Welcome to Rimini Street’s Third Quarter Fiscal Year 2018 Earnings Conference Call. I will now hand the call over to Dean Pohl, Director of Investor Relations.

Thank you, Shannon. I’d like to welcome everyone to Rimini Street’s Third Quarter 2018 Earnings Conference Call. On the call with me today is Seth Ravin, our CEO; and Tom Sabol, our CFO. Today, we issued our third quarter 2018 earnings press release, which can be found on our website. A reconciliation of 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 in the press release 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 SEC filings, including our Form 10-Q for the third fiscal quarter, which was filed today for a discussion of 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.

Thank you, Dean, and thank you, everyone, for joining us to review Rimini Street’s third quarter 2018 financial results. For the third quarter, we generated revenue of $62.6 million, up 17% year-over-year, with annualized subscription revenue of $250 million, up 17% year-over-year. Revenue retention rate for subscriptions, which is substantially all of our revenue mix currently, remained above 90% with approximately 80% of subscription revenue non-cancelable for at least 12 months on a rolling basis. We ended the quarter with 1,732 active Fortune Global 100, Fortune 500, mid-market, public sector and other clients across a broad range of industries and geographies, up 19% year-over-year. During the third quarter, our global service delivery team closed more than 7,500 client support cases across 41 countries, delivered a gross profit of 64.5% and maintained an average client satisfaction rating of 4.8 out of 5 on the company’s support delivery where 5.0 is rated as excellent. We also proudly accepted 15 awards for client service, including Customer Service Department of the Year, Customer Service Leadership of the Year, Customer Service Team of the Year and Company of the Year. We ended the third quarter with 1,092 employees, a year-over-year increase of approximately 20%. Initiatives and investments. On last quarter’s earnings call, we discussed the payoff and termination of our former credit facility through the issuance and sale of convertible preferred stock and common stock in July 2018. By eliminating the financial and operational covenants in our former credit facility, we are now able to invest more in growth activities that were previously limited such as increasing our sales and marketing infrastructure, expanding our global footprint, SaaS product rollout, new software support offerings and cross-selling opportunities. During the third quarter, we increased our sales and marketing staff by approximately 33% year-over-year, launched new marketing campaigns…

Thank you, Seth. Let me begin with a summary of our fiscal Q3 2018 results. As Seth noted, revenue for the third quarter was $62.6 million, which represents an increase of 17% year-over-year. The revenue was near the high end of our guidance as a result of strong growth outside of the United States. Annualized subscription revenue was $250 million, up 17% year-over-year. Clients outside of the United States constituted 36% of total revenue in the third quarter and a revenue growth rate of 32% year-over-year. This has been and will continue to be an area of continued investment and expected growth for the company. Gross margin was 64.5% in the third quarter of 2018, up from 62.5% in the third quarter of 2017. While we currently expect full year 2018 gross margin to be around 61%, we currently expect our fourth quarter gross margin will be in the range of 59% to 61%, taking into account additional investment costs associated with the launch of new products, services and geographic expansion, along with higher on-boarding costs that typically occur in our fourth quarter due to the expected number of new customer wins. Sales and marketing expenses increased as a percentage of revenue to 36% of revenue in the quarter, up from 31% in all of fiscal 2017. We currently expect to spend up to 37% of revenue on sales and marketing for all of fiscal 2018. General and administrative expenses, which excludes outside litigation costs, was 13.7% of revenue in Q3 of 2018, down from 16% in the third quarter of 2017. Going forward, we expect G&A to continue to be a source of leverage in our model. However, as a result of being a new public company, we will continue to incur higher professional service and additional accounting infrastructure…

Thank you. [Operator Instructions] Our first question comes from Derrick Wood with Cowen and Company. Your line is open.

Thanks, guys. And congratulations, John, we looks to be a solid quarter.

Thank you.

So Seth, you guys have obviously been hard at work expanding sales capacity, making some tweaks to your sales structure and go-to-market. Maybe you could spend some time talking about what you see working well and how you’re feeling about continuing to build that momentum into Q4 and next year.

