Q3 2020 Rimini Street Inc Earnings Call
Our future results or stock price people.
Before taking questions, we'll begin with prepared remarks with that I'd like to turn the call over to Seth. Thank.
Thank you Dean and thank you everyone for joining us today.
For the third quarter, we continued to execute well against our strategic growth plan we.
3700 clients, including over 180 Fortune 500, Fortune global 100 companies and a growing contingent of government organizations and many different countries.
In September we celebrated 15 years of service and saving our clients nearly $5 billion in total maintenance cost savings.
Our quarter and global employee Count was 1384, the year over year increase of 13%.
Pandemic impact.
Ford rhetorical database software in 2019 they.
History, the organization was able to right size this budget equation and today the proportion of the budget is closer to 60% for IP maintenance with 40% left over for innovation.
Moving to see growing pipelines in sales in our maintenance business and are executing our go to market strategy for our new Sep Oracle and Salesforce application management services, commonly known as a mass.
M.S. is where we run the systems for the client day to day and support services, where we provide technical support required updates to a team who runs the systems for the clients day to day.
I'm, sorry expenses and disruption that do not improve the competitive advantage of contribute to their growth.
Further many licensees or taking steps to maximize the value and extend the lifespan of their robust immature current releases and switching their annual support the third party support providers like Ruby Street.
Today, given the added financial and economic challenges around the pandemic, we're seeing companies prospects and existing clients, who had planned to invest in expensive new ERP refreshes the laying the move off their existing stable systems to preserve cash and focus there limited budget on strict.
Dziedzic investments and initiatives.
All product lines.
Billion dollar energy systems Global business unit at Enersys, a global leader and stored energy solutions welcome.
Welcome Michael and over to you.
Thank you Sir.
Good afternoon, everyone.
I'm glad to be here at Rimini Street.
232020 results.
Advanced security solutions and advanced technical solutions.
We continue to expect our full year 2020 gross margin to be in the range of 60% to 61%.
Operating expenses.
Sales and marketing expenses as a percentage of revenue were 35.5% for the third quarter compared to 38.7% for the third quarter of 2019.
This 320 basis points year over year decrease is primarily due to travel cost savings and reduce physical trade show participation, resulting from a switch to virtual marketing and sell.
We now expect full year, 2020 sales and marketing expenses to be in the range of 36% to 37%.
General and administrative expenses as a percentage of revenue excluding outside litigation costs was 15.8% for the third quarter compared to 16.0% for the third quarter of 2019.
We expect the cost of maintaining that recently updated accounting standards.
Continued internal control compliance requirements and planned systems implementations to put upward pressure on financial spend for the remainder of 2020.
Was $29.7 million or just over 12% of revenue.
Basic and diluted net loss per share attributable to common shareholders was five cents for the third quarter of 2020 compared to a net loss per share of eight cents for the prior year third quarter.
This EPS metric takes into account cash and non cash dividends as well as the amortization for the issuance discount which is also non cash all of these items are related to the series a preferred stock.
Moving to the balance sheet and cash flow.
We ended the third quarter of 2020, with total cash of $83.7 million compared to $42.2 million for the prior year third quarter.
Moreover, following the close of the quarter, we repurchased $5 million.
Pace value of our series a preferred stock at an approximate 10% discount with no make whole payment and we retired the purchase preferred stock moving forward, we will continue focusing on free cash flow generation and reducing our cost of capital and we'll opportunistically take advantage of.
Opportunities, if and when they present themselves across all capital market instruments, as we strive to optimize our capital structure and improve GAAP profitability.
For the nine months ended September Thirtyth, 2020, operating cash flow increased to $31.8 million compared to $21 million for the nine months ended September Thirtyth 2019.
It shouldn't from Richard Baldry from Roth Capital. Please go ahead.
Thanks, and congrats on joining the firm Michael.
Work with you again.
February curious [laughter] sort of curious about the guidance for the fourth quarter. If I look at the last two years sequential growth has been very strong between 8% to 10% roughly for the last two years sequentially in queue fours with the strength you've seen in you know, whether it's deferred revenue new customer acquisition.
Sort of bouncing pretty strongly in Q3 is there anything else, we should know sort of other than perhaps just conservatism and what's driving that sequential to look more flat than in prior years.
Hey, Rich, it's you know.
