Q2 2021 Rimini Street Inc Earnings Call

[music].

Welcome to Rimini Street earnings call. My name is Sylvia and I'll be the operator for today's call. At this time all participants are in a listen only mode.

We will conduct a question and answer session during.

During the question the answer session. If you have a question. Please press star for Sun.

And then 1 on your touch the telephone.

I will now turn the call over to Dean Pohl, Vice President Investor Relations, Mr. Probably you may begin.

Thank you operator, I'd like to welcome everyone to Rimini Street second quarter 2020 earnings conference call on the.

The call with me today. So that's the reason, our CEO and Michael <unk> our CFO.

Today, we issued our second quarter ended June 30 of 2021 earnings press release.

Which can be found on our website a reconciliation of GAAP to non-GAAP financial measures has been provided in the tables. Following the financial statements in this press release the next.

For a nation of these measures and why we believe they are meaningful is also included in the press release under the heading.

Non-GAAP financial measures and certain key metrics a.

A copy of the press release and financial tables.

Including the GAAP to non-GAAP reconciliation and the other supplemental financial information can be viewed and downloaded from the Investor Relations section of our website.

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 second quarter of 2021 for 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.

Q2.2021 results.

For the second quarter, we executed well and remain on track to achieve our strategic growth plan of $1 billion in annual revenue by 2026.

We achieved record revenue of $91.6 billion up 16, 9% year over year and above the high end of our guidance range.

We also ended the quarter with strong year over year billings growth of 44, 4% of gross margin over 62% and an active client count the grew by 22, 5%.

Our revenue retention rate grew to 94% cross sales continued to grow as a percent of billings and we achieved year over year billings growth in all 3 U S regions.

We also completed significant capital market transactions during and subsequent to the quarter the materially reduced both our cost of capital and potential dilution.

The will further detail of those transactions in his prepared remarks.

From the company's inception in 2005, the day, we have signed more than 4200 clients, including a 180 Fortune 500 Fortune Global 100 companies and added a net of 95, new clients in the second quarter compared to a net add of 82 clients of the year ago period.

The date, we have saved our clients more than $5 billion.

During the second quarter, our global service delivery team closed nearly 10000 support cases delivered more than 15000 tax legal and regulatory updates across 35 countries and achieved an average client satisfaction rating of 4.9 out of a 5.0 on the company's support delivery.

For a 5 points of euro is excellent.

Our global employee count as of June 30 of 2021 was 1556, a year over year increase of 15, 9%.

Pandemic impact.

Despite continued success for the global vaccination rollout the more infectious Covid Delta Varian continues to spread around the world. Hence it is clear the global pandemic is far from over and will likely continue to create both opportunities and challenges. We believe we have navigated the pandemic went up.

To date and with the risks of the spreading Covid Delta variant. We currently plan to continue with our virtual operational marketing and sales model through at least the end of 2021.

We also continue to believe that our strong balance sheet will provide a competitive advantages and the flexibility to help prospects and clients through 2021 and beyond as needed.

The full extent to which the pandemic will continue to affect our business in 2021 and beyond will depend on numerous evolving factors that we cannot reliably predict.

Sales execution.

During the second quarter, we continued to see growing global interest pipelines and sales across our expanded solutions portfolio with more clients successfully deploying and using our support application management security interoperability monitoring and professional service.

Yes.

Cross sales are also continued to grow as a percent of billings and we estimate the cross sale opportunities in our existing client base currently exceed $1 billion in accretive annual revenue.

We also achieved strong client renewal success in the second quarter, delivering a higher 94% revenue retention rate with many clients extending their contracts for more than 1 year and some of agreeing to prepay a more than 1 year of fees in advance for a small discount.

We believe our strong sales execution as a result of our evolved marketing and sales strategy Regional theater GM leadership model now in place globally, New go to market team structures and the compensation plan. The alignment we implemented at the start of 2021.

We believe our new regional GM model in North America is delivering better sales execution of new logo acquisition cross sales and renewals and with all 3 U S regions delivering billings growth in the second quarter and nearly 5% year over year U S revenue growth.

We continue to evolve our go to market strategy around industries and solutions Rimini Street serves many of the largest logos across different industries, and we believe focusing on the specific needs of each industry will allow us to further penetrate the tam in each industry with the breadth of our solution portfolio.

To further support accelerated global revenue growth and achieve our $1 billion annual revenue target by 2026, we continue to strengthen our leadership team with new roles and hires needed to scale of the global operation.

To highlight how clients are leveraging Rimini Street services globally to achieve their strategic for those across different industries I'd like to share a few case studies from the second quarter.

First of the largest agricultural producing county in the U S. The county of Fresno, California switched to Rimini Street support for its Oracle database middleware and people soft applications, resulting.

The resulting an immediate annual savings of $800000. The County also now receives faster response times, a proactive guidance from a revenue Street expert engineers.

This in turn has freed up the counties internal personnel the focus on more critical business initiatives.

Robert Bash director of internal services, and Chief Information Officer for the calendar year for US now stated that quote partnering with the Rimini Street has enabled us to continue advancing a cultural shift towards exploring new ways of doing business.

Every dollar of County Department save on the internal services is money that can be spent on programs for the community.

The savings of given us the financial flexibility to begin exploring what is next for our infrastructure.

We're able to invest in developing a roadmap for the county, all while remaining cost neutral for our users and quote.

Sherri Walden Deputy director of information technology for the County of Fresno added quote Rimini Street recently helped create a legislative update for us which according to our people soft team took substantially less time to implement the previous updates from Oracle.

Rimini Street tailored a pad specifically to our environment. So our team didnt need the waste time of applying code that we didnt need like global payroll.

Rimini Street is focused on the support and success of our organization not just delivering a product the Rimini Street team initiate a meaningful conversation and is constantly probing for how we can improve our infrastructure or better focus on the unique needs of our stakeholders and quote.

Next leading Brazilian chemical distributor quantity switched to Rimini Street for support of its S. S.

For harness system.

By switching to Rimini Street, <unk> significantly reduced its operating cost and plans to reallocate the savings to invest in innovation and process efficiencies across the organization, including a new customer portal e-commerce initiatives and implementing intelligent automation and RF.

The capabilities.

These initiatives are considered essential projects the maintained its competitive edge and better serve its customers and partners.

Jesse <unk> Mayo Chief Information Officer of quantity stated that quote Rimini Street support for us for Han of delighted us due to its differentiated support model.

The company's 10 minute response SLA brings our it department peace of mind, knowing that our support partners ultra responsive and his highly experienced engineers handling any issues we.

We can focus our business initiatives of more efficiency and don't waste any more time, having to manage it support requests.

We wanted to establish ourselves as a digital transformation leader and the chemical product distribution industry, our partnership with Rimini Street will leverage our capability and capacity to be more strategic and oriented to our business and also to invest in new initiatives. So that we can improve the value and quality of services.

Provided and ensure a customers see our business is reliable and innovative end quote.

Lastly, the leading commercial Aviation Trade Association International Air Transport Association, otherwise known as the IATA headquartered in Montreal switch to both Rimini Street support and application management services for its the SAP system the.

Of the organization now benefits from Rimini Street's unified turnkey service solution that integrates application management and support services, enabling IATA to substantially reduce operating cost and meat business demand expected in the post pandemic recovery.

Pascal bug, there <unk> director and Chief Information Officer for Yada, David that quote from the start of working with the remaining street, we saw immediate improvement in our SAP.

<unk> support and management the.

The Onboarding process is quick and seamless and we now have a much better view of our tickets and dashboards.

Our in house.

Team is constantly providing positive feedback on the quality of the support from Rimini Street we.

We do not regret our outsourcing choice quite the contrary and feel we can deliver even more value to internal stakeholders than before.

Hello.

Market opportunity.

The remaining street believes the total addressable market for its portfolio of solutions is more than a $170 billion annually and.

In our global penetration rate is only about 3.5% for support services and less of a 1% per application management services. We believe we have significant greenfield opportunities for our entire portfolio of solutions.