Sure, Derrick. I think, again, like every other tech company out there, not only are we hiring sales reps but the support staff that goes around it. For example, for every three sales reps, we hire a lead-gen person and we hire an inside sales rep. So there’s a multiple group of people. We also – we spent more time this quarter building out staff that was not as many about sales reps but sales infrastructure. We hired new GMs of North America. We’re maturing our GM for Europe. We added in a bunch of new directors, vice presidents. So a lot of infrastructure around those sales reps so that we could then finish off hiring the rest of the sales rep with more leadership to do that hiring. And I think, again, like every technology company, it feels like you’re in negative unemployment when it comes to hiring great sales talent. It is challenging. And I think we got a lot of good people hired. As you saw, we were over 30% higher in sales and marketing heads year-over-year. So we certainly are getting the hiring done. But I think what’s working for us, what’s really working well is our new focus on Business-Driven Roadmaps. This is a huge change. And I mentioned it in my prepared remarks, talking about the fact that Rimini Street is really in the business of helping people find an alternative roadmap to the vendor. And with all of these releases being forced into retirement, the idea that customers can have a status quo for years longer is coming to an end. They’re going to have to make a decision whether they’re going to go down the vendor’s path, make the investments, move to the products and releases they want or they’re going to have to make a decision to do something else. And Rimini Street is the leader in doing something else in those Business-Driven Roadmaps. That’s really compelling. And I’ll give you an example of how big the reception is to it. We do Gartner events every year, the Gartner Symposium around the world. The largest crowd we have ever had at one of our sessions and really big, was 150 people. I just went down and did the presentation in Orlando where that 150 people was our max historically. We had 700 attendees. And we just did – did one in Brazil, standing room only, over 200 people. We just did Barcelona this week, again, packed room, over 500 people. And we got every seat sold out in the room in Japan, over 200 people. I think it’s clear that road mapping is the number one challenge for CIOs and we are right in the sweet spot to help them find their way.

Great. And I guess that’s good for my next question. Sounds like there’s a lot of interest. Now in the quarter, you had a nice sequential uptick in new customer generation and that’s despite your comments around the competitive landscape. So can you talk about the types of new clients you’re on-boarding, the mix of large versus mid-market or product mix or geo mix, change much?

Well, I think, again, you’re seeing international do very well. Of course, it’s on the smaller base, right, so you have to look at the percentage increase accordingly. But there is tremendous growth coming from the international side. North America is a little more mature. We are very focused on the North American engine. The international engines are relatively new. And I think, again, the problem, not just for Rimini Street but North America customers are so overwhelmed with sales, brochures and calls, it is hard for everybody to get the attention just to get in the door and spend time with people. And I’m sure like me you’re deleting 50 emails a day from everybody who wants to talk to you about something they want to sell you. So I think we’ve got a common issue in North America of a little bit of saturation from a marketing perspective. But once we get in front of someone and we talk about the roadmap, we move forward very nicely. It’s a great strategic discussion where we can add value.

And how about – I didn’t hear anything on the new Salesforce offering. I know it’s early, but any feedback so far now that you’re in the market?

Well, I think we continue to build out that program. We’ve been hiring around sales, engineers, we’ve been hiring support people. So the hiring has continued in the third quarter. We still have some work to do to figure out. There’s a whole different lingo, as you know, in the Salesforce world, in the SaaS world than the traditional license. And it’s been a learning curve for us. And it’s not about software support, it’s really about some concepts that are slightly different and being able to walk and talk the way the customers want us to talk. And so we have to go through a little bit of a learning curve. I’m learning every day, still. Even though we’re big Salesforce users and we’re closely working with them, there’s just still an education curve for us to bringing up a lot of people around the company. So I still think we are exactly where we wanted to be, which is continuing to build the internal infrastructure and be in a position to go GA with services in 2019.

Okay. One more for you, Seth, and then I have a couple for Tom. But what are the next steps with regards to the appeal on the injunction?

Well, the next step is we wait for a court date. We now are before the Ninth Circuit once again. It looked like – and from what we could tell, looks like the same judges that heard – two of the three same judges will likely be involved. We don’t know that for a fact yet. But certainly, that gives our judges more information and less of a learning curve. And we hope to get in front of the court within the year.

Within a year. Okay.

I know these timetables seem to go on forever. I mean, we’re back. It’s deja vu. This whole process, it’s unfortunate that – I mean this is the way the U.S. court system works. You go back, you go back again, and it seems to go on and on. But I do think we will reach resolution, but it could take us another couple of years to get it done.

Okay. Tom, you had an amazing gross margin number this quarter. What was the reason for the shrink? And then you did give some guidance on Q4. Does that contemplate the higher costs associated with the injunction?

So Derrick, the third quarter was a good quarter. Really leveraging the work that we’ve done with adding new tools and new processes, so good leverage there. And yes, the guidance in Q4 does assume the additional labor costs associated with having to do things more manually because of the injunction being back in place.

Okay. And on sales and marketing, 37% of revenue for the year. I think that’s a little bit lower than the previous forecast. So is on-boarding a little slower, more back-end loaded? Or were there other expenses you were able to rationalize on?

So – and Seth can give you probably more color. Yes, we’re going to be – we’re going to still do about 40% for the quarter, 37% for the year. I think the – we’ve done a lot of work, as Seth indicated, on the infrastructure side of the sales. We think it’s just – as he mentioned, it’s being a little bit more difficult to hire the individual sales reps, and we think it’s just going to take a little bit longer. So that’s really the main reason for ratcheting that number down a little bit from what we had in the last quarter call.

Can’t spend what we can’t hire, right? So that’s where we’re going to come in a couple of points lighter. We still expect to hit the 85 sales rep target. My guess is it’s going to be more like February. So before we give our next earnings call, we should be at 85 number. We’re probably not going to make that a number of sellers by year-end. So we’re probably a couple of months shy of our target.