No I I think there's a couple of things you need to look at your first of all if you look at the the the revenue side remember last year, we had several million dollars that came in as a surprise in the fourth quarter to everybody because of the net downs that were released on the on a revenue basis and that creates first of all the tough.
Against the fourth quarter for us this year unless we have some additional revenue that's going to be released from the net downs as well and those come from contingent contracts and for a variety of reasons. We may hold back revenue. So that's that's that's certainly one component the second component is yes.
Cause you know, we're pretty conservative in general because of Covid, We've got Lockdowns in Europe that are happening now we've got some new things happening through the middle East and of course, the U S. As a real challenge. So these things don't affect demand, but they do affectability potentially to execute.
When companies can't process, the paperwork or we can't get everyone together for meetings. So we just we were always gonna play conservative in this covid world. The same way we've done every quarter and we talked about last quarter. We mentioned that we had the biggest pipeline in our history on the back half of the year I think you saw that come.
To fruition in the third quarter and I think you're gonna want just continued to be conservative in the fourth quarter because of all of these risks that come to it and they also they also affect the ability to renew some customers and because those retention renewals can provide some headwinds as well with customers who may be in financial.
Trouble or need more time to pay extended invoicing all those reasons are baked into our numbers.
Effective you've got Latin America between our operations based out of Brazil, and Mexico, obviously still significant covid challenges that are affecting operations, but we are doing some great deals and those areas and and moving forward and Europe again, a lot of great deals happening, but now.
We're back in Lockdown again Middle East Israel was in Lockdown for for weeks and we were still able to get some significant transactions done there are some very big wins against auricle and in Poland in the eastern European sector. We did our first deals in and closed several deals there.
So we're seeing some eastern European strength, but again Covid presents awkward challenges that are hard to predict.
And maybe talk about.
The new deal size.
Can you talk about how you discretionarily or or from a sort of intermediate term planning try to think about the balance between the growth rate you you try to push for versus how much profitability you want to drive out of the model at the same time, thanks, well I think as you know, we we became net.
GAAP profitable a year ago, and we set out a requirement for us in terms of.
Operating plan that we wanted to continue to not only be profitable, but continue to improve that profitability.
We think this is an important part of our value added approach.
Approach in terms of the company as you know we feel very strongly in traditional financial models that have real profitability in them.
And I think that we continue to balance minimal growth or I should say reasonable growth on the bottom line in order to allow us to continue to invest for growth. We are from it from a philosophy standpoint, we will balance growth and profitability, we are continuing to focus.
US on accelerating growth.
On growth either year over year, or maybe a sense pre cobot and then specifically within the pipeline how the HMS pipeline is building.
Again, just curious Brad any color in terms of what percentage of the pipe. It makes at this point and and how that's trending.
Yes, it could be a good to talk to you we haven't broken out those specific numbers, yet or by product line I think in general the pipeline as I mentioned last quarter was the largest pipeline in terms of dollars that we've ever seen as a company I think the you started.
To see that reflected obviously in the three quarter close and I think that from from our perspective all of our products are continuing to grow from a pipeline perspective, you know that we had set out to be prepared for 2021 to be an aggressive global push on our.
New product lines, such as a mass and we've been building the infrastructure, hence the reduced gross margin has been all the investments that we've been making in it globally, but to launch those kinds of product lines that big on a global basis eats into gross margin, but it's almost completed we've already begun the.
Engine of that global sales effort, and we expect that to really start to show to the bottom line in the first quarter of 2021.
Got it and then.
Well when the sales reps stand currently I think it's been a quarter just since you guys gave that and.
And then how have reps than ramping.
Working from home and with Kohl's and whatnot and and then what are your guys' plans for incremental reps going forward.
Sure.
We had set out earlier in the year as you know we had talked about targeting about 80 reps for the company.
By year end, 2020 will probably fall somewhere around 70.
75 to 80 numbers by the time, we're done at the year end.
And we've been calling the team as you know and I've mentioned this on the last couple of calls reducing out nonperformers low performers, replacing them with higher quality sales assets and we've done now and attainment north of a 100% in the third quarter very very strong performer.
Payments and in terms of the overall force, we're probably about 70 reps somewhere in that range at quarter end. So we've got a few less reps, we called down but the overall productivity has gone up dramatically over the last couple of years, just as we expected and we've been making those investments we're going to.
