Good afternoon, ladies and gentlemen, and welcome to the Rimini Street Q2 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question-and-answer session. Operator provided instructions. This call is being recorded on Wednesday, July 31st, 2024. I would now like to turn the conference over to Dean Pohl, VP, Treasurer and Investor Relations. Please go ahead.

Thank you, operator. I’d like to welcome everyone to Rimini Street’s second quarter 2024 earnings conference call. On the call with me today is Seth Ravin, our CEO and President; and Michael Perica, our CFO. Today, we issued our earnings press release for the second quarter ended June 30th, 2024, a copy of which can be found on our website under Investor Relations. A reconciliation of GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in the press release. An explanation of these measures and why we believe they are meaningful is also included in the press release under the heading, About Non-GAAP Financial Measures and Certain Key Metrics. As a reminder, today’s discussion will include forward-looking statements that reflect our current outlook. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We encourage you to review our most recent SEC filings, including our Form 10-Q filed today, for a discussion of risks that may affect our future results or stock price. Now, before taking questions, we’ll begin with prepared remarks. With that, I’d like to turn the call over to Seth.

Thank you, Dean, and thank you everyone for joining us today. Rimini Street helps our clients achieve better business outcomes, such as significant IT operating cost savings, improved profitability, new competitive advantages, and accelerated growth. We've achieved these goals by significantly lowering the cost, resources, and time needed to support and manage mission-critical transaction systems such as ERP, financials, HCM, and CRM, while also assisting clients with innovation projects that include cloud, open source, automation, workflow, data, analytics, AI, reporting, application modernization, migrations, integrations, security, license management, and global IT governance. To date, we believe we have already delivered over $8 billion of savings and reinvestment opportunity to thousands of clients in nearly 150 countries. Rimini Street serves clients with more than 2,100 employees, operating in 21 countries, and has two large lab operations in India and Brazil. Our award-winning software support delivers an average engineer response time of less than two minutes, 24x7x365, and earned an average client satisfaction score of 4.9 out of 5, where 5 is excellent. Demand environment and competitive advantage. We continue to see strong demand for a proven, reliable, trusted partner for mission-critical transaction system services that can significantly reduce IT spending and allow organizations to consolidate their preferred IT service providers for streamlined vendor management, increased aggregated purchasing power, and better business outcomes. Competitively, we have the broad portfolio of solutions, top engineering talent, proven systems, methodologies, service models, and patented technology needed to win as a key IT service partner globally. We have won deals competing against major technology players such as Oracle, SAP, IBM, and DXC. 2024 Q2 activity and results. The second quarter was a mixed quarter of successes and shortfalls in sales. While we achieved strong contract volumes, including $8 million or greater transactions in the quarter, we had many smaller transactions that ultimately reduced our ASP for the quarter. The sales challenges are geographically centered around North America, Northern Europe, Japan, and Australia. In the second quarter, we responded to the unique and timely opportunity to deliver a comprehensive service offering for VMware. We launched the general availability of Rimini Support, Rimini Protect, and Rimini Consult for VMware products. We were able to leverage our existing proven enterprise software support model and have already signed VMware service contracts and have begun providing mission-critical service to clients. We made several changes to executive management and revenue generation, including