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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                               to                             
Commission File Number: 001-37397
Rimini Street, Inc.
(Exact name of registrant as specified in its charter)

Delaware36-4880301
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)
3993 Howard Hughes Parkway, Suite 500,
Las Vegas, NV
89169
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(702) 839-9671
Not Applicable
(Former name, former address and formal fiscal year, if changed since last report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Trading Symbol(s)Name of each exchange on which registered:
  
Common Stock, par value $0.0001 per shareRMNIThe Nasdaq Global Market
  
Public Units, each consisting of one share of Common
Stock, $0.0001 par value, and one-half of one Warrant
RMNIU
 OTC Pink Current Information Marketplace
  
Warrants, exercisable for one share of Common Stock, $0.0001 par valueRMNIWOTC Pink Current Information Marketplace

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ No ¨





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

Smaller reporting company
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        
Yes No þ
The registrant had approximately 76,285,000 shares of its $0.0001 par value common stock outstanding as of November 3, 2020. 






RIMINI STREET, INC.
TABLE OF CONTENTS
Page
Unaudited Condensed Consolidated Balance Sheets
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
Unaudited Condensed Consolidated Statements of Stockholders' Deficit
Unaudited Condensed Consolidated Statements of Cash Flows

1



PART I - FINANCIAL INFORMATION
 
ITEM 1. Financial Statements.
 
RIMINI STREET, INC. 
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except per share amounts) 
September 30,December 31,
 20202019
ASSETS
Current assets:
Cash and cash equivalents$83,410 $37,952 
Restricted cash333 436 
Accounts receivable, net of allowance of $889 and $1,608, respectively
67,335 111,574 
Deferred contract costs, current13,075 11,754 
Prepaid expenses and other11,569 15,205 
Total current assets175,722 176,921 
Long-term assets:
Property and equipment, net of accumulated depreciation and amortization of $11,041 and $9,847, respectively
4,988 3,667 
Operating lease right-of-use assets16,585  
Deferred contract costs, noncurrent19,847 16,295 
Deposits and other1,624 3,089 
Deferred income taxes, net1,546 1,248 
Total assets$220,312 $201,220 
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$3,969 $2,303 
Accrued compensation, benefits and commissions35,574 27,918 
Other accrued liabilities17,034 23,347 
Operating lease liabilities, current4,309  
Deferred revenue, current179,512 205,771 
Total current liabilities240,398 259,339 
Long-term liabilities:
Deferred revenue, noncurrent24,785 29,727 
Operating lease liabilities, noncurrent13,256  
Accrued PIK dividends payable1,182 1,156 
Other long-term liabilities2,234 2,275 
Total liabilities281,855 292,497 
Commitments and contingencies (Note 8)
Redeemable Series A Preferred Stock:
Authorized 180 shares; issued and outstanding 159 shares and 155 shares as of September 30, 2020 and December 31, 2019, respectively. Liquidation preference of $158,729, net of discount of $19,213 and $155,231, net of discount of $23,915, as of September 30, 2020 and December 31, 2019, respectively.
139,516 131,316 
Stockholders’ deficit:
Preferred stock; $0.0001 par value. Authorized 99,820 shares (excluding 180 shares of Series A Preferred Stock); no other series has been designated
  
Common stock; $0.0001 par value. Authorized 1,000,000 shares; issued and outstanding 76,207 and 67,503 shares as of September 30, 2020 and December 31, 2019, respectively
8 7 
Additional paid-in capital105,587 93,484 
Accumulated other comprehensive loss(1,320)(1,429)
Accumulated deficit(305,334)(314,655)
Total stockholders' deficit(201,059)(222,593)
Total liabilities, redeemable preferred stock and stockholders' deficit$220,312 $201,220 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2



RIMINI STREET, INC. 
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share amounts) 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenue$82,518 $69,182 $238,952 $204,924 
Cost of revenue31,991 25,915 92,627 74,786 
Gross profit50,527 43,267 146,325 130,138 
Operating expenses:
Sales and marketing29,195 26,756 84,443 77,610 
General and administrative13,025 11,041 38,159 34,659 
Litigation costs and related recoveries:
Professional fees and other costs of litigation3,773 3,642 9,247 6,127 
Litigation appeal refunds   (12,775)
Insurance costs and recoveries, net (339)1,062 4,000 
 Litigation costs and related recoveries, net
3,773 3,303 10,309 (2,648)
Total operating expenses45,993 41,100 132,911 109,621 
Operating income4,534 2,167 13,414 20,517 
Non-operating income and (expenses):
Interest expense(10)(27)(35)(375)
Other income (expenses), net54 (329)(731)(629)
Income before income taxes4,578 1,811 12,648 19,513 
Income tax expense(1,272)(451)(3,327)(1,777)
Net income3,306 1,360 9,321 17,736 
Other comprehensive income:
Foreign currency translation gain (loss)520 (262)109 (331)
Comprehensive income$3,826 $1,098 $9,430 $17,405 
Net loss attributable to common stockholders$(3,439)$(5,159)$(10,743)$(1,133)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.05)$(0.08)$(0.15)$(0.02)
Weighted average number of shares of Common Stock outstanding:
Basic and diluted72,377 66,696 69,521 65,625 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3



RIMINI STREET, INC.
Unaudited Condensed Consolidated Statements of Stockholders' Deficit
(In thousands) 

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Common Stock, Shares
  Beginning of period68,530 66,387 67,503 64,193 
    Exercise of stock options for cash976 714 1,540 2,399 
    Restricted stock units vested601 8 1,064 165 
    Issuance of Common Stock in August 2020 Offering6,100  6,100  
    Issuance of Common Stock in Private Placement, net   207 
    Issuance of Common Stock   145 
  End of period76,207 67,109 76,207 67,109 
Total Stockholders' Deficit, beginning of period$(226,514)$(215,550)$(222,593)$(225,398)
Common Stock, Amount
  Beginning of period7 7 7 6 
    Exercise of stock options for cash   1 
    Restricted stock units vested    
    Issuance of Common Stock in August 2020 Offering, net1  1  
    Issuance of Common Stock in Private Placement, net    
    Issuance of Common Stock    
  End of period8 7 8 7 
Additional Paid-in Capital
  Beginning of period83,959 101,887 93,484 108,347 
    Stock based compensation expense2,189 1,621 5,425 3,829 
    Exercise of stock options for cash1,081 907 1,639 2,875 
    Restricted stock units vested    
    Issuance of Common Stock in August 2020 Offering, net25,103  25,103  
    Issuance of Common Stock in Private Placement, net   935 
    Issuance of Common Stock   779 
    Accretion of discount on Series A Preferred Stock(1,587)(1,511)(4,702)(4,319)
    Accrued dividends on Series A Preferred Stock:
      Payable in cash(3,968)(3,852)(11,817)(11,192)
      Payable in kind(1,190)(1,156)(3,545)(3,358)
  End of period105,587 97,896 105,587 97,896 
Accumulated Other Comprehensive Loss
  Beginning of period(1,840)(1,636)(1,429)(1,567)
    Foreign currency translations gain (loss)520 (262)109 (331)
  End of period(1,320)(1,898)(1,320)(1,898)
Accumulated Deficit
  Beginning of period(308,640)(315,808)(314,655)(332,184)
    Net income 3,306 1,360 9,321 17,736 
  End of period(305,334)(314,448)(305,334)(314,448)
Total Stockholders' Deficit, end of period$(201,059)$(218,443)$(201,059)$(218,443)


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



4





RIMINI STREET, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended September 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$9,321 $17,736 
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization of debt discount and issuance costs 185 
Stock-based compensation expense5,425 3,829 
Depreciation and amortization1,321 1,462 
Deferred income taxes(275)(15)
Amortization and accretion related to ROU assets4,628  
Other8 141 
Changes in operating assets and liabilities:
Accounts receivable42,367 18,547 
Prepaid expenses, deposits and other4,656 (4,277)
Deferred contract costs(4,872)1,173 
Accounts payable1,712 (10,222)
Accrued compensation, benefits, commissions and other liabilities(3,632)1,789 
Deferred revenue(28,826)(9,363)
Net cash provided by operating activities31,833 20,985 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures(1,159)(1,354)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds related to issuance of Common Stock from August 2020 Offering25,657  
Payments for professional fees related to issuance of Common Stock from August 2020 Offering(253)— 
Net proceeds from issuance of Series A Preferred Stock and Common Stock 9,110 
Principal payments on borrowings (2,555)
Payments for deferred offering and financing costs— (452)
Payments of cash dividends on Series A Preferred Stock(11,750)(10,883)
Principal payments on capital leases(170)(378)
Proceeds from exercise of employee stock options1,639 2,875 
Net cash provided by (used in) financing activities15,123 (2,283)
Effect of foreign currency translation changes(442)(393)
Net change in cash, cash equivalents and restricted cash45,355 16,955 
Cash, cash equivalents and restricted cash at beginning of period38,388 25,206 
Cash, cash equivalents and restricted cash at end of period$83,743 $42,161 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

5



RIMINI STREET, INC. 
Unaudited Condensed Consolidated Statements of Cash Flows, Continued
(In thousands)


Nine Months Ended September 30,
20202019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest$37 $210 
Cash paid for income taxes2,165 1,778 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Discount on shares of Common Stock issued in August 2020 Public Offering:
  Underwriter discounts and commissions$1,650 $ 
  Underwriter expenses 143  
  Accrued professional fees related to the issuance of Common Stock300  
Discount on shares issued in Private Placements:
Fair value of 207 shares of Common Stock issued in 2019 for no consideration regarding their respective Private Placements
$ $1,098 
  Original issuance discount on Series A Preferred Stock 500 
  Transaction costs 390 
  Issuance of 120 shares of Common Stock for consent regarding Private Placements
 638 
Redeemable Series A Preferred Stock Dividends and Accretion:
  Accrued cash dividends$3,977 $3,859 
  Accrued PIK dividends1,182 1,149 
  Accretion of discount on Series A Preferred Stock4,702 4,319 
  Issuance of Series A Preferred Stock for PIK dividends3,498 3,236 
Purchase of equipment under capital lease obligations$1,641 $206 
Increase in payables for capital expenditures2  


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


6


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION
 
Nature of Business
 
Rimini Street, Inc. (the “Company”) is a global provider of enterprise software support services. The Company’s subscription-based software support products and services offer enterprise software licensees a choice of solutions that replace or supplement the support products and services offered by enterprise software vendors. 

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, 2019, included in the Company’s 2019 Annual Report on Form 10-K as filed with the SEC on March 16, 2020 (the “2019 Form 10-K”).
 
The accompanying condensed consolidated balance sheet and related disclosures as of December 31, 2019 have been derived from the Company’s audited financial statements. The Company’s financial condition as of September 30, 2020, and operating results for both the three and nine months ended September 30, 2020 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, 2020.
 
NOTE 2 — LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES
 
Liquidity
 
As of September 30, 2020, the Company’s current liabilities exceeded its current assets by $64.7 million, and the Company earned net income of $3.3 million and $9.3 million, for the three months and the nine months ended September 30, 2020. As of September 30, 2020, the Company had available cash, cash equivalents and restricted cash of $83.7 million. As of September 30, 2020, the Company's current liabilities included $179.5 million of deferred revenue whereby the historical costs of fulfilling the Company's commitments to provide services to its clients was approximately 39% of the related deferred revenue for the three months ended September 30, 2020.

As discussed in Note 6, the Company completed a firm commitment underwritten public offering on August 18, 2020 (the “August 2020 Offering”) of 6.1 million shares of its Common Stock at a price of $4.50 per share for total gross proceeds of $27.5 million. Underwriter discounts and commissions were $1.7 million and the underwriter expenses were $0.1 million. The Company also incurred additional professional fees of $0.6 million as part of the transaction, resulting in net proceeds from the August 2020 Offering of approximately $25.1 million. The Company intends to use the net proceeds from the August 2020 Offering for working capital and other general corporate purposes.

As discussed in Note 5, the Company completed a third private placement on June 20, 2019, which provided additional net proceeds of $3.0 million from the sale of 3,500 shares of 13.00% Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share (the Series A Preferred Stock”) and 72,414 shares of Common Stock. On March 7, 2019, the Company completed a second private placement, which provided additional net cash proceeds of $5.0 million from the sale of 6,500 shares of the Series A Preferred Stock and 134,483 shares of Common Stock. In 2018, the Company had previously refinanced and repaid its former Credit Facility on July 19, 2018 through aggregate cash payments of $132.8 million that resulted in the termination of the Credit Facility. These cash payments were funded from the Initial Private Placement (together with cash-on-hand) discussed in Note 5 that resulted in cash proceeds of $133.0 million from the sale of 140,000 shares of Series A Preferred Stock and approximately 2.9 million shares of Common Stock.

7


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


These refinancing arrangements improved the Company’s liquidity and capital resources whereby cash dividends are payable at 10.0% per annum that will result in quarterly cash dividends ranging from $3.9 million to $4.3 million over the remaining initial 5-year period beginning on July 19, 2018, assuming all shares of Series A Preferred Stock remain outstanding, and thereafter, if not previously redeemed or converted, cash dividends will be payable at 13.0% per annum.

Additionally, the Company is obligated to make operating and capital lease payments that are due within the next 12 months in the aggregate amount of $7.0 million. In March 2020, the World Health Organization declared the outbreak of a novel strain of the coronavirus (“COVID-19”) to be a pandemic. Assuming that, after the issuance date of these financial statements, the Company’s ability to operate continues not to be significantly adversely impacted by the COVID-19 pandemic, 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 cash dividend requirements, working capital needs, capital expenditures and 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 significant accounting estimates include, but are not necessarily limited to, 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 operation may be affected.
 
Recent Accounting Pronouncements

Recently Adopted Standards. The following accounting standards were adopted during the fiscal year 2020:

In February 2016, Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases, which requires organizations that lease assets (“lessees”) to recognize on the balance sheet the right of use ("ROU") assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months and to disclose key information about leasing arrangements. Under the new standard, both finance and operating leases will be required to be recognized on the balance sheet. Additional quantitative and qualitative disclosures, including significant judgments made by management, are also required. The Company adopted ASC 842 using the modified retrospective method on January 1, 2020. See Note 12 for the disclosure on the impact of adopting this standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires application of an impairment model known as the current expected credit loss (“CECL”) model to certain financial instruments held at amortized cost, including trade receivables. Using the CECL model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable loss has been incurred. The new guidance was effective for the Company in January 2020. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which provides new guidance on disclosures related to fair value measurements. The guidance is intended to improve the effectiveness of the notes to financial statements by facilitating clearer communication, and it includes multiple new, eliminated and modified disclosure requirements. The guidance was effective for the Company in January 2020. The adoption of this guidance did not have an impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The guidance aligns the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract with the requirements for capitalization costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The new guidance was effective for the Company in January 2020. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.
8


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Recently Issued Accounting Standards:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions to the general income tax accounting principles, and clarifies and amends existing guidance to facilitate consistent application of the accounting principles. The new guidance is effective for the Company as of January 1, 2021. The Company is assessing the impact of the adoption of this guidance on its Consolidated Financial Statements.

In January 2020, the FASB issued ASU 2020-1, Investments—Equity Securities (Topic 321), Investments - Equity and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The guidance clarifies interactions between current accounting standards on equity securities, equity method and joint ventures, and derivatives and hedging. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for the Company as of January 1, 2021. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The guidance eliminates the beneficial conversion and cash conversion accounting for convertible instruments. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The new guidance is effective for the Company as of January 1, 2022. The Company is assessing the impact of the adoption of this guidance on its Consolidated Financial Statements.

NOTE 3 - DEFERRED CONTRACT COSTS AND DEFERRED REVENUE

Activity for deferred contract costs for the three and nine months ended September 30, 2020 and 2019 is shown below (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Deferred contract costs, current and noncurrent, as of the beginning of period$29,384 $25,947 $28,049 $27,080 
Capitalized commissions during the period7,123 3,104 15,165 8,039 
Amortized deferred contract costs during the period(3,585)(3,144)(10,292)(9,212)
Deferred contract costs, current and noncurrent, as of the end of period$32,922 $25,907 $32,922 $25,907 

Deferred revenue activity for the three and nine months ended September 30, 2020 and 2019 is shown below (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Deferred revenue, current and noncurrent, as of the beginning of period$218,506 $204,845 $235,498 $196,706 
Billings, net68,309 51,262 207,751 195,143 
Revenue recognized(82,518)(69,182)(238,952)(204,924)
Deferred revenue, current and noncurrent, as of the end of period$204,297 $186,925 $204,297 $186,925 

The transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized. As of September 30, 2020, the remaining transaction price included in deferred revenue was $179.5 million in current and $24.8 million in noncurrent.


9


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 — OTHER FINANCIAL INFORMATION
  
Other Accrued Liabilities
 
As of September 30, 2020 and December 31, 2019, other accrued liabilities consist of the following (in thousands):
 
 20202019
Accrued sales and other taxes$2,587 $5,752 
Accrued professional fees4,936 4,367 
Accrued dividends on Redeemable Series A Preferred Stock3,977 3,889 
Current maturities of capital lease obligations449 222 
Income taxes payable1,471 1,091 
Appeal proceeds payable to insurance company 4,388 
Other accrued expenses3,614 3,638 
Total other accrued liabilities$17,034 $23,347 

Interest Expense
 
The components of interest expense are presented below (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Accretion expense for GP Sponsor note payable$ $ $ $185 
Interest on other borrowings10 27 35 190 
  Total interest expense$10 $27 $35 $375 

The note payable to GPIC Ltd, a Bermuda company (“GP Sponsor”), was paid off on June 28, 2019. See Note 9 for further information.


NOTE 5 — REDEEMABLE SERIES A PREFERRED STOCK

2018 Securities Purchase Agreement

On July 19, 2018, the Company closed a Securities Purchase Agreement (the “2018 SPA”) with several accredited investors (the “Purchasers”) for a private placement (the “Initial Private Placement”) of (i) 140,000 shares of Series A Preferred Stock, (ii) approximately 2.9 million shares of Common Stock, and (iii) convertible secured promissory notes (the “Convertible Notes”), with no principal amount outstanding at issuance that solely collateralize amounts, if any, that may become payable by the Company pursuant to certain redemption provisions of the Series A Preferred Stock.

Pursuant to the 2018 SPA, the Purchasers acquired an aggregate of 140,000 shares of Series A Preferred Stock, 2.9 million shares of Common Stock, and Convertible Notes with no principal amount outstanding as of the issuance date, for an aggregate purchase price equal to $133.0 million in cash (after taking into account a discount of $7.0 million, but before the incremental and direct transaction costs associated with the Private Placement of $4.6 million). The allocation of the net proceeds as of the Closing Date, along with changes in the net carrying value of the Series A Preferred Stock through September 30, 2020 are set forth below (dollars in thousands):
10


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on July 19, 2018:
  Series A Preferred Stock140,000 $126,763 
(1)
$— $— $126,763 
  Common Stock— — 20,131 
(2)
— 20,131 
  Convertible Notes— — — — — 
    Total140,000 $126,763 $20,131 $— $146,894 
Relative fair value allocation on July 19, 2018
  Aggregate cash proceeds on July 19, 2018140,000 $114,773 
(3)
$18,227 
(3)
$— $133,000 
  Incremental and direct costs— (3,994)
(4)
(634)
(4)
— (4,628)
Net carrying value on July 19, 2018140,000 $110,779 
 
$17,593 $— $128,372 

_________________
1.The liquidation preference for each share of Series A Preferred Stock on the closing date for the Initial Private Placement was $1,000 per for an aggregate liquidation preference of $140.0 million. The estimated fair value of the Series A Preferred Stock was approximately $126.8 million on July 19, 2018, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
2.The fair value of the issuance of approximately 2.9 million shares of the Common Stock was based on the last closing price of $6.95 per share on the date prior to closing the transaction.
3.The aggregate cash proceeds of $133.0 million on July 19, 2018 were allocated pro rata based on the fair value of all consideration issued.
4.Incremental and direct costs of the Initial Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs include financial advisory and professional fees of $2.7 million that were incurred by the Company, and due diligence and professional fees incurred by the investors of $1.9 million.

At the closing, the Company used the $133.0 million of proceeds from the Initial Private Placement plus cash and cash equivalents of $2.7 million to (i) repay all outstanding indebtedness and various operating and financing fees and expenses under the former Credit Facility in the aggregate amount of $132.8 million, (ii) pay incremental and direct transaction costs of $2.7 million, and (iii) pay a professional services retainer of $0.2 million.

In connection with the completion of the Initial Private Placement, the Company, among other customary closing actions, (i) filed a Certificate of Designations with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series A Preferred Stock (the “CoD”), (ii) entered into a Registration Rights Agreement with the Purchasers setting forth certain registration rights of capital stock held by the Purchasers (the “Registration Rights Agreement”), (iii) delivered a Convertible Note to each Purchaser, and (iv) entered into a Security Agreement (the “Security Agreement”) in respect of the Company’s assets collateralizing the amounts that may become payable pursuant to the Convertible Notes if certain redemption provisions of the Series A Preferred Stock are triggered in the future.

March 2019 Securities Purchase Agreement
On March 7, 2019, the Company entered into a securities purchase agreement (the “March 2019 SPA”) with an accredited investor for a private placement (the "March 2019 Private Placement") of (i) 6,500 shares of Series A Preferred Stock, (ii) 134,483 shares of Common Stock, and (iii) a Convertible Note (as defined below) with no principal balance outstanding. The shares of Series A Preferred Stock were authorized pursuant to the CoD (as defined below) and are subject to the provisions set forth in an amended Security Agreement (as defined below), a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement (as defined below) entered into in connection with the 2018 SPA discussed above. The accredited investor in the March 2019 Private Placement is affiliated with one of the accredited investors in the Initial Private Placement.
The aggregate cash proceeds from the March 2019 Private Placement were $5.8 million in cash (after an 11.0% discount or $0.7 million). The net proceeds were approximately $5.0 million after estimated transaction costs payable by the Company of $0.8 million. The transaction costs consisted of 85,000 shares of Common Stock issued to the existing holders of the Series A Preferred Stock for their consent at a cost of approximately $0.5 million and direct transaction costs of approximately $0.3 million related to due diligence and professional fees. The net proceeds were allocated based on their relative fair values at issuance of the Series A Preferred Stock and the Common Stock. The allocation of the net proceeds from the March 2019 Private Placement are set forth below (dollars in thousands):
11


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on March 7, 2019:
  Series A Preferred Stock6,500 $5,313 
(1)
$— $— $5,313 
  Common Stock— — 722 
(2)
— 722 
  Convertible Notes— — — — — 
    Total6,500 $5,313 $722 $— $6,035 
Relative fair value allocation on March 7, 2019:
  Aggregate cash proceeds on March 7, 20196,500 $5,093 
(3)
$692 
(3)
$— $5,785 
  Incremental and direct costs— (661)
(4)
(90)
(4)
— (751)
Net carrying value on March 7, 20196,500 $4,432 $602 $— $5,034 


(1)The liquidation preference for each share of Series A Preferred Stock on the closing date for the March 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $6.5 million. The estimated fair value of the Series A Preferred Stock was approximately $5.3 million on March 7, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)The fair value of the issuance of approximately 134,483 shares of the Common Stock was based on the closing price of $5.37 per share on the date prior to closing of the transaction.
(3)The aggregate cash proceeds of $5.8 million on March 7, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)Incremental and direct costs related to the March 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 85,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.5 million and financial advisory and professional fees that were incurred of approximately $0.3 million that were either paid or accrued directly by the Company as of March 31, 2019.

June 2019 Securities Purchase Agreement
On June 20, 2019, the Company entered into a securities purchase agreement (the "June 2019 SPA") with accredited investors for a private placement (the “June 2019 Private Placement”) of (i) 3,500 shares of Series A Preferred Stock, (ii) 72,414 shares of Common Stock, and (iii) a Convertible Note (as defined below) with no principal balance outstanding. The shares of the Series A Preferred Stock were authorized pursuant to the CoD (as defined below) and are subject to the provisions set forth in an amended Security Agreement (as defined below), a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement (as defined below) entered into connection with the 2018 SPA discussed above. The accredited investors in the June 2019 Private Placement are not affiliated with the accredited investors in the March 2019 Private Placement (as defined below) or the Initial Private Placement.
The aggregate cash proceeds from the June 2019 Private Placement were $3.3 million in cash (after a 5.0% discount or $0.2 million). The net proceeds were approximately $3.0 million after estimated transaction costs payable by the Company of $0.3 million. The transaction costs consisted of 35,000 shares of Common Stock issued to the existing holders of the Series A Preferred Stock for their consent at a cost of approximately $0.2 million and direct transaction costs of approximately $0.2 million related to professional fees of the investors, existing holders of Series A Preferred Stock and the Company. The net proceeds were allocated based on their relative fair values at issuance of the Series A Preferred Stock and the Common Stock. The allocation of the net proceeds from the June 2019 Private Placement are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on June 20, 2019:
  Series A Preferred Stock3,500 $2,997 
(1)
$— $— $2,997 
  Common Stock— — 376 
(2)
— 376 
  Convertible Notes— — — — — 
    Total3,500 $2,997 $376 $— $3,373 
Relative fair value allocation on June 20, 2019:
  Aggregate cash proceeds on June 20, 20193,500 $2,954 
(3)
$371 
(3)
$— $3,325 
  Incremental and direct costs— (301)
(4)
(38)
(4)
— (339)
Net carrying value on June 20, 20193,500 $2,653 $333 $— $2,986 
12


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(1)The liquidation preference for each share of Series A Preferred Stock on the closing date for the June 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $3.5 million. The estimated fair value of the Series A Preferred Stock was approximately $3.0 million on June 20, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)The fair value of the issuance of approximately 72,414 shares of the Common Stock was based on the closing price of $5.19 per share on the date prior to closing of the transaction.
(3)The aggregate cash proceeds of $3.3 million on June 20, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)Incremental and direct costs related to the June 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 35,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.2 million and financial advisory and professional fees that were incurred of approximately $0.2 million that were either paid or accrued directly by the Company as of June 30, 2019.

The changes in the net carrying value of Series A Preferred Stock from December 31, 2019 to September 30, 2020 are set forth below (dollars in thousands):
Series A Preferred Stock
SharesAmount
Net carrying value as of December 31, 2019155,231 $131,316 
Issuance of shares to settle PIK Dividends on January 2, 20201,170 1,170 
Accretion of discount for the three months ended March 31, 2020 1,547 
Issuance of shares to settle PIK Dividends on April 1, 20201,153 1,153 
Accretion of discount for the three months ended June 30, 2020 1,567 
Issuance of shares to settle PIK Dividends on July 1, 20201,175 1,175 
Accretion of discount for the three months ended September 30, 2020 1,588 
Net carrying value as of September 30, 2020158,729 $139,516 

For future calculations of earnings applicable to common stockholders, the aggregate discount applicable to the Series A Preferred Stock will be accreted using the effective interest method from the respective issuance dates through July 19, 2023 when the holders of all outstanding shares of Series A Preferred Stock may first elect to redeem their shares for cash.

Agreements Related to Private Placement Transactions
 
In connection with the completion of the Initial Private Placement, the Company, among other customary closing actions, (i) filed a Certificate of Designations with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series A Preferred Stock (the “CoD”), (ii) entered into a Registration Rights Agreement with the Purchasers setting forth certain registration rights of the Purchasers (the “Registration Rights Agreement”), (iii) delivered a Convertible Note to each Purchaser, and (iv) entered into a Security Agreement (the “Security Agreement”) in respect of the Company’s assets collateralizing the amounts that may become payable pursuant to the Promissory Notes if certain redemption provisions of the Series A Preferred Stock are triggered in the future. In connection with both the March 2019 and June 2019 Private Placements, the Company entered into a securities purchase agreement, a Registration Rights Agreement, a First (March 2019) and Second (June 2019) Amendment to the Security Agreement, and issued Convertible Notes to each investor, in each case substantially in the same form as entered into by the Company in the Initial Private Placement.

