Good day, and thank you for standing by. Welcome to the Rimini Street First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Dean Pohl, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, operator. I'd like to welcome everyone to Rimini Street's First Quarter 2024 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 first quarter and fiscal year-ended March 31, 2024, 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 tables 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-Q filed today, for a discussion of risks that may affect our future results or stock price. Now 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. Rimini Street helps our clients achieve better business outcomes, such as significant IT operating cost savings, improved profitability, new competitive advantages and accelerated growth. We achieved these goals by significantly lowering the cost, resources and time needed to support and manage mission-critical transaction systems such as ERP, financials, HCM and CRM while also assisting clients with innovative projects that include cloud, open source, automation, workflow, data, analytics, AI, reporting, application modernization, migrations, integration, security, license management and global IT governance. To date, we believe we have already delivered over $8 billion of savings and reinvestment opportunity to thousands of clients operating in nearly 150 countries. Rimini Street serves its growing client base with global operations across 21 countries and more than 2,100 employees. Our award-winning software support delivers an average engineer response time of less than 2 minutes, 24/7 by 365 days and earns an average client satisfaction score of 4.9 out of 5 or 5 is excellent. 2024 Q1 activity and results. Although recurring revenue renewal and extension sales were in line with the first quarter plan, new client sales were more challenging. A number of new client sales deals failed to develop and close in the quarter, resulting in some deals slipping into future periods. In fact, several of the deals have already closed in the second quarter. Significant wins in the first quarter include sales from Rimini Street's entire portfolio of solutions to leading global and regional brands across a variety of industries and geographies. To address the challenges, we continue to focus on hiring, training and building out new solution sales capabilities globally. This includes sellers, sales management, sales support, regional marketing and senior revenue executives. In January, we held a comprehensive sales kickoff to…

Thank you, Seth, and thank you for joining us, everyone. Q1 2024 results. Revenue for the first quarter of 2024 was $106.7 million, a year-over-year increase of 1.2%. Clients within the United States represented 50.4% while international clients represented 49.6% of total revenue for the first quarter 2024. We note that for the first quarter of 2024, our total revenue measures on a constant currency basis was negatively impacted by 0.8% due to FX movements. Annualized recurring revenue was $415.8 million for the first quarter, a year-over-year increase of 1.8%. Revenue retention rate for service subscriptions, which makes up 97.4% of our revenue, was 89%, with more than 76% of subscription revenue noncancelable for at least 12 months. Billings for the first quarter were $74.1 million compared to $93 million for the prior year first quarter, a decrease of 20%. Unfavorable FX movements reduced first quarter 2024 calculated billings by $3.1 million. Gross margin was 59.8% of revenue for the first quarter compared to 62.7% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, gross margin was 60.3% of revenue for the first quarter compared to 63.1% of revenue for the prior year first quarter. Gross margin declined during the back half of 2023 and Q1 2024 as a result of continued investment in and expansion of our global engineering team needed to serve new client engagements in advance of related ratable contract revenue recognition. As noted in previous earnings calls, we are expecting continued gross margin pressure as we scale to meet new client engagements. Simultaneously, we are also working to improve gross margin by driving efficiencies and leveraging the benefits of growing global scale. Operating expenses. While inflationary pressures in high costs are still persistent for skilled labor across all…

[Operator Instructions] Your first question comes from the line of Brian Kinstlinger of Alliance Global Partners.

I'm going to start with a few on expenses. I looked at the Q and the text describe cost of goods or services being increased as a result of a 20% increase in the head count. With the 1% year-over-year revenue growth, I know you're investing in business offerings, but why a 20% increase in the head count on cost of services? I'm just not quite sure why we're hiring so aggressively.

Sure, Brian, it's Seth. First of all, the investments that we're making are global. Getting a managed service business plus our security business, our interoperability business, our observability business, our consulting business, infrastructure up and running globally means that as we bring on new customers, you're not getting scale yet. Every new customer in the managed service side and a lot of those particular products I mentioned, require the addition of a new staff. So we're not yet at a scale where we start to see returns from a single staff member generating multiple customers worth of revenue. So it's going to be a while. And it's -- again, because every time you add a new country, we have to add new people with different languages. It's a costly structure.

