Rimini Street, Inc. (RMNI) Q1 2021 Earnings Report, Transcript and Summary

Hello and welcome to the Rimini Street Earnings Call. My name is Michelle and I will be the operator for today’s conference. [Operator Instructions] I will now turn the call over to Mr. Dean Pohl, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator. I would like to welcome everyone to Rimini Street’s first quarter 2021 earnings conference call. On the call with me today is Seth Ravin, our CEO and Michael Perica, our CFO. Today, we issued our first quarter ended March 31, 2021 earnings press release, which can be found on our website. A reconciliation of GAAP to non-GAAP financial measures has been provided in tables following the financial statements in this 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. A copy of the press release and financial tables, including the GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from the Investor Relations section of our website. 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 first quarter of 2021 for a discussion of risks that may affect our future results or stock price. Before taking questions, we will 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 first quarter, we remain on track to achieve our strategic growth plan of $1 billion in annual revenue by 2026. We achieved record revenue of $87.9 million, up 12.6% year-over-year, a record active client count of 2,550, up 22.8% year-over-year, ended the quarter with strong billings growth of 24.2% and delivered a gross margin greater than 61%. We also continued making investments, including key executive hires, to take advantage of growing global demand for Rimini Street’s expanded breadth of support solutions, including our support, application management, security, interoperability, monitoring and professional services. From the company’s inception in 2005 to-date, we have signed over 4,000 clients, including 168 Fortune 500 and Fortune Global 100 companies and have saved our clients more than $5 billion. During the first quarter, our global service delivery team closed more than 10,000 support cases and delivered nearly 32,000 tax, legal and regulatory updates across 36 countries and achieved an average client satisfaction rating of 4.9 out of 5.0 on the company’s support delivery, where 5.0 is excellent. Our global employee count as of March 31, 2021, was 1,501, a year-over-year increase of 15%. Pandemic impact. The pandemic continues to create opportunities as well as challenges, and we believe our strong balance sheet will provide us continued flexibility to help prospects and clients through the continuing pandemic impacts in 2021. The full extent to which the pandemic will continue to affect our business in 2021 and beyond will depend on numerous evolving factors that we cannot reliably predict. Sales and outlook, for 2021, we continue to see growing interest, pipelines and sales in our core support service business, and our new application management services as well as our innovative security, interoperability, monitoring and professional services with a growing number of clients successfully deploying and using these new services. Support services, where we provide technical support required updates, such as tax, legal and regulatory updates to a team who runs the system for the client day-to-day. Application management services, where we run the system for the clients day-to-day. To highlight how clients are leveraging Rimini Street services globally to achieve strategic goals across different industries, I would like to share a few case studies from the first quarter. First, leading global tire company, Hankook Tire, headquartered in Korea, has switched to Rimini Street support for its SAP applications and reduced its annual maintenance fee by 50% with Rimini Street support. With the efficiencies gained from switching, the company plans to focus its resources on developing innovative technology capabilities, including artificial intelligence and digital sensors. The company is a primary supplier to one of our other global auto manufacturing clients Hyundai-Kia where together, they are lowering supply chain costs. Seyul Ryu, Chief Digital and Information Officer stated that, keeping our business performing efficiently and at its highest level is very important to us. The company is on the fast track to digital transformation with the pursuit of innovation and technological excellence at our core. After learning about Rimini Street’s global availability and expert engineering support, we decided to switch our mission-critical ERP application support to Rimini Street to gain efficiencies and free up resources to focus on maximizing manufacturing operations. Next, London’s Kent County Council switched support for its Oracle E-business Suite application and Oracle database software to Rimini Street. Like other public sector entities, Kent County Council is under significant budgetary pressure. With over 20,000 users, their IT infrastructure makes up a sizable part of its expenditure. Having conducted a rigorous evaluation of its options to either spend significant funds implementing new business applications or drive further savings, the team selected to drive more value out of their existing Oracle products with a move to Rimini Street. Vincent Godfrey, Strategic Commissioner, Kent County Council, stated that it was not the right decision to divert critical resources to disrupt our stable, mission-critical software with an upgrade, especially when dealing with the COVID-19 pandemic. Turning to Rimini Street has bought us the luxury of time and saved us significant resources that we can apply to support essential services while knowing we have expert support enabling us to properly plan our transformation strategy to meet the needs of our organization. Lastly, Ampol Limited, Australia’s leading transport fuels provider, switched to Rimini Street support for its SAP