Rimini Street Inc

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 March 31, 2024, and operating results for the three months ended March 31, 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 March 31, 2024, the Company’s current liabilities exceeded its current assets by $44.5 million, and the Company recorded net income of $1.3 million for the three months ended March 31, 2024. As of March 31, 2024, the Company had available cash, cash equivalents and restricted cash of $129.4 million. As of March 31, 2024, the Company’s current liabilities included $230.0 million of deferred revenue whereby the historical costs of fulfilling the Company's commitments to provide services to its clients was approximately 40% of the related deferred revenue for the three months ended March 31, 2024.

In 2021, the Company entered into afive-year term loan of $90 million (the “Original Credit Facility”). Annual minimum principal payments over thefive-year term for the Original 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 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 $5.5 million. During the first quarter of 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 Original 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.

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):

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

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 March 31, 2024, remaining performance obligations amounted to $556.9 million, of which $254.3 million was billed and recorded as deferred revenue. As of March 31, 2023, remaining performance obligations amounted to $556.1 million, of which $287.4 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 of the contracted service period. The Company expects to recognize revenue on approximately $230.0 million of the billed remaining performance obligations over the next 12 months, with the remaining deferred revenue balance recognized thereafter.

NOTE 4 —OTHER FINANCIAL INFORMATION

Other Accrued Liabilities

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

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):

For the three months ended March 31, 2024 and 2023, the Company made quarterly principal payments under the Original Credit Facility totaling $1.7 million and $1.1 million, respectively.

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 the Secured Overnight Financing Rate (“SOFR”). As of February 28, 2023, the Company has 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 remains the same as the existing Credit Agreement and is based on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects 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 March 31, 2024 and 2023, the average interest rate on the Original Credit Facility was 7.20% and 6.31%, respectively.

The fair value of the Original Credit Facility was $73.5 million (Level 2 inputs) as of March 31, 2024 compared to the carrying value of $70.6 million as of March 31, 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.

The Original 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. Annual minimum principal payments over thefive-year term for the Original Credit Facility are 5%,5%,7.5%,7.5%, and 10%, respectively, with the remaining balance due at the end of the term.

Pursuant to a Guaranty and Security Agreement, dated July 2, 2021 (the “Guaranty and Security Agreement”), among the Credit Parties and Capital One, National Association, as agent, the obligations under the Original Credit Facility are guaranteed by certain of the Company’s subsidiaries (the Company and the guarantors, collectively, the “Credit Parties”) and are secured, subject to customary permitted liens and exceptions, by a lien on substantially all assets of the Credit Parties.

On May 18, 2022, the Company entered into an interest rate swap agreement with a notional value of $40.0 million, with a fixed payer LIBOR rate of 2.9935% and an initial floating LIBOR rate of 0.93557%. The floating rate is reset at each month end and had an embedded floor rate of 0.0%. The term of the interest rate swap agreement coincides with that of the Original Credit Facility. See Note 11 for further information regarding the fair value accounting for the interest rate swap agreement. Effective February 28, 2023, the interest rate swap agreement was amended in connection with the amendment of the Original Credit Facility to implement certain changes in the reference rate from LIBOR to SOFR.

In May 2022, the Company also amended the Original Credit Facility to increase the aggregate value of the Common Stock shares that can be repurchased by the Company to $50 million during the term of the Original Credit Facility.

In July 2021, the Company received $89.3 million of net proceeds pursuant to the Original Credit Facility. The borrowings under the Original Credit Facility were discounted at 0.375%. As part of the transaction, the Company incurred issuance costs of $4.2 million, which were capitalized and are being amortized over the term of the Original Credit Facility.

Based on voluntary prepayments made to date under the Original Credit Facility, the Company currently has $40 million in incremental borrowings available for future use, subject to the terms of the Original Credit Facility.

Subsequent Event

On April 30, 2024, the Company refinanced its Original Credit Facility, which had an outstanding principal balance of $70.9 million, with a newfive-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, the Company has 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 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 thefive-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.

