Rimini Street, Inc.

Good afternoon ladies and gentlemen and welcome to the Rimini Street Q1 2025 earnings conference call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you require immediate assistance please press star 0 for the operator. This call is being recorded today, Thursday, May 1, 2025. I would now like to turn the conference over to Dean Paul, Vice President, Treasurer Investor Relations. Please go ahead.

Thank you operator. I'd like to welcome everyone to Rimini Street's fiscal first quarter 2025 earnings conference call. On the call with me today is Seth Raven, our CEO and President, and Michael Perica, our CFO. Today we issued our earnings press release for the first quarter ended March 31st 2025, a copy of which can be found on our website under the investor relations section. 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 and our website under the heading about non-GAAP financial measures and certain key metrics. As a reminder today's discussion will include forward-looking statements about our operations that reflect our current outlook. These forward-looking statements are subject to risks and uncertainties that may cause actual results differ materially from statements made today. We encourage you to review our most recent SEC filings including our form 10 Q file today for 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 more than 2,000 Romini Street employees in 21 countries help clients leverage our unique proven Romini SmartPath methodology to achieve better business outcomes such as significant IT cost savings, more comprehensive hyper responsive software support and the ability to fund AI, workflow, automation and other innovation investments without the need for any additional IT budget. We achieve this unique capability by helping our clients extend the useful life of their existing ERP and other enterprise software, avoid unnecessary upgrades and then use the savings to fund innovation. We are the leading global third-party support provider for Oracle, SAP and VMware software and we run, manage, support, customize, configure, connect, protect, monitor, optimize and transform enterprise application, database and technology software landscapes. The company is signed and successfully delivered on thousands of contracts of Fortune Global 100, Fortune 500, bid market, public sector and government organizations who selected Romini Street as their trusted proven and mission-critical enterprise software solutions provider. First quarter results. We maintained positive momentum in billings and cost controls during the first quarter. Sales included a mix of our product services and solutions and a notable acceleration in sales of our new support subscriptions for VMware across a broad set of industries and geographies. We also achieved improved new logo acquisition sales including major brands and delivered five new client sales transactions in the quarter with TCV over 1 million. Operating expenses and cost of revenue as a percentage of revenue declined .8% year over year due to our continuing cost optimization plan. We believe our focus on offering the right solutions, organizing around the right -to-market strategy and maturing global sales and marketing execution is continuing to drive better sales execution and was reflected in the .2% year over year improvement in quarterly billings. The billings growth was primarily driven by a mix of new subscriptions and project based professional services and geographically led by the EMEA and Asia Pacific regions. New growth drivers. In the first quarter we continued to make investments that we believe enhance our short, medium and long-term sales growth and profitability. One area of focus is the continued investment in the expansion of our global alliances, partnerships and channels business to drive sales leverage beyond our own global sales force. For example, we continued to execute our -to-market rollout with ServiceNow in both sales and service delivery. Recently ServiceNow rolled out the Remini Street sales playbook to their approximately 6,000 global sellers and we both are training our sales teams on the joint solution. In service delivery our engineering teams collaborated on our first joint very successful project for Brazilian pharmaceutical company demonstrating our combined capabilities. ServiceNow plans to premiere and showcase the client solution at ServiceNow's upcoming Knowledge 2025 event in Las Vegas, May 6 through 8, where 25,000 attendees are expected. We also announced three new partnerships. First, we announced a new partnership with innovative security company Valley Cyber whose proven hypervisor security product has been integrated into our support for the VMware solution. Second, we announced a new partnership with Workday, certifying Remini Street as a new provider of application management services for the platform. Hundreds of Remini Street clients use Workday and Remini Street is now offering to run the software for our clients, lowering operating costs, eliminating staffing challenges and improving system operation. Rosario Alameda, Group Vice President, Global Partner Sales, Workday, stated, Remini Street's addition as a Workday AMS partner will provide our community with valuable new capabilities for optimizing their Workday environments. Their established expertise in delivering excellent service and helping clients maximize their IT investment will empower Workday customers choosing to work with them to achieve greater efficiency and derive more value from their deployments. Third, we announced a new strategic partnership with T-Systems North America, where we will deliver an integrated approach to enterprise IT support based on Remini Street's Remini 1 integrated support and management service for SAP, Oracle, and VMware. With a combination of Remini Street's enterprise software expertise and T-Systems North America's deep knowledge of hosting the cloud infrastructure managed services, organizations will have the opportunity to extend the lifespan of their current IT products and releases while seamlessly adopting modern cloud and automation technologies such as our ServiceNow solution. Cesar Martinez, CEO and Chairman of the Board for T-Systems North America, stated, Our partnership with Remini Street marks a significant step in delivering -to-end IT solutions that offer enterprises greater flexibility with alternative roadmaps, efficiency, and cost savings. Oracle Litigation Update. Remini Street and Oracle have been in litigation for more than 15 years, including cases known as Remini 1 and Remini 2. With respect to Remini 1, which was filed by Oracle against Remini Street in 2010, litigation has run its course and there are no current litigation activities related to Remini 1. However, there is a Remini 1 permanent injunction that remains in effect. With respect to Remini 2, the trial was completed in 2022 and we appealed the district court's order and injunction. In December 2024, the U.S. Court of Appeals issued many favorable rulings for us and later returned the case to the district court for further proceedings on the open remaining matters. Oracle sought a rehearing of the appeal, which was denied in February 2025. In April 2025, the district court issued a modified Remini 2 injunction that removed provisions related to findings vacated and overturned by the appeals court and left only the provisions that prohibit Remini Street's use of four marketing statements no longer in use and prohibit certain practices involving Oracle copyright notices that ceased long ago. Our only remaining active litigation matters with Oracle and the district court include whether Remini is liable for certain legacy PeopleSoft development processes and activities and if so, whether an injunction should prohibit these processes. Oracle lost its claims with respect to its other product lines at issue with the Remini 2 litigation and in no case is Oracle entitled to any financial damages. The district court stated its intention to bring the remaining case items now solely related to Oracle's PeopleSoft product to final resolution within a year. Additionally, in the appeals court, we are continuing to seek the return of $58.7 million in Oracle's attorney's fees and costs plus interest that we paid under court order in the fourth quarter of 2024 before the favorable appeals court opinion. For additional information and disclosures regarding the company's litigation with Oracle, please see our disclosures on Form 10Q filed today, May 1, 2025, with the U.S. Securities and Exchange Commission. Please also note that at this time we are unable to provide material additional information beyond the disclosures and statements in our press releases, filings with the SEC, and court filings related to current Oracle litigation