applications and SAP HANA database software. As a result, the company reduced its annual support fees and is also deferring an expensive and disruptive migration to SAP’s new S4/HANA product. For the past 20 years, Ampol has relied on its robust SAP platform is a key enabler of its business and operations. Ampol decided to partner with Rimini Street to maintain and drive more value out of its current SAP platforms while also managing complexity across its supply chain. Alisa Cooper, IT Director, stated that we needed to look at ways to be more efficient and effective with our cost and technology in the current economic environment. The transition to Rimini Street has enabled us to reallocate investment in accelerating business value and innovate around the edges of our SAP platform. Third-party ERP software support landscape. Gartner notes Rimini Street is the leading provider of third-party support for Oracle and SAP products by annual revenue and client count. And its published data implies that Rimini Street has captured over 86% of the global market. Gartner is currently predicting a 200% increase in the third-party software support market, expecting that the market will exceed $1 billion in 2023. Rimini Street is the only company at global scale that offers a proven turnkey single vendor solution for running and supporting ERP software with an ultra-responsive service that supports customization security, interoperability and performance challenges and creates value and savings for clients. As discussed during our Investor Day 2021 in February, we believe our global penetration rate is still only about 3.5% for support services and less than 1% for application management services, providing significant greenfield opportunities within the $170 billion addressable ERP support and AMS market. In addition, we have increased our strategic focus and resources pursuing and closing more cross-sell opportunities within our client base and internally estimate that these opportunities currently exceed $1 billion in annual revenue. We look to achieve these growth objectives by leveraging a robust go-to-market strategy, a sales overlay model and an integrated incentive framework that drives consistent goals throughout the organization. Oracle litigation update, the dispute between the parties has been the subject of two different lawsuits in The United States District Court for the District of Nevada. Third-party support is legal and is not an issue in the litigation. Instead, the litigation involves disputes over the manner in which Rimini Street provides third-party support for licensees of certain Oracle products. In fact, The United States Federal Courts have found that third-party support and customizations of enterprise software is permitted. Oracle licensees have a choice of support vendors, and Rimini provides "third-party support for Oracle’s enterprise software in lawful competition with Oracle’s direct maintenance services." With respect to Oracle versus Rimini Street that was filed by Oracle in 2010, the case went to trial in 2015 and ran its course of all appeals by 2020. With respect to Rimini Street versus Oracle, the case we filed against Oracle in 2014, the cases is in pretrial preparation and trial is not currently expected to occur until the first half of 2022, but could occur earlier. The parties are also engaged in a dispute over a permanent injunction that has been in place since 2018. On March 31, 2021, The United States District Court for Nevada issued an order resolving many outstanding disputes between the parties. The court affirmed that there has been no finding of infringement by the court of the company’s enterprise software support process 2.0 or Automation Framework, AFW tools, finding that, as Rimini Street requested when it filed the litigation in 2014, those issues will be heard and decided by a jury. Additionally, the court ruled in the company’s favor on the ability of Rimini Street’s engineers to learn and gain experience from their work. Oracle has claimed that Rimini Street engineers infringe Oracle’s copyrights and violate court orders by merely applying their learning and using know-how gained supporting one client to support other clients running the same license software. Building on the court’s previous denial of these Oracle claims the court further noted in its most recent order that it is common sense that Rimini’s engineers would get better and faster at conducting a task with more experience. The court also clarified and affirmed other important provisions of its previous and most recent orders in Rimini Street’s favor while denying Oracle claims, stating that accepting some of Oracle’s claims would result in absurd result. The court also denied Oracle’s motion for sanctions, noting that it did not find any inappropriate conduct by Rimini Street and, therefore, found no basis for any sanctions. The court did however find that Rimini Street has violated the injunction in certain narrow instances and circumstances, including with respect to two deliverables relating to two specific clients in 2014 and 2015. However, the cited activities for these two specific deliverables occurred before the injunction was in place and, therefore, cannot be a violation of the injunction. We have filed a motion with the court to correct the errors. The court has scheduled an evidentiary hearing in September 2021. Please see our first quarter 10-Q filing for additional litigation disclosures and information. Summary, we believe the company executed well in the first quarter and we are on plan to achieve $1 billion in annual revenue and approximately 20% operating margin run rate by 2026. To achieve our short-, mid- and long-term goals, we are focused on sales execution, including increased cross-selling and retention, disciplined expense and cash management and bringing our litigation with Oracle to a successful conclusion. Now, over to you, Michael.

Thank you, Seth and good afternoon to everyone. Q1 2021 results, as Seth noted, revenue for the first quarter was $87.9 million, a year-over-year increase of 12.6%. Annualized recurring revenue was $349 million, a year-over-year increase of 13%. Revenue retention rate for support service subscriptions, which makes up the vast majority of our revenue, remained above 90%, with more than 80% of subscription revenue non-cancelable for at least 12 months on a rolling basis. For the first quarter, clients within the United States represented 54% of total revenue, while international clients contributed 46%, representing aggregate year-over-year revenue growth rates of less than 1% for the United States and 32% for international clients. Our international strength was led by strong results from our Asia-Pacific region. Looking forward, we expect to see growth accelerating in North America in fiscal 2021, resulting from our restructured regional operating model, hiring of 3 seasoned general managers in Q4 of 2020 to oversee North American operations, new sales leadership in hiring of many experienced new sales reps. Billings for the first quarter were $81 million compared to $65.2 million for the prior year first quarter, a year-over-year increase of 24.2%. Gross margin was 61.5% for the first quarter compared to 61.3% for the prior year first quarter. We continue to invest in the global service delivery capability for our new products and services, including application management services for SAP, Oracle and Salesforce, SAP S4/HANA support services, advanced security solutions and advanced technical solutions. As we have stated previously, we expect to continue realizing the benefits of efficiencies and scale in our global service delivery throughout 2021 and guiding for full year 2021 gross margin to be in the range of 61% to 62%. Operating expenses. Sales and marketing expenses as a percentage of revenue were 34.6% for the first quarter compared to 36.4% for the prior year first quarter. We remain focused on making the appropriate investments needed to support our aggressive growth initiatives and 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 18.9% for the first quarter compared to 15.4% for the prior year first quarter. We expect G&A expenses as a percentage of revenue to be within the range of 15.5% to 16.5% for the full year 2021. Net outside litigation expense was $4.8 million for the first quarter compared to $3.7 million for the prior year first quarter. Our outside litigation spend is not linear and can fluctuate each quarter based on litigation activities. We expect outside litigation expense to be in the range of $15 million to $17 million for the full year 2021. Adjusted EBITDA was $10.7 million or 12% of revenue for the first quarter compared to $9.2 million, also 12% of revenue for the prior year first quarter. Operating cash flow for the first quarter was $24.5 million compared to $26.3 million for the prior year first quarter. Warrant treatment. On April 12, 2021, the United States Securities and Exchange Commission, the SEC, issued a statement discussing the accounting implications of certain terms that are common in warrants issued by a publicly held Special Purpose Acquisition Company, SPAC. Rimini Street, Inc. became public in October 2017 through a merger with GP Investments Acquisition Corp., GPIA, the SPAC, and certain warrants had been issued by the SPAC in connection with GPIA’s 2015 initial public offering. Currently, one class of outstanding warrants allows for the purchase of approximately 6.1 million shares of the company’s common stock GP sponsor warrants on or before October 10, 2022. The warrants have a cashless exercise provision. Following the recent SEC guidance, the revised accounting interpretation moving forward is that the GP sponsor warrants will be treated as a liability until either exercised or expire. This resulted in a $4.7 million non-cash expense in the first quarter related to the change in fair value of the GP sponsor warrants. All other classes of Rimini Street warrants outstanding will continue to be accounted for using the equity method and, therefore, will not be subject to mark-to-market adjustments. There is no scenario or provision that would lead to a cash settlement of this non-cash liability. 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. Balance sheet. We ended the first quarter with a record cash balance of $153 million compared to $58 million for the first quarter a year ago. Backlog, which includes the sum of billed deferred revenue and non-cancelable future revenue, was approximately $536 million as of March 31, 2021, up 15% from $467 million from the prior year first quarter. Finally, deferred revenue as of March 31, 2021, was approximately $250 million, up 12% from $223 million from the prior year first quarter. Capital market events. On January 5, 2021, we completed the buyback of $10 million face value of Series A preferred stock for an approximate 10% discount to face value, where no make-whole payments were required. The purchase shares were retired. On March 11, 2021, we completed a follow-on public offering of 7.75 million shares of the company’s common stock, resulting in gross proceeds to the company of approximately $57 million. On April 16, 2021, we completed the buyback of $60 million face value of the Series A preferred plus make-whole of approximately $2.3 million, reducing the Series A preferred liquidation value to approximately $87 million. The purchased shares were retired. In light of the aforementioned and our strong free cash flow generation, we ended the first quarter with a net cash position for the first time since going public in 2017. Our net cash position of $7.1 million is calculated by subtracting our quarter end cash on hand from the Series A preferred liquidation value balance. Achieving this net cash position and $44 million of trailing 12 months adjusted EBITDA underscores our solid execution, and we believe positions us well with options to continue reducing the cost of capital. It should be noted that the Series A is redeemable at the option of the company without make-whole beginning in July 2021, but is not mandatorily redeemable until July 2023 and only been upon the election of holders of a majority of the Series A than outstanding. Moving forward, we will continue our methodical focus on increasing free cash flow generation and reducing our cost of capital, and we will take advantage of opportunities if and when they present themselves across all capital market instruments as we strive to optimize our capital structure and improve GAAP profitability for the benefit of all shareholders. Guidance, we are currently providing second quarter 2021 revenue guidance to be in the range of $88.5 million to $90.5 million and maintaining full year 2021 revenue guidance in the range of $370 million to $380 million. This concludes our prepared remarks. Operator, we will now take questions.

Thank you, sir. [Operator Instructions] Okay. And the first question I have in the queue, sir, is from Jeff Van Rhee. Your line is open. Please proceed.

Great, thanks. Thanks for taking my questions, guys. Several for you. Seth, I know go-to-market is a big deal, very much a focus area. You have talked a lot about it. I know you have been – you had some pretty ambitious goals in terms of increasing rep counts. Just talk about where you ended the quarter with rep counts, where you – how the target has changed if it has? And then just maybe a broader discussion about kind of the go-to-market maturation, because I know a lot of things were under development, improved lead gen, etcetera. Just sort of give us a sense of what’s been accomplished and where you are versus plan?

Sure, Jeff and thank you. First of all, as you guys all know, we had struggled with getting the great quality and the quantity of sales reps that we wanted for several quarters and that changed with Q4 and let you guys all know that on our last earnings call for the end of the year. And I am really glad to say we ended the quarter at 81 reps, which was right above target. And we are still on target for completing 100 reps by the end of 2021. So, those haven’t changed in terms of targets, but we are executing very, very well on that. So, that’s a big turnaround from 2020. Again, we put new people in place. We changed out the process for recruiting. They had a lot of improvements and that all responded well in terms of the numbers and the quality of the reps that we are getting. So, we feel much better about that. We still have a little work to do on the hiring in Europe. So, again, it’s a bit of a crazy market, especially with shutdowns in France and all the COVID has made it a little bit more difficult to staff inside of Europe, but other than that, we are doing very well there. The other work that we are doing in redoing, the lead gen, the engines, the systems, the processes, of course, we brought in the new 3 GMs for the North American region. We also hired new sales VPs below them, new directors below them and filled out a lot of the sales positions for the first time being fully staffed, so all that is in place starting at the end of Q4 and into Q1. We will see those results. We believe we will start to hit the bottom line starting in Q2. This is a lot of work to get these new operations up and running, lot of new people, lot of new training. And I think it’s going very well. I am very optimistic on what we have seen as the counters along the way.

Yes. I think in the Analyst Day, you gave a real deep dive in the overall business, but I recall, one of the business points you gave was pipeline was at an all-time high, up 37% year-over-year. Are you able to quantify as it continue to grow at that pace?

I think we are seeing continued growth. I don’t have an exact number for you compared to the Analyst Day, but we are seeing pipeline grow. I think one of the interesting things I know you guys have probably asked about AMS at some point and AMS were actually up – invoicing is 60% higher in the first quarter than a year ago. We are seeing revenue at 20% higher in the first quarter as it flows through from a year ago. We doubled the staff that’s dedicated to AMS. We have doubled just about every component of the business of the AMS side. And we are going to get to a point where we are going to start giving you guys some numbers on that in another quarter or so I would imagine. But we are looking really good. I mean we are seeing those pipelines grow across all the product lines. And that’s why you heard me mention even more than just the support, the AMS business, but our security business continues to accelerate and grow. That’s millions and millions of dollars already and we are going to start talking more about that as I announced in the earnings call last time as well as our professional service numbers are growing. We are significantly over prior numbers. And we are also seeing that in interoperability and technical support, that’s coming through the other products and services that we’re building out as part of our solutions. So you’re really watching growth across all of our different product segments.

If I could sneak one last one in. The – I know the customer active clients, was up 23%, so a very, very good number there. The churn number ticked up or retention tick down over, you want to look at it. I know it’s a TTM figure, but can you just talk about – give us a sense of kind of what you’ve seen there with respect to retention and where we are coming out of COVID? Just a little more color would be great? Thanks.

Sure. I think we’re still seeing some COVID impact. But as I mentioned on the last call, I think we’re seeing stabilization compared to, of course, when the pandemic hit. There was a lot of crisis and people were reacting very quickly. And then you saw them towards the end of the year, they were getting their footing, and they are still dealing with some closed operations or are still dealing with residual revenue lags. Those things are still hitting the customers. So we still have some customers who need some help with quarterly payments and some other types of short-term discounts and things like that. But I do think we saw better stabilization starting in the back half of last year but there is still issues. There is still challenges in different countries. As you know, we’re watching that still in Europe. We are still watching it in Latin America, still hit very hard. So those pockets of fires of COVID impacts to business are still driving some weakness in the retention renewals. But overall, the numbers were very, very good. Our numbers for renewals in the fourth quarter, our numbers for renewals in the first quarter, you’re seeing that reflected again in quarterly billings. As you guys know, last year Q1 was a negative 1% year-over-year billings growth and that transitioned to 24.2% in the first quarter of this year. And before that, it was negative 5% coming into the first year, year-over-year. So this is a great turnaround over several prior years and I think, again, reflects the stronger growth in the business that even if you have a little bit of weakness in the renewals, again, as people navigate COVID, that will all fade away. That’s not long-term. But what really is long term is you’re watching us add and accelerate the growth of the client base and you’re watching all the different product lines grow.

Yes, yes. Fair enough. Thanks for taking my questions.

Sure. Thanks, Jeff.

And the next question in the queue comes from Derrick Wood. Sir, your line is open. Please proceed.

Thanks, guys. Nice to talk to you and great job on the balance sheet to-date. I guess to follow on that last topic, Seth, you mentioned billings. And I just – I mean, you guys had a really strong billings growth number. I was a little surprised to see revenues kind of only at the midpoint of guide albeit at the midpoint, but really big outperformance at least versus what we were thinking on billings. So maybe, Michael, if you could just touch on the billings side? If there is anything unusual with respect to contact or contingent contract structures or timing or anything like that? And maybe, Seth, if you could just kind of speak to the overall performance in the quarter and if there were any surprises that maybe created a bit more seasonality?

Thanks, Derrick. It’s Michael here. With regard to any out-of-the-ordinary contractual structures or trends, the answer is no. We didn’t see that. I would highlight, as Seth noted, that relative to the prior two fiscal years, our start to the year, we are feeling good about the billings in the first quarter and as you very well know a good indicator for the year. As you are aware, we reiterated our guidance for the year. We have some positive trends. So we are pleased with the billings. Seth, over to you.

Yes. I think, Derrick, we always have told that revenue for the first quarter being more of a midpoint rather than exceeding, as we’ve done in some of the prior, you do have any these contract structures, as we said. When we have any kind of contingency, we’re going to net down and that’s why you get those bold use at the end of Q4 and others, right, that are not really as predictable when you have a few million dollars of health accident that had to work their way off, contingency passes, etcetera. And now, there were some big deals that still have continued to seep out there that will keep revenue suppressed a little bit until they are released. So I think you have to take that as a little bit lightness and just because of the way that, that works that can get picked up in the second quarter, etcetera.

That makes sense. And that probably speaks to the second question, but just in terms of your implied guidance, it really calls for a bigger acceleration in the second half, maybe a little less in Q2 and more so in the second half. And maybe that’s part of it. And then, I guess, is that how to think about in terms of like the dividends from your investments in North America? Obviously, it takes time to flow through. Maybe just kind of touch on, obviously, we see revenue, but bookings, North America, is it – how is that in Q1? And what are you thinking in terms of all these new investments when they really start to kind of translate into bookings, improvements throughout the year?

Yes. I think, again, billings is our favorite number to watch because it’s just such a good precursor to revenue on the ratable model, right? So certainly, starting off the year with a 24% growth in billings, I think gives you an indication of the briskness and then you look at the number of deals and active clients, etcetera you see a lot of deal flow. And as we talked about in the prior calls, the ASPs are a little smaller right now, some of that having to do with the economy, some of that having to do with the mix of products that we’re bringing into the bag. But we’re seeing – again, you’re watching gross margins grow. So, all the right numbers are growing. And we would expect that will flow through. I mean we – that’s why we held guidance for the year. You guys all know we’re trying to get ourselves in a fairly conservative position and always looking for upside where we could see it. But it’s still early in the year. And when you have the COVID situation, I mean, just look what happened in India, everything was fine, and all of a sudden, it’s horrible. We’ve got 25% of our operations there, which we’re doing fine with that we don’t have any disruption of service because of our global redundancy, but we’ve had more than 200 people get sick out of our 1,500 employees. So we’ve had to manage through that as well. All that adds up and you got to think about that when you’re calculating risk and forecast. And so we are going to play a bit conservative because there are just still a lot of unknown cards that could play up in any given year, the way things are these days. But I think we’ve held pretty well to our ranges. I think we’ve been reliable. We’ve been to the high end to exceeding on the annualized side. And I think we’re just going to continue to play fairly conservative until we can work our way through the COVID, the economics, tax changes. In fact, you name it, inflation. There is so many different moving parts on the macro scale. I think you just look at our business and if you stay focused on the metrics of the business itself, we’re growing and we’re doing really well, and we will get North America up and running at a much faster pace. And you know that will have good follow-through in revenue growth. So, we still feel extremely good about where we are on the road to $1 billion in revenue by ‘26. Also, the cross-sell, which I mentioned during my prepared remarks, we were doing 10% of invoicing and cross-sell. We’re exceeding our goals and targets for increasing that number. We want to get that number to 20% of invoicing and then eventually, the 30% of invoicing being from existing clients. And we’re moving down that scale. We like what we see. All the huge changes we put in place structural wise with people and comp plan to drive integrated work towards growing that number. And of course, everyone is very excited about what that means for AMS and the other product lines and the growth that, that will drive the bottom line. But we only need a 21% average CAGR between now and ‘26 to get to $1 billion, and we see a lot of roads to get there and maybe sooner.

Yes. I would agree that a lot of the metrics look really good, including – it looks like a pretty robust hiring quarter. Clearly, you’re investing in growth. So that’s good to see. One last one for Michael, the – I mean, FX has had a little bit of a headwind for companies in the last few months. Can you remind us what your exposure is on an FX basis?

So Derrick, it’s minimal at this point, despite the strong growth internationally, but we watch it very closely. We’re cognizant and ensure that we don’t take any undue risk. But at this point, from a bottom line perspective, it’s been a nonmaterial impact.

Got it. Okay, thanks for taking my questions.

Thanks, Derrick.

Thank you, Derrick.

And the next question in the queue comes from Brian Kinstlinger. Your line is open. Please proceed.

Great. Thanks so much for taking my questions. With all the changes to the domestic sales force, GMs, the VPs more, is there any disruption in the short-term? And how long do you think it will take before we can start seeing the acceleration in the North American growth rate to, say, 5% to 10%? And more recently, what is a – when you are executing like you’d hope set, what is a reasonable long-term North American growth rate?

Sure. Thanks, Brian. The – I don’t think anybody ever makes changes to sales without some level of disruption. It just doesn’t happen because people in territories, you disrupt a little bit of momentum in every change. Yes, we have some really big changes. But I think if you look at the fact the deals that we’re signing in North America, we’re signing some great deals. We’re signing a large volume of deals. We just celebrated our Vice President of Sales for Southern North America, the South region, who did more sales than any other Vice President of Sales of the company, significantly more. And we’re seeing some really big wins. So North America is performing. It’s just not enough reps and not enough leaders that were getting the volumes that we wanted to drive the huge engine that we believe North America can be. So I do think ‘21 is still a building year. I do think, though, that you want to get to. We want to get North America performing. Look at what we’re doing internationally outside of the U.S., we’re growing at over 30%. We believe that we can hit those kinds of numbers within the U.S. and don’t see any reason why we can’t eventually achieve it. We used to do 30% across all of North America. There is no reason to believe that we can’t do that again. All the numbers are there. The resources are there. This is an execution issue that’s on us. And I do believe that with the changes that we’re putting in place, everything that we’re seeing, all the indicators are, again, very strong pipeline, very strong business. Some errors on the field, and I talked to you about this many times. When you have got all these new players on the field, the number of errors that happen is high. You have a lot of people making mistakes. They have not been in this business before. They don’t know the answer to the right question. And even on the AMS deals, I told you, we were pretty rookie. We were losing some deals early on just because we didn’t know – it was a new business. We didn’t have all the right answers, didn’t have our proposals honed well enough and we’ve made tremendous progress in our win rates and the quality of what we’re delivering and in the deals we’re winning. So I think that when you look at all that and you look at all the indicators, I think we’re exactly on track with where we want to be with the improvements across North America, watching this come online. And I think we will be in double-digit growth. I’m hoping we’re in double-digit growth this year.

Great. I have two more quick ones. The first one is on the guidance number. When the previous callers asked about the back-end loaded growth, the acceleration, what percentage of the low end of your revenue guidance is coming from backlog versus contracts in either win? Meaning you don’t win any more work, would you hit the low end or would you need $20 million more, for example, or $10 million more of revenue to be one?

No. We need some – we need more. I mean you know that our existing contracts generate over 80% of our revenue, right? That gives us a huge, steady base to know. But that will tell you, I mean that means that you’re dependent 20% of your revenue number off new invoicing and new billings that comes from new clients. So that is exactly the range of that 20%. And of course, as we move through the year, that’s why you see us have pretty narrow ranges on the forecast and the guidance because we can range so much more narrow. In fact, even if you look at the Q2 for guidance we just issued, we have a range of $2 million last year it was $3 million. It’s all because we have so much more already in the bag, as you’d say, that we’re much more confident in narrowing those ranges.

Great. Lastly, I don’t know if it’s relevant or not. Is revenue per client relevant? I’ve seen over four to five quarters, it’s gradually come down. It’s on a steep decline. Does that mean we have price concessions? Does that mean COVID – sorry, due to COVID, is it smaller clients or do you not really think that’s a relevant stat?

We don’t really put it out because I think it’s limited in relevance. It’s one of those data points. I think ASP is a better measure for us. And we are watching. That’s why I mentioned a few minutes ago, we know that it’s down from where it used to be. But we’re also serving a wider variety of clients. And there are countries like Brazil, for example, where the average deal size is much smaller or Taiwan because they tend to be SMB equivalent markets compared to the U.S., so just a $1 million deal down there is the equivalent of doing a $5 million or $10 million deal somewhere else in the U.S. And so I think as you expand out to 20 countries and you increase the volume, to me, and it’s almost the same way when you take a look at revenue per sales rep versus some of the others metrics, some of them are more meaningful. I don’t think revenue per client is really meaningful in our business right now.

Great. That’s helpful. Thanks so much.

Sure.

And the last question in the queue is from Mark Schappel. Your line is open. Please proceed.

Hi. Thank you taking my question and Seth, a question for you. The company has had some really good success in the Asia-Pacific region over the last year or so. Could you just talk a little bit about the reasons for your success in the region? Is it mainly COVID related? Is it – are there structural factors there that are causing the outperformance? I mean is your sales force is further along than other regions?

Yes, sure. I think look, APAC has been a monster of growth in the last few years, well before COVID. COVID really hasn’t had an influence on the growth factor there. What I believe has been the growth factor is the fact that we connect very, very well in Asia because of our pragmatic solution. I think we have cultural alignment, I think we have great execution by our GMs in the four regions. And one of the things we did, Mark, was we broke apart from a single APAC leader in – based in Australia. And we went with local regional leaders. We put GMs in, in Japan, in Korea, Southeast Asia and Greater China based in Singapore and, of course, in Australia, to cover the ANZ and Oceania region. And I am convinced that, that break up into four regional players allowed us to get closer to the ground. We’ve got regional field marketing people. We are truly a local company in these four different segments of Asia. And we are tailoring our business to those segments. And I think it’s a success, a very big success and growing. And that’s what we brought that model to North America. When we said, North America is a really, really big place, lot of clients, in order to get GMs who are closer to the business, let’s put three on the ground, let’s break it into three regions and let those GMs run each of those regions just the way we’ve had success with Asia-Pacific.

Great, thank you. And then with respect to Oracle and SAP, I mean, you continue to chip away at their customers. What are they doing in response? What do you – I mean, they have to be responding some form or fashion. So what are you seeing from them behavioral wise as far as a response to you?

Well, as you well know, it’s always fierce competition. It’s always hand-to-hand combat with Oracle and SAP because they are the incumbent in these clients that we’re coming in and trying to persuade them to make a switch of strategy and vendor. So they always have the incumbent advantage. And they have always played the hand very aggressively whenever we’re on the ground. And lately, because their businesses are suffering, they are not getting people to move to their newest products at the rates that they wanted and hoped for. And so, they are very, very much incentivizing those moves. They are discounting their services and we come up against those discounts all the time. Sometimes, they cause us to lose a deal. Sometimes, usually, we push right through it because even at the same price, if they match our price exactly, we are the better value because they don’t have to do the upgrades. They still don’t have to do the migrations. They get the better outcomes and service that they want, and we provide a wider variety of services with our product than they do. So when you compare apples-to-apples, even if they match our price, we are still, by far, the better strategy and deal, but sometimes, they will disrupt the deal. If the customer was really just looking to get a better price and Oracle and SAP walk in and at the last minute, they drop their price to match ours exactly, which has happened. Sometimes, you will lose that deal because the customer will – just can’t believe they have gotten such a great deal from Oracle or SAP, and they decide to stay with them, but that’s just competition. But the majority of those deals, we continue to win.

Great, thank you.

Sure.

And gentlemen, we have no further questions. Do you have any closing remarks?

Certainly. I want to make sure everybody I hope you are staying safe. I hope you are getting vaccinated. We look forward to seeing you on the next call. And again, if you have any additional questions, please do let our IR team know. We’re always happy to answer what we can answer. And I look forward to seeing everybody on the Q2 call. Thank you very much everyone. Have a good day.

Thank you. Ladies and gentlemen, this now concludes today’s teleconference. Thank you for participating. You may now disconnect.