggest risk when people leave Rimini Street, why do they leave, because they are doing some other big project in change. In an environment like this and I think as we are all watching this and people are looking their wounds from days of being beaten up on the market. You could probably imagine…

Great. That’s good color. I guess last one for me is just how are you feeling about sales capacity build and where you are with respect to hiring plans?

Well, we are going to hold around 76, 77 hires on the sales side per our prior calls. We switched from number of bodies right now to really focus on sales enablement and effectiveness. We held our big global sales conference. Luckily, we got that in-while conferences were still happening pretty much on the tail end before you saw everybody else canceling theirs. And that was very effective for us, I think in moving our sale force further down the field in dealing with the new wider breadth of products that we have, you are going to see us focus in on the up-sell. And I think this is really about getting more out of each sales rep. We are still holding quotas for the average sales rep around $2 million a year. We did create some new higher level sales positions in $2.5 million, which is new to our sales structure, because we have some super-sellers who are getting bigger quotas, bigger comp plans into the mix. So, I do think that we have moved to a more sophisticated next level of sales. We have deployed more people globally. So yes, I think we are well positioned to again reap the rewords of the investments that we have made over the last 21, 22 months in sales capabilities.

Okay, good job. Thanks. Thanks for the color.

Thanks, Derrick.

Our next question comes from Brian Kinstlinger with Alliance Global Partners. Your line is now open.

Great. Thank you so much. I am curious I know it is very early, but how are prospective customers already dealing with videoconferencing instead of face to face are you touching prospective customers as much is it taking a bit longer to get in touch or get in front of customers I am just curious to the reaction right now?

Yes I think certainly the same question for everybody right the difference is I think Brian is that we have built in remote selling has been part of Rimini Street since the beginning in fact in the first few years we were nearly a 100% remote selling so we have a strong history of using web based products everything from Webex now we are team space so we do a lot of remote selling activities in any given sales cycle what’s new in this crisis right now is no body is taking a meeting in person so if you think about it I would say my guesstimate is we probably do 30% of our selling in person and 70% of activities in all total sales cycles remote but now that 30% everyone is saying lets just do it on the phone people are closed campuses they don’t want you coming on site it is an unusual experience but so for us this is really probably a shorter change or a smaller change to the overall process than a lot of other companies who haven’t been in the business of remote selling so from that point of view we certainly feel we have managed that risk and that transition to a 100% remote sales much easier than lot of other companies we have the infrastructure every sales rep is used to selling remotely and that the risk is that 30% that we were doing in person tended to be bigger larger deals where you might have 20 30 stakeholders you got to get alignment with and so doing that all by phone might be a little more challenging so yes I think it does introduce a bit of risk on somebody’s bigger transactions because we cannot get in front of them we are going to have to do it all by phone and that’s where the risk arise

Great. And then with recent discussions in the past few weeks of prospective customers you get a sense that switching to a low-cost third-party maintenance provider is something that is going to be a delayed decision is it high in a priority list? I mean I take it executives are so focused on so many issues related to their business with corona that I wonder how much costs of their business becomes an issue?

Well, I agree with you. I mean this is what I was just saying a second ago with Derrick which is the need is there I mean clearly you have seen a huge number of these clients back several of them you have seen in the news or in the middle of sales cycles with us in terms of looking at alternatives and things like that so we definitely see activity related to whether you call it the current crisis or the current macroeconomic crisis. But we've had remember step back a few weeks even before we really got into this crisis on a more local level we have already had a slowing global economy we were already expecting to see auto sales down a couple of points right we have already saw Germany teetering on recession. So I think we've accelerated into a negative economic situation but it was already slowing and it was already driving what we saw increased increase so again I think that the more uncertainty enters the market and this now accelerates it creates opportunities the risk again as you pointed out is they may be believing and they may be on fire and need cost savings and they need to figure out how to fund some items but will they be so distracted by getting their own sales running and keeping their own company running that we just fall by the way side because they just cannot get to it right too many other distractions and too many other crises I am not seeing that yet but I think it is that is a real risk I think all of us face that everyone can get so focused on just keeping their company moving forward closing offices sick employees yes it could be a huge distraction to any sales cycle.

Which leads me to my next question, your business, obviously, is around cost cutting to help companies and investing other things and use their money which is generally received well in the recession can you talk about how your business has performed in recessions may be talk about how it performed in ‘07/08, I don’t know how small you were back then?

I guess, the only thing I am not – I don’t know if we – those were not audited periods. So I need to say that because we weren’t public and it was more than 3 years back. Just anecdotally I can say, we did have growth, I think we did well. That’s why I said, I would like to be careful about saying we are contrary in business, because when people hear that you grow well when things are up in the air and there is a lot of doubt in the marketplace and other issues, but because we do well in good times, because budgets are always limited in IT. There is a thousand things they want to invest in and they can only invest in a portion of them. And so we help make sure that they can fund a lot more of what they need. So in downtimes you are right, I mean, people may switch from, I want to take this money savings and invested in new innovation and competitive advantage in growth, which of course they need to do. But when things are at a crisis level, cost savings can move to the top of the list. I simply need to reduce the outflow and I need to do it quickly and I need to do it in a way that it doesn’t create risk for the business and may create new opportunities and we have always played a very, very good role there. So whether it’s just cost savings or savings to innovate and invest somewhere else, we are right answer for a lot of companies on both fronts.

Great. Last question I have got is I am hearing correctly, I didn’t hear with $302 million in annual recurring revenue and I assume the 92% held up, you have got about $278 million heading into the year. First, I just want to make sure that’s what I am hearing correctly? And then how has late December as well as early this year going? Have you added meaningful bookings to that? So, are we closer to 300 at the bottom if everything went wrong, and I am just trying to understand from a commitment standpoint of what you have already added, where you are at in visibility?

I think again we just refer to the Q1 guidance right for Q1 numbers. For the back end of December, a lot of what we saw in the global crisis was still being – was primarily in China. We don’t have operations in China. We service a lot of customers in China, so we were not disrupted as a company in operations on the ground there. We are still servicing our clients uninterrupted. We do have good sized operations in Korea and Japan, which did start to see towards the end of the year. We did move some people out of our offices as we saw numbers of virus issues rising in Tokyo, Osaka and Seoul and we did that without disruption. We have continued selling. We did close very good business in Korea, in Japan. So we didn’t see it disrupt our business plan in those areas.

Great. Thanks so much.

Sure. Thank you.

[Operator Instructions] I am not showing any further questions at this time. I would like to turn the call back to Mr. Ravin or closing remarks.

Thank you very much. And listen, everybody, obviously, very, very complex difficult challenge for everybody and wishing you all well and good health as we all navigate something we have never been through and look forward to hopefully this moving behind us and look forward to talking to you all on our Q1 2020 call. Thank you everybody.

Ladies and gentlemen, this concludes today’s conference call. Thank you fro participating. You may now disconnect.