the hiring of Steve Herskowitz as Chief Revenue Officer; Martyn Hoogakker as GM for EMEA; and Andrew (last name undisclosed) as Regional GM for ANZ. We are continuing to hire globally as needed across marketing, lead generation, presales, sales, and client success teams to get the right team fielded to meet our sales growth targets. Billings for the second quarter increased 6.9% year-over-year. The positive billings result was achieved primarily with deals that closed across our portfolio of solutions, various industries and geographies. However, the year-over-year decrease in quarterly revenue, annual recurring revenue, and revenue retention rate are primarily due to flow-through from the non-renewal of certain large client contracts that were previously noted in a prior quarterly report and related to specific client services delivered and projects completed. In order to drive increased profitability, streamline operations, and ensure we have the right skill sets required to sell and service our larger product portfolio globally, we began the reorganization and cost reduction program in the second quarter, targeting $35 million in aggregate savings. We continue to aggressively hire for needed skill sets and capabilities that enable our business and growth plan. Additionally, after careful consideration, we've decided to wind down our offering of services for Oracle PeopleSoft products. This includes our Rimini Support, Rimini Manage, and Rimini Consult services. As we provide services for Oracle PeopleSoft products to clients globally, the wind-down process is expected to take place over several phases and will likely take about a year before we're able to cease providing all PeopleSoft services. Oracle litigation update. Rimini Street and Oracle have been in litigation for more than 14 years, including cases known as Rimini One and Rimini Two. With respect to Rimini One, which was followed by Oracle against Rimini Street in 2010, litigation has run its course, and there are no current litigation activities related to Rimini One. However, a Rimini One permanent injunction remains in effect. With respect to Rimini Two, which was filed by Rimini Street against Oracle in 2014, there are currently three post-trial litigation matters still before a court. One: the appeal of the Rimini Two findings, otherwise known as the Merits Appeal and the Rimini Two injunction before the Court of Appeals. Two: a motion to further stay the Rimini Two injunction pending a decision on Rimini's appeal of the injunction, which is also before the Court of Appeals. And three: litigation before the District Court over Oracle's request for recovery of certain of their attorneys' fees and costs related to the Rimini Two case that is on appeal. With respect to the Rimini Two merits appeal and appeal of the Rimini Two injunction, briefings were submitted prior to oral arguments and oral arguments were made before the Court of Appeals on June 5th, 2024. The court's decision is pending. Traditional information and disclosures regarding the company's litigation with Oracle can be found in our disclosures in the company's quarterly report on Form 10-Q filed today, July 31st, 2024, 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 in our press releases, filings with the SEC, and court filings, nor provide guidance with respect to future financial results, nor are we able to provide additional commentary related to the pending Oracle litigation and potential impacts of the Rimini injunction because the matters are still before various courts and the outcomes cannot be predicted. In summary, while the quarter delivered mixed results, we remain confident that we are continuing to take the right actions and making the right investments to accelerate a return to growth and profitability, enhance shareholder value, and bring our litigation with Oracle to a successful conclusion. However, if Rimini Street does not adequately reorganize its operations to reduce costs or does not ultimately prevail in the post-trial litigation matters summarized above and detailed in our SEC filings, it could have a material adverse impact on our business and financial results. Now, over to you, Michael.

