Good day, and thank you for standing by. Welcome to Rimini Street Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Dean Pohl, Vice President, Treasurer and Investor Relations. Please go ahead..

Thank you, operator. I'd like to welcome everyone to Rimini Street's fourth quarter and fiscal year 2023 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 fourth quarter and fiscal year ended December 31, 2023, 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-K 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..

We remain confident that we are continuing to take the right actions and making the right investments to accelerate growth, increase profitability, enhance shareholder value and bring our litigation with Oracle to a successful conclusion.

However, if Rimini Street does not ultimately prevail in the litigation matters described above and in our SEC filings, it could have a material adverse impact on our business and financial results. Now, over to you, Michael..

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 annual report on Form 10-K filed on February 28, 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 Instructions] First question is from Brian Kinstlinger from Alliance Global Partners. Please ask your question..

Hey, guys, thanks for taking my question. The first one, I'm going to start on the expense side. You suspended revenue guidance for the obvious reasons.

So, how do you plan on managing operating expenses over the next year? Is revenue -- while revenue is growing at a very modest clip, do you expect to hold off making investments that's going to add OpEx with some investments that were just completed? Do you plan to cut cost? Do you think holding the line where you are right now before there's more clarity to the option? I just like to get some more understanding on what you can control..

Sure, Brian. Great to have the call. Of course, I think you could tell from the size of the Salesforce where I had mentioned, we've continued to expand the Salesforce. We're continuing to invest and lean in because of the size of the opportunity that we see. I think you're watching us relay that we are not looking to reduce costs.

We are not in a hunker-down position. We had modest growth across 2024, while we were busy spending and building out our global infrastructure to support all these different product lines that we've launched.

Including a launching, as I mentioned in my prepared remarks today, the Rimini Consult, which is a very large program on a global basis to take on and support, provide managed service for a huge number of additional product lines, including IBM and others. So, I think you're definitely not seeing us take a reduction of cost.

I think the reductions we've made have all been about streamlining operations, where we're taking out some middle management.

We're giving wider scope of responsibility to vice presidents and above to get better leverage, but that's all about making sure that we're able to support and drive higher revenues and a more accelerated growth into '24 and beyond..

Great. And then on the international business side, the year-over-year growth rates decelerated for the third consecutive quarter at about 4.5% just in the fourth quarter.

What's driving the deceleration? Is there anything in the bookings trends that suggest a reacceleration in the first half of '24?.

Well, again, without getting into the guidance side of things, just focused on the business, we had some issues. We had some issues down in the ANZ, the Australia, New Zealand area. We had some issues in the EMEA area, which we, of course, have taken significant steps.

We have a brand-new GM running the EMEA region, which I'm very, very happy to announce. We brought them over from Adobe, a very strong player. And in the ANZ market, we have a new leadership there as well, where we've turned things around, I believe. So, those two contributed to some of the challenges.

We also have some evolution going on in Japan, where we have a very strong client base, our largest in all of Asia Pac as we now roll out our additional services there, and we've reconfigured the Salesforce to be able to handle that.

I think as you guys will understand, every time you reconfigure a Salesforce, you have a little bit of lag and disruption into the operation. We're very aware of that. But these are the kinds of changes necessary to be able to support the growth, the accelerated growth that we want in the future across all the product line portfolio..

Great. Last question, I'll get back in the queue. It might be related and might be some of the same answer. But you spoke to the 90% retention versus what's traditionally been 3 or 4 points higher.

Were the lost customers in these regions? And was there a similar rationale for the handful or so, how many customers left or were they all different cases?.

Yes. I think, of course, as you can imagine, when we have higher retention losses than normal, if you look on a normalized basis, it happens and it's happened over the years where you kind of go up and down. I can tell you that we had a few larger cancellations. Two of them were in the Australian market, which were pretty significant.

But at the same time, those are existing clients. They are huge clients who rotated out on a couple of products that they were running. But their natural rotations and some of those things we just have to go back. One of them, I think, was a loss we shouldn't have had. And so, we've gone back to look at it.

The other one wasn't anything we could do about it. It was just a business rotation. And then, I saw one big one in the North American region, which came as a surprise, again, as part of an M&A.

The biggest risk we always have is M&As because they change out management teams, and we have to go in and resell our position when those management teams change. And so, it is almost like a new sale because they don't know who we are, what are we doing in there. And that is a process that always creates risk for us.

So in the world of business churn, M&As always present the biggest risk to the business in terms of ongoing contracts, but they often present new opportunities for us as well where a management team may have been more stubborn or maybe not fully bought into the full portfolio, then we get a change of management, and we get to come in and expand our footprint.

But it does generally cause some level of churn when we have management change..