activity. Summary. We remain focused

on driving more leads, building more pipeline, and closing more business through detailed methodical sales discipline and execution. We believe the shifts and uncertainties of deglobalization trends and global trade policy are causing organizations to reassess their IT plans and spending and believe our business will ultimately benefit. We remain confident that we continue to take the right actions and making the right investments in a cost-effective manner to reaccelerate growth and improve profitability, enhance shareholder value, and bring our litigation with Oracle to a successful conclusion.

Now, over to you, Michael.

Thank you, Seth, and thank you for joining us, everyone. Q1 2025 results. Revenue for the first quarter was $104.2 million, a -over-year decrease of 2.4%. Clients within the United States represented 48%, while international clients represented 52% of total revenue for the quarter. Annualized recurring revenue was $396.2 million for the first quarter, a -over-year decrease of 4.7%. Revenue retention rate for service subscriptions, which makes up 95% of our revenue, was 88%, with approximately 77% of subscription revenue noncancellable for at least 12 months. We note that, for the quarter, FX movements negatively impacted our total revenue by 1% during the quarter, compared to a negative impact of .8% for the prior year first quarter. Billings, as defined in our press release, for the first quarter were $79.4 million, up .2% -over-year. Billings excluding the PeopleSoft associated billings increased .3% on a -over-year basis. Gross margin for the first quarter was 61% of revenue, compared to .8% of revenue for the prior year first quarter. On a global scale, we are pleased with this gross margin level in spite of lower revenue, underscoring our continued focus on driving operational leverage through improved systems, processes, and global staffing models while continuing to deliver -in-class support for a wider array of support, optimization, and transformational offerings. Despite our methodical focus on gross margin improvement opportunities through efficiency, we will continue to balance gross margin improvement against investment needs to take advantage of new revenue growth opportunities and believe we have established a strong operating baseline across our full suite of

offerings. Operating expenses.