Certificate of Designations of the Series A Preferred Stock and Dividends

The CoD authorizes the issuance of up to 180,000 shares of Series A Preferred Stock. The holders of Series A Preferred Stock are entitled to, from the respective issuance date, a cash dividend of 10.0% per annum (the “Cash Dividends”) and a payment-in-kind dividend of 3.0% per annum (the “PIK Dividends” and, together with the Cash Dividends, the “Dividends”) for the first five years following the initial June 2018 closing and thereafter all dividends accruing on such Series A Preferred Stock will be payable in cash at a rate of 13.0% per annum. The Series A Preferred Stock is classified as mezzanine equity in the Company’s consolidated balance sheet as of September 30, 2020 and December 31, 2019 since the holders have redemption rights beginning on July 19, 2023 (and earlier under certain circumstances).

As required under the CoD, the Cash Dividends and PIK Dividends for the period in which the Series A Preferred Stock was outstanding during the third quarter of 2020 were settled on October 1, 2020 to holders of record on September 16, 2020. Accordingly, the Company accrued a current liability for accrued Cash Dividends through September 30, 2020 for $4.0 million.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


A long-term liability was recorded for $1.2 million of PIK Dividends that accrued through September 30, 2020, and that were settled through the issuance of 1,182 shares of Series A Preferred Stock on October 1, 2020. Presented below is a summary of total and per share dividends declared through September 30, 2020 (dollars in thousands, except per share amounts):

Dividends Payable in:TotalDividends
CashPIKDividendsPer Share
Dividends payable as of December 31, 2019$3,889 $1,156 $5,045 $32.50 
  Cash Dividends @ 10% per annum
3,910 — 3,910 25.00 
  PIK Dividends @ 3% per annum
— 1,167 1,167 7.46 
Fractional PIK shares settled for cash6 — 6 0.04 
Less dividends settled January 2, 2020(3,931)(1,170)(5,101)(32.61)
Dividends payable as of March 31, 20203,874 1,153 5,027 32.14 
  Cash Dividends @ 10% per annum
3,939 — 3,939 25.00 
  PIK Dividends @ 3% per annum
— 1,175 1,175 7.46 
Fractional PIK shares settled for cash7 — 7 0.04 
Less dividends settled April 1 , 2020(3,874)(1,153)(5,027)(31.91)
Dividends payable as of June 30, 20203,946 1,175 5,121 32.50 
  Cash Dividends @ 10% per annum
3,968 — 3,968 25.00 
  PIK Dividends @ 3% per annum
— 1,182 1,182 7.45 
Fractional PIK shares settled for cash9 — 9 0.06 
Less dividends settled July 1, 2020(3,946)(1,175)(5,121)(32.26)
Dividends payable as of September 30, 2020$3,977 $1,182 $5,159 $32.50 

The liquidation value of the Series A Preferred Stock is convertible into shares of Common Stock at an initial conversion rate of $10.00 per share for a total of 15.8 million shares of Common Stock based on 158,729 shares of Series A Preferred Stock outstanding as of September 30, 2020. Each share of Series A Preferred Stock is convertible at the holder’s option into one share of Common Stock at a conversion price equal to the quotient of (i) the Liquidation Preference (as defined below), and (ii) $10.00 (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or other similar recapitalization) (the “Per Share Amount”). The Company has the right to convert outstanding shares of Series A Preferred Stock into Common Stock for the Per Share Amount after July 19, 2021, if the Company’s volume weighted average stock price for at least 30 trading days of the 45 consecutive trading days immediately preceding such conversion is greater than $11.50 per share. The Company can exercise this right to convert twice per calendar year for a maximum number of shares of Common Stock equal to the amount that has publicly traded over the 60 consecutive trading days prior to the conversion date (less any shares of Common Stock that have been issued pursuant to any such conversion during such 60-day period).

The Series A Preferred Stock will become mandatorily redeemable, upon the election by the holders of a majority of the then outstanding shares, on or after July 19, 2023. Any and all of the then outstanding liquidation value of the Series A Preferred Stock plus any capitalized PIK Dividends and any unpaid accrued Cash Dividends not previously included in the Liquidation Preference (the “Redemption Amount”) is required to be repaid in full in cash on such redemption date or satisfied in the form of obligations under the Convertible Notes. Additionally, in certain circumstances the Company may require the holders of shares of the Series A Preferred Stock to convert into shares of Common Stock in lieu of cash payable upon redemption.

The Series A Preferred Stock will also become mandatorily redeemable at any time upon the reasonable determination of the holders of a majority of the Series A Preferred Stock then outstanding of the occurrence of a Material Adverse Effect or the occurrence of a Material Litigation Effect (as such terms are defined in the CoD), with the Redemption Amounts payable automatically becoming payment obligations pursuant to the Convertible Notes with a concurrent cancellation of the shares of the Series A Preferred Stock, unless under certain circumstances, the Company redeems the Series A Preferred Stock for cash at such time.

Prior to July 19, 2021, the Company will have the right to redeem up to $80.0 million of shares of the Series A Preferred Stock for cash amounts equal to the Redemption Amount which would include a make-whole premium that provides the holders thereof with full yield maintenance as if the Series A Preferred Stock was held until July 19, 2021, provided that such
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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


redemptions are subject to certain conditions and limitations. After July 19, 2021, the Company will have the right to redeem shares of Series A Preferred Stock for a cash per share amount equal to the Redemption Amount.

The holders of Series A Preferred Stock may exercise their conversion rights prior to any optional redemption. In the event of a liquidation, dissolution or winding up of the Company, the Series A Preferred Stock is entitled to a liquidation preference in the amount of the greater of (i) $1,000 plus accrued but unpaid Dividends (the “Liquidation Preference”), and (ii) the per share amount of all cash, securities and other property to be distributed in respect of the Common Stock such holder would have been entitled to receive for its Series A Preferred Stock on an as-converted basis. In the event of a liquidation, dissolution or winding up of the Company prior to July 19, 2021, the holders are entitled to a make-whole premium that provides the holders thereof with full yield maintenance as if the shares of Series A Preferred Stock were held until July 19, 2021.

Until approximately 95% of the Series A Preferred Stock or Convertible Notes are no longer outstanding, the Company is restricted from incurring Indebtedness (as defined in the June 2019 SPA, March 2019 SPA and 2018 SPA), subject to certain exceptions.

Registration Rights Agreement

The original Registration Rights Agreement required the Company to register the resale of the shares of Common Stock and Series A Preferred Stock issued pursuant to the 2018 SPA. The Company satisfied such registration requirements in November 2018. The Registration Rights Agreements, entered into in connection with both the March 2019 and June 2019 Private Placements, required the Company to register the resale of the shares of Common Stock and Series A Preferred Stock pursuant to the March 2019 SPA and the June 2019 SPA within 120 days of the respective March 7, 2019 and June 20, 2019 closing dates. The Company satisfied all such registration requirements in July 2019. Each such Registration Rights Agreement also includes customary “piggyback” registration rights, suspension rights, indemnification, contribution, and assignment provisions.

Subsequent Event

On October 30, 2020, the Company entered into an agreement with certain of the holders of its Series A Preferred Stock (the “Stock Repurchase Agreement”) to repurchase 5,000 shares of Series A Preferred Stock and the associated obligations pursuant to the Company’s Convertible Secured Promissory Notes outstanding in respect thereof (the “Note Obligations”) for an aggregate purchase price of approximately $4.5 million representing a discount to the face value of such shares of Series A Preferred Stock and no make-whole payments were required. The Stock Repurchase Agreement contains customary representations, warranties and covenants of the parties and waivers relating to the purchased shares of Series A Preferred Stock.

Upon the closing of the transactions contemplated by the Stock Repurchase Agreement, the shares of Series A Preferred Stock purchased by the Company were retired (and the underlying Note Obligations cancelled) and are not eligible for re-issuance by the Company in accordance with the terms of the Certificate of Designations for the Series A Preferred Stock.


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

On August 18, 2020, the Company completed a firm commitment underwritten public offering (the "August 2020 Offering") of 6.1 million shares of its Common Stock at a price of $4.50 per share for total gross proceeds of $27.5 million. Underwriter discounts and commissions were $1.7 million and the underwriter expenses were $0.1 million. The Company also incurred additional professional fees of $0.6 million as part of the transaction, resulting in net proceeds from the August 2020 Offering of approximately $25.1 million. The Company intends to use the net proceeds from the August 2020 Offering for working capital and other general corporate purposes.

Stock Option Plans

The Company’s stock option 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 25, 2020, the Board of Directors authorized an increase of approximately 2.7 million shares available for
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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


grant under the 2013 Plan. For additional information about the Stock Plans, please refer to Note 9 to the Company’s consolidated financial statements for the year ended December 31, 2019, included in the 2019 Form 10-K. The information presented below provides an update for activity under the Stock Plans for the nine months ended September 30, 2020.
 
Restricted Stock Units
 
For the nine months ended September 30, 2020, the Board of Directors granted restricted stock units (“RSUs”) under the 2013 Plan for an aggregate of approximately 1.4 million shares of Common Stock to employees and to non-employee directors of the Company. Other than the RSU grants to continuing directors, which vest on January 2, 2021, and the grant to the Company's non-employee director first elected in June 2020, which vests in part on the first and second anniversary of grant, these RSUs 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 $4.98 per share, the aggregate fair value for the shares underlying the RSUs amounted to $7.1 million as of the grant date that will be recognized as compensation cost over the vesting period. Accordingly, compensation expense related to RSUs of approximately $1.8 million and $1.1 million was recognized for the three months ended September 30, 2020 and 2019, respectively. Compensation expense related to RSUs of $4.3 million and $2.1 million was recognized for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the unrecognized expense of $11.5 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 2.0 years.
 
Stock Options
 
For the nine months ended September 30, 2020, the Board of Directors granted stock options for the purchase of an aggregate of approximately 0.5 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. These stock options generally vest annually for one-third of the awards and expire ten years after the grant date.
 
The following table sets forth a summary of stock option activity under the Stock Plans for the nine months ended September 30, 2020 (shares in thousands): 
 Shares
Price (1)
Term (2)
Outstanding, December 31, 20198,677 $4.55 4.9
Granted464 4.64 
Forfeited(225)6.09 
Expired(137)6.29 
Exercised(1,540)1.06 
Outstanding, September 30, 2020 (3)(4)7,239 5.22 5.3
Vested, September 30, 2020 (3)5,992 5.12 4.6

 
(1)Represents the weighted average exercise price.
(2)Represents the weighted average remaining contractual term until the stock options expire.
(3)As of September 30, 2020, the aggregate intrinsic value of all stock options outstanding was $2.5 million. As of September 30, 2020, the aggregate intrinsic value of vested stock options was $2.5 million.
(4)The number of outstanding stock options that are not expected to ultimately vest due to forfeiture amounted to 0.1 million shares as of September 30, 2020.

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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following table presents activity affecting the total number of shares available for grant under the Stock Plans for the nine months ended September 30, 2020 (in thousands):
 
Available, December 31, 20192,884 
Newly authorized by Board of Directors2,700 
Stock options granted(464)
Restricted stock units granted(1,418)
Expired options under Stock Plans137 
Forfeited options under Stock Plans225 
Forfeited restricted stock units under Stock Plans167 
Available, September 30, 20204,231 
 
The aggregate fair value of approximately 0.5 million stock options granted for the nine months ended September 30, 2020 amounted to $0.8 million, or $1.76 per stock option as of the grant date utilizing the Black-Scholes-Merton (“BSM”) method. The fair valued derived under the BSM method will result in the recognition of compensation cost over the vesting period of the stock options. For the nine months ended September 30, 2020, 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:
 
Expected life (in years)6.0
Volatility39%
Dividend yield0%
Risk-free interest rate0.56%
Fair value per common share on date of grant$4.64
 
As of September 30, 2020 and December 31, 2019, total unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, was $1.6 million and $2.2 million, respectively. As of September 30, 2020, the unrecognized costs are expected to be charged to expense on a straight-line basis over a weighted-average vesting period of approximately 1.71.
 
Stock-Based Compensation Expense
 
Stock-based compensation expense attributable to RSUs and stock options is classified as follows (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Cost of revenues$303 $247 $866 $625 
Sales and marketing734 484 1,994 1,132 
General and administrative1,152 890 2,565 2,072 
Total$2,189 $1,621 $5,425 $3,829 

Warrants
 
As of September 30, 2020, warrants were outstanding for an aggregate of 18.1 million shares of Common Stock, including 3.4 million shares of Common Stock exercisable at $5.64 per share, and an aggregate of 14.7 million shares of Common Stock exercisable at $11.50 per share. For additional information about these warrants, please refer to Note 9 to the Company’s consolidated financial statements for the year ended December 31, 2019, included in the 2019 Form 10-K.
 
NOTE 7 — INCOME TAXES
 
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed into law, amending portions of relevant US tax laws. The CARES Act contains changes to corporate taxation, including among other things, adjusting net operating loss (NOL) limitations and carryback rules, refundable AMT credits, bonus depreciation and
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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


interest expense limitations. The CARES Act also provides for an Employee Retention Credit, a fully refundable payroll tax credit for certain eligible employers and the ability for all eligible employers to defer payment of the employer share of payroll taxes owed on wages paid for the period ending December 31, 2020 (such deferred payroll taxes are due in two installments: 50% by December 31, 2021 and 50% by December 31, 2022). The Company has elected to defer payroll tax payments which totaled $2.5 million as of September 30, 2020, but it has not yet completed its evaluation of the remaining provisions.

For the three months ended September 30, 2020 and 2019, the Company's effective tax rate was 27.8% and 24.9% respectively. For the nine months ended September 30 2020 and 2019, the Company's effective tax rate was 26.3% and 9.1%, respectively. The Company's income tax expense was primarily attributable to earnings in foreign jurisdictions subject to income taxes. For the three months and nine months ended September 30, 2020 and 2019, no income tax expense was recorded in the United States as a result of historical net operating losses being incurred. 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 or nine months ended September 30, 2020 and 2019.
 
NOTE 8 — COMMITMENTS AND CONTINGENCIES
  
Series A Preferred Stock Dividends

In connection with the issuance of Series A Preferred Stock on June 20, 2019, March 7, 2019 and July 19, 2018 as discussed in Note 5, the Company is obligated to pay Cash Dividends and issue additional shares of Series A Preferred Stock in settlement of PIK Dividends. From January 1, 2020 through July 19, 2023, the date until which the Series A Preferred Stock is expected to remain outstanding, estimated Cash Dividends and PIK Dividends required to be declared are as follows (in thousands):
Year Ending December 31:CashPIKTotal
2020$15,819 $4,746 $20,565 
202116,299 4,890 21,189 
202216,794 5,038 21,832 
20239,455 2,837 12,292 
Total$58,367 $17,511 $75,878 

The amounts above do not include the impact of purchasing 5,000 shares of Series A Preferred Stock on October 30, 2020 as discussed in Note 5.

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. The Company's contributions to these plans totaled $0.7 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively. The Company's matching contribution to the plan totaled $2.0 million and $1.9 million for the nine months ended September 30, 2020 and 2019, 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, 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 jury trial in 2015 and subsequent appeals, the final outcome of Rimini I was that Mr. Ravin was found not liable for any claims and the Company was found liable for only one of a dozen claims: “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 filed an appeal. 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
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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


of such judgment was paid by the Company’s insurance carriers (for additional information on this topic, see Note 11 of the Company’s consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).

Proceeds from U.S. Supreme Court Decision

The total judgment paid by the Company and its insurance carriers reflects a reduction of approximately $12.8 million that the Company had previously paid to Oracle (plus interest of $0.2 million), representing an award of non-taxable expenses to Oracle that was eventually overturned by unanimous decision of the U.S. Supreme Court in March 2019. As mandated by the U.S. Supreme Court, $13.0 million (the principal amount plus post-judgment interest) was refunded to the Company by Oracle in April 2019. A portion of the funds received by the Company will be shared on a pro rata basis with an insurance company that had paid for part of the judgment and a portion of Rimini’s defense costs. This reimbursement will reflect a deduction of the costs of the Company’s past and pending appeal and remand proceedings. As a result of the U.S. Supreme Court decision, the Company recognized a recovery of the non-taxable expenses for $12.8 million and interest income of $0.2 million for the year ended December 31, 2019, excluding any contractual amounts due to the insurance company. The Company recognized costs of $1.1 million for the nine months ended September 30, 2020, as the Company revised its current estimate of the amounts owed to the insurance company (for portions of all previously-paid judgments refunded to the Company on appeal, including the proceeds from the U.S. Supreme Court Decision) to $5.5 million as of September 30, 2020 (for additional information on this topic, see Note 11 of the Company’s consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).

Injunction

Following post-trial motions, the District Court entered a permanent injunction prohibiting the Company from using certain processes, including processes adjudicated as infringing at trial, that the Company ceased using no later than July 2014, which the Company subsequently appealed to the United States Court of Appeals for the Ninth Circuit (“Court of Appeals”), arguing on appeal that the injunction is vague and contains overly-broad language that could be read to cover some of the Company’s current business practices that were not adjudicated to be infringing at trial and that the injunction should not have been issued under applicable law. After multiple rounds of remand and appeal, in August 2019, the Court of Appeals entered an order affirming the permanent injunction. However, the Court of Appeals agreed that the injunction was overbroad in two respects and instructed the District Court to remove the restriction on “local hosting” of J.D. Edwards and Siebel software and the prohibition against “accessing” J.D. Edwards and Siebel software source code.

As a result of the injunction, the Company expects to incur additional expenses in the range of 1% to 2% of revenue for additional labor costs because, as drafted, the injunction contains language that could be read to cover some current support practices ("Process 2.0") that are being litigated in the “Rimini II” lawsuit (as defined below) and that have not been found to be infringing. On July 10, 2020, Oracle filed a motion to show cause contending that the Company is in contempt of the injunction.

The Company filed a response to Oracle’s motion on July 31, 2020. The matter is fully briefed to the District Court and there is no known timeline for a court ruling. At this time, the Company does not have sufficient information regarding possible damages for the contempt asserted by Oracle. As a result, an estimate of the range of loss cannot be reasonably determined. Because the Company believes that it has complied with the injunction and that an award for damages and/or attorneys’ fees is not probable, no accrual has been made as of September 30, 2020. If the District Court grants Oracle’s motion to show cause and if the Company is later found to be in contempt of the injunction, Oracle may seek equitable, punitive and compensatory relief, the outcome of which may have a material adverse effect on the Company’s business and financial condition.
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 Process 2.0 support practices, in use since at least July 2014, do not infringe certain Oracle copyrights (“Rimini II”). Oracle filed counterclaims alleging copyright infringement, which included (i) substantially the same allegations asserted in Rimini I, but limited to clients not addressed in Rimini I, and (ii) new allegations that the Company’s Process 2.0 support practices also infringe Oracle copyrights. Oracle’s counterclaims also included allegations of violation of the Lanham Act, intentional interference with prospective economic advantage, breach of contract and inducing breach of contract, unfair competition, unjust enrichment/restitution and violation of the Digital Millennium Copyright Act. Oracle also sought an accounting. In December 2016, the Company filed an amended complaint against Oracle,
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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


adding claims for intentional interference with contract, intentional interference with prospective economic advantage, violation of the Nevada Deceptive Trade Practices Act, violation of the Lanham Act, and violation of California Business & Professions Code §17200 et seq. Oracle then amended its counterclaims to include requesting declaratory judgment of no intentional interference with contractual relations, no intentional interference with prospective economic advantage, and no violation of California Business & Professions Code §17200 et seq. By stipulation of the parties, the District Court granted the Company’s motion to file the Company’s third amended complaint to add claims arising from Oracle’s purported revocation of the Company’s access to its support websites on behalf of the Company’s clients, which was filed and served in May 2017. In September 2017, the District Court issued an order granting in part and denying in part the Company’s motion to dismiss Oracle’s third amended counterclaims. The District Court granted the Company’s motion to dismiss Oracle’s intentional interference with prospective economic advantage and unjust enrichment counterclaims.

In November 2017, the District Court issued an order granting in part and denying in part Oracle’s motion to dismiss the Company’s third amended complaint. The District Court granted Oracle’s motion to dismiss as to the Company’s third cause of action for a declaratory judgment that Oracle has engaged in copyright misuse, fifth cause of action for intentional interference with prospective economic advantage; sixth cause of action for a violation of Nevada’s Deceptive Trade Practices Act under the “bait and switch” provision of NRS § 598.0917; and seventh cause of action for violation of the Lanham Act. The District Court denied Oracle’s motion as to the Company’s causes of action for intentional interference with contractual relations, violation of Nevada Deceptive Trade Practices Act, under the “false and misleading” provision of NRS §598.0915(8) and unfair competition.

Fact discovery with respect to the above action substantially ended in March 2018, and expert discovery ended in September 2018. In October 2018, the Company and Oracle each filed motions for summary judgment. On September 15, 2020, the District Court issued an order resolving the parties’ seven motions for summary judgment. It found infringement of 17 Oracle PeopleSoft copyrights for work Rimini Street performed for a set of “gap customers” that were acquired after Rimini I was filed and that were using the Process 1.0 support practices before the transition to the Process 2.0 support practices was complete. The District Court also found infringement of four Oracle PeopleSoft copyrights involving support of two specific Company clients. The District Court noted that these two matters were “limited cases” and involved “limited circumstance[s].” There was no finding of infringement on any other Oracle copyrights at issue. All other copyright-related disputes, including the lawfulness of Process 2.0, were not resolved by the order and will be decided by the Rimini II jury at trial.

The order also resolved several of the non-copyright claims asserted by the parties. The District Court’s principal findings were: (i) to allow the Company’s claim for injunctive relief against Oracle for unfair competition in violation of the California Business & Professions Code §17200 et seq. to proceed to trial; (ii) granting summary judgment for Oracle on the Company’s affirmative claims for damages under the Nevada and California unfair and deceptive trade practices statutes; and (iii) holding that Oracle had the right to revoke the Company’s access to its websites. The Court also reiterated that the Company has the legal right to provide aftermarket support for Oracle’s enterprise software.

As of this date, no damages of any kind have been awarded by the District Court in Rimini II. Damages, if any, will be a decision for the Rimini II jury. The Company reserves all rights, including appellate rights, with respect to the September 2020 District Court order and all other District Court and jury rulings and findings in Rimini II. There is currently no trial date scheduled, and while the Company does not expect a trial to occur in this matter earlier than the first half of 2022, the trial could occur earlier or later than that.

At this time, the Company does not have sufficient information regarding possible damages exposure for the counterclaims asserted by Oracle. As to the claims asserted by Oracle, in Case 1, the jury awarded damages in the form of a fair market value license of $35.4 million for the 93 copyrighted works at issue, which the Company has paid. The parties dispute the relevance of that award for Case 2, and the Court has not yet resolved that dispute. The Company maintains that zero damages should be awarded in Case 2. A jury will ultimately determine what amount, if any, of damages to award. Both parties have sought injunctive relief in addition to monetary damages in this matter, and the Company has reserved its rights to appeal regarding the possible recovery of damages by the Company in connection with the Company’s claims against Oracle. As a result, an estimate of the range of loss cannot be reasonably determined. The Company also believes that an award for damages payable to Oracle is not probable, so no accrual has been made as of September 30, 2020. However, as with any jury trial, the ultimate outcome may be different from our best estimates and could have material adverse impact on our financial results and our business.

Other Litigation

20


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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

Governmental Inquiry

In March 2018, the Company received a federal grand jury subpoena, issued from the United States District Court for the Northern District of California, requesting the Company to produce certain documents relating to specified support and related operational practices. The Company fully cooperated with this inquiry and the related document requests by April 2019 and has received no further requests since that date.

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 $14.7 million and $22.7 million as of September 30, 2020 and December 31, 2019, 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
 
Upon consummation of the merger with GP Investments Acquisition Corp. ("GPIA") in May 2017, an outstanding note payable to GP Sponsor with an initial face amount of approximately $3.0 million was assumed by the Company. An affiliate of GP Sponsor is a member of the Company's Board of Directors. This note was originally non-interest bearing and was not due and payable until the outstanding principal balance under the former Credit Facility was less than $95.0 million. At the inception of this note, the maturity date was expected to occur in June 2020 based on the scheduled principal payments under the former Credit Facility. Interest was initially imputed under this note payable at the rate of 15.0% per annum. The net carrying value of this note payable was $2.4 million as of December 31, 2018, and the Company recognized accretion expense of $0.2 million for the nine months ended September 30, 2019. This note payable was amended twice in 2018, which resulted in further changes to the effective interest rate and maturity date.

The second amendment to the loan agreement was effective on December 21, 2018, and provided for an extension of the maturity date from January 4, 2019 to June 28, 2019. In addition, the parties agreed that the note payable would retroactively bear interest at 13.0% per annum from July 19, 2018 through the maturity date. Total retroactive interest amounted to $0.2 million which is accounted for as debt discounts and issuance costs (“DDIC”) that was being accreted through the maturity date. In addition, the second amendment provided for monthly principal payments starting in December 2018 of approximately $0.4 million plus accrued interest. In December 2018, the Company made a payment of $0.6 million, primarily consisting of payment of retroactive interest of $0.2 million and the first monthly principal payment of $0.4 million. The Company made principal and interest payments totaling $2.7 million during the nine months ended September 30, 2019. The effective interest rate for accretion of DDIC was 26.4% for the period from December 21, 2018 through June 28, 2019. The note was paid off on June 28, 2019.

An affiliate of Adams Street Partners ("ASP") is a member of the Company’s Board of Directors. As of September 30, 2020, ASP owned approximately 31.1% of the Company’s issued and outstanding shares of Common Stock. In July 2018, ASP acquired 19,209 shares of Series A Preferred Stock and approximately 0.4 million shares of Common Stock issued in the Initial Private Placement discussed in Note 5 for total consideration of approximately $19.2 million. As of September 30, 2020, ASP had voting control of approximately 27.9% of the Company’s issued and outstanding shares of Common Stock, including voting rights associated with its 20,347 shares of Series A Preferred Stock. Prior to termination on July 19, 2018 of the Company's amended Credit Facility, ASP owned a $10.0 million indirect interest in the amended Credit Facility.

NOTE 10 —EARNINGS (LOSS) PER SHARE

21


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock to be calculated using the two-class method. The holders of Series A Preferred Stock are entitled to participate in Common Stock dividends, if and when declared, on a one-to-one per-share basis. Accordingly, in periods in which the Company has net income, earnings per share will be computed using the two-class method whereby the pro rata dividends on Common Stock that are also distributable to the holders of Series A Preferred Stock will be deducted from earnings applicable to common stockholders, regardless of whether a dividend is declared for such undistributed earnings. Under the two-class method, earnings for the reporting period are allocated between the holders of the Company's Common Stock and the Series A Preferred Stock based on their respective participation rights in undistributed earnings.

