Q3 2023 Rimini Street Inc Earnings Call
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Your day and thank you for setting by walk you through the remainder Street third quarter 2023 earnings call. At this time, all participants are not listen only mode. After the speaker's presentation. It will be a question and answer session to ask a question. During the session you will need to press star one one.
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And the conference over just figured today painful Vice President Investor Relations. Please go ahead.
Thank you operator, I'd like to walk him every once the remaining third quarter of 2023 earnings conference call.
On the call with me today sucked the Raven R C E O and president and Michael Freak out our CFO.
Cause they were just shoot our earnings customer at least for the third quarter ended September 30th 2023, a copy of which can be found on our website under investor Relations. A reconciliation of gap to non-GAAP financial measures has been provided and the tables.
Financial statements in the press release, an explanation of these measures and why do we believe they are meaningful. It's also included in the press release under the heading about non-GAAP financial measures and certain key metrics, which is available on 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 differ materially from statements make today, we encourage you to review our most recent F C fireworks, including at all tend to file today for a discussion of breath that may affect our future results or stock price.
Not before taking questions will begin with prepared remarks with that I'd like to turn the call over to suck.
Thank you Dean and thank you everyone for joining us today.
Most of the I T service provider specialize in software implementation Romine Street. Instead focuses on the very specialized area of I T strategic and operational needs to run manage support protect connect monitor customize config.
<unk> and optimize mission critical enterprise application database and technology software.
We have global operations with over 2000 employees spread across 21 countries delivery senior engineering support capabilities to clients with an average response time of less than two minutes 24 by seven by 365 and earn an average client satisfaction score on our support team <unk>.
<unk> and Onboarding services, a four point 99 to five or five is excellent.
Today, we are the leading third party support provider for Oracle and S. A P software and to date I've served over 5300 Fortune 500, Fortune Global 100, Midmarket public sector and other organizations across a broad range of industries.
We're also salesforce and AWS partners and sauce and cloud markets respectively.
We enabled clients to achieve better business outcomes, such as lower operating costs increased profits increased investment and innovation improved competitive advantage and accelerated growth.
We believe we have delivered over $8 billion of savings and reinvestment opportunity to our clients.
Operating results.
For the third quarter of 2023, we continued focusing on improving sales execution across our expanded portfolio of solutions and being able to deliver the full portfolio of solutions globally.
As our current or prospective clients learn more about the unique offerings and value of our expanded solutions portfolio there.
Are responding positively and buying across the full portfolio.
For the third quarter of 2023, we saw and and ERP outs first your solution remaining won and our solutions for S. A P products continued to gain traction globally <unk>.
Driven in part by the current macroeconomic environment, where we believe our expanded full service portfolio is increasingly valued by prospects and clients and in part by the further maturing of our go to market execution.
To enhance and accelerate lead opportunity and pipeline development and help close more large strategic transactions are senior executives, including myself continue our extensive in person Romine Street client in prospect meetings, and the 10 minutes, a third party events and executive sales meetings in the United.
States and globally with hundreds of current and prospective clients.
To deliver our full solutions portfolio globally, we continue to grow our workforce and capabilities backed by innovation and technology that provides additional leverage for increased profitability with growth.
Demand environment and competitive advantage.
We continue to see strong demand for a proven reliable partner for mission critical transaction system services that can allow organizations to consolidate the preferred IP service providers streamlined vendor management increased aggregated purchasing power and better outcomes.
Organizations today need to figure out how to deliver both revenue growth and increased profitability and now as an end to end provider mission critical support products and services Romine Street is the broader portfolio of solutions needed to be recognized as a key.
Service partner that can help clients achieve their goals from developing iced tea strategy and building roadmaps to plan execution.
We believe that we are well positioned to meet the current and evolving needs of organizations that faced heightened global competition and just about every industry and to help them navigate the complex macroeconomic over the coming years.
Oracle litigation update.
<unk> been in litigation for more than 13 years, while the U S. Courts are confirmed long ago that third party software support is legal we presently have two active proceedings with Oracle the injunction compliance dispute and remaining two proceedings, both of which primarily relate to the manner in which remains street <unk>.
