Rimini Street, Inc.

Welcome to the Rimini Street Quarterly Earnings Call. My name is Annette, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the Q&A session, if you have a question, please press star then 1 on your touch-tone phone. I will now turn the call over to Dean Pohl, Vice President of Investor Relations. Mr. Paul, you may begin.

Thank you, operator. I'd like to welcome everyone to Rimini Street's third quarter 2021 earnings conference call. On the call with me today is Seth Raven, our CEO, and Michael Prika, our CFO. Today we issued our earnings press release for the third quarter ended September 30th, 2021, 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 for the third quarter of 2021, for discussion of risks that may affect our future 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.

Thank you, Dean, and thank you, everyone, for joining us today. For the third quarter, we achieved record revenue of $95.6 million, up 15.9% year-over-year and at the high end of our guidance range, and achieved a strong revenue retention rate of 93%, up from 92% last year on subscription revenue. Subscription revenue accounted for 98.4% of our total revenue, More granularly, we achieved 31.4% international and 4.8% U.S. revenue growth year over year. We see growing demand for RiminiStreet's expanding portfolio of enterprise software support solutions as we continue building and maturing our go-to-market capability to launch, sell, and deliver our full solutions portfolio to new and existing clients globally and prepare the company for billion-dollar annual revenue operations by 2026. For the third quarter, we also expanded our gross margin, improved our cost leverage, and completed significant capital market transactions that materially reduced both our cost of capital and potential dilutions. Michael will further detail those transactions in his prepared remarks. From the company's inception in 2005 to date, we have signed more than 4,400 clients, including over 180 Fortune 500 and Global 100 companies, and added a net of 148 new clients in the third quarter. To date, we have saved our clients more than $5 billion. During the third quarter, Our global service delivery team closed over 9,500 support cases and delivered more than 18,000 tax, legal, and regulatory updates across 27 countries and achieved an average client satisfaction rating of more than 4.9 out of 5 on the company's support delivery, and for the first time, an average satisfaction rating of 4.9 out of 5.0 on the company's client onboarding program. where 5.0 is excellent. Our global employee count as of September 30th, 2021 was 1,595, a year over year increase of 15.2%. Pandemic. We believe we have navigated the pandemic well to date. And despite continuing risks of COVID variants, we are taking steps to return to some office operations attend select marketing events, and increase in-person sales activity. However, despite continued success with the global vaccination rollout, the more infectious COVID Delta variant continues to create differing levels of business disruption around the world. Hence, it is clear the global pandemic will likely continue to create both opportunities and challenges for businesses through 2022. The full extent to which the pandemic will continue to affect our business in the remainder of 2021 and beyond will depend on numerous evolving factors that we cannot reliably predict. Sales execution. During the third quarter, we closed hundreds of transactions with strategic, local, and global brands across diverse industries and markets. Sales transactions span the wider breadth of our solutions portfolio, including support, AMS, security, interoperability, monitoring, and professional services. We also continue to see growing momentum in cross-sales to existing clients, where we believe at this time there's over $1 billion in annual white space sales opportunities. With respect to the renewal and extension of existing subscription agreements, we achieved continued success, with many clients extending their contracts for more than one year and some agreeing to prepay more than one year of fees in advance for small fee discounts. We continue our focus on launching, selling, and supporting our expanded solutions portfolio globally. executing go-to-market activities that include significant recruiting and hiring of a broad range of leadership positions in our global marketing and sales organization that need to be filled out in order to drive improved sales execution and productivity. In fact, several new leaders and revenue support organizations were announced in press releases issued over the last few days, including the Chief Technology Officer and Office of the CTO, Chief Products Officer, Theater GM, North America, Regional GM, North America East, GM SAP Services, GM Oracle Services, and GM Global Professional Services. Our relatively new sales reps and sales support staff, those with less than one year experience, are ramping up and gaining valuable experience that should benefit the company in the coming periods. Today, more than half our sellers and many sales management have less than one year of experience in their roles, and we still have many key sales and marketing leadership positions to fill. Like all companies today, we are competing for talent in a challenging recruiting environment. A combination of these factors has caused some lumpiness in hiring and sales execution. Our go-to-market strategy continues to evolve around an industry and solution sales model that leverages our bundled service offerings for an easier client sale. This strategy is being successfully implemented by a theater and regional GM leadership model now in place globally and enabled by our new go-to-market team structures and the new integrated team compensation plans we put in place earlier in 2021. Rumini Street already serves many of the largest logos across different industries. And we believe focusing on the specific needs of each industry will allow us to further penetrate the TAM in each industry with the breadth of our expanded solution portfolio. New product offering. During the third quarter, we launched services for open source databases, which are now handling a substantial and growing portion of the global database workload. Clients want to migrate some of their database workloads to open source platforms in order to optimize cost and operational flexibility. Our clients have asked us to extend our award-winning enterprise class services to the most popular open source database platforms they want to leverage, MySQL, MariaDB, PostgreSQL, and MongoDB. These