Gartner, the leading industry analyst firm and a strong referral source for Rimini Street business is currently predicting a 200% increase in the third party software support market and expecting that the market will exceed $1 billion from 2023.

Further validating the market opportunity. We recently conducted a global survey of 500, CFO as a financial leaders across 13 countries covering most industries.

The results revealed that a majority of CFO of <unk> want to cut spending on non essential it investment.

As vendor pressured major ERP implementation and migration projects that lack clear value of our strong ROI.

Further CFO of <unk> to see the cio's optimize existing technology investments.

Many CFO and CIO of <unk> believe that large and expensive ERP migrations and upgrades may be better deferred or avoided an existing ERP systems can be optimized through strategies and services offered by third party service providers like Rimini Street.

Enabling the CIO to free up budget and it resources to help accelerate strategic digital transformation programs.

Rimini Street remains the only provider of global scale that offers a proven turnkey single vendor solution for running and supporting ERP software with an ultra responsive service that support the customization security interoperability and performance challenges and create value.

Savings for clients.

In fact, Gartner notes Rimini Street is the leading provider of third party support for Oracle and SAP products by annual revenue and client accounts and it's published date implies a Rimini Street has captured over 86% of the global market.

Oracle litigation.

We do not believe there have been any material developments in the litigation with Oracle since our last earnings call and quarterly report on May 10, 2021.

Please see our disclosures in the second quarter 10-Q filing for updated information on the Oracle litigation that has been ongoing since 2010.

Summary.

We believe the company continued executing well in the second quarter and we are on plan to achieve our $1 billion in annual revenue and deliver a round of 20% operating margin run rate by 2026.

With the foundation in place to achieve our operation and financial plans. We are focused on sales execution disciplined cash generation and management and bringing our litigation with Oracle to a successful conclusion.

Now with that over to you Michael.

Thank you Seth and good afternoon, everyone Q.

Q2.2021 results.

And as Seth noted for the second quarter revenue was $91.6 million a year over year increase of 16, 9% and above our guidance range.

The annualized recurring revenue was $362 million a year over year increase of 16, 4%.

Revenue retention rate for service subscriptions, which makes up the vast majority of our revenue grew to 94% with more than 80% of subscription revenue noncancelable for at least 12 months on a rolling basis.

We generated $22.7 million of operating cash flow and ended the quarter with more than $110 million in cash.

For the second quarter clients within the United States, representing a 54% of total revenue while international clients contributed 46% representing aggregate year over year revenue growth rates of 4.6% for the United States and 35, 5% for international clients.

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In the U S. We saw a strong results out of the East region and we are seeing good progress in the other regions are international strength was broad spread across all regions.

Billings for the second quarter were $107.3 million compared to $74.3 million for the prior year second quarter a.

Year over year increase of 44, 4%.

Included in the current quarter billings for a significant amount of multiyear prepayments for both renewals and for new client invoicing.

Typically clients pay for service upfront for the current surface year multiyear prepayments represent clients, who pay upfront for multiple years of support and is a positive indicator of the linked to new client retention measure by years of service and increasing lifetime value.

Gross margin was 62, 2% for the second quarter compared to 61, 2% for the prior year second quarter, we continued to invest in the global service delivery capability of our new products and services, including application management services for SAP Pete for.

For <unk> sales force.

P S for Han of support services advanced security solutions, and the advanced technical solutions.

As we have stated previously.

We expect and are seeing the benefits of the efficiencies of scale and our global service delivery throughout 2021 and guiding for full year 2021 gross margin to be in the range of <unk>, 61% to 62%.

Operating expenses.

Sales and marketing expenses as a percentage of revenue were 36, 2% for the second quarter compared to 34, 2% for the prior year second quarter.

We remain focused on making the appropriate investments needed to support our aggressive growth initiatives and expect full year 2021 sales and marketing expenses to be in the range of 35% to 36%.

General and administrative expenses as a percentage of revenue excluding outside of litigation costs was 18% for the second quarter compared to 16, 8% for the prior year second quarter.

G&A spend during the first half of 2021 was higher due to primarily 1 time employee restructuring expenditures and costs related to capital markets activities and certain litigation related expenses.

Although we expect lower spend during the second half of the year, we now see G&A expenses to be in the range of 16% to 17% for the full year 2021.

Net outside litigation expense was $2.8 million for the second quarter compared to $2.9 million for the prior year second quarter.

Our outside litigation spend is not linear and <unk>.

Actual each quarter based on the litigation activities.

We expect our current litigation expense to be in the range of 15 million to $17 million for the full year 2021.

Adjusted EBITDA was $9.9 million for 11% of revenue for the second quarter compared to $9.6 million or 12% of revenue for the prior year second quarter.

Operating cash flow for the second quarter of 2021 was $22.7 million compared to $17.9 million for the same prior year period.

Yes.

Laurent treatment.

We realized a noncash gain of $3.7 million during the second quarter relating to the $6.1 million private warrants with an exercise price of $11.50 of.

That expire on October 10th 2022.

There is no scenario for provision that would lead to a cash settlement of this non cash liability, which now stands at $3.1 million.

Therefore at the 0.1 of the warrants a retired we expect to realize a noncash gain to a profit and loss statement to extinguish this liability.

Please see the second quarter 10-Q filed today for more information.

Balance sheet.

We ended the second quarter with a cash balance of $110 million compared to $73 million for the second quarter a year ago.

Backlog, which includes the sum of billed deferred revenue the noncancelable future revenue was approximately $571 million as of June 30 of 2021 up 20% from $476 million from the prior year second quarter.

Finally deferred revenue as of June.

June 32021 was approximately $266 million up 22% from $219 million from the prior year second quarter.

Capital markets depends.

On April 16th 2021, we completed the buyback of $60 million face value of the series a preferred stock plus meikle of approximately $2.3 million, reducing the series a preferred liquidation value to approximately $87 million the per.

<unk> shares were retired.

Subsequent events on.

July 20 of 2021, we completed the buyback of 87.8 million face value of the series a preferred stock plus dividends payable of approximately zero point $6 million, thereby redeeming in retiring all remaining series a preferred stock the trim.

Action was funded by the lenders capital 1 fifth third bank for a total of $90 million at a rate of LIBOR plus a 175 to 2.5%.

Accordingly go forward annual financing costs have been reduced by $24 million compared to fiscal year 2020.

Additionally, we have eliminated the potential dilution from conversion of the preferred to common stock by $15.5 million shares during the calendar year 2021.

Moving forward, we will continue our methodical focus on increasing free cash flow generation improved profitability for the benefit of shareholders, while assessing possible capital return actions.

The guidance.

We are currently providing a third quarter 2021 revenue guidance to be in the range of the $93.5 to $95.5 million and maintaining full year 2021 revenue guidance in the range of $370 million to $380 million.

This concludes our prepared remarks, operator, we'll now take questions.

Thank you we will now begin the question and answer the question. It would be have a question. Please press Star then 1 on your touch telephone EPS.

Wish to be removed from the queue. Please press the pause or the husky.

Every day you speak upon you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then 1 on your Touchtone phone.

And the first question comes from Derrick Wood of Cowen and company.

Great.

Got you guys. Thanks for taking my questions.

And it looks like a strong quarter and I guess on that.

When I take a look.

Look at all of the numbers you had very strong billings growth your new customer generation is trending nicely you had a record net new.

Net retention rate.

Revenue guidance for the year.

It's such a at 13% to 16% growth.

You just did 23% growth in short term billings in the first half.

What's holding you back on the raise in guidance and then maybe what what does all of this strength in Q2 numbers mean kind of heading for 2022.

Sure Derrick Thank you.

So I think that when we take a look at the numbers of course all of us are watching the COVID-19 situation.

It still has the impact around the world.

We have countries that are in locked down Australia has gone back into lockdown and a big part of it we've got challenges in Taiwan, We've got challenges in Korea, Japan. So we're been pushing through nicely on sales through COVID-19, but theres a lot of unknowns and I think that for us to remain very.

Conservative because none of us really understand what the impacts will be in the back half of the year. We look at pipelines. We obviously believe in the strength of the pipelines obviously.