Thank you, Seth, and thank you for joining us everyone. Q2 2024 results. Revenue for the second quarter 2024 was $103.1 million, a year-over-year decrease of 3.1%. Clients within the United States represented 50%, while international clients represented 50% of total revenue for the second quarter of 2024. We note that for the second quarter of 2024, our total revenue measured on a constant currency basis was negatively impacted by 1.3% due to FX movements. Annualized recurring revenue was $399.4 million for the second quarter, a year-over-year decrease of 2.6%. Revenue retention rate for service subscriptions, which makes up 96.8% of our revenue, was 88% with approximately 74% of subscription revenue non-cancelable for at least 12 months. Billings for the second quarter were $111.6 million compared to $104.4 million for the prior year second quarter, an increase of 6.9%. Unfavorable FX movements reduced second quarter 2024 calculated billings by $2.9 million. Gross margin was 59.1% of revenue for the second quarter compared to 63.0% of revenue for the prior year second quarter. On a non-GAAP basis, which excludes stock-based compensation expense, gross margin was 59.5% of revenue for the second quarter compared to 63.5% of revenue for the prior year second quarter. Gross margin declined during the second half of 2023 and the first half of 2024, in part as a result of continued investments in, and expansion of, our global engineering team needed to serve new client engagements in advance of related ratable contract revenue recognition. As noted in previous earnings calls, we are expecting continued gross margin pressure as we scale to meet new client engagements. Simultaneously, we are working to improve gross margin by driving efficiencies and leveraging the benefits of growing global scale. Operating expenses. As Seth noted, we implemented a reorganization plan to reduce net operating cost by $35 million on an annualized basis, of which approximately $15 million occurred during the second quarter with another $20 million targeted for the third quarter. For the second quarter, we incurred a reorganization charge of $3.2 million. While inflationary pressures and high costs are still persisting for skilled labor across all theaters, we continue to attract and retain key talent. Moreover, our margin performance, in light of the pressures highlighted previously, underscores the advantage of our global footprint with centers of excellence in geographies where both the talent and value remain attractive compared to higher-priced talent markets. Sales and marketing expenses as a percentage of revenue was 36.2% of revenue for the second quarter compared to 35% of revenue for the prior year second quarter. On a non-GAAP basis, which excludes stock-based compensation expense, sales and marketing expenses as a percentage of revenue was 35.7% for the second quarter compared to 34.3% of revenue for the prior year second quarter. General and administrative expenses as a percentage of revenue, excluding outside litigation costs, was 18.9% of revenue for the second quarter compared to 17.7% of revenue for the prior year second quarter. On a non-GAAP basis, which excludes stock-based compensation expense and litigation costs, G&A was 17.6% of revenue for the second quarter compared to 15.2% of revenue for the prior year second quarter. We are addressing the year-over-year increase as part of the restructuring program mentioned earlier. However, G&A expenses as a percentage of revenue are expected to remain 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 Oracle litigation and compliance activities. Net outside litigation expense was $1.6 million for the second quarter compared to $0.6 million for the prior year second quarter. Our non-GAAP operating margin, which excludes outside litigation spend and stock-based compensation expense, was 6.2% of revenue for the second quarter compared to 14.0% for the prior year second quarter. The net loss attributable to shareholders for the second quarter was $1.1 million or negative $0.01 per diluted share compared to the prior year second quarter net income of $0.05 per diluted share. On a non-GAAP basis, net income for the second quarter was $6.1 million or $0.07 per diluted share compared to the prior year second quarter of $0.10 per diluted share. Adjusted EBITDA, defined in our press release, was $8.8 million for the second quarter or 8.5% of revenue compared to the prior year second quarter of 14.8% of revenue. Balance sheet. We ended the second quarter June 30th, 2024, with a cash balance and short-term investments of $134.2 million compared to $140.7 million of cash and short-term investments for the prior year second quarter. On a cash flow basis, for the second quarter, operating cash flow increased $6.3 million compared to the prior year's second quarter increase of $13.1 million. FX headwinds reduced operating cash flow by $3.1 million. Deferred revenue as of June 30th, 2024, was $262.8 million compared to deferred revenue of $285.3 million from the prior year second quarter. Backlog, which includes the sum of billed deferred revenue and non-cancelable future revenue, was $556.7 million as of June 30th, 2024 compared to $565.1 million for the prior year second quarter. As Seth noted, we have decided to wind down our offering of services for Oracle PeopleSoft products. Revenue related to providing services for PeopleSoft products accounted for approximately $36.1 million or 8% of fiscal year 2023 revenue and $16.6 million or 8% of first half 2024 revenue, respectively. 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 July 31st, 2024, with the U.S. Securities and Exchange Commission. This concludes our prepared remarks. Operator, we'll now take questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Operator provided instructions. Your first question comes from Brian Kinstlinger with Alliance Global Partners. Please go ahead.

