Q1 2022 Rimini Street Inc Earnings Call
Welcome to Rimini Street's first quarter earnings Conference call. My name is Adrian and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press zero one on your Touchtone phone.
And that's been the colored Dean Pohl, Vice President Jean Paul You May begin.
Thank you operator, I'd like to welcome everyone to Rimini Street's first quarter 2022 earnings conference call.
On the call with me today is Scott Raven, our CEO and Michael <unk> our CFO .
Today, we issued our earnings press release for the first quarter ended March 31 2022.
A copy of which can be found on our website under investor Relations.
A reconciliation of GAAP to non-GAAP financial measures.
It's been provided in the tables following the financial statements in the press release.
Formation 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.
As a reminder, today's discussion will include forward looking statements that reflect our current outlook. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
We encourage you to review our most recent SEC filings, including our Form 10-Q filed today for a discussion of risks that may affect our future results or stock price.
Now before taking questions, we'll begin with prepared remarks.
With that I'd like to turn the call over to Seth.
Thank you Dean and thank you everyone for joining us today.
Q1 2022 results.
For the first quarter, we achieved record revenue of 97 9 million up 11, 4% year over year achieved a record first quarter invoicing and delivered a revenue retention rate of 94% on subscription revenue up from 91% last year.
We continued to fill key regional operations and sales roles, including Jeff's fight serious chief marketing officer, joining from Oracle, Vmware and IBM and Kevin Hooper as GM of America Central region, joining from Lenovo IBM Oracle and HP.
Additionally, we closed some of our largest sales transactions in our history during the quarter and remained focused on growing and maturing our global marketing and sales operations for increased new client acquisition and cross sale of new services to existing clients.
Further differentiating ourselves with an extraordinary client experience, we closed more than 10000 support cases and delivered more than 18000 tax legal and regulatory updates for 33 countries Adil.
Additionally, we achieved an average client satisfaction rating on the company's support delivery and client Onboarding services, a four nine out of five or five is excellent.
We believe our unique client experience and very high client satisfaction rating will drive increased loyalty improved retention rates and higher cross sales over time.
Since Rimini Street's inception in 2005, we've signed nearly 4700 clients, including over 180 of the Fortune 500, and global 100 companies and estimate that we have saved our clients more than $6 billion that they were able to reinvest in their business.
We added a net of 35, new clients for the first quarter with active clients totaling 2884, a year over year increase of 13, 1%.
In addition, despite.
Despite the challenges with retention and recruitment in 2022 affecting many organizations globally. We were successful in expanding our global workforce by 12% year over year, ending the quarter with over 1680 employees.
Pandemic geopolitical and macro economic impacts.
As the global pandemic and other economic and geopolitical challenges continue to impact businesses and governments. We have helped thousands of commercial or public sector organization with operations across more than 100 countries navigate the challenges successfully moving.
Any beyond surviving to thriving.
During the pandemic, we utilized our unique secure remote connectivity global infrastructure with operations in 21 countries and nearly 100% of our full time employees working from home offices.
This not only allowed us to protect the safety of our people, but also allowed us to deliver uninterrupted mission critical 24, seven 365 support services to our global clients with an industry, leading guaranteed 10 minute response time for critical issues.
Today.
Given the added financial challenges around inflation rising interest rates and related impact on profits, we are seeing prospects and existing clients, who had planned to invest in expensive new ERP refresh projects choosing instead to extend the life of their existing stable systems.
Reserve cash and focus their limited labor and budget on strategic investments and initiatives.
Demand and sales execution.
Rimini Street already serves many of the largest and most recognized client logos across different industries, and we believe our continued and growing focus on the specific needs of each industry will allow us to further penetrate the tam in each industry with the breadth of our solutions portfolio.
Accordingly, we continue to see a strong opportunity for our expanding portfolio of enterprise software support solutions and continue building and maturing our go to market capability to launch sell and deliver our full solutions portfolio to new and existing clients globally.
During the first quarter, we closed transactions with strategic local and global brands across diverse industries and geographies.