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. Net income allocated to the holders of the Company's Series A Preferred Stock is calculated based on the shareholders’ proportionate share of the weighted average shares of Common Stock outstanding on an if-converted basis. 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 both the three and nine months ended September 30, 2020 and 2019, 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 table sets forth the computation of basic and diluted net income attributable to common stockholders for both the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):


22


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Income attributable to common stockholders:
  Net income $3,306 $1,360 $9,321 $17,736 
  Dividends and accretion related to Series A Preferred Stock:
    Cash dividends declared(3,968)(3,852)(11,817)(11,192)
    PIK dividends declared(1,190)(1,156)(3,545)(3,358)
    Accretion of discount(1,587)(1,511)(4,702)(4,319)
     (3,439)(5,159)(10,743)(1,133)
    Undistributed earnings allocated using the two-class method    
      Net loss attributable to common stockholders$(3,439)$(5,159)$(10,743)$(1,133)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Weighted average number of shares of Common Stock outstanding72,377 66,696 69,521 65,625 
Additional shares outstanding if Series A Preferred Stock is converted to Common Stock15,873 15,408 15,756 14,926 
Total shares outstanding if Series A Preferred Stock is converted to Common Stock88,250 82,104 85,277 80,551 
      Percentage of shares allocable to Series A Preferred Stock18.0 %18.8 %18.5 %18.5 %
Weighted average number of shares of Common Stock outstanding:
  Basic72,377 66,696 69,521 65,625 
  Effect of dilutive securities:
    Warrants    
    Stock options    
    Restricted stock units    
  Diluted72,377 66,696 69,521 65,625 
Net loss per share attributable to common stockholders:
  Basic and diluted$(0.05)$(0.08)$(0.15)$(0.02)

For the three months and nine months ended September 30, 2020 and 2019, basic and diluted loss per share attributable to common stockholders were the same because all Common Stock equivalents were anti-dilutive.

As of September 30, 2020 and 2019, the following potential Common Stock equivalents were excluded from the computation of diluted net loss per share for the respective periods ending on these dates since the impact of inclusion was anti-dilutive (in thousands): 
 20202019
Series A Preferred Stock15,873 15,408 
Restricted stock units3,096 2,887 
Stock options7,239 9,312 
Warrants18,128 18,128 
Total44,336 45,735 
 

NOTE 11 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
 
23


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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, 2019, included in the 2019 Form 10-K.
 
As discussed in Note 5, the fair value for the Company's Series A Preferred Stock issuances on June 20, 2019, March 7, 2019 and July 19, 2018 were determined to be $3.0 million, $5.3 million and $126.8 million, respectively, which were utilized to determine the basis for allocating the net proceeds. The fair value was determined by utilizing a combination of a discounted cash flow methodology related to funds generated by the Series A Preferred Stock, along with the BSM option-pricing model in relation to the conversion feature. Key assumptions applied for the discounted cash flow and BSM analysis included (i) three different scenarios whereby the Series A Preferred Stock would remain outstanding between 4 and 5 years along with a probability weighting assigned to each scenario, (ii) an implied yield of the Series A Preferred Stock ranging from 20.9% to 22.9% calibrated to the transaction values as of June 20, 2019, March 7, 2019 and July 19, 2018, respectively, (iii) risk-free interest rates of 1.72%, 2.44% and 2.8% and (iv) historical volatility of 30.0%.

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. As of September 30, 2020, the Company does not have any assets or liabilities that are carried at fair value on a recurring basis.

The carrying amounts of the Company’s financial instruments including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to their short-term maturities. Based on borrowing rates currently available to the Company for debt with similar terms, the carrying value of capital lease obligations approximate fair value as of the respective balance sheet dates.
 
Significant Concentrations
 
The Company attributes revenues to geographic regions based on the location of its clients’ contracting entity. The following table shows revenues by geographic region (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
United States of America$48,160 $44,641 $142,982 $133,126 
International34,358 24,541 95,970 71,798 
Total$82,518 $69,182 $238,952 $204,924 
 
No clients represented more than 10% of revenue for both the three months and nine months ended September 30, 2020 or 2019. As of September 30, 2020 and December 31, 2019, no clients accounted for more than 10% of total net accounts receivable.
 
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 of America. Deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. As of September 30, 2020 and December 31, 2019, the Company had cash, cash equivalents and restricted cash with a single financial institution for an aggregate of $65.2 million and $33.1 million, respectively. As of September 30, 2020 and December 31, 2019, the Company had restricted cash of $0.3 million and $0.4 million, respectively. 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.
 
24


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - LEASES

Effective at the start of fiscal 2020, the Company adopted the provisions and expanded disclosure requirements described in Topic 842. The Company adopted the standard using the prospective method. Accordingly, the results for the prior comparable periods were not adjusted to conform to the current period measurement or recognition of results. The Company has operating leases for real estate and equipment with an option to renew the leases for up to one month to five years. Some of the leases include the option to terminate the leases upon 30-days notice with a penalty. The Company's leases have various remaining lease terms ranging from November 2020 to January 2027. 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.

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.

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

The Company has elected to apply the short-term lease exception for all underlying asset classes. That is, leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. The Company's leases do not include significant restrictions or covenants, and residual value guarantees are generally not included within its operating leases. As of September 30, 2020, the Company did not have any material additional operating leases that have not yet commenced.

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

Three Months EndedNine Months Ended
September 30, 2020September 30, 2020
Operating lease expense related to ROU assets and liabilities$1,581 $4,628 
Other lease expense231 846 
Total lease expense$1,812 $5,474 

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

Supplemental Balance Sheet InformationSeptember 30, 2020
Operating lease right-of-use assets, noncurrent$16,585 
Operating lease liabilities, current$4,309 
Operating lease liabilities, noncurrent13,256 
  Total operating lease liabilities$17,565 

As of January 1, 2020, the Company had total operating lease right-of use assets of $18.8 million and total operating lease liabilities of $20.0 million.

25


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Weighted Average Remaining Lease TermYears
Operating leases4.65
Weighted Average Discount Rate
Operating leases11.0 %

Maturities of operating lease liabilities as of September 30, 2020 were as follows (in thousands):

Year ending September 30:
2021$5,999 
20224,935 
20233,184 
20242,704 
20252,470 
Thereafter3,223 
  Total future undiscounted lease payments22,515 
Less imputed interest(4,950)
Total$17,565 

For the three months and the nine months ended September 30, 2020, the Company paid $1.6 million and $4.6 million, respectively, for operating lease liabilities.

Maturities of operating leases accounted for under ASC 840 as of December 31, 2019 were as follows (in thousands):

Year ending December 31, 2019:
2020$5,609 
20215,155 
20224,067 
20232,993 
20242,670 
Thereafter5,065 
$25,559 


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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
    This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, but are not limited to, information concerning:

the duration of and economic, operational and financial impacts on our business of the COVID-19 pandemic, as well as the actions taken by governmental authorities, clients or others in response to the COVID-19 pandemic;
the evolution of the enterprise software management and support landscape facing our clients and prospects;
our ability to educate the market regarding the advantages of our enterprise software management and support services and products;
estimates of our total addressable market;
projections of client savings;
the occurrence of catastrophic events that may disrupt our business or that of our current and prospective clients;
our ability to maintain an adequate rate of revenue growth;
our expectations about future financial, operating and cash flow results;
the sufficiency of future cash and cash equivalents to meet our liquidity requirements;
our business plan and our ability to effectively manage our growth and associated investments;
beliefs and objectives for future operations;
our ability to expand our leadership position in independent enterprise software support and sell our new application managed services;
our ability to attract and retain clients;
our ability to further penetrate our existing client base;
our ability to maintain our competitive technological advantages against new entrants in our industry;
our ability to timely and effectively scale and adapt our existing technology;
our ability to innovate new products and bring them to market in a timely manner, including our announced salesforce and our announced application management services offerings;
our ability to maintain, protect, and enhance our brand and intellectual property;
our ability to capitalize on changing market conditions including a market shift to hybrid and cloud/SaaS offerings for information technology environments and retirement of certain software releases by software vendors;
our ability to develop strategic partnerships;
benefits associated with the use of our services;
our ability to expand internationally;
our ability to raise equity or debt financing and other transactions to simplify our capital structure in the future;
the effects of increased competition in our market and our ability to compete effectively;
our intentions with respect to our pricing model;
cost of revenues, including changes in costs associated with production, manufacturing, and client support;
operating expenses, including changes in sales and marketing, and general administrative expenses;
anticipated income tax rates;
our ability to maintain our good standing with the United States and international governments and capture new contracts;
costs associated with defending intellectual property infringement and other claims, such as those claims discussed under the section titled “Business—Legal Proceedings” in our 2019 Annual Report on Form 10-K, as filed with the SEC on March 16, 2020 (the “2019 Form 10-K”);
our expectations concerning relationships with third parties, including channel partners and logistics providers;
economic and industry trends or trend analysis;
the attraction and retention of qualified employees and key personnel;
future acquisitions of or investments in complementary companies, products, subscriptions or technologies;
uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmarks;
the effects of seasonal trends on our results of operations; and
other risks and uncertainties, including those discussed under "Risk Factors" in Part II, Item 1A of this Report.
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    We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those referred to Part II, Item 1A of this Report. Moreover, we operate in very competitive and rapidly changing markets. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
    You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements in this Report are made as of the date of the filing, and except as required by law, we disclaim and do not undertake any obligation to update or revise publicly any forward-looking statements in this Report. You should read this Report and the documents that we reference in this Report and have filed with the SEC as exhibits with the understanding that our actual future results, levels of activity and performance, as well as other events and circumstances, may be materially different from what we expect.
 
Overview
 
    The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes to those statements included in Part I, Item 1 of this Report, and our audited consolidated financial statements for the year ended December 31, 2019, included in our 2019 Form 10-K.
 
    Certain figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated based on such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

We were incorporated as Rimini Street, Inc. (“RSI”) in the state of Nevada in September 2005. In May 2017, RSI entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GP Investments Acquisition Corp. (“GPIA”), a publicly-held special purpose acquisition company incorporated in the Cayman Islands and formed for the purpose of effecting a business combination with one or more businesses. Substantially all of GPIA’s assets consisted of cash and cash equivalents. The Merger Agreement was approved by the respective shareholders of RSI and GPIA in October 2017, and closing occurred on October 10, 2017, resulting in (i) the merger of a wholly-owned subsidiary of GPIA with and into RSI, with RSI as the surviving corporation, after which (ii) RSI merged with and into GPIA, with GPIA as the surviving corporation. Prior to consummation of the mergers, GPIA domesticated as a Delaware corporation (the “Delaware Domestication”). Immediately after the Delaware Domestication and the consummation of the second merger, GPIA was renamed “Rimini Street, Inc.” (referred to herein as the Company, as distinguished from RSI with the same legal name).

    We are a global provider of enterprise software management and support products and services, and the leading independent software support provider for Oracle and SAP products, based on both the number of active clients supported and recognition by industry analyst firms.

In November 2019, we announced the global availability of our Application Management Services (“AMS”) for Oracle, which includes coverage for Oracle Database, Middleware and a wide range of Oracle applications including E-Business Suite, JD Edwards, PeopleSoft and Siebel. In addition to leveraging our support services for Oracle that replaces expensive and less robust software vendor annual support with a more responsive and comprehensive support offering, our clients can now have us manage their Oracle systems day-to-day with an integrated application management and support service provided by a single trusted vendor. As an integrated service, we believe we can provide clients a better model, better service providers, and better outcomes with higher satisfaction and significant savings of time, labor and money. The AMS for Oracle includes system administration, operational support, health monitoring and enhancement support.

28


In August 2019, we announced plans to globally offer AMS for SAP enterprise software, expanding the scope of support services we will offer clients globally. This AMS service is in addition to our traditional enterprise Support Services. We are already providing this new SAP AMS service to clients in North and South America. The service includes system administration and SAP Basis support, system health monitoring with proactive analysis, preventative system recommendations and event detection; and enhancement support for complex SAP software landscapes.

    In 2018, we announced plans to support Software as a Service ("SaaS") solutions beginning with Salesforce products. As a partner of Salesforce, we provide our award-winning service and support for custom code, release updates and application integrations in addition to ongoing administrative, configuration and enhancement of Salesforce’s industry leading cloud solutions.
 
    We founded our company to disrupt and redefine the enterprise software support market by developing and delivering innovative new products and services that fill a then unmet need in the market. We believe we have achieved our leadership position in independent enterprise software support by recruiting and hiring experienced, skilled and proven staff; delivering outcomes-based, value-driven and award-winning enterprise software support products and services; seeking to provide an exceptional client-service, satisfaction and success experience; and continuously innovating our unique products and services by leveraging our proprietary knowledge, tools, technology and processes.
 
    Enterprise software support products and services is one of the largest categories of overall global information technology (“IT”) spending. We believe core enterprise resource planning (“ERP”), client relationship management (“CRM”), product lifecycle management (“PLM”) and technology software platforms have become increasingly important in the operation of mission-critical business processes over the last 30 years, and also that the costs associated with failure, downtime, security exposure and maintaining the tax, legal and regulatory compliance of these core software systems have also increased. As a result, we believe that licensees often view software support as a mandatory cost of doing business, resulting in recurring and highly profitable revenue streams for enterprise software vendors. For example, for fiscal year 2019, SAP reported that support revenue represented approximately 42% of its total revenue. For fiscal year 2020, Oracle reported a margin of 85% for cloud services and license support.

    We believe that software vendor support is an increasingly costly model that has not evolved to offer licensees the responsiveness, quality, breadth of capabilities or value needed to meet the needs of licensees. Organizations are under increasing pressure to reduce their IT costs while also delivering improved business performance through the adoption and integration of emerging technologies, such as mobile, virtualization, internet of things (“IoT”) and cloud computing. Today, however, the majority of IT budget is spent operating, maintaining and supporting existing infrastructure and systems. As a result, we believe organizations are increasingly seeking ways to redirect budgets from maintenance to new technology investments that provide greater strategic value, and our software management and support products and services help clients achieve these objectives by reducing the total cost of support.
 
    As of September 30, 2020, we employed over 1,380 professionals and supported over 2,360 active clients globally, including 72 Fortune 500 companies and 16 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 client instances in circumstances where we provide support for two different products to the same entity.
 
    Our subscription-based revenue provides a strong foundation for, and visibility into, future period results. For the three months ended September 30, 2020 and 2019, we generated revenue of $82.5 million and $69.2 million, respectively, representing an increase of 19%. We have a history of losses, and as of September 30, 2020, we had an accumulated deficit of $305.3 million. Approximately 58% and 65% of our revenue was generated in the United States for the three months ended September 30, 2020 and 2019, respectively. Approximately 42% and 35% of our revenue was generated in foreign jurisdictions for the three months ended September 30, 2020 and 2019, respectively.
 
    Since our inception, we have financed our operations through cash collected from clients and net proceeds from equity financings and borrowings. As of September 30, 2020, we have no outstanding contractual debt obligations.
 
Impact of COVID-19

During the third quarter of 2020, we continued investing for long-term growth. However, as we neared the end of the first quarter of 2020, the emergence of the COVID-19 pandemic took hold and is having widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices. Federal and state governments have implemented multiple measures aiming to contain the spread of the virus, including social distancing, travel restrictions,
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border closures, quarantine guidance following travel to certain jurisdictions, limitations on public gatherings and continued closures of certain non-essential businesses. As a result, to protect the health and well-being of our employees, clients and the communities in which we operate, we transitioned as many of our employees as possible to a work-at-home model, temporarily closed our offices worldwide, placed restrictions on non-essential business travel, transitioned to a no in-person event marketing strategy and implemented a fully remote sales model. We believe these measures have been successful and have not significantly affected our financial results for the three and nine months ended September 30, 2020. We have implemented business continuity measures and will continue to respond to the COVID-19 pandemic as circumstances dictate.

As a result of the measures that we have taken in response to the COVID-19 pandemic described above, we have realized reduced costs of travel, reductions in costs resulting from cancelling certain in-person marketing events, reductions in office operating costs and potential rent abatement related to office closures around the world (that began mid-March 2020 and are expected to continue through at least December 2020). While some of our offices have partially re-opened with limited staffing, our offices will not fully re-open until local authorities permit us to and our own criteria and conditions to ensure employee health and safety are satisfied. We continue to expect to offset some of these reduced costs with accelerated investments including implementing virtual sales and other marketing programs, special compensation bonuses for lower-paid employees and special compensation bonuses for employees who have tested positive for COVID-19. For example, in March 2020, we paid COVID-19 special bonuses to certain of our employees to help with pandemic-related special costs and for the few of our employees who have tested positive for COVID-19. We have authorized COVID-19 special bonuses during pandemic that have been paid throughout 2020. The cost of these special bonuses were more than offset by the cost reductions relating to travel and in-person marketing event fees and expenses described above.

The COVID-19 pandemic had no significant net impact on our revenue or results of operations during the third quarter of 2020, and we continued to deliver uninterrupted and critical support services to our clients during this period. Our ability to utilize our secure remote-connectivity global infrastructure promotes the safety of our employees while abiding by the restrictions currently in place throughout the world. While we did implement discounted or extended payment terms for certain of our clients, in most cases it was in exchange for contractual concessions favorable to us, for example, extended contract terms or marketing support for references, and the collective impact of such changes was not material to our results. However, the COVID-19 pandemic has impacted business markets worldwide, primarily due to the uncertainty relating to the continued effects of the pandemic. As a result, we have experienced some clients not renewing our services as their businesses have been adversely impacted during the pandemic. Despite this, 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.

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental and business actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spending on technology as well as our clients’ ability to pay for our services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including receivables and forward-looking guidance. As such, the effects of the COVID-19 pandemic 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law in the United States to address the economic impact of the COVID-19 pandemic. We have elected to defer payroll tax payments which totaled $2.5 million as of September 30, 2020 as permitted by the CARES Act (such deferred payroll taxes are due in two installments: 50% by December 31, 2021 and 50% by December 31, 2022). We continue to monitor any effects that may result from the CARES Act and other similar legislation or actions in geographies in which our business operates.

Recent Developments

    Reference is made to Note 5 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for a discussion of recent developments related to the securities purchase agreements entered into on June 20, 2019, March 7, 2019 and July 19, 2018, and the related private placements of Series A Preferred Stock, Common Stock and Convertible Notes.

On August 18, 2020, we completed a firm commitment underwritten public offering (the "August 2020 Offering") of 6.1 million shares of our Common Stock at a price of $4.50 per share for total gross proceeds of $27.5 million. Net proceeds
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from the August 2020 Offering were approximately $25.1 million after deducting underwriting discounts and offering expenses. We intend to use the net proceeds from the August 2020 Offering for working capital and other general corporate purposes. Reference is made to Note 6 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for information about the August 2020 Offering.

    Additionally, 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 developments in our litigation with Oracle.

Key Business Metrics
 
Number of clients
 
    Since we founded our company, we have made the expansion of our client base a priority. We believe that our ability to expand our client base is an indicator of the growth of our business, the success of our sales and marketing activities, and the value that our services bring to our clients. We define an active client as a distinct entity, such as a company, an educational or government institution, or a business unit of a company that purchases our services to support a specific product. For example, we count as two separate active clients when support for two different products is being provided to the same entity. As of September 30, 2020 and 2019, we had over 2,360 and 2,030 active clients, respectively.

    We define a unique client as a distinct entity, such as a company, an educational or government institution or a subsidiary, division or business unit of a company that purchases one or more of our products or services. We count as two separate unique clients when two separate subsidiaries, divisions or business units of an entity purchase our products or services. As of September 30, 2020 and 2019, we had over 1,280 and 1,150 unique clients, respectively.
 
    The increases in both our active and unique client counts have been almost exclusively from new unique clients and not from sales of new products and services to existing unique clients. However, as noted previously, we intend to focus future growth on both new and existing clients. We believe that the growth in our number of clients is an indication of the increased adoption of our enterprise software products and services.
 
Annualized recurring revenue
 
    We recognize subscription revenue on a daily basis. We define annualized recurring revenue as the amount of subscription revenue recognized during a quarter and multiplied by four. This gives us an indication of the revenue that can be earned in the following 12-month period from our existing client base assuming no cancellations or price changes occur during that period. Subscription revenue excludes any non-recurring revenue, which has been insignificant to date. 
 
    Our annualized recurring revenue was $327 million and $275 million as of September 30, 2020 and 2019, respectively. We believe the sequential increase in annualized recurring revenue demonstrates a growing client base, which is an indicator of stability in future subscription revenue.
 
Revenue retention rate
 
    A key part of our business model is the recurring nature of our revenue. As a result, it is important that we retain clients after the completion of the non-cancellable portion of the support period. We believe that our revenue retention rate provides insight into the quality of our products and services and the value that our products and services provide our clients.
 
    We define revenue retention rate as the actual subscription revenue (dollar-based) recognized in a 12-month period from clients that existed on the day prior to the start of the 12-month period divided by our annualized recurring revenue as of the day prior to the start of the 12-month period. Our revenue retention rate was 92% for both the 12 months ended September 30, 2020 and 2019, respectively.
 
Gross profit percentage
 
    We derive revenue through the provision of our enterprise software products and services. All the costs incurred in providing these products and services are recognized as part of the cost of revenue. The cost of revenue includes all direct product line expenses, as well as the expenses incurred by our shared services organization which supports all product lines.
 
    We define gross profit as the difference between revenue and the costs incurred in providing the software products and services. Gross profit percentage is the ratio of gross profit divided by revenue. Our gross profit percentage was approximately
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61.2% and 62.5% for the three months ended September 30, 2020 and 2019, respectively. We believe the gross profit percentage provides an indication of how efficiently and effectively we are operating our business and serving our clients.


Results of Operations
 
Comparison of Three Months Ended September 30, 2020 and 2019
 
    Our consolidated statements of operations for the three months ended September 30, 2020 and 2019, are presented below (in thousands): 
Three Months Ended
September 30,
Variance
20202019AmountPercent
Revenue$82,518 $69,182 $13,336 19.3%
Cost of revenue:
Employee compensation and benefits20,996 17,518 3,478 19.9%
Engineering consulting costs5,656 3,698 1,958 52.9%
Administrative allocations (1)
3,544 3,035 509 16.8%
All other costs1,795 1,664 131 7.9%
Total cost of revenue31,991 25,915 6,076 23.4%
Gross profit50,527 43,267 7,260 16.8%
            Gross margin61.2 %62.5 %
Operating expenses:    
Sales and marketing29,195 26,756 2,439 9.1%
General and administrative13,025 11,041 1,984 18.0%
Litigation costs and related recoveries, net3,773 3,303 470 14.2%
Total operating expenses45,993 41,100 4,893 11.9%
Operating income4,534 2,167 2,367 109.2%
Non-operating income and (expenses):    
Interest expense(10)(27)17 (63.0)%
Other income (expenses), net54 (329)383 (116.4)%
Income before income taxes4,578 1,811 2,767 152.8%
Income tax expense(1,272)(451)(821)182.0%
Net income$3,306 $1,360 $1,946 143.1%

(1)Includes the portion of costs for information technology, security services and facilities costs that are allocated to cost of revenue. In our unaudited condensed consolidated financial statements, the total of such costs is allocated between cost of revenue, sales and marketing, and general and administrative expenses, based primarily on relative headcount, except for facilities which is based on occupancy.

    Revenue. Revenue increased from $69.2 million for the three months ended September 30, 2019 to $82.5 million for the three months ended September 30, 2020, an increase of $13.3 million or 19%. The increase was driven by an 10% increase in the average number of unique clients from 1,132 for the three months ended September 30, 2019 to 1,246 for the three months ended September 30, 2020. On a geographic basis, United States revenue grew from $44.6 million for the three months ended September 30, 2019 to $48.2 million for the three months ended September 30, 2020, an increase of $3.5 million or 8%. Our International revenue grew from $24.5 million for the three months ended September 30, 2019 to $34.4 million for the three months ended September 30, 2020, an increase of $9.8 million or 40%. Our international revenue growth was led by strong results from our Asia-Pacific region.
 
    Our former multi-draw term loan financing agreement (the "Credit Facility") included covenants that restricted our spending on sales and marketing activity that resulted in sequential reductions in new business activity during fiscal 2017. These covenants became less restrictive beginning in October 2017 when the Credit Facility was amended and were eliminated in July 2018 as a result of the termination of the Credit Facility. The October 2017 amendment allowed us to increase our sales
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and marketing spending in the fourth quarter of 2017. However, even though we are currently increasing our sales and marketing spending, it can take several quarters before these efforts are expected to translate into revenue. In addition, beginning in the second quarter of 2017 some potential sales transactions were adversely affected by certain competitive actions, and we are encountering increased competitive discounting by enterprise software vendors. Despite these constraints, our quarter-over-quarter revenue growth increased from approximately 9% for the third quarter of 2019 to 19% for the third quarter of 2020.
 
    Cost of revenue. Cost of revenue increased from $25.9 million for the three months ended September 30, 2019 to $32.0 million for the three months ended September 30, 2020, an increase of $6.1 million or 23%. The key drivers related to the cost of revenue increase were a $3.5 million increase in compensation costs, a $2.0 million increase in engineering consulting costs and an increase of $0.1 million of other costs. The compensation cost increase was attributable to an increase of 20% in the average number of employees required to support the revenue growth. In addition, administrative allocations increased $0.5 million as facility, technology and security costs increased.
 
As discussed in Note 8 to our consolidated financial statements included in Part 1, Item 1 of this Report, following post-trial motions, the United States District Court for the District of Nevada (the "District Court") entered a permanent injunction prohibiting us from using certain processes, including processes adjudicated as infringing at trial, that we ceased using no later than July 2014, which we subsequently appealed to the United States Court of Appeals for the Ninth Circuit (“Court of Appeals”), arguing on appeal that the injunction is vague and contains overly-broad language that could be read to cover some of our current business practices that were not adjudicated to be infringing at trial and that the injunction should not have been issued under applicable law. After multiple rounds of remand and appeal, in August 2019, the Court of Appeals entered an order affirming the permanent injunction. However, the Court of Appeals agreed that the injunction was overbroad in two respects and instructed the District Court to remove the restriction on “local hosting” of J.D. Edwards and Siebel software and the prohibition against “accessing” J.D. Edwards and Siebel software source code. A copy of the injunction is publicly available in the case docket. As a result of the injunction, we expect to incur additional expenses in the range of 1% to 2% of revenue for additional labor costs because, as drafted, the injunction contains language that could be read to cover some current support practices (“Process 2.0”) that are being litigated in the “Rimini II” lawsuit and that have not been found to be infringing. On July 10, 2020, Oracle filed a motion to show cause contending that we are in contempt of the injunction. We filed a response to Oracle’s motion on July 31, 2020. The matter is fully briefed to the District Court, and there is no known timeline for a court ruling.
   
    Gross profit. Gross profit increased from $43.3 million for the three months ended September 30, 2019 compared to $50.5 million for the three months ended September 30, 2020, an increase of $7.3 million or 17%. Gross margin for the three months ended September 30, 2019 was 62.5% compared to 61.2% for three months ended September 30, 2020. For the three months ended September 30, 2020, total cost of revenue increased by 23%, compared to an increase in revenue of 19% for the three months ended September 30, 2020. As a result, our gross profit margin decreased by 1.3% period over period. The decline in gross margin reflects, in part, our investment in the launch of new products and services, including our new AMS product.

    Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses declined from 39% for the three months ended September 30, 2019 to 35% for the three months ended September 30, 2020. In dollar terms, sales and marketing expenses increased from $26.8 million for the three months ended September 30, 2019 to $29.2 million for the three months ended September 30, 2020, an increase of $2.4 million or 9%. This increase was primarily due to (i) an increase in employee compensation and benefits of $1.5 million, (ii) an increase in marketing promotional expenses and advertising expenses of $2.0 million and (iii) an increase in other costs of $0.6 million. These increases were offset, in part, by (iv) a decrease in travel expenses of $1.4 million, (v) a decrease of trade show expenses of $0.2 million and (vi) a decrease in administrative allocations of $0.1 million. We continue to accelerate our future revenue growth by investing in more resources.
 