solutions are in addition to the proprietary databases we already support globally. Oracle, IBM's DB2, Microsoft SQL Server, and SAP Sybase, MaxDB, and HANA. Rumini Street has already signed open source database service contracts with clients, and we already have more than 400 engineers globally with database skills and experience. We also now offer database migration advisory and full migration services to help organizations smoothly and methodically replatform their enterprise workloads across proprietary and open source database platforms. Client case studies. To highlight how clients are leveraging Ramini Street Services globally to achieve their strategic goals across different industries, I'd like to share a few case studies from the third quarter. First, T-Mobile, with more than $68 billion in annual revenue and over 104 million customers. T-Mobile has been leveraging Ramini Street support since 2019 for their SAP system, including support for the organization's extensive software customizations, which were not covered under the software vendor's more expensive annual support. T-Mobile's SAP platform is comprised of more than 200 SAP modules, is used as the system of record for key financial and operational functions, and is a critical component of T-Mobile's supply chain portfolio, a vital part of T-Mobile's customer experience. Since making the switch from vendor support to ReminiStream, T-Mobile has been able to avoid a costly and unnecessary enterprise software migration project and instead has been able to redirect budget and resources to focus on delivering services and technology aimed at delighting its customers as a competitive differentiator. Eric LaValle, Senior Director of T-Mobile Product and Technology for Supply Chain, stated that, T-Mobile is a very complex environment. When we looked at the services we were getting from SAP versus the value and new functionality offered, it became very clear that moving to Rimini Street Support offered a more compelling alternative for us. Throughout our engagement with the company, they've had the right team in the right place at the right time. The initial transition, procedures, and proven support model ensured a smooth startup. Everything they did focused on ensuring a transition to a working model that hit the ground running. Only Rimini Street provides the breadth and depth of experience, scalable support infrastructure, and advanced technology and processes needed to enhance business continuity and mitigation of financial and operational exposure for an organization of our size and scale. Rimini Street does a great job of balancing between tactical delivery and being a strategic partner. We have great conversations on a regular basis about the future of the technology, the best way to approach our future IT roadmap, and how we can balance between our internal delivery and the services Raministreet provides to advance our team along with the technology. Raministreet is one of our most trusted IT partners. Next, Korean Airlines. whose IT team has been concerned with the high-cost, low-efficiency dynamic that it was experienced with Oracle's maintenance and support, and who recently moved the remainder of its Oracle software to Ramini Street support. Taking into consideration the successful partnership Korean Air had already been experiencing with Ramini Street for their Siebel software support, the IT team ultimately decided to move the rest of the Oracle Enterprise software landscape now hosted on AWS in the cloud, to Rimini Street and received the same ultra-responsive, seamless support they had been enjoying for the last two years with our initial service contract. Sunghyun Park, ERP team leader in Korean Air's IT department, stated that, the cost of maintaining the rest of our Oracle software and databases with the vendor still accounted for a large portion of our IT budget, But with Ramini Street's rapid response and proactive problem-solving approach, we now have a more agile partner supporting the stable operation of our mission-critical enterprise software in the cloud, all under a single roof. This move has provided us with even more efficiencies than we were experiencing previously, and it has freed up the team to focus on other more pressing business projects. Lastly, Origin Energy. a leading Australian energy company with 4.3 million customer accounts and a vast Oracle footprint that includes ERP system environments for retail customer billing, financial accounting, asset management, running on more than 100 Oracle database instances. Origin switched to Ramini Street support for its Oracle software, including eBusiness Suite, Oracle Database, Fusion Middleware, and Hyperion. Cameron Adams, Head of Architecture and Database Services stated that, we identified that one of our largest database OPEX costs was our maintenance and support. We were attracted to the value proposition and support model offered by Rimini Street as the company gave us an avenue to materially reduce our database costs and avoid further upgrades in the future. In addition, we have been on a journey in recent years of migrating all of our application workloads to the cloud. Working with RiminiStreet has helped us further simplify some of our activities and RiminiStreet has become a valuable component in our overall IT strategy. Oracle litigation update. RiminiStreet versus Oracle, the case RiminiStreet filed against Oracle in 2014, remains in a pretrial stage. The trial is currently expected to proceed in the second half of 2022 or later. With respect to the dispute the parties are currently engaged in over a permanent injunction that has been in place since 2018, the court held a hearing in September 2021 on its order to show pause. Oracle alleges that Romini Street has violated the injunction and should be held in contempt. and Rimini Street believes that it has been in substantial compliance with the permanent injunction. We believe that during the hearing, Oracle failed to prove its claims and that court should discharge its order to show cause. We currently expect to have findings by the court in the coming months. Please see our disclosure in the third quarter 10Q filing for additional information on the Oracle litigation that has been ongoing since 2010. Summary. We continue working to complete our transformation and scaling project to support billion-dollar annual revenue operations by 2026, focusing on sales execution and productivity, exercising disciplined cash generation and management, and bringing our litigation with Oracle to a successful conclusion. Now with that, over to you, Michael.