The Asia Pacific EMEA, and Americas East geographies led in sales results.
From a product perspective results were broadly distributed across support a M. S security interoperability monitoring and professional services.
Close rates were favorable, particularly for large deals defined as annual fees over $1 million.
We were pleased with sales productivity quota attainment and close rates in the quarter.
Our clients are seeing the strong value add that our engineers bring to their it environments. It strategy, allowing clients to augment labor and to free up resources to pursue growth and productivity initiatives.
We believe the hybrid it environment that will integrate existing licenses, new SaaS licenses and cloud deployments will be the I T reality for much longer than expected and the majority of ERP workloads will continue to be on premise or simply lifted and shifted into the cloud for continued law.
Long term use.
Finding case study.
To highlight how clients are leveraging Rimini Street services globally to achieve their strategic goals across different industries I'd like to share two case studies from the first quarter.
First as breast screen, Victoria, one of Australia's largest breast cancer screening organizations, who switched to Rimini Street for support if it's Oracle database software.
By switching to Rimini Street breast screen, Victoria was able to liberate additional capacity within its internal team negate the need to spend additional funds expanding its staff to meet increasing service demand and significantly reduced its annual enterprise software support spend.
As a result.
Screen victorious I T team can now focus on more strategic initiatives, including our planned data center migration project.
Darrin first I T operations manager for breast screen Victoria stated.
A primary support engineered base locally in Australia and available on demand takes a huge weight off our shoulders.
Rimini Street is an extension of our I T team with knowledge of our I T environment that enables them to dive into an issue and address it immediately.
Knowing that our local Oracle database support team is backed by Rimini Street engineers globally brings us additional confidence and peace of mind.
Next is staffed smart group.
A large U S based leading staffing and recruiting firm.
Staff work Leverages, the Rimini Street to support the company's people source system.
Since making the switched to Rimini Street stock market has significantly improved the quality responsiveness and depth of people soft support available to its internal IP team enabled faster tax legal and regulatory updates and plans to reinvest support cost savings and focus its I T.
Sources to execute improvements to its competitive market strategy.
Staff, Mark is going to invest in service offering innovation and enhancements such as AI analysis capabilities and automated job posting functionality for employers and job seekers.
Jill Crabtree, Vice President of ERP technology for staff Mark stated.
We run payroll daily serving approximately 35000 employees a week so any issue running this critical process accurately and on time would be catastrophic.
Payroll as a mission critical process that must be bulletproof and always on.
I knew from past experience that Rimini Street's claims regarding the value proposition, we're all real including its ultra responsive support from experienced people software engineers and faster delivery of high quality tax legal and regulatory updates.
Rimini Street support would assure us that we could keep our daily payroll operating smoothly and full compliance and create additional efficiencies I had no hesitation about the positive impact this would have it staff mark.
For example, there have been numerous tax legal and regulatory updates related to COVID-19, and we've been able to get immediate customized updates for those changes.
Port we receive is phenomenal.
Oracle litigation update.
Rimini Street, and Oracle have been in litigation for more than 12 years.
While the U S courts have confirmed long ago that third party software support as legal we presently have two active proceedings with Oracle.
The injunction compliance dispute and Rimini, two proceedings, both of which relate to the manner in which remain history to provide support services for certain Oracle product lines.
With respect to the injunction compliance dispute Rimini Street is preparing and planning to soon file an appeal to the ninth circuit of the United States Court of appeals relating to certain rulings of the U S District Court.
We expect the appeals process could take about a year to receive a ruling but a ruling could come earlier or later.
With respect to Rimini Street versus Oracle the case Rimini Street filed against Oracle in 2014 and is known as Rimini two.
The case remains in the pre trial stage. We currently believe it is likely that the trial will proceed in 2023, but the trial could proceed earlier or later.
Please see our disclosures in the latest 10-Q filing for additional information on the Oracle litigation.
Summary.
We continue focus on marketing and sales execution and productivity exercising disciplined cash generation and management and bringing our litigation with Oracle to a successful conclusion.
Now over to you Michael.