Executing our methodical plan as we do quarter after quarter not only on the balance sheet restructuring that we set out to do and achieved exactly what we.

Wanted to get done, but also on the sales side sell.

So from that point of view I think it's the right thing to remain conservative hold our guidance and the upside develops we'll allow that to flow through.

Okay, and I guess, Seth as a follow up you mentioned the year over year billings growth in all 3 U S regions and nice to see U S growth, having bought a then starting to move up.

On the region. So it sounds like East was strong and I'm. Just does this have to do because of the vertical presence or what's creating this region to outperform and maybe the other is the lag and how are you feeling about the progress and driving stronger growth in each of these regions in the second half.

Well I think as we've talked about on many of the last quarter calls we have been in a focus on restructuring North America around GM regional leadership.

Redoing the teams we brought a new personnel across the the North American region, and I think youre watching those numbers start to come back up exactly as we had planned to do so I think youre watching the execution show results, we're seeing it in pipelines, we're seeing it in the <unk>.

<unk> closed rates that we've had in North America, and even globally. So we're seeing good amount of return from the sales investment that we've made over the last 18 months. So we're feeling very good that we're on the right course with the structures were on the right course.

With the execution improvements and we expect to see continued execution of deliverable from North America and as you know all of this is baked into our existing plan and guidance understanding that it takes several quarters to rebuild and to get those numbers moving up but all of the IND.

The caters debt, we see from the the efficiency of the sales force the quality of the deals we closed more.

Deals in the second quarter than in our history.

Another note.

Out there in terms of a data point, we are doing better at big larger deal transactions and more of them on a quarter over quarter basis than we've had in the past and so I think all of those factors really show that the the structures were putting in place the rework of the compensation plans.

The all integrate and drive the same objectives all of those structural changes are starting to pay off.

That's helpful color and maybe 1 more for Michael on the net retention rate I think it was the highest in maybe for 5 years for years.

Can you unpack that a little bit more I mean, it was that due to.

How much was due to gross retention.

Like you guys had called out also saw an uptick in cross sell and on that ladder.

If you look at Ams or if you look at new cloud offerings like sales force or if you look at your core is there any 1 theme that's seen a bigger cross sell traction.

Yes, Derrick I'll take the cross dock a question after.

Michael answered your first question.

You got it.

It's a confluence of all of those factors that you indicated derrington youre absolutely correct that it's been quite some time to see such a positive retention rate, but as you know a key component of our strategy and we saw it and we expected it and working hard for this to continue is to increase.

Our relationship selling deeper and Seth will comment on the cross sell as well as have longer duration and we're seeing those efforts play out with a strong retention rates. So thanks for pointing that out we were quite pleased with the performance.

Yes, Derek on the cross sell this was a very very important point for us. When we started 21 as we laid out for everyone. On prior calls we were doing approximately 10% of our invoicing coming from existing clients and we wanted to set the goal to double that.

And we've been doing better than plan in the first half of the year again, very very pleased with the numbers and it is selling a ams to existing clients, but just as much selling security interoperability a professional services, we are truly starting to ups.

Sell the portfolio the expanded portfolio of our solutions into our vast customer base and we knew that that would provide significant potential for uplift and acceleration of revenue going forward. If we are able to increase that because we've always been as you know.

A logo acquisition company always out there trying to get the support Greenfield business now we are truly building a.

Combined infrastructure all of the changes we put in the new roles. We put in the integrated comp plans all of those things are working to drive sales back into existing clients as well and this was the highest number we've seen in terms of cross sell of quarter over quarter, we're watching.

That number improve and we really see this as a significant amount as we mentioned during my prepared remarks, that's over a $1 billion of annual revenue opportunity in the existing clients.

Talk of the massive opportunity we have outside of the existing client base. So we have been out there working to make sure that we're not only growing the logos, but we are inside the accounts now starting to really grow those footprints and provide a bigger broader solutions and going back to what Michael said, there's a.

Huge tie in to the revenue retention because of the bigger our footprint as you know the stickier. We are in the accounts the harder it is for someone to disengage from us because of the complexity and the amount of value, we're providing that client we should extend all of our client contracts.

A bind in these accounts and drive a higher long term value of the client.

Sounds good thanks for taking my questions.

Thanks Derek.

Our next question comes from Jeff Van <unk> from Craig Hallum.

Great. Thanks for taking my questions guys, just a lot to like yourself congrats to everybody to the team.

A few maybe 2 maybe 3 quick questions here 1 on the on the on the head Count side, just catch me up on where are you on sales and sales hiring I think you had a goal of a 100.

Obviously tight labor markets are tough to get sales talent I'm wondering what you're thinking there and then also on the head count for.

<unk> you've added a lot of people I think you commented last quarter, how you're staffed out on the Ams side and again this quarter of head count was up nicely.

A 16% year over year.

What point does that head count growth rate start to fall off meaningfully below the revenue growth rate, where you really start to lever how do you think about that.

Sure Thanks, Jeff too.

I think when you take a look at it we're up to the.

The low <unk> in terms of headcount on sales, we still feel very very good about making our annual target of being at a 100 by year end.

The good about that we are seeing the head count come in we've taken out a few more people in terms of the churn because we.

We think we can go for higher quality reps in some cases in terms of those that were not delivering on the higher end and the new reps. We're hiring we're watching them get productive faster. So I think we've been doing a good job of bringing in top talent. So again feel really good about that again.

Our long term model as you see in the 2026 to get us down to about a 33% sales and marketing against revenue number and I still feel good about that I think thats, where we want a b from the 36% type number that we would expect now.

As we catch up and of course, we're adding as we said a lot of support cash and I mean sales support heads around the in order to sell this broader portfolio of services. We are in the transformation process from from going from being a 1 product company to a full suite of solutions.

That we act and bring to market and that is a much more costly sales model and Thats why youre seeing that 36% number it's certainly and I think <unk> also as you well know if you compare us to companies that are in higher growth bodes a we're attempting to continue to accelerate our growth.

They tend to have higher sales and marketing expense numbers, 36% is not out of range for that type of growth model. So I think we feel good about where we are we feel good about the spend numbers and we feel good about getting to that 33% by 'twenty 6.

Yes.

Got it.

2 other than a quick ones just on the Prepays I don't know if this is for for Michael or you Seth on the prepaid. So you can just quantify that obviously good to see people are willing to step up from a multi year commits and you get some extra cash and cash flow is very strong in the quarter, maybe just quantify that.

If you would that'd be helpful. And then secondly on the a EMS side can you put some meat on the bones. There just in terms of other quantity of new Ams wins pipeline I know you've commented from time to time of about the momentum and put a little finer point on it just give us a little color there.

Sure. So first of all of them, Yes, we don't we don't breakout the prepaid and the reason for that Jeff is simple.

Because of the prepaid money is not part of our planning.

It is a really interesting indicator of the way that people think about the business I mean first of all of how many people get paid not only a year upfront for their service, but have customers put up potentially millions of dollars for years in advanced in exchange for a relatively small additional.

<unk>.

For current present value.

That I think is an important indicator of the confidence of the customers have not only in our service, but in the length of time of their long term commitment I think other interesting note. Most people don't get 9 years signed contracts that we've signed contracts.

For 9 years, Noncancelable, and actually I think a few longer than that which is unusual in a lot of companies, but I think they are all indicators of long term commitment long term client.

The.

In terms of their commitment to us and the intent of staying on our solutions for years into the future.

That's the.

That's certainly 1 point.

And then you had a second question I'm sorry the.

The Ams if you could just give a little clarification there.

Sure the Ams and I mentioned, the IATA example of during the call we give everyone a another opportunity to see that our Ams services are being very well received.

By the declining immunity interest.

Interestingly enough, we're seeing a lot more first time customers coming in we always knew that this would be a great cross sell opportunity for clients on our support but we are seeing a lot of first time clients coming to us looking for that better Ams and support solution and we're seeing that in the proposals that were put.

Now and we're winning those proposals as well so I feel really good that the momentum in that business continues to grow we are still learning again, when you look across the sales force, it's absolutely still a new set of products to sell we're still getting the sales force in some areas more comfortable in certain <unk>.