Thank you, Seth, and good afternoon, everyone. Q3 2021 results. For the third quarter, we delivered an expanded gross margin, a higher year-over-year operating income, non-GAAP operating income, and ended the quarter with more than $103 million in cash. Additionally, during the quarter, we completed significant capital market transactions. On July 20, 2021, We redeemed the remaining Series A preferred stock with a five-year term loan transaction financed by two commercial banks, Capital One and Fifth Third, for $90 million at a rate of LIBOR plus 1.75% to 2.5%. The company has taken certain one-time cash and non-cash charges in the third quarter related to the closing of the financing transaction and the go-forward annual financing costs have been reduced by $24 million compared to fiscal year 2020. As Seth noted, for the third quarter, revenue was $95.6 million, a year-over-year increase of 15.9% at the high end of our guidance range. Annualized recurring revenue was $377 million, a year-over-year increase of 15.3%. Revenue retention rate for service subscriptions, which makes up 98.4% of our revenue, was 93%, with more than 80% of subscription revenue non-cancellable for at least 12 months on a rolling basis. On a cash flow basis, while we did use cash in the period in line with our normal cycle where cash is generated in the first half of the year and utilized in the second half of the year, we still ended the quarter with a healthy $103 million in cash. For the third quarter, clients within the United States represented 53% of total revenue, while international clients contributed 47%, representing aggregate year-over-year revenue growth rates of 4.8% for the United States and 31.4% for international clients. Billings for the third quarter were $73.7 million, compared to $68.3 million for the prior year third quarter, a year-over-year increase of 7.9% that included billings growth in the U.S. and international markets. Included in the quarter billings are multi-year prepayments for both renewals and for new client invoicing. Typically, clients pay for service up front for the current service year, while multi-year prepayments represent clients who pay up front for multiple years of support, These additional invoice amounts are positive indicator of the value being received by clients, future client retention, and lifetime value. Gross margin was 65.1% for the third quarter compared to 61.2% for the prior year third quarter. While we continue to methodically expand gross margin through our scaling initiatives, technology, and other efficiencies, and are now raising our full year gross margin guidance from 61 to 62% to be in the range of 61.5 to 62.5%. The gross margin for the third quarter was elevated in part by some delays in hiring as previously described by Seth. We plan to continue investing in the global service delivery capabilities for our new products, services and solutions to ensure we can deliver our best in class offerings with unparalleled client satisfaction. Operating expenses. As a result of the overall business climate impacting all entities globally, irrespective of industry, we are experiencing some cost pressures due to labor shortages and inflation. We are mitigating these challenges in part by broadening our hiring practices with an emphasis to recruit more positions in lower cost geographies. We plan to continue exploring all options available to ensure we are able to acquire the right talent at the right cost to continue our growth trajectory. Sales and marketing expenses as a percentage of revenue were 34% for the third quarter compared to 35.4% for the prior year third quarter. The year over year reduction as a percentage of revenue is in part a result of timing of certain program implementation in hiring. We remain focused on making the appropriate investments needed to support our growth initiatives and continue to expect full year 2021 sales and marketing