Thank you Seth and good afternoon, everyone Q1 2022 results.
Revenue for the first quarter was $97 9 million a year over year increase of 11, 4%.
Your line is recurring revenue was $385 million a year over year increase of 10, 2%.
Revenue retention rate for service subscriptions, which makes up more than 98% of our revenue was 94% with more than 80% of subscription revenue noncancelable for at least 12 months.
For the first quarter clients within the United States represented 53% of total revenue while international clients contributed 47%.
First quarter aggregate year over year revenue growth in the United States was nine 9% while growth for international clients was 13, 1%, we know that the U S. Revenue growth has continued to improve over the last four quarters, improving from the 2021 first quarter year over year growth rate of less than 1%.
To the current year first quarter year over year growth rate of nine 9%. We also note that our international revenue growth was negatively impacted by the reduced flow through of revenue from the 2021 third quarter sales challenges.
Billings for the first quarter were $97 7 million compared to $81 million year over year, an increase of 26% new client invoicing and multiyear prepayments for both renewals and for new client invoicing were notable for the quarter.
Gross margin was 62% of revenue for the first quarter compared to 61, 5% of revenue for the prior year first quarter and 62, 5% of revenue on a non-GAAP basis, which excludes stock based compensation expense compared to non-GAAP gross margin of 61, 9% of revenue in the first quarter.
Of last year.
We executed well in our service delivery and continue to methodically expand efficiencies and leverage through technology and process control. We expect to continue investing in our global service delivery capability and capacity for our new products services and solutions to ensure we can deliver a best in class offerings.
Paralleled client satisfaction.
Therefore.
For full year 2022, we continue to guide gross margin to be in the range of 62.5 to 63, 5% of revenue on a GAAP basis, and <unk>, 63% to 64% of revenue on a non-GAAP basis.
Operating expenses.
Like other organizations globally, we are experiencing cost pressures due to increased labor cost inflation. However, we have been successful at mitigating this challenge in part by broadening our hiring practices with an emphasis to recruit more positions in lower cost geographies.
And then part by using innovative technology, we plan to continue exploring all options available to ensure we are able to acquire the talent we need at the right course to meet our profitability and growth targets.
Sales and marketing expenses as a percentage of revenue was 32, 4% for the first quarter compared to 34, 6% for the prior year first quarter.
On a non-GAAP basis, which excludes stock based compensation expense sales and marketing expenses as a percentage of revenue was 31, 5% during the quarter compared to 33, 7% in the year ago period.
We remain focused on making the appropriate investments needed to support our growth initiatives and thereby expect for year 2022 sales and marketing expenses to be in the range of $34 five to 35, 5% on a GAAP basis, and 34% to 35% on a non-GAAP standpoint.
General and administrative expenses as a percentage of revenue excluding outside litigation costs was 24% for the first quarter compared to 18, 9% for the prior year first quarter.
On a non-GAAP basis, which excludes stock based compensation expense G&A was 18, 6% of revenue versus 17, 5% in the year ago period.
There were onetime employee related expenses and software implementation cost and other various items impacting spend during the quarter How's.
However for the full year 2022 results, we expect the spend to fall within our guidance range. Moreover, we do note that our G&A expenses declined nearly 6% in the second half of 2021 versus the first half of 2021 and see a similar trend this fiscal year.
Current and expected 2022 spend includes the investment in information systems cost for additional personnel to support growth cost as a public company cost to support our global compliance operation and incremental professional legal audit and insurance costs.
Therefore, we continue to expect G&A expenses as a percentage of revenue to be within the range of 16% to 17% for the full year 2022.
14, five to 15, 5% on a non-GAAP basis.
Net and outside litigation expense was $3 1 million for the first quarter compared to $4 8 million for the prior year first quarter.
During the first quarter, we received an insurance recovery of 389000 for attorney costs related to Oracle litigation.
Our outside litigation spend is not linear and can fluctuate each quarter based on timing and the nature of litigation activities. Accordingly, we continue to expect outside litigation expense to be in the range of $15 million to $20 million for the full year 2022.
For the first quarter net.
