Good day, and welcome to the Rimini Street Q1, 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. Instruction will be given at that time. As a reminder, this call has been recorded. I would like to turn the call over to Dean Pohl, Vice President of Investor Relations. You may begin.

Thank you, operator. I would like to welcome everyone to Rimini Street first quarter 2023 earnings conference call. On the call with me today is Seth Ravin, our CEO and President; and Michael Perica, our CFO. Today, we issued our earnings press release for the fourth quarter ended March 31, 2023, 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 this table following the financial statements in the 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-K filed today, for a discussion of risks that may affect our future results or stock price. Now 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. Before we review the quarter results, I wanted to remind everyone that Rimini Street has grown and evolved from a single service company into a global provider of end-to-end enterprise software support products and services, the leading third-party support provider for Oracle and SAP software and its Salesforce and AWS partner in SaaS and cloud markets respectively. The company has operations globally in 22 countries and now offers a comprehensive portfolio of unified solutions to run, manage, support, customize, configure, connect, protect, monitor, and optimize enterprise application, database, and technology software, and enables clients to achieve better business outcomes, significantly reduce costs and reallocate resources for innovation. To date, over 5,100 Fortune 500, Fortune Global 100 mid market, public sector and other organizations from a broad range of industries have relied on Rimini Street as their trusted enterprise software solutions provider and we believe we have delivered over $7 billion of savings and reinvestment opportunity to our clients. Operating results. For the first quarter of 2023, we were pleased to complete both the launch of our expanded solutions portfolio and sell the portfolio to name brand organizations globally. This expanded portfolio will allow us to meet the needs of a significantly larger market of organizations with $2 million or more in annual revenue or budget. One of the new premier solutions launched in the first quarter was our end-to-end turnkey outsourcing offering Rimini ONE, which provides organizations a one vendor solution for their current and evolving enterprise software needs and leverages Rimini Street's unique and industry leading value, reliability, responsiveness, technology and engineering capability. We've already signed in our servicing more than 100 Rimini ONE clients, and believe our significantly expanded solutions portfolio will increase sales to new and…

Thank you, Seth, and thank you for joining us everyone. Financial results. We were pleased with our first quarter financial performance and revenue gross margin, adjusted EBITDA, net income and revenue retention rate on subscription revenue and exceeded first quarter 2023 guidance. Additionally, we maintained a strong balance sheet with cash in U.S. Government backed securities of $135 million and reduced debt $10 million year-over-year from $87 million to $77 million resulting in net cash at quarter end of $58 million. Revenue for the first quarter was a record $105.5 million, a year-over-year increase of 7.8%. Clients within the United States represented 50.6% of total revenue for the first quarter, while international clients contributed 49.4% of total revenue for the first quarter. Annualized recurring revenue was $408.3 million for the first quarter, a year-over-year increase of 6.1%. Revenue retention rate for service subscriptions, which makes up 97% of our revenue, was 92% for the trailing 12 months with more than 75% of subscription revenue non-cancelable for at least 12 months. Billing for the first quarter were $93 million compared to $97.7 million for the prior year first quarter, a decrease of 4.8%. Lower new client invoicing in the U.S. and prepaid multi-year invoicing year-over-year were primary basis for the decrease. Gross margin was 62.7% of revenue for the first quarter compared to 62% for the prior year first quarter. On a GAAP basis, which excludes stock-based compensation expense, gross margin was 63.1% of revenue for the first quarter compared to 62.5% for the prior year first quarter. Looking forward for full year 2023, we continue to expect gross margin to be in the range of 61% to 62% of revenue on a GAAP basis and 61.6% to 62.6% of revenue on a non-GAAP basis. Operating expenses. Like other organizations globally,…

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

Great, thanks so much for taking my question and nice quarters particularly on driving address to driving adjusted EBITDA. You described the demand environment as one where there's opportunity for strong and proven IT partners. With that said, US growth was about 2%. So sorry to focus on the piece of the business that's not doing as well. And I assume that's not impacted by FX. So we've been in around $53 million for a handful of quarters. I know you restructured this business. Maybe from a strategy perspective, what needs to be accomplished? And then from an economy perspective is there any dependence in order for you to start to see an increase in demand there?