expenses to be in the range of 35 to 36%. General and administrative expenses as a percentage of revenue excluding outside litigation costs, was 16.3% for the third quarter compared to 15.8% for the prior year third quarter, but as per our guidance, down significantly from the 18% in the previous quarter. Given that G&A spend during the first half of 2021 was higher due primarily to one-time employee restructuring expenditures, costs related to capital markets activities, and certain legal expenses, we see the full year closer to the high end of our guidance range of 16% to 17%. Accordingly, we expect Q4 G&A spend will again continue to decline as a percentage of overall revenue sequentially from Q3 and Q2. Net outside litigation expense was $6.6 million for the third quarter compared to $3.8 million for the prior year third quarter. The increase relates to cost associated with the evidentiary hearing that Seth discussed earlier on this call. Our outside litigation spend is not linear and can fluctuate each quarter based on timing of litigation activities. We expect outside litigation expense to be in the range of 15 to 17 million for the full year 2021. Adjusted EBITDA was 15.9 million or 16.7% of revenue for the third quarter. Also, I would like to highlight our non-GAAP operating margin, which excludes outside litigation spend, of 17.3% that underscores the significant profitability potential and substantial leverage to our operating model such that we remain confident in our ability to achieve our long-term target of operating margins in excess of 20%. Warrant treatment. we realize a non-cash loss of $2.1 million during the third quarter relating to the $6.1 million private warrants with an exercise price of $11.50 that expire on October 10, 2022. There is no scenario or provision that would lead to a cash settlement of this non-cash liability, which now stands at $5.1 million. Therefore, at the point when the warrants are retired, we expect to realize a non-cash gain to our profit and loss statement to extinguish this liability. Please see the third quarter 10-Q file today for more information. Balance sheet. We ended the third quarter with a cash balance of $103 million compared to $83 million for the third quarter a year ago, up 24% year-over-year. Deferred revenue as of September 30, 2021, was approximately 244 million, up 19% from 204 million in the prior year third quarter. Backlog, which includes the sum of bill deferred revenue and non-cancelable future revenue, was approximately 553 million as of September 30th, 2021, up 10% from 503 million from the prior year third quarter. Capital market events. On July 20th, 2021, we completed the buyback of 87.8 million face value of Series A preferred stock plus dividends payable of approximately 0.6 million, thereby redeeming and retiring all remaining Series A preferred stock. The transaction was funded by Lenders Capital One and Fifth Third Bank for a total of $90 million at a rate of LIBOR plus 1.75% to 2.5%. Accordingly, go-forward annual financing costs have been reduced by $24 million compared to fiscal year 2020. Additionally, we have eliminated the potential dilution from conversion of the preferred to common stock by 15.5 million shares during calendar year 2021. Moving forward. we will continue our methodical focus on increasing free cash flow generation and improved profitability for the benefit of shareholders while assessing potential future capital return options. Business outlook. We are currently providing fourth quarter 2021 revenue guidance to be in the range of 95.8 million to 96.8 million, and accordingly, narrowing our full year 2021 revenue guidance to the range of $371 million to $372 million. This concludes our prepared remarks. Operator, we'll now take questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then 1 on your touch-tone phone. And our first question is from Derek Wood. Mr. Wood, go ahead.