<unk> support services for certain or product lines.
With respect to the injunction compliance dispute Amy.
Any street has been ordered by the district court to reimburse <unk> reasonable attorneys fees and costs related to the contempt matter and related appeal.
The parties are in briefing schedule now in the district court is not yet determined what the amount of such reasonable attorneys fees and costs should be.
Romine Street reserves, all rights to appeal any district court orders.
With respect to Rimini to the company filed a lawsuit Rimini Street eight versus Oracle International Cork in October 2014 in U S District Court.
The date of this report an administrative day of the remaining two injunction is in place in the court of Appeals has not yet issued a decision on our motion with Davy injunction through the appeal process.
Additionally, the district court is not yet decided on another motion that must be decided by the courts before the appeals court will consider the remaining two injunction stay motion.
<unk> Street will also be filing an appeal of the district court's findings an injunction in Rimini too.
For additional information and disclosures regarding the company's litigation with Oracle. Please see our disclosures and the companies really report on Form 10-Q filed on November 1st 2023, with the U S Securities and Exchange Commission.
Please also note that at this time, we are still unable to provide material additional information beyond the disclosures and statements and our press releases, nor provide guidance with respect to future financial results SEC filings in court filings, nor are we able to provide additional commentary related to the.
Pending a arc of litigation impacts and potential impact because we are engaged in current continued analysis and court briefing emotion activity.
Summary.
We remain confident that we are continuing to take the right actions and making the right investments to accelerate growth increased profitability enhance shareholder value and bring our litigation with Oracle to a successful conclusion.
However, if Rimini Street does not ultimately prevail on various litigation matters described in our SEC filings it could have a material impact on the business.
Now over to you Michael.
Thank you Sir.
Thank you for joining us everyone.
Revenue billings and gross margin.
Revenue for the third quarter was $107.5 million a year over year increase of 5.4% of our revenue in the quarter was again negatively impacted by currency movements, having a 0.1% unfavorable impact of revenue growth in the quarter.
On a year to date basis negative currency impacts where 1.2%.
For the quarter clients within the United States represented 51.9% of total revenue while international clients contributed 48.1% of total revenue.
And your life's recurring revenue was 416.3 million for the third quarter, a year over year increase but for 1% <unk>.
Revenue retention rate for service subscriptions, which makes up 96.9% of our revenue was 94% for the trailing 12 months with more than 77% of subscription revenue noncancelable for at least 12 months.
Billings for the third quarter, where $60.5 million compared to 49.7 million for their prior your third quarter, an increase of 21.7%.
Gross margin was 62.7% of revenue for the third quarter compared to 61.5% for the prior year third quarter.
On a non-GAAP basis, which excludes stock based compensation expense and the other items detailed in our earnings press release gross margin was 63.1% of revenue for the third quarter compared to 62% for the prior year third quarter <unk>.
Continued investment in the global engineering team in advance of revenue recognition as required by many of our new offerings may negatively pressure at the gross margin going forward.
Operating expenses.
While inflationary pressures and high costs are still persistent for skilled labor across all theaters, we continue to attract and retain key talent.
Moreover are marching performance underscores the advantage of our global footprint with centers of excellence and geographies for both the talent and value remain attractive compared to higher priced talent markets.
Sales and marketing expenses as a percentage of revenue for 33.1% of revenue for the third quarter compared to 35.3% for the prior year third quarter.
On a non-GAAP basis, which excludes stock based compensation expense and the other items detailed in our earnings press release sales and marketing expenses as a percentage of revenue was 32.4% for the third quarter compared to 34.5% for the prior year third quarter.
General and administrative expenses as a percentage of revenue excluding outside of litigation costs were 17.1% of revenue for the third quarter compared to 18.1% of revenue for the prior year third quarter.
On a non-GAAP basis, which excludes stock based compensation expense and the other items detailed in our earnings press release, G&A was 15.4% of revenue for the third quarter compared to 17% for the prior year third quarter.
We are seeing a good year over year improvement and G&A spend due to the restructuring previously noted and past earnings calls and the required initial substantial investments that were required to develop and launch are expanding portfolio of solutions are largely behind us.