Thanks, Brian. Seth here. So, you know, from my perspective, we've made a lot of changes. When I took back over the sales operations globally mid last year, and we said it would take a few quarters to start to see the results flow through, I'm actually very pleased. We started Q2, for example, with a 20% higher pipeline than we did a year ago. So, it's taking a while to flow through, but the quality of the deals is excellent. The market demand is excellent. We've put better sellers in the field. We've made some changes. We're doing some things that I think are going to significantly increase our revenue opportunities for America. And as you noted America only grew at 2% in the quarter year-over-year while the international was 14% and I can tell you that as a company we are focused maniacally right now on the US. If we get the U.S. up in percentage performance when it's 50% of the revenue, as you can do the math, we're going to see significant improvement in revenue performance, and we're going to see it in the overall growth rate. So it's all about America. We're selling great deals all over the world. America's selling great deals, they're just not selling enough of them.

And just a follow-up on that before I ask my second question, do you expect that acceleration and demand will happen in this calendar year or do you think it'll be more likely in early 2024 where it's visible on the income statement?

Well, I think separating out demand from our execution, the demand, I believe, is huge. I think we have as big a demand in the United States as we do everywhere else around the world, and the difference in performance is execution. Again, it's all on us. As we get all these products into market, and it's taken a little bit longer than we may have expected, but we have such a great portfolio of what customers want to buy, and they're buying the full portfolio, which is great. But getting all the sellers, getting the machine to be able to move and sell all of these great new things, it takes some time. And I think we're seeing week over week improvements, people being able to talk the story better, they're able to talk about the full portfolio. The hard challenge in America is getting in front of senior executives. They have the need, we have the solutions, but it is really hard in America since the pandemic to get to the executives to actually have the conversation. And once we have that conversation, we're usually off and running on being able to present solutions that often lead to a win. So for us, we have been very pinpointed on figuring out where the performance challenge is. And it is getting to the executives in America to have the right conversation. And that's what we're focused on fixing right now.

Great. My follow-up and I appreciate that. You said you have roughly 100 clients on Rimini ONE that have an – and I'm sorry, let me rephrase that. I heard that poorly. In terms of Rimini One, you said you have about 100 clients. Can you provide roughly what we should expect long-term, the average revenue per customer might be, or short-term or the long-term? And then second, you described it as a turnkey outsource solution that you're providing. I think it'd be helpful to understand what is it that companies are outsourcing to you. Is it application management? And if not, what are the functions that are being outsourced to Rimini?

Sure. Question number one, as you know, our average sales price on a support deal, just the average sale is about $200,000 that goes up and down a little bit depending on the quarter. We don't have numbers that we're ready publish on AMS or Rimini ONE. Again, even with 100 data points, there's a lot of variability. And so there's not a number in there yet that we can really put out and feel comfortable about that you could model. That I think will come as we get more and more customers on it, we get more experience and understanding what kind of product what kind of customers, what kind of pricing. It is pretty variable. What they're actually outsourcing to us is the running of the system day-to-day. So we take over from the team. We run the ERP system. We provide the support, which of course is our core bread and butter that we've done forever. And then we provide security assistance and products. We provide interoperability when things need to connect to other systems. All those become our responsibility. And what we're trying to do is address the issue. And the issue is that all this back end ERP systems are becoming utility. And we will run that utility. We will make sure it runs better than anybody else. We'll make sure that they get better results out of that system and we will lower the cost on managing that system end-to-end. And that allows people to take some of that money and savings and resources and use them in innovation and take some of the savings and drop it to the bottom line to improve profitability. And that's a solution our customers are really enjoying is both increasing profitability and we're providing money for innovation projects to -- for growth and competitive advantage.

Great. Thanks so much, sir.

Sure. Thank you. Our next question comes from Derrick Wood with Cowen. Your line is open.

