Rimini Street, Inc. [RMNI] Filings

10-Q 1 rmni-20240930.htm 10-Q rmni-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 001-37397


Rimini Street, Inc.
(Exact name of registrant as specified in its charter)


Delaware						36-4880301
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1700 S. Pavilion Center Drive, Suite 330, Las Vegas, NV						89135
(Address of principal executive offices)						(Zip Code)

Registrant's telephone number, including area code:						(702) 839-9671

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:

Common Stock, par value $0.0001 per share	RMNI	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨			Accelerated filer þ			Non-accelerated filer ¨


Smaller reporting company ☐						Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

The registrant had approximately 90,920,000 shares of its $0.0001 par value common stock outstanding as of October 28, 2024.

RIMINI STREET, INC.

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION		2

ITEM 1.	Financial Statements	2

	Unaudited Condensed Consolidated Balance Sheets	2

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	3

	Unaudited Condensed Consolidated Statements of Stockholders' Deficit	4

	Unaudited Condensed Consolidated Statements of Cash Flows	5

	Notes to Unaudited Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	35

ITEM 4.	Controls and Procedures	36

PART II. OTHER INFORMATION		37

ITEM 1.	Legal Proceedings	37

ITEM 1A.	Risk Factors	37

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

ITEM 3.	Defaults Upon Senior Securities	61

ITEM 4.	Mine Safety Disclosures	61

ITEM 5.	Other Information	61

ITEM 6.	Exhibits	63

SIGNATURES		64

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

RIMINI STREET, INC.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)


	September 30,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	119,494	$	115,424
Restricted cash	429		428
Accounts receivable, net of allowance of $1,053 and $656, respectively	66,996		119,430
Deferred contract costs, current	16,637		17,934
Short-term investments	—		9,826
Prepaid expenses and other	25,190		25,647
Total current assets	228,746		288,689
Long-term assets:
Property and equipment, net of accumulated depreciation and amortization of $20,794 and $18,231, respectively	10,431		10,496
Operating lease right-of-use assets	6,895		5,941
Deferred contract costs, noncurrent	20,836		23,559
Deposits and other	4,743		6,109
Deferred income taxes, net	72,191		59,002
Total assets	$	343,842	$	393,796
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	3,093	$	5,912
Accounts payable	4,559		5,997
Accrued compensation, benefits and commissions	33,867		38,961
Other accrued liabilities	74,284		18,128
Operating lease liabilities, current	4,384		4,321
Deferred revenue, current	202,281		263,115
Total current liabilities	322,468		336,434
Long-term liabilities:
Long-term debt, net of current maturities	67,959		64,228
Deferred revenue, noncurrent	21,033		23,859
Operating lease liabilities, noncurrent	6,806		6,841
Other long-term liabilities	2,350		1,930
Total liabilities	420,616		433,292
Commitments and contingencies (Note 8)
Stockholders’ deficit:

Preferred stock; $0.0001 par value. Authorized 99,820 (excluding 180 shares of Series A Preferred Stock) no other series has been designated	—		—
Common stock; $0.0001 par value. Authorized 1,000,000 shares; issued and outstanding 90,841 and 89,595 shares, respectively	9		9
Additional paid-in capital	175,125		167,988
Accumulated other comprehensive loss	(5,651)		(4,167)
Accumulated deficit	(245,141)		(202,210)
Treasury stock, at cost	(1,116)		(1,116)
Total stockholders' deficit	(76,774)		(39,496)
Total liabilities and stockholders' deficit	$	343,842	$	393,796

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

RIMINI STREET, INC.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue	$	104,672	$	107,453	$	314,540	$	319,386
Cost of revenue	41,135		40,110		126,230		118,802
Gross profit	63,537		67,343		188,310		200,584
Operating expenses:
Sales and marketing	35,781		35,593		112,299		107,356
General and administrative	16,528		18,384		54,460		55,475
Reorganization costs	1,431		—		4,639		59
Litigation costs and related recoveries:
Litigation expense	58,512		—		58,512		—
Professional fees and other costs of litigation	879		2,127		5,406		5,475
Litigation costs and related recoveries, net	59,391		2,127		63,918		5,475
Total operating expenses	113,131		56,104		235,316		168,365
Operating income (loss)	(49,594)		11,239		(47,006)		32,219
Non-operating income and (expenses):
Interest expense	(1,577)		(1,413)		(4,401)		(4,139)
Other income (expenses), net	(642)		990		1,814		1,799
Income (loss) before income taxes	(51,813)		10,816		(49,593)		29,879
Income taxes	8,713		(4,015)		6,662		(13,171)
Net income (loss)	(43,100)		6,801		(42,931)		16,708
Other comprehensive income
Foreign currency translation gain (loss)	1,555		(1,061)		(9)		(1,011)
Derivative instrument and other adjustments, net of tax	(1,284)		140		(1,475)		302
Comprehensive income (loss)	$	(42,829)	$	5,880	$	(44,415)	$	15,999

Net income (loss) attributable to common stockholders	$	(43,100)	$	6,801	$	(42,931)	$	16,708

Net income (loss) per share attributable to common stockholders:
Basic	$	(0.47)	$	0.08	$	(0.48)	$	0.19
Diluted	$	(0.47)	$	0.08	$	(0.48)	$	0.19
Weighted average number of shares of Common Stock outstanding:
Basic	90,776		89,228		90,343		88,942
Diluted	90,776		89,357		90,343		89,322

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

RIMINI STREET, INC.

Unaudited Condensed Consolidated Statements of Stockholders' Deficit

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Common Stock, Shares
Beginning of period	90,698		89,085		89,595		88,517
Exercise of stock options for cash	—		—		—		57
Restricted stock units vested	143		238		1,246		922
Issuance of Common Stock	—		—		—		75
Retired shares of Common Stock	—		—		—		(248)
End of period	90,841		89,323		90,841		89,323
Total Stockholders' Deficit, beginning of period	$	(36,119)	$	(62,061)	$	(39,496)	$	(77,170)
Common Stock, Amount
Beginning of period	9		9		9		9
Exercise of stock options for cash	—		—		—		—
Restricted stock units vested	—		—		—		—
Retired shares of Common Stock	—		—		—		—
End of period	9		9		9		9
Additional Paid-in Capital
Beginning of period	172,951		161,391		167,988		156,401
Stock based compensation expense	2,174		3,131		7,137		9,056
Exercise of stock options for cash	—		—		—		79
Restricted stock units vested	—		—		—		—
Retired shares of Common Stock	—		—		—		(1,014)
End of period	175,125		164,522		175,125		164,522
Accumulated Other Comprehensive Loss
Beginning of period	(5,922)		(3,983)		(4,167)		(4,195)
Other comprehensive income (loss)	271		(921)		(1,484)		(709)
End of period	(5,651)		(4,904)		(5,651)		(4,904)
Accumulated Deficit
Beginning of period	(202,041)		(218,362)		(202,210)		(228,269)
Net income (loss)	(43,100)		6,801		(42,931)		16,708
End of period	(245,141)		(211,561)		(245,141)		(211,561)
Treasury Stock	(1,116)		(1,116)		(1,116)		(1,116)
Total Stockholders' Deficit, end of period	$	(76,774)	$	(53,050)	$	(76,774)	$	(53,050)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

RIMINI STREET, INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended September 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(42,931)	$	16,708
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation expense	7,137		9,056
Depreciation and amortization	2,650		2,001
Accretion and amortization of debt discount and issuance costs	600		728
Deferred income taxes	(12,951)		6,263
Amortization and accretion related to operating right of use assets	3,359		3,347
Changes in operating assets and liabilities:
Accounts receivable	51,058		54,112
Prepaid expenses, deposits and other	(196)		(4,339)
Deferred contract costs	4,020		674
Accounts payable	(1,390)		(2,551)
Accrued compensation, benefits, commissions and other liabilities	48,297		(14,702)
Deferred revenue	(60,822)		(57,684)
Net cash provided by (used in) operating activities	(1,169)		13,613
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures	(2,698)		(3,654)
Payment for purchases of investments	(7,458)		(24,118)
Proceeds from maturities of investments	10,948		23,614
Proceeds from sale of investments	6,336		—
Net cash provided by (used in) investing activities	7,128		(4,158)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the 2024 Credit Facility	2,938		—
Principal payments on the Original Credit Facility	(2,625)		(3,938)
Payments to repurchase and retire Common Stock	—		(1,014)
Principal payments on capital leases	(267)		(247)
Proceeds from exercise of employee stock options	—		79
Net cash provided by (used in) financing activities	46		(5,120)
Effect of foreign currency translation changes	(1,934)		(5,109)
Net change in cash, cash equivalents and restricted cash	4,071		(774)
Cash, cash equivalents and restricted cash at beginning of period	115,852		109,434
Cash, cash equivalents and restricted cash at end of period	$	119,923	$	108,660

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

RIMINI STREET, INC.

Unaudited Condensed Consolidated Statements of Cash Flows, Continued

(In thousands)


	Nine Months Ended September 30,
	2024		2023
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	3,789	$	3,409
Cash paid for income taxes	2,662		4,164
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in payables for capital expenditures	$	34	$	669

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

Rimini Street, Inc. (the “Company”) is a global provider of end-to-end enterprise software support, products and services. The Company offers a comprehensive family of unified solutions to run, manage, support, customize, configure, connect, protect, monitor, and optimize clients’ enterprise application, database, and technology software platforms.

Basis of Presentation and Consolidation

The Unaudited Condensed Consolidated Financial Statements, which include the accounts of the Company and its wholly-owned subsidiaries, are prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany balances and transactions have been eliminated. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by U.S. GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Unaudited Condensed Consolidated Financial Statements have been included. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2023, included in the Company’s 2023 Annual Report on Form 10-K as filed with the SEC on February 28, 2024 (the “2023 Form 10-K”).

The accompanying Unaudited Condensed Consolidated Balance Sheet and related disclosures as of December 31, 2023 have been derived from the Company’s audited financial statements. The Company’s financial condition as of September 30, 2024, and operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the year ending December 31, 2024.

NOTE 2 — LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES

Liquidity

As of September 30, 2024, the Company’s current liabilities exceeded its current assets by $93.7 million, and the Company recorded a net loss of $43.1 million for the three months ended September 30, 2024. This was a result of the Company accruing a $58.5 million liability for Oracle’s attorneys’ fees and costs. See Note 8 for further information regarding this accrual.

As of September 30, 2024, the Company had available cash, cash equivalents and restricted cash of $119.9 million. As of September 30, 2024, the Company’s current liabilities included $202.3 million of deferred revenue whereby the costs of fulfilling the Company's commitments to provide services to its clients was approximately 39% of the related deferred revenue for the three months ended September 30, 2024.

On April 30, 2024, the Company amended its $90 million five-year term loan (the “Original Credit Facility”) into a new five-year term loan of $75 million (the “2024 Credit Facility,” and together with the Original Credit Facility, the “Credit Facilities”). Annual minimum principal payments over the five-year term for the 2024 Credit Facility are 5%, 5%, 7.5%, 7.5% and 10%, respectively, with the remaining balance due at the end of the term. See Note 5 for further information regarding the Company's 2024 Credit Facility and the Original Credit Facility.

Additionally, the Company is obligated to make operating and financing lease payments that are due within the next 12 months in the aggregate amount of $1.9 million. During the three months ended September 30, 2024, the global economy continued to experience interest rate and inflationary pressures, geopolitical conflicts, global supply chain issues, a rise in energy prices and the continuing effects of fiscal and monetary policies adopted by governments. Assuming the Company’s ability to operate continues not to be significantly adversely impacted by the related changes in the macroeconomic environment, geopolitical pressures, or the litigation matters described in Note 8, the Company believes that current cash, cash equivalents, restricted cash, and future cash flow from operating activities will be sufficient to meet the Company’s anticipated cash needs, including 2024 Credit Facility repayments, working capital needs, capital expenditures and other contractual obligations for at least 12 months from the issuance date of these financial statements.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances to determine the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s accounting estimates include, but are not necessarily limited to, valuation of accounts receivable, valuation assumptions for stock options and leases, deferred income taxes and the related valuation allowances, and the evaluation and measurement of contingencies. To the extent there are material differences between the Company’s estimates and actual results, the Company’s future consolidated results of operations may be affected.

Recent Accounting Pronouncements

Recently Adopted Standards. The following accounting standards will be adopted during fiscal year 2024:

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures.” The guidance expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will be adopting this guidance for the year ending December 31, 2024 and is still assessing the impact on the disclosures to its Consolidated Financial Statements.