And Derrick, actually, it’s probably in the 80 to 85 range. That’s probably the range we’re looking at by the time we announce earnings.

Yes. Okay. Lastly, Tom, any comment on the mix of contracts with contingent clauses and whether that had any discernible bearing on deferred revenue?

Actually, in this quarter, it did not. We’re essentially kind of consistent with where we were last quarter, so that’s why there wasn’t any comments in my prepared remarks around that. So that did not have an impact on the calculated billings for the quarter.

And your question, Derrick, about the contracts, we had $1 million-plus contracts, we had good suite of midsize contracts, lot of manufacturing. We had a couple of bankruptcies from some of our bigger retailers. As you know, that’s a pretty volatile area. So that would be on the negative side, unfortunately. But I think those are going to work through for us, okay, even though it’s tumultuous, obviously, for the retailers. But generally, I think we’re having a good, broad distribution of size, geography, some really good quality names in the mix as well. So yes, we felt pretty good about the mix for the quarter.

Okay, well done. Thanks.

Thanks, Derrick.

Thank you. [Operator Instructions] Our next question comes from Drew Foster with Citigroup. Your line is open.

Hi, guys. Thanks for taking the question.

Sure, Drew.

Just one quick one on the revenue retention rate. It’s still pretty high in the low 90s but was down sequentially. Is there a range that you’re sort of comfortable working within or built into your projections?

Yes. Drew, I think we look forward to the 90 – over 90%. We don’t get worked up about 1% or 2%. We also have a little more volatility in our revenue retention rate and – than you find in most staff subscription business. It’s just the nature of our business. Companies come and go, they bring us a product, they can leave, come back with another product. So it’s not the same kind of churn that you see in a standard software company where you have the cadence of someone signs with you, they probably stay 10 years, then they may be up for someone else. You work in different cycles. Our customers can check in and check out products fairly regularly and a little more so than you have. And that’s why the churn has to be looked at differently. But above 90%, we feel fine with.

Got it. And then just last one, with the Salesforce partnership, with initial interest that you’re seeing there, what’s sort of your confidence level in that being a meaningful contributor to top line next year?

In terms of being meaningful, material, those words for next year, I think it’s a little too early to say given, again, just the ratio of total revenue when you think about meaningful. I really do think of the first year out as a big learning experience for us across different customers and geographies. So as we’ve been, we’re going to be very conservative. Do the walk before we jog and jog before we run. But I can tell you that when we understand the market, we understand there’s a lot of challenges for customers with Salesforce. And it’s a great product, but they’re playing project manager to hiring staff, trying to keep the contractors moving. There’s a shortage of resources and knowledge. So there’s a lot of various issues in managing their systems. And there’s a lot of inefficiencies, and that really is ripe for disruption. And we really feel very, very good that we’re building a program that will be that disruptive engine that changes the paradigm of a traditional SI billing by the hour to do implementations and then trying to live in a post-production world. So there are definitely areas, and we’re seeing that. We’re getting a lot of client interest in those areas. The question is how does remodel work within that? Does our model satisfy all those needs? Do we disrupt with the model that we’re building? And those are the fine-tunings that we’re doing now to make sure we have a real killer service to offer next year.

Got it. And then maybe just one last one. You have this narrative of customers reducing their ERP maintenance spend so that they can unlock some more resources to invest in other areas. I’m just curious what you’re hearing most often as being some of those – those other areas that customers are wanting to focus more of their resources on.

I think you’ve got machine learning, you’ve got AI. I mean, all your buzzwords that are out there in – I’d say, IoT for the manufacturers, a lot of that. I think people are just generally excited that there are a lot of things again to create competitive advantage instead of focusing on which upgrades you’re going to have to do in order to keep being supported by the vendor and spending years doing upgrades that really won’t provide them competitive advantage globally. I really – I mean, what I’m taking away with all the attendants we’re seeing, the follow-up from those events, road mapping is just the most complex issue of all. You’re an IT leader, you’re being asked to do a three to five-year strategy when the software vendors themselves are making it up as they go along by the week. So you have to do the impossible to predict where technology is going to be, where you’re going to invest in three to five years. As we all know in the technology business, it’s like a lifetime. And so it is a very, very tough situation for CIOs who have these leadership and budget responsibilities. And the idea that they can sidestep all of this in terms of required upgrades and updates, it’s huge. And I think you’re going to watch this be a catalyst for significant potential upside for the company through 2025.

Great. That’s it for me. Thanks.

Thank you.

Thank you. And I’m currently showing no further questions at this time. I’d like to turn the call back over to Seth Ravin for closing remarks.

Thank you very much. And again, everybody, thank you for joining us for our call in the third quarter. We look forward to reconvening with everybody for the fourth quarter and full year 2018 results. And again, have a great holiday season, and we will see you on the other side of the year. Thank you very much.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation, and have a wonderful day.