<unk> around the world, where they haven't sold as much <unk> to the haven't gotten their feet wet yet so it's still a big growing opportunity. So the organization is certainly learning how to sell I've told you before on prior calls from embarrassing losses of <unk>.

Early proposals, where we just we're very lucky in the way that we were proposing compared to the people who are a bit in this business for a long time, but we're fast learners and I can tell you that the proposals we're putting out the day our win rates are higher the proposals are excellent in quality I'm really proud of the proposals that are going.

Now we have learned and we've learned very quickly. So I think all of those again continue to bode well not just for the <unk>, but we are selling millions of dollars of security the interoperability and the demand for our professional services is exceeding our capacity. So I think all of those things.

<unk> for our ability to really sell a whole a bundle of solutions to clients not just the ams, but a pretty pretty exciting change for us.

Got it great. Thanks, Congrats real nice quarter.

Thank you.

Our next question comes from Brian <unk> from the Alliance Global partners.

Great. Thanks, so much for taking my questions.

The accelerated rate of growth is great to see but I wanted to dig into the cost of acquiring customers given the substantially higher sales and marketing and G&A costs in the first half versus the first half of last year, notwithstanding notwithstanding the 1 time items.

Are you needing to spend more on average the win new customers, maybe North America restructuring or paying a sales professionals more than maybe you could provide some of the other reasoning for what we've seen recently the surge in SG&A.

Sorry, G&A and sales and marketing.

Well a lot of the G&A was really related to as we said, we restructured a bunch of roles.

We did have 1 time restructuring costs. We've also had again, we've done a lot of capital markets transaction as you know which are not cheap by the time you get through all of the other additional expenses that go with it as a public company.

Those add up and then performance bonuses, we obviously have a lot of great success. Both transaction. So a lot of onetime costs that went in there into those numbers why the G&A surged up a little bit.

Nothing that we're concerned about as we said we expect the numbers to be lower on the back half of the year, Although we will still be a little bit on the higher end and I think we've all known and we've talked about on these calls no our G&A numbers, a little higher some of it due to the litigation cost we have a lot of security cost again, we handle people.

All the way down to the Israeli military we have a lot of.

The confidential secret operations the security cleared operations that we have to manage so theres a lot of costs that go into things that maybe other companies don't have a at a level of security.

Things all of that into what gives us a little higher G&A profile, but <unk> seen our 2026 plan is to bring that down significantly to that 11% type number. So that's that that is key there the cost of sales no I do think that overall when you when you have a multi.

Product sales company, you have a higher cost of sales operation simply because if youre, putting 7 products out there you have to have pre salespeople for all of those 7 product you have to have marketing for all of those 7 product you definitely have a higher cost of infrastructure debt when we were seeing.

Golf product, but I do think again look at our long range is to bring cost of.

Sales and marketing down to 33% by 2026 of I think those of reasonable numbers given the operation of the kind of margins, we're putting out the cash.

The growth, we expect to drive and I also point out to everybody, let's not forget the most of <unk>.

<unk> thing about being a ratable revenue company, where all of most of your revenue outside consulting is ratable revenue and youre trying to grow quite a bit when youre accelerating 16% you are trying to accelerate that we all know to get to a $2 billion by 26 of that average as the <unk>.

The 1% CAGR, so clearly we intend to accelerate growth.

And when Youre doing that on a ratable model youre, bringing in hundreds of new customers on the front end, but you look at you or look at your and your backend delivery. When you go to gross margin you don't have the ability to add people or you a breakthrough or financial model of being profitable and so we're.

We're in an unusual situation, where we're both accelerating top line revenue as plan and we are increasing profitability normally you see companies focus on all of the growth on the side and they don't worry about profitability. We're moving both forward, which means we're constrained in our model and it's a bit of a dance how you bring in all of these.

New customers of you have to start serving right away, but you don't get any ability to hire new people because your revenue is ratable and it comes in over time. So there is the interesting challenges of being a ratable model trying to be profitable and accelerating growth all of the same time I think we're navigating a very well.

It's not it's not a perfect dance at any 1 time, but if you look at where we've come from a where we've gone to over the last quarters I think we're executing exactly well within that those constraints.

Great and then.

You could quantify the total 1 time items in G&A and separately sales and marketing, but then my last question after that would.

It would be.

As you think about the next 12 to 18 months, Europe, and performing fantastically well it would be a significant step up in investment in infrastructure as you further expand in Europe or have you laid the foundation for the most part of.

The growth opportunity there.

I think we've really made the majority of the investments and I think on our last earnings call. As we had indicated we felt good that we had achieved the core infrastructure changes sure. We're still adding in some sort of management executive levels were still filling out the model to hit that $1 billion.

<unk> in the next few years all of that is just part of scale, but we feel like the core of the kind of investments that would drive down gross margin that we had to do when.

When we took the 1 point.

Up to 2 point hit in gross margin to make those investments in infrastructure for engineering and the talent pool to be able to service those products. We believe we've made those.

Thats why were feeling confident we are still in the gross margin of $61.62.

We're feeling confident about those other numbers that we put up in terms of guidance.

And then Michael did you have the 1 time items that you could maybe share with us the toe.

<unk> value.

So rather not get into the specifics however.

As you probably are updating your models, we have a 50 basis point raise in the overall G&A for the year now the 16 to the 17%. So I'll give you some indication there Nonetheless, we do see from an absolute basis in the second half of the year as the majority.

The of this is behind us that's going to come down.

And that's where it's just going to come up for the 50 basis points for the full year. So I would also like to note that.

We as Seth has alluded to the elected to put spend on our infrastructure, mainly on the G&A side due to the confidence in our growth.

We delivered not only in this quarter, what we have done for the first half of this year well.

Well on our way to a path to the goal of a $1 billion from 2026 so.

This is indicative of the comfort of where we are today as well as our ability to achieve our lofty objectives.

Yes.

Okay. Thank you.

Thank you.

Our next question comes from Mark Chappell from benchmark.

Alright. Thank you for taking my question and a nice job on the quarter.

So first question for you as a follow up for an earlier question on the North American sales rebuild earlier of the year. You believe you stated I believe that revenue growth from North America.

There is likely to reach like double digits by the end of the year I was wondering if you are still tracking to that growth range.

Yes, and thank you of course.

We believe we're still on track for that I said.

I remember very distinct.

I would be very pleased if we exited 2021.

Of the double digit run rate for North America growth in and I know, we get a little confused between North America U S and the numbers that we published because of the U S segment.

It's our North American operations, which is actually a U S plus Canada, but on the U S side.

The fact that we were again near 5% year over year revenue growth coming of the second quarter, Yes, I would be very pleased if we ended 2021 with the run rate year over year of double digits.

Okay, Great and then.

Regarding sales head count again building on an earlier question.

Talk a little about the <unk>.

Different type of a sales rep. You are hiring today than you did a year or 2.

Bill.

I think we learned a lot over the years and part of the challenge is when you go from a 1 product company to a both the product portfolio ever.

Every company goes through this when you go through that kind of expansion. The sales the sales reps change from being very focused on a particular product that they know well to a different kind of model.

Now we are positioning a sales rep, who has the position in the entire portfolio of services. They have to be able to tell a bigger story about how the company can help another company with all of their different challenges not just 1 challenge and that really does change some of the <unk>.

<unk> of the sales rep that youre hiring they have to be able to be much more of a project manager if a company interested in 3 of 4 different products in the in your solution portfolio you have to bring in different pre salespeople you have to juggle with different buyers.

Often the different department. So the combination of all of that work makes the makes the the.

Situation.

Far more complicated in terms of the sale and May play a much more of a project manager role. So I think that that that's a difference from someone who is just selling a single product portfolio. So we're hiring more to that profile and those folks are doing really well handling this larger portfolio of services.

Great. Thank you.

Thank you.

We have no further questions at this time I will now turn the call back over to Mr. Seth Ravin CEO for final remarks.

Great well. Thank you again, everybody for joining us we appreciate it.

