Dean Pohl - Director, Investor Relations Seth Ravin - Chairman and Chief Executive Officer Thomas Sabol - Senior Vice President and Chief Financial Officer.

Derrick Wood - Cowen and Company.

Good day, ladies and gentlemen, and welcome to the Rimini Street Fourth Quarter and Full-Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to hand the floor over to Dean Pohl, Director of Investor Relations. Please go ahead, sir..

Thank you, Karen. I’d like to welcome, everyone, to Rimini Street’s fourth quarter and full-year 2017 earnings conference call. On the call with me today is, Seth Ravin, our CEO; and Tom Sabol, our CFO. Today, we issued our fourth quarter and full-year 2017 earnings press release, which can be found on our website.

A reconciliations of the GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in this press release. An explanation of these measures is also included under the heading non-GAAP financial measures.

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 filings for complete discussion of these factors and other risks that may affect our 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..

Thanks, Dean, and thank you, everyone, for joining us to review Rimini Street’s fourth quarter and full-year 2017 financial results.

We founded Rimini Street in 2005 to disrupt and redefine the $160 billion enterprise software support market by developing and delivering innovative, value-driven and award-winning enterprise software support products and services, primarily through an annualized subscription model.

Today, Rimini Street is the leading independent software support provider for Oracle and SAP software products, based on both the number of active clients supported and recognition by industry analyst firms.

Our current offerings cover an addressable market of more than $30 billion of the $160 billion annual global enterprise software support spend, and we continue to see a growing demand for our products and services around the world. To date, we have saved our clients more than $2 billion.

In the fourth quarter and full-year ended December 31, 2017, we generated net revenue of $57.9 million and $212.6 million, year-over-year increases of 24% and 33%, respectively. The fourth quarter marked another record quarter for revenue and our 48th consecutive quarter of revenue growth.

Fourth quarter and full-year 2017 revenue exceeded the high-end of our guidance range. Gross margin expanded from 58.1% in fiscal 2016 to 61.0% in fiscal 2017. We ended fiscal 2017 with 1,566 active clients, a year-over-year increase of 28%.

Our active client count includes 70 Fortune 500 and 20 Fortune Global 100 companies, and we serve clients across a broad range of industries and geographies.

For the full-year, we closed more than 25,000 client support cases across 61 countries, delivered over 20,000 tax, legal and regulatory updates and achieved an average client satisfaction rating of 4.8 our of 5, where 5 is rated as excellent on the company’s support delivery.

We ended fiscal 2017 with approximately 920 employees, an increase of 8.2% year-over-year. Despite seeing continued growing global demand in the market for our services, in fiscal 2017, we faced some sales in growth headwinds. First, we were limited in our ability to invest for growth by the terms of the existing credit facility.

For example, we were able to spend 45.5% of revenue in fiscal 2016 on sales and marketing, but were governed down to spending 31.4% of revenue in sales and marketing in fiscal 2017.

In October 2017, we were able to negotiate an amendment to the credit facility, which loosened some covenant thresholds, including the sales and marketing spending covenants, allowing us to invest more in growth going forward.

Accordingly, entering 2018, we have taken measures to invest an additional growth capacity and initiatives with a plan to increase sales and marketing spend from just over 31% of revenue in fiscal 2017 to between 36% and 39% in fiscal 2018.

We believe the additional sales and marketing spend will allow us the opportunity to better serve the growing demand for our products and services.

Second, we’ve faced some behavior by a competitor that we believe was illegal and materially impacted our new client sales in the second, third and fourth quarters of fiscal 2017, with declining impact as the year progressed. We are aggressively addressing the behavior in court and seeking appropriate damages.

I would now like to review some developments in our litigation with Oracle. We have two different litigation. Oracle litigation against Rimini Street filed in 2010, that is in the appeal stage and referred to as Rimini 1. And Rimini Street’s litigation against Oracle filed in 2014, that’s in the pretrial stage and referred to as Rimini 2.

With respect to Rimini 1, on January 8, 2018, the U.S. Appeals Court ruled favorably for us in our appeal with judgments and awards.

The Court of Appeals reversed certain awards made in Oracle’s favor during and after the 2015 trial and vacated others, including all claims and judgments against me personally and an injunction that had already been stated by the appellate court. We will seek reimbursement of up to $50.3 million of the judgment previously paid to Oracle.

Rimini Street currently believes, Oracle may refund approximately $21.0 million in the second quarter of 2018, and we currently expect the resolution of the remaining amount sometime in 2018. Amounts refunded back to us from Oracle will be used to pay down outstanding debt under our credit facility.

After all appeals have been exhausted and after netting out all remand and appeal costs, a portion of the proceeds received will need to be refunded to the insurance company that paid a portion of the litigation costs.