Yes. Look, I would just say there's no answer to it, but your new countries, I guess, or new regions, but your customer counts up 40%, which is 1% year-over-year. So to me, there's a little bit of disconnect there.

Well, but remember, Brian, a lot of that is we're doing a lot of cross-selling of those services into the existing customers. So you're not going to see increased client count. And as we mentioned in prior calls, part of the challenge we have to do now is pivot back to more new logo growth as we added these new products and services, our sales team were anxious to get this back into customers who wanted to buy these services, which, of course, lowers your growth in the new logos, and that's what you're seeing.

Okay. Thanks for the clarification on the sales of the inflated sales and marketing for the quarter. Are there any other quarters where you expect there's going to be outsized expenses related to sales events, I guess calling out anything you know would be helpful as you see the year seasonally on expenses?

Well, the SKO, which, of course, is common for most companies to go through because we're global and we're bringing people from 21 countries, they're pretty expensive events. As we said, this one was somewhere in the $4.5 million range or so. We expect that going forward, we're going to be having one of these events probably every 18 months. We're not sure we need them every 12 months. That's why you had a compare issue, we didn't have this last Q1. As Michael had mentioned in his prepared remarks, we had one towards the end of '22. And so that did create a compared difference between the years and if you look at the difference of that $4.5 million plus what we had in the FX losses, especially big with Japan, the combination of those pretty much make up a lot of what you're seeing in the difference in the numbers.

Great. Last question I've got is the retention rate was 89%, which was the lowest since I've been covering the stock. The customer count growth, we've talked about hasn't been strong, and you talked about billings being soft because closing deals became difficult in the quarter at the end. I guess I'm just curious, is the value proposition not resonating right now as it did 2 or 3 or 4 years ago with prospective customers? To me to just makes so much sense -- again, to me, the message makes similar sense, OEM maintenance agreements are much higher cost. You're getting better service and we're in a super high inflationary period. So I guess I'm trying to understand how it all ties together.

No, Brian, I don't see any change in demand, as I mentioned in my remarks. The demand market is strong. What we're watching here is really with the rollout of an entire suite of products. This is a process. It is a journey, and it's taking us a while to get all these products out there. We had some distraction away from selling the core product, and I think you've seen this in many other companies, when you add in a whole bunch of new products to sell, you get 'the shiny object problem' as we say, where the sellers go off and sell a lot of the new products, but they slowdown in selling the core product because they lose focus. We're in the process of refocusing everyone back to the core product, our support replacement for Oracle and SAP and getting them refocused there and getting it back out in the market. At the same time, we had the largest number of sellers we've ever had in Q1. We had 84, 85 sellers on the ground and that's 20% more than prior plus turnover. So we had quite a few sellers who have never sold our core product at all, which is the most complicated of all of our products. So I think a combination of those pieces pulled together led to what we saw in Q1, those deals not developing as well as we had hoped they would and planned and had forecasted for Q1 was one problem and then not getting them over the line by the time we got to the end of the quarter. So we had a bunch of slip deal issues. Now some of those deals were lost, some of those deals were pushed to the next quarter, some of them were pushed to the next fiscal year for another Q1 run. So again, the combination of all of that led us to where we were in the quarter.

Your next question comes from the line of Daniel Hibshman from Craig-Hallum Capital Group.

This is Daniel on for Jeff. Maybe just on the bookings billings and the weakness there, down 20% year-over-year. Just any thoughts on were there any common themes in terms of where that was concentrated to weakness either by platform, by geography, et cetera?

Sure. I think you've got some weakness that came out of Japan, some weakness that came out of Australia and the biggest area of weakness was in the United States. And so the combination, again, of those 3 is really where we wound up with the challenges. There were certainly bright spots across the world. We did some fantastic deals in the quarter, some great brands that came in. We just didn't have the volume because of those slipped deals. We also didn't see the ASPs were down a little bit on the quarter. And I think a combination of the ASPs, the deal slippage, those really led to where we were in that negative 20%.

Okay. That's helpful. And then in terms of the trends with retention and the slight dip there as well, is that -- are the challenges there sort of the same as in bookings that is like you were talking about out of Japan, Australia, U.S., et cetera or is that sort of a separate set of challenges? Just anything different you'd call out there again in terms of platform or geography.