    The $1.5 million increase in sales and marketing expense attributable to employee compensation and benefits for the three months ended September 30, 2020, was primarily due to an increase in salaries, wages and benefit costs of $0.6 million due to a 1% increase in the average number of employees devoted to sales and marketing functions, pay increases, and higher bonus payouts and commissions of $0.9 million.
 
    General and administrative expenses. General and administrative expenses increased from $11.0 million for the three months ended September 30, 2019 to $13.0 million for the three months ended September 30, 2020, an increase of $2.0 million or 18%. This increase was comprised of several items, which included increased costs in salaries, wages and benefits of $2.3 million as the average number of employees increased by 40 or 17%, an increase in rent and facility costs of $0.3 million and an increase of our computer software and license costs of $0.4 million for the three months ended September 30, 2020. In addition, we had an increase in outside services of $0.7 million due in part to system implementations and compliance in the current period. These unfavorable variances were offset, in part, by favorable variances including a decrease in other costs of
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$0.6 million, a decrease in travel expenses of $0.5 million, an increase in administrative allocations of $0.4 million from general and administrative expenses, a reduction in contract labor of $0.3 million and a decrease in recruitment costs of $0.1 million.
 
Looking forward on a quarter-over-quarter basis, we are monitoring the demand for our services in light of the COVID-19 pandemic related environment and will adjust our spend accordingly. However, we expect to incur higher expenses associated with supporting the growth of our business, both in terms of size and geographical diversity, and to meet the increased compliance requirements associated with no longer being classified as an “emerging growth company” for purposes of SEC reporting. Public company costs that are expected to increase in the future include costs relating to initial compliance with the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act, additional information systems costs, costs for additional personnel in our accounting, human resources, IT and legal functions, SEC and Nasdaq fees, and incremental professional, legal, audit and insurance costs. As a result, not taking into account temporary reductions in certain expenses resulting from the COVID-19 pandemic, we expect our general and administrative expenses related to public company costs will continue to increase in future periods.
    
    Litigation costs, net of related insurance recoveries. Litigation costs, net of related insurance recoveries for the three months ended September 30, 2020 and 2019, consist of the following (in thousands):
 
 20202019Change
Professional fees and other costs of litigation$3,773 $3,642 $131 
Litigation appeal refunds— — — 
Insurance costs and recoveries, net— (339)339 
Litigation costs and related recoveries, net$3,773 $3,303 $470 
 
    Professional fees and other costs associated with litigation increased from $3.6 million for the three months ended September 30, 2019 to $3.8 million for the three months ended September 30, 2020, an increase of $0.1 million. This increase was primarily due to increased costs associated with discovery work on the Rimini II litigation and the Rimini I appeal during the three months ended September 30, 2020.

    In May 2018, we appealed to the U.S. Supreme Court for approximately $12.8 million of the District Court's award of non-taxable expenses related to the judgment. On March 4, 2019, the U.S. Supreme Court issued a unanimous decision reversing earlier decisions by the lower courts and ruling that Oracle must return approximately $12.8 million in non-taxable expenses that we had previously paid to Oracle (plus interest). As further described in Note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, as mandated by the U.S. Supreme Court, on April 5, 2019, Oracle paid us approximately $13.0 million (the principal amount plus post-judgment interest). A portion of the award received by us was shared on a pro rata basis with an insurance company that had paid for part of the judgment and a portion of Rimini’s defense costs. This reimbursement reflected a deduction of the costs of our past appeal and remand proceedings.

    Insurance costs and related recoveries, net increased from a benefit of $0.3 million for the three months ended September 30, 2019 to no costs for the three months ended September 30, 2020. We recognized a benefit of $0.3 million in the prior year period, reflecting a change in our estimate of the amounts owed to the insurance company at that time. The liability, noted above, was subject to change as additional costs related to any future Rimini I appeal and remand proceedings were incurred. For the three months ended September 30, 2020, we recognized no costs as we paid the amount due to the insurance company (for portions of the Court of Appeals and U.S. Supreme Court awards) in September 2020. 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 costs related to our litigation with Oracle.

    Interest expense. Interest expense decreased from $27 thousand for the three months ended September 30, 2019 to $10 thousand for the three months ended September 30, 2020, a decrease of $17 thousand or approximately 63%. Interest expense decreased due to a reduction in interest related to capital leases during the current year period.
 
    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, 2020, net other income of approximately $54 thousand was comprised primarily of foreign exchange gains of approximately $70 thousand and interest income of approximately $20 thousand offset by miscellaneous expenses of approximately $36 thousand. For the three months ended September 30, 2019, net other expense of $0.3 million was also comprised primarily of foreign exchange losses of approximately $0.3 million.
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    Income tax expense. We had an income tax expense of $0.5 million for the three months ended September 30, 2019 compared to $1.3 million for the three months ended September 30, 2020. For the three months ended September 30, 2020, our income taxes were attributable to both our foreign and U.S. operations of $1.2 million and $29 thousand, respectively. The income taxes in the U.S. related primarily to foreign withholding taxes. For the three months ended September 30, 2019, no income tax expense was recognized in the U.S. due to utilization of net operating loss carryforwards.

Comparison of Nine Months Ended September 30, 2020 and 2019

    Our consolidated statements of operations for the nine months ended September 30, 2020 and 2019, are presented below (in thousands): 
Nine Months Ended
September 30,
Variance
20202019AmountPercent
Revenue$238,952 $204,924 $34,028 16.6%
Cost of revenue:
Employee compensation and benefits61,842 51,644 10,198 19.7%
Engineering consulting costs15,526 10,116 5,410 53.5%
Administrative allocations (1)
10,637 8,887 1,750 19.7%
All other costs4,622 4,139 483 11.7%
Total cost of revenue92,627 74,786 17,841 23.9%
Gross profit146,325 130,138 16,187 12.4%
            Gross margin61.2 %63.5 %
Operating expenses:    
Sales and marketing84,443 77,610 6,833 8.8%
General and administrative38,159 34,659 3,500 10.1%
Litigation costs and related recoveries, net10,309 (2,648)12,957 (489.3)%
Total operating expenses132,911 109,621 23,290 21.2%
Operating income13,414 20,517 (7,103)(34.6)%
Non-operating income and (expenses):    
Interest expense(35)(375)340 (90.7)%
Other expenses, net(731)(629)(102)16.2%
Income before income taxes12,648 19,513 (6,865)(35.2)%
Income tax expense(3,327)(1,777)(1,550)87.2%
Net income $9,321 $17,736 $(8,415)(47.4)%

(1)Includes the portion of costs for information technology, security services and facilities costs that are allocated to cost of revenue. In our unaudited condensed consolidated financial statements, the total of such costs is allocated between cost of revenue, sales and marketing, and general and administrative expenses, based primarily on relative headcount, except for facilities which is based on occupancy.

    Revenue. Revenue increased from $204.9 million for the nine months ended September 30, 2019 to $239.0 million for the nine months ended September 30, 2020, an increase of $34.0 million or 17%. The increase was driven by a 9% increase in the average number of unique clients from 1,100 for the nine months ended September 30, 2019 to 1,204 for the nine months ended September 30, 2020. On a geographic basis, United States revenue grew from $133.1 million for the nine months ended September 30, 2019 to $143.0 million for the nine months ended September 30, 2020, an increase of $9.9 million or 7%. Our International revenue grew from $71.8 million for the nine months ended September 30, 2019 to $96.0 million for the nine months ended September 30, 2020, an increase of $24.2 million or 34%. Our international revenue growth was led by strong results from our Asia-Pacific region.
 
    Cost of revenue. Cost of revenue increased from $74.8 million for the nine months ended September 30, 2019 to $92.6 million for the nine months ended September 30, 2020, an increase of $17.8 million or 24%. The key drivers related to the cost
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of revenue increase were a $10.2 million increase in compensation costs and $5.4 million increase in engineering consulting costs. The compensation cost increase was attributable to an increase in employees required to support the revenue growth. In addition, administrative allocations increased by $1.7 million and other costs by $0.5 million as facility, technology, and security costs increased.
 
As discussed in Note 8 to our consolidated financial statements included in Part 1, Item 1 of this Report, following post-trial motions, the District Court entered a permanent injunction prohibiting us from using certain processes, including processes adjudicated as infringing at trial, that we ceased using no later than July 2014, which we subsequently appealed to the Court of Appeals, arguing on appeal that the injunction is vague and contains overly-broad language that could be read to cover some of our current business practices that were not adjudicated to be infringing at trial and that the injunction should not have been issued under applicable law. After multiple rounds of remand and appeal, in August 2019, the Court of Appeals entered an order affirming the permanent injunction. However, the Court of Appeals agreed that the injunction was overbroad in two respects and instructed the District Court to remove the restriction on “local hosting” of J.D. Edwards and Siebel software and the prohibition against “accessing” J.D. Edwards and Siebel software source code. A copy of the injunction is publicly available in the case docket. As a result of the injunction, we expect to incur additional expenses in the range of 1% to 2% of revenue for additional labor costs because, as drafted, the injunction contains language that could be read to cover some current support practices (“Process 2.0”) that are being litigated in the “Rimini II” lawsuit and that have not been found to be infringing. On July 10, 2020, Oracle filed a motion to show cause contending that we are in contempt of the injunction. We filed a response to Oracle’s motion on July 31, 2020. The matter is fully briefed to the District Court, and there is no known timeline for a court ruling.
   
    Gross profit. Gross profit increased from $130.1 million for the nine months ended September 30, 2019 compared to $146.3 million for the nine months ended September 30, 2020, an increase of $16.2 million or 12%. Gross margin for the nine months ended September 30, 2019 was 63.5% compared to 61.2% for the nine months ended September 30, 2020. For the nine months ended September 30, 2020, total cost of revenue increased by 24%, compared to an increase in revenue of 17% for the nine months ended September 30, 2020. As a result, our gross profit margin decreased 2.3% period over period. The decline in gross margin reflects, in part, our investment in the launch of new products and services, including our new AMS product.

    Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses have decreased from 38% for the nine months ended September 30, 2019 to 35% for the nine months ended September 30, 2020. In dollar terms, sales and marketing expenses increased from $77.6 million for the nine months ended September 30, 2019 to $84.4 million for the nine months ended September 30, 2020, an increase of $6.8 million or 9%. This increase was primarily due to (i) an increase in employee compensation and benefits of $5.0 million, (ii) an increase in marketing and promotional costs as well as advertising expenses cost of $3.6 million (iii) an increase in all other costs of $0.8 million, (iv) an increase in contract labor of $0.4 million, and (v) an increase in shared service allocations for facilities, security and technology of $0.3 million. These increases were offset by a reduction of trade show expenses of $1.7 million, and a decrease in travel expenses of $1.6 million. Our overall spending increased as we attempt to accelerate our future revenue growth by investing in more resources.
 
    The $5.0 million increase in sales and marketing expense attributable to employee compensation and benefits for the nine months ended September 30, 2020, was primarily due to an increase in salaries, wages and benefit costs of $3.4 million due to a 5% increase in the average number of employees devoted to sales and marketing functions, pay increases, and higher bonus payouts and commissions of $1.6 million.
 
    General and administrative expenses. General and administrative expenses increased from $34.7 million for the nine months ended September 30, 2019 to $38.2 million for the nine months ended September 30, 2020, an increase of $3.5 million or 10%. This increase was primarily driven by higher salaries, wages and benefit costs of $5.3 million for the nine months ended September 30, 2020 as the average number of employees increased by 40 or 18% and higher bonus costs of $0.5 million. In addition, our computer software and license costs increased $1.4 million, outside services increased $0.9 million and rent increased $0.9 million during the nine months ended September 30, 2020. These unfavorable variances were offset, in part by a favorable increase in administrative allocations of $2.0 million from general and administrative expenses, a decline in travel and other expenses of $1.3 million, a reduction of sales and other related taxes of $0.8 million, a reduction of all other costs of $0.9 million and a reduction of recruitment costs of $0.5 million.
 
    Litigation costs, net of related insurance recoveries. Litigation costs, net of related insurance recoveries for the nine months ended September 30, 2020 and 2019, consist of the following (in thousands):
 
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 20202019Change
Professional fees and other costs of litigation$9,247 $6,127 $3,120 
Litigation appeal refunds— (12,775)12,775 
Insurance costs and recoveries, net1,062 4,000 (2,938)
Litigation costs and related recoveries, net$10,309 $(2,648)$12,957 
 
    Professional fees and other costs associated with litigation increased from $6.1 million for the nine months ended September 30, 2019 to $9.2 million for the nine months ended September 30, 2020, an increase of $3.1 million. This increase was primarily due to increased costs associated with discovery work on the Rimini II litigation and the Rimini I appeal during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

    In May 2018, we also appealed to the U.S. Supreme Court for approximately $12.8 million of the District Court's award of non-taxable expenses related to the judgment. On March 4, 2019, the U.S. Supreme Court issued a unanimous decision reversing earlier decisions by the lower courts and ruling that Oracle must return approximately $12.8 million in non-taxable expenses that we had previously paid to Oracle (plus interest). As further described in Note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, as mandated by the U.S. Supreme Court, on April 5, 2019, Oracle paid us approximately $13.0 million (the principal amount plus post-judgment interest). As a result, we recognized a recovery of non-taxable expenses for $12.8 million and recorded interest income of $0.2 million during the nine months ended September 30, 2019. A portion of the award received by us was shared on a pro rata basis with an insurance company that had paid for part of the judgment and a portion of our defense costs. This reimbursement reflected a deduction of the costs of our past appeal and remand proceedings.

    Insurance costs and related recoveries, net decreased from costs of $4.0 million for the nine months ended September 30, 2019 to $1.1 million for the nine months ended September 30, 2020. We recognized costs of $4.0 million for the nine months ended September 30, 2019, reflecting the estimate of the amounts owed to the insurance company at that time. The liability, noted above, was subject to change as additional costs related to any future Rimini I appeal and remand proceedings were incurred. For the nine months ended September 30, 2020, we recognized costs of $1.1 million to revise the amount due to the insurance company (for portions of the Court of Appeals and U.S. Supreme Court awards), which was paid in September 2020. 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 costs related to our litigation with Oracle.

    Interest expense. Interest expense decreased from $0.4 million for the nine months ended September 30, 2019 to $35 thousand for the nine months ended September 30, 2020, a decrease of $0.3 million or approximately 91%. Interest expense decreased due to a reduction in accretion expense of $0.2 million related to the GP Sponsor note payable. The GP Sponsor note was paid off on June 28, 2019. Interest expense related to capital leases also decreased by approximately $0.1 million.
 
    Other expenses, net. Other 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, 2020, net other expense of approximately $0.7 million was comprised primarily of foreign exchange losses of approximately $0.6 million. For the nine months ended September 30, 2019, net other expense of $0.6 million was primarily comprised of foreign exchange losses amounting to approximately $0.8 million, offset in part by interest income of $0.2 million related to the U.S. Supreme Court decision noted above.
    
Income tax expense. We had an income tax expense of $1.8 million for the nine months ended September 30, 2019 compared to $3.3 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2020, our income taxes were attributable to both our foreign and U.S. operations of $3.1 million and $0.2 million, respectively. The income taxes in the U.S. related primarily to foreign withholding taxes. For the nine months ended September 30, 2019, no income tax expense was recognized in the U.S. due to utilization of net operating loss carryforwards.

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Liquidity and Capital Resources
 
Overview
 
    As of September 30, 2020, we had a working capital deficit of $64.7 million and an accumulated deficit of $305.3 million. For the three months and the nine months ended September 30, 2020, we had a net income of $3.3 million and $9.3 million, respectively. As of September 30, 2020, we had available cash, cash equivalents and restricted cash of $83.7 million.

On August 18, 2020, we completed the August 2020 Offering pursuant to which 6.1 million shares of our Common Stock were sold at a price of $4.50 per share for total gross proceeds of $27.5 million. Net proceeds from the August 2020 Offering were approximately $25.1 million after deducting underwriting discounts and offering expenses. We intend to use the net proceeds from the August 2020 Offering for working capital and other general corporate purposes.

    A key component of our business model requires that substantially all clients prepay us annually for the services we will provide over the following year or longer. As a result, we typically collect cash from our clients in advance of when the related service costs are incurred, which resulted in deferred revenue of $179.5 million that is included in current liabilities as of September 30, 2020. Therefore, we believe that working capital deficit is not as meaningful in evaluating our liquidity since the historical costs of fulfilling our commitments to provide services to clients are currently limited to approximately 39% of the related deferred revenue based on our gross profit percentage of 61% for the three months ended September 30, 2020.

    For the next year, assuming that the Company’s operations are not significantly impacted by the COVID-19 pandemic, we believe that cash, cash equivalents and restricted cash of $83.7 million as of September 30, 2020, plus future cash flows from operating activities will be sufficient to meet our anticipated cash needs including working capital requirements, planned capital expenditures and our contractual obligations.

    For the nine months ended September 30, 2020, we generated cash flows from our operating activities of approximately $31.8 million, which was derived from our cash earnings of approximately $20.4 million and by favorable changes in operating assets and liabilities of approximately $11.4 million. We believe that our operating cash flows for the year ending December 31, 2020 will be sufficient to fund the portion of our contractual obligations that is not funded with existing capital resources.
 
Private Placements

    Please refer to Note 5 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for information regarding the June 2019 Private Placement, the March 2019 Private Placement and the Initial Private Placement.

    The holders of Series A Preferred Stock are entitled to, from the respective issuance date, a cash dividend of 10.0% per annum and a payment-in-kind dividend of 3.0% per annum for the first five years following the initial June 2018 closing and thereafter all dividends accruing on such Series A Preferred Stock will be payable in cash at a rate of 13.0% per annum. Assuming no redemptions of the Series A Preferred Stock and no conversions to Common Stock, the following cash and PIK dividends (settled through issuance of additional shares of Series A Preferred Stock), regarding the combined June 2019 Private Placement, March 2019 Private Placement and Initial Private Placement, are expected to accrue for each year through July 19, 2023 (in thousands):
Year Ending December 31:CashPIKTotal
2020$15,819 $4,746 $20,565 
202116,299 4,890 21,189 
202216,794 5,038 21,832 
20239,455 2,837 12,292 

    The June 2019 Private Placement, the March 2019 Private Placement and the Initial Private Placement improved our liquidity and capital resources whereby future cash payments are expected to be limited to annual cash dividends ranging from $15.8 million to $16.8 million over the next four years as compared to payments under our former Credit Facility. The amounts above do not include the impact of purchasing 5,000 shares of Series A Preferred Stock on October 30, 2020 as discussed in Note 5.

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    Please refer to Note 5 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for further details about the Series A Preferred Stock including (i) mandatory redemption rights, (ii) the security agreement and promissory notes that may become payable pursuant to certain redemption provisions, (iii) rights to convert the Series A Preferred Stock to shares of Common Stock, (iv) registration rights, and (v) voting rights and preferences in liquidation.
 
Cash Flows Summary
 
    Presented below is a summary of our operating, investing and financing cash flows for the nine months ended September 30, 2020 and 2019 (in thousands):
 
 20202019
Net cash provided by (used in):
Operating activities$31,833 $20,985 
Investing activities(1,159)(1,354)
Financing activities15,123 (2,283)
 
The effect of foreign currency translation was unfavorable for $0.4 million for the nine months ended September 30,2020 compared to an unfavorable change of $0.4 million for the nine months ended September 30, 2019.

Cash Flows Provided by Operating Activities
 
    A key component of our business model requires that clients typically prepay us annually for the services which we will provide over the following year or longer. As a result, we typically collect cash in advance of the date when the vast majority of the related services are provided. The key components in the calculation of our cash provided by operating activities for the nine months ended September 30, 2020 and 2019, are as follows (in thousands):

 20202019
Net income$9,321 $17,736 
Non-cash expenses, net11,107 5,602 
Changes in operating assets and liabilities, net11,405 (2,353)
  Net cash provided by operating activities$31,833 $20,985 

    For the nine months ended September 30, 2020, cash flows provided by operating activities amounted to approximately $31.8 million. The key drivers resulting in our cash provided by operating activities for the nine months ended September 30, 2020, included our net income of $9.3 million, as adjusted for non-cash and non-operating expenses totaling $11.1 million and favorable changes in operating assets and liabilities of $11.4 million, resulting in net cash provided by operating activities of $31.8 million.

For the nine months ended September 30, 2020, the non-cash expenses, net consisted primarily of stock-based compensation expense of $5.4 million, amortization and accretion related to operating lease right of use (ROU) assets of $4.6 million and depreciation and amortization expense of $1.3 million. For the nine months ended September 30, 2020, the changes in operating assets and liabilities, net consisted of favorable changes to accounts receivable of $42.4 million, accounts payable of $1.7 million and prepaid expenses and other assets of $4.7 million. These favorable cash sources were offset by unfavorable changes to deferred revenue of $28.8 million, accrued liabilities of $3.6 million and deferred contract costs of $4.9 million.

    For the nine months ended September 30, 2019, cash flows provided by operating activities amounted to $21.0 million. The key drivers resulting in our cash provided by operating activities for the nine months ended September 30, 2019, included our net income of $17.7 million, as adjusted for non-cash and non-operating expenses totaling $5.6 million and unfavorable changes in operating assets and liabilities of $2.4 million, resulting in net cash provided by operating activities of $21.0 million.

For the nine months ended September 30, 2019, non-cash expenses, net consisted primarily of stock-based compensation of $3.8 million, depreciation and amortization expense of $1.5 million and accretion related to our GP Sponsor note payable of $0.2 million. For the nine months ended September 30, 2019, the changes in operating assets and liabilities, net
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consisted of primarily of favorable changes to accounts receivable of $18.5 million, accrued liabilities of $1.8 million and deferred contract costs of $1.2 million. These favorable changes were partially offset by unfavorable changes in accounts payable of $10.2 million, deferred revenue of $9.4 million and prepaid expenses and other assets of $4.3 million.

Cash Flows Used in Investing Activities
 
    Cash used in investing activities was primarily driven by capital expenditures for leasehold improvements and computer equipment as we continued to invest in our business infrastructure and advance our geographic expansion. Capital expenditures totaled $1.2 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively.

    For the nine months ended September 30, 2020, capital expenditures of $1.2 million consisted of $0.7 million primarily for new computer equipment in our U.S. facilities and $0.5 million for computer equipment at our foreign locations, primarily in India.

For the nine months ended September 30, 2019, capital expenditures of $1.4 million consisted of $0.7 million for leasehold improvements and new computer equipment related to our U.S. facilities and $0.6 million for computer equipment at our foreign locations, primarily in India.

Cash Flows from Financing Activities
 
    For the nine months ended September 30, 2020, cash provided by financing activities of $15.1 million was attributable to net proceeds of $25.7 million generated from our August 2020 Offering and proceeds of $1.6 million received from stock option exercises. These cash proceeds were offset, in part, by dividend payments of $11.8 million, payments for professional fees associated with our August 2020 Offering of $0.3 million and capital lease payments of $0.2 million.

For the nine months ended September 30, 2019, cash utilized in financing activities of $2.3 million was primarily attributable to dividend payments of $10.9 million, payments of $2.6 million on our GP Sponsor loan, payments of $0.5 million related to transaction costs for both the June 2019 SPA and March 2019 SPA and capital lease payments of $0.4 million, which were offset, in part, by proceeds of $9.1 million received from both the June 2019 SPA and March 2019 SPA transactions and proceeds of $2.9 million received from stock option exercises.

Foreign Subsidiaries
 
    Our foreign subsidiaries and branches are dependent on our U.S.-based parent for continued funding. We currently do not intend to repatriate any amounts that have been invested overseas back to the U.S.-based parent. However, we may still be liable for withholding taxes, state taxes, or other income taxes that might be incurred upon the repatriation of foreign earnings. We have not made any provision for additional income taxes on undistributed earnings of our foreign subsidiaries. As of September 30, 2020, we had cash and cash equivalents of $23.6 million in our foreign subsidiaries.
 
Critical Accounting Policies and Significant Judgments and Estimates
 
    Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.
 
    For both the three and nine months ended September 30, 2020, see Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for changes to the critical accounting policies.

Recent Accounting Pronouncements
 
    From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date. For the three months ended
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September 30, 2020, we adopted ASU 2016-02, Leases, which requires organizations that lease assets, to recognize on the balance sheet the right of use assets and liabilities for the rights and obligations, created by those leases with lease terms of more than 12 months. This standard had a material impact to our balance sheet.

    For additional information on recently issued accounting standards and our plans for adoption of those standards, please refer to the section titled Recent Accounting Pronouncements under Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.

Recently Issued Accounting Standards

In December 2019, the FASB issued new guidance on income taxes, ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions to the general income tax accounting principles, and clarifies and amends existing guidance to facilitate consistent application of the accounting principles. The new guidance is effective for us as of January 1, 2021. We are assessing the impact of the adoption of this guidance on our Consolidated Financial Statements.

In January 2020, the FASB issued new guidance ASU 2020-1, Investments—Equity Securities (Topic 321), Investments - Equity and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The guidance clarifies the interactions between the existing accounting standards on equity securities, equity method and joint ventures, and derivatives and hedging. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for us as of January 1, 2021. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The guidance eliminates the beneficial conversion and cash conversion accounting for convertible instruments. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The new guidance is effective for us as of January 1, 2022. We are assessing the impact of the adoption of this guidance on our Consolidated Financial Statements.


ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
 
Foreign Currency Exchange Risk
 
    We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound Sterling, Brazilian Real, Australian Dollar, Indian Rupee and Japanese Yen. For the three months ended September 30, 2020 and 2019, we generated approximately 42% and 35% of our revenue from our international business, respectively. For the nine months ended September 30, 2020 and 2019, we generated approximately 40% and 35% of our revenue from our international businesses, respectively. Increases in the relative value of the U.S. Dollar to other currencies may negatively affect our revenue, partially offset by a positive impact to operating expenses in other currencies as expressed in U.S. Dollars. We have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains or losses related to revaluing certain current asset and current liability balances, including intercompany receivables and payables, which are denominated in currencies other than the functional currency of the entities in which they are recorded. While we have not engaged in the hedging of our foreign currency transactions to date, we are evaluating the costs and benefits of initiating such a program and we may in the future hedge selected significant transactions denominated in currencies other than the U.S. Dollar.

During the three months ended September 30, 2020 and 2019, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

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

ITEM 4. Controls and Procedures
 
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Evaluation of Disclosure Controls and Procedures
 
    We maintain a system of disclosure controls and procedures that are designed to reasonably ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and to reasonably ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
 
    Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) (“Disclosure Controls”) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls will be modified as systems change and conditions warrant.
 
    In connection with the preparation of this Quarterly Report on Form 10-Q as of September 30, 2020, an evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, we concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting
 
    There were no changes in our internal control over financial reporting during the latest fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.
 
    The legal proceedings described in Note 8 of our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report are incorporated herein by reference. In addition, from time to time, we 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, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of judgment, defense and settlement costs, diversion of management resources and other factors.

ITEM 1A. Risk Factors.
 
    Factors that could cause our actual results to differ materially from those in this Report are any of the risks described in this Item 1.A. Any of these factors could result in a significant or material adverse effect on our business, financial condition, results of operations and cash flows. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. In addition, risk factors relating to economic uncertainties, downturns in the general economy or the industries in which our clients operate should be interpreted as heightened risks as a result of the COVID-19 pandemic.
 