However.
G&A expenses as a percentage of revenue continued to be elevated compared to our peers due in large part to the ongoing cost for in house legal and compliance teams and other costs made necessary by our ongoing or co litigation and compliance activities.
Net outside of litigation expense was $2.1 million for the third quarter compared to 6.2 million for the prior year's third quarter.
The reduction in year over year spend is due to decreased activity during the third quarter of 2023 compared to the prior year third quarter.
Litigation expenses will vary quarter to quarter and year to year, depending on current litigation activity.
Or a non-GAAP operating margin, which excludes outside litigation spend stock based compensation improved to 15.4% of revenue for the third quarter versus 10.5% for the prior year third quarter.
For the third quarter net income attributable to shareholders was $6.8 million or eight cents per diluted share compared to a net loss of 405000 or 0.0 per diluted share for the prior year third quarter.
On a non-GAAP basis net income for the third quarter was $12.1 million or 13 cents per diluted share compared to a net income of $8.3 million or nine cents per diluted share for the prior year third quarter.
Adjusted EBITDA was $18.2 million for the third quarter or 17% of revenue compared to $10 million or 9.8% of revenue for the prior year third quarter.
Balance sheet.
We ended the third quarter with the cash and equivalents balance of $108 2 million <unk>.
Plus short term investments of $19.9 million, consisting of short term U S treasuries and agency securities, bringing cash and short term investments to $128.1 million compared to $129.7 million on September 30th 2022.
The credit facility principal outstanding totals $74.3 million as of September 30th 2023.
On a cash flow basis third quarter operating cash flow declined $8.1 million compared to a decline of $24 million for the prior year third quarter.
Deferred revenue as of September 30th 2023 was approximately $238 million compared to $248 million from the prior year third quarter.
Backlog, which includes the sum of build deferred revenue and noncancelable future revenue.
Increased to $550 million as of September 30th 2023.
Compared to $532 million for the prior year third quarter.
Business outlook.
The company is continuing to suspend guidance as to future financial results until there is more clarity around impacts from current litigation activity before the U S. Federal courts in the company's ongoing litigation with Oracle.
For additional information and disclosures regarding the company's litigation with Oracle.
Please see our disclosures in the company's quarterly report on Form 10-Q filed on November 1st 2023, with the U S Securities and Exchange Commission.
This concludes our prepared remarks, operator will now take questions.
Thank you and as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to enjoy your question. Please press star one one again please.
<unk> well, we compile the Kunai rosser.
One moment for our first question.
And our first question comes from the line of Derek Wood from Carolyn Your line is open.
Hey, guys, Texas call I'm <unk> I'm looking at net new clients.
This was the best quarter over quarter at the last four quarters was just <unk>.
What drove that.
Sure. This is <unk>. So we saw I think as I mentioned in the prepared remarks, you know that the third quarter is a big quarter for us in the USA P world due to their cycles of renewals for the maintenance side of the business, we saw very substantial increase in.
Business this year over year, roughly over 60 per cent billings increase on S. A P. As you know two years ago, you remember, we sort of fell off a cliff on that sappy in the third quarter, where S. A P. At the clean dark clock in the marketplace, we came back with better messaging better <unk>.
Marketing better positioning on the services, we're offering last year, which was an improvement over the prior year and then we came into this particular year with a very very strong set of messaging and services for those clients. So that would certainly one driver second driver was we actually had a substantial income.
Greece, and the sales force business for us on the <unk>. We also increased our security business and we saw increases across professional services. So combination of all of those Ah drove a lot of new logo business and I think also you saw over the recent quarters that we were increase.
<unk> R. A cross sell to existing clients, but in this quarter. We were also able to rebalance a little bit and we were able to get the sales team equally focused on bringing a new logo business and that's just part of the evolution. When you open up a whole bag of additional products the team goes out and start.
Selling those to the existing clients and it's natural that you're gonna have a little bit of fall off a new logo acquisition. We saw this quarter, we were able to bring that balance back and you saw the new logo growth and demand very strong.
Super helpful. Just one more from me.