Pursuant to a Guaranty and Security Agreement, dated April 30, 2024, among the Credit Parties 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. Copies of the 2024 Credit Facility and the 2024 Guaranty and Security Agreement are filed as Exhibits 10.1 and 10.2, respectively, to this Report, the terms of which are incorporated herein by reference.

Effective April 30, 2024, the interest rate swap agreement was amended in connection with the 2024 Credit Facility to match the new five-year term.

Interest Expense

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

For the three months ended March 31, 2024 and 2023, interest expense included a reduction related to interest rate swap payments received of $0.2 million and $0.2 million, respectively.

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

Common Stock Retired

On May 28, 2022, the Board of Directors authorized an increase to the Company’s previously announced Common Stock repurchase program to increase the value of the shares that could be acquired by the Company from up to $15.0 million overtwo years to up to $50.0 million over four years, subject to compliance with the Company’s Original Credit Facility, provided that all other applicable conditions and legal requirements are satisfied.

On February 27, 2022, the Board of Directors approved the adoption of a stock repurchase program to acquire up to $15.0 million of the Company’s Common Stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, through March 4, 2024, subject to compliance with the Company's Original Credit Facility, which was amended effective January 14, 2022 to increase the aggregate value of the shares of Common Stock that could be acquired by the Company to no greater than $15.0 million during the term of the Original Credit Facility, provided that all other applicable conditions and legal requirements are satisfied.

During the three months ended March 31, 2024 and 2023, the Company didnot acquire any shares of its Common Stock on the open market.

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 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 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 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 months ended March 31, 2024.

Performance Units

The PSUs awarded under the 2023 LTI Plan (the “Target PSUs”) were measured over a performance period beginning on January 1, 2023 and ending on December 31, 2023 (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 2023, 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 2023. The ultimate number of PSUs that may vest (as calculated, the “Earned PSUs”) range from zero to 200% of the Target PSUs. 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.

The Company grantedno PSUs for the three months ended March 31, 2024. The Company recognized compensation expense related to PSUs of $0.6 million for the three months ended March 31, 2024. As of March 31, 2024, the unrecognized expense of $1.3 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 year.

Restricted Stock Units

For the three months ended March 31, 2024, the Board of Directors granted RSUs under the 2013 Plan to employees for an aggregate of approximately 0.2 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 $3.12 per share, the aggregate fair value for the shares underlying the RSUs amounted to $0.8 million as of the grant date that will be recognized as compensation cost over the vesting period.

For the three months ended March 31, 2024 and 2023, the Company recognized compensation expense related to RSUs of approximately $1.2 million and $1.4 million, respectively. As of March 31, 2024, the unrecognized expense of $4.6 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 1.4 years.

Stock Options

For the three months ended March 31, 2024, the Board of Directors granted stock options for the purchase of an aggregate of approximately 0.2 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 expireten years after the grant date.

The following table sets forth a summary of stock option activity under the Stock Plans for the three months ended March 31, 2024 (shares in thousands):

(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 March 31, 2024, the aggregate intrinsic value of all stock options outstanding was $0.1 million. As of March 31, 2024, the aggregate intrinsic value of vested stock options was $5 thousand.

(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 March 31, 2024.

The aggregate fair value of approximately 0.2 million stock options granted for the three months ended March 31, 2024 amounted to $0.4 million, or $1.92 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 three months ended March 31, 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:

As of March 31, 2024 and December 31, 2023, total unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, was $4.0 million and $4.6 million, respectively. As of March 31, 2024, the unrecognized costs are expected to be charged to expense on a straight-line basis over a weighted-average vesting period of approximately 1.8 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 three months ended March 31, 2024 (in thousands):

Stock-Based Compensation Expense

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

Warrants

As of March 31, 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 March 31, 2024 and 2023, the Company’s effective tax rate was 55.9% and 42.9%, respectively. The Company’s income tax expense was primarily attributable 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 months ended March 31, 2024 and 2023.

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

During the fourth quarter of 2023, the Company entered into purchase commitments with a vendor which requires the Company to pay $12.0 million over three years. At the end ofthree years, both parties have the right to terminate the agreements. As of March 31, 2024, there was $11.0 million remaining to be paid.

