Welcome to the Rimini Street Quarterly Earnings Call. My name is Annette, and I’ll be the operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Dean Pohl, Vice President of Investor Relations. Mr. Pohl, you may begin.

Thank you, operator. I’d like to welcome everyone to Rimini Street’s Third Quarter 2021 Earnings Conference Call. On the call with me today is Seth Ravin, our CEO; and Michael Perica, our CFO. Today, we issued our earnings press release for the third quarter ended September 30, 2021, a copy of which can be found on our website under Investor Relations. A reconciliation of GAAP to non-GAAP financial measures has been provided in the table 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. 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 third quarter of 2021 for a discussion of risks that may affect our future results or stock price. Before taking questions, we’ll begin with prepared remarks. With that, I’d like to turn the call over to Seth.

Thank you, Dean, and thank you, everyone for joining us today. For the third quarter, we achieved record revenue of $95.6 million, up 15.9% year-over-year, and that’s the high end of our guidance range and achieved a strong revenue retention rate of 93%, up from 92% last year on subscription revenue. Subscription revenue accounted for 98.4% of our total revenue. More granularly, we achieved 31.4% international and 4.8% U.S. revenue growth year-over-year. We see growing demand for Rimini Street’s expanding portfolio of enterprise software support solutions as we continue building and maturing our go-to-market capability to launch, sell and deliver our full solutions portfolio to new and existing clients globally and prepare the Company for billion dollar annual revenue operations by 2026. For the third quarter, we also expanded our gross margin, improved our cost leverage and completed significant capital market transactions and materially reduced both our cost of capital and potential dilution. Michael will further detail those transactions in his prepared remarks. From the company’s inception in 2005 to-date, we have signed more than 4,400 clients including over 180 Fortune 500 and Global 100 companies and added a net of 148 new clients in the third quarter. To-date, we have saved our clients more than $5 billion. During the third quarter, our global service delivery team closed over 9,500 support cases and delivered more than 18,000 tax legal and regulatory updates across 27 countries and achieved an average client satisfaction rating of more than 4.9 out of 5.0 on the company’s support delivery and for the first time an average satisfaction rating of 4.9 out of 5.0 on the company’s client onboarding program where 5.0 is excellent. Our global employee count as of September 30, 2021 was 1,595, a year-over-year increase of 15.2%. Pandemic, we believe we have navigated…

Thank you, Seth, and good afternoon, everyone. Q3 2021 results. For the third quarter, we delivered an expanded gross margin, a higher year-over-year operating income, non-GAAP operating income and ended the quarter with more than $103 million in cash. Additionally, during the quarter, we completed significant capital market transactions. On July 20, 2021, we redeem this remaining Series A preferred stock with a five-year term loan transaction financed by two commercial banks, Capital One and Fifth Third for $90 million at a rate of LIBOR plus 1.75% to 2.5%. The company has taken certain one-time cash and non-cash charges in the third quarter related to the closing of the financing transaction and the go forward annual financing costs have been reduced by $24 million compared to fiscal year 2020. As Seth noted, for the third quarter, revenue was $95.6 million, a year-over-year increase of 15.9% at the high end of our guidance range. Annualized recurring revenue was $377 million, a year-over-year increase of 15.3%. Revenue retention rate for service subscriptions, which makes up 98.4% of our revenue, was 93% with more than 80% of subscription revenue non-cancelable for at least 12 months on a rolling basis. On a cash flow basis, while we did use cash in the period in line with our normal cycle, where cash is generated in the first half of the year and utilized in the second half of the year, we still ended the quarter with a healthy $103 million in cash. For the third quarter, clients within the United States represented 53% of total revenue, while international clients contributed 47%, representing aggregate year-over-year revenue growth rates of 4.8% for the United States and 31.4% for international clients. Billings for the third quarter were $73.7 million compared to $68.3 million for the prior year third…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question is from Derrick Wood. Mr. Wood, go ahead.

Thanks for taking my questions. So on guidance, just very surprised to see that the Q4 guide of nearly flat on a sequential basis in term in what’s historically a very strong sequential quarter and a pretty big slow down in year-over-year growth. So I don’t know, Seth, can you walk us through what has changed over the last three months? That’s caused such kind of a dramatic different picture for Q4. In relation to that Michael just mentioned the backlog number, which was certainly lower than I would’ve thought. I’m sure there’s some type from that. Could you speak to that as well?