    Our business operations are subject to a number of risk factors that may adversely affect our business, financial condition, results of operations or cash flows. If any significant adverse developments resulting from these risk factors should occur, the trading price of our securities could decline, and moreover, investors in our securities could lose all or part of their investment in our securities.
 
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    You should refer to the explanation of the qualifications and limitations on forward-looking statements under “Cautionary Note About Forward-Looking Statements” set forth in Part I, Item 2 of this Report. All forward-looking statements made by us are qualified by the risk factors described below.
 
Risks Related to Our Business, Operations and Industry

Risks Related to Litigation

We and our Chief Executive Officer are involved in litigation with Oracle. An adverse outcome in the ongoing litigation could result in the payment of substantial damages and/or an injunction against certain of our business practices, either of which could have a material adverse effect on our business and financial results.

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) (“District Court”), against us and our Chief Executive Officer, Seth Ravin, alleging that certain of our processes ("Process 1.0") violated Oracle’s license agreements with its customers and that we committed acts of copyright infringement and violated other federal and state laws (“Rimini I”). The litigation involved our business processes and the manner in which we provided our services to our clients.

After completion of 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 we were found liable for only one of a dozen claims: “innocent infringement,” a jury finding that we did not know and had no reason to know that our former support processes were infringing. The jury also found that the infringement did not cause Oracle to suffer lost profits. We were ordered to pay a judgment of $124.4 million in 2016, which we promptly paid and then filed an appeal. With interest, attorneys’ fees and costs, the total judgment paid by us to Oracle after the completion of all appeals was approximately $89.9 million. A portion of such judgment was paid by our insurance carriers (for additional information on this topic, see Note 11 of our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019).

The total judgment paid by us and our insurance carriers reflects a reduction of approximately $12.8 million that we had previously paid to Oracle (plus interest of $0.2 million), representing an award of non-taxable expenses to Oracle that was eventually overturned by unanimous decision of the U.S. Supreme Court in March 2019. As mandated by the U.S. Supreme Court, $13.0 million (the principal amount plus post-judgment interest) was refunded to us by Oracle in April 2019.

Following post-trial motions, the District Court entered a permanent injunction prohibiting us from using certain processes, including processes adjudicated as infringing at trial, that we ceased using no later than July 2014, which we subsequently appealed to the United States Court of Appeals for the Ninth Circuit (“Court of Appeals”), arguing on appeal that the injunction is vague and contains overly-broad language that could be read to cover some of our current business practices that were not adjudicated to be infringing at trial and that the injunction should not have been issued under applicable law. After multiple rounds of remand and appeal, in August 2019, the Court of Appeals entered an order affirming the permanent injunction. However, the Court of Appeals agreed that the injunction was overbroad in two respects and instructed the District Court to remove the restriction on “local hosting” of J.D. Edwards and Siebel software and the prohibition against “accessing” J.D. Edwards and Siebel software source code.

As a result of the injunction, we expect to incur additional expenses in the range of 1% to 2% of revenue for additional labor costs because, as drafted, the injunction contains language that could be read to cover some current support practices ("Process 2.0") that are being litigated in the “Rimini II” lawsuit (as defined below) and that have not been found to be infringing. On July 10, 2020, Oracle filed a motion to show cause contending that we are in contempt of the injunction.

We filed a response to Oracle’s motion on July 31, 2020. The matter is fully briefed to the District Court, and there is no known timeline for a court ruling. At this time, we do not have sufficient information regarding possible damages exposure for the contempt asserted by Oracle. As a result, an estimate of the range of loss cannot be reasonably determined. Because we believe that we complied with the injunction and that an award for damages and/or attorneys’ fees is not probable, no accrual has been made as of September 30, 2020. If the District Court grants Oracle’s motion and if we are later found to be in contempt of the injunction, Oracle may seek equitable, punitive and compensatory relief, the outcome of which may have a material adverse effect on our business and financial condition.

Oracle may file additional contempt motions against us at any time to attempt to enforce its interpretation of the injunction or if it has reason to believe we are not in compliance with express terms of the injunction. Such contempt proceedings or any judicial finding of contempt could result in a material adverse effect on our business and financial condition.
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In addition, the pendency of the injunction, alone, or Oracle’s July 2020 contempt filing described above, could dissuade clients from purchasing or continuing to purchase our services. Further, certain outcomes, should they occur, may also trigger the mandatory redemption of all of our Series A Preferred Stock, with the redemption amounts automatically becoming payment obligation under our Convertible Notes with a concurrent cancellation of the outstanding shares of the Series A Preferred Stock, as provided in the Certificate of Designations for the Series A Preferred Stock and the Form of Convertible Note previously filed with the SEC. If we are obligated to pay substantial civil assessments arising from any finding of contempt, this could reduce the amount of cash flows available to pay dividends due in respect of our Series A Preferred Stock or, if the shares are converted, the interest under the Convertible Notes. Holders of our Convertible Notes are entitled to accelerate repayment of the indebtedness under such notes if we default in our interest payment obligations. We cannot assure you that we will have sufficient assets which would allow us to repay such indebtedness in full at such time. In addition, we may not be able to obtain additional debt or equity financing, if required, to repay our obligations under the Convertible Notes. As a result, we could be forced into bankruptcy or liquidation.

In October 2014, we filed a separate lawsuit, Rimini Street Inc. v. Oracle Int’l Corp., in the District Court against Oracle seeking a declaratory judgment that Process 2.0 support practices, in use since at least July 2014, do not infringe certain Oracle copyrights (“Rimini II”). Oracle filed counterclaims alleging copyright infringement, which included (i) substantially the same allegations asserted in Rimini I, but limited to clients not addressed in Rimini I, and (ii) new allegations that our Process 2.0 support practices also infringe Oracle copyrights. Oracle’s counterclaims also included allegations of violation of the Lanham Act, intentional interference with prospective economic advantage, breach of contract and inducing breach of contract, unfair competition, unjust enrichment/restitution and violation of the Digital Millennium Copyright Act. Oracle also sought an accounting. In December 2016, we filed an amended complaint against Oracle, adding claims for intentional interference with contract, intentional interference with prospective economic advantage, violation of the Nevada Deceptive Trade Practices Act, violation of the Lanham Act, and violation of California Business & Professions Code §17200 et seq. Oracle then amended its counterclaims to include requesting declaratory judgment of no intentional interference with contractual relations, no intentional interference with prospective economic advantage, and no violation of California Business & Professions Code §17200 et seq. By stipulation of the parties, the District Court granted our motion to file our third amended complaint to add claims arising from Oracle’s purported revocation of our access to its support websites on behalf of our clients, which was filed and served in May 2017. In September 2017, the District Court issued an order granting in part and denying in part our motion to dismiss Oracle’s third amended counterclaims. The District Court granted our motion to dismiss Oracle’s intentional interference with prospective economic advantage and unjust enrichment counterclaims.

In November 2017, the District Court issued an order granting in part and denying in part Oracle’s motion to dismiss our third amended complaint. The District Court granted Oracle’s motion to dismiss as to our third cause of action for a declaratory judgment that Oracle has engaged in copyright misuse, fifth cause of action for intentional interference with prospective economic advantage; sixth cause of action for a violation of Nevada’s Deceptive Trade Practices Act under the “bait and switch” provision of NRS § 598.0917; and seventh cause of action for violation of the Lanham Act. The District Court denied Oracle’s motion as to our causes of action for intentional interference with contractual relations, violation of Nevada Deceptive Trade Practices Act, under the “false and misleading” provision of NRS §598.0915(8) and unfair competition.

Fact discovery with respect to the above action substantially ended in March 2018, and expert discovery ended in September 2018. In October 2018, we and Oracle each filed motions for summary judgment. On September 15, 2020, the District Court issued an order addressing the seven Rimini II summary judgment motions, resolving and narrowing the claims to be litigated in front of a jury at trial, including dismissal of our affirmative claims for damages. There is currently no trial date scheduled, and while we do not expect a trial to occur in this matter earlier than the first half of 2022, the trial could occur earlier or later than that. At this time, we do not have sufficient information regarding possible damages exposure for the counterclaims asserted by Oracle. Both parties have sought injunctive relief in addition to monetary damages in this matter, and we have reserved our rights to appeal regarding the possible recovery of damages by us in connection with our claims against Oracle.

We could be required to pay substantial damages for our current or past business activities and/or be enjoined from certain business practices. Any of these outcomes could result in a material adverse effect on our business and financial condition, and the pendency of the litigation alone could dissuade clients from purchasing or continuing to purchase our services. Further, these outcomes may also trigger the mandatory redemption of all of our Series A Preferred Stock, with the redemption amounts automatically becoming payment obligations under our Convertible Notes with a concurrent cancellation of the outstanding shares of the Series A Preferred Stock, as provided in the Certificate of Designations for the Series A Preferred Stock and the Form of Convertible Note previously filed with the SEC. If we are obligated to pay substantial damages to Oracle or are enjoined from certain business practices, this could reduce the amount of cash flows available to pay dividends due in respect of our Series A Preferred Stock or the indebtedness under the Convertible Notes. If we default in our payment
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obligations under the Convertible Notes and the indebtedness under the Convertible Notes were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full, and we could be forced into bankruptcy or liquidation.

Our business has been and may continue to be materially harmed by this litigation and Oracle’s conduct. During the course of these cases, we anticipate there will be rulings by the District Court in Rimini II, the District Court in Rimini I, and possibly the Court of Appeals in both Rimini I and Rimini II in connection with hearings, motions, decisions, and other matters, as well as other interim developments related to the litigations. If securities analysts or investors regard these rulings as negative, the market price of our Common Stock may decline. If current or prospective clients regard these rulings as negative, it could negatively impact our new client sales or renewal sales.

While we plan to continue to vigorously litigate the pending matters in Rimini I and Rimini II, we are unable to predict the timing or outcome of these lawsuits. No assurance is or can be given that we will prevail on any appeal, contempt proceeding, claim, or counterclaim.

See the section titled “Legal Proceedings” in Part I, Item 1 and Note 8 of our consolidated financial statements included in Part I, Item 1 of this Report for more information related to this litigation.

The Oracle software products that are part of our ongoing litigation with Oracle represent a significant portion of our current revenue.

In Rimini II, Oracle has filed counterclaims relating to our support services for Oracle’s PeopleSoft, J.D. Edwards, Siebel, E-Business Suite, and Database software products. For the three months ended September 30, 2020, approximately 64% of our total revenue was derived from the support services that we provide for our clients using Oracle’s PeopleSoft, J.D. Edwards, Siebel, E-Business Suite and Database software products. The percentage of revenue derived from services we provide for PeopleSoft software only was approximately 13% of our total revenue during this same period. Although we provide support services for additional Oracle product lines that are not subject to litigation and support services for software products provided by companies other than Oracle, our current revenue depends significantly on the product lines that are the subject of the Rimini II litigation. Should Oracle prevail on its claims in Rimini II or should a contempt action result in a finding that we are in violation of the injunction, we could be required to change the way we provide support services to some of our clients, which could result in the loss of clients and revenue, and may also give rise to claims for compensation from our clients, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our ongoing litigation with Oracle presents challenges for growing our business.

We have experienced challenges growing our business as a result of our ongoing litigation with Oracle. Many of our existing and prospective clients have expressed concerns regarding our ongoing litigation and, in some cases, have been subjected to various negative communications by Oracle in connection with the litigation. We have experienced in the past, and may continue to experience in the future, volatility and slowness in acquiring new clients, as well as clients not renewing their agreements with us, due to these challenges relating to our ongoing litigation with Oracle. Further, certain of our prospective and existing clients may be subject to additional negative communications from software vendors. We have taken steps to minimize disruptions to our existing and prospective clients regarding the litigation, but we continue to face challenges growing our business while the litigation remains ongoing. In certain cases, we have agreed to pay certain liquidated damages to our clients if we are no longer able to provide services to these clients, and/or reimburse our clients and our former lenders for their reasonable legal fees incurred in connection with any litigation-related subpoenas and depositions or to provide certain client indemnification or termination rights if any outcome of litigation results in our inability to continue providing any of the paid-for services. In addition, we believe the length of our sales cycle is longer than it otherwise would be due to prospective client diligence on possible effects of the Oracle litigation on our business. We cannot assure you that we will continue to overcome the challenges we face as a result of the litigation and continue to renew existing clients or secure new clients.

Additionally, the existence of this ongoing litigation and, specifically, Oracle’s July 2020 contempt filing described above, could negatively impact the value of our equity securities, and could negatively impact our ability to raise additional equity or debt financing.

We are self-insured for any costs related to any current or future intellectual property litigation, although we maintain and have tendered our errors and omissions insurance coverage for the wrongful acts alleged in Oracle’s contempt proceeding. However, our errors and omissions insurers may or may not provide defense or indemnification coverage for the contempt proceeding. While we currently believe our cash on hand, accounts receivable and contractually committed backlog provides us with sufficient liquidity to cover costs related to litigation with Oracle, we cannot assure our liquidity will be sufficient.
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Oracle has a history of litigation against companies offering alternative support programs for Oracle products, and Oracle could pursue additional litigation with us.

Oracle has been active in litigating against companies that have offered competing maintenance and support services for their products. For example, in March 2007, Oracle filed a lawsuit against SAP and its wholly-owned subsidiary, TomorrowNow, Inc., a company our Chief Executive Officer, Seth Ravin, joined in 2002, and which was acquired by SAP in 2005. After a jury verdict awarding Oracle $1.3 billion, the parties stipulated to a final judgment of $306 million subject to appeal. After the appeal, the parties settled the case in November 2014 for $356.7 million. In February 2012, Oracle filed suit against ServiceKey, Inc. and settled the case in October 2013 after the District Court issued an injunction against ServiceKey and its CEO. Oracle also filed suit against CedarCrestone Corporation in September 2012 and settled the case in July 2013. TomorrowNow and CedarCrestone offered maintenance and support for Oracle software products, and Service Key offered maintenance and support for Oracle technology products. Given Oracle’s history of litigation against companies offering alternative support programs for Oracle products, we can provide no assurance, regardless of the outcome of our current litigations with Oracle, that Oracle will not pursue additional litigation against us. Such additional litigation could be costly, distract our management team from running our business and reduce client interest and our sales revenue.

We received a federal grand jury inquiry in March 2018 directing delivery of certain documents relating to our operations. If such inquiry leads to legal proceedings against us or any of our employees or members of our Board of Directors, we would incur legal costs and may potentially suffer an adverse outcome negatively affecting our business and financial results.

In March 2018, we received a federal grand jury subpoena, issued from the United States District Court for the Northern District of California, requesting that we produce certain documents relating to specified support and related operational practices. We fully cooperated with this inquiry and the related document requests by April 15, 2019 and have received no further requests since that date. However, we cannot predict its ultimate resolution. Any legal proceedings instituted involving us, if any, from such inquiry, regardless of merit or outcome, could have a negative impact on our future revenue, revenue growth, client acquisition and retention and ability to obtain new or alternative financing, would require us to incur additional legal costs, and if adversely determined, may ultimately result in the imposition of fines or other penalties. Any such resulting material costs and expenses or other penalties could have a material adverse effect on our financial condition and results of operations.

Other Risks Related to Our Business, Operations and Industry

The duration of and economic, operational and financial impacts on our business of the COVID-19 pandemic, as well as the actions taken by governmental authorities, clients or others in response to the COVID-19 pandemic may have a material adverse effect on our business, financial condition, results of operations, or cash flows.

In response to the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, we have taken precautionary measures to protect the health and well-being of our employees, clients, and the communities in which we operate. We have established work-at-home arrangements for most of our employees, placed restrictions on non-essential business travel, transitioned to a no in-person event marketing strategy and implemented a fully remote sales model. We believe that many of our clients are doing and will continue to do the same. These precautionary measures could impact our clients’ and potential clients’ ability or willingness to participate in our sales, marketing and client success efforts, which could adversely affect our business, financial condition and results of operations. Further, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. The COVID-19 pandemic could have a sustained adverse impact on economic and market conditions and trigger a period of global economic slowdown, which may delay prospective clients’ decisions regarding engaging our services, impair the ability of our current clients to make timely payments to us, cause our current clients to ask for payment concessions or discounts, impact client renewal rates and adversely affect our revenue. If such conditions occur, we may be required to increase our reserves, allowances for doubtful accounts and write-offs of accounts receivable, and our results of operations would be harmed.

We are unable to accurately predict the ultimate impact of the current COVID-19 pandemic due to various uncertainties, including the duration of the outbreak, and actions that may be taken by governmental authorities to contain the virus. We closely monitor the impact of the COVID-19 pandemic, continually assessing its potential effects on our business. The extent to which our results are affected by COVID-19 will largely depend on future developments which cannot be accurately predicted and are uncertain, but the COVID-19 pandemic or the perception of its effects could have a material
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adverse effect on our business, financial condition, results of operations, or cash flows. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of COVID-19 for additional information.

The market for independent software support services is relatively undeveloped and may not grow.

The market for independent enterprise software support services is still relatively undeveloped, has not yet achieved widespread acceptance and may not grow quickly or at all. Our success will depend to a substantial extent on the willingness of companies to engage a third party such as us to provide software support services for their enterprise software. Many enterprise software licensees are still hesitant to use a third party to provide such support services, choosing instead to rely on support services provided by the enterprise software vendor. Other enterprise software licensees have invested substantial personnel, infrastructure and financial resources in their own organizations with respect to support of their licensed enterprise software products and may choose to self-support with their own internal resources instead of purchasing services from the enterprise software vendor or an independent provider such as ourselves. Companies may not engage us for other reasons, including concerns regarding our ongoing litigation with Oracle and governmental inquiry, the potential for future litigation, the potential negative effect our engagement could have on their relationships with their enterprise software vendor, or concerns that they could infringe third party intellectual property rights or breach one or more software license agreements if they engage us to provide support services. New concerns or considerations may also emerge in the future. Particularly because our market is relatively undeveloped, we must address our potential clients’ concerns and explain the benefits of our approach in order to convince them of the value of our services. If companies are not sufficiently convinced that we can address their concerns and that the benefits of our services are compelling, then the market for our services may not develop as we anticipate, and our business will not grow.

We have had a history of losses and may not achieve or sustain profitability in the future.

While we had net income of $3.3 million for the three months ended September 30, 2020, we had an accumulated deficit of $305.3 million as of September 30, 2020. We will need to generate and sustain increased revenue levels in future periods while managing our costs to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We intend to continue to expend significant funds to expand our sales and marketing operations, enhance our service offerings, expand into new markets, launch new product offerings and meet the increased compliance requirements associated with our operations as a public company. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including, as a result of our ongoing litigation with Oracle, the potential for future litigation, impact of the COVID-19 pandemic, other risks described herein, unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the market price of our securities may significantly decrease.

If we are unable to attract new clients or retain and/or sell additional products or services to our existing clients, our revenue growth will be adversely affected.

To increase our revenue, we must add new clients, encourage existing clients to renew or extend their agreements with us on terms favorable to us and sell additional products and services to existing clients. As competitors introduce lower-cost and/or differentiated services that are perceived to compete with ours, or as enterprise software vendors introduce competitive pricing or additional products and services or implement other strategies to compete with us, our ability to sell to new clients and renew agreements with existing clients based on pricing, service levels, technology and functionality could be impaired. As a result, we may be unable to renew or extend our agreements with existing clients or attract new clients or new business from existing clients on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth. In addition, certain of our existing clients may choose to license a new or different version of enterprise software from an enterprise software vendor, and such clients’ license agreements with the enterprise software vendor will typically include a minimum one-year mandatory maintenance and support services agreement. In such cases, it is unlikely that these clients would renew their maintenance and support services agreements with us, at least during the early term of the license agreement. In addition, such existing clients could move to another enterprise software vendor, product or release for which we do not offer any products or services.

If our retention rates decrease, or we do not accurately predict retention rates, our future revenue and results of operations may be harmed.

Our clients have no obligation to renew their product or service subscription agreements with us after the expiration of a non-cancelable agreement term. In addition, the majority of our multi-year, non-cancelable client agreements are not pre-paid other than the first year of the non-cancelable service period. We may not accurately predict retention rates for our clients. Our
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retention rates may decline or fluctuate as a result of a number of factors, including our clients’ decision to license a new product or release from an enterprise software vendor, our clients’ decision to move to another enterprise software vendor, product or release for which we do not offer products or services, the impact of the COVID-19 pandemic on our clients’ businesses, client satisfaction with our products and services, the acquisition of our clients by other companies, and clients going out of business. If our clients do not renew their agreements for our products and services or if our clients decrease the amount they spend with us, our revenue will decline and our business will suffer.

We face significant competition from both enterprise software vendors and other companies offering independent enterprise software support services, as well as from software licensees that attempt to self-support, which may harm our ability to add new clients, retain existing clients and grow our business.

We face intense competition from enterprise software vendors, such as Oracle and SAP, who provide software support services for their own products. Enterprise software vendors have offered discounts to companies to whom we have marketed our services. In addition, our current and potential competitors and enterprise software vendors may develop and market new technologies that render our existing or future services less competitive or obsolete. Competition could significantly impede our ability to sell our services on terms favorable to us and we may need to decrease the prices for our services in order to remain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our results of operations will be negatively affected.

There are also several smaller vendors in the independent enterprise software support services market with whom we compete with respect to certain of our services. We expect competition to continue to increase in the future, particularly if we prevail in Rimini II, which could harm our ability to increase sales, maintain or increase renewals and maintain our prices.

Our current and potential competitors may have significantly more financial, technical and other resources than we have, may be able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive customer bases and broader customer relationships than we have and may have longer operating histories and greater name recognition than we have. As a result, these competitors may be better able to respond quickly to new technologies and provide more robust support offerings. In addition, certain independent enterprise software support organizations may have or may develop more cooperative relationships with enterprise software vendors, which may allow them to compete more effectively over the long term. Enterprise software vendors may also offer support services at reduced or no additional cost to their customers. In addition, enterprise software vendors may take other actions in an attempt to maintain their support service business, including changing the terms of their customer agreements, the functionality of their products or services, or their pricing terms. For example, starting in the second quarter of 2017 Oracle has prohibited us from accessing its support websites to download software updates on behalf of our clients who are authorized to do so and permitted to authorize a third party to do so on their behalf. In addition, various support policies of Oracle and SAP may include clauses that could penalize customers that choose to use independent enterprise software support vendors or that, following a departure from the software vendor’s support program, seek to return to the software vendor to purchase new licenses or services. To the extent any of our competitors have existing relationships with potential clients for enterprise software products and support services, those potential clients may be unwilling to purchase our services because of those existing relationships. If we are unable to compete with such companies, the demand for our services could be substantially impacted.

Our past growth is not indicative of our future growth, and if we grow rapidly, we may not be able to manage our growth effectively.

Our revenue grew from $69.2 million for the three months ended September 30, 2019 to $82.5 million for the three months ended September 30, 2020, representing a period over period increase of 19%. Our revenue grew from $63.4 million for the three months ended September 30, 2018 to $69.2 million for the three months ended September 30, 2019, representing a period over period increase of 9%. Prior to the first quarter of 2020, we had been experiencing a decline in period over period revenue growth. The period over period decline in our revenue growth rates was due in part to covenants of our former Credit Facility that restricted our spending on sales and marketing activity that resulted in sequential reductions in new business activity during 2017 and the first half of 2018. An October 2017 amendment allowed us to increase our sales and marketing spending in the fourth quarter of 2017 and the first half of 2018. Due to the termination of the Credit Facility on July 19, 2018, we are no longer subject to restrictions related to our sales and marketing spending. However, even though we have increased our sales and marketing spending since the termination of the Credit Facility, it can take several quarters before these efforts translate to improved revenue growth rates. In addition, beginning in the second quarter of 2017 and continuing through 2018, some potential sales transactions were adversely affected by certain competitive actions that also impacted our revenue growth. You should not consider our past growth as indicative of our future performance. We believe growth of our revenue depends on a number of factors, including our ability to:

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price our products and services effectively so that we are able to attract new clients and retain existing clients without compromising our profitability;
introduce our products and services to new geographic markets;
introduce new enterprise software products and services supporting additional enterprise software vendors, products and releases;
satisfactorily conclude the Oracle litigation and any other litigation that may occur and our governmental inquiry; and
increase awareness of our company, products and services on a global basis.

We may not successfully accomplish all or any of these objectives. We plan to continue our investment in future growth. We expect to continue to expend substantial financial and other resources on, among others:

sales and marketing efforts;
training to optimize our opportunities to overcome litigation risk concerns of our clients;
expanding in new geographical areas;
growing our product and service offerings and related capabilities;
adding additional product and service offerings; and
general administration, including legal and accounting expenses related to being a public company.

In addition, our historical rapid growth has placed and may continue to place significant demands on our management and our operational and financial resources. Our organizational structure is becoming more complex as we add additional staff, and we will need to improve our operational, financial and management controls, as well as our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid innovation, teamwork and attention to client service that has been central to our growth.

Our failure to generate significant capital or raise additional capital necessary to fund and expand our operations and invest in new services and products could reduce our ability to compete and could harm our business.

We may need to raise additional capital beyond funds raised from our issuance and sale of Series A Preferred Stock and our August 2020 Offering if we cannot fund our growth sufficiently through our operating cash flows. Should this occur, we may not be able to obtain debt or additional equity financing on favorable terms, if at all. We are also subject to certain restrictions for future financings as discussed in the risk factor “Our Series A Preferred Stock and Convertible Notes restrict our ability to incur certain indebtedness, and the Convertible Notes contain additional restrictions and obligations that are currently effective or become effective upon certain events, which limit our flexibility in operating our business”. If we raise additional equity financing our stockholders may experience significant dilution of their ownership interests and the per share value of our Common Stock could decline. If we engage in debt financings, the holders of the debt securities would have priority over the holders of our Common Stock. We may also be required to accept terms that further restrict our ability to incur additional indebtedness, take other actions that would otherwise not be in the best interests of our stockholders, or force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations and financial condition. If we cannot raise additional capital on acceptable terms, we may not be able to, among other things:

maintain our operations;
develop or enhance our products and services;
continue to expand our sales and marketing functions;
devote resources to research and development activities;
acquire complementary technologies, products or businesses;
expand operations, in the United States or globally;
hire, train and retain employees; or
respond to competitive pressures or unanticipated working capital requirements.

Our failure to do any of these things could impact our ability to grow our revenue and seriously harm our business, financial condition and results of operations.

Our business may suffer if it is alleged or determined that our technology infringes the intellectual property rights of others.

The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual and proprietary rights. Companies in the software industry are often required to defend against claims and litigation alleging infringement or other violations of intellectual property rights. Many of our competitors and other industry participants have been issued patents and/or have filed patent applications and may assert patent or other intellectual
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property rights within the industry. From time to time, we may receive threatening letters or notices alleging infringement or may be the subject of claims that our services and underlying technology infringe or violate the intellectual property rights of others. Any allegation of infringement, whether innocent or intentional, can adversely impact marketing, sales and our reputation.

For example, as described further in the section titled “Risk Factors-Risks Related to Litigation” above, we are engaged in litigation with Oracle relating in part to copyright infringement claims. See the risk factor “We and our Chief Executive Officer are involved in litigation with Oracle. An adverse outcome in the ongoing litigation could result in the payment of substantial damages and/or an injunction against certain of our business practices, either of which could have a material adverse effect on our business and financial results” above for additional information regarding the Rimini I and Rimini II cases.

We rely on our management team and other key employees, including our Chief Executive Officer, and the loss of one or more key employees could harm our business.

