Rimini Street Inc

Previous wording

•the impact of any recessionary economic trends, including inflation, rising interest rates and changes in foreign exchange rates;

Current wording

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

Previous wording

•changes in laws or regulations, including tax laws or unfavorable outcomes of tax positions we take, or a failure by us to establish adequate reserves for tax events;

Current wording

•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;

Previous wording

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

Current wording

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

Previous wording

When we provide our support solutions for a perpetual software license, we generally offer our clients service for a fee that 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.

Current wording

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.

Previous wording

As of June 30, 2024, we employed over 2,140 professionals and supported over 3,000 active clients globally, including 74 Fortune 500 companies and 17 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.

Current wording

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.

Previous wording

Our subscription-based revenue provides a foundation for, and visibility into, future period results. For the three months ended June 30, 2024 and 2023, we generated revenue of $103.1 million and $106.4 million, respectively, representing a decrease of 3%. During the three months ended June 30, 2024, we recorded a net loss of $1.1 million, and as of June 30, 2024, we had an accumulated deficit of $202.0 million. Approximately 50% and 51% of our revenue was generated in the United States for the three months ended June 30, 2024 and 2023, respectively. Approximately 50% and 49% of our revenue was generated in foreign jurisdictions for the three months ended June 30, 2024 and 2023, respectively.

Current wording

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

Previous wording

After careful consideration, we have decided to wind down the offering of services for Oracle PeopleSoft products. This includes our Rimini Support™, Rimini Manage™ and Rimini Consult™ services. As we provide services for Oracle PeopleSoft products to clients globally, the wind-down process is expected to take place over several phases and will likely take a year or longer before we are able to cease providing all Oracle PeopleSoft services. Revenue related to providing services for Oracle PeopleSoft products accounted for approximately $36.1 million, or 8%, of fiscal year 2023 revenue and $16.6 million, or 8%, of first half 2024 revenue, respectively.

Current wording

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.

Previous wording

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, the 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. 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 six months ended June 30, 2024.

Current wording

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.

Previous wording

The extent to which rising inflation, interest rate increases, 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.

Current wording

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.

Previous wording

Reference is made to Notes 5 and 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 2024 Credit Facility and litigation with Oracle, including the Rimini II Injunction appeal referenced above.

Current wording

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.

Previous wording

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 June 30, 2024 and 2023, we had over 3,000 and 3,020 active clients, respectively.

Current wording

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.

Previous wording

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 June 30, 2024 and 2023, we had over 1,530 and 1,510 unique clients, respectively.

Current wording

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.

Previous wording

The increase in our unique client count was due to obtaining new unique client contracts. In contrast, our active client count has declined 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.

Current wording

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.

Previous wording

Our annualized recurring revenue was $399 million and $410 million as of June 30, 2024 and 2023, respectively. The decline reflects the recent reduction in client retention.

Current wording

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.

Previous wording

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 88% and 94% for the 12 months ended June 30, 2024 and 2023, respectively. The decline in our revenue retention rate for the 12 months ended June 30, 2024 was due to attrition during the trailing twelve months, as certain clients did not renew specific subscriptions; however, in some cases these clients maintained or added subscriptions for other products and services due to a variety of reasons. Our net billings during the three months ended June 30, 2024 increased $7.2 million compared to the three months ended June 30, 2023 primarily because we were able to increase client invoicing during the current period. However, our net billing for the six months ended June 30, 2023 decreased $11.6 million compared to the six months ended June 30, 2023 as a result of client terminations.

Current wording

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.

Previous wording

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 59.1% and 63.0% for the three months ended June 30, 2024 and 2023, respectively. Our gross profit margin declined for the three months ended June 30, 2024 compared to the three months ended June 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.

Current wording

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.

Previous wording

Revenue. Revenue declined from $106.4 million for the three months ended June 30, 2023 to $103.1 million for the three months ended June 30, 2024, a decrease of $3.3 million or 3%. Although there was an increase in the average number of unique clients from 1,510 for the three months ended June 30, 2023 to 1,534 for the three months ended June 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 $54.0 million for the three months ended June 30, 2023 to $51.5 million for the three months ended June 30, 2024, a decrease of $2.5 million or 5%. Our international revenue declined from $52.4 million for the three months ended June 30, 2023 to $51.7 million for the three months ended June 30, 2024, a decrease of $0.8 million or 1%.

Current wording

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%.

Previous wording

Cost of revenue. Cost of revenue increased from $78.7 million for the six months ended June 30, 2023 to $85.1 million for the six months ended June 30, 2024, an increase of $6.4 million or 8%. The key drivers related to the cost of revenue increase were a $4.6 million increase in employee compensation and benefits to support an average headcount increase of 20%, a $1.1 million increase in administrative allocations and a $1.2 million increase in all other costs. These cost increases were offset by a $0.5 million decline in engineering consulting costs.