NOTE 3 - DEFERRED CONTRACT COSTS AND DEFERRED REVENUE

Activity for deferred contract costs consisted of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Deferred contract costs, current and noncurrent, as of the beginning of period	$	37,307	$	40,106	$	41,493	$	40,726
Capitalized commissions during the period	5,015		4,913		10,753		13,630
Amortized deferred contract costs during the period	(4,849)		(4,966)		(14,773)		(14,303)
Deferred contract costs, current and noncurrent, as of the end of period	$	37,473	$	40,053	$	37,473	$	40,053

Deferred revenue activity consisted of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Deferred revenue, current and noncurrent, as of the beginning of period	$	262,793	$	285,324	$	286,974	$	299,921
Billings, net	65,193		60,528		250,880		257,864
Revenue recognized	(104,672)		(107,453)		(314,540)		(319,386)
Deferred revenue, current and noncurrent, as of the end of period	$	223,314	$	238,399	$	223,314	$	238,399

The Company’s remaining performance obligations represent all future non-cancellable revenue under contract that has not yet been recognized as revenue and includes deferred revenue and unbilled amounts. As of September 30, 2024, remaining performance obligations amounted to $574.6 million, of which $223.3 million was billed and recorded as deferred revenue. As of September 30, 2023, remaining performance obligations amounted to $550.1 million, of which $238.4 million was billed and recorded as deferred revenue.

Deferred revenue is a contract liability that consists of billings issued that are non-cancellable and payments received in advance of revenue recognition. The Company typically invoices its customers at the beginning of the contract term, in annual and multi-year installments. Deferred revenue is recognized as the Company satisfies its performance obligations over the term

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of the contracted service period. The Company expects to recognize revenue on approximately $202.3 million of deferred revenue over the next 12 months, with the remaining deferred revenue balance recognized thereafter.

NOTE 4 — OTHER FINANCIAL INFORMATION

Other Accrued Liabilities, including Accrued Reorganization Costs

Other accrued liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2024		2023
Accrued sales and other taxes	$	5,295	$	7,963
Accrued professional fees	3,187		3,551
Accrued reorganization costs	697		—
Current maturities of capital lease obligations	382		360
Income taxes payable	910		1,771
Accrued litigation costs	58,845		82
Other accrued expenses	4,968		4,401
Total other accrued liabilities	$	74,284	$	18,128

During the second quarter of 2024, the Company began a process to optimize its cost structure. The reorganization activity consisted of the following (in thousands):


	Nine Months Ended September 30,
	2024
Accrued reorganization costs, as of the beginning of period	$	—
Charges	4,639
Cash Payments	(3,945)
Foreign currency impact	3
Accrued reorganization costs, as of the end of period	$	697

NOTE 5 — DEBT

Debt is presented net of debt discounts and issuance costs in the Company's balance sheets and consisted of the following (in thousands):


	September 30,		December 31,
	2024		2023
Credit Facilities	$	71,052	$	70,140
Less current maturities	(3,093)		(5,912)
Long-term debt, net of current maturities	$	67,959	$	64,228

For the three and nine months ended September 30, 2024, the Company made principal payments under the Credit Facilities totaling $0.9 million and $2.6 million, respectively. For the three and nine months ended September 30, 2023, the Company made quarterly principal payments under the Original Credit Facility totaling $1.7 million and $3.9 million, respectively.

On April 30, 2024, the Company refinanced its Original Credit Facility, which had an outstanding principal balance of $70.9 million, with the 2024 Credit Facility, a new five-year senior secured credit facility consisting of a $75.0 million term loan and a $35.0 million revolving line of credit. For the term loan, the Company has a choice of interest rates between (a) the Secured Overnight Financing Rate (“SOFR”) and (b) a Base Rate (as defined in the 2024 Credit Facility), in each case plus an

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

applicable margin. The applicable margin is based on the Company’s Consolidated Total Leverage Ratio (as defined in the 2024 Credit Facility) and whether the Company elects SOFR (ranging from 2.75% to 3.5%) or Base Rate (ranging from 1.75% to 2.5%). The revolving line of credit bears interest on the unused portion of the credit line at rates of 25 to 40 basis points, depending on the Company’s Consolidated Total Leverage Ratio. Annual minimum principal payments over the five-year term for the 2024 Credit Facility are 5%, 5%, 7.5%, 7.5%, and 10%, respectively, with the remaining balance due at the end of the term.

The refinancing was accounted for as a debt modification under ASC 470-50 as the terms of the 2024 Credit Facility were not substantially different than the terms of the Original Credit Facility. Under debt modification accounting, third party costs are expensed as incurred. During the nine months ended September 30, 2024, the Company expensed $0.2 million in third party transaction costs in connection with the modification. Fees paid to the creditor of $1.1 million were included with the remaining unamortized discount from the Original Credit Facility and are being amortized as an adjustment to interest expense over the remaining term of the 2024 Credit Facility.

Pursuant to a Guaranty and Security Agreement, dated April 30, 2024, among the Credit Parties (as defined in the 2024 Credit Facility) and Capital One, National Association, as agent (the “2024 Guaranty and Security Agreement”), the obligations under the 2024 Credit Facility are guaranteed by certain of the Company’s subsidiaries and are secured, subject to customary permitted liens and exceptions, by a lien on substantially all assets of the Credit Parties.

In February 2023, the Company amended its Original Credit Facility. The amendment implemented, among other things, certain changes in the reference rate from the London Interbank Offered Rate (“LIBOR”) to SOFR. As of February 28, 2023, the Company had a choice of interest rates between (a) Adjusted Term SOFR and (b) Base Rate (as defined in the Original Credit Facility), in each case plus an applicable margin. The applicable margin was based on the Company’s Consolidated Leverage Ratio (as defined in the Original Credit Facility) and whether the Company elected Adjusted Term SOFR (ranging from 1.75 to 2.50%) or Base Rate (ranging from 0.75 to 1.50%).

For the three months ended September 30, 2024 and 2023, the average interest rate under both the 2024 Credit Facility and the Original Credit Facility was 8.1% and 7.1%, respectively. For the nine months ended September 30, 2024 and 2023, the average interest rate under both the 2024 Credit Facility and the Original Credit Facility was 7.7% and 6.8%, respectively.

The fair value of the 2024 Credit Facility was $75.0 million (Level 2 inputs) as of September 30, 2024 compared to the carrying value of $71.1 million as of September 30, 2024. The fair value of the Original Credit Facility was $73.1 million (Level 2 inputs) as of December 31, 2023 compared to the carrying value of $72.3 million as of December 31, 2023.

Effective April 30, 2024, the Company’s interest rate swap agreement was amended in connection with the 2024 Credit Facility to match the new five-year term. The new interest rate swap agreement has a notional value of $40.0 million, with a fixed payer SOFR rate of 3.71% and an initial floating SOFR rate of 5.32%. The floating rate is reset at each month end and the term of the interest rate swap agreement coincides with that of the 2024 Credit Facility. See Note 11 for further information regarding the fair value accounting for the interest rate swap agreement. The modification of the interest rate swap agreement did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements.

Under the 2024 Credit Facility, the Company has $35.0 million in available borrowings under the revolving line of credit as of September 30, 2024. There were no borrowings under the revolving line of credit during the three months ended September 30, 2024.

Interest Expense

The components of interest expense are presented below (in thousands):

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Credit Facilities:
Interest expense	$	1,378	$	1,147	$	3,723	$	3,351
Accretion expense related to discount and issuance costs	166		245		600		728
Interest on finance leases and other	33		21		78		60
	$	1,577	$	1,413	$	4,401	$	4,139

For both the three months ended September 30, 2024 and 2023, interest expense included a reduction related to interest rate swap payments received of $0.2 million, respectively.

For both the nine months ended September 30, 2024 and 2023, interest expense included a reduction related to the interest rate swap payments received of $0.6 million, respectively.

NOTE 6 — COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS

Common Stock Retired

During the three and nine months ended September 30, 2024, the Company did not acquire any shares of its Common Stock. During the three and nine months ended September 30, 2023, the Company acquired 0.2 million shares of its Common Stock at a cost of $1.0 million. Upon completion of all repurchase transactions, the associated shares of Common Stock were retired.

Stock Plans

The Company’s stock plans consist of the 2007 Stock Plan (the “2007 Plan”) and the 2013 Equity Incentive Plan, as amended and restated in July 2017 (the “2013 Plan”). The 2007 Plan and the 2013 Plan are collectively referred to as the “Stock Plans”. On February 23, 2024, pursuant to the “evergreen” provisions of the 2013 Plan, the Board of Directors authorized an increase of approximately 3.6 million shares available for grant under the 2013 Plan.

On May 3, 2024, the Company’s Board of Directors, approved the Company’s 2024 Long-Term Incentive Plan (the “2024 LTI Plan”), consisting of awards of performance units (“PSUs”), restricted stock units (“RSUs”) and stock options to purchase shares of the Company’s Common Stock under the terms of the Company’s 2013 Plan, as amended, effective May 6, 2024.

On March 31, 2023, the Company’s Board of Directors, approved the Company’s 2023 Long-Term Incentive Plan (the “2023 LTI Plan”), consisting of awards of PSUs, RSUs and stock options to purchase shares of the Company’s Common Stock under the terms of the Company’s 2013 Plan, as amended, effective April 3, 2023.

For additional information about the Stock Plans, please refer to Note 8 to the Company’s Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of the 2023 Form 10-K. The information presented below provides an update for activity under the Stock Plans for the three and nine months ended September 30, 2024.

Performance Units

Under the 2024 LTI Plan, the Company granted PSUs which will be measured over a performance period beginning on January 1, 2024 and ending on December 31, 2024 (the “Performance Period”), but will remain subject to a continued service-based vesting requirement. Half of the PSUs awarded are eligible to vest based on the Company’s achievement against a target adjusted EBITDA goal for fiscal year 2024, and the remaining half of the PSUs awarded will be eligible to vest based on the Company’s achievement against a target total revenue goal for fiscal year 2024. The ultimate number of PSUs that may vest (as calculated, the “Earned PSUs”) range from zero to 200% of the granted PSUs. On May 6, 2024, the Company granted 0.8 million PSUs at a grant price of $2.47.

The Earned PSUs under the April 3, 2023 grant were earned at 151%. Under the terms of the 2023 LTI Plan, the Earned PSUs will vest in equal annual installments on the first, second and third anniversaries of the Date of Grant, generally subject to the awardee continuing to be a Service Provider through the applicable vesting date.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company recognized compensation expense related to PSUs of $0.2 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the Company recognized expense of $1.0 million and $0.7 million, respectively. As of September 30, 2024, the unrecognized expense of $0.8 million net of forfeitures is expected to be charged to expense on a graded basis as the PSUs vest over a weighted-average period of approximately 1.5 years.

Restricted Stock Units

For the nine months ended September 30, 2024, the Board of Directors granted RSUs under the 2013 Plan to employees for an aggregate of approximately 1.7 million shares of Common Stock. RSU grants vest over periods generally ranging from 12 to 36 months from the respective grant dates and the awards are subject to forfeiture upon termination of employment or service on the Board of Directors, as applicable. Based on the weighted average fair market value of the Common Stock on the date of grant of $2.63 per share, the aggregate fair value for the shares underlying the RSUs amounted to $4.5 million as of the grant date that will be recognized as compensation cost over the vesting period.

For the three months ended September 30, 2024 and 2023, the Company recognized compensation expense related to RSUs of approximately $1.3 million and $1.8 million, respectively. For the nine months ended September 30, 2024 and 2023, the Company recognized compensation expense related to RSUs of approximately $3.8 million and $5.7 million, respectively. As of September 30, 2024, the unrecognized expense of $4.7 million net of forfeitures is expected to be charged to expense on a straight-line basis as the RSUs vest over a weighted-average period of approximately 1.7 years.

Stock Options

For the nine months ended September 30, 2024, the Board of Directors granted stock options for the purchase of an aggregate of approximately 0.9 million shares of Common Stock at exercise prices that were equal to the fair market value of the Common Stock on the date of grant. Options granted to employees generally vest as to one-third of the shares subject to the award on each anniversary of the designated vesting commencement date, which may precede the grant date of such award, and expire ten years after the grant date.