Great. I have a few more, but I'll get back in the queue, let others ask..

Sure. Thanks, Brian..

Thank you. Your next question is from Daniel Hibshman from Craig-Hallum. Please ask your question..

Hi guys, thanks for taking my question. This is Daniel on for Jeff Van Rhee. Just on the employee count, I saw that was up 9% sequentially, about 10% year-over-year, but still getting the non-GAAP OpEx down sequentially and year-over-year.

Just curious how you manage that? Was that in the geographies you were hiring? Was the hiring really late in the quarter? And then, just maybe double-clicking on what areas you're hiring for, I know for sales, but just anything else on the roadmap, et cetera?.

Sure. Happy to answer that. I think you've got a few different things. One, I'm not a big fan of the employee count numbers. I know a lot of people look at that and say, well, if that percentage is higher than your actual growth, that looks like a problem. But it doesn't take into account the cost of the personnel.

A lot of those hires are in lower cost geographies. We have two big delivery centers between India and Brazil, which present significantly different annual comp rates than you would have, for example, of course, in the United States or across in Europe. So, from that point of view, yes, we have lower costs coming into it.

That's one component that allows us to have the higher number of people by account number. The second one is, you're correct, we often do a lot of hiring of service delivery on the back end of the year. We are a back-end loaded business.

And as you know, because we've been a bootstrap business with literally, what, $27.5 million of invested capital to drive over $400 million a year business, we have to use our own cash. What that means is we're very good at hiring just in time. We don't hire generally in advance of contracts.

That allows us to minimize the burn cost of personnel not being utilized, and we wait for the contract to sign, and then we aggressively hire to fill that. And so that's very much with the fourth quarter. As we grow our business in the fourth quarter, you're going to see a lot more hiring in the fourth quarter.

So of course, you haven't seen the ratable costs on that yet. So, that is a combination that drives that..

And then, on the billings and backlog, those both came in pretty nicely. Just any more color on that in terms of the biggest drivers of that in terms of what's coming down the pipeline? Any particular verticals, applications, services, what platforms seeing strength there? Thanks..

Well, I think we're seeing, again, good strength across all platforms.

I think, again, as I mentioned in the prepared remarks, specifically strong in the SAP world, where you've got thousands and thousands of companies being pressured by SAP to move their systems between 2025 and 2027 with threats of the support, no longer being supported, which, of course, is untenable for a major organization.

And so that's created, again, an upward swing in demand because Rimini Street offers the only really proven global solution for large enterprises to make that move and continue to use the product for years to come. The other area we saw a lot of growth in is the Salesforce managed service.

Again, Salesforce is a big complex platform requires additional work and support just like any other enterprise platform and Rimini Street is well positioned to provide those services to clients, even to other big service providers like NTT, who utilize us to manage their Salesforce platform..

And then maybe last for me.

Just on -- you already spoke some to the cost structure expectations for '24, but specifically on legal, professional, just any thoughts on how we should be expecting that a similar year in '24 relative to '23? And then the $9.7 million, was that already paid out? And where would I be seeing that on the financials?.

Yeah. I'll let Michael answer here to see the $9.7 million on the financials, but that was a settlement of legal fees between Oracle and us. We settled that rather than continue it on in the court. And that was already reserved to a significant amount. I believe that was already reserved somewhere in the $6 million, and Michael can answer that.

So there was an additional amount. But we had already looked at that, and that's where we came to a conclusion. But that ended the end of the contempt component of the trial side.

So, at this point in time, as we always say, when we don't have a trial year, which 2024, there is no trial, we do have the appeals that are pending that I mentioned in my prepared remarks. Those will continue through the process to the District Court as well as the appellate court.

But that generally, generally does not add up to the kind of cost that you see when we have a full-blown trial. So, I think when you look at the cost, we mentioned about how in Q1 '24, we had paid out a significant amount of legal bills relating to the Oracle trial in late 2022.

So, I think if you take that back and you can notice that we probably would expect more moderate fees coming into '24 from what we've seen in that fee structure..

And Michael here, just to -- as Seth noted, in Q4 2023 of the $4.3 million of legal-related expenses, $2.7 million was associated with the settlement. The total settlement, as Seth noted, was $9.7 million, and that cash was also dispersed in Q4 of last year. We previously in excess of 18 months ago, reserved $6.9 million of the total $9.7 million.

So that's the timing, if that helps..

Okay. Yes, that's great. Thanks for the details. And that's it for me. Thanks, guys..

Thank you..

[Operator Instructions] Your next question is from Derrick Wood from TD Cowen. Please ask your question..

Oh, did we lose someone?.

I'll try to open up his line again. Just one second, please. Okay. There he is..

How's that? Sorry..