Great. Thanks so much for taking my questions. My first question is if you could talk about what was behind the decision to exit the PeopleSoft support business?

Sure, Brian. As we noted in the statement, we looked at several factors: financial factors and legal factors. As you know, this product line over time has reduced in size dramatically for us. It used to be the majority of our business, and today it's at about 8%. When you look at that 8% and you look at the revenue and the margins associated with it, and you look at legal costs associated around the product line, at the end of the day we took a look at those factors and decided that we would be better winding down the business and focusing our efforts and capital elsewhere.

So, while I know you can't comment on legal, you did mention the legal related to it. And I think it's clear that PeopleSoft piece is the one place Oracle has been successful. So, are there any thoughts to changes in legal expense going forward related to this?

Well, I think you could probably take a look and say that if you look over the last Rimini Two case, look at Rimini One, you look over the last 14 years of litigation, the majority focus, including injunctions and compliance challenges, have been related to PeopleSoft. Just for clarity, the battle over PeopleSoft has primarily been related to the original PeopleSoft license agreements that were written before Oracle acquired PeopleSoft back in 2005. We have been challenging back and forth with Oracle and the courts over language in those agreements, which Oracle and the courts interpreted to require that the product be run and used on the client's own computer systems. That was a difference between that and many other Oracle license agreements. That has been a continuing battle for 14 years. Again, when you get down to 8% of revenue, those equations start to change about what it means and the value of continuing the product line versus focusing our efforts elsewhere. In terms of expectations of reduced legal and compliance costs, I think those are potentially fair assumptions that could come with that.

Great. The retention rate has dropped in each of the last few quarters; we hit, I think, a low since I've looked back many years of 88%. What are the factors that you would attribute this to?

Well, I think you had a couple of things. One, we talked in previous conference calls about some reduction and rotation in some of the product lines that we are supporting today. You're starting to see more revenue that is outside of subscription in our consulting business as that continues to grow. I also think we have this flow-through from Q4 and Q1 where we had some large contracts come to an end. Some of those came to an end not because a customer unexpectedly left, but because they were short-term, very large contracts that we completed successfully. The net result was that they rolled off and you saw the recurring revenue streams decline, and we're watching that flow through from Q4 to Q1 and naturally into Q2; those take several quarters to flow through. So, I believe that's a primary component you're seeing there.

Great. Last question I have: you began your script, Seth, with 'you continue to see strong demand' and I assume you're talking about third-party support services. Can you reconcile that with the bookings over the last few years that have led to decelerated growth? In the first quarter we've seen year-over-year declines for Rimini.

Sure. As I noted, the billings number increased for Q2 year-over-year. The numbers that flowed through on the revenue related to those larger contracts that we saw, which shouldn't be confused with the overall health of the business. We have had several years of transformation from being a third-party support provider of replacement services just for Oracle and SAP to expanding that service dramatically in terms of the products covered, including VMware in the last quarter. On top of that, we added an AMS service, an entirely new business line, expansions to the security product line, our Connect product line of interoperability tools, new observability capabilities, and we've built out an entire consulting business over the last few years. We're serving customers on a global basis in over 150 countries. We probably underestimated the time and effort it would take to bring all of that to market globally: the personnel, the training, and the change in how we sell—from selling a replacement of maintenance at a discount to selling large projects that go beyond that maintenance. That required different skill sets among sellers. It has been a transformational project over the last few years, and the numbers still aren't fully reflecting the green shoots we see. But we are closing excellent contracts qualitatively around the world. We have too many small deals, as I mentioned in the prepared remarks; we need to see ASPs climb back up. We also need customers to buy in larger contract volumes with more products in those mixes. We're already starting to see that more and more around the world and would expect that to show up in future financials.

Thank you. Your next question comes from Derrick Wood with TD Cowen. Please go ahead.

Great. Thanks, guys. This is Cole on for Derek. I'll just start with PeopleSoft again. So, if 8% of revenue is going to kind of bleed out of the model, is part of this headcount restructuring that you're doing due to cutting costs along the PeopleSoft business either in support or sales teams and G&A? I mean, more info there would be helpful.

Sure. We would expect that this 8% would transition over time. As we mentioned, we do have quite a few clients around the world that are under contract, so it's going to take a while to work through all of that from an organizational perspective. But the cost reductions that we're doing are very much in line with what you're seeing around the world. You're watching another wave of cuts across many companies. Most of it is to streamline operations and take cost out of the equation, which makes sense when you're focused on profit. We've been clear that while we're waiting for the top line to turn and begin a growth cycle, we are focused on delivering bottom-line results for shareholders. We believe in the rule of 40; we have a ways to go to get there, but we see that as a guiding light. If we're light on top-line growth, then we expect to push results to the bottom line and cost reductions are a clear way to do that.

Got it. And then you had mentioned that you're going to focus capital elsewhere. What other areas of the business do you think can show dividends if you shift resources from PeopleSoft into other spots at Rimini?