Oh, thanks for taking my questions. So on guidance, just Very surprised to see that the Q4 guide of nearly flat on a sequential basis in what's historically a very strong sequential quarter and a pretty big slowdown in year-over-year growth. So, I don't know, Seth, can you walk us through what has changed over the last three months that's caused such kind of a dramatic different picture for Q4 and In relation to that, Michael just mentioned the backlog number, which was certainly lower than I would have thought. I'm sure there's some tie from that. Could you speak to that as well?

Sure, Derek. And, of course, with the 7.9% billings growth for the quarter, it wasn't our top quarter in terms of field performance. I think you noticed that the second quarter we did a very strong billings growth. We had a very strong number of large deals that closed, setting a record. The third quarter, a different mix of reps out there. And as I noted, half of our reps are less than a year experience. We know that 18 months is the fulcrum point between those who are producing more than ever versus those who are still getting their feet wet and learning the business. So I think that the This quarter, we wound up fielding a bunch of deals out there with folks that were not necessarily the same proven players that were playing in the Oracle quarter of Q2. They were playing in the SAP quarter of Q3. And we just didn't deliver all the deals we wanted. Millions of dollars of them slipped into the fourth quarter, which we have already closed millions of dollars of that business. And we're seeing that we had some other deals that were lost. And we had some errors on the field that just were not just, again, rookie mistakes and other errors due to the fact we didn't have enough management out there to oversee it. And the combination with the hiring challenges, I think all of that sort of just came together in the third quarter. Again, a lot of great logos, a lot of great wins. But we missed out on a bunch of bigger deals that we thought we were going to get done in the third quarter. And that's obviously affecting fourth quarter on a ratable basis and go forward into 22. So we're continuing to work on the sales productivity. We'll continue to work on the hiring to get those people where they need to be. But I think that coupled with a conservative guide for the fourth quarter is probably why you're surprised that it's a little lower than expected.

Is it fair to say that I guess you experienced higher sales attrition in the quarter?

I think, Derek, part of the challenge, I mean, everyone's got this. You know that. I mean, we've got the great resignation, as it's been referred to. We haven't seen a lot of voluntary resignation. We've been pretty aggressive on turning over sellers that aren't productive. I think we had a few more than we probably would have hoped. And coupled with the new hires, as you know, bringing them in, there's not much they can do early on. It takes a while to learn this business. One of the unique challenges of this business is the complexity of the sales. and that requires people to learn quite a bit of material, the position, and sell effectively, and we need to get these people matured up, and we need to work through, and as I mentioned, they're learning a lot along the way, but there are errors being made on the battlefield. I'll give you an example. We just closed the second largest transaction in the company's history just last week, which was a fantastic transaction, and it was done by sellers that have more than 18 months of experience by a management team that had more than 18 months. So that's why I mentioned it's lumpy. We have areas where we've got senior people and experience that are doing very well. We have others where we got a lot of rookies on the battlefield and they're making some errors and mistakes that we wouldn't expect if we had a different, more mature team on that. But when you're doing hundreds of transactions now as part of the size growth we are, you know, that lumpiness is coming into effect where you've got differences in the teams. So I do think that this was very particular to the third quarter, the amount of new people we have on the field that we have to train up, and this is just part of the growth and some growth pains that we're going to have along the way to a billion dollars.