The following table sets forth a summary of stock option activity under the Stock Plans for the nine months ended September 30, 2024 (shares in thousands):


	Shares	Price (1)		Term (2)
Outstanding, December 31, 2023	7,800	$	5.77	5.9
Granted	877	2.59
Forfeited	(331)	4.82
Expired	(1,000)	5.91
Outstanding, September 30, 2024 (3)(4)	7,346	5.41		6.0
Vested, September 30, 2024 (3)	4,820	6.20		4.6

(1)Represents the weighted average exercise price.

(2)Represents the weighted average remaining contractual term until the stock options expire in years.

(3)As of September 30, 2024, the aggregate intrinsic value of all stock options outstanding was $3 thousand. As of September 30, 2024, there was no aggregate intrinsic value related to the vested stock options.

(4)The number of outstanding stock options that are not expected to ultimately vest due to forfeiture amounted to 0.3 million shares as of September 30, 2024.

The aggregate fair value of approximately 0.9 million stock options granted for the nine months ended September 30, 2024 amounted to $1.4 million, or $1.61 per stock option as of the grant date utilizing the Black-Scholes-Merton (“BSM”) method. The fair valued derived under the BSM method will result in the recognition of compensation cost over the vesting period of the stock options. For the nine months ended September 30, 2024, the fair value of each stock option grant under the Stock Plans was estimated on the date of grant using the BSM option-pricing model, with the following weighted-average assumptions:

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Expected life (in years)			6.0
Volatility			64%
Dividend yield			0%
Risk-free interest rate			4.34%
Fair value per share of Common Stock on date of grant			$2.59

As of September 30, 2024 and December 31, 2023, total unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, was $3.1 million and $4.6 million, respectively. As of September 30, 2024, the unrecognized costs are expected to be charged to expense on a straight-line basis over a weighted-average vesting period of approximately 1.7 years.

Shares Available for Grant

The following table presents activity affecting the total number of shares available for grant under the 2013 Plan for the nine months ended September 30, 2024 (in thousands):


Available, December 31, 2023			8,481
Newly authorized by Board of Directors			3,584
Stock options granted			(877)
RSUs and PSUs granted			(2,815)
Expired options under Stock Plans			1,000
Forfeited options under Stock Plans			331
Forfeited RSUs and PSUs under Stock Plans			397
Available, September 30, 2024			10,101

Stock-Based Compensation Expense

Stock-based compensation expense attributable to PSUs, RSUs and stock options is classified as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of revenue	$	373	$	503	$	1,348	$	1,423
Sales and marketing	566		817		1,546		2,067
General and administrative	1,235		1,811		4,243		5,566
Total	$	2,174	$	3,131	$	7,137	$	9,056

Warrants

As of September 30, 2024, warrants were outstanding for an aggregate of 3.4 million shares of Common Stock exercisable at $5.64 per share. For additional information about these warrants, please refer to Note 8 to the Company’s Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of the 2023 Form 10-K.

NOTE 7 — INCOME TAXES

For the three months ended September 30, 2024 and 2023, the Company’s effective tax rate was 16.8% and 37.1%, respectively. For the nine months ended September 30, 2024 and 2023, the Company’s effective tax rate was 13.4% and 44.1%, respectively. The Company’s income tax benefit (expense) was attributable to the income (loss) before income taxes, which was offset, in part, to earnings in the foreign jurisdictions subject to income taxes and foreign withholding taxes. The Company did not have any material changes to its conclusions regarding valuation allowances for deferred income tax assets or uncertain tax positions for the three and nine months ended September 30, 2024 and 2023.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For additional information about income taxes, please refer to Note 9 to the Company’s Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of the 2023 Form 10-K.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Purchase Commitments

The Company’s purchase commitments as of September 30, 2024 are primarily related to agreements to purchase services in the ordinary course of business. During the three months ended September 30, 2024, the Company executed an agreement associated with an existing supplier that increased the Company’s minimum purchase obligations by $1.5 million through September 2027. As of September 30, 2024, the total minimum purchase obligations totaled $10.8 million. There have been no other material changes outside the normal course of business to the Company’s non-cancellable purchases commitments. For additional information, please refer to Note 10 to the Company’s Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of the 2023 Form 10-K.

Retirement Plan

The Company has defined contribution plans for both its U.S. and foreign employees. For certain of these plans, employees may contribute up to the statutory maximum, which is set by law each year. The plans also provide for employer contributions. For the three months ended September 30, 2024 and 2023, the Company’s matching contributions to these plans totaled $0.8 million and $1.0 million, respectively. For the nine months ended September 30, 2024 and 2023, the Company’s matching contributions to these plans totaled $2.7 million and $2.6 million, respectively.

Rimini I Litigation

In January 2010, certain subsidiaries of Oracle Corporation (together with its subsidiaries individually and collectively, “Oracle”) filed a lawsuit, Oracle USA, Inc. et al. v. Rimini Street, Inc. et al. (United States District Court for the District of Nevada) (the “District Court”) (“Rimini I”), against the Company and its Chief Executive Officer, Chairman of the Board and President, Seth Ravin, alleging that certain of the Company’s processes (Process 1.0) violated Oracle’s license agreements with its customers and that the Company committed acts of copyright infringement and violated other federal and state laws. The litigation involved the Company’s business processes and the manner in which the Company provided services to its clients.

After completion of a jury trial in 2015 and subsequent appeals, the final outcome of Rimini I was that Mr. Ravin was found not liable for any claims and the Company was found liable for only one claim: “innocent infringement,” a jury finding that the Company did not know and had no reason to know that its former support processes were infringing. The jury also found that the infringement did not cause Oracle to suffer lost profits. The Company was ordered to pay a judgment of $124.4 million in 2016, which the Company promptly paid and then pursued appeals. With interest, attorneys’ fees and costs, the total judgment paid by the Company to Oracle after the completion of all appeals was approximately $89.9 million. A portion of such judgment was paid by the Company’s insurance carriers.

Rimini I Injunction Proceedings

Since November 2018, the Company has been subject to a permanent injunction (the “Rimini I Injunction”) prohibiting it from using certain support processes that had been found in Rimini I to “innocently” infringe certain Oracle copyrights. The Rimini I Injunction does not prohibit the Company’s provision of support services for any Oracle product lines, but rather defines the manner in which the Company can provide support services for certain Oracle product lines.

In July 2020, Oracle filed a motion to show cause with the District Court contending that the Company was in violation of the Rimini I Injunction, and the Company opposed this motion, disputing Oracle’s claims. After completion of an evidentiary hearing in September 2021, findings and order by the District Court in January 2022 and a subsequent appeal by the Company to the Ninth Circuit Court of Appeals (“Court of Appeals”), the final outcome of the proceedings, which were resolved in October 2023 on remand to the District Court, was a finding that the Company had violated the Rimini I Injunction in four instances, entitling Oracle to $0.5 million in sanctions (representing a $0.1 million adjustment to the $0.6 million sanctions award originally paid by the Company to Oracle in January 2022). In addition, the Company complied with the District Court’s January 2022 order to quarantine certain computer files and provide proof of such quarantining to Oracle. Oracle reimbursed the Company $0.1 million in November 2023 for the portion of the sanctions award that was reduced on appeal.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In its January 2022 findings and order, the District Court also ruled that Oracle could recover its reasonable attorneys’ fees and costs relating to the Rimini I Injunction Proceedings. In December 2023, the District Court accepted a joint stipulation between Oracle and the Company (the “Stipulation”) resolving the issue of Oracle’s recovery of attorneys’ fees and costs upon the Company’s payment of approximately $9.7 million to Oracle. Also per the Stipulation, the Company agreed that it would forego any remaining appellate rights with respect to this matter.

As a result of the Stipulation and the subsequent payment by the Company of the amount described above, all matters relating to the Rimini I Injunction Proceedings have been resolved. At this time, the Company believes that it is in substantial compliance with the Rimini I Injunction.

Rimini II Litigation

In October 2014, the Company filed a separate lawsuit, Rimini Street Inc. v. Oracle Int’l Corp., in the District Court against Oracle seeking a declaratory judgment that the Company’s revised “Process 2.0” support practices, in use since at least July 2014, did not infringe certain Oracle copyrights (“Rimini II”). The Company’s operative complaint asserted declaratory judgment, tort, and statutory claims, including a request for injunctive relief against Oracle for unfair competition in violation of the California Unfair Competition Law. Oracle asserted counterclaims including copyright infringement claims, violations of the Digital Millennium Copyright Act (“DMCA”) and Lanham Act, breach of contract and business tort violations with respect to PeopleSoft and other Oracle-branded products, including J.D. Edwards, Siebel, Oracle Database and Oracle E-Business Suite (“EBS”).

In October 2022, Oracle withdrew all of its monetary damages claims against the Company and the Company’s Chief Executive Officer, Chairman of the Board and President, Mr. Ravin, in Rimini II and moved to proceed with a bench trial instead of a jury trial for its claims for equitable relief.

The District Court entered an order on October 24, 2022, dismissing with prejudice Oracle’s claims in Rimini II “for monetary relief of any kind under any legal theory[,] including but not limited to claims for damages, restitution, unjust enrichment, and engorgement. . . .” In addition, Oracle’s claims for breach of contract, inducing breach of contract and an accounting, were dismissed with prejudice, meaning that the claims (including for monetary damages) were dismissed on their merits and the judgment rendered is final. Prior to the date of the District Court’s order dismissing with prejudice all of Oracle’s claims for monetary relief, no damages of any kind were awarded by the District Court in Rimini II. The parties each reserved the right to seek or object to any attorneys’ fees and/or costs to the extent permissible by law.

In July 2023, the District Court issued its findings of fact and conclusions of law in Rimini II, accompanied by a permanent injunction against the Company (the “Rimini II Injunction”) which is subject to an administrative stay and is not currently effective. The District Court found infringement as to Oracle’s PeopleSoft and Oracle Database products but did not find infringement as to Oracle’s EBS, Siebel and J.D. Edwards products, further ordering that the Company was entitled to a declaration of non-infringement for Oracle’s EBS product. The District Court also found in favor of Oracle on its DMCA and Lanham Act claims, enjoining the Company from making certain statements and prohibiting certain actions in connection with the manner of marketing, selling and providing services to clients of the Oracle products in question as further described below, and on indirect and vicarious copyright infringement claims against the Company’s Chief Executive Officer, Chairman of the Board and President, Mr. Ravin. The District Court denied the Company’s California Unfair Competition Law claim and other declaratory judgment claims.

In July 2023, the Company filed a notice of appeal in the District Court, commencing an appeal of the District Court’s July 2023 Rimini II judgment and Injunction and filed an emergency motion with the District Court to stay enforcement of the Rimini II Injunction pending the Company’s appeal of the Rimini II judgment and Injunction.

In August 2023, the District Court issued an order denying the Company’s emergency motion to stay the Rimini II Injunction pending the Company’s appeal with the Court of Appeals, but it granted an administrative stay of the Rimini II Injunction pending the outcome of a motion to stay to be filed by the Company with the Court of Appeals. Shortly thereafter, the Company filed the separate motion to stay the Rimini II Injunction with the Court of Appeals, asserting that certain provisions of the Rimini II Injunction are vague and overbroad, that the District Court committed legal error, that certain provisions would require the Company to commit criminal acts to comply with its terms, and that the Rimini II Injunction would cause the Company and third parties “irreparable harm,” among other grounds.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In September 2023, the Court of Appeals issued an order holding the Company’s appeal of the District Court’s decision in Rimini II in abeyance pending the District Court’s resolution of a motion filed by Oracle in August 2023 to amend the Rimini II judgment pertaining to an update, technical specification and tool related to Oracle’s EBS software product. The District Court denied Oracle’s motion to amend on January 9, 2024.

On January 18, 2024, the Ninth Circuit issued an order lifting the stay of the Company’s appeal.

On June 5, 2024, a three-judge panel of the Ninth Circuit heard oral argument on the Company’s appeal. As of the date of this Report, a decision on the Company’s appeal remains pending.

Also as of the date of this Report, the Court of Appeals has not issued a decision on the Company’s motion to stay the Rimini II Injunction. Accordingly, the Rimini II Injunction, as issued by the District Court, is currently stayed by the District Court, meaning that it is not currently effective. The Rimini II Injunction is primarily directed at Oracle’s PeopleSoft software product and, if effective, would limit, but not fully prohibit, the support services the Company can provide its clients using Oracle’s PeopleSoft software product.