<unk> changes that you guys have made it seem to be paying off a bed what looks like U S. 4% every year an accelerated for last corps, you know how far out of that.
Okay.
Organization <unk> do you have any more changes and I just you know.
Working through the end of the changes and seeing some dumb dumbs payout.
I I think you're seeing North America, you see again, we'd say North America are really talking about U S. When you were really talking about the U S. We are seeing improvement in the U S were not where we wanted to be we're not at the consistent execution level that we need to three regions are are still.
Not executing on it consistently very strong reliable basis, that's the U S market, the Amiga market and the ANZ market and we've taken steps in all three where we have really good quarters, we have some weaker quarters, it's the consistency of <unk>.
Houston that we're focused on right now we're bringing in some excellent clients new logos, we're getting a lot of great renewals done we're selling the full portfolio. So we're making progress literally on a global basis and all those areas, but these three particular regions just have yet to be able to <unk>.
<unk> consistently our plan numbers and so that's why you see a little bit of the up and down but in general we are moving in the right direction. We're just not moving there as fast as we would like and as consistently as we'd like in those executions.
Helpful. Thanks, guys.
Sure one moment for our next question.
Our next question comes from the liner chess van right from Craig Halem.
It is open.
Great. Thanks for taking my question is can I, just get a coupla here one as it relates to the guidance what would be the triggers to start giving guidance again I mean, the legal process is going on as you said for a decade suspect that goes on it quite a bit longer what specific issues need to be resolved with respect to the legal.
Scientists start giving guidance again.
Sure just a good question there you know the we certainly we've been to litigation for 13 years, and we've continued to provide guidance regularly.
Difference right now is we are in the middle of several key things one if we focus on that <unk>. The remaining two we have a finding by the court. We are in the appeals process not only of the decisions by the court, but also of the as you were.
L. No Ah stay on the injunction that was put in place for the remaining two the injunction has a lot of troubling challenges in it as we've said to the court that if we add the implemented as the court put in there.
There could be irreparable damage to the company and a third parties. There are things in there that would cause us a significant potential expense as the business they could add business impacts as well as financial impact and so the fact that that stayed right now, but we're still arguing in the courts over the <unk>.
And then eventually appeal of that.
Particular injunction is very much in play at the moment on the other side. The contempt matter, we have legal fees that will be coming in that the court has ordered us to pay we haven't agreed on any amount the court as an ordered an amount and also in the remaining two there could be legal fees.
There could be an application, there's none order today, but there could be legal fees on that site. So we have financial amounts that we don't feel we can possibly even figure out and ascertain what they might be and on the other side, we have potential impacts to business that are dependent on these court <unk>.
Commend everybody read the 10-Q, the litigation disclosure is more detail than what I went through in my prepared remarks, it's got more components to it but these legal fee <unk> discussions for example, and decisions will take place over the coming months and they have that schedule.
Date of briefing schedule, all the way through February and so when you look at that I think Jeff you really can get a sense that we probably won't have an understanding of where the courts are going to come out in their in their decisions than the decisions, we will take and the actions we have to take from those.
Probably until as late as the second quarter of next year, just given the briefing schedules and what's likely to take place with the court and that doesn't even include the answers to any appeals, which could be a year after that but I do think you know.
When you look at it we normally would provide 2024 guidance when we give the K, which is you know is 60 to 75 days into 2024, and I would say, we're going to evaluate where we are what decisions have been made by the court. What we know what we still don't know and how.
We believe that affects the business and then make a decision as to whether we feel that we're in a position to resume guidance in our normal fashion for 2024, when we come out with the K results in the fourth quarter.
Financials.
Okay got it yeah, a lot of moving parts of their understood and helpful. So and then I'll need as it relates to <unk>.
<unk> in the quarter obviously.
You are starting to get a little more time under your belt from from the most recent court ruling what impact did it have on billings in the corner I think he said <unk> was was actually a good improvement, but specifically what are you seeing in billings as an impact of the of the court ruling and and and somewhat similar question just how.
Whereas the pipeline now versus a year ago.