Reorganization charges associated with our continuous cost optimization plan for the first quarter was $462,000. At the end of Q1, our net annualized cost reduction efforts totaled $24.3 million, reflecting our intentional framework and a strong operating framework that is in the ramp of our growth opportunities and the macro environment. We do expect to incur additional reorganization costs during 2025 as we continue to optimize our cost structure in areas where opportunities to streamline our operations exist. Sales and marketing expenses as a percentage of revenue was .9% of revenue for the first quarter compared to .7% of revenue for the prior year first quarter. On a non-GAP basis, which excludes stock-based compensation expense, sales and marketing expenses as a percentage of revenue was 32% of revenue for the first quarter compared to .3% of revenue for the prior year first quarter. General and administrative expenses as a percentage of revenue, excluding outside litigation costs, was .8% of revenue for the first quarter compared to .2% of revenue for the prior year first quarter. On a non-GAP basis, which excludes stock-based compensation expense and litigation costs, GNA was .6% of revenue for the first quarter compared to .7% of revenue for the prior year first quarter. Professional fees and other costs of litigation was 1.9 million for the first quarter compared to 2.9 million for the prior year first quarter. The net income attributable to shareholders for the first quarter was 3.4 million, or 4 cents per diluted share, compared to the prior year first quarter net income of 1 cent per diluted share. On a non-GAP basis, net income for the first quarter was 8.4 million, or 9 cents per diluted share, compared to the prior year first quarter of 8 cents per diluted share. Our non-GAP operating income, which excludes outside litigation spend, stock-based compensation, and reorganization expense, was 14.5 million, or .9% of revenue for the first quarter compared to .3% for the prior year first quarter. Adjusted EBITDA, defined in our press release, was 15.3 million for the first quarter, or .7% of revenue compared to the prior year first quarter of 10% of revenue. Balance sheet. We ended the first quarter March 31, 2025, with a cash balance and short-term investments of 122.6 million compared to 129 million for the prior year first quarter. On a cash flow basis, for the first quarter, operating cash flow increased 33.7 million compared to the prior year first quarter increase of 11.1 million. Additionally, the effective foreign currency impact was favorable by 2.8 million for the quarter compared to unfavorable foreign currency impact of 4.4 million for the prior year first quarter. Deferred revenue, as of March 31, 2025, was 256.4 million compared to deferred revenue of 254.3 million for prior year first quarter. Backlog, also referred to as remaining performance obligation, RPO, which includes the sum of bill-deferred revenue and noncancelable future revenue, was 553.1 million as of March 31, 2025, compared to 556.9 million for prior year first quarter. PeopleSoft update. In 2024, we announced our intent to wind down our services for Oracle's PeopleSoft product. In our last earnings call, we indicated that we were re-evaluating the wind down decision. We completed that re-evaluation and decided it was still the right decision to continue the wind down plan. We have made progress in reducing both the number of PeopleSoft clients and related revenue since announcing the wind down. PeopleSoft revenue was approximately 7.0 million, or 7% of revenue, for the three months ended March 31, 2025, compared to approximately 8.2 million, or 8% of revenue, for the prior year first quarter. Business Outlook. The company is continuing to suspend guidance 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 disclosure in the company's Form 10Q filed on May 1, 2025, with the U.S. Securities and Exchange Commission. This concludes our prepared remarks.

Operator will now take questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have any questions, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please

for

your first

question.

Your first question comes from the line of Brian against Linger from Alliance Global Partners. Please go ahead.

Great. Thanks so much. Good results. I wanted to start with the three partnerships you discussed. While I'm sure they all have great potential, maybe you could help describe which of the three have the largest long-term potential in your view. And then alternatively, which ones do you expect will have the earliest impact meaningfully to your business?