Among other things, the Rimini II Injunction requires the Company to immediately and permanently delete certain PeopleSoft software environments, files and updates identified in the Rimini II Injunction, as well as to delete and immediately and permanently discontinue use of certain Company-created automated tools. The Rimini II Injunction also prohibits using, distributing, copying, or making derivative works from certain files, and it prohibits the transfer or copying of PeopleSoft files, updates, and modifications, and portions of PeopleSoft software that are developed, tested, or exist in one client’s systems to the Company’s systems or another client’s systems.

The Rimini II Injunction also specifies that the Company shall not remove, alter or omit any Oracle copyright notices or other Oracle copyright management information from any file that contains an Oracle copyright notice and prohibits the Company from publicly making statements or statements substantially similar to those the District Court found to be “false and misleading,” which are listed in the Rimini II Injunction.

While the Company plans to continue to vigorously pursue a stay of the Rimini II Injunction pending appeal and its appeal of the Rimini II judgment and Injunction, it is unable to predict the timing or outcome of these matters. No assurance is or can be given that the Company will succeed in its efforts to stay the Rimini II Injunction in full or in part pending appeal or prevail in all or part of its Rimini II appeal.

There were no monetary damages included in the District Court’s judgment in Rimini II.

In November 2023, Oracle filed a motion with the District Court requesting attorneys’ fees and costs of approximately $70.6 million relating to the Rimini II litigation. The Company filed its opposition to Oracle’s motion in February 2024. In its opposition, the Company argued that the District Court should deny Oracle’s motion in its entirety. The Company further argued that, should the District Court award any attorneys’ fees to Oracle, such fees should not have exceeded $14.5 million. Following Oracle’s filing of a reply brief in March 2024, the matter was under consideration for determination by the District Court. On September 23, 2024, the District Court issued its order on Oracle’s motion for attorneys’ fees and costs, granting in part the motion and denying in part the motion. The District Court awarded Oracle $58.2 million in attorneys’ fees and $0.3 million in costs. As of September 30, 2024, the Company accrued $58.5 million related to this matter and paid Oracle in full on October 22, 2024. On September 24, 2024, the Company filed a notice of appeal in the District Court, commencing an appeal of the District Court’s award of attorneys’ fees and costs to Oracle. As of the date of this Report, the Company’s appeal remains pending. The Company’s opening brief is due on January 21, 2025, and Oracle’s answering brief is due February 20, 2025. The Company’s optional reply brief is due 21 days after Oracle files its answering brief.

While the Company plans to continue to vigorously pursue its appeal of the District Court’s award of attorneys’ fees and costs to Oracle in the Rimini II litigation, it is unable to predict the timing or outcome of this matter. No assurance is or can be given that the Company will prevail in its appeal.

If the Rimini II Injunction becomes effective in its current form, it would impact the Company’s delivery of PeopleSoft support services to clients in the future, as well as potentially impact the Company’s previously announced plans to wind down the offering of services for Oracle PeopleSoft products. However, the associated costs are not currently estimable and are required to be recorded when incurred. Accordingly, the Company has made no accrual as of September 30, 2024. Any required changes to how support services are delivered to the Company’s PeopleSoft clients could have a material adverse impact on the

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company’s financial position, results of operations and cash flows. The percentage of revenue derived from services the Company provides solely for Oracle’s PeopleSoft software product was approximately 8% of the Company’s total revenue for the three and nine months ended September 30, 2024.

The Company reserves all rights, including appellate rights, with respect to the District Court’s rulings in Rimini II and the Rimini II Injunction, including the award of attorneys’ fees and costs to Oracle.

Other Litigation

From time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of judgment, defense and settlement costs, diversion of management resources and other factors. At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal fees are expensed as incurred.

Liquidated Damages

The Company enters into agreements with clients that contain provisions related to liquidated damages that would be triggered in the event that the Company is no longer able to provide services to these clients. The maximum cash payments related to these liquidated damages is approximately $8.7 million and $9.3 million as of September 30, 2024 and December 31, 2023, respectively. To date, the Company has not incurred any costs as a result of such provisions and has not accrued any liabilities related to such provisions in these Unaudited Condensed Consolidated Financial Statements.

NOTE 9 — RELATED PARTY TRANSACTIONS

An affiliate of Adams Street Partners and its affiliates (collectively referred to as “ASP”) is a member of the Company’s Board of Directors. As of September 30, 2024, ASP owned approximately 25.9% of the Company’s issued and outstanding shares of Common Stock.

NOTE 10 —EARNINGS PER SHARE

The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share. Basic earnings per share of Common Stock is computed by dividing net income attributable to common stockholders by the weighted average number of shares of basic Common Stock outstanding. Diluted earnings per share of Common Stock is calculated by adjusting the basic earnings per share of Common Stock for the effects of potential dilutive Common Stock shares outstanding such as stock options, restricted stock units and warrants.

For the three and nine months ended September 30, 2024 and 2023, basic and diluted net earnings per share of Common Stock were computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the respective periods. The following tables set forth the computation of basic and diluted net income (loss) attributable to common stockholders (in thousands, except per share amounts):

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Income (loss) attributable to common stockholders:
Net income (loss)	$	(43,100)	$	6,801	$	(42,931)	$	16,708

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Weighted average number of shares of Common Stock outstanding:
Basic	90,776		89,228		90,343		88,942
Stock options	—		—		—		18
PSUs	—		—		—		—
RSUs	—		129		—		362
Diluted	90,776		89,357		90,343		89,322
Net income (loss) per share attributable to common stockholders:
Basic	$	(0.47)	$	0.08	$	(0.48)	$	0.19
Diluted	$	(0.47)	$	0.08	$	(0.48)	$	0.19

The following potential Common Stock equivalents were excluded from the computation of diluted net income (loss) per share for the respective periods ending on these dates, since the impact of inclusion was anti-dilutive (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
RSUs and PSUs	3,156	2,767	2,979	1,270
Stock options	7,405	8,358	7,448	7,830
Warrants	3,440	3,440	3,440	3,440
Total	14,001	14,565	13,867	12,540

NOTE 11 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. Additional information on fair value measurements is included in Note 13 to the Company’s Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of the 2023 Form 10-K. The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer.

Investments

All of the Company’s investments as of September 30, 2024 are classified as cash equivalents. During the three months ended March 31, 2024, the Company transferred its investments in U.S. Federal agency bonds and U.S. treasury notes into other highly liquid interest-earning investments with maturities of less than three months. The fair values of these investments approximate their carrying values and are considered Level 1 assets.

The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. In general, investments with original maturities of greater than three months and remaining

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

maturities of less than one year are classified as short-term investments. Debt investments are classified as available-for-sale and gains and losses are recorded using the specific identification method. Changes in fair value are recorded in the operating statement. Fair value is calculated based on publicly available market information.

Listed below are the cash equivalent and investment balances as of December 31, 2023 (in thousands):


	Fair Value Level	Cost Basis		Unrealized Gains (Losses)		Recorded Basis		Cash Equivalents		Short-term Investments
Federal Agency Bonds	Level 2	$	10,491	$	44	$	10,535	$	4,590	$	5,945
US Treasury notes	Level 2	4,324		55		4,379		498		3,881
		$	14,815	$	99	$	14,914	$	5,088	$	9,826

Derivatives

On April 30, 2024, the Company amended its interest rate swap agreement to match the new five-year team in connection with the 2024 Credit Facility. The new interest rate swap agreement has a notional value of $40.0 million, with a fixed payer SOFR rate of 3.71% and an initial floating SOFR rate of 5.32%. The derivative was recognized in the accompanying Unaudited Condensed Consolidated Balance Sheets at its estimated fair value as of September 30, 2024. The modification of the interest rate swap agreement did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements. The Company uses derivatives to manage the risk associated with changes in interest rates. The Company does not enter into derivatives for speculative purposes.

To estimate fair value for the Company's interest rate swap agreement as of September 30, 2024, the Company utilized a present value of future cash flows, leveraging a model-derived valuation that uses Level 2 observable inputs such as interest rate yield curves. The Company estimated the fair value of the interest rate swap agreement to be a liability of $0.8 million as of September 30, 2024.

Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in Accumulated other comprehensive loss in the accompanying Unaudited Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows.

The amounts recorded for the interest rate swap agreement are described below (in thousands):


Derivative Instrument	Balance Sheet Classification					September 30, 2024		December 31, 2023
Interest rate swap	Deposits and other					$	—	$	891
	Other long-term liabilities					811		—
	Accumulated other comprehensive income (loss)					(762)		713
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivative Instrument	Income Statement Classification	2024		2023		2024		2023
Interest rate swap	Interest expense (benefit)	$	(167)	$	(235)	$	(603)	$	(600)

Significant Concentrations

The Company attributes revenues to geographic regions based on the location of its clients’ contracting entities. The following table shows revenues by geographic region (in thousands):

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
United States of America	$	51,588	$	55,740	$	156,850	$	163,146
International	53,084		51,713		157,690		156,240
Total	$	104,672	$	107,453	$	314,540	$	319,386

For the three and nine months ended September 30, 2024, Japan represented 10.3% and 9.9% of total revenue, respectively. No clients represented more than 10% of revenue for the three and nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, no clients accounted for more than 10% of total net accounts receivable. The Company tracks its assets by physical location. As of September 30, 2024 and December 31, 2023, the net carrying value of the Company’s property and equipment located outside of the United States amounted to approximately $3.4 million and $4.3 million, respectively. As of September 30, 2024, the Company had operating lease right-of-use assets of $4.4 million, $1.8 million and $0.7 million in the United States, India and the rest of the world, respectively. As of December 31, 2023, the Company had operating lease right-of-use assets of $3.0 million, $2.0 million and $0.9 million in the United States, India and the rest of the world, respectively.

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash at high-quality financial institutions, primarily in the United States. Deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. As of September 30, 2024 and December 31, 2023, the Company had cash, cash equivalents and restricted cash with a single financial institution for an aggregate of $33.4 million and $48.9 million, respectively. In addition, as of September 30, 2024 and December 31, 2023, the Company had cash and cash equivalents with three other single financial institutions of $65.1 million and $51.7 million, respectively. As of September 30, 2024 and December 31, 2023, the Company had restricted cash of $0.4 million. The Company has never experienced any losses related to these balances.

Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s client base and their dispersion across different geographies and industries. The Company performs ongoing credit evaluations on certain clients and generally does not require collateral on accounts receivable. The Company maintains reserves for potential bad debts and historically such losses are generally not significant.

NOTE 12 - LEASES

The Company has operating leases for real estate and equipment with an option to renew the leases for up to one month to five years. Some of the leases include the option to terminate the leases upon 30-days’ notice with a penalty. The Company’s leases have various remaining lease terms ranging from November 2024 to February 2030. The Company’s lease agreements may include renewal or termination options for varying periods that are generally at the Company's discretion. The Company’s lease terms only include those periods related to renewal options the Company believes are reasonably certain to exercise. The Company generally does not include these renewal options as it is not reasonably certain to renew at the lease commencement date. This determination is based on consideration of certain economic, strategic and other factors that the Company evaluates at lease commencement date and reevaluates throughout the lease term. Some leases also include options to terminate the leases and the Company only includes those periods beyond the termination date if it is reasonably certain not to exercise the termination option.

The Company uses a discount rate to calculate the right of use (“ROU”) asset and lease liability. When the implicit rate is known or provided in the lease documents, the Company is required to use this rate. In cases in which the implicit rate is not known, the Company uses an estimated incremental borrowing rate.

Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance and tax payments. The variable portion of lease payments is not included in the Company’s ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses recorded in selling and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.

RIMINI STREET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has lease agreements with both lease and non-lease components that are treated as a single lease component for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

The Company has elected to apply the short-term lease exception for all underlying asset classes. That is, leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. The Company’s leases do not include significant restrictions or covenants, and residual value guarantees are generally not included within its operating leases. As of September 30, 2024, the Company has one additional operating lease with a net present value of $1.7 million that will commence in October 2024.