With respect to Rimini 2, the court has allowed us to proceed with our amended complaint against Oracle asking for declaratory judgment of non-infringement of copyright and to proceed with our claims against Oracle of intentional interference with contractual relationships and violation of California, Nevada unfair business practice statute.

The case is not currently expected to go to trial until, at least, 2020. Now I’d like to review some significant business highlights and accomplishments for the fourth quarter and full-year 2017. We went public and began trading on the NASDAQ on October 11, 2017. After our merger was completed with GP Investments Acquisition Corp.

and we closed $50 million in equity funding. During the year, we expanded our technology platform coverage, offering support for six new database products and launched Rimini Street Advanced Database Security, a next-generation security solution.

We received many wards for excellence, including IT Company of the Year by Golden Bridge Awards for 2017, and Company of the Year and Most Innovative Service of the Year by One Planet Best in Business and Professional Excellence Awards.

In summary, despite having to navigate through some sales headwinds in fiscal 2017, we achieved solid sales and operational results and continue to execute to our strategic plan.

Moving into 2018, we plan to fuel growth and improve operating leverage by scaling the organization at all levels, adding additional senior executive talent, increasing sales and marketing investments, launching new products and service offerings and expanding service delivery capability. I will now turn the call over to Tom Sabol, our CFO..

Thanks, Seth. As Seth noted earlier, revenue for the fourth quarter and full-year 2017 exceeded the high-end of our guidance range, driven by continued growing global demand for our products and services, and our operational execution in the sales and service delivery.

For fourth quarter results, net revenue was $57.9 million, an increase of 24% year-over-year and annualized subscription revenue was $231.6 million, up 24% year-over-year. Although our revenue is a 100% subscription-based today, we may deliver some limited consulting services around our products and services in the future.

Revenue from clients outside the United States constituted 33% of total revenue in the quarter and grew by 36% year-over-year, faster than our overall revenue growth. This has been and will continue to be an area of continued investment for the company. Gross profit percentage was 57% in the fourth quarter, down from 59.4% in the prior year.

Our service delivery costs typically increase in the fourth quarter and margin decreases as we onboard new business one in the back-half of the year. The fourth quarter 2017 increase was higher than expected, as we invested more time and effort in developing solutions for several major tax and regulatory updates across various geographies.

In 2017, as Seth previously commented, we were limited in our ability to spend on sales and marketing due to debt covenants. Sales and marketing costs in the fourth quarter of 2017 were 32.9% of net revenue, down from 41.4% in the fourth quarter of the prior year.

For full-year 2018, we expect to increase spend on sales and marketing as a percentage of revenue. We expect fiscal year 2018 spend on sales and marketing to range between 36% and 39% of net revenues. General and administrative expenses, which exclude outside litigation costs were 16.2% of revenue in Q4 2017, down from 26% in Q4 of 2016.

While our overall G&A spend as a percentage of revenue decreased from the benefits of scale. Q4 2016 included approximately $2 million of internal debt financing-related costs. Going forward, we expect G&A to continue to be a source of leverage in our model.

However, as a result of our move to public company operations, we will likely incur higher professional service and additional accounting infrastructure costs over the next few quarters, which will increase G&A as a percentage of net revenue.

Litigation expense was $5.4 million in the fourth quarter of 2017, offset by the amortization of $5.2 million of insurance reimbursement credits. It should be noted that our outside litigation spend is not linear and can fluctuate based on court activities.

GAAP operating income was $4.3 million in the quarter, compared to $37.9 million for the same period last year, which includes $5.2 million and $47.4 million of insurance reimbursement recoveries related to litigation for the fourth quarter 2017 and 2016, respectively.

Non-GAAP operating income was $5.6 million in the quarter, compared to a loss of $3.3 million in Q4 of 02016. Interest expense was $9.7 million in the fourth quarter of 2017, a significant portion of which was non-cash.

Other income and expenses in the quarter included debt service costs of $3.7 million and $2.3 million of non-cash warrant revaluation costs, offset by a non-cash gain of $8.2 million related to embedded derivatives associated with the company’s credit facility.

Cash interest expense and other debt-related cash fees were $4 million for the fourth quarter. We had a net loss of $3.9 million in the fourth quarter of 2017, compared to a net income of $24.1 million in the same period of the prior year and a net income attributable to common stockholders of $14.1 million.

Non-GAAP net loss in the fourth quarter was $8.5 million, compared to $15.4 million loss in Q4 of 2016. Net loss was $0.07 per share on both a basic and fully-diluted basis in Q4 2017, compared to earnings per share of $0.58 and $0.31 on a basic and fully-diluted basis, respectively, in Q4 of 2016.

For Q4 of 2017, Rimini Street had weighted average common shares outstanding of $55 million on both a basic and fully-diluted basis. Adjusted EBITDA for the fourth quarter was a positive $6 million, compared to a negative $3.9 million in the prior year period.