Our success and future growth depend upon the continued services of our management team, including Seth Ravin, our Chief Executive Officer, and other key employees. Since 2008, Mr. Ravin has been under the regular care of a physician for kidney disease, which includes ongoing treatment. During this time, Mr. Ravin has continuously performed all of his duties as Chief Executive Officer of our company on a full-time basis. Although Mr. Ravin’s condition has not had any impact on his performance in his role as Chief Executive Officer or on the overall management of the Company, we can provide no assurance that his condition will not affect his ability to perform the role of Chief Executive Officer in the future. In addition, from time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. We may terminate any employee at any time, with or without cause, and any employee may resign at any time, with or without cause. We do not maintain key man life insurance on any of our employees. The loss of one or more of our key employees could harm our business.

The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.

To execute our business strategy, we must attract and retain highly qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In particular, we have experienced an extremely competitive hiring environment in the San Francisco Bay Area, where we have a significant amount of operations, but also face extremely competitive hiring environments across the United States and the other countries in which we operate. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines or experiences significant volatility, our ability to attract or retain qualified employees will be adversely affected. In addition, as we continue to expand into new geographic markets, there can be no assurance that we will be able to attract and retain the required management, sales, marketing and support services personnel to profitably grow our business. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.

Because we recognize revenue from subscriptions over the term of the relevant contract, downturns or upturns in sales are not immediately reflected in full in our results of operations.

As a subscription-based business, we recognize revenue over the service period of our contracts. As a result, much of our reported revenue each quarter results from contracts entered into during previous quarters. Consequently, while a shortfall in demand for our products and services or a decline in new or renewed contracts in any one quarter may not significantly reduce our revenue for that quarter, it could negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new sales, renewals or extensions of our service agreements will not be reflected in full in our results of operations until future periods. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new clients must be recognized over the applicable service contract term.

Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our client base and achieve broader market acceptance of our products and services.

Our ability to increase our client base and achieve broader market acceptance of our products and services will depend to a significant extent on our ability to expand our marketing and sales operations. We plan to continue expanding our sales force globally. These efforts will require us to invest significant financial and other resources. Moreover, our sales personnel typically take an average of between nine to twelve months before any new sales personnel can operate at the capacity typically
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expected of experienced sales personnel. This ramp cycle, combined with our typical six- to twelve-month sales cycle for engaged prospects, means that we will not immediately recognize a return on this investment in our sales department. In addition, the cost to acquire clients is high due to the cost of these marketing and sales efforts. Our business may be materially harmed if our efforts do not generate a correspondingly significant increase in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective.

Interruptions to or degraded performance of our service could result in client dissatisfaction, damage to our reputation, loss of clients, limited growth and reduction in revenue.

Our software support agreements with our clients generally guarantee a 15-minute response time with respect to certain high-priority issues. To the extent that we do not meet the 15-minute guarantee, our clients may in some instances be entitled to liquidated damages, service credits or refunds. To date, no such payments have been made.

We also deliver tax, legal and regulatory updates to our clients and generally have done so faster than our competitors. If there are inaccuracies in these updates, or if we are not able to deliver them on a timely basis to our clients, our reputation may be damaged, and we could face claims for compensation from our clients, lose clients, or both.

Any interruptions or delays in our service, whether as a result of third-party error, our own error, natural disasters, security breaches or a result of any other issues, whether accidental or willful, could harm our relationships with clients and cause our revenue to decrease and our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors, in turn, could further reduce our revenue, subject us to liability, cause us to pay liquidated damages, issue credits or cause clients not to renew their agreements with us, any of which could materially adversely affect our business.

We may experience fluctuations in our results of operations due to a number of factors, including the sales cycles for our products and services, which makes our future results difficult to predict and could cause our results of operations to fall below expectations or our guidance.

Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Historically, our sales cycle has been tied to the renewal dates for our clients’ existing and prior vendor support agreements for the products that we support. Because our clients make support vendor selection decisions in conjunction with the renewal of their existing support agreements with Oracle and SAP, among other enterprise software vendors, we have experienced an increase in business activity during the periods in which those agreements are up for renewal. Because we have introduced and intend to continue to introduce products and services for additional software products that do not follow the same renewal timeline or pattern, our past results may not be indicative of our future performance, and comparing our results of operations on a period-to-period basis may not be meaningful. Also, if we are unable to engage a potential client before its renewal date for software support services in a particular year, it will likely be at least another year before we would have the opportunity to engage that potential client again, given that such potential client likely had to renew or extend its existing support agreement for at least an additional year’s worth of service with its existing support provider. Furthermore, our existing clients generally renew their agreements with us at or near the end of each calendar year, so we have also experienced and expect to continue to experience heavier renewal rates in the fourth quarter. In addition to the other risks described herein, factors that may affect our quarterly results of operations include the following:

changes in spending on enterprise software products and services by our current or prospective clients;
pricing of our products and services so that we are able to attract and retain clients;
acquisition of new clients and increases of our existing clients’ use of our products and services;
client renewal rates and the amounts for which agreements are renewed;
budgeting cycles of our clients;
the occurrence of catastrophic events that may disrupt our business;
changes in the competitive dynamics of our market, including consolidation among competitors or clients;
the amount and timing of payment for operating expenses, particularly sales and marketing expenses and employee benefit expenses, as well as the quarterly Cash Dividends required to be made on our Series A Preferred Stock;
the amount and timing of non-cash expenses, including stock-based compensation, PIK Dividends on our Series A Preferred Stock and other non-cash charges;
the amount and timing of costs associated with recruiting, training and integrating new employees;
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the amount and timing of cash collections from our clients;
unforeseen costs and expenses related to the expansion of our business, operations, infrastructure and new products and services such as Application Management Services (AMS);
the amount and timing of our legal costs, particularly related to our litigation with Oracle;
changes in the levels of our capital expenditures; foreign currency exchange rate fluctuations; and
general economic and political conditions in our global markets, including pandemic and other catastrophic conditions outside our control.

We may not be able to accurately forecast the amount and mix of future product and service subscriptions, revenue and expenses, and as a result, our results of operations may fall below our estimates or the expectations of securities analysts and investors. If our revenue or results of operations fall below the expectations of investors or securities analysts, or below any guidance we may provide, the price of our Common Stock could decline.

Our future liquidity and results of operations may be adversely affected by the timing of new orders, the level of client renewals and cash receipts from clients.

Due to the collection of cash from our clients before services are provided, our revenue is recognized over future periods when there are no corresponding cash receipts from such clients. Accordingly, our future liquidity is highly dependent upon the ability to continue to attract new clients and to enter into renewal arrangements with existing clients. If we experience a decline in orders from new clients or renewals from existing clients, our revenue may continue to increase while our liquidity and cash levels decline. Any such decline, however, will negatively affect our revenues in future quarters. Accordingly, the effect of declines in orders from new clients or renewals from existing clients may not be fully reflected in our results of operations and cash flows until future periods. Comparing our revenues and operating results on a period-to-period basis may not be meaningful, as it may not be an indicator of the future sufficiency of our cash and cash equivalents to meet our liquidity requirements. You should not rely on our past results as an indication of our future performance or liquidity.

We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability, interest and/or penalties for past sales, which could adversely harm our business.

State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value-added and other taxes, and these rules and regulations can be complex and are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to our products and services in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus are complex and can vary significantly. As a result, we could face the possibility of tax assessments and audits, and our liability for these taxes and associated interest and penalties could exceed our original estimates. A successful assertion that we should be collecting additional sales, use, value-added or other taxes in those jurisdictions where we have not historically done so and in which we do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales, discourage clients from purchasing our products and services or otherwise harm our business and results of operations.

We may need to change our pricing models to compete successfully.

We currently offer our clients support services for a fee that is equal to a percentage of the annual fees charged by the enterprise software vendor, so changes in such vendors’ fee structures would impact the fees we would receive from our clients. If the enterprise software vendors offer deep discounts on certain services or lower prices generally, we may need to change our pricing models or suffer adverse effect on our results of operations. In addition, we have recently begun to offer new products and services and do not have substantial experience with pricing such products and services, so we may need to change our pricing models for these new products and services over time to ensure that we remain competitive and realize a return on our investment in developing these new products and services. If we do not adapt our pricing models as necessary or appropriate, our revenue could decrease and adversely affect our results of operations.

We may not be able to scale our business systems quickly enough to meet our clients’ growing needs, and if we are not able to grow efficiently, our results of operations could be harmed.

As enterprise software products become more advanced and complex, we will need to devote additional resources to innovating, improving and expanding our offerings to provide relevant products and services to our clients using these more advanced and complex products. In addition, we will need to appropriately scale our internal business systems and our global operations and client engagement teams to serve our growing client base, particularly as our client demographics expand over time. Any failure of or delay in these efforts could adversely affect the quality or success of our services and negatively impact client satisfaction, resulting in potential decreased sales to new clients and possibly lower renewal rates by existing clients.
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Even if we are able to upgrade our systems and expand our services organizations, any such expansion may be expensive and complex, requiring financial investments, management time and attention.

We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure. There can be no assurance that the expansion and improvements to our infrastructure and systems will be fully or effectively implemented within budgets or on a timely basis, if at all. Any failure to efficiently scale our business could result in reduced revenue and adversely impact our operating margins and results of operations.

We have experienced significant growth resulting in changes to our organization and structure, which if not effectively managed, could have a negative impact on our business.

Our headcount and operations have grown in recent years. We increased the number of full-time employees from over 1,220 as of September 30, 2019 to over 1,380 as of September 30, 2020. We believe that our corporate culture has been a critical component of our success. We have invested substantial time and resources in building our team and nurturing our culture. As we expand our business and operate as a public company, we may find it difficult to maintain our corporate culture while managing our employee growth. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact future growth and achievement of our business objectives.

In addition, our organizational structure has become more complex as a result of our significant growth. We have added employees and may need to continue to scale and adapt our operational, financial and management controls, as well as our reporting systems and procedures. The expansion of our systems and infrastructure may require us to commit additional financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase. If we fail to successfully manage our growth, we likely will be unable to successfully execute our business strategy, which could have a negative impact on our business, financial condition and results of operations.

Because our long-term growth strategy involves further expansion of our sales to clients outside the United States, our business will be susceptible to risks associated with global operations.

A significant component of our growth strategy involves the further expansion of our operations and client base outside the United States. Accordingly, our international revenue grew from $24.5 million for the three months ended September 30, 2019 to $34.4 million for the three months ended September 30, 2020, an increase of $9.8 million or 40%. We currently have subsidiaries outside of the United States in Australia, Brazil, UAE (Dubai), France, Germany, Hong Kong, India, Israel, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Poland, Singapore, Sweden, Taiwan and the United Kingdom, which focus primarily on selling our services in those regions.

In the future, we may expand to other locations outside of the United States. Our current global operations and future initiatives will involve a variety of risks, including:

changes in a specific country’s or region’s political or economic conditions;
the occurrence of catastrophic events that may disrupt our business;
changes in regulatory requirements, taxes or trade laws such as Brexit;
more stringent regulations relating to data security, such as where and how data can be housed, accessed and used, and the unauthorized use of, or access to, commercial and personal information;
differing labor regulations, especially in countries and geographies where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;
challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs as well as hire and retain local management, sales, marketing and support personnel, along with the ability to recapture costs to open up new geographies;
difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems;
increased logistics, travel, real estate, infrastructure and legal compliance costs associated with global operations;
currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we choose to do so in the future;
limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
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laws and business practices favoring local competitors or general preferences for local vendors;
limited or insufficient intellectual property protection;
political instability or terrorist activities;
exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions; and
adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

Our limited experience in operating our business globally and the unique challenges of each new geography increase the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to expand our global operations and are unable to do so successfully and in a timely manner, our business and results of operations will be adversely affected.

If we fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our results of operations and liquidity could be adversely affected.

Because our recent growth has resulted in the rapid expansion of our business, we do not have a long history upon which to base forecasts of future operating revenue. In addition, the variability of the sales cycle for the evaluation and implementation of our products and services, which typically has been six to twelve months once a client is engaged, may also cause us to experience a delay between increasing operating expenses for such sales efforts, and the generation of corresponding revenue. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of delays arising from these factors. As a result, our results of operations and liquidity in future reporting periods may be significantly below the expectations of the public market, securities analysts or investors, which could negatively impact the price of our Common Stock.

Consolidation in our target sales markets is continuing at a rapid pace, which could harm our business in the event that our clients are acquired and their agreements are terminated, or not renewed or extended.

Consolidation among companies in our target sales markets has been robust in recent years, and this trend poses a risk for us. If such consolidation continues, we expect that some of the acquiring companies will terminate, renegotiate and elect not to renew our agreements with the clients they acquire, which may have an adverse effect on our business and results of operations.

If there is a widespread shift by clients or potential clients to enterprise software vendors, products and releases for which we do not provide software products or services, our business would be adversely impacted.

Our current revenue is primarily derived from the provision of support services for Oracle and SAP enterprise software products. If other enterprise software vendors, products and releases emerge to take substantial market share from current Oracle and SAP products and releases we support, and we do not provide products or services for such vendors, products or releases, demand for our products and services may decline or our products and services may become obsolete. Developing new products and services to address different enterprise software vendors, products and releases could take a substantial investment of time and financial resources, and we cannot guarantee that we will be successful. If fewer clients use enterprise software products for which we provide products and services, and we are not able to provide services for new vendors, products or releases, our business may be adversely impacted.

Delayed or unsuccessful investment in new technology, products, services and markets may harm our financial condition and results of operations.

We plan to continue investing resources in research and development in order to enhance our current product and service offerings, and other new offerings that will appeal to clients and potential clients, for example, our partnership with Salesforce to support SaaS solutions and our Application Management Services (AMS) for SAP and Oracle products. The development of new product and service offerings could divert the attention of our management and our employees from the day-to-day operations of our business, the new product and service offerings may not generate sufficient revenue to offset the increased research and development expenses, they may not generate gross profit margins consistent with our current margins, and if we are not successful in implementing the new product and service offerings, we may need to write off the value of our investment. Also, these new product and service offerings may be in markets that are more competitive than markets for our existing product and service offerings, making it more difficult to introduce them to clients and potential clients effectively or provide them profitably. Furthermore, if our new or modified products, services or technology do not work as intended, are not responsive to client needs or industry or regulatory changes, are not appropriately timed with market opportunity, or are not
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effectively brought to market, we may lose existing and prospective clients or related opportunities, in which case our financial condition and results of operations may be adversely impacted.

If our data security measures are compromised or unauthorized access to or misuse of client data occurs, our services may be perceived as not being secure, clients may curtail or cease their use of our services, our reputation may be harmed, and we may incur significant liabilities. Further, we are subject to governmental and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.

Our services sometimes involve accessing, processing, sharing, using, storing and transmitting proprietary information and protected data of our clients. We rely on proprietary and commercially available systems, software, tools and monitoring, as well as other processes, to provide security for accessing, processing, sharing, using, storing and transmitting such information and data. If our security measures are compromised as a result of third-party action, employee, vendor or client error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation could be damaged, our business and our clients may be harmed, and we could incur significant liabilities. In particular, cyberattacks, such as phishing, continue to increase in frequency and in magnitude generally, and these threats are being driven by a variety of sources, including nation-state sponsored espionage and hacking activities, industrial espionage, organized crime, sophisticated organizations and hacking groups and individuals. In addition, if the security measures of our clients are compromised, even without any actual compromise of our own systems or security measures, we may face negative publicity or reputational harm if our clients or anyone else incorrectly attributes the blame for such security breaches to us, our products and services, or our systems. We may also be responsible for repairing any damage caused to our clients’ systems that we support, and we may not be able to make such repairs in a timely manner or at all. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our client base and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our systems or security measures or gain unauthorized access to our clients’ proprietary information and protected data.

Many governments have enacted laws requiring companies to notify individuals of data security incidents involving certain types of personal data. In addition, some of our clients contractually require notification of any data security compromise. In the event of a data security compromise, we may have difficulty timely complying with notification requirements that are unreasonably short or burdensome. Security compromises experienced by our clients, by our competitors or by us may lead to public disclosures, which may lead to widespread negative publicity. Any data security compromise in our industry, whether actual or perceived, could harm our reputation, erode client confidence in the effectiveness of our security measures, negatively impact our ability to attract new clients, cause existing clients to elect not to renew their agreements with us, or subject us to third party lawsuits, government investigations, regulatory fines or other action or liability, all or any of which could materially and adversely affect our business, financial condition and results of operations.

We cannot assure you that any limitations of liability provisions in our contracts for a security breach would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of substantial deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and results of operations.

As a global company, we are subject to the laws and regulations of numerous jurisdictions worldwide regarding accessing, processing, sharing, using, storing, transmitting, disclosure and protection of personal data, the scope of which are constantly changing, subject to differing interpretation, and may be inconsistent between countries or in conflict with other laws, legal obligations or industry standards. For example, the General Data Protection Regulation (GDPR), which came into effect in the European Union (EU) on May 25, 2018, creates a broad range of new compliance requirements and imposes substantial penalties for non-compliance, including possible fines of up to 4% of global annual revenue for the preceding financial year or €20 million (whichever is higher) for the most serious infringements. We are also subject to certain requirements of the California Consumer Privacy Act of 2018, which came into effect on January 1, 2020 and which adds to the range of privacy-related compliance requirements. We generally comply with industry standards and strive to comply with all applicable laws and other legal obligations relating to privacy and data protection, but it is possible that these laws and legal obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with industry standards or our practices or may be mandated at a pace that exceeds our ability to comply. Compliance with such laws and other legal obligations may be costly and may require us to modify our business practices, which could adversely affect our business and profitability. Any failure or perceived failure by us to comply with these laws, policies or other
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obligations may result in governmental enforcement actions or litigation against us, potential fines and other expenses related to such governmental actions, result in an order requiring that we change our data practices or business practices, and could cause our clients to lose trust in us, any of which could have an adverse effect on our business.

If our products and services fail due to defects or similar problems, and if we fail to correct any defect or other software problems, we could lose clients, become subject to service performance or warranty claims or incur significant costs.

Our products and services and the systems infrastructure necessary for the successful delivery of our products and services to clients are inherently complex and may contain material defects or errors. We have from time to time found defects in our products and services and may discover additional defects in the future. In particular, we have developed our own tools and processes to deliver comprehensive tax, legal and regulatory updates tailored for each client, which we endeavor to deliver to our clients in a shorter timeframe than our competitors, which may result in an increased risk of material defects or errors. We may not be able to detect and correct defects or errors before clients begin to use our products and services. Consequently, defects or errors may be discovered after our products and services are provided and used. These defects or errors could also cause inaccuracies in the data we collect and process for our clients, or even the loss, damage or inadvertent release of such confidential data. Even if we are able to implement fixes or corrections to our tax, legal and regulatory updates in a timely manner, any history of defects or inaccuracies in the data we collect for our clients, or the loss, damage or inadvertent release of such confidential data could cause our reputation to be harmed, and clients may elect not to renew, extend or expand their agreements with us and subject us to service performance credits, warranty or other claims or increased insurance costs. The costs associated with any material defects or errors in our products and services or other performance problems may be substantial and could materially adversely affect our financial condition and results of operations.

We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from reporting and disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We expect to continue to have such reporting status until the end of 2020. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the market prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the market prices of our securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

If we are not able to maintain an effective system of internal control over financial reporting, current and potential investors could lose confidence in our financial reporting, which could harm our business and have an adverse effect on our stock price.

As reported in prior years, we have had material weaknesses in our internal control over financial reporting. In connection with the audit of our consolidated financial statements for the years ended December 31, 2016 and 2015, management determined that we had several material weaknesses in our internal control over financial reporting. The material weaknesses related to the following:

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inadequate controls in relation to recognition of liabilities for embedded derivatives in connection with our former Credit Facility (2016);
inadequate controls in relation to revenue recognition from support service sales contracts whereby we incorrectly accounted for multi-year, non-cancelable support service sales contracts as a single delivery arrangement and incorrectly accounting for revenue for certain non-standard contract provisions (2015 and 2016);
various sales tax control matters related to manual processes and determination of tax liabilities in certain states (2015); and
inadequate controls for accrual of loss contingencies related to our litigation with Oracle (2015).

Although we remediated these material weaknesses during the years ended December 31, 2017 and 2016, we cannot provide assurance that material weaknesses in our internal control over financial reporting will not be identified in the future.

For the year ended December 31, 2019, our management was required to conduct an annual evaluation of our internal control over financial reporting and include a report of management on our internal control in our annual report on Form 10-K. As of December 31, 2019, we have concluded that our internal control over financial reporting was effective.

With respect to controls over revenue accounting procedures, we intend to continue to work on automating our processes, especially around the new FASB revenue accounting standard, as well as to continue to enhance our review processes around new and renewal contracts. In addition, we will be required to have our independent public accounting firm attest to and report on management’s assessment of the effectiveness of our internal control over financial reporting when we cease qualifying as an “emerging growth company” pursuant to the JOBS Act. If we are unable to conclude that we have effective internal control over financial reporting or, if our independent auditors are unable to provide us with an attestation and an unqualified report as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities. For further information regarding our controls and procedures, see Part I, Item 4 of this Report.

Economic uncertainties or downturns in the general economy or the industries in which our clients operate could disproportionately affect the demand for our products and services and negatively impact our results of operations.

General worldwide economic conditions have experienced significant fluctuations in recent years, and market volatility and uncertainty remain widespread, with the expectation that economic challenges and possible recession will be exacerbated for an extended period in the wake of COVID-19. As a result, we and our clients find it extremely difficult to accurately forecast and plan future business activities. In addition, these conditions could cause our clients or prospective clients to reduce their IT budgets, which could decrease corporate spending on our products and services, resulting in delayed and lengthened sales cycles, a decrease in new client acquisition and loss of clients. Furthermore, during challenging economic times, our clients may face issues with their cash flows and in gaining timely access to sufficient credit or obtaining credit on reasonable terms, which could impair their ability to make timely payments to us, impact client renewal rates and adversely affect our revenue. If such conditions occur, we may be required to increase our reserves, allowances for doubtful accounts and write-offs of accounts receivable, and our results of operations would be harmed. We cannot predict the timing, strength or duration of any economic slowdown or recovery, whether global, regional or within specific markets. If the conditions of the general economy or markets in which we operate worsen, our business could be harmed. In addition, even if the overall economy improves, the market for our products and services may not experience growth. Moreover, recent events, including the United Kingdom’s exit from the European Union (“Brexit”), change in U.S. trade policies and responsive changes in policy by foreign jurisdictions, governmental and multinational organizations' responses to the COVID-19 pandemic and similar geopolitical developments and uncertainty in the European Union and elsewhere have increased levels of political and economic unpredictability globally, and may increase the volatility of global financial markets and the global and regional economies.

Catastrophic events may disrupt our business.

We rely heavily on our network infrastructure and information technology systems for our business operations. A disruption or failure of these systems in the event of online attack, earthquake, fire, terrorist attack, power loss, telecommunications failure, extreme weather conditions (such as hurricanes, wildfires or floods) or other catastrophic event could cause system interruptions, delays in accessing our service, reputational harm, loss of critical data or could prevent us from providing our products and services to our clients. In addition, several of our employee groups reside in areas particularly susceptible to earthquakes, such as the San Francisco Bay Area and Japan, and a major earthquake or other catastrophic event could affect our employees, who may not be able to access our systems, or otherwise continue to provide our services to our clients. A catastrophic event that results in the destruction or disruption of our data centers, or our network infrastructure or information technology systems, or access to our systems could affect our ability to conduct normal business operations and
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adversely affect our business, financial condition and results of operations. Additionally, the emergence or spread of a pandemic or other widespread health emergency (or concerns over and response to the possibility of such an emergency), including COVID-19, that causes any of our employee groups to become ill, quarantined or otherwise unable to work and/or travel due to health reasons or governmental or client corporate restrictions, or causes our clients to have ill or logistically restricted workforces, or who choose to cease or delay meetings with us or decisions regarding engaging our services could adversely affect our business, financial condition and results of operations.

If we fail to enhance our brand, our ability to expand our client base will be impaired and our financial condition may suffer.

We believe that our development of the Rimini Street brand is critical to achieving widespread awareness of our products and services, and as a result, is important to attracting new clients and maintaining existing clients. We also believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable products and services at competitive prices, as well as the outcome of our ongoing litigation with Oracle. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, our business could be adversely impacted.

If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary products, services, knowledge, software tools and processes. We rely on a combination of copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our copyrights, trademarks, service marks, trade secret rights or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy or use information that we regard as proprietary to create products and services that compete with ours. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our global activities, our exposure to unauthorized copying and use of our processes and software tools may increase.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our proprietary intellectual property. Further, these agreements may not prevent our competitors from independently developing products and services that are substantially equivalent or superior to our products and services.

Although we have been successful in the past, there can be no assurance that we will receive any additional patent protection for our proprietary software tools and processes. Even if we were to receive patent protection, those patent rights could be invalidated at a later date. Furthermore, any such patent rights may not adequately protect our processes, our software tools or prevent others from designing around our patent claims.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our products, processes and software tools against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products and services, impair the functionality of our products and services, delay introductions of new products and services, result in our substituting inferior or more costly technologies into our products and services, or injure our reputation.

We may not be able to use a significant portion of our net operating loss carryforwards, which could adversely affect our profitability.

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We have U.S. federal and state net operating loss carryforwards due to prior period losses, which could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws in the United States. While our ownership changes to date have not triggered any limitations under Section 382, it is possible that any future ownership changes or issuances of our capital stock, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.

We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.

As a multinational organization, we may be subject to taxation in several jurisdictions worldwide with increasingly complex tax laws, the application of which can be uncertain. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. As such, our results may differ from previous estimates and may materially affect our financial position.

The amount of taxes we pay in jurisdictions in which we operate could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations.

Future acquisitions, strategic investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our financial condition and results of operations.

We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our services, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. If we acquire businesses, we may not be able to integrate successfully the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target or obtain adequate financing to complete such acquisitions. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if an acquired business fails to meet our expectations, our business, financial condition and results of operations may be adversely affected.

Failure to comply with laws and regulations could harm our business.

Our business is subject to regulation by various global governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, securities laws and tax laws and regulations. For example, transfer of certain software outside of the United States or to certain persons is regulated by export controls.

In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions and may result in our inability to provide certain products and services to prospective clients or clients. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, or if clients made claims against us for compensation, our business, financial condition and results of operations could be harmed. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees and costs. Enforcement actions and sanctions could further harm our business, financial condition and results of operations.

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Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations.

Generally accepted accounting principles in the United States are subject to interpretation by the FASB, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and will likely occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by us as of the specified effective date. For example, in May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition standards under U.S. GAAP. In addition, the FASB issued ASU No. 2016-02, Leases, in February 2016, which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than twelve months. For the impact on our financial position or results of operations upon adoption of recently issued accounting standards that are not yet effective and our plans for adoption of those standards, please refer to the section titled Recent Accounting Pronouncements under Note 2 to our consolidated financial statements included in Part I, Item 1 of this Report.

Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our Common Stock.

Securities research analysts may establish and publish their own periodic projections for us. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our share price or trading volume could decline. If no analysts commence coverage of us, the market price and volume for our common shares could be adversely affected.

Risks Related to Capitalization Matters and Corporate Governance

Risks Related to our Preferred Stock and Common Stock, Warrants and Units

Our Series A Preferred Stock and their related Convertible Notes restrict our ability to incur certain indebtedness, and the Convertible Notes contain additional restrictions and obligations that are currently effective or become effective upon certain events, which limit our flexibility in operating our business.