Current wording

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.

Previous wording

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 in order to comply with the District Court’s Rimini II Injunction. 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.

Current wording

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.

Previous wording

Gross profit. Gross profit decreased from $67.1 million for the three months ended June 30, 2023 to $60.9 million for the three months ended June 30, 2024, a decrease of $6.1 million or 9%. Gross profit margin for the three months ended June 30, 2023 was 63.0% compared to 59.1% for the three months ended June 30, 2024. For the three months ended June 30, 2024, the total cost of revenue increased by 7%, primarily due to an increase in average headcount of 19% compared to a decline in revenue of 3% for the three months ended June 30, 2024. As a result, our gross profit margin declined by 390 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.

Current wording

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.

Previous wording

Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses were 36% and 35% for the three months ended June 30, 2024 and 2023, respectively. In dollar terms, sales and marketing expenses increased from $37.3 million for the three months ended June 30, 2023 to $37.4 million for the three months ended June 30, 2024, an increase of $0.1 million or 0.2%. This increase was primarily due to an increase in travel and entertainment costs of $0.8 million. In addition, we incurred an increase of administrative allocations and all other costs of $0.6 million. These increases were offset by declines in marketing and advertising costs of $0.5 million, employee compensation and benefits of $0.5 million and contract labor of $0.3 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.

Current wording

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.

Previous wording

General and administrative expenses. General and administrative expenses increased from $18.9 million for the three months ended June 30, 2023 to $19.5 million for the three months ended June 30, 2024, an increase of $0.7 million or 4%. This increase was comprised of several items, which included an increase in salaries, wages, bonuses and benefits of $0.9 million, an increase in computer supplies and licenses of $1.0 million, an increase in professional fees of $0.5 million and an increase in contract labor of $0.3 million. These incremental expenses were offset by a decrease in stock-based compensation of $1.3 million and an increase in administrative allocations, net of all other costs, of $0.7 million.

Current wording

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.

Previous wording

Reorganization costs. Given our current business conditions, we began a process to evaluate and optimize our cost structure through a headcount reduction during the three months ended June 30, 2024. As a result, we recognized reorganization costs of $3.2 million for the three months ended June 30, 2024 compared to none for the three months ended June 30, 2023. The costs were primarily related to severance costs associated with our initial employee terminations. We are continuing our evaluation and expect to incur additional reorganization costs during the third 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 under “Recent Developments,” above.

Current wording

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.

Previous wording

Professional fees and other costs associated with litigation increased from $0.6 million for the three months ended June 30, 2023 to $1.6 million for the three months ended June 30, 2024, an increase of $1.0 million. This increase was primarily due to costs incurred relating to our appeal of the Rimini II decision with the Ninth Circuit on June 5, 2024.

Current wording

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.

Previous wording

There were no insurance costs and related recoveries, net incurred for either the three months ended June 30, 2023 or for the three months ended June 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 and contractually committed backlog 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.

Current wording

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.

Previous wording

Interest expense. Interest expense increased from $1.4 million for the three months ended June 30, 2023 to $1.5 million for the three months ended June 30, 2024. Interest expense slightly increased primarily due to rising interest rates on our Credit Facilities, which increased from an average interest rate of 6.9% for the three months ended June 30, 2023 to an average interest rate of 7.8% for the three months ended June 30, 2024.

Current wording

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.

Previous wording

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 June 30, 2024, net other income of approximately $1.5 million was comprised primarily of gains from foreign exchanges of $0.9 million and interest income from cash and cash equivalents of $0.9 million. These items were offset by other expenses of approximately $0.3 million. For the three months ended June 30, 2023, net other expenses of approximately $0.3 million was comprised primarily of gains from cash equivalents and investments of $0.7 million which were offset, in part, by foreign exchange losses of approximately $0.3 million and other expenses of $0.1 million.

Current wording

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.

Previous wording

Income tax expense. We had an income tax expense of $4.9 million for the three months ended June 30, 2023 compared to an income tax expense of $0.4 million for the three months ended June 30, 2024. For the three months ended June 30, 2024, the primary reason for the decrease in income tax expense was due to a decrease of income before taxes of $10.0 million in the current year period compared to the prior year period.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Revenue. Revenue declined from $211.9 million for the six months ended June 30, 2023 to $209.9 million for the six months ended June 30, 2024, a decrease of $2.1 million or 1%. Although there was a 2% increase in the average number of unique clients from 1,511 for the six months ended June 30, 2023 to 1,534 for the six months ended June 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 $107.4 million for the six months ended June 30, 2023 to $105.3 million for the six months ended June 30, 2024, a decrease of $2.1 million or 2%. Our international revenue grew from $104.5 million for the six months ended June 30, 2023 to $104.6 million for the six months ended June 30, 2024, an increase of $0.1 million or 0.1%.