The components of lease expense and supplemental balance sheet information were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Operating lease expense related to ROU assets and liabilities	$	1,137	$	1,109	$	3,359	$	3,347
Other lease expense	206		318		500		491
Total lease expense	$	1,343	$	1,427	$	3,859	$	3,838

Other information related to leases was as follows (in thousands):


Supplemental Balance Sheet Information	September 30, 2024		December 31, 2023
Operating lease right-of-use assets, noncurrent	$	6,895	$	5,941

	September 30, 2024		December 31, 2023
Operating lease liabilities, current	$	4,384	$	4,321
Operating lease liabilities, noncurrent	6,806		6,841
Total operating lease liabilities	$	11,190	$	11,162


Weighted Average Remaining Lease Term	Years
Operating leases	2.96
Weighted Average Discount Rate
Operating leases	8.7	%

Maturities of operating lease liabilities as of September 30, 2024 were as follows (in thousands):


Year Ending September 30,
2025	$	1,473
2026	4,616
2027	3,797
2028	1,231
2029	950
Thereafter	522
Total future undiscounted lease payments	12,589
Less imputed interest	(1,399)
Total	$	11,190

For the three months ended September 30, 2024 and 2023, the Company paid $1.4 million and $1.3 million, respectively, for operating lease liabilities. For both the nine months ended September 30, 2024 and 2023, the Company paid $4.2 million, respectively, for operating lease liabilities.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “currently,” “estimate,” “expect,” “future,” “intend,” “may,” “might,” “outlook,” “plan,” “possible,” “potential,” “predict,” “project,” “seem,” “seek,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, but are not limited to, information concerning:

•the evolution of the enterprise software management and support landscape facing our clients and prospects;

•our ability to educate the market regarding the advantages of our enterprise software management and support services and products;

•costs, including attorneys’ fees, associated with defending intellectual property infringement and other claims, such as those claims discussed under “Legal Proceedings” in Part II, Item 1 of this Report, and our expectations with respect to such litigation, including the disposition of pending motions to appeal, and any new claims;

•any additional expenses to be incurred to comply with the Rimini II Injunction and the impact on future period revenue and costs;

•estimates of our total addressable market;

•expectations of client savings relative to use of other providers;

•the occurrence of catastrophic events, including terrorism and geopolitical actions specific to an international region, that may disrupt our business or that of our current and prospective clients;

•our ability to grow our revenue, implement cost reduction programs and control our expenses;

•our ability to maintain sufficient cash flow and capital or raise additional capital necessary to fund our operations and invest in new services and products;

•the impact of the debt service obligations and financial and operational covenants under our 2024 Credit Facility on our business and related interest rate risk;

•our business plan, our ability to grow in the future and our ability to achieve and maintain profitability;

•our plans to wind down the offering of services for Oracle PeopleSoft products;

•the impact of any macro-economic trends, including inflation, changing interest rates and changes in foreign exchange rates;

•the volatility of our stock price and related compliance with stock exchange requirements;

•expected results and objectives for future operations;

•the expected impact of recent and anticipated future reductions in our workforce and associated reorganization costs;

•our ability to expand our leadership position in independent enterprise software support and to sell our application management services (“AMS”) and Rimini ONE™ integrated services;

•our ability to attract and retain clients and our ability to further penetrate our existing client base;

•our ability to maintain our competitive technological advantages against new entrants in our industry;

•our ability to timely and effectively scale and adapt our existing technology;

•our ability to innovate new products and bring them to market in a timely manner;

•our ability to maintain, protect, and enhance our brand and intellectual property;

•our ability to capitalize on changing market conditions including a market shift to hybrid and cloud/SaaS offerings for information technology environments and retirement of certain software releases by software vendors;

•our ability to develop strategic partnerships;

•benefits associated with the use of our services;

•our ability to expand internationally;

•our need and ability to raise equity or debt financing on favorable terms and our ability to generate cash flows from operations to help fund increased investment in our growth initiatives;

•the effects of increased competition in our market and our ability to compete effectively;

•our intentions with respect to our pricing model;

•cost of revenue, including changes in costs associated with production and client support;

•changes in laws or regulations, including tax laws or unfavorable outcomes of tax positions we take, a failure by us to establish adequate reserves for tax events or our ability to realize benefits from our net operating losses;

•economic and industry trends or trend analysis;

•our ability to prevent unauthorized access to our information technology systems and other cybersecurity threats, protect the confidential information of our employees and clients and comply with privacy and data protection regulations;

•the amount and timing of repurchases, if any, under our stock repurchase program and our ability to enhance stockholder value through such program or any other actions to provide value to stockholders;

•the attraction and retention of additional qualified personnel, including sales personnel, and the retention of key personnel;

•future acquisitions of or investments in complementary businesses, products, subscriptions or technologies;

•uncertainty from the discontinuance of LIBOR and the transition to SOFR or other interest rate benchmarks;

•the effects of seasonal trends on our results of operations, including the contract renewal cycles for vendor-supplied software support and managed services;

•our ability to maintain an effective system of internal control over financial reporting and our ability to remediate any identified material weaknesses in our internal controls; and

•other risks and uncertainties, including those discussed under “Risk Factors” in Part II, Item 1A of this Report.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those referred to under “Risk Factors” in Part II, Item 1A of this Report. Moreover, we operate in very competitive and rapidly changing markets. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements in this Report are made as of the date of the filing, and except as required by law, we disclaim and do not undertake any obligation to update or revise publicly any forward-looking statements in this Report. You should read this Report and the documents that we reference in this Report and have filed with the SEC as exhibits with the understanding that our actual future results, levels of activity and performance, as well as other events and circumstances, may be materially different from what we expect.

Overview

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the related notes to those statements included in Part I, Item 1 of this Report, and our Audited Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of our 2023 Form 10-K.

Certain figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated based on such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our Unaudited Condensed Consolidated Financial Statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

Rimini Street, Inc. was formed in the State of Nevada in 2005 and, through a merger in 2017 with a public company, became Rimini Street, Inc., a Delaware corporation, trading on the Nasdaq Global Market under the ticker symbol “RMNI.”

Rimini Street, Inc. and its subsidiaries (referred to as “Rimini Street”, the “Company”, “we” and “us”) are global providers of end-to-end enterprise software support, products and services. The Company offers a comprehensive family of unified solutions to run, manage, support, customize, configure, connect, protect, monitor, and optimize clients’ enterprise application, database, and technology software platforms.

Over the years, as our reputation for technical capability, value, innovation, responsiveness and trusted reliability grew, clients and prospects began asking us to expand the scope of our support, product and service offerings to meet other

current and evolving needs and opportunities related to their enterprise software. We also heard from prospects and clients that their goals include reducing the number of IT vendors to more manageable numbers from a governance perspective, with a desire to select vendors who can provide a wider scope of IT services and become true trusted partners.

To meet the needs of our clients and prospects and to service what we believe is a significantly expanded addressable market opportunity, we designed, developed and are now delivering a new, expanded solutions portfolio (our “Solutions Portfolio”) for a wider array of enterprise software – including an expanded list of supported software; managed services for Oracle, SAP, IBM, Salesforce and open-source database software; and new solutions for security, interoperability, observability and consulting. We also now offer an integrated package of our services as Rimini ONE™, a unique end-to-end, “turnkey” outsourcing option for Oracle and SAP landscapes designed to optimize our clients’ existing technologies with a minimum of 15 extended years of operating lifespan and enable our clients to focus their IT talent and budget on potentially higher-value, innovative projects that will support competitive advantage and growth.

Enterprise software support, products and services is one of the largest categories of overall global information technology (“IT”) spending. We believe enterprise resource planning (“ERP”), customer relationship management (“CRM”), product lifecycle management (“PLM”) database and technology software systems have become increasingly important in the operation of mission-critical business processes over the last 30 years. Also the costs associated with running and supporting these systems, system failure and downtime, security exposure, system integration and monitoring, and maintaining the tax, legal and regulatory compliance of these software systems have each contributed to increases in both actual spend and as a percentage of the typical full IT budget. As a result, we believe that licensees often view enterprise software support, products and services as a mandatory cost of doing business. The majority of our revenue through September 30, 2024, was generated from our support solutions.

In a traditional licensing model, the customer typically procures a perpetual software license and pays for the license in a single upfront fee (“perpetual license”), and base software support services can be optionally procured from the software vendor for an annual fee that is typically 20-23% of the total cost of the software license. In a newer subscription-based licensing model, such as software as a service (“SaaS”), the customer generally pays for the usage of the software on a monthly or annual basis (“subscription license”). Under a subscription license, the product license and a base level of software support are generally bundled together as a single purchase, and the base level of software support is not procured separately nor is it an optional purchase.

When we provide our support solutions for a perpetual software license, we generally offer our clients service for a fee that we believe is equal to approximately 50% of the annual fees charged by the software vendor for their base support. When providing supplemental software support for a perpetual license, where the client procures our support service in addition to retaining the software vendor’s base support, we generally offer our clients service for a fee that is equal to approximately 25% of the annual fees charged by the software vendor for their base support. We also offer a special support service, Rimini Street Extra Secure Support, available to clients that require a more rigorous level of security background checks and/or government security clearance for engineers accessing a client’s system than our standard employment security background check and requirements. Clients may be asked to pay an additional fee for Rimini Street Extra Secure Support.

In addition to our support services, we also offer a breadth of enterprise software support, products and services through our full portfolio of solutions at an additional fee that is calculated based on a variety of factors and metrics. Our solutions are designed to meet specific client needs and are designed to provide what we believe is exceptional value and return for the fees charged. For more details about our Solutions Portfolio, please see Item 1 “Business” included in Part I of our 2023 Form 10-K.

As of September 30, 2024, we employed approximately 2,070 professionals and supported over 3,090 active clients globally, including 76 Fortune 500 companies and 22 Fortune Global 100 companies across a broad range of industries. We define an active client as a distinct entity, such as a company, an educational or government institution, or a business unit of a company that purchases our services to support a specific product. For example, we count as two separate active clients instances where we provide support for two different products to the same entity.

Our subscription-based revenue provides a foundation for, and visibility into, future period results. For the three months ended September 30, 2024 and 2023, we generated revenue of $104.7 million and $107.5 million, respectively, representing a decrease of 3%. During the three months ended September 30, 2024, we recorded a net loss of $43.1 million, and as of September 30, 2024, we had an accumulated deficit of $245.1 million. Approximately 49% and 52% of our revenue was generated in the United States for the three months ended September 30, 2024 and 2023, respectively. Approximately 51% and

48% of our revenue was generated in foreign jurisdictions for the three months ended September 30, 2024 and 2023, respectively.

During the three months ended September 30, 2024, we announced that we would wind down services for Oracle PeopleSoft products and began the wind down project. The wind down includes our Rimini Support™, Rimini Manage™ and Rimini Consult™ services for Oracle PeopleSoft products. As we provide services for Oracle PeopleSoft products to clients globally, the wind-down process is expected to take place over several phases. We expect significant reductions in Oracle PeopleSoft-related revenue over time, but it is unclear when we will be able to cease providing all Oracle PeopleSoft services. Revenue related to providing services for Oracle PeopleSoft products accounted for approximately $24.9 million, or 8% of revenue, for the nine months ended September 30, 2024 and $27.6 million, or 9% of revenue, for the nine months ended September 30, 2023, respectively.

Since our inception, we have financed our operations through cash collected from clients and net proceeds from equity financings and borrowings.

Global Economic Uncertainty

We have experienced some clients not renewing our services due to the adverse impact on their businesses from current global economic uncertainty, as well as by the economic disruption continuing to be caused by the Israel-Hamas conflict, the Russian invasion of Ukraine in early 2022 and recent political and trade turmoil with China, amongst other global challenges. While we do not physically operate in Russia, Ukraine or in mainland China, we do have operations in Israel. These global events, together with inflationary pressures, have negatively impacted the global economy, causing the U.S. Federal Reserve to raise interest rates in 2022 and reduce interest rates in September 2024. Despite these macroeconomic and geopolitical pressures, we expect to continue to be able to market, sell and provide our current and future products and services to clients globally. We also expect to continue investing in the development and improvement of new and existing products and services to address client needs. Further, although our operations are influenced by general economic conditions, we do not believe the impacts of economic disruptions described above had a significant net impact on our revenue or results of operations during the three and nine months ended September 30, 2024.

The extent to which rising inflation, interest rate changes and continuing global economic and geopolitical uncertainty impact our business going forward, however, will depend on numerous evolving factors we cannot reliably predict, including continued governmental and business actions in response to increasing global economic and geopolitical uncertainty. As such, the effects of rising inflation, interest rate increases and other negative impacts on the global economy may not be fully reflected in our financial results until future periods. Refer to “Risk Factors” (Part II, Item 1A of this Report) for a discussion of these factors and other risks.

Recent Developments

Reference is made to Note 8 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report for a discussion of recent developments regarding our litigation with Oracle, including the award of $58.5 million in attorneys’ fees and costs to Oracle in the Rimini II litigation matter referenced above.

Key Business Metrics

Number of clients

Since we founded our company, we have made the expansion of our client base a priority. We believe that our ability to expand our client base is an indicator of the growth of our business, the success of our sales and marketing activities, and the value that our services bring to our clients. We define an active client as a distinct entity, such as a company, an educational or government institution, or a business unit of a company that purchases our services to support a specific product. For example, we count as two separate active clients when support for two different products is being provided to the same entity. As of September 30, 2024 and 2023, we had 3,097 and 3,099 active clients, respectively.

We define a unique client as a distinct entity, such as a company, an educational or government institution or a subsidiary, division or business unit of a company that purchases one or more of our products or services. We count as two separate unique clients when two separate subsidiaries, divisions or business units of an entity purchase our products or services. As of September 30, 2024 and 2023, we had 1,577 and 1,547 unique clients, respectively.

The increase in our unique client count was due to obtaining new unique client contracts. In contrast, our active client count has declined slightly as the number of specific products and services which we are supporting for our unique clients has decreased as clients are retaining fewer of their respective products and services. In addition, we intend to focus future growth on both new and existing clients. We believe that the growth in our number of our unique clients is an indication that we can grow our enterprise software products and services in the future.

Annualized recurring revenue

We recognize subscription revenue on a daily basis. We define annualized recurring revenue as the amount of subscription revenue recognized during a quarter and multiplied by four. This gives us an indication of the revenue that can be earned in the following 12-month period from our existing client base assuming no cancellations or price changes occur during that period. Subscription revenue excludes any non-recurring revenue, which has been insignificant to date.

Our annualized recurring revenue was $402 million and $416 million as of September 30, 2024 and 2023, respectively. The decline reflects the recent reduction in client retention.

Revenue retention rate

A key part of our business model is the recurring nature of our revenue. As a result, it is important that we retain clients after the completion of the non-cancellable portion of the support period. We believe that our revenue retention rate provides insight into the quality of our products and services and the value that our products and services provide our clients.

We define revenue retention rate as the actual subscription revenue (dollar-based) recognized in a 12-month period from clients that existed on the day prior to the start of the 12-month period divided by our annualized recurring revenue as of the day prior to the start of the 12-month period. Our revenue retention rate was 89% and 94% for the 12 months ended September 30, 2024 and 2023, respectively. The decline in our revenue retention rate for the 12 months ended September 30, 2024 was due to attrition during the trailing twelve months, as certain clients did not renew specific subscriptions due to a variety of reasons; however, in some cases these clients maintained or added subscriptions for other products and services. Our net billings during the three months ended September 30, 2024 increased $4.7 million compared to the three months ended September 30, 2023, primarily because we were able to increase client invoicing during the current period. However, our net billing for the nine months ended September 30, 2024 decreased $7.0 million compared to the nine months ended September 30, 2023 as a result of clients not renewing some services.

Gross profit margin

We derive revenue through the provision of our enterprise software products and services. All the costs incurred in providing these products and services are recognized as part of the cost of revenue. The cost of revenue includes all direct product line expenses, as well as the expenses incurred by our shared services organization which supports all product lines.

We define gross profit as the difference between revenue and the costs incurred in providing the software products and services. Gross profit margin is the ratio of gross profit divided by revenue. Our gross profit margin was approximately 60.7% and 62.7% for the three months ended September 30, 2024 and 2023, respectively. Our gross profit margin declined for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to our continued investments in delivery of our products and services, larger contribution from lower margin products and services, as well as an overall decline in revenue.

Results of Operations

Comparison of Three Months Ended September 30, 2024 and 2023

Our consolidated statements of operations for the three months ended September 30, 2024 and 2023, are presented below (in thousands):


	Three Months Ended September 30,						Variance
	2024			2023			Amount		Percent
Revenue	$	104,672		$	107,453		$	(2,781)	(2.6)%
Cost of revenue:
Employee compensation and benefits	25,756			25,904			(148)		(0.6)%
Engineering consulting costs	6,375			6,192			183		3.0%
Administrative allocations (1)	4,093			3,520			573		16.3%
All other costs	4,911			4,494			417		9.3%
Total cost of revenue	41,135			40,110			1,025		2.6%
Gross profit	63,537			67,343			(3,806)		(5.7)%
Gross profit margin	60.7		%	62.7		%
Operating expenses:
Sales and marketing	35,781			35,593			188		0.5%
General and administrative	16,528			18,384			(1,856)		(10.1)%
Reorganization costs	1,431			—			1,431		N/A
Litigation costs and related recoveries, net	59,391			2,127			57,264		2,692.2%
Total operating expenses	113,131			56,104			57,027		101.6%
Operating income (loss)	(49,594)			11,239			(60,833)		(541.3)%
Non-operating income and (expenses):
Interest expense	(1,577)			(1,413)			(164)		11.6%
Other income (expenses), net	(642)			990			(1,632)		(164.8)%
Income (loss) before income taxes	(51,813)			10,816			(62,629)		(579.0)%
Income taxes	8,713			(4,015)			12,728		(317.0)%
Net income (loss)	$	(43,100)		$	6,801		$	(49,901)	(733.7)%

(1)Includes the portion of costs for IT, security services and facilities costs that are allocated to cost of revenue. In our Unaudited Condensed Consolidated Financial Statements, the total of such costs is allocated between cost of revenue, sales and marketing, and general and administrative expenses, based primarily on relative headcount, except for facilities which is based on occupancy.

Revenue. Revenue declined from $107.5 million for the three months ended September 30, 2023 to $104.7 million for the three months ended September 30, 2024, a decrease of $2.8 million or 3%. Although there was an increase in the average number of unique clients from 1,532 for the three months ended September 30, 2023 to 1,555 for the three months ended September 30, 2024, revenue declined primarily due to the attrition of some large client contracts as certain clients did not renew specific subscriptions in prior periods due to varying reasons, which is now being reflected in our revenue within the current period. On a geographic basis, United States revenue declined from $55.7 million for the three months ended September 30, 2023 to $51.6 million for the three months ended September 30, 2024, a decrease of $4.2 million or 7%. Our international revenue grew from $51.7 million for the three months ended September 30, 2023 to $53.1 million for the three months ended September 30, 2024, an increase of $1.4 million or 3%.

Cost of revenue. Cost of revenue increased from $40.1 million for the three months ended September 30, 2023 to $41.1 million for the three months ended September 30, 2024, an increase of $1.0 million or 3%. The key drivers related to the cost of revenue increase were a $0.6 million increase in administrative allocations, a $0.4 million increase in all other costs and a $0.2 million increase in engineering consulting costs. These increases were offset, in part, by a decline in employee compensation and benefits of $0.1 million.

As discussed in Note 8 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report, the District Court issued its findings of fact and conclusions of law in Rimini II, accompanied by the “Rimini II Injunction” on July 24, 2023. The District Court found infringement as to Oracle’s PeopleSoft and Oracle Database products. As a result of the findings, we are likely to incur additional expenses for incremental labor costs and other contingencies in order to comply with the District Court’s Rimini II Injunction as we commence the process of winding down the offering of services for Oracle PeopleSoft products over time. Due to the large number of uncertainties surrounding the outcome of the appeal, we are unable to determine the final impact on future period costs until a decision is rendered. Any adverse outcome in our ongoing judicial proceedings could have a material adverse effect on our results of operations.

Gross profit. Gross profit decreased from $67.3 million for the three months ended September 30, 2023 to $63.5 million for the three months ended September 30, 2024, a decrease of $3.8 million or 6%. Gross profit margin for the three months ended September 30, 2023 was 62.7% compared to 60.7% for the three months ended September 30, 2024. For the three months ended September 30, 2024, the total cost of revenue increased by 3% compared to a decline in revenue of 3% for the three months ended September 30, 2024. As a result, our gross profit margin declined by 200 basis points period over period. We expect margin pressures in the short-term as our ability to increase revenue remains challenged by a lack of new client contracts combined with unfavorable mix and continued investment in our new products and services.

Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses were 34% and 33% for the three months ended September 30, 2024 and 2023, respectively. In dollar terms, sales and marketing expenses increased from $35.6 million for the three months ended September 30, 2023 to $35.8 million for the three months ended September 30, 2024, an increase of $0.2 million or 0.5%. This increase was primarily due to an increase in employee compensation and benefits of $0.4 million, an increase of administrative allocations and all other costs of $0.8 million. These increases were offset by declines in marketing and advertising costs of $0.6 million and contract labor of $0.5 million. We will continue to seek additional revenue by selectively investing in resources and marketing programs that we believe will be scalable and help drive future revenue growth.

General and administrative expenses. General and administrative expenses decreased from $18.4 million for the three months ended September 30, 2023 to $16.5 million for the three months ended September 30, 2024, a decrease of $1.9 million or 10%. This decrease was comprised of several items, which included a decrease in salaries, wages, bonuses and benefits of $2.1 million, an increase in administrative allocations of $1.0 million, a decline in sales and other taxes of $0.1 million and a decrease of travel expenses of $0.1 million. These favorable variances were offset by an increase in computer supplies, software and license costs of $1.0 million, an increase in all other costs of $0.2 million, an increase in professional fees of $0.1 million and an increase in facility costs of $0.1 million.

Looking forward on a quarter-over-quarter basis, we are monitoring the demand for our services in light of current global economic conditions and competitive pressures and will adjust our expenditures accordingly. However, we expect to incur higher expenses associated with supporting the growth of our business, both in terms of size and geographical diversity. Our company costs that are expected to increase in the future include costs relating to additional information systems costs, costs for additional personnel in our accounting, human resources, IT and legal functions, SEC and Nasdaq fees, and incremental professional, legal, audit and insurance costs. As a result, we expect continued pressure on our general and administrative expenses in future periods.

Reorganization costs. Given our current business conditions, we began a process to evaluate and optimize our cost structure through a headcount reduction during the nine months ended September 30, 2024. As a result, we recognized reorganization costs of $1.4 million for the three months ended September 30, 2024 compared to none for the three months ended September 30, 2023. The costs were primarily related to severance costs associated with employee terminations. We are continuing our evaluation and expect to incur additional reorganization costs during the fourth quarter of 2024, which will be primarily related to severance costs. These reorganization costs are not related to our plans to wind down the offering of services for Oracle PeopleSoft products as described above.

Litigation costs, net of related insurance recoveries. Litigation costs, net of related insurance recoveries, consist of the following (in thousands):


	Three Months Ended September 30,
	2024		2023		Change
Litigation expense	$	58,512	$	—	$	58,512
Professional fees and other costs of litigation	879		2,127		(1,248)
Litigation costs and related recoveries, net	$	59,391	$	2,127	$	57,264

Litigation expense increased from no expense for the three months ended September 30, 2023 to $58.5 million for the three months ended September 30, 2024. On September 23, 2024, the District Court issued its order on Oracle’s motion for attorneys’ fees and taxable costs. The District Court awarded Oracle $58.2 million in attorneys’ fees and $0.3 million in costs. As a result, we have accrued $58.5 million related to this matter for the three months ended September 30, 2024.

Professional fees and other costs associated with litigation decreased from $2.1 million for the three months ended September 30, 2023 to $0.9 million for the three months ended September 30, 2024, a decrease of $1.2 million. This decrease was primarily due to the timing of when the costs were incurred related to our appeal of the Rimini II decision with the Ninth Circuit.

There were no insurance costs and related recoveries, net incurred for either the three months ended September 30, 2023 or for the three months ended September 30, 2024. We are self-insured for any costs related to any current or future intellectual property litigation. We currently believe our cash on hand, accounts receivable, contractually committed backlog and borrowing capacity under our 2024 Credit Facility provides us with sufficient liquidity to cover our ongoing attorneys’ fees and related costs, such as travel, hotels and consultants, associated with ongoing litigation, including Rimini II. However, please refer to the litigation matters as disclosed in Note 8 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report for further information.

Interest expense. Interest expense increased from $1.4 million for the three months ended September 30, 2023 to $1.6 million for the three months ended September 30, 2024. Interest expense slightly increased primarily due to rising interest rates on our Credit Facilities, which increased from an average interest rate of 7.1% for the three months ended September 30, 2023 to an average interest rate of 8.1% for the three months ended September 30, 2024.

Other income (expenses), net. Other income (expenses), net is primarily comprised of interest income, foreign exchange gains and losses, and other non-operating income and expenses. For the three months ended September 30, 2024, net other expenses of approximately $0.6 million was comprised primarily of foreign exchange losses of $1.7 million and other expenses of $0.1 million, which were offset by interest income from cash and cash equivalents of $1.1 million. For the three months ended September 30, 2023, net other income of approximately $1.0 million was comprised primarily of gains from cash equivalents and investments of $1.1 million which were offset, in part, by foreign exchange losses of approximately $0.1 million.

Income taxes. We had an income tax expense of $4.0 million for the three months ended September 30, 2023 compared to an income tax benefit of $8.7 million for the three months ended September 30, 2024. For the three months ended September 30, 2024, the primary reason for the change in income taxes was due to a decrease of income (loss) before taxes of $62.6 million in the current year period compared to the prior year period.

Comparison of Nine Months Ended September 30, 2024 and 2023

Our consolidated statements of operations for the nine months ended September 30, 2024 and 2023, are presented below (in thousands):


	Nine Months Ended September 30,						Variance
	2024			2023			Amount		Percent
Revenue	$	314,540		$	319,386		$	(4,846)	(1.5)%
Cost of revenue:
Employee compensation and benefits	80,957			76,478			4,479		5.9%
Engineering consulting costs	18,905			19,269			(364)		(1.9)%
Administrative allocations (1)	12,324			10,659			1,665		15.6%
All other costs	14,044			12,396			1,648		13.3%
Total cost of revenue	126,230			118,802			7,428		6.3%
Gross profit	188,310			200,584			(12,274)		(6.1)%
Gross profit margin	59.9		%	62.8		%
Operating expenses:
Sales and marketing	112,299			107,356			4,943		4.6%
General and administrative	54,460			55,475			(1,015)		(1.8)%
Reorganization costs	4,639			59			4,580		7,762.7%
Litigation costs and related recoveries, net	63,918			5,475			58,443		1,067.5%
Total operating expenses	235,316			168,365			66,951		39.8%
Operating income	(47,006)			32,219			(79,225)		(245.9)%
Non-operating income and (expenses):
Interest expense	(4,401)			(4,139)			(262)		6.3%
Other income (expenses), net	1,814			1,799			15		0.8%
Income before income taxes	(49,593)			29,879			(79,472)		(266.0)%
Income taxes	6,662			(13,171)			19,833		(150.6)%
Net income (loss)	$	(42,931)		$	16,708		$	(59,639)	(356.9)%

Revenue. Revenue declined from $319.4 million for the nine months ended September 30, 2023 to $314.5 million for the nine months ended September 30, 2024, a decrease of $4.8 million or 2%. Although there was a 2% increase in the average number of unique clients from 1,520 for the nine months ended September 30, 2023 to 1,545 for the nine months ended September 30, 2024, revenue declined primarily due to the attrition of some large client contracts as certain clients did not renew specific subscriptions in prior periods due to varying reasons, which is now being reflected in our revenue during the current period. On a geographic basis, United States revenue declined from $163.1 million for the nine months ended September 30, 2023 to $156.9 million for the nine months ended September 30, 2024, a decrease of $6.3 million or 4%. Our international revenue grew from $156.2 million for the nine months ended September 30, 2023 to $157.7 million for the nine months ended September 30, 2024, an increase of $1.5 million or 1%.

Cost of revenue. Cost of revenue increased from $118.8 million for the nine months ended September 30, 2023 to $126.2 million for the nine months ended September 30, 2024, an increase of $7.4 million or 6%. The key drivers related to the cost of revenue increase were a $4.5 million increase in employee compensation and benefits to support an average headcount increase of 16%, a $1.7 million increase in administrative allocations and a $1.6 million increase in all other costs. These cost increases were offset by a $0.4 million decline in engineering consulting costs.

Gross profit. Gross profit decreased from $200.6 million for the nine months ended September 30, 2023 to $188.3 million for the nine months ended September 30, 2024, a decrease of $12.3 million or 6%. Gross profit margin for the nine

months ended September 30, 2023 was 62.8% compared to 59.9% for the nine months ended September 30, 2024. For the nine months ended September 30, 2024, the total cost of revenue increased by 6%, primarily due to an increase in average headcount of 16% compared to a decline in revenue of 2% for the nine months ended September 30, 2024. As a result, our gross profit margin declined by 290 basis points period over period. We expect margin pressures as our ability to increase revenue remains challenged by a lack of new client contracts combined with unfavorable mix and continued investment in our new products and services.

Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses were 36% and 34% for the nine months ended September 30, 2024 and 2023, respectively. In dollar terms, sales and marketing expenses increased from $107.4 million for the nine months ended September 30, 2023 to $112.3 million for the nine months ended September 30, 2024, an increase of $4.9 million or 5%. This increase was primarily due to an increase in travel and entertainment costs of $5.2 million, primarily related to a sales training event held in January 2024. In addition, we incurred an increase in employee compensation and benefits of $0.6 million and an increase of administrative allocations and all other costs of $1.9 million. These increases were offset by declines in marketing and advertising costs of $1.8 million and contract labor of $1.2 million. We will continue to seek additional revenue growth by selectively investing in resources and marketing programs that we believe will be scalable and help drive revenue growth.

General and administrative expenses. General and administrative expenses decreased from $55.5 million for the nine months ended September 30, 2023 to $54.5 million for the nine months ended September 30, 2024, a decrease of $1.0 million or 2%. This decrease was comprised of several items, which included a decline in employee compensation and benefits of $2.0 million, a favorable increase in the administrative allocations of $2.4 million, a reduction of sales and other taxes of $0.5 million and a decrease in travel and entertainment of $0.2 million. These decreases were offset, in part, by an increase for computer supplies, software and licenses of $2.4 million, an increase in all other costs of $0.8 million, an increase in contract labor of $0.7 million and an increase of rent and facility costs of $0.2 million.

Reorganization costs. Given our current business conditions, we began a process to evaluate and optimize our cost structure through a headcount reduction during the nine months ended September 30, 2024. As a result, we recognized reorganization costs of $4.6 million for the nine months ended September 30, 2024 compared to $59.0 thousand for the nine months ended September 30, 2023. The costs were primarily related to severance costs associated with employee terminations. We are continuing our evaluation and expect to incur additional reorganization costs during the fourth quarter of 2024, which will be primarily related to severance costs. These reorganization costs are not related to our plans to wind down the offering of services for Oracle PeopleSoft products as described above.

Litigation costs, net of related insurance recoveries. Litigation costs, net of related insurance recoveries, consist of the following (in thousands):


	Nine Months Ended September 30,
	2024		2023		Change
Litigation expense	$	58,512	$	—	$	58,512
Professional fees and other costs of litigation	5,406		5,475		(69)
Litigation costs and related recoveries, net	$	63,918	$	5,475	$	58,443

Litigation expense increased from no expense for the nine months ended September 30, 2023 to $58.5 million for the nine months ended September 30, 2024. On September 23, 2024, the District Court issued its order on Oracle’s motion for attorneys’ fees and taxable costs. The District Court awarded to Oracle $58.2 million in attorneys’ fees and $0.3 million in costs. As a result, we have accrued $58.5 million related to this matter for the nine months ended September 30, 2024.

Professional fees and other costs associated with litigation decreased from $5.5 million for the nine months ended September 30, 2023 to $5.4 million for the nine months ended September 30, 2024, a decrease of $0.1 million. This decrease was primarily due to the timing of when costs were incurred for our appeal preparation of the Rimini II decision with the Ninth Circuit.

There were no insurance costs and related recoveries, net incurred for either the nine months ended September 30, 2023 or for the nine months ended September 30, 2024. We are self-insured for any costs related to any current or future intellectual property litigation. We currently believe our cash on hand, accounts receivable, contractually committed backlog and borrowing capacity under our 2024 Credit Facility provides us with sufficient liquidity to cover our ongoing attorneys’ fees and related costs, such as travel, hotels and consultants, associated with ongoing litigation, including Rimini II. However,

please refer to the litigation matters as disclosed in Note 8 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report for further information.

Interest expense. Interest expense increased from $4.1 million for the nine months ended September 30, 2023 to $4.4 million for the nine months ended September 30, 2024. Interest expense slightly increased primarily due to rising interest rates on our Credit Facilities, which increased from an average interest rate of 6.8% for the nine months ended September 30, 2023 to an average interest rate of 7.7% for the nine months ended September 30, 2024.

Other income (expenses), net. Other income (expenses), net is primarily comprised of interest income, foreign exchange gains and losses, and other non-operating income and expenses. For the nine months ended September 30, 2024, net other income of approximately $1.8 million was comprised primarily of income from cash equivalents and investments of $3.0 million which were offset, in part, by foreign exchange losses of $0.6 million and other expenses of $0.6 million. For the nine months ended September 30, 2023, net other income of approximately $1.8 million was comprised primarily of gains from cash equivalents and investments of $2.8 million which were offset, in part, by foreign exchange losses of approximately $0.7 million and other expenses of $0.3 million.

Income taxes. We recorded income tax expense of $13.2 million for the nine months ended September 30, 2023 compared to an income tax benefit of $6.7 million for the nine months ended September 30, 2024. For the nine months ended September 30, 2024, the primary reason for the change in income taxes was due to a decline of income (loss) before taxes of $79.5 million in the current year period compared to the prior year period.

Liquidity and Capital Resources

Overview

As of September 30, 2024, we had a working capital deficit of $93.7 million and an accumulated deficit of $245.1 million. For the three months ended September 30, 2024, we recorded a net loss of $43.1 million. As of September 30, 2024, we had available cash, cash equivalents and restricted cash of $119.9 million.

On April 30, 2024, we refinanced our Original Credit Facility, which had an outstanding principal balance of $70.9 million, with a new five-year senior secured credit facility (“2024 Credit Facility”) consisting of a $75.0 million term loan and a $35.0 million revolving line of credit. As of September 30, 2024, we had outstanding term loan borrowings under our 2024 Credit Facility of $74.1 million. In addition, we had availability of $35.0 million under our new revolving line of credit as of September 30, 2024. We borrowed $15.0 million under the revolving line of credit on October 21, 2024. On October 22, 2024, we paid the full amount of the court ordered attorneys’ fees and costs in the Rimini II litigation, as discussed in Note 8 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report.

We have a choice of interest rates under the 2024 Credit Facility between (a) SOFR and (b) Base Rate, in each case plus an applicable margin. The applicable margin remains the same as the Original Credit Facility and is based on our Consolidated Total Leverage Ratio (as defined in the 2024 Credit Facility) and whether we elect SOFR (ranging from 2.75% to 3.50%) or a Base Rate (ranging from 1.75% to 2.5%). Interest on the unused portion of the revolving credit line is at rates of between 25 to 40 basis points, depending on our Consolidated Total Leverage Ratio. Annual minimum principal payments over the five-year term for the 2024 Credit Facility are 5%, 5%, 7.5%, 7.5%, and 10%, respectively, with the remaining balance due at the end of the original term.

The 2024 Credit Facility contains certain financial covenants, including a minimum fixed charge coverage ratio greater than 1.25, a total leverage ratio less than 3.75, and a minimum liquidity balance of at least $20 million in U.S. cash. We believe that we are in compliance with these financials covenants for the three months ended September 30, 2024.

Please refer to Note 5 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report for information regarding our 2024 Credit Facility.

A key component of our business model requires that substantially all clients prepay us annually for the services we will provide over the following year or longer. As a result, we typically collect cash from our clients in advance of when the related service costs are incurred, which resulted in deferred revenue of $202.3 million that is included in current liabilities as of September 30, 2024. Therefore, we believe that working capital deficit is not as meaningful in evaluating our liquidity since the costs of fulfilling our commitments to provide services to clients are currently limited to approximately 39% of the related deferred revenue based on our gross profit percentage of 61% for the three months ended September 30, 2024.

For the next year, assuming that our operations are not significantly impacted by rising inflation, continued interest rate changes, other global economic or geopolitical uncertainties, or the litigation matters as disclosed in Note 8 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report, we believe that cash, cash equivalents and restricted cash of $119.9 million as of September 30, 2024, plus future cash flows from operating activities and our 2024 Credit Facility will be sufficient to meet our anticipated cash needs including working capital requirements, planned capital expenditures and our contractual obligations. Our future capital requirements depend on many factors, including client growth, number of employees, expansion of sales and marketing activities, and the introduction of new and enhanced services offerings. We may also enter into arrangements to acquire or invest in complementary businesses, services, technologies, or intellectual property rights in the future. We may choose to seek additional debt or equity financing to support these long-term capital requirements. In an economic downturn, we may also be unable to raise capital through debt or equity financings on terms acceptable to us or at all. Covenants in our 2024 Credit Facility could also have consequences on our operations, including restricting or delaying our ability to obtain additional financing, potentially limiting our ability to adjust to rapidly changing market conditions or respond to business opportunities. Additionally, in challenging and uncertain economic environments, we cannot predict when macroeconomic uncertainty may arise, whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business and our liquidity requirements.