Sure, Derek. And of course, with the 7.9% billings growth for the quarter wasn’t our top quarter in terms of field performance. I think you notice that the second quarter we did a very strong billings growth. We had a very strong number of large deals that closed or setting of record. The third quarter, a different mix of reps out there and as I noted, half of our reps are less than a year experience. We know that 18 months is the fulcrum point between those who are producing more than ever versus those who are still getting their feet wet and learning the business. So I think that this quarter, we wound up fielding a bunch of deals out there with folks that were not necessarily the same proven players that were playing in the Oracle quarter Q2, they were playing in the SAP quarter of Q3. And we just didn’t deliver all the deals we wanted, millions of dollars of them slipped into the fourth quarter, which we have already closed billions of dollars of that business. And we’re seeing that we had some other deals that were lost and we had some errors on the field that just were not just, again, rookie mistakes and other errors due to the fact we didn’t have enough management out there to oversee it. And the combination would be the hiring challenges. I think all of that sort of just came together in the third quarter. Again, a lot of great logos, a lot of great wins, but we missed out on a bunch of bigger deals that we thought we were going to get done in the third quarter. And that’s obviously affecting fourth quarter on a ratable basis and go forward into 2022. So we’re continuing to work on the sales productivity, we’ll continue to work on the hiring to get those people where they need to be. But I think that’s – that coupled with a conservative guide for the fourth quarter is probably why you’re surprised that it’s a little lower than expected.

Okay. Is it fair to say that, I guess you experienced higher sales attrition in the quarter and any…

I think, Derrick, as part of – yes, part of the challenge. I mean, everyone’s got this, you know that, I mean, we’ve got the great resignation as it’s been referred to. We haven’t seen a lot of voluntary resignation. We’ve been pretty aggressive on turning over sellers that are productive. I think we add a few more than we probably would have hoped and coupled with the new hires, as you know, bringing them in, there’s not much they can do early on. It takes a while to learn this business. One of the unique challenges of this business is the complexity of the sale. And that requires people to learn quite a bit of material to position and sell effectively. And we need to get these people matured up and we need to work through. And as I mentioned, they’re learning a lot along the way, but there are errors being made on the battlefield. I’ll give you an example, we disclose the second largest transaction in the company’s history just in last week, which was a fantastic transaction. And it was done by sellers that have more than 18 months of experience by a management team that had more than 18 months. So that’s why I mentioned it’s lumpy. We have areas where we’ve got senior people and experienced that are doing very well. We have others where we got a lot of rookies on the battlefield and they’re making some errors and mistakes that we wouldn’t expect if we had a different, more mature team on that. But when you’re doing hundreds of transactions now, as part of the size, growth we are, that lumpiness is coming into effect where you’ve got differences in the teams. So I do think that this was very particular to the third quarter, the amount of new people we have on the field that we have to train up. And this is just part of the growth and some growth pains that we’re going to have along the way to $1 billion.

I guess, my last one then, I mean, the gross margin uptick so large, and I think the COGS was down a couple million sequentially. Michael, I think you mentioned that was due to less hiring, I mean, do you guys have enough capacity to service a pipeline or is that going to require onboarding people to be able to service new deals that maybe you don’t have the capacity right now?

I’ll go ahead and take that one, Derrick. We absolutely have the capacity. As I mentioned, we in the third quarter also hit the highest client satisfaction in our history north of 4.9%, the clients are very happy, the clients have the number of [indiscernible] is not even in a lower percent. They’re the best we’ve ever seen. So from a scaling execution, being able to service our clients, no problem. But it’s still – it’s really challenging to get all these hires done for the growth, especially, in the last couple of months, when we talked last – on the last earnings call, we were feeling pretty good about hiring, the last couple months have just been an absolute storm for everybody. We’ve got probably 20 companies out there doing recruiting on top of our own team. It’s really tough. And it’s hard to grow when you can add all the people you want as quickly as you want, and that’s taken into our guidance as well. We do have some impact and being able to get these people fielded in order to be able to deliver the size numbers and growth that we know is available based on the market opportunity. So for us, again, this is – some of this is, hey, we’re all in this together and facing the same challenges. Some of this is purely our own execution, getting people up to speed and delivering consistent versus lumpy execution. And then I think when you look at gross margin, we guided up. We just put 50 basis points on it, because we see it growing. But we’re not guiding to that 65%, because that was a little bit inflated by some of the hires that didn’t happen in the third quarter. But when we put our guidance number together, that’s based on the assumption, we’re filling all those positions. You’re not going to see some change in cost structure there. We’re just going to fill out the positions that are available. Yes, it was a little bit of a windfall for the third quarter, but we are guiding up 61.5 and 62.5 based on our own leverage in that model, not assuming that we’re going to not fill positions.