Net income attributable to shareholders was $3 1 million or <unk> <unk> per diluted share compared to the prior year first quarter loss attributable to shareholders of $9 8 million or negative <unk> 13 per dilutive share on.
On a non-GAAP basis, net income was $9 2 million or 10 cents per diluted share versus $8 5 million or <unk> 11 per diluted share.
Adjusted EBITDA was $12 9 million or 13, 2% of revenue for the first quarter.
I would also like to highlight our non-GAAP operating margin.
Which excludes outside litigation spend and stock based compensation of 12, 4% for the first quarter underscoring the significant profitability potential and substantial leverage to our operating model.
Accordingly, we remain confident in our ability to achieve our long term target of operating margins in excess of 20%.
Balance sheet, we ended the first quarter with a record cash balance of $158 million compared to $153 million for the prior year first quarter, which included proceeds of $57 million from an equity raise that were used to pay down our series a preferred.
On a cash flow basis for the first quarter, we generated $45 8 million of operating cash flow up 87% from the prior year first quarter. The increase was driven by a multiyear client prepayments and healthy accounts receivables collections.
Deferred revenue as of March 31, 2022 was approximately $300 million up 20% from $250 million for the prior year first quarter.
Backlog, which includes the sum of billed deferred revenue and noncancelable future revenue was approximately $558 million as of March 31, 2022, compared to $536 million for the prior year first quarter impacted by the reduced flow through of backlog from that.
2021 third quarter sales challenges.
Capital market transactions.
Our newly authorized common stock repurchase plan that we discussed during the last earnings call was commenced during the first quarter during.
During the quarter, we repurchased $567 685000 common shares with a market value of $3 $2 million to repurchase shares were retired going forward. We will look for additional strategic opportunities to repurchase common shares, although we reserve full discretion on.
<unk> decisions and whether or not to activate or deactivate the plan at any time.
In addition.
With the current term loan principal value of approximately $86 million and a strong cash position in a rising rate environment. We are evaluating our options, including an early prepayment of approximately $10 million for which there is no prepayment penalty.
With a strong cash position and consistent operating cash flow generation model. We believe the company is able to comfortably fund growth execute our capital return plan and reduce debt and the interest of our shareholders.
Business outlook.
We are currently providing second quarter 2022 revenue guidance to be in the range of 98, 5% to $99 5 million and we are raising our full year 2022 revenue guidance to be in the range of $402 million to $411 million from the previous range of 400 million to $410 million.
This concludes our prepared remarks, operator, we'll now take questions.
Thank you well now begin the question and answer session.
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On your touch tone phone when mummy question.
And our first question comes from Derrick Wood of Cowen <unk> Company. Your line is open.
Oh, Great Hey, guys, it's Andrew on for Derrick.
This corner.
Maybe just to start I think Europe is 10% to 15% of revenues.
Reported international slowed a bit maybe just walk us through what you're seeing there and how that factors into guidance.
Sure good to talk to you.
Thanks, Andrew.
And we.
So the number I think what you've seen there is again, it's flow through because of the ratable revenue.
Q3 of last year that is an important factor in terms of building that revenue pipeline through the year, that's what's affecting the international we also saw about four points of FX.
In the quarter as well so the combination of those are certainly impacting that number but the business is very very strong in fact, I think it's a third or fourth largest deal in our history, we closed inside of Asia Pac.
So we did very very well there EMEA is strong.
Agent.
The Latam operation has been merged with the Americas and we've seen some very very good deals over recent quarters, there as well. So we don't see an actual execution problem. This is really just flow through.
Great.
And maybe you touched on.
Right there on Latam, but maybe on the new Americas Org structure, just any color on that.
That's gone so far what initiatives, Kevin as planned in and how that can accelerated U S growth continue to do that.
Sure the Americas integration is going well the integration we did in Europe , as well, where we took.
Israel and eastern European Theater merge that in with EMEA.
These have been again, good cost cutting moves and we're gaining efficiencies by reducing the number of theaters and hence redundant theater management. So all part of our bringing the cost structures under a great a great amount of <unk>.