Continue to focus on driving more productivity out of the sales force. This is going to allow us to drop that sales and marketing costs by reducing the overall cost for every dollar of revenue that we invoice out there. So we've been very focused on and I think we've been achieving that nicely in the third quarter, we expect to continue in the fourth.
Total sales reps, we would expect next year to be somewhere around 100.
By year end.
Got it very helpful. Thanks, guys.
Sure.
Our next question is from Derrick Wood from Cowen. Please go ahead.
Great. Yes. Thanks, guys. This is actually Nick altmann on for Derik. Thanks for taking our questions. There that maybe just as a follow up to the last question.
Just with the the better sales productivity in Threeq Q.
Are there any sort of tweaks or changes you guys didn't call out that.
That had been working as to why that productivity is try to nicely throughout the year.
I think that the number one investment we made to to get there was one holding our sales reps due to better numbers, we have more business intelligence in the systems that weve put in if you've ever I don't know if you guys know the system Clary very good product by the way we deployed clarity on top of sales force.
Worse gives a huge amount of AI information and predictability in pipelines I credit that clarity with some some good additional insight into what the reps are doing activity wise, allowing management to better understand where the reps are spending their time.
Where the deals are on a mass basis with a large pipeline in hundreds of deals to manage clary allows us to to provide a lot of leverage for the sales management team in understanding. So that's number one number two the investments we've made significant investments in our in our sales enablement and effect.
All of this organization, we brought in a brand new leader for that team a year ago is doing a great job.
And at the same time, we built out that team and there's just really no way around it guys you got to make the investments to train a sales team provide the enablement tools and then we move to another product, which I will I will give you a very good additional reference on which is high spot as a tool used to distribute it.
Information to customers be able to track the sales assets that they look at gives us a lot of data about what the customer and prospects are doing with the information we send them. So the combination of that has improved our overall effectiveness in managing a global sales force also ability to work the deals.
Better and our sales team are better equipped to to answer the questions and then again, we called the team to to have better sales reps and the combination of that is yielding a much better.
Optimization of our sales team.
Great. That's that's really helpful.
You guys have talked.
Talked about in the past maybe doing more television advertising can you maybe give us some color there on sort of the ROI seeing and is there really any way to quantify the benefit you've seen there.
Yes, and I think the television and radio advertising, we've been doing including we're on streaming video. It's amazing today that you can get so precise that we can target certain executives from even certain companies on these videos and these automatic systems that are out there.
And the television advertising is giving us the air cover to introduce thousands of new executives Ceos Cfos CIO those heads of procurement all of these folks that are very difficult to get to today on a one by one basis.
We are hitting them on a global basis in 90 countries and we've seen the results virally quantified in the fact, we have the highest website traffic in our history. We have the highest inbound calls in our history. The phones are ringing more than ever the fact that I get more letters from executive.
Than ever, saying, Hey, senior advertising can we get connected with someone were interested in what you guys are doing can we have a call and get that set up and its led directly to new deals being done. So we have a very strong ROI model that we're seeing develop and its growing pipeline from those.
Dr Vision on the HMS product line as well as global security at some of the other interoperability products. What we've done is we built the infrastructure. We then had to get the first clients onboard and build a reference simple client base that are very very happy with the service and perfect. The service and we've done.
That and now we're about to begin as we said last quarter now it's all about we're hiring specific sales reps for Ams, we're hiring specific sales reps for our our strategic services group. All of these products are now getting additional overlaid sales reps, who are specialists on top of our existing sales rep.
All designed for the go to market strategy on a global basis, and it's a it's a huge rollout from a global perspective. So yes. It will it will kick in the pipelines are building. The sales are building and we're going to continue we think to a meaningful number in 2021.
That's that's great to hear thank you.
Certainly.
When we have a question from Brian confirm there from the Lions Global partners. Please go ahead.
Hi, everyone Jacob on for Brian You mentioned, some customer delays cancellations on past calls and some bankruptcies is curious if there are any updates there and if you're still seeing some customers ask for price concessions and <unk> also for somebody who's can't delays and cancellations, starting materializes wins or do you believe that maybe pushed back into.
2021.
Thanks, good questions.
All navigating covid by the day I mean, as you guys know where record numbers in North America with all these problems around the world.
There is not really a let up I would say yet in.