Understood. I’ll see it before. Thanks.

Thank you.

All right. Our next question is from Jeff Van Rhee with Craig-Hallum. Go ahead, sir.

Sounds good, thank you. Seth, on the sales reps and the challenge to get capacity, a number of questions, where did you end in terms of reps in the field at the end of the quarter? And then two, just in terms of the gross churn, I know you’ve been making some pretty aggressive changes in the organization you want to feel the guys that are much more solution sale oriented. If you look at the gross churn that of the sales reps, was it concentrated in any particular geography or competitive arena, namely more reps versus Oracle or SAP or open source or whatever focus area they had, those two questions to start.

Sure. Again, thanks. The question number one, in terms of where we are with the sales reps, the churn is less than other industry folks by comparison. But it’s a little high for us, we’re being pretty aggressive. I would say North America, we probably have the biggest churn. And then you look at some Latin America, but it’s a smaller number. So the percentages earned is meaningful. The true bulk of the change out of the sales team is North America. And as you know, we are laser focused on increasing the growth of North America. We’ve got it, in that 4.8, yes, slightly better than last quarter, in terms of year-over-year revenue growth. Our focus, as you know, I’ve said I wanted it to try and get that. I’d be really happy if we could get North America growing at 10% plus by the end of the year on a run rate basis, that would be great. It’s challenging to get there where we are, but we’ll see if we can. And I think that there’s no particular point about the reps. It really is a geographic component that I think makes up for. And I’m sorry, what was your first part of the question, when you ask me to, I forget one.

Well, I was asked to just the ending growth count and then various insurance by geo of product.

Yes. The ending headcount was pretty similar to Q2. By the time, you took out the attrition, we did have a good number of hires. But as you know, that gives you an even more rookie team out there. So the good and the bad is, while you may had similar numbers to what you had in Q2, you got a bunch of rookies you added into the mix that are not even some of them aren’t even taking client calls yet. They haven’t even been certified to take a prospect call. So I think that part, of course, gives us some challenge in terms of execution. While we get those people up to speed, I’ve actually been far more concerned with filling the management roles. We took out the entire senior team. We had hired for central U.S. and I alluded on the last couple of calls that the central was just not doing nearly as well. We’ve grown nicely. We turned a real good corner in the east. The south had quite a bit of a good success last year in terms of moving forward. And we lost our GMs, because we took them out in the central. We had another one retired for personal reasons from the west and we didn’t really have enough management coverage to cover the hundreds of deals and transactions globally. So I really don’t think it’s a seller volume issue. We’ve got the sales capacity. We got to go ahead and mature them with time, but not having the sales leadership is really tough. It’s like fielding a sports team without enough coaches out there to get them where they need to be in the game, especially as fierce to game as we fight not every single day. So I think I would look to that sales management and the announcements we made the last few days or some significant hires that we’ve put into position, but we’re still missing some of the basic leaders that we need to drive those regions.

Yes. Yes. Presumably if the deal flow was there and you just lacked seasoned sales reps win rates were down. Well, win rates down competitively again sort of across products and geographies, no real changes in win rates. And in that respect, I’m assuming overall it was down.

Yes. I think overall, but it was skewed a little bit towards losing more on the SAP side, simply because Q3 is our big SAP quarter, because of the special way their contracts are written that customers have to give notice of termination on support changes by September 30. So I think that really that’s why it’s skewed. I wouldn’t read more into it. I really think we just had more of a rookie team out there, not enough sales management and we just didn’t execute as well. And I think it just happened to be skewed to SAP, because it was the SAP core.

Yes. If I could squeeze and I think one last question with respect to color around pipeline, pipeline growth, and maybe in conjunction with that, any implications is often 2022. I know you’re not giving a formal 2022 guide, but the trajectory of growth posted or at least that you’re guiding to corporate channel a substantially different trajectory than where the Street has you. So we’ve got to put some revised numbers out there, any help there would be appreciated.