Focus and we're seeing that obviously in the sales and marketing number you saw that down a little bit we will still aim to accelerate in the back half of the year to achieve the guidance number but.
But our big focus of course is really getting the G&A number down because sales and marketing is right in line, where we want to be and we're also seeing gross margins that are strong it's really about getting that G&A number down further in the back half of the year.
Great.
And Seth on the sales and marketing hiring front, maybe just talk to that in the quarter and where did you end on the sales rep number and and and how are you tracking towards the 95 to 100 target by the end of the year.
Sure overall on the management side, we did really well of course announcing Jeff Spicer, who joined US with the background of course from Oracle as well in fact, a lot of the nasty competition that you've seen from Oracle over the years on the marketing side was actually developed by.
Jeff Spicer, so it's great to have him now on the other side of the fence for leading the marketing charge for remaining street globally.
And we also have done well, Kevin Hooper, joining us from Lenovo to fill out the GM position of the America Central So I think we built out strong management during the quarter.
The sales hiring I wont say is gone as well as we would've liked and you guys know we've struggled we've had some good quarters of growth there.
We ended about 73 down a little bit from the 79 number in the fourth quarter, but there is some really big opportunities that we took down in the first quarter and our ASP wound up moving from about 200 to nearly 400 in the quarter. So again smaller number.
Deals great execution by the sales team across the board in fact, the number of tenured reps those we think about with 12 months and over.
Very strong attainment numbers has remained fairly steady so that's not where we've been losing where we've been losing some folks as some of the new hires haven't been completing the ramp up some due to the fact that we counsel them out some due to the fact that they found it to be I think a little harder than they thought it would be so I think.
The challenge that we have there has really been in the recruiting area and we've addressed that we brought in John Leach, who is an expert at revenue recruiting positions and he has taken the helm of revenue recruiting just a few weeks ago and were expecting some great things there.
Great.
That is it for me.
Thanks, guys.
Great. Thank you.
And the next question is from Jeff Van <unk>.
Craig Hallum. Your line is open.
Great. Thanks, Thanks for taking my questions guys and phenomenal cash flow they've got about a year's worth in a quarter. So great start to the year I want to follow up on our fueling sales questions and then a couple of other things, but on sales in particular, Seth I know you've been very focused on recruiting for somewhat of a different skill set right. It's in that 50% off sale any more you want to sell a solution.
And I.
I understand your prior point Youre not getting the hedge you want but in terms of the numbers in terms of the hedge you have talked to me about how youre measuring their execution on that vision, namely are they selling more Ams security other things like how are you tracking your success in building a solution selling sales team.
Well I think the first thing we're looking at Jeff of course is the overall sales number the attainment numbers and I think we've been absolutely consistent in the execution for our sellers that are 12 months and over.
I think that part has gone very well, we've seen an average of 90% attainment in that category. So we know that our that our tenured sellers can sell and they are selling more of the solution. We're seeing the the.
The increase in the cross sell we've been seeing those numbers for the last few quarters. So we know that they are selling more of the solution to not only existing customers, but we're seeing wider breadth of products sold out of the gate to new logos as well. So we're definitely seeing some good progress in the world a solution sell.
Our bigger challenge has been really two points one getting the sales.
Actual feet on the street and growing the sales team been a challenge and as I. Just mentioned we brought in John Leach, we've brought in more expertise in revenue hiring revenue position hiring and the second area is really marketing getting Jeff Spicer on the ground here in the last few weeks, we've been waiting for a new CMO as you know for the last.
Year, and it took us a while to to select the person that we thought could really ramp this opportune to understand this business and Jeff does and so we're pretty excited to have him on the ground youre going to see our television ads back on television all over the world that started this last week.
A lot of ramp up going on and so we're really convinced that the acceleration of the business is really a formula of getting additional sales reps ramped up heading there 12 months and bringing that 12 months down to nine months and then eventually to six for ramping getting marketing out there.