As discussed on our third quarter conference call, in 2018, we tend to focus on operating income instead of adjusted EBITDA, because we believe operating income is a better measure of our business due to our negative working capital model in which we collect cash in advance of services to be provided in the future.

For full-year 2017, net revenue was $212.6 million, an increase of 33% year-over-year. Revenue from clients outside of the United States constituted 32% of total revenue during the year and grew by 39% year-over-year faster than our overall revenue growth rate. Gross profit was 61% for fiscal 2017, up from 58.1% in the prior year.

While we expect that leverage on our service delivery operations driven by continued process efficiencies and economy of scale will continue to benefit our gross margins on an annual basis, such growth is expected to be more measured going forward. Sales and marketing costs for fiscal 2017 were 31.4% of net revenue, down from 45.5% in fiscal 2016.

For fiscal 2018, we currently expect to increase spend on sales and marketing as a percent of revenue to between 36% and 39% of net revenues. General and administrative expenses, which excludes outside litigation costs were 17% of revenue in fiscal 2017, down from 22.6% in fiscal 2016.

While our overall G&A spend as a percentage of revenue decreased from the benefits of scale, full-year 2016 included approximately $3.7 million of debt-related financing costs. Litigation expense was $17.2 million in fiscal 2017, offset by the amortization of $12.3 million of insurance reimbursement credits for a net expense of $4.9 million.

This compares to litigation expense of $24.3 million, offset by insurance recoveries of $54.3 million for a net credit of $30 million in fiscal 2016. GAAP operating income was $22 million in fiscal 2017, compared to $13.9 million in the prior year.

Non-GAAP operating income was $29.8 million in fiscal 2017, compared to a loss of $12 million in fiscal 2016. Interest expense was $43.4 million in fiscal 2017, again, a significant portion of which was non-cash.

Other income and expenses in fiscal 2017 included debt service costs of $18.4 million and $16.4 million of non-cash warrant revaluation costs, offset by a non-cash gain of $3.8 million related to embedded derivatives associated with the company’s credit facility.

Cash interest expense and other debt related cash fees were $19.9 million in fiscal 2017. We had a net loss of $53.3 million in fiscal 2017, compared to a net loss of $12.9 million in fiscal 2016, and a net loss attributable to common stockholders of $22.9 million.

Non-GAAP net loss in fiscal 2017 was $32.9 million, compared to a net loss of $35.1 million in fiscal 2016. Net loss per share was $1.65 on both a basic and fully-diluted basis in fiscal 2017, compared to a net loss attributable to common stockholders of $0.95 on a basic and fully-diluted basis in fiscal 2016.

For fiscal 2017, Rimini Street had weighted average common shares outstanding of approximately $32 million on both a basic and fully-diluted basis versus $24 million in fiscal 2016. Adjusted EBITDA for fiscal 2017 was a positive $32.1 million, compared to a negative $12 million in fiscal 2016. Now moving to the balance sheet and cash flow.

Deferred revenue in the fourth quarter of 2017 was $181.6 million, compared to $164.8 million in Q4 of 2016 and $153 million in Q3 of 2017. We ended the quarter with $40 million of total cash on our balance sheet. Cash flow from operations for fiscal year 2017 was $29.2 million, compared to an operating cash outflow of $59.6 million in fiscal 2016.

During fiscal 2017, we reduced our total debt obligations under our credit facility by $29.7 million to $139.5 million as of December 31, 2017. As previously noted by Seth, upon the receipts of the amounts refunded from the Oracle appeal, we will further reduce our total debt obligations under our credit facility. Moving to our guidance.

For the first quarter of fiscal 2018, we expect revenue to be in the range of approximately $59 million to $60 million in the first quarter of 2018. For full-year 2018 guidance, we expect revenue to be in the range of approximately $250 million to $270 million. And with that, operator, we will now take questions..

Thank you. [Operator Instructions] Our first question comes from the line of Derrick Wood with Cowen and Company..

Great. Thanks for taking my questions and nice job, guys.

Looks like you really beat numbers across the board.?.

Thank you, Derrick..

I guess, starting, Seth, from a high-level, I mean, you’ve been public for several months now. There has been some favorable settlements on the court filings.

Just being curious to hear what you’re seeing with respect to any change and conversations with customers or increased market acceptance on the heels of some of these developments?.

Derrick, as of now, I don’t really think that we’ve had any positive or negative influence that I’ve seen based on these particular developments yet. I think, it’s still working its way through the market. So we haven’t seen any developments yet..

Got it. And you did mention that some of the changes you’ve had to make around the archiving process it was disruptive in Q2, Q3, it didn’t appear to be disruptive in Q4, but you said, there’s still some impact maybe to a lesser degree.