Well, let's let's start first with pipeline pipeline continues to grow as you know we as a company strive for a four X pipeline, even though most market companies would strive for it three X pipeline. According to what they want it closed for their plan, we always have a <unk>.
<unk> bit higher because we have more complexity in our deals around licenses and and all sorts of terms and and and challenges that are a little unique to our business, which means your falloff rate is higher we generally close around 30% of our pipe that's been pretty consistent and that sort of 25, 30% range.
And so pipelines growing means that we have a bigger opportunity to close more business. So that part has continued to move forward as far as in acts of all the again the latest litigation, let's let's talk about the the results of the remaining two trial, let's talk about the results of the contempt.
Hearings and then findings and then the recent appeal, where we had some of that pullback by the court.
I think the answer is we don't really know I mentioned, how essay P was up over 60% in buildings for the quarter year over year Oracle products and services were down about 9% now it's easy to try and read some things and you could say for example, we were so busy selling F.
Now we didn't sell as much Oracle. That's a conclusion you could reach we were very busy with S. A P and it's the same seller group. So if you're selling so much of one you may not and focused on the other we may have seen impacts from the litigation there could have been customers, who decided not to join us because there can.
CERN about what they saw or not understanding it just as everyone's trying to wait and see how all these.
Court hearings and decisions come down and get clarified, but it's unclear to us have any sense is what that combo mix is that would've driven that 9% less oracle number, but I think those are all kind of reasonable conclusions that could have happened.
Mm okay.
Okay fair enough I'll leave it there thank you.
Thank you.
Thank you one moment for our next question.
Our next question comes from the line up Brian can Slinger from Alliance AGP. Your line is open.
Thanks for taking my questions.
Good to see the earnings power I think of the company.
And I'm thinking about where the stock as in creating shareholder value that.
Sure. If you plan for sales investment that you've discussed last quarter, which were right when the rulings happened with Oracle, but sales execution why stronger.
Outside of a recall that you've discussed and you're clearly unsure of what's going to happen with the Oracle rolling and how to react. So are there any thoughts about going to market with what you have today flexing the earning power of the company kind of like you did this quarter, but it and we all thought and holding off on investing in more sales.
And marketing.
Barbara and I think the answer is.
As I mentioned, we feel very bullish on the market opportunity. We think that as you know we're not a contrarian business. We are a business that grew all through the biggest economic expansion in history.
But when it comes to rougher economic times as we saw you've been during the pandemic <unk>.
<unk> Street has a set of portfolio services that are very much needed.
During times of tight economics tight monetary policy type liquidity, we do have services and capabilities that help companies increase profits and.
And I think that for us to not take advantage of that would not be appropriate from the management perspective. We said we were gonna move up to 90 sellers that we felt confident that we were.
Executing or go to market strategy, well enough now that we could begin to accelerate the sales hires again and we are we have not changed that position. We said we were going to aim for 90 sellers by the end of the year. We are still aiming for 90 sellers, we have set aside the cash that's part.
Of our plan, it's all set and it's part of re acceleration of the business on the revenue side and we're committed to driving increased profitability.
It gives you L. No. We we continually talk about rule of 40 is a golf for us.
We want to get to that Mark and in order to do that we've got a higher more sellers to take more business off the table.
Okay.
Second question is it's great to see.
After two years I think strong.
Effort to make changes.
The strong Asap rebound and bookings at least from what it sounds like on the growth <unk> are you still seeing.
<unk> get delayed and and customer is saying well wait one year, maybe kick the can down.
Down the road are you seeing a lot more decisions.
Maybe go go through what customers are saying right now in today's current environment.
I I think that we're seeing people make decisions I think that the waiting period that we saw during the pandemic where people were sort of reassessing budgets reassessing I think now.
People understand interest rates are likely to stay up stay up longer I think that's starting to work its way through everybody's budget and understanding that means for a lot of companies as you well know they have upcoming loans. They have credit lines coming do they have renegotiations those are going to be.
Very problematic for a lot of companies, where the cost of capital will be significantly higher you see us moving very very heavily into additional retail for example, where margins are very very tight we've seen several go into bankruptcy. So those are anywhere where you've got a tight margin profile contract.