Like everybody else everyone's getting clients, calling asking for discounts and special terms that letter has not let up at all really.
I think it's going to continue based on what we're seeing globally at least through the end of this year and I think it will go later, but I still think we're going to see some of that into next year I've checked with a lot of other tech companies, whose folks are handling client engagement everybody's buried in these requests and so from my perspective.
I think you just have to expect it's going to be part of our landscape and what I've been focusing people on is when you look at our new client acquisitions, you look at the strength of the business on the front and that's the real long term business. That's the multi years of renewals the up sell opportunities that will come from that.
We're going to all face some some choppy waters and some headwinds on the renewal side and retention just because it's the economics and I think you probably got another year of that but that's not the long term business. That's a short term issue will manage our way through and I think we've been managing our way through it.
But I think the real focus address has been on the revenue growth the expansion and we'll handle the clients that need need assistance on the back and and we're in a financial position with our cash and and the strength of the business that we can afford to to do some financing for some customers to help them through these tough periods.
We do have cruise lines, we have airlines, we have hospitality. So we have all of those guys, including retail that have some weaknesses in them, but we continued to add clients. In these in these areas because we have a strong value proposition and while they may have challenges for the next year after that we expect the law.
Emerge and they'll get back to strength and will be there with them in growing our footprint with them for years to come.
Great you've previously highlighted strong growth coming from a pack and given the fact that they've been dealing with covid better than the rest of the world. I was wondering if you could give us any updates on how it's been going in terms of pipeline backlog there yeah.
Yeah, I would say handling it better than the rest of us is probably an understatement they are actually functioning.
Fairly normally and that's had benefits because we've been able to function as a normal business there.
For the last couple of quarters and getting better.
So from that point of view, I think that certainly affecting and adding a tailwind to the building of pipeline and opportunities, we still can't fly around to various countries that still lockdown country to country and that's limiting us just a tiny bit, but we're still getting deals done even in the countries. We don't have people on the ground.
I think that Asia Pac represents and will continue to represent from what I'm seeing continued strength.
In terms of the ability and that's why you've watched us invest over the last six years substantially into a pack and that investment is bearing a lot of fruit and I think it will continue to do so in our plan is to continue to invest with Asia Pac being a strong leader Europe I think has a lot of strength opportunity as does Latin.
In America, where we've added even more countries. So I do think low bully outside of North America. They are still is more execution going on North America is having a little bit more trouble getting deals done with the companies here, but we're still doing some great deals and we're still growing we're just not growing.
As much as we would like to and we're going to continue to work on that.
Okay, one more I know you touched on it a little before but I was curious how business tons of an evolving in recent months given the spiking covid cases like a month to month in October.
Across the world and especially in Europe and companies or.
Are you seeing companies better equipped to deal with this.
Yeah, I think that the great news is the human beings are adaptable.
Now what six months into Covid pretty much in North America, Europe's about nine months into it Asia Pac is really rounding a little longer than that and they've sort of moved through it. So.
So from my perspective.
Have we seen more challenges, especially when we hit Lockdowns that come up yeah. It's hard when we hit him in Israel and then we had him we worry about places like France, where we have wonderful customer base big opportunities and France, when they locked down they're not doing work from home. They don't have a work from home.
Culture. They just go home and work doesn't get done and that was the problem with their lockdown. So in some ways a lockdown in France is not the same as a lock down in the U S, where we have a lot of remote infrastructure people just move and work from home and we did a great job of adapting to that as a country, but that's not true everywhere else.
And we have some of those problems in Latin America, where they are just not equipped to work from home still they don't have the assets for it and some of places it's like France, It's a cultural issue and not a technical issue. So yeah. These things will come up that's why we continue to play conservative and saying Hey, there are upsides to this to what's going.
On in the World and there are downsides and we still believe the upside far outweighs the downside risk in with our cash position, we feel we're well positioned to handle any of those downside challenges that our customers face and really work with them to pull through this next year and I do think we have another year to get through.
Thank you so much that's all for me.
Sure.
I shall not further questions at this time.
Great well. Thank you very much everyone for the call and please stay safe out there and have a good new year. If we don't talk to you beforehand, and we will get with you on the fourth quarter call sometime after the end of the year. Thank you very much everybody.
Thank you let me send someone this concludes today's conference. Thank you for participating you may now disconnect.