I guess my last one then, I mean, the gross margin uptick so large, and I think the COGS was down a couple million sequentially last Michael, I think you mentioned that that was due to less hiring. I mean, do you guys have enough capacity to service a pipeline, or is that going to require onboarding people to be able to service new deals that maybe you don't have the capacity right now?

I'll go ahead and take that one, Derek. You know, we absolutely have the capacity. As I mentioned earlier, We, in the third quarter, also hit the highest client satisfaction in our history, north of 4.9%. The clients are very happy. The number of SLA misses is not even below a percent. They're the best we've ever seen. So from a scaling execution, being able to service our clients, no problem. But it's still really challenging to get all these hires done for the growth especially in the last couple of months. When we talked last on the last earnings call, we're feeling pretty good about hiring. The last couple of months have just been an absolute storm for everybody. We've got probably 20 companies out there doing recruiting on top of our own team. It's really tough. And, you know, it's hard to grow when you can't add all the people you want as quickly as you want. And that's taken into our guidance as well. You do have some impact in being able to get these people fielded in order to be able to deliver the size numbers and growth that we know is available based on the market opportunity. So for us, again, some of this is, hey, we're all in this together and facing the same challenges. Some of this is purely our own execution, getting people up to speed and delivering consistent versus lumpy execution. And then I think when you look at gross margin, We guided up. We just put 50 basis points on it because we see it growing. But we're not guiding to that 65% because that was a little bit inflated by some of the hires that didn't happen in the third quarter. But when we put our guidance number together, that's based on the assumption we're filling all those positions. So you're not going to see some change in cost structure there. we're just going to fill out the positions that are available. Yeah, it was a little bit of a windfall for the third quarter, but we are guiding up 61.5 and 62.5 based on our own leverage in that model, not assuming that we're going to not fill positions.

Understood. I'll see you at the floor. Thanks.

Thank you.

All right. Our next question is, is from Jeff Danry with Craig Hallam. Go ahead, sir.

Sounds good. Thank you. Seth, on the sales reps and the challenge to get capacity, a number of questions. Where did you end in terms of reps in the field at the end of the quarter? And then two, just in terms of the gross churn, I know you've been making some pretty aggressive changes in the organization. You want to field guys that are much more solution sale oriented. If you look at the gross churn of the sales reps, was it concentrated in any particular geography or competitive arena, namely more reps versus Oracle or SAP or open source or whatever focus area they had? Those two questions to start.

Sure. Again, thanks. The question number one... You know, in terms of where we are with the sales reps, the churn is less than other industry folks by comparison. But it's a little high for us. We're being pretty aggressive. I would say North America, we probably have the biggest churn. And then, you know, you look at some Latin America, but it's a smaller number. So the percentages aren't as meaningful. The true bulk of the change out of the sales team is, is North America. And as you know, we are laser focused on increasing the growth of North America. We've got it, you know, in that 4.8, yes, slightly better than last quarter in terms of a year-over-year revenue growth. Our focus, as you know, I've said I wanted to try and get that. I'd be really happy if we could get North America growing at 10% plus by the end of the year on a run rate basis. That would be great. It's challenging to get there where we are, but we'll see if we can. And I think that there's no particular point about the reps. It really is a geographic component that I think makes up for it. And I'm sorry, what was your first part of the question? You know when you ask me, too, I forget one.

Well, I was asking just the ending rep count and then variations in churn by geo or product.