For the nine months ended September 30, 2024, we used cash flows in our operating activities of approximately $1.2 million, which was derived from a net loss of $42.9 million as well as adjustments to reconcile net loss to net cash of approximately $0.8 million and a favorable change in operating assets and liabilities of approximately $41.0 million.

Cash Flows Summary

Presented below is a summary of our operating, investing and financing cash flows (in thousands):


	Nine Months Ended September 30,
	2024		2023
Net cash provided by (used in):
Operating activities	$	(1,169)	$	13,613
Investing activities	7,128		(4,158)
Financing activities	46		(5,120)

The effect of foreign currency translation changes was unfavorable by $1.9 million and $5.1 million for the nine months ended September 30, 2024 and 2023, respectively, due to unfavorable foreign exchange impacts related to foreign cash. For the nine months ended September 30, 2024, we experienced a change in foreign currency exchange rates as the U.S. dollar strengthened against the majority of foreign currencies where we operate. The unfavorable foreign currency impact was primarily related to our foreign cash held in Japan and Brazil as those local currencies weakened against the U.S. dollar.

Cash Flows Provided By (Used In) Operating Activities

As clients typically prepay us annually for the services which we will provide over the following year or longer, we typically collect cash in advance of the date when the vast majority of the related services are provided.

For the nine months ended September 30, 2024, cash flows used in operating activities amounted to approximately $1.2 million. The key drivers resulting in our cash provided by operating activities for the nine months ended September 30, 2024, included a net loss of $42.9 million and adjustments to reconcile a net loss to net cash totaling $0.8 million, as well as favorable changes in operating assets and liabilities of $41.0 million, resulting in net cash used in operating activities of $1.2 million.

For the nine months ended September 30, 2024, adjustments to reconcile a net loss to net cash consisted primarily of stock-based compensation expense of $7.1 million, amortization and accretion related to operating lease ROU assets of $3.4 million, depreciation and amortization expense of $2.7 million, accretion and amortization of debt discount and issuance costs of $0.6 million and an unfavorable change in deferred income taxes of $13.0 million. For the nine months ended September 30, 2024, the changes in operating assets and liabilities, net consisted of favorable changes to accounts receivable of $51.1 million, accrued liabilities of $48.3 million and deferred contract costs of $4.0 million. The favorable change to accounts receivable was a result of collecting $304.8 million during the nine months ended September 30, 2024 which was offset by billings, net of $250.9 million during the nine months ended September 30, 2024. As a result, our days sales outstanding for

accounts receivable was 115 days as of September 30, 2024. The favorable change related to accrued liabilities was primarily a result of recording an expense of $58.5 million related to the District Court ruling for the nine months ended September 30, 2024. The favorable change in deferred contract costs was due to capitalizing $10.8 million of commissions and amortizing $14.8 million of deferred contract costs during the nine months ended September 30, 2024.

Offsetting these favorable changes were unfavorable changes to deferred revenue of $60.8 million, accounts payable of $1.4 million and prepaid expenses, deposits and other of $0.2 million. Regarding the use of cash for deferred revenue, it was due to recognizing $314.5 million in revenue for the current period, which was offset by recording billings, net of $250.9 million during the current period.

For the nine months ended September 30, 2023, cash flows provided by operating activities amounted to approximately $13.6 million. The key drivers resulting in our cash provided by operating activities for the nine months ended September 30, 2023 included net income of $16.7 million, as well as adjustments to reconcile net income to net cash totaling $21.4 million. These two items were offset, in part, by unfavorable changes in operating assets and liabilities of $24.5 million, resulting in net cash provided by operating activities of $13.6 million.

For the nine months ended September 30, 2023, adjustments to reconcile net income to net cash consisted primarily of stock-based compensation expense of $9.1 million, amortization and accretion related to operating lease ROU assets of $3.3 million, depreciation and amortization expense of $2.0 million, accretion and amortization of debt discount and issuance costs of $0.7 million and deferred income taxes of $6.3 million. For the nine months ended September 30, 2023, the changes in operating assets and liabilities, net primarily consisted of favorable changes to accounts receivable of $54.1 million and deferred contract costs of $0.7 million. The favorable change to accounts receivable was a result of collecting $314.2 million during the nine months ended September 30, 2023 compared to billings, net of $257.9 million during the nine months ended September 30, 2023. As a result, our days sales outstanding for accounts receivable was 101 days as of September 30, 2023. The favorable change in deferred contract costs was due to capitalizing $13.6 million of commissions and amortizing $14.3 million of deferred contract costs during the nine months ended September 30, 2023.

The favorable cash sources noted above were offset by unfavorable uses of cash related to changes to accrued liabilities of $14.7 million, deferred revenue of $57.7 million, accounts payable of $2.6 million and prepaid expenses, deposits and other assets of $4.3 million. The unfavorable use of cash for accrued liabilities was due to making payments of $2.5 million related to our reorganization plan, incurring incremental professional fee payments of $5.1 million, and paying incremental compensation related primarily to bonuses and commissions of $1.7 million during the nine months ended September 30, 2023. The related use of cash for deferred revenue was due to recognizing $319.4 million of revenue during the period, which was offset by recording billings, net of $257.9 million during the nine months ended September 30, 2023.

Cash Flows Provided By (Used In) Investing Activities

Cash provided by investing activities totaled $7.1 million for the nine months ended September 30, 2024 and cash used in investing activities totaled $4.2 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, cash provided by investing activities was primarily driven by proceeds from sales of short-term investments of $6.3 million and maturities of short-term investments of $10.9 million, offset by purchases of short-term investments of $7.5 million and capital expenditures of $2.7 million for leasehold improvements, software development costs, and computer equipment. The capital expenditures of $2.7 million consisted primarily of capitalized software development costs, new computer equipment, and furniture and fixtures in our U.S. entity of $2.0 million and $0.7 million for computer equipment at our foreign locations, primarily in Brazil of $0.2 million and in India of $0.3 million.

For the nine months ended September 30, 2023, cash used in investing activities of $4.2 million consisted of investment purchases of $24.1 million and capital expenditures of $3.7 million, which were offset by proceeds from maturities of short-term investments of $23.6 million. The capital expenditures of $3.7 million consisted primarily of new computer equipment and capitalized development costs in our U.S. entity of $2.3 million and for computer equipment at our foreign locations of $1.4 million, primarily in Brazil of $0.3 million and India of $0.9 million.

Cash Flows Provided By (Used In) Financing Activities

For the nine months ended September 30, 2024, cash provided by financing activities of $46.0 thousand was attributable to proceeds received from the 2024 Credit Facility of $2.9 million, which were offset by principal payments related to the Original Credit Facility of $2.6 million and capital lease payments of $0.3 million.

For the nine months ended September 30, 2023, cash utilized in financing activities of $5.1 million was attributable to principal payments related to the Original Credit Facility of $3.9 million, payments to repurchase shares of Common Stock totaling $1.0 million and capital lease payments of $0.2 million. These cash uses were offset by proceeds of $0.1 million received from stock option exercises.

Foreign Subsidiaries

Our foreign subsidiaries and branches are dependent on our U.S.-based parent for continued funding. We currently do not intend to repatriate any amounts that have been invested overseas back to the U.S.-based parent. However, we may still be liable for withholding taxes, state taxes, or other income taxes that might be incurred upon the repatriation of foreign earnings. We have not made any provision for additional income taxes on undistributed earnings of our foreign subsidiaries. As of September 30, 2024, we had cash and cash equivalents of $39.9 million held by our foreign subsidiaries.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. We describe our significant accounting policies in Note 2 to our Consolidated Financial Statements for the year ended December 31, 2023, included in Part II, Item 8 of our 2023 Form 10-K, and we discuss our critical accounting policies and estimates in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in Part II, Item 7 of our 2023 Form 10-K. Since the filing of our 2023 Form 10-K, there have been no material changes in our critical accounting policies and estimates from those disclosed therein.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by us as of the specified effective date. For additional information on recently issued accounting standards and our plans for adoption of those standards, please refer to the section titled Recent Accounting Pronouncements under Note 2 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report.

Recently Issued Accounting Standards

In December 2023, the FASB issued ASU 2023-09, “Income Taxes - Improvements to Income Tax Disclosures.” The guidance requires disaggregating income tax disclosures relating to the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We are assessing the impact of the adoption of this guidance on our Consolidated Financial Statements and related disclosures.

We believe that no other recently issued accounting standards will have a material impact on our Unaudited Condensed Consolidated Financial Statements or apply to our operations.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound Sterling, Brazilian Real, Australian Dollar, Indian Rupee and Japanese Yen. For the three months ended September 30, 2024 and 2023, we generated approximately 51% and 48% of our revenue from our international business, respectively. Increases in the relative value of the U.S. Dollar to other currencies may negatively affect our revenue, partially offset by a positive impact to operating expenses in other currencies as expressed in U.S. Dollars. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related to revaluing certain current asset and current liability balances, including intercompany receivables and payables, which are

denominated in currencies other than the functional currency of the entities in which they are recorded. While we have not engaged in the hedging of our foreign currency transactions to date, we evaluate the costs and benefits of entering into future hedge transaction for currencies other than the U.S. Dollar.

As of September 30, 2024, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have impacted our income (loss) before income taxes by a plus or minus of $3.3 million in our Consolidated Statements of Operations and Comprehensive Income and would have impacted the effect of foreign currency changes on cash by a plus or minus $4.3 million in our Consolidated Statement of Cash Flows.

Interest Rate Risk

Risk with Respect to Investments

We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments, as any investments we enter into are primarily highly liquid investments.

Variable Rate Debt

On April 30, 2024, we refinanced our Original Credit Facility, which had an outstanding principal balance of $70.9 million, with a new five-year senior secured credit facility (“2024 Credit Facility”) consisting of a $75.0 million term loan and a $35.0 million revolving line of credit. For the term loan, we have a choice of interest rates between (a) SOFR and (b) a Base Rate (as defined in the 2024 Credit Facility), in each case plus an applicable margin. The applicable margin is based on our Consolidated Total Leverage Ratio (as defined in the 2024 Credit Facility) and whether we elect SOFR (ranging from 2.75% to 3.5%) or Base Rate (ranging from 1.75% to 2.5%). The revolving line of credit bears interest on the unused portion of the credit line at rates of 25 to 40 basis points, depending on our Consolidated Total Leverage Ratio.

Accordingly, we are exposed to market risk due to variable interest rates based on SOFR. As of September 30, 2024, we had $74.1 million outstanding debt under the 2024 Credit Facility and no borrowings under the revolving line of credit. On October 21, 2024, we borrowed $15.0 million under the 2024 Credit Facility revolving line of credit. As of September 30, 2024, a hypothetical adverse change of 100 basis points in SOFR would have resulted in an increase of approximately $0.7 million in annual interest expense. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 as well as Note 5 and Note 11 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report for more information related to the 2024 Credit Facility.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to reasonably ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and to reasonably ensure that such information is

Rimini Street, Inc. [RMNI] Filings
10-Q	[2024-10]
10-Q	[2024-07]
10-Q	[2024-05-02]
10-K	[2024-02-28]
10-Q	[2023-11-01]
10-Q	[2023-08-02]
10-Q	[2023-05-03]
10-K	[2023-03-01]
10-Q	[2022-11-02]
10-Q	[2022-08-03]
10-Q	[2022-05-04]
10-K	[2022-03-02]
10-Q	[2021-11-03]
10-Q	[2021-08-04]
10-Q	[2021-05-10]
10-K	[2021-03-03]
10-Q	[2020-11-05]
10-Q	[2020-08-05]
10-Q	[2020-05-07]
10-K	[2020-03-16]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-09]
10-K	[2019-03-14]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-15]
S-1	[2017-11-21]
10-Q	[2017-10-18]
10-Q	[2017-07-26]
10-Q	[2017-05-11]
10-Q	[2017-05-11]
10-K	[2017-03-16]
10-Q	[2016-11-15]
10-Q	[2016-08-15]
10-Q	[2016-05-16]
10-K	[2016-03-28]
10-Q	[2015-11-03]
10-Q	[2015-08-07]
10-Q	[2015-07-02]
S-1	[2015-04-17]