We look forward to having you join us for a third quarter call and a please do remain hope you and your stay safe and we look forward to talking to you at a later day. Thank you very much everyone.

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

[music].

[music].

Welcome to Rimini Street earnings call. My name is Sylvia 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.

During the question and answer session. If you have a question. Please press Star then.

Sun, 1 and you type of a telephone.

I will now turn the call over to Dean Pohl, Vice President Investor Relations, but Theyre, probably you may begin.

Thank you operator, I'd like to welcome everyone to Rimini Street second quarter 2021 earnings conference call on the.

With me today, and that's the reason, our CEO and Michael <unk> our CFO.

Today, we issued our second quarter ended June 30 of 2021 earnings press release.

Which can be found on our website a reconciliation of GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in the press release the next.

For a nation of the Masters and why do we believe there are a meaningful is also included in the press release under the heading.

Non-GAAP financial measures and certain key metrics a.

A copy of the press release from financial tables.

Including the GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from the Investor Relations section of our website.

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 second 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.

Q2.2021 results.

For the second quarter, we executed well and remain on track to achieve our strategic growth plan of $1 billion of annual revenue by 2026.

We achieved record revenue of $91.6 billion up 16, 9% year over year and above the high end of our guidance range.

We also ended the quarter with strong year over year billings growth of $44.4 per cent a gross margin over 62 per cent and an active client count the grew by 22.5 per cent.

Our revenue retention rate grew to 94% cross sales continued to grow as a percent of billings and we achieved year over year billings growth in all 3 U S regions.

We also completed significant capital markets transactions during and subsequent to the quarter that materially reduced both our cost of capital and potential dilution.

It's a little further detail of those transactions in his prepared remarks.

From the company's inception in $2005 a day, we have signed more than 40.

<unk> hundred 80, Fortune 500, and Fortune Global 100 companies and added a net of 95, new clients in the second quarter compared to a net add of 82 clients as the year ago period.

The date, we have saved our clients more than $5 billion.

During the second quarter, our global service delivery team closed nearly 10000 support cases, and the living more than 15000 tax legal and regulatory updates across 35 countries and achieved an average client satisfaction rating of 4.9 out of a 5.0 on the company's support delivery.

For 5 points of Euro as Epsilon.

Our global employee count as of June 30th 2021 was 1556, a year over year increase of 15, 9%.

Pandemic impact.

Despite continued success for the global vaccination rollout the more infectious Covid Delta variant continues to spread around the world and it is clear the global pandemic is far from over and will likely continue to create both opportunities and challenges. We believe we have navigated the pandemic well to date.

And with the risks of the spreading Covid Delta variant. We currently plan to continue with our virtual operational marketing and sales model through at least the end of 2021.

We also continue to believe that our strong balance sheet will provide a competitive advantages and the flexibility to help prospects and clients through 2021 and beyond as needed.

The full extent to which the pandemic will continue to affect our business in 2021 and beyond will depend on numerous evolving factors that we cannot reliably predict.

Sales execution.

During the second quarter, we continued to see growing global interest pipelines and sales across our expanded solutions portfolio with more clients successfully deploying and using our support application management security interoperability monitoring and professional service.

<unk>.

Cross sales are also continued to grow as a percent of billings and we estimate the cross sale opportunities in our existing client base currently exceed $1 billion in accretive annual revenue.

We also achieved strong client renewal success in the second quarter, delivering a higher 94% revenue retention rate with many clients extending their contracts for more than 1 year and some of green to prepay more than 1 year of fees in advance for a small discount.

We believe our strong sales execution as a result of our evolved marketing and sales strategy Regional Theater G. M leadership model now in place globally, New go to market team structures and the compensation plan alignment we implemented at the start of 2021.

We believe our new regional GM model in North America is delivering better sales execution of new logo acquisition cross sales and renewals and with all 3 U S regions delivering billings growth in the second quarter and nearly 5% year over year U S revenue growth.

We continue to evolve our go to market strategy around industries and solutions for them.

<unk> Street serves many of the largest logos across different industries, and we believe focusing on the specific needs of each industry will allow us to further penetrate the tam in each industry with the breadth of our solution portfolio.

To further support accelerated global revenue growth and achieve our $1 billion annual revenue target by 2026, we continue to strengthen our leadership team with new roles and hires needed to scale of the global operation.

The highlight how clients are leveraging Rimini Street services globally to achieve their strategic for those across different industries.

The share a few case studies from the second quarter.

First the largest agricultural producing county in the U S. The county of Fresno, California switched to Rimini Street support for its Oracle database middleware and people soft applications, resulting.

The resulting in the immediate annual savings of 800 thousands of dollars. The County also now receives faster response times, a proactive guidance from a revenue Street expert engineers.

This in turn has freed up the counties internal personnel the focus on more critical business initiatives.

Robert Bash director of internal services, and Chief Information Officer for the calendar of your Fresno state of that quote partnering with the Rimini Street has enabled us to continue advancing a cultural shift towards exploring new ways of doing business.

Every dollar of County Department save on the internal services is money that can be spent on programs for the community.

The savings have given us the financial flexibility to begin exploring what is next for our infrastructure.

We're able to invest in developing a roadmap for the county, all while remaining cost neutral for our users and quote.

Sherri Walden Deputy director of information technology for the County of Fresno added quote Rimini Street recently helped create a legislative update for us which according to our people soft team took substantially less time to implement the previous updates from Oracle.

<unk> Street tailored of pads, specifically to our environment. So our team didn't need the waste time applying code that we didnt need like global payroll.

Main street is focused on the support and success of our organization not just delivering a product the Rimini Street team initiate a meaningful conversation and is constantly probing for how we can improve our infrastructure our better focus on the unique needs of our stakeholders and quote.

Next leading Brazilian chemical distributor Quantic switched to Rimini Street for support of its S. A P S for harness system.

By switching to Rimini Street, <unk> significantly reduced its operating cost and plans to reallocate the savings to invest in innovation and process efficiencies across the organization, including a new customer portal e-commerce initiatives and implementing intelligent automation and RF.

The capabilities.

These initiatives are considered essential projects the maintained its competitive edge and better serve its customers and partners.

Jesse was Mayo Chief Information Officer of quantity stated that quote Rimini Street support for S for Han of delighted us due to its differentiated support model.

The company's 10 minute response S. L. A brings our it department peace of mind, knowing that our support partners ultra responsive and his highly experienced engineers handling any issues.

We can focus our business initiatives of more efficiency and don't waste any more time, having to manage it support requests.

We want to establish ourselves as a digital transformation leader and the chemical product distribution industry, our partnership with Rimini Street will leverage our capability and capacity to be more strategic and oriented to our business and also to invest a new initiatives. So that we can improve the value and quality of services.

Provided and ensure a customers see our business as a reliable and innovative end quote.

Lastly, the leading commercial Aviation Trade Association International Air Transport Association, otherwise known as the IATA headquartered in Montreal switched to both Rimini Street support and application management services for its the SAP system the.

The organization now benefits from Rimini Street's unified turnkey service solution that integrates application management and support services, enabling IATA to substantially reduce the operating costs and meet business demand expected in the post pandemic recovery.

Pascal bug, there I see a director and Chief Information Officer for Yada, David that quote from the start of working with the remaining street, we saw immediate improvement in our S. E T application support and management.

The Onboarding process is quick and seamless and we now have a much better view of our tickets and dashboards.

Our in house.

Team is constantly providing positive feedback on the quality of the support from Rimini Street we.

We do not regret our outsourcing choice quite the contrary and feel we can deliver even more value to internal stakeholders than before end quote.

Market opportunity.

Rimini Street believes the total addressable market for its portfolio of solutions is more than a $170 billion annually.

And our global penetration rate is only about 3.5% for support services and less of 1% for application management services. We believe we have significant greenfield opportunities for our entire portfolio of solutions.

Gartner, the leading industry analyst firm and a strong referral source for Rimini Street business is currently predicting a 200% increase in the third party software support market and expecting that the market will exceed $1 billion in 2023.

Further validating the market opportunity. We recently conducted a global survey of 1500 Cfos of financial leaders across 13 countries covering most industries.

The results revealed that a majority of CFO of <unk> want to cut spending on non essential investments such as vendor pressured major ERP implementation and migration projects that lack clear value of our strong ROI.

Further CFO of <unk> to see the cio's optimize existing technology investments.

Many CFO and CIO of <unk> believe that large and expensive ERP migration and upgrade may be better deferred or avoided an existing ERP systems can be optimized through strategies and services offered by third party service providers like Rimini Street, enabling the CIO to free up.

Budget and it resources to help accelerate strategic digital transformation programs.

Rimini Street remains the only provider of global scale of that offers a proven turnkey single vendor solution for running and supporting ERP software within ultra responsive service that supports customization security interoperability and performance challenges and create value.

Savings for clients.

In fact, Gartner notes Rimini Street is the leading provider of third party support for Oracle and SAP products by annual revenue and client accounts and it's published data implies the Rimini Street has captured over 86% of the global market.

Oracle litigation.

We do not believe there have been any material developments in the litigation with Oracle since our last earnings call and quarterly report on May 10, 2021.

Please see our disclosures in the second quarter 10-Q filing for updated information on the Oracle litigation that has been ongoing since 2010.

Summary.

We believe the company continued executing well on the second quarter and we are on plan to achieve our $1 billion in annual revenue and deliver around a 20% operating margin run rate by 2026.

With the foundation in place to achieve our operation and financial plans. We are focused on sales execution disciplined cash generation and management and bringing our litigation with Oracle the a successful conclusion.

Now with that over to you Michael.

Thank you Seth and good afternoon, everyone Q2.2021 results.

And as Seth noted for the second quarter revenue was $91.6 million a year over year increase of 16, 9% and above our guidance range.

Annualized recurring revenue was $362 million a year over year increase of 16, 4%.

Revenue retention rate for service subscriptions, which makes up the vast majority of our revenue grew to 94% with more than 80% of subscription revenue noncancelable for at least 12 months on a rolling basis.

We generated $22.7 million of operating cash flow and ended the quarter with more than $110 million in cash.

For the second quarter.

Within the United States, representing a 54% of total revenue while international clients contributed 46% representing aggregate year over year revenue growth rates of 4.6% for the United States and 35, 5% for international clients.

In the U S. We saw a strong results out of the East region and we are seeing good progress in the other regions are international strength was broad and spread across all regions.

Billings for the second quarter were $107.3 million compared to $74.3 million for the prior year second quarter, a year over year increase of 44, 4%.

Included in the current quarter billings for a significant amount of multiyear prepayments for both renewals and for new client invoicing.

Typically clients pay for service upfront for the current surface here, while multi year prepayments represent clients, who pay upfront for multiple years of support and is a positive indicator of a linked to meet client retention measured by years of service and increasing lifetime value.

Gross margin was 62, 2% for the second quarter compared to 61, 2% for the prior year second quarter.

We continue to invest in the global service delivery capability of our new products and services, including application management services for a SAP Pete.

For <unk> sales force.

P S for Honda support services advanced security solutions, and the advanced technical solutions.

As we have stated previously we expect interest seeing the benefits of efficiencies of scale and our global service delivery throughout 2021 and guiding for full year 2021 gross margin to be in the range of <unk>, 61% to 62%.

Operating expenses.

Sales and marketing expenses as a percentage of revenue were 36, 2% for the second quarter compared to 34, 2% for the prior year second quarter.

We remain focused on making the appropriate investments needed to support our aggressive growth initiatives and expect full year 2021 sales from marketing expenses to be in the range of 35% to 36%.

General and administrative expenses as a percentage of revenue excluding outside of litigation costs was 18% for the second quarter compared to 16, 8% for the prior year second quarter.

G&A spend during the first half of 2021 was higher due to primarily 1 time employee restructuring expenditures and costs related to capital markets activities and certain litigation related expenses.

Although we expect lower spend during the second half of the year, we now see G&A expenses to be in the range of 16% to 17% for the full year 2021.

Net outside litigation expense was $2.8 million for the second quarter compared to $2.9 million for the prior year second quarter.

Our outside litigation spend is not linear and can fluctuate each quarter based on the litigation activities.

We expect our current litigation expense to be in the range of 15 million to $17 million for the full year 2021.

Adjusted EBITDA was $9.9 million or a 11% of revenue for the second quarter compared to $9.6 million or 12% of revenue for the prior year second quarter.

Operating cash flow for the second quarter of 2021 was $22.7 million compared to $17.9 million for the same prior year period.

The warrant treatment.

We realized a noncash gain of $3.7 million during the second quarter relating to the $6.1 million private warrants with an exercise price of $11.50 the.

That expire on October 10th 2022.

There is no scenario, where a provision that would lead to a cash settlement of this non cash liability.

Which now stands at $3.1 million.

Therefore at the point when the warrants a retired we expect to realize a noncash gain to a profit and loss statement to extinguish this liability.

Please see the second quarter 10-Q filed today for more information.

Balance sheet.

We ended the second quarter with a cash balance of $110 million compared to $73 million for the second quarter a year ago.

Log which.

Which includes the sum of billed deferred revenue the noncancelable future revenue was approximately.

<unk> $571 million as of June 30 of 2021 up 20% from $476 million from the prior year's second quarter.

Finally deferred revenue as of June.

June 32021 was approximately $266 million up 22% from $219 million from the prior year second quarter.

Capital markets EPS on.

On April 16th 2021, we completed the buyback of $60 million face value of the series a preferred stock plus make whole of approximately $2.3 million, reducing the series a preferred liquidation value to approximately $87 million the per.

<unk> shares were retired.

Subsequent events on.

July 20th of 2021, we completed the buyback of 87.8 million face value of the series a preferred stock plus dividends payable of approximately 0.6 million, thereby redeeming in retiring all remaining series a preferred stock the trends.

Action was funded by the lenders capital 1 fifth third bank for a total of $90 million at a rate of LIBOR plus a 175 to 2.5%.

Accordingly go forward annual financing costs have been reduced by $24 million compared to fiscal year 2020.

Additionally, we have eliminated the potential dilution from conversion of the preferred to common stock by $15.5 million shares during the calendar year 2021.

Moving forward, we will continue our methodical focus on increasing free cash flow generation and improved profitability for the benefit of shareholders, while assessing possible capital return actions.

Guidance.

We are currently providing third quarter 2021 revenue guidance to be in the range of 93, 5 to $95.5 million and maintaining full year 2021 revenue guidance in the range of $370 million to $380 million.

This concludes our prepared remarks, operator, we'll now take questions.

Thank you we will now begin the question and answer the question. If you have a question. Please press Star then 1 on your Touchtone phone.

Wish to be removed from the queue. Please press the pause or the husky.

When you speak about you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press Star then 1 on your Touchtone phone.

Yeah.

And the first question comes from Derrick Wood from Cowen and company.

Great nice job.

Hey, guys. Thanks for taking my questions.

It looks like a strong quarter and I guess on that.

When I take a look at.

All of the numbers you had very strong billings growth your new customer generation is trending nicely you had a record net new.

Net retention rate.

The revenue guidance for the year.

It's such a at 13% to 16% growth.

You just did 23% growth in short term billings in the first half.

The only new back on raising guidance for that maybe what what does all of the strength in Q2 numbers mean kind of heading for 2022.

Sure Derrick Thank you.

So I think that when we take a look at the numbers of course all of us are watching the COVID-19 situation.

It still has the impact around the world.

We have countries that are locked down Australia has gone back into lockdown and a big part of it.

Got challenges in Taiwan, We've got challenges of Korea, Japan, So the.

Pushing through nicely on sales through Covid, but theres a lot of unknowns and I think that for us to remain very conservative because none of us really understand what the impacts will be in the back half of the year. We look at pipelines. We obviously believe in the strength of the pipelines. Obviously, we are executing.

<unk>, our methodical plan as we do quarter after quarter not only on the balance sheet restructuring that we set out to do and achieved exactly what we.