Yeah, the ending head count was pretty similar to Q2. By the time you took out the attrition, we did have a good number of hires. But as you know, that gives you an even more rookie team out there. So the good and the bad is, while you may have had similar numbers to what you had in Q2, you got a bunch of rookies you added into the mix that are not even, some of them aren't even taking client calls yet. They haven't even been certified to take a prospect call. So I think that part, of course, gives us some challenge in terms of execution and while we get those people up to speed. I've actually been far more concerned with filling the management roles. We took out the entire senior team we had hired for Central US, and I alluded on the last couple calls that the Central was just not doing nearly as well. We've grown nicely. We turned a real good corner in the east. The south had quite a bit of good success last year in terms of moving forward. And we lost our GMs because we took them out in the central. We had another one retire for personal reasons from the west. And we didn't really have enough management coverage to cover the hundreds of deals and transactions globally. So I really don't think it's a seller volume issue. We've got the sales capacity. We've got to go ahead and mature them with time. But not having the sales leadership is really tough. It's like fielding a sports team without enough coaches out there to get them where they need to be in the game, especially as fierce a game as we fight every single day. So I think I would look to that sales management and the announcements we made the last few days for some significant hires that we put into position, but we're still missing some of the basic leaders that we need to drive those regions.

Yep. Yeah, presumably if the deal flow was there and you just lacked season sales reps, win rates were down. Well, win rates down competitively, again, sort of across products and geographies, no real changes in win rates in that respect. I'm assuming overall it was down.

Yeah, I think overall, but it was skewed a little bit towards losing more on the SAP side simply because Q3 is our big SAP quarter. Because of the special way their contracts are written, that customers have to get notice of termination on support changes by September 30th. So I think that really, you know, that's why it's skewed. I wouldn't read more into it. I really think we just had more of a rookie team out there and not enough sales management, and we just didn't execute as well, and I think it just happened to be skewed to SAP because it was the SAP core.

Yeah. If I could speak one last question in respect to... you know, color around, you know, pipeline-pipeline growth, and, you know, maybe in conjunction with that, any implications or thoughts on 22? I know you're not giving a formal 22 guide, but the trajectory of growth, you know, posted, or at least that you're guiding to in Q4 puts you on a substantially different trajectory than where the street has you. So, you know, we've got to put some revised numbers out there. Any help there would be appreciated.

Well, I think it would give you some help in the modeling. First of all, we had guided to having, we thought we'd have 100 heads. That was my target, to have 100 sales heads hired by the end of the year. I think we're going to drop that to 90. We're in the low 80s right now, you know, with a little more churn. We're post-quarter. We're going to do a little more churn probably. And then the ads, you know, I think if we end at 90, I'll feel good. What I don't want to do is overpressure the leadership because we are limited on leaders while we're still hiring more If I pressure them to spend 90% of their time doing hiring to make the 100, I don't think they're going to get the time to focus on the deals that are on the table to close. And I think it's a prudent move for us to just slap that back a little bit to 90, give them a little more breathing room in terms of being able to focus more on how to get out there and get deals closed instead of being on the phone hiring all day long. So I think that that's a prudent switch of move. But we're still going to hold the 120 heads ending 2022 number in place. It means we've got to do more hiring next year. But I think giving them a breather, let them spend a little more time working with the reps we have now. Let's get their sales productivity back. We saw great productivity in Q2. We know we can deliver that. We just didn't deliver it this last quarter. Let's get these people all performing better. get back to those higher performance numbers. Pipeline's going to be lumpy in some regions. Again, you don't have leaders driving them yet. So I think that we're going to pay a bit of a price in the lumpiness in some of that sales execution, which will flow all the way down to the pipeline. So again, keep in mind, as you've been able to tell in every press release we put out, our commitment to the billion-dollar target of annualized revenue by the time we get through 2026 is unwavering. We see no change to our long-term picture. Hey, along the way, while you're building a billion-dollar company, we got a couple of hiccups in hiring and lumpiness in sales execution, but we'll get there. We're committed and we believe that still we will deliver that number by 26. You know, 22 is going to be a little more muted. I mean, that's pretty clear from the math. You're going to wind up with likely a tamped-down top line revenue number. But I think the message we were delivering in the prepared remarks was, hey, we may not deliver as high on the top line as all of us would like for 22 on the way to getting to a billion dollars and maybe tamp down what we do a little more work on the next few quarters to get the operation fully converted to a billion dollar operation model. But at the same time, we're going to deliver more on the leverage side. And I think you can look to a higher level of focus on delivering that part of it because we know if you're not going to deliver as high on the top line, we've got to give you guys leverage on the investor side. So we're very aware of that, and that's our commitment that we're going to make that happen. Great. I appreciate it. Thank you. Sure.