Sure, Brian. Seth here, obviously. I think the biggest one in total opportunity is without doubt the ServiceNow partnership. I think this is one that we truly believe has substantial global legs. You know, I'm working directly with Bill McDermott. We have a vision, an aligned vision of being able to take out the latest technology that people want. They want workflow. They want automation. They want the ability to have a single pane of glass to see with enterprise AI across the entire enterprise. And we can bring all that technology on top of their existing systems without major expensive and risky upgrades to ERP and other components. That's a huge market opportunity. The ones with T-systems, for example, is an opportunity for first and foremost with the SAP side where they have a very large SAP base across the entire T-systems operation globally. And we have the ability to extend the life of those systems for people who do not want to move and don't find the value in a move to SAP Rise, which also involves a replatforming. And the same is true with other providers out there who are looking for help for their customers who don't want to move. So I think that's a whole category unto itself that represents huge opportunities in the coming years with all those, especially with the SAP clients. And then the Workday, of course, that's a very large set of customers that are on the platform. We're working closely with Workday. There's a lot of our customers that want to implement Workday as part of their next generation systems. And we see a huge opportunity to run those systems for long term revenue. So that's sort of the makeup of those three. And of course, the security with Valley Cyber and all those are very important because it gives us security nobody else has. Even VMware themselves doesn't have this security. So it gives us a huge market opportunity to go after their 330,000 customers.

And in terms of service now, since it's the biggest, help investors understand what a reasonable target for a timeframe of becoming meaningful is maybe 2 or 3 percent of revenue?

I think you're going to see meaningful in 2026. The rollout is extensive on a global basis. As I noted, 6000 sellers are being handed sales tools and playbooks from ServiceNow, but they have a lot of things to learn. And they are pre-mearing with us at many different events. I'm actually here in Korea today. We did an event here. We had 120 people where our team and the ServiceNow team presented our vision of the future and how to integrate that with existing systems. So, yeah, I think you got meaningful execution from a revenue perspective in 2026, but ramping much more significantly in the back half of this year as we put all the pieces together globally.

Great. Touching on the US federal government, maybe I missed that you talked about it. You got to press release. You talked about it on your conference call a couple of months and a half ago. First of all, can you size the maintenance from Oracle and SAP they generate from the federal government? And then second, given the pace, those has cut costs. Can you help us understand how you think about the sales cycle? And would you need meaningful clearances? Do you have clearances to handle that business or would you have to go through that process for your people?

Well, it depends. As you said, it's a big amount of Oracle, SAP, VMware, and a thousand other products that are used by the US federal government. Now, we service governments within military in various countries. So we do service customers with very high clearance for some of our teams. So we do have the ability to bring on teams and manage high security clearance operations because we already do it. And the opportunities, of course, between, say, a Pentagon, a defense versus the rest of the of the US government are massive. I would measure the size of that opportunity in terms of billions of dollars on an annualized basis that are spent in software support and upgrades and migrations that are being forced on the government as well, just like private industry. So for us, it's an exciting new move into the US federal government. We haven't been there before. We did some work for the IRS in the past, but that's it in the federal government. But now we have the opportunity to expand like we're doing with governments around the world.

Right. My last question is deferred revenue is up for the first time in several years on a year over year basis. Looking at the quarter, does this give you confidence that excluding the impacts of PeopleSoft, you'll cross the year over year growth mark this year? Is it still uncertain? And then have you changed your view of the exit of PeopleSoft in terms of timeline? I think you've communicated it's going to be gradual and over time. Is that still the case or has that changed at all?

Well, I think we talked in prior calls. We said that, you know, a three year amortization of the wind down we thought was a reasonable period given the fact we have, I think we're down now to only 130 customers. So we've significantly reduced the number of customers over the time since we announced the wind down of PeopleSoft as a plan. So we've continued down that track. And you know, it's going to be lumpy at different size customers. They come off a different contract period. So it's not going to be a straight line across an amortized three years. It will be lumpy. There will be bigger quarters and others. But overall, Brian, I would say that, of course, we have confidence that despite the headwinds of the reduction of PeopleSoft on the revenue line, the opportunities we have to grow the business are bigger than that. And yes, we do expect at some point in time to cross over and still have a positive and achieve a positive revenue growth despite the headwinds of PeopleSoft continuing to wind down.