We have other product lines that are generating higher gross margins even on the support side, whether they're other Oracle product lines, SAP product lines, VMware, and others that show a higher gross margin return than PeopleSoft. PeopleSoft has a very heavy fixed cost component due to legal, tax, and regulatory costs. When you compare spending in marketing and selling PeopleSoft versus selling other products with higher gross margins, reallocating that spend would lift the blended gross margin rate and drive additional profits to the bottom line.

Yes, sure. And then one more: some of the flow-through on larger contracts that came to an end are weighing down revenue growth and retention as well. This is the third quarter in a row you've called that out. Do you have any visibility into when these will dry up? Or is this something that can go on for a while? More clarity on what we can expect through the rest of the year would be helpful.

Sure, Cole. The deals we've been pointing out from Q4 and Q1 are flow-through, and we're not seeing new similar large deals roll off in Q2. You noticed we didn't say there were big deals lost in renewals in Q2 because those were Q4 and Q1 deals causing the biggest impact. We're not seeing this as a systemic issue; these were specific contracts with specific end dates or projects that were completed. Very little of them were surprises; they were understood to be rolling off. As you know, we haven't provided guidance since the court ruling in Rimini Two last July, and that left us in a position where we weren't going to provide guidance on some things. So, while these items may seem surprising externally, they were largely understood internally and are things that flow through over several quarters.

Great. I'll cede the floor. Thanks.

Thank you. Your next question comes from Brian Kinstlinger with Alliance Global Partners. Please go ahead.

Great. Thanks. A follow-up. In the December quarter, you peaked at $112 million of quarterly revenue. We're down about $9 million on a quarterly basis from that peak. So, that implies about $36 million of annual revenue. Maybe you could quantify how much the contracts that had ended represented on an annual run rate? I think that will help us understand the health of the underlying business if we excluded that?

Yes. Brian, if you look at the number you're speaking to, my guess is somewhere in the $20 million to $25 million of those big contracts combined in Q4 and Q1. So, a substantial amount of that on an annualized basis would have been related to those larger contracts that rolled off.

Got it. And was it a couple of contracts, like two or three? Or are we talking like 10 or 11? I'm just trying to understand—is it a small handful or many?

No, no. We're talking a handful at most. Yes, we're talking four or five.

Okay. And you highlighted a $35 million number you're targeting in cost cuts—first, is that right? And second, will that be offset by hiring, as you said you have some key positions you're still looking to fill?

I think like most companies doing cuts, you see a mix of direct savings and skill rotations. My guess is roughly 7% to 8% of that will be direct to the bottom line, and some portion will be reinvested to shift skill sets. There's a lot of reskilling and hiring in areas like AI and enterprise architecture. We found enterprise architects to be extremely helpful in our sales motion; they help customers with road maps and programs. We're deploying Regional CTOs around the world—those are expensive heads—so we have to pay for them somehow. You're watching us reduce sales and marketing costs and change the mix of people in the field to give us better capability for larger, more complex contracts.

Okay. The last question I have is the $3.2 million in restructuring charges—how much does that represent in cuts that you've already made on an annualized expense basis?

Michael, do you want to take that one?

Sure. Brian, how are you this afternoon? The answer is we have not experienced the full effect of those cuts on the Q2 P&L. The actions that were taken during the quarter resulted in a $3.2 million reorganization charge, which corresponds to approximately $15 million of annualized run-rate cost reductions. The remaining $20 million of the $35 million target is expected to occur in the current quarter with the greater P&L effect starting in Q4 this year, just as a matter of timing.

Got it. Okay. Thank you so much.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the call back over to Seth Ravin for closing remarks.

Great. Thank you very much. Again, I want to thank everyone for joining us on the quarterly call. We look forward to seeing you again as we move to the third quarter call in the next few months. Until then, please be safe with those people in harm's way. We live in a complex world. Rimini is a global company doing business on every continent and we're aware of the challenges that some of our own people face today. Our thoughts are with them, and we wish everybody well. Thank you very much and be healthy. Thanks all.

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