Great. Thanks guys. It's Andrew on for Derrick. Congrats on the strong quarter. Seth, we'd love to hear some more color on how sales cycles and decision making played out in the quarter? Did you see any impact from macro and specifically the banking crisis in the U.S.? Did you see any deals slip? Any color would be helpful there?

Sure. And the great news is, again there's always two sides to a coin. Economic uncertainty and challenge is a good thing in our pipeline and our business. It's not something that distracts or pushes deals out. We're the kind of people that come in good times and we're really sought after when people are in trouble and they need to adjust their cost base. They need to adjust their staffing model. or situations where they just can't staff their systems and they need professionals that have the engineering capability step in and take over either running the system, supporting the system, securing them, all of that we have the capability of doing. And so I think for us, no, we didn't see decision making issues in the quarter. Any delays that we had in terms of deals? Last quarter, we had a lot of slip deals, I don't think we had a lot of slip deals from Q1. It probably amounted to $4 million or $5 million that we thought could come in the Q1 that slipped into the next quarter or future quarters. But those happened because management wasn't able to get through their cycles or they had too many other projects that they were juggling. But the economics are actually very favorable for us globally. That's why you saw good strong performance on a global basis. America is simply a sales execution issue. That demand is there and we just haven't been able to take enough of it off the table yet. And that's what we got to work on.

Yes, great. And then Michael, you did BQ1 revenues by $3 million, but you're keeping the full year guide. I know the comment says you'll revisit it, but is not raising it now just an extra layer of conservatism or is there something else to think about in the back half?

Andrew, I think you summed it up precisely than an extra layer of conservatism we did note. We're going to revisit in mid year, but certainly feeling in a comfortable position up and down the P&L for our guidance at this time.

Okay. And one more few quick one, Michael. Customer count, I didn't see anywhere I may have missed it, but is that disclosed or not?

It's actually in our Form 10-Q, but we were over 3,000 in aggregate clients in over 1,500 from unique clients, but you have the exact date in our Q.

Okay, great. Thanks guys.

Thank you.

Thanks Andy.

Thank you. Our next question comes from Jeff Van Rhee with Craig-Hallum. Your line is open.

Great. Thanks for taking my questions. Obviously, top line in EBITDA, real nice performance looks pretty conservative going forward. My focus would be on sales and billings here. Seth, the pipe was up, I guess you said 20% year-over-year this quarter. What would that number have been last quarter if you gave it year over year?

I don't think we actually published the numbers for the pipeline. So just as a percentage, 20% year-over-year growth.

Sorry, I didn't freeze that well. You were saying it grew 20% year-over-year this quarter compared to the year earlier quarter. I'm asking 90 days ago when you compared the year-over-year growth in the pipe, what would that number be? I guess I didn't phrase that well.

Well, we actually -- yes, we actually didn't see too much pipeline growth in the last few quarters. That's why I'm pointing it out is that I think all the work that we've been doing in the last six months is starting to work its way through the snake, as we say. Starting with the lead volumes being up, which is translating and working its way through the growing pipeline. And when we say pipeline is up, we also account that as a minimum 10% likelihood of close. So it's also a little more qualified in terms of what we expect. So again, I think those are good healthy numbers that we're starting to see. I think that the marketing is much more effective than what we had in the prior year leading up. I think that we're making a lot of changes and putting a lot of things in place that are really getting more traction. But as I mentioned, we're still just not getting in front of enough executives to make our pitch in North America. And that's really where the focus is.

You mentioned the duration issue and obviously if you take a look at the shorter-term deferred. It's maybe a little bit better picture on the billing side, but that said the billings rolled over from being slightly positive last quarter to slightly negative this quarter. When you think about 2023, I want to press you a bit to say, I guess, what would be failure, what would be disappointing to you terms of billings growth, whether it's a target of growth, great maybe by Q4 or growth in billings of the year, just how do you mentally set a benchmark that if we don't get to X, I will consider it failure.