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 March 31, 2024 and 2023, the Company’s matching contributions to these plans totaled $0.9 million and $0.8 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 onlyone 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 infour 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.

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 mid-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.

Following a bench trial that concluded in December 2022, the parties submitted their proposed findings of fact and conclusions of law in Rimini II to the District Court in February 2023.

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, as set forth in detail below, 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 late 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. Shortly thereafter, the Company 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.

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. As of the date of this Report, the appeal is fully briefed before the Ninth Circuit, and a three-judge panel will hold oral argument on the Company’s appeal on June 5, 2024.

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 taxable costs of approximately $70.6 million relating to the Rimini II litigation. The Company filed its opposition to Oracle’s motion on February 20, 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 exceed $14.5 million. Following Oracle’s filing of a reply brief on March 15, 2024, the matter is under consideration for determination by the District Court. As of the date of this Report, a decision about whether to award any attorneys’ fees and/or costs to Oracle, and, if so, the amounts, has not been made by the District Court.

Although the Company continues to evaluate its liability and exposure, it does not currently believe that it is probable that an award of attorneys’ fees and costs to Oracle representing a material loss will occur. However, the Company’s judgment on whether a loss is probable, reasonably possible, or remote, and its estimates of probable loss amounts, may differ from actual results due to the inherent uncertainties associated with predicting the outcome of a decision on Oracle’s motion. It is reasonably possible that the District Court could award Oracle attorneys’ fees and costs in an amount that could have a material adverse impact on the Company’s financial position, results of operations and cash flows.

If the Rimini II Injunction becomes effective in its current form, it likely would impact the Company’s delivery of PeopleSoft support services to clients in the future. However, the associated costs are not currently estimatable and are required to be recorded when incurred. Accordingly, the Company has made no accrual as of March 31, 2024. Any required changes to how support services are delivered to the Company’s PeopleSoft clients could have a material adverse impact on the 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 months ended March 31, 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 any 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 estimatable 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 $8.3 million and $9.3 million as of March 31, 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 March 31, 2024, ASP owned approximately 26.2% 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 months ended March 31, 2024 and 2023, basic and diluted net earnings per share of Common Stock were computed by dividing the net income 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 attributable to common stockholders (in thousands, except per share amounts):

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

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

In 2022, the Company began investing some of its cash and cash equivalents into U.S. Federal agency bonds, U.S. government bonds, U.S. treasury notes and other securities. 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. The fair values of these investments approximate their carrying values.

In general, investments with original maturities of greater than three months and remaining 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.

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. All of the Company’s investments as of March 31, 2024 are classified as cash equivalents.

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

Derivatives

On May 18, 2022, the Company entered into an interest rate swap agreement for a notional value of $40.0 million. The derivative was recognized in the accompanying Unaudited Condensed Consolidated Balance Sheets at its estimated fair value as of March 31, 2024. 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 March 31, 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 $1.3 million as of March 31, 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 Company received interest swap payments of $0.2 million and$0.2 million during the three months ended March 31, 2024 and 2023, respectively, which were recorded as a reduction to interest expense.

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

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):

For the three months ended March 31, 2024, Japan represented 10% of total revenue. No clients represented more than 10% of revenue for the three months ended March 31, 2024 and 2023. As of March 31, 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 March 31, 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 $4.2 million and $4.3 million respectively. As of March 31, 2024, the Company had operating lease right-of-use assets of $2.8 million, $1.6 million and $0.9 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 March 31, 2024 and December 31, 2023, the Company had cash, cash equivalents and restricted cash with a single financial institution for an aggregate of $48.4 million and $48.9 million, respectively. In addition, as of March 31, 2024 and December 31, 2023, the Company had cash and cash equivalents with three other single financial institutions of $59.3 million and $51.7 million, respectively. As of March 31, 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 toone month tofive 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 April 2024 to January 2029. 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.

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 March 31, 2024, the Company did not have any additional material operating leases that had not yet commenced.

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

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

Maturities of operating lease liabilities as of March 31, 2024 were as follows (in thousands):

For the three months ended March 31, 2024 and 2023, the Company paid $1.4 million and $1.1 million, respectively, for operating lease liabilities.