Go ahead, Derrick Wood..

There you go..

Great. Yeah. Thanks. Sorry. This is Cole on for Derrick. The total customer count was down quarter-over-quarter. I mean you guys mentioned that the NRR decel or downtick rather, was mostly from pressure where customers were ending kind of subscription on certain products, but staying on others.

So kind of help me bridge is some of the NRR pressure from customers just totally going off Rimini platform as seen in the total customer count number? Or is it kind of these are smaller customers churning off and the larger ones that are hitting NRR are still customers at the end of the day?.

I think you've got a mix. You've got some customers rolling off. And I think what we saw really through '24, some of this is related to the pandemic. We had customers who were in the process of moving off who had extended the life of their products for a few more years. So, I think '24 was a bit of an interesting year.

Some customers who had extended finally moving forward those projects that have been delayed during the pandemic. And I think that was a little bit more of the roll off that you saw in this with some delayed roll off that might have been in prior years. So I think that that is a catch-up component.

And I didn't see anything during the year that was otherwise alarming or in any way saw a trend. We didn't see that. You have, for example, PeopleSoft, JD Edwards and Siebel clients. Those three platforms have been sunsetted. There is no future product for those folks. They have to change to another product.

When they move off these platforms, they will completely move to something new. And so you are seeing some sunset of some of those people moving. That's natural in a sunset on the product line. And then again, you see others who are coming onboard. So I don't think there's any real trend here that differs year-over-year.

I just think you have some ups and downs. And if you look at some of the bigger losses that happened, as I mentioned, related to management changes of M&A, where they decided to go a different direction, you have some of them where they had some internal issues that they needed to address in terms of dropping this product line, adding another.

We had one large client who dropped a large component, but also added in the same week, a large component.

So, this is part of what you get when you service a customer, on a wider portfolio, there will be ups and downs in terms of what they sign up for, what they drop, they're living, breathing, moving organizations, and there's nothing frozen about what we do.

And sometimes those will be bigger pieces, sometimes it'll be smaller, but we didn't see any trend in terms of what we saw in the fourth quarter versus the rest of the year.

Now, in terms of total clients, part of what you're watching is we launched so many new products that we had our sellers over-rotated into cross-selling existing clients rather than bringing on new logos. Not an uncommon problem when you expand out a portfolio and it's popular with your existing client base, and it's easier money.

So, we are putting incentives in place in '24 to incent sellers to take the tougher road of going out and bringing in new logos. And we're working on a multiple set of programs to drive and rotate back to more new logo acquisition. You saw the number there was a small increase in total new logos. That's exactly what you're watching.

It's all the cross-sell activity. It's over rotated and we need to balance it better in '24..

Great. Super helpful. And then just one more for me.

In terms of the sales force and reps, with Rimini Custom coming online here, how are you getting reps up to speed so that they can sell into the existing customer base and go out and sell new customers on the new portfolio here?.

It has already been trained for the sales team. They've already received training for it. We just had our sales-ready SKO kick off just literally weeks ago and early January, where they did learn about Custom, they've learned about all the different product lines. It was a fantastic week of learning and training for the global organization.

Over 400 people from the global revenue organization from all the countries around the world were together, led by our sales and revenue enablement organization. So, I'm very confident in our ability to go out and position these products.

Rimini Custom is, unlike anything else we've ever launched, it's basically opening the door and saying Rimini Street is the best provider of enterprise software support in the world. And we believe we are also the best provider of the managed service for those products.

And because we have our secret sauce of systems, processes, the technology, the people that we're able to use, we believe we can provide service to a wide variety of products that we've never offered service for.

And that is, again, an amazing offering of opening the door and saying, "Bring us your enterprise product, if you want to get it supported, you want to get it managed, you want us to extend the life, you want to get better service on it." We believe we can do that better than anyone else on just about every enterprise product out there..

Helpful. I'll see the floor. Thank you..

Thank you..

Thank you. There are no further questions at this time. I will now hand the call back to Seth Ravin for the closing remarks..

Great. Thank you so much, everyone, again, for joining us on the fourth quarter '23 earnings call and full year earnings call. I want to thank all of our Rimini Street colleagues once again for their great efforts over the past quarter and the year.

It was a magnificent year of change in growth for the company and repositioning ourselves as a much larger enterprise player. We look forward to having all of you join us on the next earnings call. I will discuss the first quarter 2024 results. And as you know, that's coming up pretty quickly.

And select second quarter 2024 performance with a commentary as well. Until then, wishing you and yours a continued good health. Our thoughts and continued charitable support for those in need and in war around the world. Just always remembering, we generally have it so much better and so many others suffering in harm's way.

So, with that thought, thank you very much, and have a good day..

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect..