Rimini Street, Inc. (RMNI) Q2 2021 Earnings Report, Transcript and Summary

Welcome to Rimini Street Earnings Call. My name is Sylvia and I'll be your operator for today's call. At this time, all participants are in a listen-only. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Dean Pohl, Vice President, Investor Relations. Mr. Pohl you may begin.

Thank you, operator. I'd like to welcome everyone to Rimini Street's second 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 second quarter ended June 30th, 2021 earnings press release which can be found on our website. A reconciliation of GAAP to non-GAAP financial measures has been provided in the table 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 second quarter of 2021 for a 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. Q2 2021 results. For the second quarter, we executed well and remain on track to achieve our strategic growth plan of $1 billion in annual revenue by 2026. We achieved record revenue of $91.6 million, up 16.9% year-over-year and above the high end of our guidance range. We also ended the quarter with strong year-over-year billings growth of 44.4%, a gross margin over 62%, and an active client count that grew by 22.5%. Our revenue retention rate grew to 94%, cross-sales continued to grow as a percent of billings, and we achieved year-over-year billings growth in all three US regions. We also completed significant capital market transactions during and subsequent to the quarter that materially reduced both our cost of capital and potential dilution. Michael will further detail those transactions in his prepared remarks. From the company's inception in 2005 to-date, we have signed more than 4,200 clients including 180 Fortune 500 and Fortune Global 100 companies and added a net of 95 new clients in the second quarter compared to a net add of 82 clients in the year ago period. To-date, we have saved our clients more than $5 billion. During the second quarter, our global service delivery team closed nearly 10,000 support cases and delivered more than 15,000 tax legal and regulatory updates across 35 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 June 30th 2021 was 1,556, a year-over-year increase of 15.9%. Pandemic impact. Despite continued success with the global vaccination rollout, the more infectious COVID delta variant continues to spread around the world. Hence it is clear the global pandemic is far from over and will likely continue to create both opportunities and challenges. We believe we have navigated the pandemic well-to-date and with the risks of the spreading COVID delta variant, we currently plan to continue with our virtual operational, marketing, and sales model through at least the end of 2021. We also continue to believe that our strong balance sheet will provide us competitive advantages in the flexibility to help prospects and clients through 2021 and beyond as needed. 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 execution. During the second quarter, we continue to see growing global interest, pipelines, and sales across our expanded solution portfolio with more clients successfully deploying and using our support, application management, security, interoperability, monitoring, and professional services. Cross-sells are also continuing to grow as a percent of billings and we estimate the cross-sell opportunities in our existing client base currently exceeds $1 billion at accretive annual revenue. We also achieved strong client renewal success in the second quarter, delivering a higher 94% revenue retention rate 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 a small discount. We believe our strong sales execution as a result of our evolved marketing and sales strategy regional and theatre GM leadership model now in place globally, new go-to-market team structures, and the compensation plan alignment we implemented at the start of 2021. We believe our new regional GM model in North America is delivering better sales execution in new logo acquisition, cross-sells, and renewals. And with all three US regions delivering billings growth in the second quarter and nearly 5% year-over-year US revenue growth. We continue to evolve our go-to-market strategy around industries and solutions. Rimini Street 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 solution portfolio. To further support accelerated global revenue growth and achieve our $1 billion annual revenue target by 2026, we continue to strengthen our leadership team with new roles and hires needed to scale the global operation. To highlight how clients are leveraging Rimini Street services globally to achieve their strategic goals across different industries, I'd like to share a few case studies from the second quarter. First the largest agricultural producing county in the US, the county of Fresno California switched to Rimini Street support for its Oracle database, Middleware, and PeopleSoft applications, resulting in immediate annual savings of $800,000. The county also now receives faster response times of proactive guidance from Rimini Street expert engineers. This in turn has freed up the county's internal IT personnel to focus on more critical business initiatives. Robert Bash, Director of Internal Services and Chief Information Officer for the county of Fresno stated that "Partnering with Rimini Street has enabled us to continue advancing a cultural shift towards exploring new ways of doing business. Every dollar county department save on internal services is money that could be spent on programs for the community. The savings have given us the financial flexibility to begin exploring what is next for our infrastructure. We're able to invest in developing a road map for the county all while remaining cost-neutral for our users." Sheri Walden, Deputy Director of information technology for the county of Fresno added "Rimini Street recently helped create a legislative update for us, which according to our PeopleSoft team took substantially less time to implement the previous updates from Oracle. Rimini Street tailored a path specifically to our environment, so our team didn't need to waste time applying code that we didn't need like global payroll. Rimini Street is focused on the support and success of our organization, not just delivering a product. The Rimini Street team initiates meaningful conversation and is constantly probing for how we can improve our infrastructure or better focus on the unique needs of our stakeholders." Next leading Brazilian chemical distributor, quantiQ switched to Rimini Street for support of its SAP S/4HANA system. By switching to Rimini Street, Quantiq significantly reduced its operating cost and plans to reallocate the savings to invest in innovation and process efficiencies across the organization, including a new customer portal, e-commerce initiatives and implementing intelligent automation and RFID capabilities. These initiatives are considered essential projects to maintain its competitive edge and better serve its customers and partners. Jessé Gusmão, Chief Information Officer of quantiQ stated that "Rimini Street support for S/4HANA delighted us due to its differentiated support model. The company's 10-minute response SLA brings our IT department peace of mind knowing that our support partner is ultra-responsive and has highly experienced engineers handling any issues. We can focus our business initiatives of more efficiency and don't waste any more time having to manage IT support requests. We want to establish ourselves as a digital transformation leader in the chemical product distribution industry. Our partnership with Rimini Street will leverage our capability and capacity to be more strategic and oriented to our business and also to invest in new initiatives, so that we can improve the value and quality of services provided and ensure customers see our business as reliable and innovative." Lastly, the leading commercial aviation trade association, International Air Transport Association otherwise known as IATA headquartered in Montreal switched to both Rimini Street support and application management services for its SAP system. The organization now benefits from Rimini Street's unified turnkey service solution that integrates application management and support services enabling IATA to substantially reduce operating costs and new business demand expected in the post-pandemic recovery. Pascal Buchner, IT Director and Chief Information Officer for IATA stated that "From the start of working with Rimini Street, we saw immediate improvement in our SAP application support and management. The onboarding process is quick and seamless and we now have a much better view of our tickets and dashboards. Our in-house SAP team is constantly providing positive feedback on the quality of the support from Rimini Street. We do not regret our outsourcing choice quite the contrary and feel we can deliver even more value to internal stakeholders than before." Market opportunity. Rimini Street believes the total addressable market for its portfolio of solutions is more than $170 billion annually. And our global penetration rate is only about 3.5% for support services and less than 1% for application management services. We believe we have significant greenfield opportunities for our entire portfolio of solutions. Gartner, the leading industry analyst firm and a strong referral source for Rimini Street business is currently predicting a 200% increase in the third-party software support market and expecting that the market will exceed $1 billion in 2023. Further validating the market opportunity, we recently conducted a global survey of 1500 CFOs and financial leaders across 13 countries covering most industries. The results reveal that a majority of CFOs want to cut spending on non-essential IT investments such as vendor pressure, major ERP reimplementation and migration projects that lack clear value or strong ROI. Further CFOs want to see their CIOs optimize existing technology investments. Many CFOs and CIOs believe that large and expensive ERP migrations and upgrades may be better to further avoided. And existing ERP systems can be optimized through strategies and services offered by third-party service providers like Rimini Street enabling the CIO to free up budget and IT resources to help accelerate strategic digital transformation programs. Rimini Street remains the only provider 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. In fact, Gartner notes Rimini Street as the leading provider of third-party support for Oracle and SAP products by annual revenue and client count and its published date implies that Rimini Street has captured over 86% of the global market. Oracle litigation. We do not believe there have been any material developments in the litigation with Oracle since our last earnings call and quarterly report on May 10, 2021. Please see our disclosures in the second quarter 10-Q filing for updated information on the Oracle litigation that has been ongoing since 2010. Summary. We believe the company continued executing well in the second quarter and we are on plan to achieve our $1 billion in annual revenue and deliver around a 20% operating margin run rate by 2026. With the foundation in place to achieve our operational and financial plans, we are focused on sales execution, 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. Q2 2021 results. As Seth noted for the second quarter, revenue was $91.6 million, a year-over-year increase of 16.9% and above our guidance range. Annualized recurring revenue was $362 million, a year-over-year increase of 16.4%. Revenue retention rate for service subscriptions, which makes up the vast majority of our revenue grew to 94% with more than 80% of subscription revenue noncancelable for at least 12 months on a rolling basis. We generated $22.7 million of operating cash flow and ended the quarter with more than $110 million in cash. For the second 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 4.6% for the United States and 35.5% for international clients. In the US, we saw strong results out of the East region and we are seeing good progress in the other regions. Our international strength was broad and spread across all regions. Billings for the second quarter were $107.3 million, compared to $74.3 million for the prior year second quarter, a year-over-year increase of 44.4%. Included in the current quarter billings are a significant amount of multiyear prepayments for both renewals and for new client invoicing. Typically, clients pay for service upfront for the current service year, while multiyear prepayments represent clients who pay upfront for multiple years of support and is a positive indicator of lengthening client retention measured by years of service and increasing lifetime value. Gross margin was 62.2% for the second quarter compared to 61.2% for the prior year second quarter. We continue to invest in the global service delivery capability of our new products and services, including application management services for SAP, Oracle and Salesforce, SAP S/4HANA support services, advanced security solutions and advanced technical solutions. As we have stated previously, we expect and are seeing the benefits of efficiencies of 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 36.2% for the second quarter, compared to 34.2% for the prior year second 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% for the second quarter compared to 16.8% for the prior year second quarter. G&A spend during the first half of 2021 was higher due to primarily onetime employee restructuring expenditures and costs related to capital markets activities and certain litigation-related expenses. Although, we expect lower spend during the second half of the year, we now see G&A expenses to be in the range of 16% to 17% for the full year 2021. Net outside litigation expense was $2.8 million for the second quarter compared to $2.9 million for the prior year second 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 $9.9 million or 11% of revenue for the second quarter compared to $9.6 million or 12% of revenue for the prior year second quarter. Operating cash flow for the second quarter of 2021 was $22.7 million, compared to $17.9 million for the same prior year period. Warrant treatment. We realized a non-cash gain of $3.7 million during the second quarter relating to the $6.1 million private warrants with an exercise price of $11.5 that expire on October 10, 2022. And there is no scenario or provision that would lead to a cash settlement of this non-cash liability, which now stands at $3.1 million. Therefore, at the point when the warrants are retired, we expect to realize a noncash gain to our profit and loss statement to extinguish this liability. Please see the second quarter 10-Q filed today for more confirmation. Balance sheet. We ended the second quarter with a cash balance of $110 million compared to $73 million for the second quarter a year ago. Backlog, which includes the sum of billed deferred revenue and noncancelable future revenue was approximately $571 million as of June 30 2021, up 20% from $476 million from the prior year second quarter. Finally, deferred revenue as of June 30, 2021 was approximately $266 million, up 22% from $219 million from the prior year second quarter. Capital markets events. On April 16, 2021, we completed the buyback of $60 million base value of the Series A preferred stock plus make-whole of approximately $2.3 million reducing the Series A preferred liquidation value to approximately $87 million. The purchase shares were retired. Subsequent events. On July 20, 2021, we completed the buyback of $87.8 million face value of the 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 plus1.75% 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 possible capital return actions. Guidance, we are currently providing third quarter 2021 revenue guidance to be in the range of $93.5 to $95.5 million and maintaining full year 2021 revenue guidance in the range of $370 million to $380 million. This concludes our prepared remarks. Operator, we'll now take questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Derrick Wood with Cowen and Company.

Great. Nice start for you guys. Thanks for taking my questions. And looks like a strong quarter. And I guess on that, I take a look at all the numbers. You had very strong billings growth. Your new customer generation is trending nicely. You had a record net retention rate? And revenue guidance for the year, I think it sits at 13% to 16% growth. You just did 23% growth in short-term billings in the first half. What's holding you back on raising guidance, or maybe what is all the strength in Q2 numbers, mean kind of heading for 2022?

Sure Derrick. Thank you. So I think that when we take a look at the numbers of course, all of us are watching the COVID situation. And it still has impact around the world. We have countries that are in lockdown. Australia has gone back into lockdown and a big part of it. We've got challenges in Taiwan. We've got challenges in Korea Japan. So we've been pushing through nicely on sales through COVID but there's a lot of unknown. And I think that, for us to remain very conservative, because none of us really understand what the impacts will be in the back half of the year. We look at pipelines. We obviously believe in the strength of the pipeline. Obviously, we're executing our methodical plan as we do quarter-after-quarter, not only on the balance sheet restructuring that we set out to do and achieved exactly what we wanted to get done, but also in the sales side. So from that point of view, I think it's the right thing to remain conservative hold our guidance. And if upside develops, will allow that to flow through.

Okay. And I guess Seth, as a follow-up you mentioned year-over-year billings growth in all three U.S. regions, and nice to see U.S. growth having bottomed and starting to move up. On the region, so it sounds like, East was strong. And I'm just -- does this have to do because of a vertical presence, or what's creating this region to outperform and maybe the others to lag? And how are you feeling about the progress, and driving stronger growth in each of these regions in the second half?

Well, I think as we've talked about on many of the last quarter calls, we have been in a focus on restructuring North America around GM regional leadership, redoing the teams. We brought in new personnel across the North American region. And I think you're watching those numbers start to come back up, exactly as we had planned to do. So I think you're watching the execution show results. We're seeing it in pipelines we're seeing it in the highest close rates that we've had in North America, and even globally. So we're seeing good amount of return from the sales investments that we made over the last 18 months. So we're feeling very good, that we're on the right course with the structures. We're on the right course with the execution improvements. And we expect to see continued execution and deliver them for North America. And as you know all of this is baked into our existing plan and guidance understanding that it takes several quarters to rebuild and to get those numbers moving up. But all the indicators that, we see from the efficiency of the salesforce, the quality of the deals we closed more million-dollar deals in the second quarter than in our history. That's another note to put out there in terms of a data point we are doing better at big larger deal transactions and more of them on a quarter-over-quarter basis than you had in the past. And so I think all of those factors really show that the structures we're putting in place the rework of the compensation plans to all integrate and drive the same objectives. All of those structural changes are starting to payoff.

That's very helpful color. And maybe one more for Michael on the net retention rate, I think it was the highest in maybe four, five years four years. Can you unpack that a little bit more? I mean, was that due to -- how much was due to gross retention? It sounds like you guys have called out also some uptick in cross-sell. And on that ladder, if you look at AMS, or if you look at new cloud offerings like Salesforce, or if you look at your core, is there any one theme that's seen bigger cross-sell traction?

Yeah. Derrick, I'll take the cross up question after Michael answers your first question.

You got it. It's a confluence of all those factors that you indicated, Derrick. And you're absolutely correct, that it's been quite some time to see such a positive retention rate. But as you know a key component of our strategy and we saw it. And we expected it and working hard for this to continue is to increase our relationships selling deeper and Seth will comment on the cross-sell as well as have longer duration and we're seeing those efforts play out with our strong retention rate, so thanks for pointing that out, we're quite pleased in with the performance.

Yeah Derrick on the cross-sell, this was a very, very important point for us, when we started 2021, as we laid out for everyone on prior calls. We were doing approximately 10% of our invoicing coming from existing clients. And we wanted to set the goal to double that. And we've been doing better than plan in the first half of the year again very, very pleased with the numbers. And it is selling AMS to existing clients, but just as much selling security, interoperability, professional services. We are truly starting to up-sell the portfolio, the expanded portfolio of our solutions into our vast customer base. And we knew that that would provide significant potential for uplift and acceleration of revenue going forward, if we are able to increase that, because we've always been as you know a logo acquisition company, always out there trying to get the support greenfield business. Now we are truly building a combined infrastructure, all the changes we put in, the new roles we put in, the integrated comp plans, all of those things are working to drive sales back into existing clients as well. And this was the highest number we've seen in terms of cross-sell. Quarter-over-quarter, we're watching that number improve, and we really see this as a significant amount. As we mentioned during my prepared remarks that's over $1 billion of annual revenue opportunity in the existing clients on top of the massive opportunity we have outside of the existing client base. So we've been out there working to make sure that we're not only growing the logos, but we are inside the accounts now starting to really grow those footprints and provide bigger broader solutions. And going back to what Michael said, there's a huge tie into the revenue retention, because the bigger our footprint as you know the stickier we are in the account the harder it is for someone to disengage from us, because of the complexity and the amount of value we're providing that client we should extend all of our client contracts combined in these accounts and drive a higher long-term value of the client.

Sounds good. Thanks for taking my questions.

Thanks, Derrick.

Our next question comes from Jeff Van Rhee from Craig-Hallum.

Great. Thanks for taking my question guys. Just a lot to like here. So, congrats to everybody to the team. A few -- maybe two, maybe three quick questions here. One, on the headcount side, just catching up on where you're on sales and sales hiring. I think you had a goal of 100. Obviously, tight labor market, it's tough to get sales down. I'm wondering what you're thinking there. And then also on the headcount perspective, you've added a lot of people. I think you commented last quarter, how you staffed out on the AMS side. But again, this quarter had goes up nicely, I think, 16% year-over-year. At what point does that headcount growth rate start to fall off meaningfully below the revenue growth rate where you really start to lever? How do you think about that?

Sure. Thanks, Jeff. I think when you take a look at it, we're up to the low 80s in terms of headcount on sales. We still feel very, very good about making our annual target of being at 100 by year-end, feeling good about that. We're seeing the headcount come in. We've taken out a few more people in terms of the churn, because we think we can go for higher-quality reps in some cases in terms of those that we're not delivering on the higher end, and the new reps we're hiring, we're watching them get productive faster. So, I think, we're -- we've been doing a good job of bringing in top talent, so yes, we feel really good about that. Again, our long-term model, as you see in the 2026 is to get us down to about a 33% sales and marketing against revenue number. And I still feel good about that. I think that's where we want to be from the 36% type number that we would expect now, as we catch up. And of course, we're adding as we said a lot of support heads, and I mean, sales support heads around these in order to sell this broader portfolio of services, we are in the transformation process from going from being a one product company to a full suite of solutions that we have to bring to market. And that is a much more costly sales model and that's why you're seeing that 36% number. It's certainly -- and I think you have also as you well know, if you compare us to companies that are in higher growth modes, and we're attempting to continue to accelerate our growth, they tend to have higher sales and marketing expense numbers. 36% is not out of range for that type of growth model. So I think that we feel good about where we are. We feel good about the spend numbers and we feel good about getting to that 33% by 2026.

Yes. Got it. Two other quick ones. Just on the prepaids, I don't know if this is for Michael or you Seth. On the prepaids, can you just quantify that? Obviously, good to see people are willing to step-up from multi-year commits and you get some extra cash, and cash flow is very strong in the quarter. Maybe just quantify that if you would that would be helpful. And then secondly, on the AMS side, can you put some meat on the bones there? Just in terms of either quantity of new AMS wins pipeline? I know you've commented from time-to-time about the momentum and put a little finer point on it. Just give us a little color there.

Sure. So first of all, we don't break out the prepaid, and the reason for that Jeff is simple. Because the prepaid money is not part of our planning, it is a really interesting indicator of the way that people think about the business. I mean, first of all, how many people get paid not only a year upfront for their service, but have customers put up potentially millions of dollars for years in advance in exchange for relatively small additional discount for current present value. I mean, that I think is an important indicator of the confidence that the customers have not only in our service, but in the length of time of their long-term commitment. I think the other interesting note, most people don't get nine year signed contracts. And we've signed contracts for nine years non-cancelable and actually I think a few longer than that, which is unusual in a lot of companies. But I think they're all indicators of long-term commitment, long-term clients in terms of their commitment to us, and intent of staying on our solutions for years into the future. So, that's certainly one point. And then you had a second question. I'm sorry.

The AMS, if you could just give a little bit of expectation what’s out there.

Sure. The AMS and I mentioned the IATA example during the call, we give everyone another opportunity to see that our AMS services are being very well received by the client community. Interestingly, enough we're seeing a lot more first-time customers coming in. We always knew that this would be a great cross-sell opportunity for clients on our support, but we are seeing a lot of first-time clients coming to us looking for that better AMS and support solution. And we're seeing that in the proposals that we're putting out, and we're winning those proposals as well. So I feel really good that the momentum in that business continues to grow. We are still learning -- again, you look across the Salesforce, it's absolutely still a new set of products to sell. We're still getting the Salesforce in some areas more comfortable in certain regions around the world where they haven't sold as much AMS yet or they haven't gotten their feet wet yet. So it's still a big growing opportunity. So the organization is certainly learning how to sell. I told you before on prior calls some embarrassing losses of early proposals where we just were very rookie in the way that we were proposing compared to the people, who have been in this business for a long time, but we're fast learners. And I can tell you that the proposals we're putting out today, our win rates are higher. The proposals are excellent in quality. I'm really proud of the proposals that are going out. We have learned and we've learned very quickly. So I think all of those, again, continue to bode well not just for the AMS, but we are selling millions of dollars of security, the interoperability, and the demand for our professional services is exceeding our capacity. So I think all of those things bode for our ability to really sell a whole bundle of solutions to clients, not just the AMS, but a pretty exciting change for us.

Got it. Great. Congrats. Real nice quarter.

Thank you.

Our next question comes from Brian Kinstlinger from Alliance Global Partners.

Great. Thanks so much for taking my questions. The accelerated rate of growth is great to see, but I want to dig into the cost of acquiring customers given the substantially higher sales and marketing and G&A costs in the first half versus the first half of last year, notwithstanding the onetime items. So are you needing to spend more on average revenue customers, maybe in North America restructuring or paying your sales professionals more, or maybe you can provide some other reasoning for what we've seen recently the surge in SG&A both – sorry G&A and sales and marketing?

Well, a lot of the G&A was really related to as we said. We restructured a bunch of roles. So we did have one-time restructuring costs. We've also had – again, we've done a lot of capital markets transactions as you know which are not cheap. By the time you get through all the other additional expenses that go with it, as a public company. So those add up and then performance bonuses. We obviously had a lot of great success in those transactions. So a lot of one-time costs that went in there, into those numbers why the G&A surged up a little bit. Nothing that, we're concerned about, as we said, we expect the numbers to be lower on the back half of the year, although we'll still be a little bit on the higher end. And I think we've all known, we've talked about on these calls we know our G&A numbers a little higher. Some of it due to the litigation costs. We have a lot of security costs. Again, we handle people all the way down to the Israeli military. We have a lot of confidential secret operations and security cleared operations that we have to manage. So there's a lot of costs that go into things that maybe other companies don't have at a level of security. So those things all add into, which gives us a little higher G&A profile. But you've seen our 2026 plan is to bring that down significantly to that 11% type number. So that is key there. The cost of sale no, I do think that overall, when you have a multi-product sale company, you have a higher cost of sales operation, simply because if you're putting seven products out there you have to have three salespeople for all those seven products you have to have marketing for all those seven products. You definitely have a higher cost of infrastructure than when we were a single product. But I do think, again, look at our long-range is to bring costs of sales and marketing, down to 33% by 2026. And I think those are reasonable numbers, given the operation the kind of margins we're putting out, the kind of growth we expect to drive, and I also point out to everybody, let's not forget the most difficult thing about being a ratable revenue company where all – most of your revenue outside consulting is ratable revenue, and you're trying to grow quite a bit when you're accelerating 16% you're trying to accelerate that. We all know to get to $2 billion by 2026 that averages a 21% CAGR. So clearly, we intend to accelerate growth. And you're doing that, on a ratable model, you're bringing in hundreds of new customers on the front end, but you look at your back-end delivery, when you go to gross margin you, don't have the ability to add people or you will break your financial model of being profitable. And so we're in an unusual situation where we're both accelerating top-line revenue as planned and we're increasing profitability. Normally, you see companies focus on all the growth on the side and they don't worry about profitability. We're moving both forward, which means we're constrained in our model, and it's a bit of a dance, how you bring in all these new customers you have to start serving right away, but you don't get any ability to hire new people, because your revenue is ratable and it comes in over time. So there's the interesting challenges of being a ratable model trying to be profitable and accelerating growth all at the same time I think we're navigating it very well. It's not a perfect dance at any one time. But if you look at where we come from, and where we've gone to over the last quarters, I think we're executing exactly well within that – those constraints.

Great. And then, if you could quantify the total onetime items in G&A and separately sales and marketing. But then my last question after that, would be as you think about the next 12 months to 18 months Europe's been performing fantastically will it be a significant step-up in investment in infrastructure as you further expand in Europe, or have you laid the foundation for the most part of the growth opportunity there?

I think we've really made the majority of the investments. And I think on our last earnings call as we had indicated, we felt good that we had achieved the core infrastructure changes. Sure, we're still adding in some management executive levels. We're still filling out the model to hit that $1 billion number in the next few years. All of that is just part of scale. But we feel like the core -- the kind of investments that would drive down gross margin that we had to do. When we took the one point and up to two point hit in gross margin to make those investments in infrastructure for engineering and the talent pool to be able to service those products, we believe we've made those. That's why we're feeling confident we're still in the gross margin the 61% 62%, we're feeling confident about those other numbers that we put up in terms of guidance.

And then Michael, did you have the one-time items that you could maybe share with us the total value.

Sure. So rather not get into the specifics. However, as you probably are updating your models, we have a 50 basis point raise in the overall G&A for the year, now the 16% to the 17%. So, I'll give you some indication there. Nonetheless, we do see from an absolute basis in the second half of the year, as the majority of this is behind us, that's going to come down. And that's where it's just going to come up for the 50 basis points for the full year. So, I'd also like to note that we -- as Seth has alluded to, elected to put spend on our infrastructure mainly on the G&A side due to the confidence in our growth. As we delivered not only in this quarter, what we have done for the first half of this year, well on our way to our path to the goal of $1 billion in 2026. So, this is indicative of the comfort of where we are today as well as our ability to achieve our lofty objectives.

Okay. Thank you.

Thank you.

Our next question comes from Mark Schappel from Benchmark.

Hi. Thank you for taking my question and nice job on the quarter. Seth, first question for you is a follow-up to an earlier question on the North American sales rebuild, earlier that your -- you believe -- you stated I believe that revenue growth in North America was likely to reach like double-digits by the end of the year. I was wondering if you're still tracking to that growth rate?

Yes. And thank you. Of course, we believe we're still on track for that. I said -- I remember very distinctly. I said that I would be very pleased that we exited 2021 with a double-digit run rate for North America growth. And I know we get a little confused between North America and US, and the numbers that we publish because it's the US segment. It's our North American operations, which is actually US plus Canada. But on the US side, the fact that we were again near 5% year-over-year revenue growth coming in the second quarter. Yes, I would be very pleased if we ended 2021 with a run rate year-over-year at double-digits.

Okay, great. And then, regarding sales headcount, again building on an earlier question. Maybe just talk a little about the different type of sales rep you're hiring today than so you did a year or two ago?

I think you learned a lot over the years. And part of the challenge is, when you go from a one product company to a multi-product portfolio, every company goes through this when you go through that kind of expansion. The sales reps change from being very focused on a particular product that they know well to a different kind of model. You now are positioning a sales rep, who has to position an entire portfolio of services. They have to be able to tell a bigger story about how the company can help another company with all of their different challenges not just one challenge. And that really does change some of the qualities of the sales rep that you're hiring. They have to be able to be much more of a project manager. If a company is interested in three or four different products in your solution portfolio, you have to bring in different pre salespeople. You have to juggle with different buyers, often they're different departments. So, the combination of all that work makes the situation far more complicated in terms of the sale and they play much more of a project manager role. So, I think that that's a difference from someone who's just selling the single product portfolio. So we're hiring more to that profile. And those folks are doing really well handling this larger portfolio of services.

Great, thank you.

Thank you.

We have no further questions at this time. I will now turn the call back over to Mr. Seth Ravin, CEO for final remarks.

Great. Well, thank you again everybody for joining us. We appreciate it. We look forward to having you join us for our third quarter call, and please do remain -- hope you and yours stay safe, and we look forward to talking to you at a later day. Thank you very much everyone.

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