How are you feeling about it today in Q1 and as you navigate through 2018?.

Well, I think that per my remarks saying that, we saw impact, obviously, pretty heavy in Q2, lighter in Q3, and lighter in Q4 even. I think what you’re seeing though is that, when you disrupt the pipeline for some of these deals, it’s going to take a while before it comes back around. These are annual renewals, these were deals that were in process.

And I think even when we talked on the third quarter call, we didn’t yet know if there was going to be impact in the fourth quarter or not. We did see some impact of deals that were in the pipeline that were already in pipeline in Q2 and Q3 that still had some disruption into the fourth quarter.

I think, as we come into the first quarter, obviously, we’re only a couple of weeks away from finishing.

So I really can’t comment other than to say that, we’ll continue to see improvement, I think, on the impacts from last year?.

Okay.

On the products side, did you see any notable change in product mix? And then if you could, is there any update around new initiatives with required products?.

Yes, I think two points. One, not commenting specifically on the Q1 that’s coming to a close. But I do think that overall, the product mix remains still very, very much through the fourth quarter.

We saw the Oracle database product lines and technology leading the pack once again in terms of the customers looking to make a fundamental switch in the database products that are very expensive from say an Oracle looking to find new economies of scale in databases with the many offerings.

So I think, we’re watching a very fast commoditization of the database product. And I think that trend will look like, it continues as well based on what we saw in the fourth quarter alone. As far as the SaaS products that we’ve announced in our SEC filings, we launched sales – announced the potential launch of sales force and Workday.

Those product lines are continuing their development. And we do expect that, as we’ve said before, that those are product lines that would potentially launch in the 2018 time period..

Great. Thanks for that color. On that you guys gave some parameters around sales and marketing spend.

I mean, Seth, any color around how much growth you’d like to see in pure sales capacity for the year?.

Well, I think that when you look at the kind of numbers, and I think, it’s pretty startling when you get governed down from a 45% to a 31%. And you’re trying to grow in the 30%-plus arena, which has been our traditional growth trajectory. I think, those are very, very challenging things to put together. Most people are investing in growth.

And because of the covenants, we had to manage to cash flows that the lenders wanted. So the combination of that pull and give certainly took its toll in 2017, where we ended 2017 with less sales reps than we did coming into the end of 2016.

So again, some challenging things to keep up with high growth opportunities at the same time that you’re being governed down in cost.

I think, you’re looking at a pretty substantial – when you think about just the percentage going from 36% to 39% of a much larger number, this is a significant increase in sales and marketing budget that we were able to negotiate into the covenants.

So I do think, you’re going to watch that to materialize in significant additional sales rep hires, additional marketing program spend, and additional growth in international markets, where you’ve seen we’ve had very, very good reception. I think in the new markets that we’re opening around the world..

Okay. And then, Tom, you gave guidance on revenue, but not margins.

Any reason why? And maybe you could give us some directional comments on how you see margins Q1 versus Q4 or trending through the year?.

Yes. So as we mentioned, Derrick, on the third quarter call, we indicated that we would be probably just providing guidance on top line, which is what we did. Though as you could tell by my comments, we still expect for there to be gross margin expansion in 2018.

But it will be more muted than what we’ve had here in the last three or four years, where we’ve moved from kind of the upper 40%s to 61% this year.

I think, we’re still trying to get our arms around some of the spend associated with cloud and some of those types of things, and what that will have on an impact of margins, but we still expect margins to expand here in 2018.

So the direction would be we expect to have continued improvement in margins, but probably to us a lesser scale as we invest in some of these other areas and products that again, Seth, just talked about on prior calls..

Yes. And anything you’d call out on Q1 seasonality maybe from an OpEx or a COGS standpoint? And COGS has – seems like pretty big Q4 seasonality.

Does that kind of moderate back down in Q1?.

It does moderate down back some, but we still were doing some onboarding and stuff even into the New Year for clients. As we mentioned, the G&A spend will probably be up in percentage terms, as we add additional folks associated with us now being a public company and some of the spend there.

But otherwise, we don’t typically see much other seasonality other than on the margin side that we mentioned in Q4 on a gross margin basis..

Okay. All right, guys, congrats on the quarter. Thanks for taking my questions..

Thanks, Derrick..

Thanks, Derrick..

Thank you. And that concludes our question-and-answer session for today. I’d like to turn the floor back over to Seth Ravin for any closing comments..

Great. Thank you, everybody. And I do want to thank our great folks around the world, all our colleagues who delivered our numbers for the fourth quarter and some impressive growth for 2017. And we look forward to getting together with everybody and having our conference call for the first quarter in just a few weeks. So thank you very much, everybody.

Have a good day..

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. And you may now disconnect. Everyone, have a great day..