While a specified minimum number of shares of Series A Preferred Stock or, if applicable, principal amount of Convertible Notes remain outstanding, holders owning a majority of the then outstanding shares of Series A Preferred Stock or principal outstanding under the Convertible Notes must consent to the issuance of debt other than “permitted indebtedness” which means (i) unsecured indebtedness, (ii) indebtedness classified and accounted for as capital leases in an aggregate amount not to exceed $3.5 million at any time outstanding, (iii) indebtedness with respect to credit cards and similar services or in respect of guarantees to clients or suppliers in the ordinary course of business, (iv) secured indebtedness assumed when a person becomes our subsidiary, provided that such secured indebtedness was not incurred in contemplation of such acquisition, merger or consolidation, such liens do not attach to our assets other than the assets subject to such lien at the time of the transaction, and in any event does not exceed $3.0 million at any time outstanding, and (v) indebtedness secured by a lien not to exceed $1.0 million at any time outstanding, which (i) through (v) in the aggregate may not exceed the greater of (x) $20.0 million or (y) 5% of U.S. GAAP revenue (calculated on a quarterly basis as set forth in our annual report on Form 10-K or our quarterly reports on Form 10-Q, as applicable), for the 12 month period ending at the quarter-end immediately prior to the incurrence of such indebtedness.

The Convertible Notes contain customary covenants, including among others, a prohibition on the disposal (by merger, consolidation, liquidation or otherwise) of all or any part of our business, assets or property, subject to certain exceptions (i.e., sales of inventory in the ordinary course of business, non-exclusive licenses, etc.), and from the date upon which there is a redemption event causing redemption obligations to become principal under the Convertible Notes, restrictions on our ability to make certain payments with respect to its capital stock, subordinated and unsecured indebtedness and, at the option of a holder of a Convertible Note, requirements to deliver certain financial information to the holders at specified intervals, among others.

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Upon the occurrence of an event of default under the Convertible Notes, the Noteholders would have the right to accelerate all of our obligations under the Convertible Notes, which obligations will immediately become due and payable. If such acceleration occurs prior to July 19, 2021, the Noteholders will also be entitled to a make-whole premium that provides full yield maintenance as if the Convertible Notes were held for a full three years through that date.

The terms of the Convertible Notes may impact our alternatives to finance its business, which could limit its ability to fund its growth. Further, full acceleration of the Convertible Notes may occur at a time when we are unable to pay all obligations, and thus subjecting us to the risk of liquidation or bankruptcy if such acceleration occurs.

The price of our Common Stock, warrants and units may be volatile.

The price of our Common Stock, warrants and units may fluctuate due to a variety of factors, including:

developments in our continuing litigation with Oracle;
actions that may be taken by our holders of Series A Preferred Stock and the Convertible Notes;
any future equity or debt financing by us;
our ability to pay cash dividends payable on our Series A Preferred Stock or to effectively service any outstanding debt obligations;
the announcement of new products or product enhancements by us or our competitors;
developments concerning intellectual property rights;
changes in legal, regulatory and enforcement frameworks impacting our products;
developments in the governmental inquiry instituted in March 2018 and any legal proceedings instituted involving us, if any, from such inquiry;
variations in our and our competitors’ results of operations;
the addition or departure of key personnel;
announcements by us or our competitors of acquisitions, investments or strategic alliances;
actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry
the level and changes in our year-over-year revenue growth rate;
the failure of securities analysts to publish research about us, or shortfalls in our results of operations compared to levels forecast by securities analysts;
any delisting of our Common Stock from Nasdaq Global Market (“Nasdaq”) due to any failure to meet listing requirements;
our Public Warrants and units are quoted on the OTC Pink Current Information Marketplace which is a significantly more limited market than Nasdaq; and
the general state of the securities market.

These market and industry factors may materially reduce the market price of our Common Stock, regardless of our operating performance.

Our preferred stockholders and certain of our common stockholders can exercise significant control, which could limit your ability to influence the outcome of key transactions, including a change of control.

Based on the number of shares of Common Stock and Series A Preferred Stock outstanding as of September 30, 2020, eleven of our stockholders have aggregate voting power of 69.4% of our outstanding capital stock. As of September 30, 2020, on an as-converted basis, (i) approximately 27.9% of our outstanding voting capital stock is held by Adams Street Partners LLC and certain Adams Street fund limited partnerships (“ASP”), (ii) approximately 14.2% of our outstanding voting capital stock is beneficially owned by Seth Ravin, our Chief Executive Officer, (iii) approximately 8.5% of our outstanding voting capital stock is beneficially owned by GPIC Ltd., and (iv) the remaining holders of our Series A Preferred Stock have aggregate voting power representing approximately 18.7% of our outstanding voting capital stock. Holders of our Series A Preferred Stock are entitled to vote their shares on an as-converted basis on all matters submitted to a vote of stockholders and to convert their shares into Common Stock at any time, which amounts will increase as in-kind dividends are paid through the issuance of additional shares of Series A Preferred Stock. Additionally, holders of our Series A Preferred Stock are required to approve certain matters as a class, voting separately from the Common Stock, such as dividends or distributions on our Common Stock, purchase or redemption of our Common Stock, certain amendments to our Certificate of Incorporation or Certificate of Designations that adversely affect the rights of the preferred stockholders, and authorization of the creation or issuance of any pari passu or senior securities. Our directors and officers or persons affiliated with our directors and officers have aggregate voting power of approximately 52.1% as of September 30, 2020.

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As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

Future resales of our Common Stock held by our significant stockholders or of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock may cause the market price of our Common Stock to drop significantly.

We registered for resale the shares of Common Stock issued in the Initial Private Placement, the March 2019 Private Placement and the June 2019 Private Placement, and the shares of Common Stock issuable upon conversion of, or issued as dividends upon, the Series A Preferred Stock or Convertible Notes, and are obligated to take certain actions to facilitate the transfer and sale of such shares. Upon such registration, the shares of Common Stock became freely salable. Additional shares of Series A Preferred Stock are authorized for issuance and may be issued in the future, subject to substantively similar rights. The Common Stock issuable upon conversion of our Series A Preferred Stock may represent overhang that may also adversely affect the market price of our Common Stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for that stock. When this happens, the price of our stock will decrease, and any additional shares which stockholders attempt to sell in the market, or the perception that such sales might occur, will only further decrease the share price. If the share volume of our Common Stock cannot absorb converted shares sold by the holders of the Series A Preferred Stock, then the value of our Common Stock will likely decrease.

Any sale of large amounts of our Common Stock on the open market or in privately negotiated transactions could have the effect of increasing the volatility in the price of our Common Stock or putting significant downward pressure on the price of our Common Stock.

Any issuance of Common Stock upon conversion of the Series A Preferred Stock and/or exercise of warrants will cause dilution to existing stockholders and may depress the market price of our Common Stock.

Each share of our Series A Preferred Stock is initially convertible, at the option of the holders, into 100 shares of our Common Stock (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or other similar recapitalization) for an aggregate of 15.9 million shares of Common Stock as of September 30, 2020 for the Series A Preferred Stock and is generally convertible at a conversion price equal to the quotient of its liquidation preference and $10.00. The Series A Preferred Stock also has a payment-in-kind dividend that will increase the number of shares of Common Stock into which the Series A Preferred Stock will be convertible while it remains outstanding. We have the right to convert outstanding Series A Preferred Stock into Common Stock after July 19, 2021 if our volume weighted average stock price for at least 30 trading days of the 45 consecutive trading days immediately preceding such conversion is greater than $11.50 per share. We can exercise this right to convert twice per calendar year for a maximum number of shares of Common Stock that has publicly traded over the 60 consecutive trading days prior to the conversion date (less any shares of Common Stock that have been issued pursuant to any such conversion during such 60-day period).

The issuance of Common Stock upon conversion of the Series A Preferred Stock may result in immediate and substantial dilution to the interests of our Common Stock holders since the holders of the Series A Preferred Stock may ultimately receive and sell all of shares issuable in connection with the conversion of such Series A Preferred Stock.

Further, the issuance of Common Stock upon exercise of warrants may result in immediate and substantial dilution to the equity interests of our existing common stockholders and might result in dilution in the tangible net book value of a share of a Common Stock, depending upon the price on which the additional shares are issued.

We do not currently intend to pay dividends on our Common Stock and, consequently, the ability to achieve a return on investment in our Common Stock will depend on appreciation in the price of our Common Stock.

We have not paid any cash dividends on our Common Stock to date. The payment of any cash dividends on our Common Stock will be dependent upon our revenue, earnings and financial condition from time to time. The payment of any dividends will be within the discretion of our Board of Directors and, in certain circumstances, would require us to obtain the consent of and to pay a corresponding dividend to holders of our shares of Series A Preferred Stock. It is presently expected that except for the cash dividends we are obligated to pay to the holders of our Series A Preferred Stock, we will retain all earnings for use in our business operations and, accordingly, it is not expected that our Board of Directors will declare any dividends on our Common Stock in the foreseeable future. Our ability to declare dividends on our Common Stock may also be limited by the terms of financing and other agreements entered into by us or our subsidiaries from time to time. Therefore, you are not likely to receive any dividends on your Common Stock for the foreseeable future and the success of an investment in
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shares of our Common Stock will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of our Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

We may seek to engage in transactions in the future in respect of our outstanding Preferred stock, warrants or units, the result of which may also trigger some dilution and not achieve an improved capital structure.

The DGCL and our certificate of incorporation and bylaws and certificate of designations of our Series A Preferred Stock contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.

Our certificate of incorporation and bylaws, and Delaware General Corporation Law (the "DGCL"), contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our Board of Directors and therefore depress the trading price of our Common Stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of our Board of Directors or taking other corporate actions, including effecting changes in our management. Among other things, our certificate of incorporation and bylaws include provisions regarding:

a classified Board of Directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our Board of Directors;
the ability of our Board of Directors to issue shares of preferred stock, including “blank check” preferred stock, and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer, pursuant to which we have issued Series A Preferred Stock entitled to receive a liquidation preference and certain amounts in connection with a change of control of the Company and other similar extraordinary transactions;
the limitation of the liability of, and the indemnification of our directors and officers;
the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board of Directors;
the requirement that directors may only be removed from our Board of Directors for cause;
a prohibition on common stockholder action by written consent, which forces common stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors;
the requirement that a special meeting of stockholders may be called only by our Board of Directors, the chairperson of our Board of Directors, our chief executive officer or our president (in the absence of a chief executive officer), which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors;
controlling the procedures for the conduct and scheduling of Board of Directors and stockholder meetings;
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of our certificate of incorporation or our bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board of Directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
the ability of our Board of Directors to amend the bylaws, which may allow our Board of Directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board of Directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our Board of Directors or management.

In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the DGCL, which may prohibit certain stockholders holding 15% or more of our outstanding capital stock from engaging in certain business combinations with us for a specified period of time.
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Any provision of our certificate of incorporation, bylaws or DGCL that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Common Stock.

Our bylaws designate a state or federal court located within the State of Delaware as the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, stockholders, employees or agents.

Our bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for:

any derivative action or proceeding brought on behalf of us;
any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers or other employees;
any action asserting a claim against us or any of our directors, officers or employees arising out of or relating to any provision of the DGCL, our certificate of incorporation or our bylaws; or
any action asserting a claim against us or any of our directors, officers, stockholders or employees that is governed by the internal affairs doctrine of the Court of Chancery.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition. This choice of forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act.

Other Risks Related to our Series A Preferred Stock and Convertible Notes

Our Series A Preferred Stock and related Convertible Notes have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of our Series A Preferred Stock and Convertible Notes differing from those of our common stockholders.

In the event of our liquidation, dissolution or the winding up of our affairs, the holders of our Series A Preferred Stock have the right to receive a liquidation preference (the “Liquidation Preference”) entitling them to be paid out of our assets generally available for distribution to our equity holders, before any payment may be made to holders of any other class or series of capital stock, in an amount equal to the greater of (i) $1,000 plus accrued but unpaid dividends and (ii) the per share amount of all cash, securities and other property to be distributed in respect of the Common Stock such holder would have been entitled to receive for its Series A Preferred Stock on an as-converted basis. In the event of a liquidation, dissolution or winding up of our affairs prior to July 19, 2021, the holders of Series A Preferred Stock are entitled to a make-whole premium that provides them with full yield maintenance as if the shares of Series A Preferred Stock were held for a full three years through that date. To the extent principal amounts become outstanding under our Convertible Notes, such notes are entitled to similar preferential amounts upon such events.

In addition, the holders of our Series A Preferred Stock are entitled to (i) Cash Dividends of 10.0% per annum payable quarterly in arrears, and (ii) PIK Dividends of 3.0% per annum. The PIK dividend is accrued quarterly in arrears for the first five years following the issuance of the Series A Preferred Stock and thereafter all Dividends accruing on such Series A Preferred Stock will be payable in cash at a rate of 13.0% per annum. To the extent principal amounts become outstanding under our Convertible Notes, such Convertible Notes are entitled to substantially the same payments in the form of interest (in lieu of dividends) payments.

Further, the holders of our Series A Preferred Stock also have redemption rights upon the occurrence of certain events upon which obligations in respect of the Series A Preferred Stock become principal amounts under the Convertible Notes. Specifically, the Series A Preferred Stock is mandatorily redeemable, upon the election by the holders of a majority of the then-outstanding shares of Series A Preferred Stock, on or after July 19, 2023 at a redemption price per share equal to the sum of (i) the Liquidation Preference per share plus (ii) an amount per share equal to accrued but unpaid dividends not previously added to the Liquidation Preference on such share of Series A Preferred Stock (the “Redemption Amount”). Any and all then-outstanding liquidation value of the Series A Preferred Stock plus any capitalized or unpaid accrued Dividends not previously
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included in the Liquidation Preference (the “Redemption Amount”) will be repaid in full in cash on such redemption date or satisfied in the form of obligations under the Convertible Notes issued concurrently with the issuance of the Series A Preferred Stock to collateralize amounts, if any, that may become payable by us pursuant to certain redemption provisions of the shares of Series A Preferred Stock. The Series A Preferred Stock will also become mandatorily redeemable by the holders at any time upon the reasonable determination of the holders of a majority of the Series A Preferred Stock then outstanding of the occurrence of a Material Adverse Effect or upon a Material Litigation Effect (as such terms are defined in the Certificate of Designations for the Series A Preferred Stock), with the Redemption Amounts automatically becoming payment obligations pursuant to the Convertible Notes with a concurrent cancellation of the shares of the Series A Preferred Stock.

Finally, prior to or on July 19, 2021, we will have the right to redeem up to $80.0 million of shares of the Series A Preferred Stock for cash amounts equal to the Redemption Amount which would include a make-whole premium that provides the holders thereof with full yield maintenance as if the Series A Preferred Stock was held for three years after the initial issuance of the Series A Preferred Stock through that date, subject to certain conditions and limitations. After such time, we will have the right to redeem shares of Series A Preferred Stock for a cash per share amount equal to the Redemption Amount subject to certain conditions.

These Dividend and Redemption Amount payment obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The preferential rights described above could also result in divergent interests between the holders of shares of Series A Preferred Stock or Convertible Notes and the holders of our Common Stock.

Our ability to pay Cash Dividends on the Series A Preferred Stock may be limited under Delaware law or we may not have sufficient cash to pay Dividends to the holders of our Series A Preferred Stock or pay our redemption obligations (and potential Convertible Note payments) due upon the occurrence of a redemption event.

Under the DGCL, our Board of Directors may only declare and pay cash dividends on shares of our capital stock out of our statutory “surplus” (which is the amount equal to total assets minus total liabilities, in each case at fair market value, minus statutory capital), or if there is no such surplus, out of our net profits for the then current and/or immediately preceding fiscal year. However, even if we are permitted under Delaware law to declare and pay Cash Dividends on the Series A Preferred Stock, we may not have sufficient cash to declare and pay Dividends in cash on the shares of Series A Preferred Stock or pay the Redemption Amounts due upon the occurrence of certain redemption events, causing there to be outstanding obligations under the Convertible Notes. The Convertible Notes contain customary restrictions on our ability to, among other things, make certain restricted payments with respect to our capital stock, subordinated indebtedness and unsecured indebtedness, consummate certain mergers, consolidations or dissolutions and make certain dispositions, subject to specific exclusions. The Convertible Notes also include customary obligations in respect of inspection, reporting, preservation of the security interest and indemnification.

Upon the occurrence of an Event of Default (as defined in the Convertible Notes), the holders of such Convertible Notes will have the right to accelerate all of our obligations thereunder, and such obligations will become immediately due and payable. In addition, if such acceleration occurs prior to July 19, 2021, the holders will also have the right to receive a make-whole premium thereunder.

If the indebtedness under the Convertible Notes were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full and we could be forced into bankruptcy or liquidation.

There is no market for the Series A Preferred Stock or Convertible Notes and their value will be directly affected by the market price of our Common Stock, which may be volatile.

The Series A Preferred Stock has no established trading market and is not listed on any securities exchange, and we have no intention to list the Series A Preferred Stock on any securities exchange. Additionally, the Convertible Notes issued in respect of the redemption obligations for the Series A Preferred Stock are only transferable with the related shares of Series A Preferred Stock until certain events occur. To the extent that a secondary market for the Series A Preferred Stock develops, we believe that the market price of the Series A Preferred Stock will be significantly affected by the market price of our Common Stock. We cannot predict how shares of our Common Stock will trade in the future. The trading price of our Common Stock has been and is likely to continue to be volatile. The risk factors described elsewhere or incorporated by reference herein may cause the price of our Common Stock to fluctuate. In addition, the stock market has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of affected companies. Securities
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class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. These broad market fluctuations may adversely affect the market prices of our Common Stock, and, in turn, the value of the Series A Preferred Stock and Convertible Notes.


ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
    There were no sales of unregistered shares of the Company's securities during the quarter. The Company issued PIK Dividends as disclosed in Note 5 to the unaudited condensed financial statements included in Part I, Item I of this Report in satisfaction of the Company’s obligations as previously disclosed by the Company.

ITEM 3. Defaults Upon Senior Securities.
 
    None.
 
ITEM 4. Mine Safety Disclosures.
 
    Not applicable.

ITEM 5. Other Information.
 
    None.
 
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ITEM 6. Exhibits.
 
    The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
  Incorporated by Reference
Exhibit
Number
DescriptionFormFile No.ExhibitFiling Date
4.1*8-K001-373974.1December 13, 2017
10.1*+8-K001-3739710.1October 1, 2020
10.2*8-K001-3739710.1November 2, 2020
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101
____________________
† Filed herewith.
* Previously filed and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement.
67


SIGNATURES
 
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 RIMINI STREET, INC.
  
Date: November 5, 2020
/s/ Seth A. Ravin
 Name: Seth A. Ravin
 Title: Chief Executive Officer
 (Principal Executive Officer)

Date: November 5, 2020
/s/ Michael L. Perica
Name: Michael L. Perica
Title: Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
 
Date: November 5, 2020
/s/ Stanley Mbugua
 Name: Stanley Mbugua
 Title: Group Vice President and Chief Accounting Officer
 (Principal Accounting Officer)

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Document

EXHIBIT 31.1
  
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Seth A. Ravin, certify that:
 
1.          I have reviewed this Quarterly Report on Form 10-Q of Rimini Street, Inc.;
 
2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
 
(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
(a)  All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
 
Date: November 5, 2020 
 
 /s/ Seth A. Ravin
 Seth A. Ravin
 Title: Chief Executive Officer
 (Principal Executive Officer)


Document

EXHIBIT 31.2
  
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Michael L. Perica, certify that:
 
1.          I have reviewed this Quarterly Report on Form 10-Q of Rimini Street, Inc.;
 
2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
 
(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
(a)  All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
 
Date: November 5, 2020 
 
 /s/ Michael L. Perica
 Michael L. Perica
 Title: Executive Vice President and Chief Financial Officer
 (Principal Financial Officer)


Document

EXHIBIT 32.1
  
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
 
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Seth A. Ravin, Chief Executive Officer of Rimini Street, Inc. (the “Company”), certify, that, to the best of my knowledge:
 
1.    The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
  
Dated: November 5, 2020
By:/s/ Seth A. Ravin
  Seth A. Ravin
  Title: Chief Executive Officer
  (Principal Executive Officer)
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


Document

EXHIBIT 32.2
  
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
 
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Michael L. Perica, Executive Vice President and Chief Financial Officer of Rimini Street, Inc. (the “Company”), certify, that, to the best of my knowledge:
 
1.    The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
  
Dated: November 5, 2020
By:/s/ Michael L. Perica
  Michael L. Perica
  Title: Executive Vice President and Chief Financial Officer
  (Principal Financial Officer)
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


v3.20.2
Cover Page - shares
shares in Thousands
9 Months Ended
Sep. 30, 2020
Nov. 03, 2020
Document Information [Line Items]    
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001635282  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 001-37397  
Entity Registrant Name Rimini Street, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 36-4880301  
Entity Address, Address Line One 3993 Howard Hughes Parkway  
Entity Address, Address Line Two Suite 500  
Entity Address, City or Town Las Vegas  
Entity Address, State or Province NV  
Entity Address, Postal Zip Code 89169  
City Area Code (702)  
Local Phone Number 839-9671  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   76,285
Common Stock    
Document Information [Line Items]    
Title of 12(b) Security Common Stock, par value $0.0001 per share  
Trading Symbol RMNI  
Security Exchange Name NASDAQ  
Public Units    
Document Information [Line Items]    
Title of 12(b) Security Public Units, each consisting of one share of CommonStock, $0.0001 par value, and one-half of one Warrant  
Trading Symbol RMNIU  
Warrants    
Document Information [Line Items]    
Title of 12(b) Security Warrants, exercisable for one share of Common Stock, $0.0001 par value  
Trading Symbol RMNIW  
v3.20.2
Unaudited Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 83,410 $ 37,952
Restricted cash 333 436
Accounts receivable, net of allowance of $889 and $1,608, respectively 67,335 111,574
Deferred contract costs, current 13,075 11,754
Prepaid expenses and other 11,569 15,205
Total current assets 175,722 176,921
Long-term assets:    
Property and equipment, net of accumulated depreciation and amortization of $11,041 and $9,847, respectively 4,988 3,667
Operating lease right-of-use assets 16,585 0
Deferred contract costs, noncurrent 19,847 16,295
Deposits and other 1,624 3,089
Deferred income taxes, net 1,546 1,248
Total assets 220,312 201,220
Current liabilities:    
Accounts payable 3,969 2,303
Accrued compensation, benefits and commissions 35,574 27,918
Other accrued liabilities 17,034 23,347
Operating lease liabilities, current 4,309 0
Deferred revenue, current 179,512 205,771
Total current liabilities 240,398 259,339
Long-term liabilities:    
Deferred revenue, noncurrent 24,785 29,727
Operating lease liabilities, noncurrent 13,256 0
Accrued PIK dividends payable 1,182 1,156
Other long-term liabilities 2,234 2,275
Total liabilities 281,855 292,497
Commitments and contingencies (Note 8)
Redeemable Series A Preferred Stock:    
Authorized 180 shares; issued and outstanding 159 shares and 155 shares as of September 30, 2020 and December 31, 2019, respectively. Liquidation preference of $158,729, net of discount of $19,213 and $155,231, net of discount of $23,915, as of September 30, 2020 and December 31, 2019, respectively. 139,516 131,316
Stockholders’ deficit:    
Preferred stock; $0.0001 par value. Authorized 99,820 shares (excluding 180 shares of Series A Preferred Stock); no other series has been designated 0 0
Common stock; $0.0001 par value. Authorized 1,000,000 shares; issued and outstanding 76,207 and 67,503 shares as of September 30, 2020 and December 31, 2019, respectively 8 7
Additional paid-in capital 105,587 93,484
Accumulated other comprehensive loss (1,320) (1,429)
Accumulated deficit (305,334) (314,655)
Total stockholders' deficit (201,059) (222,593)
Total liabilities, redeemable preferred stock and stockholders' deficit $ 220,312 $ 201,220
v3.20.2
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for accounts receivable $ 889 $ 1,608
Accumulated depreciation and amortization $ 11,041 $ 9,847
Redeemable preferred stock, shares authorized (shares) 180,000 180,000
Redeemable preferred stock, shares issued (shares) 159,000 155,000
Redeemable preferred stock, shares outstanding (shares) 158,729 155,000
Redeemable preferred stock, liquidation preference $ 158,729 $ 155,231
Redeemable preferred stock, discount $ 19,213 $ 23,915
Preferred stock, par value (USD per share) $ 0.0001 $ 0.0001
Preferred stock, shares authorized (shares) 99,820,000 99,820,000
Common stock, par value (USD per share) $ 0.0001 $ 0.0001
Common stock, shares authorized (shares) 1,000,000,000 1,000,000,000
Common stock, shares issued (shares) 76,207,000 67,503,000
Common stock, shares outstanding (shares) 76,207,000 67,503,000
v3.20.2
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Revenue $ 82,518 $ 69,182 $ 238,952 $ 204,924
Cost of revenue 31,991 25,915 92,627 74,786
Gross profit 50,527 43,267 146,325 130,138
Operating expenses:        
Sales and marketing 29,195 26,756 84,443 77,610
General and administrative 13,025 11,041 38,159 34,659
Litigation costs and related recoveries:        
Professional fees and other costs of litigation 3,773 3,642 9,247 6,127
Litigation appeal refunds 0 0 0 (12,775)
Insurance costs and recoveries, net 0 (339) 1,062 4,000
Litigation costs and related recoveries, net 3,773 3,303 10,309 (2,648)
Total operating expenses 45,993 41,100 132,911 109,621
Operating income 4,534 2,167 13,414 20,517
Non-operating income and (expenses):        
Interest expense (10) (27) (35) (375)
Other income (expenses), net 54 (329) (731) (629)
Income before income taxes 4,578 1,811 12,648 19,513
Income tax expense (1,272) (451) (3,327) (1,777)
Net income 3,306 1,360 9,321 17,736
Other comprehensive income:        
Foreign currency translation gain (loss) 520 (262) 109 (331)
Comprehensive income 3,826 1,098 9,430 17,405
Net loss attributable to common stockholders $ (3,439) $ (5,159) $ (10,743) $ (1,133)
Net loss per share attributable to common stockholders:        
Basic and diluted (usd per share) $ (0.05) $ (0.08) $ (0.15) $ (0.02)
Weighted average number of shares of Common Stock outstanding:        
Basic and diluted (shares) 72,377 66,696 69,521 65,625
v3.20.2
Unaudited Condensed Consolidated Statements of Stockholders' Deficit - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
August 2020 Offering
Common Stock
August 2020 Offering
Additional Paid-in Capital
Private Placement
Common Stock
Private Placement
Additional Paid-in Capital
Issuance Of Common Stock
Common Stock
Issuance Of Common Stock
Additional Paid-in Capital
Beginning balance (shares) at Dec. 31, 2018   64,193                  
Stockholders' deficit, beginning of period at Dec. 31, 2018 $ (225,398) $ 6 $ 108,347 $ (1,567) $ (332,184)            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Exercise of stock options for cash (shares)   2,399                  
Restricted stock units vested (shares)   165                  
Issuance of common stock (shares)           0   207   145  
Exercise of stock options for cash   $ 1 2,875                
Restricted stock units vested   0 0                
Issuance of Common Stock           $ 0 $ 0 $ 0 $ 935 $ 0 $ 779
Stock based compensation expense     3,829                
Accretion of discount on Series A Preferred Stock     (4,319)                
Accrued dividends on Series A Preferred Stock:                      
Payable in cash     (11,192)                
Payable in kind     (3,358)                
Foreign currency translations gain (loss) (331)     (331)              
Net income 17,736       17,736            
Stockholders' deficit, end of period at Sep. 30, 2019 (218,443) $ 7 97,896 (1,898) (314,448)            
Ending balance (shares) at Sep. 30, 2019   67,109                  
Beginning balance (shares) at Jun. 30, 2019   66,387                  
Stockholders' deficit, beginning of period at Jun. 30, 2019 (215,550) $ 7 101,887 (1,636) (315,808)            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Exercise of stock options for cash (shares)   714                  
Restricted stock units vested (shares)   8                  
Issuance of common stock (shares)           0   0   0  
Exercise of stock options for cash   $ 0 907                
Restricted stock units vested   0 0                
Issuance of Common Stock           $ 0 0 $ 0 0 $ 0 0
Stock based compensation expense     1,621                
Accretion of discount on Series A Preferred Stock     (1,511)                
Accrued dividends on Series A Preferred Stock:                      
Payable in cash     (3,852)                
Payable in kind     (1,156)                
Foreign currency translations gain (loss) (262)     (262)              
Net income 1,360       1,360            
Stockholders' deficit, end of period at Sep. 30, 2019 (218,443) $ 7 97,896 (1,898) (314,448)            
Ending balance (shares) at Sep. 30, 2019   67,109                  
Beginning balance (shares) at Dec. 31, 2019   67,503                  
Stockholders' deficit, beginning of period at Dec. 31, 2019 $ (222,593) $ 7 93,484 (1,429) (314,655)            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Exercise of stock options for cash (shares) 1,540 1,540                  
Restricted stock units vested (shares)   1,064                  
Issuance of common stock (shares)           6,100   0   0  
Exercise of stock options for cash   $ 0 1,639                
Restricted stock units vested   0 0                
Issuance of Common Stock           $ 1 25,103 $ 0 0 $ 0 0
Stock based compensation expense     5,425                
Accretion of discount on Series A Preferred Stock     (4,702)                
Accrued dividends on Series A Preferred Stock:                      
Payable in cash     (11,817)                
Payable in kind     (3,545)                
Foreign currency translations gain (loss) $ 109     109              
Net income 9,321       9,321            
Stockholders' deficit, end of period at Sep. 30, 2020 (201,059) $ 8 105,587 (1,320) (305,334)            
Ending balance (shares) at Sep. 30, 2020   76,207                  
Beginning balance (shares) at Jun. 30, 2020   68,530                  
Stockholders' deficit, beginning of period at Jun. 30, 2020 (226,514) $ 7 83,959 (1,840) (308,640)            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Exercise of stock options for cash (shares)   976                  
Restricted stock units vested (shares)   601                  
Issuance of common stock (shares)           6,100   0   0  
Exercise of stock options for cash   $ 0 1,081                
Restricted stock units vested   0 0                
Issuance of Common Stock           $ 1 $ 25,103 $ 0 $ 0 $ 0 $ 0
Stock based compensation expense     2,189                
Accretion of discount on Series A Preferred Stock     (1,587)                
Accrued dividends on Series A Preferred Stock:                      
Payable in cash     (3,968)                
Payable in kind     (1,190)                
Foreign currency translations gain (loss) 520     520              
Net income 3,306       3,306            
Stockholders' deficit, end of period at Sep. 30, 2020 $ (201,059) $ 8 $ 105,587 $ (1,320) $ (305,334)            
Ending balance (shares) at Sep. 30, 2020   76,207                  
v3.20.2
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 9,321 $ 17,736
Adjustments to reconcile net income to net cash provided by operating activities:    
Accretion and amortization of debt discount and issuance costs 0 185
Stock-based compensation expense 5,425 3,829
Depreciation and amortization 1,321 1,462
Deferred income taxes (275) (15)
Amortization and accretion related to ROU assets 4,628 0
Other 8 141
Changes in operating assets and liabilities:    
Accounts receivable 42,367 18,547
Prepaid expenses, deposits and other 4,656 (4,277)
Deferred contract costs (4,872) 1,173
Accounts payable 1,712 (10,222)
Accrued compensation, benefits, commissions and other liabilities (3,632) 1,789
Deferred revenue (28,826) (9,363)
Net cash provided by operating activities 31,833 20,985
CASH FLOWS USED IN INVESTING ACTIVITIES:    
Capital expenditures (1,159) (1,354)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Net proceeds related to issuance of Common Stock from August 2020 Offering 25,657 0
Payments for deferred offering and financing costs (253) (452)
Net proceeds from issuance of Series A Preferred Stock and Common Stock 0 9,110
Principal payments on borrowings 0 (2,555)
Payments of cash dividends on Series A Preferred Stock (11,750) (10,883)
Principal payments on capital leases (170)  
Principal payments on capital leases   (378)
Proceeds from exercise of employee stock options 1,639 2,875
Net cash provided by (used in) financing activities 15,123 (2,283)
Effect of foreign currency translation changes (442) (393)
Net change in cash, cash equivalents and restricted cash 45,355 16,955
Cash, cash equivalents and restricted cash at beginning of period 38,388 25,206
Cash, cash equivalents and restricted cash at end of period 83,743 42,161
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash paid for interest 37 210
Cash paid for income taxes 2,165 1,778
Underwriter discounts and commissions 1,650 0
Underwriter expenses 143 0
Accrued professional fees related to the issuance of Common Stock 300 0
Fair value of 207 shares of Common Stock issued in 2019 for no consideration regarding their respective Private Placements 0 1,098
Original issuance discount on Series A Preferred Stock 0 500
Transaction costs 0 390
Issuance of 120 shares of Common Stock for consent regarding Private Placements 0 638
Accrued cash dividends 3,977 3,859
Accrued PIK dividends 1,182 1,149
Accretion of discount on Series A Preferred Stock 4,702 4,319
Issuance of Series A Preferred Stock for PIK dividends 3,498 3,236
Purchase of equipment under capital lease obligations 1,641 206
Increase in payables for capital expenditures $ 2 $ 0
v3.20.2
Unaudited Condensed Consolidated Statements of Cash Flows (Parenthetical)
shares in Thousands
9 Months Ended
Sep. 30, 2019
shares
Common stock issued (shares) 207
Private Placement | Common Stock  
Common stock issued (shares) 120
v3.20.2
NATURE OF BUSINESS AND BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF BUSINESS AND BASIS OF PRESENTATION NATURE OF BUSINESS AND BASIS OF PRESENTATION
 