Well, I think you have to look at the North American revenue growth rate of 2%, I don't think anybody should be satisfied with that. We're certainly not. And I think when you look at 14% on the international, that's a decent number. One we're going to again try to go, as you well know, I'm very, very bullish and focused on driving north of 20% growth in the company. So I think international is on its way. In fact, I think Asia was probably even more than that and probably moderated a little bit by EMEA. But I think that overall, we're very focused on bottom line. I think you saw that in the adjusted EBITDA, we are determined to be a very profitable company, even though we're going to have moderate growth as we've been forecasting and guiding to. Moderate growth that we're going to attempt to accelerate year-over-year, quarter-over-quarter, we are going to be focused on that bottom line. And the adjusted EBITDA numbers, the fact that we started providing guidance for that shows that we are extremely focused on bottom line performance as well.

Okay. And from a sales standpoint, I guess just circling back to the process, it sounds like I guess two questions there. One, the belief wasn't really difficult macro environment and I think you can see a lot of entities under a lot of pressure that you would see accelerating tailwinds. And you've referenced it, but are you in fact seeing that? It sounds like that maybe is maybe showing up in the top of the funnel, but not showing up in close rates yet?

I would say that's fairly accurate. We're absolutely seeing it at the top of the funnel and I think that's number one, obviously, our better performance as a sales organization, as a marketing organization, the machine performing better, getting more traction globally and we have to increase that in the U.S. But the messages are resonating. I think it's a fantastic market for us. And I think again, the issue of us not being able to get it off the table and close that business, bring it into the pipe is very much related to the number of executives that we can get in front of. And if we solve that issue, we see huge traction when we get in front of CIOs and CFO and walk them through our whole expanded portfolio of services and capabilities, that goes very, very well and often turns into next steps in the sales cycle. And I believe that will grow the pipeline significantly. So it really is that one problem. If we can get in front of more executives, get their attention for a few minutes to present what we're doing, I think we will grow sales significantly.

Okay, I'll leave it there. Thank you.

Thank you. We have a follow-up question from Brian Kinstlinger with Alliance Global Partners. Your line is open.

Great. Thanks. I started with the challenging markets, and I want to touch on the market that you're doing a lot stronger in. If we look at the last few third quarters, which is a driver for international bookings, you've had some challenges. Two years ago, I'm not saying you don't know, the sales team was a little too new, and then last third quarter, the market was a little bit in chaos, and so some companies weren't prepared to make decisions because there was so much chaos. So we're two months away from the beginning of this third quarter, which is very important to drive growth for next year. As you said, companies are under pressure. Your sales team is more experienced. Is there any reason to believe, is there anything I'm not thinking about in terms of headwinds? I get the sense you think this will be a super third quarter in terms of bookings that will position you for accelerated growth, which you kind of touched on for international briefly, but I just want to make sure I'm thinking about it the right way.

I think this third quarter is very different than last third quarter because we were in turmoil economically at last third quarter while companies were having to refigure out new budgets, changing plans. When they came to the realization that the economic situation was not going to be just a few months that it was likely to last two to three years. Obviously, we got an interest rate increase again today from the US Fed. That'll continue to put more pressure on companies. All of that does not interfere with our ability to get deals done. All of it creates more opportunity for us because we have the solutions to help companies reallocate those IT spends. We can bring down that cost, we can improve profitability, and we can drive growth with moving money into innovation as well as with the staff. So I think we are extremely well positioned and it's on us to get the execution where it needs to be to take advantage of I think the best market opportunity the company has ever seen. We've never had more products, more solutions to more business issues than we have today and it's our job to get it out there, to get in front of these executives, present our wares, present our solutions to their problems and get these transactions moving and get them done. So I think it's a very different environment and I think we are well positioned for that and now we need to execute.

Great, thanks for taking my call.

Thank you. There are no further questions. I'd like to turn the call back over to Seth Raven Seth Ravin for closing remarks.

Well, thank you very much, everyone. Thanks for joining us today. Once again, we always are very thankful for the world that we get to live in, and we know that there's a lot of people under pressure, living in war-torn areas, who are struggling, and we always like to keep our thoughts on them as well. So be safe, have a great day, and we look forward to a next call and giving you the results for this second quarter at that time. Thank you everybody for joining us.

Thank you. This concludes the program. You may now disconnect. Everyone have a great day.