We are really turning a buzz around the world. This is an unbelievable opportunity horrible from a people point of view more inflation all of the economics, but fabulous from a selling environment because Rimini Street have solutions for all of these customers and the challenges that they have today so it <unk>.
Really is now a race for us to accelerate the hiring getting our people ramped and getting that marketing out there. So that people are understanding we're out here, we they understand the solutions, we have and then getting out there and closing the business.
Yep.
So following on that.
You look at the overall revenue performance. So I mean, certainly the billings number in some bright spots in there.
And if I look at overall revenue growth of 11% in a quarter when does that bottom and how does the push outs in terms of being able to recruit those incremental sales heads change the timing on when that growth rate bottoms and Reaccelerate, obviously, you've got your target model you need it to 22% CAGR I believe to hit that.
So, obviously youre expecting bigger numbers, but when do we bottom on year over year growth.
I still think Jeff we're not in the consistent execution category, yet and I think we've given a lot of color on that over the last few quarters. This transition to being a multi product company is pretty complicated on a global basis, and I think that we're making progress I think from my.
Perspective, we said when we started 22 this was not going to be Rimini Street's biggest growth year, we knew that.
We felt that we put that out there. We said, we still had our building and rebuilding and restructuring to complete and then seeing the results of that execution coming to life I really think we're going to see that acceleration on the back half of this year, but as we know with ratable revenue the back half of the year you just don't earn it as much and this.
It is all baked into the guidance. So we did the beat and we did the raise we said we were going to get into that cadence. So we wanted to kick off the year with a beat and raise very conservative still and it all reflects both the opportunities in front of us with the macroeconomic challenges that create selling.
<unk> also creates a little bit of risk on the back end with our existing clients. Although we've had super strong renewals as you can tell from the numbers.
All of this I think is really moving towards a more stable operation more consistent execution coming into 'twenty, three and as we've talked about before in order to sort of a target that $1 billion by 'twenty five 'twenty six.
We have to accelerate into 'twenty three 'twenty four 'twenty five we all know that and so this is really about two more quarters to kind of get the house in order really ramp the engine and then start to see that revenue flow increase in 'twenty three.
Got it one last from me then I would.
On the competitive landscape or more and more specifically sales execution how of win rates trended I think you touched on briefly maybe just expand on that a little more I know Q3 was an SAP centric quarter.
And so you kind of get these ebbs and flows and who you see mostly in a quarter, but I was just talking to me about win rates versus the big players and how they've changed.
Well I think if you first go in when we talked about in my prepared remarks that we were very pleased with the.
With our team not only our attainment numbers, but actually the win rate on the pipeline was over 30%. So those are really good numbers very strong numbers. So sales executions actually good. It's now a matter of ramping volume. You'll also note there that we did what 35 net new deals in the quarter.
Which was a little less than last year, but double the ASP.
And we did very very well in large deal so from a competitive landscape.
We took down some monster deals during the quarter.
Up against Oracle, and we took down some really good deals.
Deals too so I would say that across the board we are being very very competitive out there and we've got great wins to show for it.
Is really a volume game and we have to increase the volume and Thats, where the flow through is going to come for the acceleration on revenue.
Got it well again, great job gross margins cash flow a lot to like there end up looking for to that sales progress. Thanks guys great.
Thank you Jeff.
And that concludes our question and answer session.
Turn the call back over for final remarks.
Great well. Thank you very much everybody and I really appreciate you joining us I know how busy it is with earnings calls right now, but I also want to thank our and Greg congratulate our remaining street colleagues for their strong execution in the first quarter, we really kept moving doing all through the challenges.
Out there in the world.
So I wanted to remind everyone that we're going to have a virtual investor day in 2022 on June 16, we will present, our vision and strategy to achieve our continued $1 billion annual run rate revenue and operating margin target, how we're going to get there along with 20% operating.
<unk>.
We will issue a press release, an invitation shortly for registration in the coming days it will be a virtual event. This year and until then I want to wish you and all of your families. Good continued health and our thoughts and our charitable support are all of those are with those who are suffering in harm's way today. So.
Thank you very much everybody have a good day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect speakers standby if you decrease.
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