Right. I just make one comment that if there are huge chunks of PeopleSoft revenue, you know, are coming up while not giving guidance, hopefully you can give us a clue of if that's about to happen. So investors and sell side analysts alike can

can gauge that. Thank you. Sure. Thank you, Brian.

Thank you. Your next question comes from the line of Derek Wood from TD Cowan. Please go ahead.

Great. Thanks, guys. This is Cole. I'm for Derek. I just want to start with the continued cost saving measures into this year. Is that going to be coming out of go to market or other, you know, areas of headcount where you guys are going to look to, you know, get a little bit more efficient, some more color there would be great.

Sure. So I will tell you that we've been we've reduced over 100 heads as you saw the the account of employees. So we've been very focused on streamlining internal operations. First of all, from IT on down, our processes across the company, reducing administrative costs, just as we're doing for customers. We brought on a new chief information officer global, and he is very focused on driving technology into every part of the business. And we are reducing labor costs. And we are, in fact, installing service now in new areas that we're going to be leaders in in the use of service now. But that is becoming a core platform for us across the company, just as we're advocating for our customers. So that is in progress. We you're going to see some shift of personnel. Some of those costs are related to right sizing the teams and putting them in the right area. We've grown Brazil to hundreds of employees. That's on its way to a target of a thousand. India has grown. It's on its way to a target of a thousand. And we announced the launch of our color Lampour operation. We have a very large customer base in Malaysia and doing very well there. And we announced the the opening of a center that we're going to hire one thousand engineers. So our core centers are growing. That changes the cost factors on a global basis and and again, streamlined operations.

Great. Thanks. And then just one more. Seth, the comments on the macro being a positive catalyst for the business. Do you have any proof points of that that that you could share or is this just a broader look at it? And, you know, on the flip side of that, too, is there anything going on, you know, between macro tariffs, et cetera, that you think, you know, might have a negative impact to growth here in the in the short term? That'd be helpful. Thanks.

Sure. Net positive. That's why I use the term net positive, because on the plus side, whenever businesses and even governments don't know where to spend money, how to spend money, we've seen this 2001 and the dot com meltdown, 2007 and nine and the banking meltdown in 21 when we had the covid meltdown, all different scenarios. But what happens with any of these organizations is big projects get canceled. People move back to cash because cash is king and they want to hold on to that cash. They lower costs because, again, we've got rising labor costs. Overall costs of production are higher. But people are having a hard time raising top line prices because, again, highly competitive, fiercely competitive world. And what's getting squeezed are profits. And when profits get squeezed, I.T. budgets get canceled. I.T. budgets get reduced. And we are the only people that can come in who have a methodology with our smart path methodology where we could reduce costs of labor, reduce costs of system maintenance by taking out the vendors, maintenance, replacing it with the remaining street, saving them up to 90 percent in total operating costs when they don't have to do upgrades and migrations and then using that to fund all of this new innovation that's needed for growth so that we can do both cost cutting and growth in our methodology. And we do all of this within the budget, not above the budget. And that is an amazing opportunity for companies. So, yes, I do think that that the market and the dynamics in the macro are positive for us. Now, as we warned previously, even during the pandemic, you got to watch your renewals because companies are going to be under potential cost pressure. They're going to be under some cash pressure. That's the side of the business you watch. We did very well in holding our renewals through 21. We saw that we did some great things. We helped customers who were in trouble by extending payment terms. We gave them quarterly payments, for example, instead of annual upfront because we have the cash capability to do that. And in exchange, we asked for things like extended contract terms, which don't show up. And so those are the things that are that are really good when we when we give something to get something that becomes a positive for long term business as well.

Thanks. Sure. Thank

you. There are no further questions at this time. I would now like to turn the conference back to Seth Raven for closing remarks.

Thank you very much. Appreciate everybody joining us. Obviously, we're entering some interestingly complex macro world of de-globalization. And we're watching supply chain challenges. We're watching terafors. All of this will play out, we believe, in the months ahead. We're meeting street. We believe we are well prepared to help companies navigate these changes. And we look forward to sharing more information with you on our second quarter company call when we have this at the end of the second quarter results. Thank you very much and appreciate everybody joining us today. Thank you.