Current wording

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%.

Previous wording

Cost of revenue. Cost of revenue increased from $39.3 million for the three months ended June 30, 2023 to $42.2 million for the three months ended June 30, 2024, an increase of $2.8 million or 7%. The key drivers related to the cost of revenue increase were a $2.0 million increase in employee compensation and benefits to support an average headcount increase of 19%, a $0.8 million increase in administrative allocations and a $0.4 million increase in all other costs. These cost increases were offset by a $0.3 million decrease in engineering consulting costs.

Current wording

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.

Previous wording

Gross profit. Gross profit decreased from $133.2 million for the six months ended June 30, 2023 to $124.8 million for the six months ended June 30, 2024, a decrease of $8.5 million or 6%. Gross profit margin for the six months ended June 30, 2023 was 62.9% compared to 59.5% for the six months ended June 30, 2024. For the six months ended June 30, 2024, the total cost of revenue increased by 8%, primarily due to an increase in average headcount of 20% compared to a decline in revenue of 1% for the six months ended June 30, 2024. As a result, our gross profit margin declined by 340 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.

Current wording

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.

Previous wording

Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses were 36% and 34% for the six months ended June 30, 2024 and 2023, respectively. In dollar terms, sales and marketing expenses increased from $71.8 million for the six months ended June 30, 2023 to $76.5 million for the six months ended June 30, 2024, an increase of $4.8 million or 7%. This increase was primarily due to an increase in travel and entertainment costs of $5.3 million, primarily related to a sales training event held in January 2024. In addition, we incurred an increase in employee compensation and benefits of $0.2 million and an increase of administrative allocations and all other costs of $1.2 million. These increases were offset by declines in marketing and advertising costs of $1.2 million and contract labor of $0.7 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.

Current wording

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.

Previous wording

General and administrative expenses. General and administrative expenses increased from $37.1 million for the six months ended June 30, 2023 to $37.9 million for the six months ended June 30, 2024, an increase of $0.8 million or 2%. This increase was comprised of several items, which included an increase in computer supplies and licenses of $1.5 million, an increase in contract labor of $0.6 million, an increase in all other costs of $0.6 million and an increase in employee compensation and benefits of $0.1 million. These incremental expenses were offset by an increase in administrative allocations of $1.5 million, a decline in other tax costs of $0.3 million, and a decline in recruitment costs of $0.2 million.

Current wording

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.

Previous wording

Reorganization costs. Given our current business conditions, we began a process to evaluate and optimize our cost structure through a headcount reduction during the six months ended June 30, 2024. As a result, we recognized reorganization costs of $3.2 million for the six months ended June 30, 2024 compared to $0.1 million for the six months ended June 30, 2023. The costs were primarily related to severance costs associated with initial employee terminations. We are continuing our evaluation and expect to incur additional reorganization costs during the third 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 under “Recent Developments,” above.

Current wording

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.

Previous wording

Professional fees and other costs associated with litigation increased from $3.3 million for the six months ended June 30, 2023 to $4.5 million for the six months ended June 30, 2024, an increase of $1.2 million. This increase was primarily due to costs incurred for our appeal preparation of the Rimini II decision with the Ninth Circuit on June 5, 2024.

Current wording

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.

Previous wording

There were no insurance costs and related recoveries, net incurred for either the six months ended June 30, 2023 or for the six months ended June 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 and contractually committed backlog 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.

Current wording

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.

Previous wording

Interest expense. Interest expense increased from $2.7 million for the six months ended June 30, 2023 to $2.8 million for the six months ended June 30, 2024. Interest expense slightly increased primarily due to rising interest rates on our Credit Facilities, which increased from an average interest rate of 6.6% for the six months ended June 30, 2023 to an average interest rate of 7.5% for the six months ended June 30, 2024. These rising interest rates were offset, in part, by a reduction of interest costs during the six months ended June 30, 2024 and 2023, respectively.

Current wording

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.

Previous wording

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 six months ended June 30, 2024, net other income of approximately $2.5 million was comprised primarily of income from cash equivalents and investments of $1.9 million and foreign exchange gains of $1.1 million, This other income was offset, in part, by other expenses of $0.5 million. For the six months ended June 30, 2023, net other income of approximately $0.8 million was comprised primarily of gains from cash equivalents and investments of $1.7 million which were offset, in part, by foreign exchange losses of approximately $0.7 million and other expenses of $0.2 million.

Current wording

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.

Previous wording

Income tax expense. We recorded income tax expense of $9.2 million for the six months ended June 30, 2023 compared to an income tax expense of $2.1 million for the six months ended June 30, 2024. For the six months ended June 30, 2024, the primary reason for the decrease in income tax expense was due to a decline of income before taxes of $16.8 million in the current year period compared to the prior year period.

Current wording

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.