I think we've seen some of the -- we had some large deals that rotated out. And certainly, when you look at a revenue retention rate because you're looking in arrears 24 months, it will take 12 months to cycle through. So a lot of what you saw in the reduction in the revenue retention rate was really old news, it was rearview mirror from Q4, where we had a few larger losses of clients. Actually, it was really more contracts as clients continue on with other contracts, but the total losses were starting to show up, and they'll be with us for a few more quarters.

Okay. And then just last of all on the gross margins and how we should think about those in the hiring and buildout for Rimini One and the other product suites. Should we view gross margins from this quarter as sort of a good baseline or I think the build out there is going to be continuing over the next few quarters? Maybe just any sizing, Michael, of how we should build that model, what kind of level of headwind we're talking about?

Unfortunately, we're getting into the realm of guidance there, and we can't speak going forward. But I would just highlight my comments, prepared remarks from the script, where the pressures in these issues we expect to continue. However, this is mainly mix associated, I will add that, and we do have our new solutions that are ramping, and we are certainly very deep into continuous improvement, and we're making improvements each and every day, and we watch this and work very hard at these new solutions.

I'll just add to that, that the overall guidance that we had given in the past, not current guidance since we're not giving it. But our overall historic guidance has been to a long-term gross margins in the 60% range. So again, just take that for what it's worth.

And actually, maybe I'll just slip one last one in. This is a new CRO. Just any thoughts you can share for us in terms of his mandate and what any focus would be in terms of any changes or any particular new direction contemplated with the hire?

Sure. I think as we've all talked about on these calls and, of course, in other forums as well. North America, especially in the United States, is 50% of our revenue pool. We want to focus on getting that 50% performing much better than it has over the last few years. That is his #1 mandate. You get North America, you get the United States performing up to the kind of plan that we expect, that would really lift the boat quite a bit to give us the accelerated growth and move us towards back into the higher growth numbers that we're looking to achieve. So clearly, United States first, then looking at Australia, looking, of course, then at Japan, making sure that we understand the changes in those markets that we continue to evolve as we grow and introduce those new product lines into those economies. And then, of course, again, time permitting, will be to focus in on the EMEA region, where we just brought in Martin, who's heading it up as the new GM and he's off and running, and they're doing a nice job in the EMEA region.

Your next question comes from the line of Derrick Wood from TD Cowen.

This is Garrett on for Derek. I'm curious how initial reception has been for Rimini custom. It seems like a great way to get customers into the door, but curious, especially on how your service team has been handling all these inbounds.

It's an interestingly complex launch. I think those who are in the business understand when you open the door and say, we are the best at providing a support platform of any company out there, challenging the vendors themselves in what we believe is a better platform. When we take a look at that and say, we're going to open the door, you bring us what you want us to support you, and we're going to take a look at it, see if we can build a program and then come back to you with a custom bid to manage that, it is complicated. And we have had strong reception. We've certainly had a lot of customers bringing us their software, other companies by vendors, even other products within the Oracle and SAP world, bringing them to us and saying, "Can you give me a bid and find a way to keep this software for another 3, 5, 10 years while they think what their next platform might be because companies are moving to expire. I'll give you one example. Probably one of the largest apps that we've had so far is VMware because of the moves that happened over there with Broadcom's acquisition. A lot of customers looking for a solution to their VMware challenge now. And of course, we'll keep the market apprised if we do indeed launch something in that area. But I think this is an example where we can come in, in a marketplace where there is a sudden demand or a sudden surge and bring our expertise to the table and a solution potentially.

It's great color. I appreciate that. I'll just finish up one last question for you guys. But can you just highlight some of the key drivers for what's driving customers into the door and maybe some of the drivers as to why some customers are churning off?