Wanted to get done, but also in the sales side.

So from that point of view I think it's the right thing to remain conservative hold our guidance and upside develops we'll allow that to flow through.

Okay, and I guess, Seth as a follow up you mentioned the year over year billings growth in all 3 U S regions and nice to see U S growth, having bought a then starting to move up.

On the regions. So it sounds like Eastwood strong and I'm. Just does this have to do because of the vertical presence or what's creating this region to outperform and maybe the other is the lag and how are you feeling about the progress and driving stronger growth in each of these regions in the second half.

Well I think as we've talked about on many of the last quarter calls we have been in a focus on restructuring North America around GM regional leadership.

Redoing the teams we brought a new personnel across the North American region, and I think youre watching those numbers start to come back up exactly as we had planned to do so I think youre watching the execution show results, we're seeing it in pipelines, we're seeing it in the <unk>.

Close rates that we've had in North America, and even globally. So we're seeing good amount of return from the sales investments that we've made over the last 18 months. So we're feeling very good that we're on the right course with the structures were on the right course with the execution improvements.

And we expect to see continued execution the deliverable from North America and as you know all of this is baked into our existing plan and guidance understanding that it takes several quarters to rebuild and to get those numbers moving up but all of the indicators that we see a from the.

The efficiency of the sales force the quality of the deals we closed more.

Deals in the second quarter than in our history.

Another note to put.

Out there in terms of a data point, we are doing better at big larger deal transactions and more of them on a quarter over quarter basis than we've had in the past and so I think all of those factors really show that the the structures were putting in place the rework of the compensation plans.

The all integrate and drive the same objectives all of those structural changes are starting to pay off.

That's helpful color and maybe 1 more for Michael on the net retention rate I think it was the highest in maybe for 5 years for years.

Can you unpack that a little bit more I mean, it was that due to a.

How much was due to gross retention.

Like you guys had called out also some uptick in cross sell and on that latter.

If you look at <unk> or if you look at new cloud offerings like sales force or if you look at your core.

Is there any 1 theme that's seen a bigger cross sell traction.

Yes, Derrick I'll take the cross sell.

<unk> after a.

Michael answers your first question.

You got it.

It's a confluence of all of those factors that you indicated derrington youre absolutely correct that it's been quite some time to see such a positive retention rate, but as you know a key component of our strategy and we saw it and we expected it and working hard for this to continue is to increase.

Our relationship selling deeper and Seth will comment on the cross sell as well as have longer duration and we're seeing those efforts play out with a strong retention rates. So thanks for pointing that out we were quite pleased with the performance.

Yes, Derek on the cross sell this was a very very important point for us. When we started 21 as we laid out for everyone. On prior calls we were doing approximately 10% of our invoicing coming from existing clients and we wanted to set the goal to double that.

And we've been doing better than plan in the first half of the year again, very very pleased with the numbers and it is selling a ams to existing client, but just as much selling security interoperability a professional services, we are truly starting to ups.

Sell the portfolio the expanded portfolio of our solutions into our vast customer base and we knew that that would provide significant potential for uplift and acceleration of revenue going forward. If we are able to increase that because we've always been as you know.

A logo acquisition company always out there trying to get the support Greenfield business now we are truly building a.

The combined infrastructure all of the changes we put in the new roles. We put in the integrated comp plans all of those things are working to drive sales back into existing clients as well and this was the highest number we've seen in terms of cross sell of quarter over quarter, we're watching.

That number improve and we really see this as a significant amount of as we mentioned during my prepared remarks, that's over a $1 billion of annual revenue opportunity in the existing clients.

Top of the massive opportunity we have outside of the existing client base. So we have been out there working to make sure that we're not only growing the logos, but we are inside the accounts now starting to really grow those footprints and provide a bigger broader solutions and going back to what Michael said, there's a.

Huge tie into the revenue retention because of the bigger our footprint as you know the stickier. We are in the accounts the harder it is for some of the disengaged from us because of the complexity and the amount of value, we're providing that client we should extend all of our client contracts combined.

In these accounts and drive a higher long term value of the client.

Sounds good thanks for taking my questions.

Thanks Derek.

Our next question comes from Jeff Van <unk> from Craig Hallum.

Great. Thanks for taking my questions guys, just a lot to like yourself congrats to everybody to the team.

A few of maybe 2 maybe 3 quick questions here 1 on the on the on the head Count side, just catch me up on where are you on sales and sales hiring I think you had a goal of a 100.

Obviously tight labor markets are tough to get sales talent I'm wondering what you're thinking there and then also on the head count per.

<unk> you've added a lot of people I think you commented last quarter, how you're staffed out on the a M. S side and again this quarter of head count was up nicely.

A 16% year over year.

What point does that head count growth rate start to fall off meaningfully below the revenue growth rate, where you really start to lever how do you think about that.

Sure Thanks, Jeff too.

I think when you take a look at it we're up to the.

The low <unk> in terms of headcount on sales, we still feel very very good about making our annual target of being at a 100 by year end.

Feeling good about that we're seeing the head count come in we've taken out a few more people.

Terms of the churn because we.

We think we can go for higher quality.

Reps in some cases in terms of those that were not delivering on the higher end and the new reps. We're hiring we're watching them get productive faster. So I think we've been doing a good job of bringing in top talent. So again feel really good about that.

Our long term model as you see in the 2026 to get us down to about a 33% sales and marketing against revenue number and I still feel good about that I think thats, where we want a b from the 36% type number that we would expect now.

As we catch up and of course, we're adding as we said a lot of support cash and I mean sales support heads around the in order to sell this broader portfolio of services. We are in the transformation process from from going from being a 1 product company to a full suite of solutions that we.

Bring to market and that is a much more costly sales model and Thats why youre seeing that 36% number it's certainly and I think <unk> also as you well know if you compare us to companies that are in higher growth Bose and we're attempting to continue to accelerate our growth.

They tend to have higher sales and marketing expense number is 36% is not out of range for that type of growth model. So I think we feel good about where we are we feel good about the spend numbers and we feel good about getting to that 33% by 'twenty 6.

Yep.

Got it.

2 other than a quick ones just on the Prepays I don't know if this is for for Michael are you Seth on the Prepays and you can just quantify that obviously good to see people are willing to step up for a multi year commits and you'll get some extra cash and cash flow is very strong in the quarter, maybe just quantify that.

If you would that'd be helpful. And then secondly on the a M. M side can you put some meat on the bones. There just in terms of other quantity of new a M. S wins pipeline I know you've commented from time to time of about the momentum and put a little finer point on it just give us a little color there.

Sure. So first of all of them, Yes, we don't we don't break out the prepaid and the reason for that Jeff is simple because of the prepaid money is not part of our planning.

It is a really interesting indicator of the way that people think about the business I mean first of all of how many people get paid not only a year upfront for their service, but have customers put up potentially millions of dollars for years and advanced in exchange for a relatively small additional.

<unk>.

For for current present value.

That I think is an important indicator of the confidence that the customers have not only in our service, but in the length of time of their long term commitment I think other interesting note. Most people don't get 9 years signed contracts that we've signed contracts.

For 9 years, Noncancelable, and actually I think a few longer than that which is unusual in a lot of companies, but I think they are all indicators of long term commitment long term client.

The.

In terms of their commitment to us and the intent of staying on our solutions for years into the future.

That's the.

That's certainly 1 point.

And then you had a second question Im sorry the.

The a M. S. If you could just give a little less competition.

Sure the Ams and I mentioned, the IATA example of during the call as we give everyone a another opportunity to see that our Ams services are being very well received.

By the declining immunity interestingly enough, we're seeing a lot more first time customers coming in we always knew that this would be a great cross sell opportunity for clients on our support but we are seeing a lot of first time clients coming to us looking for that better Ams and support.

And we're seeing that in the proposals that we're putting out and we're winning those proposals as well so I feel really good that the momentum in that business continues to grow we are still learning again, you look across the sales force, it's absolutely still a new set of products to sell and we're still getting the sales.