[noise] facture, 7%.
These are areas that obviously, we can help in in reducing cost very quickly and also enabling them to make the other investments that they need and technology to move those businesses forward. So I think yes, the essay business rebound with strong <unk> I also think that there was a good mix in the deals when you look.
<unk> closed in the quarter you remember we used to always talk about the really healthy deals for us so that sweet spot sort of the 250000 $500000 a year type deal as a bread and butter deal you want to build your business on that and then your icing on the cake as your your million dollars <unk>.
<unk> deals and then you know you take a look and you've got you we called the pots and pans, which is anything under 100 K. They fill in the gaps and so a good healthy pipeline and a good healthy said it closes includes a wide range of those deals centered around that 250 to 500 this quarter and you'll be seeing this increasing in the last few.
Quarters, we were missing, though you may remember, we talked about that several times on calls where we were sort of missing a lot of that mid 250 to 500, we add some big deals we had some smaller deals, but we didn't really was missing a lot and that mid section. We are now seeing that midsection fill out nicely and I think.
You're seeing that drive the business and we saw growth on the top and we did over I think we did 19 deals with.
With T. Stevie over a million dollars. So again very strong in that part of the execution as well and I think it's reflecting market that is realizing that the services and direction and strategies that remains streets, bringing to the table I do have significant merit over some of the.
Under programs and other choices that they have in terms of roadmap and direction and I think that's the kind of adoption, we were hoping to get our biggest challenge in the market today as we still do not have enough contact points with Cfo's and C. I OS around the world to know who we are the full search.
Service set a portfolio that we offer the business problems, we solved and have the best solutions for them to take a look at so for US it's still a matter of getting marketing in front of them. So they can know who we are and they can pick up the phone and call us when we have these types of business issues, we can resolve that.
The real focus for us is that recognition and getting in front of the right people.
Okay. My last question, if you can touch on the sales and marketing expenses and Michael in the.
Third quarter, we saw a significant drop I think from the second quarter sequentially I'm wondering if there's something seasonal were there any cuts and how should we think about sales and marketing spend in dollar terms.
Knowing that you still plan to get to 90 sellers.
So Brian Thanks for the question.
Wouldn't call it seasonal I would say timing of internal and external events at a healthy.
Greater paste in Q2 versus what we saw in Q3.
Again going forward, we're not providing guidance is seth outline for the the factors discussed however, putting together his cell Seth noted that were still on a ramp to execute on the opportunities ahead of us in getting to the sales for folks as we outlined it.
Stands to reason that you can see this creep up.
Okay. Thank you guys.
Thank you.
Brian just add to that though I think that you're not gonna you're not seeing or should expect that we're going to be out of our ranges that we have put forth and as you know our longterm model, which we say it's scale. It a billion dollars of annual revenue, we talk about a 33% sales and marketing.
Target.
In that model to drive the kind of bottom line, we want so.
Clearly, we might have some ups and downs along that lines, we've been sort of in that 33% to 35 per cent range. So while we're not providing guidance on that I. Just think that if you look at where we are with the model and you look at where we Wanna be at a billion I think you can see that there's sort of a range bound in there that we would expect you to operate under baby a little up a little.
Down while we.
Grow into a sales force so that could happen as well.
Okay. Thank you.
Thank you and with that that <unk> and our Q&A session I want <unk> conference back to set the Raven foreclosure marks.
Thank you so much and I want to thank everyone again for joining us in the third quarter twenty-three earnings call I want to thank all our remaining street colleagues again for the efforts in the third quarter, which were substantial we look forward to providing additional information regarding the Oracle litigation and impacts as soon as possible.
And we look forward to having you join our next earnings call, where will discuss the fourth quarter of 2023 results and potential select first quarter of 2024 performance to date commentary.
Until then we wish you all continued good health and again, our thoughts as always and continued charitable support for those who need are suffering in harm's ways and that many conflicts were seeing around the world. So we are they're always in our thoughts and <unk>.
Want to make sure that we keep them there. Thank you very much everybody have a good day.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Mmm.
[music].
Okay.