I think you're watching customers come to the table as soon as they really have awareness and understanding of what we can do for them. Rimini Street's challenge even over its entire 19 years of history has always been one of awareness, especially more today with CFOs and even CIOs. And we've switched our marketing mix. We used to be about 80% CIO focus in terms of the selling motions and 20% into the procurement or the IT procurement side. Today, we have a different mix. We have a 40% focus on the CFO, 40% on the CIO and 20% on the procurement function and that really represents the fact that there's so much financial pressure within organizations and the CFOs are where those return on investment decisions are often landing. And let's not forget, 50% of CIOs report to CFOs and so I think you're watching a sea change even within Rimini Street, the clients, we're doing more and more deals at the CFO level than the CIO level. So there is some transition of buyer taking place within the organization that we're doing work with. And then, of course, the CIO, combined with the CFO. And I think our messaging is resonating very, very strongly in the CFO suite on that ROI modeling because everything we do is about ROI. And of course, the world of CIO, they have different considerations where they're looking at different packages and point releases, that's not the world of the CFO. And so I think that's one key thing you're watching. In terms of customers coming and going, there are some natural generational changes. Of course, you have the natural generational changes in the HCM world, what sort of the workdays as well as the success factor side. So you've got a little bit of a SaaS movement in that area as next generation and I think we're also watching interestingly enough, a reversal of the cloud movement. Of course, as we all know, new technology, whether that's now AI, everyone rushes out the gate, then there's rethinking, there's regrouping, we've gone too far in one direction. There's even companies repatriating back from the cloud into data centers and saving millions, and so there's a lot of movement back and forth. So I wouldn't point to any one single trend that's driving business in or out but I really do think that this economic situation, look at retail alone, look at how many retailers are going bankrupt, how much pressure there is on the lower end of the market, not just what we used to see in the midrange. So I do think that there is a lot of financial pressure that will drive and build even more demand for us going forward.

Your next question comes from the line of Brian Kinstlinger of Alliance Global Partners.

First of all, you suspended guidance, do you think there's been an impact to deal closings or retention related to litigation?

It's hard to say, Brian. I don't think we have data that would really give you a solid support one way or the other. I think it would be natural to assume that some level of impact happens in the sales side related to just the back-and-forth litigation with Oracle, especially on the Oracle side. I'm not sure as much on the SAP side is affected by the back and forth with Oracle but it is something we've had for 14 years. Of course, it ebbs and flows depending on what's happening with the court. We're in a pretty -- we'd consider it to be a high litigation point right now because we do have multiple things happening at the appellate courts, at the district court, there's an injunction in the mix, this is exactly why we suspended guidance. Because some of them are very significant issues before the court and how the court decides can have a varying impact to us and so we felt that we really couldn't give reliable guidance ranges given all that's a pending before the court. And so yes, I would have to say that I am confident just reality that there's some impact to sales.

Okay. My last question, maybe for Michael, is, how much do you expect to save in annual interest from the refinance?

So Brian, as we disclosed, we do have our spread that increases by 100 basis points. So in that regard, it's slightly higher cost, but we're resetting the amortization. So slight movement there in the overall debt service. Nonetheless, we have the availability -- overnight availability for working capital purposes, the revolver but we have attractively swapped $40 million in fixed. As we have noted in our Q filing wasn't in the press release, $40 million of the $75 million term piece. So we have that fixed in the mid-6% range. Again, also noting your interest line, we do have the nice offset with our surplus that we have at attractive rates. So given that we have this fixed portion right and depending on the movement of rates, what you can see where we have our cash surplus, how we manage that is how you could think about that line going forward.

Maybe clear, just so I understand, it was a lot, is you're taking on 100 basis points more of interest in order to have it be more floating given ultimately the world thinks that interest rates are coming down and see all benefit over time. Is that right?

Yes, that's a component as well. And I also want to note that we have extended 5 more years. We were in 3 or 5 years previously. So there is a commitment through these institutions for an incremental 5 years under these terms. That's a key element as well.

And there are no further questions at this time. I will now hand the call back to Seth Ravin for the closing remarks.

Thank you very much, operator. And again, I want to thank everyone for joining us for the call. I want to thank all our Rimini Street colleagues for their efforts in the first quarter as we roll out all these new products on a global basis and continue to serve our customers with such great client satisfaction rates. I look forward to having you join our next earnings call, we'll discuss the second quarter of and with some third quarter 4 performance to date commentary. Until then, again, wishing you and yours a continued good health and thoughts and continued charitable support, again, for those in need and suffering in harm's way. Thank you all very much, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.