For us in some areas more comfortable in certain regions around the world, where they haven't sold as much Ams the Abbott they haven't gotten their feet wet yet so it's still a big growing opportunity. So the organization is certainly learning how to sell I've told you before on prior calls from embarrassing losses of early.

The proposals, where we just we're very lucky in the way that we were proposing compared to the people who are a bit in this business for a long time, but we're fast learners and I can tell you that the proposals we're putting out the day our win rates are higher the proposals are excellent in quality I'm really proud of the proposals that are going out.

We have learned and we've learned very quickly. So I think all of those again continue to bode well not just for the <unk>, but we are selling millions of dollars of security the interoperability and the demand for our professional services is exceeding our capacity. So I think all of those things.

Both for our ability to really sell a whole a bundle of.

<unk> solutions to clients not just the Ams, but a pretty pretty exciting change for us.

Got it great. Thanks, Congrats real nice quarter.

Thank you.

Our next question comes from Brian <unk> from the Alliance Global partners.

Great. Thanks, so much for taking my questions the.

Celebrated rate of growth is great to see but I wanted to dig into the cost of acquiring customers given the substantially higher sales and marketing and G&A costs in the first half versus the first half of last year notwithstanding notwithstanding the 1 time items. So are you needing to spend more on average the win new customers, maybe North America.

The restructuring, they're paying a sales professionals more than maybe you can provide some of the other reasoning for what we've seen recently the surge in SG&A.

Sorry, G&A and sales and marketing.

Well a lot of the G&A.

Was really related to as we said, we restructured a bunch of roles.

So we did a onetime restructuring costs. We've also had again we've done a lot of capital markets transaction as you know which are not cheap by the time you get through all of the other additional expenses that go with it as a public company, but for those add up and then performance bonuses, we obviously a.

A lot of great success, most transaction so a lot of onetime costs that went in there.

And of those numbers why the G&A surged up a little bit nothing that were concerned about as we said we expect the numbers to be lower on the back half of the year, although it will still be a little bit on the higher end and I think we've all known and we've talked about on these calls no our G&A numbers, a little higher some of it due to the litigation cost.

We have a lot of security costs.

Again, we handle people all the way down to the Israeli military we have a lot of guys.

The confidential secret operations and security cleared operations that we have to manage so theres a lot of costs that go into things that maybe other companies don't have a at a level of security.

So those things all of that into <unk>.

Gives us a little higher G&A profile, but <unk> seen our 2020 plan is to bring that down significantly.

Of that 11% type number so that's that is that as a key there the cost of sales no I do think that overall when you. When you have a multi product sales company you have a higher cost of sales operation simply because if youre, putting 7 products out there you have to have 3 salespeople.

For all of those 7 product you have to have marketing for all of those 7 product you definitely have a higher cost of infrastructure benefits. When we were single product, but I do think again look at our long range is to bring cost of sales and marketing down to 33% by 2026 of them.

I think those of reasonable numbers.

Even the operation of the kind of margins, we're putting out the kind of growth, we expect to drive and I also point out to everybody, let's not forget the most difficult thing about being a ratable revenue company, where all of most of your revenue outside consulting is ratable revenue.

And you are trying to grow quite a bit when you accelerate a 16% youre trying to accelerate that we all know to get to a $2 billion by 26 of that average is a 21% CAGR. So clearly we intend to accelerate growth.

And when Youre doing that on a ratable model youre, bringing in hundreds of new customers on the front end, but you look at you look at your and your backend delivery. When you go to gross margin you don't have the ability to add people or are you a breakthrough or financial model of being profitable and so.

We're in an unusual situation, where we're both accelerating top line revenue as planned and we're increasing profitability normally you see companies focus on all of the growth on the side and they don't worry about profitability. We're moving both forward, which means we're constrained in our model and it's a bit of a dance how you bring in all of.

These new customers of you have to start serving right away, but you don't get any ability to hire new people because your revenue is ratable and it comes in over time. So there is the interesting challenges of being a ratable model trying to be profitable and accelerating growth all of the same time I think we're navigating a very well.

It's not it's not a perfect dance at any 1 time, but if you look at where we've come from a where we've gone to over the last quarters I think we're executing exactly well within those constraints.

Great and then.

If you could quantify the total 1 time items in G&A and separately sales and marketing, but then my last question after that.

Would be.

As you think about the next 12 to 18 months Europe.

Performing fantastically well it would be a significant step up in investment in infrastructure as you further expand in Europe or have you laid the foundation for the most part of.

The growth opportunity there.

I think we've really made the majority of the investments and I think on our last earnings call. As we had indicated we felt good that we had achieved the core infrastructure changes sure. We're still adding in some sort of management executive levels were still filling out the model to hit that $1 billion.

Number of the next few years all of that is just part of scale, but we feel like the core of the kind of investments that would drive down gross margin that we had to do when.

When we took the 1 point.

Up to 2 point hit in gross margin to make those investments in infrastructure for engineering and the talent pool to be able to service those products. We believe we've made those.

Thats why were feeling confident we're still in the gross margin of $61.62.

We're feeling confident about those other numbers that we put up in terms of guidance.

And then Michael did you have the 1 time items that you could maybe share with us the toe.

<unk> value.

So rather not get into the specifics however.

As you probably are updating your models, we have a 50 basis point raise in the overall G&A for the year now the 16 to the 17%. So I'll give you some indication there Nonetheless, we do see from an absolute basis in the second half of the year as the majority of this is behind us.

That's going to come down.

And that's where it's just going to come up for the 50 basis points for the full year. So I'd also like to note that.

We as Seth has alluded to the elected to put spend on our infrastructure, mainly on the G&A side due to the confidence in our growth.

As we delivered not only in this quarter, we have done for the first half of this year well.

Well on our way to a path to the goal of a $1 billion in 2026 so.

This is indicative of the comfort of where we are today as well as our ability to achieve our look the objectives.

Yes.

Okay. Thank you.

Thank you.

Our next question comes from Mark Chappell from benchmark.

Alright. Thank you for taking my question and a nice job on the quarter.

So first question for you as a follow up for an earlier question on the North American sales rebuild earlier of the year. You believe you stated I believe that the revenue growth from North America.

It is likely to reach like double digits by the end of the year I was wondering if youre still tracking to that growth range.

Yes, and thank you of course.

We believe we're still on track for that I said.

I remember very distinct.

I would be very pleased if we exited 2021.

Of the double digit run rate for North America growth in and I know, we get a little confused between North America U S and the numbers that we publish because of the U S segment.

Our North American operations, which is actually a U S plus Canada, but on the U S side.

The fact that we were again near 5% year over year revenue growth coming out of the second quarter, Yes, I would be very pleased if we ended 2021 with a run rate year over year of double digits.

Okay, Great and then.

Regarding sales head count again building on an earlier question.

Talk a little about the <unk>.

Different type of a sales rep, you're hiring today, then so you did a year or 2 of them.

Bill.

I think we learned a lot over the years and part of the challenge is when you go from a 1 product company to a both the product portfolio ever.

Every company goes through this when you when you go through that kind of expansion. The sales the sales reps change from being very focused on a particular product that they know well to a different kind of model.

Now we are positioning a sales rep, who has the position in the entire portfolio of services. They have to be able to tell a bigger story about how the company can help another company with all of their different challenges not just 1 challenge and that really does change some of the.

<unk> of the sales rep that youre hiring they have to be able to be much more of a project manager. If a company is interested in 3 of 4 different products in the in your solution portfolio you have to bring in different pre salespeople you have to juggle with different buyers.

Often the different departments. So the combination of all of that work makes the makes the the.

Situation.

Far more complicated in terms of the sale and May play a much more of a project manager role. So I think that that that's a difference from someone who is just selling a single product portfolio. So we're hiring more to that profile and those folks are doing really well handling this larger portfolio of services.

Great. Thank you.

Thank you.

We have no further questions at this time I will now turn the call back over to Mr. Seth Ravin CEO for final remarks.

Great well. Thank you again, everybody for joining us we appreciate it we look forward to having you join us for a third quarter call and a please do remain hope you and your stay safe and we look forward to talking to you at a later day. Thank you very much everyone.

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