Well, I think it would give you some help in the modeling. First of all, we guided to having, we thought we’d have a 100 heads. It was my target to have a 100 sales heads hired by the end of the year. I think we’re going to drop that to 90. We’re in the low-80s right now with a little more churn the post quarter, we’re going to do a little more churn probably. And then the ads, I think if we end at 90, I’ll feel good. When I don’t want to do is overpressure the leadership, because we have – we are limited on leaders while we’re still hiring more. If I’ve pressured them to spend 90% of their time doing hiring to make the 100, I don’t think they’re going to get the time to focus on the deals that are on the table to close. And I think it’s a prudent move for us to just slip that back a little bit to 90, give them a little more breathing room in terms of being able to focus more on health, get out there and get deals closed instead of being on the phone, hiring all day long. So I think that that’s a prudent switch of move, but we’re still going to hold the 120 heads ending 2022 number in place that means we’ve got to do more hiring next year. But I think giving them a breather, let them spend a little more time working with the rep we have now, let’s get their sales productivity back. We saw great productivity in Q2. We know we can deliver that. We just didn’t deliver at this last quarter. Let’s get these people all performing better. Get back to those higher performance numbers. Pipeline’s going…

Great. Appreciate it. Thank you.

Sure.

Okay. And our next question is from Brian Kinstlinger with AGP. Go ahead, please.

Great. Thanks. Close enough. Given the lower billings growth, and this was the big SAP quarter, and now you’ve got a younger sales force. You said 4Qs sounds in terms of revenue like 3Q, but in my – is it fair to think that first half of revenue next year like a second half of this year, you have a little bit of attrition. You’ve got a couple of wins, including one big one, but we should be waiting till second half of next year before we start to see that reacceleration in revenue. Is that how we should think about it?

Yes. Hey Brian, I think the way that we’re thinking about it is you looked and reflected on it. Of course, we had did our postmortem on Q3, what went right? What went wrong? What went right? When you looked at renewals super strong, which is most of our revenue. Excellent performance there, excellent performance in the improvement in cross sales to the existing client base. All those things are going really well. It was logo acquisition that was weaker this third quarter in terms of where we wanted to be, but all the rest of the operation, including of course, where the business of delivering service and our clients love the service and we’re doing well by all the metrics. So I think this is really going to be all about focused on those reps. I think you should see. I mean I’m hoping we will see some acceleration coming into even the first half next year, if we can get the sales performance where we won it. And that’s why drop the heads a little bit. As I mentioned, we got to tradeoff a couple things. And I think taking our foot just to offer a couple breaths to let the management team, which is still understaffed, get with our team, work on their performance. I think also one of the key things we’re doing is, as I mentioned earlier, but we haven’t made a big deal out of it. We’re completely rebuilding our marketing operation. New CMO search underway. We changed out the entire team just about we’re changing from an outbound marketing to a inbound marketing machine globally. It’s a massive amount of change going on there too. We’re hoping that that in the next quarter or two will stabilize and we will start to see the fruits of that labor as well. So I had said on prior calls that I thought we were about 70% away through our transition and reworking of the – of all these departments and structures for billion dollar revenue operation. My guess is we’re probably 75% to 80% now, but we still got a few quarters of work to do ahead of us to complete all that a lot.

Okay. One more for me, that’s it.

Sure.

You’ve been clear over a quite a bit of time about your focus on accelerating the growth in North America. You’d hope to get 10% by the end of the year. It seems unlikely given the billings and the turnover in the sales staff. What for these new reps in general, can you give us how many new reps generally make it after a year? What percentage? And then at what point do you know, and I guess that gets to, can we get to 10% for all of next year? Or does that seem unreasonable at this point?

I don’t – I hope they get some possible to get to I mean, look, we all know that the goal on any given quarter is to do better than the prior quarter to show. We have directional movement in the right direction. And that we’re improving. I said, I’d be really happy. We got the 10, hey, we’re going to jump hoops to see what we can do, but of course, it’s field dependent, it’s rep dependent, it’s management, it’s regional dependent. There’s a lot of pieces there. I think that nobody should necessarily give up on that. I’m not walking away from it as a goal. But yes, you’re right. It’s going to be a really tough ride to try and make that happen in the fourth quarter alone. But I do want to directionally at least show improvement.

Thank you.

Sure.

Okay. And with that, we have no further questions. So I will to turn the call back over to Mr. Seth Ravin for closing remarks.

Great. Well, thank you, everybody, and thank you for joining us. As we head into the holidays, please stay safe. We look forward to getting a chance to meet up with several of you on the analyst side. When we set our Analyst Day probably right after earnings after we put out the K for next year very excited about that having our first in-person meeting with analysts quite a while. We look forward to a good day together. We’ll be working with you on the calendar dates. We know it’s a busy time with a lot of other events and looking forward to spending the time with all. So please be safe, have a great holiday, and we look forward to talking to you on the next earnings call. Thank you very much, everyone.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.