Rimini Street Q3-2026 Earnings Conference Call - RIMINI STREET INC

Financial Performance:

• Total revenue increased 8.3% year-over-year to $112.1 million; adjusted revenue (excluding PeopleSoft) grew 10.7% for the second consecutive double-digit quarter.
• International revenue led growth at 11.6% ($63.8 million), outpacing U.S. revenue growth of 4.3% ($48.3 million).
• Subscription revenue comprised 93.9% of total revenue ($105.2 million).
• Calculated billings surged 21% year-over-year to $80.5 million; adjusted calculated billings (excluding PeopleSoft) rose 21.9% to $78 million.
• Adjusted annualized recurring revenue (ARR) increased 9.8% to $410.4 million; revenue retention improved to 90% from 89% previously.
• Gross margin expanded 150 basis points to 61.4% (non-GAAP 61.7%), exceeding the 60% target; sequential improvement of 50 basis points.
• Operating leverage delivered significant bottom-line growth: Adjusted EBITDA rose 52.5% to $15.1 million (13.5% of revenue) from $9.9 million; non-GAAP operating income increased to $14 million from $8.5 million.
• Sales & marketing expenses declined to 34.8% of revenue (non-GAAP 34.4%) from 36.7% (non-GAAP 35.7%); General & Administrative expenses dropped to 15% of revenue (non-GAAP 13.8%) from 17.6% (non-GAAP 16.5%).
• Balance sheet strengthened with $93.3 million cash, $43.4 million debt (down from prior levels), and net cash of $49.9 million.
• Deferred revenue reached $235.5 million (up from $226 million); Remaining Performance Obligations (RPO) hit $652.9 million, only $96,000 shy of record highs, with adjusted RPO up 7.4%.

Guidance and Future Outlook:

• Reiterated "Rule of 20" guidance for fiscal 2026.
• Fourth quarter 2026 revenue guidance set at $117 million to $119 million.
• Management expressed confidence in achieving double-digit top-line growth over time, driven by focus on ROI, larger strategic deals, and the AI-last approach.
• Long-term goals include reaching ~30% S&M expense ratio, ~10% G&A ratio, and mid-60% gross margins at scale (>$1B revenue), though significant room for efficiency remains.
• Capital allocation strategy for 2027 shows a near-term bias toward share repurchases, with $30.9 million in capital returns and debt reduction achieved year-to-date in 2026.
• PeopleSoft support services wind-down is on track to complete by July 31, 2028, with Q3 revenue at $2.7 million.

Business Segments and Product Lines:

• SAP Support: Achieved record third-quarter service sales; clients cited 80% cost reductions and zero-downtime modernization (e.g., M.G. Ramdas Group, Chen Full International).
• Agentic AI Suite: Launched three key solutions: "Rimini Govern for AI" (governance/security), "Rimini Agentic UX" (automation layer over existing ERPs), and "Rimini AgentWorks" (AI lifecycle services).
• Partnerships: Executed millions in partner sales; added Datacom (Australia/NZ) for support and security; deepened strategic alignment with ServiceNow for AI governance integration.
• Sales Force: Global quota-carrying seller team expanded to ~80; hiring of new revenue enablement leader to accelerate ramp times and increase quota attainment.
• New Logo Sales: Secured 17 new client transactions exceeding $1 million TCV, totaling $43.7 million; expanded into industries including automotive retail, manufacturing, and conglomerates.

Market and Competitive Landscape:

• Differentiated strategy focuses on "AI-last" methodology: streamlining and reengineering processes before deploying AI, avoiding costly migrations/upgrades.
• Targeting clients hesitant to spend on new ERP implementations; leveraging clients' existing budgets to fund innovation through cost savings from current systems.
• Oracle segment showing strong improvements; bullish outlook despite Oracle's own hyperscaler transformation, viewing the market transition as an opportunity for Rimini.
• Indirect channel (partners) remains in early growth stages; aim is to derive 40% of pipeline from indirect sources but currently at "jog stage" with sustained targets a few quarters away.
• Market trend indicates clients are in "education mode" regarding AI, requiring time to define strategies and identify use cases.

Risks and Challenges:

• AI adoption timelines are longer than anticipated; clients are still determining where to start and how to invest, delaying immediate returns on AI initiatives.
• Partner channel integration is complex and slower than desired; maintaining pipeline quality while building indirect leverage is an ongoing operational challenge.
• PeopleSoft wind-down execution must continue smoothly to meet the July 2028 deadline.
• Reliance on large, complex transaction contracts; potential impact of economic conditions on enterprise IT budgets.
• Forward-looking statements regarding AI capabilities and efficiency gains carry uncertainty; actual results may differ due to market dynamics.

Management Commentary and Tone:

• Tone was confident and focused on execution, highlighting five consecutive quarters of improving results and three quarters meeting fiscal 2026 guidance.
• Management emphasized "operational efficiencies" and "scale" over immediate internal AI cost reductions, noting that process improvements and labor optimization are current drivers.
• Strong emphasis on quality over quantity in sales pipelines and deal execution.
• Clear commitment to capital discipline, balancing debt reduction with shareholder returns via buybacks.

Analyst Questions and Answers:

• Richard Baldry (Roth Capital): Asked about efficiency drivers vs. AI automation and capital allocation. Management clarified efficiencies stem from process optimization and labor shifts; expressed near-term bias toward share repurchases; noted headcount optimization continues with a shift toward sales productivity over headcount growth.
• Alex Furman (Lucid Capital): Inquired about the 20% billing growth inflection. Management attributed this to a focus on ROI, larger strategic deals, and the differentiated "AI-last" value proposition, expecting billing growth to sustain as these initiatives scale.
• Jeff VanVee (Craig Holland): Questions covered pipeline quality, Oracle performance, partner traction, and contract duration. Management confirmed Oracle sales are improving, partners are moving from "jog" to stronger momentum (millions in sales), and contract durations are trending toward longer terms, with RPO near record highs.

Other Key Points:

• Upcoming Investor Day scheduled for January 14, 2027, in New York City to present the 2027 plan and guidelines.
• Client success stories highlighted include M.G. Ramdas Group (80% cost reduction), Chen Full International (cost-performance focus), and Autobot 7 (10 years of stable operations).
• Company completed $10 million in capital returns in Q3 ($5M buybacks + $5M debt prepayment).
• Q3 RPO was $652.9 million, just $96,000 short of a record high, indicating strong contracted revenue visibility.