Okay. And our next question is, is from Brian Quintlinger with AGP. Go ahead, please.

Great. Thanks. Close enough. Given the lower billions growth, and this was the big SAP quarter, and now you've got a younger sales force, you said 4Q sounds in terms of revenue like 3Q. But is it fair to think that first half revenue next year is going to look like second half this year? You have a little bit of attrition. You've got a couple of wins, including one big one. But we should be waiting until the second half of next year before we start to see that re-acceleration in revenue. Is that how we should think about it?

Yeah, I think the way that we're thinking about it is you looked and reflected on it. Of course, we did our post-mortem on Q3, what went right, what went wrong. A lot went right when you looked at renewals. Super strong, which is most of our revenue. excellent performance there, excellent performance in the improvement in cross-sells to the existing client base. All those things are going really well. There was logo acquisition that was weaker this third quarter in terms of where we wanted to be, but all the rest of the operation, including, of course, we're in the business of delivering service, and our clients love the service, and we're doing well by all the metrics. So I think this is really going to be all about focused on those reps. I think you should see. I mean, I'm hoping we will see some acceleration coming into even the first half next year if we can get the sales performance where we want it. And that's why I dropped the heads a little bit. As I mentioned, we've got to trade off a couple things. And I think taking our foot just to offer a couple breaths to let the management team, which is still understaffed, get with their team, work on their performance. I think also one of the key things we're doing is, as I mentioned earlier, but we haven't made a big deal out of it, we're completely rebuilding our marketing operation. New CMO search underway. We changed out the entire team just about. We're changing from an outbound marketing to an inbound marketing machine globally. It's a massive amount of change going on there too. we're hoping that that in the next quarter or two will stabilize and we will start to see the fruits of that labor as well. So I had said on prior calls that I thought we were about 70% the way through our transition and reworking of all these departments and structures for billion-dollar revenue operation. My guess is we're probably 75% to 80% now, but we've still got a few quarters of work to do ahead of us to complete all this. It's a lot.

Okay. One more for me, and that's it. Sure. You've been clear over quite a bit of time about your focus on accelerating the growth in North America you'd hope to get 10 percent by the end of the year it seems unlikely given the billings and the turnover in the sales staff what for these new reps in general can you give us how many new reps generally make it after a year what percentage and then at what point do you know and I guess that gets to can we get to 10 percent for all of next year or does that seem unreasonable at this point

You know, I don't think it's impossible to get to. I mean, look, we all know that the goal on any given quarter is to do better than the prior quarter to show we have directional movement in the right direction and that we're improving. You know, I said I'd be really happy if we got to 10. Hey, we're going to jump hoops to see what we can do. But, of course, it's field-dependent. It's rep dependent. It's management. It's regional dependent. There's a lot of pieces there. You know, I think that nobody should necessarily give up on that. I'm not walking away from it as a goal. But, yeah, you're right. It's going to be a really tough ride to try and make that happen in the fourth quarter alone. But I do want to directionally at least show improvement.

Thank you. Thank you.

Okay, and with that, we have no further questions, so I will turn the call back over to Mr. Seth Raven for closing remarks.

Great. Well, thank you, everybody, and thank you for joining us. As we head into the holidays, please stay safe. We look forward to getting a chance to meet up with several of you on the analyst side when we set our analyst day, probably right after earnings, after we put out the K for next year. Very excited about that, having our first in-person meeting with analysts in quite a while. We look forward to a good day together. We'll be working with you on the calendar dates. We know it's a busy time with a lot of other events, and looking forward to spending the time with all So please be safe, have a great holiday, and we look forward to talking to you on the next earnings call. Thank you very much, everyone.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.