Nature of Business
 
Rimini Street, Inc. (the “Company”) is a global provider of enterprise software support services. The Company’s subscription-based software support products and services offer enterprise software licensees a choice of solutions that replace or supplement the support products and services offered by enterprise software vendors. 

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, 2019, included in the Company’s 2019 Annual Report on Form 10-K as filed with the SEC on March 16, 2020 (the “2019 Form 10-K”).
 
The accompanying condensed consolidated balance sheet and related disclosures as of December 31, 2019 have been derived from the Company’s audited financial statements. The Company’s financial condition as of September 30, 2020, and operating results for both the three and nine months ended September 30, 2020 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, 2020.
v3.20.2
LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES
 
Liquidity
 
As of September 30, 2020, the Company’s current liabilities exceeded its current assets by $64.7 million, and the Company earned net income of $3.3 million and $9.3 million, for the three months and the nine months ended September 30, 2020. As of September 30, 2020, the Company had available cash, cash equivalents and restricted cash of $83.7 million. As of September 30, 2020, the Company's current liabilities included $179.5 million of deferred revenue whereby the historical costs of fulfilling the Company's commitments to provide services to its clients was approximately 39% of the related deferred revenue for the three months ended September 30, 2020.

As discussed in Note 6, the Company completed a firm commitment underwritten public offering on August 18, 2020 (the “August 2020 Offering”) of 6.1 million shares of its Common Stock at a price of $4.50 per share for total gross proceeds of $27.5 million. Underwriter discounts and commissions were $1.7 million and the underwriter expenses were $0.1 million. The Company also incurred additional professional fees of $0.6 million as part of the transaction, resulting in net proceeds from the August 2020 Offering of approximately $25.1 million. The Company intends to use the net proceeds from the August 2020 Offering for working capital and other general corporate purposes.

As discussed in Note 5, the Company completed a third private placement on June 20, 2019, which provided additional net proceeds of $3.0 million from the sale of 3,500 shares of 13.00% Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share (the Series A Preferred Stock”) and 72,414 shares of Common Stock. On March 7, 2019, the Company completed a second private placement, which provided additional net cash proceeds of $5.0 million from the sale of 6,500 shares of the Series A Preferred Stock and 134,483 shares of Common Stock. In 2018, the Company had previously refinanced and repaid its former Credit Facility on July 19, 2018 through aggregate cash payments of $132.8 million that resulted in the termination of the Credit Facility. These cash payments were funded from the Initial Private Placement (together with cash-on-hand) discussed in Note 5 that resulted in cash proceeds of $133.0 million from the sale of 140,000 shares of Series A Preferred Stock and approximately 2.9 million shares of Common Stock.
These refinancing arrangements improved the Company’s liquidity and capital resources whereby cash dividends are payable at 10.0% per annum that will result in quarterly cash dividends ranging from $3.9 million to $4.3 million over the remaining initial 5-year period beginning on July 19, 2018, assuming all shares of Series A Preferred Stock remain outstanding, and thereafter, if not previously redeemed or converted, cash dividends will be payable at 13.0% per annum.

Additionally, the Company is obligated to make operating and capital lease payments that are due within the next 12 months in the aggregate amount of $7.0 million. In March 2020, the World Health Organization declared the outbreak of a novel strain of the coronavirus (“COVID-19”) to be a pandemic. Assuming that, after the issuance date of these financial statements, the Company’s ability to operate continues not to be significantly adversely impacted by the COVID-19 pandemic, 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 cash dividend requirements, working capital needs, capital expenditures and 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 significant accounting estimates include, but are not necessarily limited to, 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 operation may be affected.
 
Recent Accounting Pronouncements

Recently Adopted Standards. The following accounting standards were adopted during the fiscal year 2020:

In February 2016, Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases, which requires organizations that lease assets (“lessees”) to recognize on the balance sheet the right of use ("ROU") assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months and to disclose key information about leasing arrangements. Under the new standard, both finance and operating leases will be required to be recognized on the balance sheet. Additional quantitative and qualitative disclosures, including significant judgments made by management, are also required. The Company adopted ASC 842 using the modified retrospective method on January 1, 2020. See Note 12 for the disclosure on the impact of adopting this standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires application of an impairment model known as the current expected credit loss (“CECL”) model to certain financial instruments held at amortized cost, including trade receivables. Using the CECL model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable loss has been incurred. The new guidance was effective for the Company in January 2020. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which provides new guidance on disclosures related to fair value measurements. The guidance is intended to improve the effectiveness of the notes to financial statements by facilitating clearer communication, and it includes multiple new, eliminated and modified disclosure requirements. The guidance was effective for the Company in January 2020. The adoption of this guidance did not have an impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The guidance aligns the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract with the requirements for capitalization costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The new guidance was effective for the Company in January 2020. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.
Recently Issued Accounting Standards:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions to the general income tax accounting principles, and clarifies and amends existing guidance to facilitate consistent application of the accounting principles. The new guidance is effective for the Company as of January 1, 2021. The Company is assessing the impact of the adoption of this guidance on its Consolidated Financial Statements.

In January 2020, the FASB issued ASU 2020-1, Investments—Equity Securities (Topic 321), Investments - Equity and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The guidance clarifies interactions between current accounting standards on equity securities, equity method and joint ventures, and derivatives and hedging. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for the Company as of January 1, 2021. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The guidance eliminates the beneficial conversion and cash conversion accounting for convertible instruments. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The new guidance is effective for the Company as of January 1, 2022. The Company is assessing the impact of the adoption of this guidance on its Consolidated Financial Statements.
v3.20.2
DEFERRED CONTRACT COSTS AND DEFERRED REVENUE
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
DEFERRED CONTRACT COSTS AND DEFERRED REVENUE DEFERRED CONTRACT COSTS AND DEFERRED REVENUE
Activity for deferred contract costs for the three and nine months ended September 30, 2020 and 2019 is shown below (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Deferred contract costs, current and noncurrent, as of the beginning of period$29,384 $25,947 $28,049 $27,080 
Capitalized commissions during the period7,123 3,104 15,165 8,039 
Amortized deferred contract costs during the period(3,585)(3,144)(10,292)(9,212)
Deferred contract costs, current and noncurrent, as of the end of period$32,922 $25,907 $32,922 $25,907 

Deferred revenue activity for the three and nine months ended September 30, 2020 and 2019 is shown below (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Deferred revenue, current and noncurrent, as of the beginning of period$218,506 $204,845 $235,498 $196,706 
Billings, net68,309 51,262 207,751 195,143 
Revenue recognized(82,518)(69,182)(238,952)(204,924)
Deferred revenue, current and noncurrent, as of the end of period$204,297 $186,925 $204,297 $186,925 

The transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized. As of September 30, 2020, the remaining transaction price included in deferred revenue was $179.5 million in current and $24.8 million in noncurrent.
v3.20.2
OTHER FINANCIAL INFORMATION
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
OTHER FINANCIAL INFORMATION OTHER FINANCIAL INFORMATION
  
Other Accrued Liabilities
 
As of September 30, 2020 and December 31, 2019, other accrued liabilities consist of the following (in thousands):
 
 20202019
Accrued sales and other taxes$2,587 $5,752 
Accrued professional fees4,936 4,367 
Accrued dividends on Redeemable Series A Preferred Stock3,977 3,889 
Current maturities of capital lease obligations449 222 
Income taxes payable1,471 1,091 
Appeal proceeds payable to insurance company— 4,388 
Other accrued expenses3,614 3,638 
Total other accrued liabilities$17,034 $23,347 

Interest Expense
 
The components of interest expense are presented below (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Accretion expense for GP Sponsor note payable$— $— $— $185 
Interest on other borrowings10 27 35 190 
  Total interest expense$10 $27 $35 $375 

The note payable to GPIC Ltd, a Bermuda company (“GP Sponsor”), was paid off on June 28, 2019. See Note 9 for further information.
v3.20.2
REDEEMABLE SERIES A PREFERRED STOCK
9 Months Ended
Sep. 30, 2020
Temporary Equity Disclosure [Abstract]  
REDEEMABLE SERIES A PREFERRED STOCK REDEEMABLE SERIES A PREFERRED STOCK
2018 Securities Purchase Agreement

On July 19, 2018, the Company closed a Securities Purchase Agreement (the “2018 SPA”) with several accredited investors (the “Purchasers”) for a private placement (the “Initial Private Placement”) of (i) 140,000 shares of Series A Preferred Stock, (ii) approximately 2.9 million shares of Common Stock, and (iii) convertible secured promissory notes (the “Convertible Notes”), with no principal amount outstanding at issuance that solely collateralize amounts, if any, that may become payable by the Company pursuant to certain redemption provisions of the Series A Preferred Stock.

Pursuant to the 2018 SPA, the Purchasers acquired an aggregate of 140,000 shares of Series A Preferred Stock, 2.9 million shares of Common Stock, and Convertible Notes with no principal amount outstanding as of the issuance date, for an aggregate purchase price equal to $133.0 million in cash (after taking into account a discount of $7.0 million, but before the incremental and direct transaction costs associated with the Private Placement of $4.6 million). The allocation of the net proceeds as of the Closing Date, along with changes in the net carrying value of the Series A Preferred Stock through September 30, 2020 are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on July 19, 2018:
  Series A Preferred Stock140,000 $126,763 
(1)
$— $— $126,763 
  Common Stock— — 20,131 
(2)
— 20,131 
  Convertible Notes— — — — — 
    Total140,000 $126,763 $20,131 $— $146,894 
Relative fair value allocation on July 19, 2018
  Aggregate cash proceeds on July 19, 2018140,000 $114,773 
(3)
$18,227 
(3)
$— $133,000 
  Incremental and direct costs— (3,994)
(4)
(634)
(4)
— (4,628)
Net carrying value on July 19, 2018140,000 $110,779 
 
$17,593 $— $128,372 

_________________
1.The liquidation preference for each share of Series A Preferred Stock on the closing date for the Initial Private Placement was $1,000 per for an aggregate liquidation preference of $140.0 million. The estimated fair value of the Series A Preferred Stock was approximately $126.8 million on July 19, 2018, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
2.The fair value of the issuance of approximately 2.9 million shares of the Common Stock was based on the last closing price of $6.95 per share on the date prior to closing the transaction.
3.The aggregate cash proceeds of $133.0 million on July 19, 2018 were allocated pro rata based on the fair value of all consideration issued.
4.Incremental and direct costs of the Initial Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs include financial advisory and professional fees of $2.7 million that were incurred by the Company, and due diligence and professional fees incurred by the investors of $1.9 million.

At the closing, the Company used the $133.0 million of proceeds from the Initial Private Placement plus cash and cash equivalents of $2.7 million to (i) repay all outstanding indebtedness and various operating and financing fees and expenses under the former Credit Facility in the aggregate amount of $132.8 million, (ii) pay incremental and direct transaction costs of $2.7 million, and (iii) pay a professional services retainer of $0.2 million.

In connection with the completion of the Initial Private Placement, the Company, among other customary closing actions, (i) filed a Certificate of Designations with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series A Preferred Stock (the “CoD”), (ii) entered into a Registration Rights Agreement with the Purchasers setting forth certain registration rights of capital stock held by the Purchasers (the “Registration Rights Agreement”), (iii) delivered a Convertible Note to each Purchaser, and (iv) entered into a Security Agreement (the “Security Agreement”) in respect of the Company’s assets collateralizing the amounts that may become payable pursuant to the Convertible Notes if certain redemption provisions of the Series A Preferred Stock are triggered in the future.

March 2019 Securities Purchase Agreement
On March 7, 2019, the Company entered into a securities purchase agreement (the “March 2019 SPA”) with an accredited investor for a private placement (the "March 2019 Private Placement") of (i) 6,500 shares of Series A Preferred Stock, (ii) 134,483 shares of Common Stock, and (iii) a Convertible Note (as defined below) with no principal balance outstanding. The shares of Series A Preferred Stock were authorized pursuant to the CoD (as defined below) and are subject to the provisions set forth in an amended Security Agreement (as defined below), a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement (as defined below) entered into in connection with the 2018 SPA discussed above. The accredited investor in the March 2019 Private Placement is affiliated with one of the accredited investors in the Initial Private Placement.
The aggregate cash proceeds from the March 2019 Private Placement were $5.8 million in cash (after an 11.0% discount or $0.7 million). The net proceeds were approximately $5.0 million after estimated transaction costs payable by the Company of $0.8 million. The transaction costs consisted of 85,000 shares of Common Stock issued to the existing holders of the Series A Preferred Stock for their consent at a cost of approximately $0.5 million and direct transaction costs of approximately $0.3 million related to due diligence and professional fees. The net proceeds were allocated based on their relative fair values at issuance of the Series A Preferred Stock and the Common Stock. The allocation of the net proceeds from the March 2019 Private Placement are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on March 7, 2019:
  Series A Preferred Stock6,500 $5,313 
(1)
$— $— $5,313 
  Common Stock— — 722 
(2)
— 722 
  Convertible Notes— — — — — 
    Total6,500 $5,313 $722 $— $6,035 
Relative fair value allocation on March 7, 2019:
  Aggregate cash proceeds on March 7, 20196,500 $5,093 
(3)
$692 
(3)
$— $5,785 
  Incremental and direct costs— (661)
(4)
(90)
(4)
— (751)
Net carrying value on March 7, 20196,500 $4,432 $602 $— $5,034 


(1)The liquidation preference for each share of Series A Preferred Stock on the closing date for the March 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $6.5 million. The estimated fair value of the Series A Preferred Stock was approximately $5.3 million on March 7, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)The fair value of the issuance of approximately 134,483 shares of the Common Stock was based on the closing price of $5.37 per share on the date prior to closing of the transaction.
(3)The aggregate cash proceeds of $5.8 million on March 7, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)Incremental and direct costs related to the March 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 85,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.5 million and financial advisory and professional fees that were incurred of approximately $0.3 million that were either paid or accrued directly by the Company as of March 31, 2019.

June 2019 Securities Purchase Agreement
On June 20, 2019, the Company entered into a securities purchase agreement (the "June 2019 SPA") with accredited investors for a private placement (the “June 2019 Private Placement”) of (i) 3,500 shares of Series A Preferred Stock, (ii) 72,414 shares of Common Stock, and (iii) a Convertible Note (as defined below) with no principal balance outstanding. The shares of the Series A Preferred Stock were authorized pursuant to the CoD (as defined below) and are subject to the provisions set forth in an amended Security Agreement (as defined below), a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement (as defined below) entered into connection with the 2018 SPA discussed above. The accredited investors in the June 2019 Private Placement are not affiliated with the accredited investors in the March 2019 Private Placement (as defined below) or the Initial Private Placement.
The aggregate cash proceeds from the June 2019 Private Placement were $3.3 million in cash (after a 5.0% discount or $0.2 million). The net proceeds were approximately $3.0 million after estimated transaction costs payable by the Company of $0.3 million. The transaction costs consisted of 35,000 shares of Common Stock issued to the existing holders of the Series A Preferred Stock for their consent at a cost of approximately $0.2 million and direct transaction costs of approximately $0.2 million related to professional fees of the investors, existing holders of Series A Preferred Stock and the Company. The net proceeds were allocated based on their relative fair values at issuance of the Series A Preferred Stock and the Common Stock. The allocation of the net proceeds from the June 2019 Private Placement are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on June 20, 2019:
  Series A Preferred Stock3,500 $2,997 
(1)
$— $— $2,997 
  Common Stock— — 376 
(2)
— 376 
  Convertible Notes— — — — — 
    Total3,500 $2,997 $376 $— $3,373 
Relative fair value allocation on June 20, 2019:
  Aggregate cash proceeds on June 20, 20193,500 $2,954 
(3)
$371 
(3)
$— $3,325 
  Incremental and direct costs— (301)
(4)
(38)
(4)
— (339)
Net carrying value on June 20, 20193,500 $2,653 $333 $— $2,986 
(1)The liquidation preference for each share of Series A Preferred Stock on the closing date for the June 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $3.5 million. The estimated fair value of the Series A Preferred Stock was approximately $3.0 million on June 20, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)The fair value of the issuance of approximately 72,414 shares of the Common Stock was based on the closing price of $5.19 per share on the date prior to closing of the transaction.
(3)The aggregate cash proceeds of $3.3 million on June 20, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)Incremental and direct costs related to the June 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 35,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.2 million and financial advisory and professional fees that were incurred of approximately $0.2 million that were either paid or accrued directly by the Company as of June 30, 2019.

The changes in the net carrying value of Series A Preferred Stock from December 31, 2019 to September 30, 2020 are set forth below (dollars in thousands):
Series A Preferred Stock
SharesAmount
Net carrying value as of December 31, 2019155,231 $131,316 
Issuance of shares to settle PIK Dividends on January 2, 20201,170 1,170 
Accretion of discount for the three months ended March 31, 2020— 1,547 
Issuance of shares to settle PIK Dividends on April 1, 20201,153 1,153 
Accretion of discount for the three months ended June 30, 2020— 1,567 
Issuance of shares to settle PIK Dividends on July 1, 20201,175 1,175 
Accretion of discount for the three months ended September 30, 2020— 1,588 
Net carrying value as of September 30, 2020158,729 $139,516 

For future calculations of earnings applicable to common stockholders, the aggregate discount applicable to the Series A Preferred Stock will be accreted using the effective interest method from the respective issuance dates through July 19, 2023 when the holders of all outstanding shares of Series A Preferred Stock may first elect to redeem their shares for cash.

Agreements Related to Private Placement Transactions
 
In connection with the completion of the Initial Private Placement, the Company, among other customary closing actions, (i) filed a Certificate of Designations with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series A Preferred Stock (the “CoD”), (ii) entered into a Registration Rights Agreement with the Purchasers setting forth certain registration rights of the Purchasers (the “Registration Rights Agreement”), (iii) delivered a Convertible Note to each Purchaser, and (iv) entered into a Security Agreement (the “Security Agreement”) in respect of the Company’s assets collateralizing the amounts that may become payable pursuant to the Promissory Notes if certain redemption provisions of the Series A Preferred Stock are triggered in the future. In connection with both the March 2019 and June 2019 Private Placements, the Company entered into a securities purchase agreement, a Registration Rights Agreement, a First (March 2019) and Second (June 2019) Amendment to the Security Agreement, and issued Convertible Notes to each investor, in each case substantially in the same form as entered into by the Company in the Initial Private Placement.

Certificate of Designations of the Series A Preferred Stock and Dividends

The CoD authorizes the issuance of up to 180,000 shares of Series A Preferred Stock. The holders of Series A Preferred Stock are entitled to, from the respective issuance date, a cash dividend of 10.0% per annum (the “Cash Dividends”) and a payment-in-kind dividend of 3.0% per annum (the “PIK Dividends” and, together with the Cash Dividends, the “Dividends”) for the first five years following the initial June 2018 closing and thereafter all dividends accruing on such Series A Preferred Stock will be payable in cash at a rate of 13.0% per annum. The Series A Preferred Stock is classified as mezzanine equity in the Company’s consolidated balance sheet as of September 30, 2020 and December 31, 2019 since the holders have redemption rights beginning on July 19, 2023 (and earlier under certain circumstances).

As required under the CoD, the Cash Dividends and PIK Dividends for the period in which the Series A Preferred Stock was outstanding during the third quarter of 2020 were settled on October 1, 2020 to holders of record on September 16, 2020. Accordingly, the Company accrued a current liability for accrued Cash Dividends through September 30, 2020 for $4.0 million.
A long-term liability was recorded for $1.2 million of PIK Dividends that accrued through September 30, 2020, and that were settled through the issuance of 1,182 shares of Series A Preferred Stock on October 1, 2020. Presented below is a summary of total and per share dividends declared through September 30, 2020 (dollars in thousands, except per share amounts):

Dividends Payable in:TotalDividends
CashPIKDividendsPer Share
Dividends payable as of December 31, 2019$3,889 $1,156 $5,045 $32.50 
  Cash Dividends @ 10% per annum
3,910 — 3,910 25.00 
  PIK Dividends @ 3% per annum
— 1,167 1,167 7.46 
Fractional PIK shares settled for cash— 0.04 
Less dividends settled January 2, 2020(3,931)(1,170)(5,101)(32.61)
Dividends payable as of March 31, 20203,874 1,153 5,027 32.14 
  Cash Dividends @ 10% per annum
3,939 — 3,939 25.00 
  PIK Dividends @ 3% per annum
— 1,175 1,175 7.46 
Fractional PIK shares settled for cash— 0.04 
Less dividends settled April 1 , 2020(3,874)(1,153)(5,027)(31.91)
Dividends payable as of June 30, 20203,946 1,175 5,121 32.50 
  Cash Dividends @ 10% per annum
3,968 — 3,968 25.00 
  PIK Dividends @ 3% per annum
— 1,182 1,182 7.45 
Fractional PIK shares settled for cash— 0.06 
Less dividends settled July 1, 2020(3,946)(1,175)(5,121)(32.26)
Dividends payable as of September 30, 2020$3,977 $1,182 $5,159 $32.50 

The liquidation value of the Series A Preferred Stock is convertible into shares of Common Stock at an initial conversion rate of $10.00 per share for a total of 15.8 million shares of Common Stock based on 158,729 shares of Series A Preferred Stock outstanding as of September 30, 2020. Each share of Series A Preferred Stock is convertible at the holder’s option into one share of Common Stock at a conversion price equal to the quotient of (i) the Liquidation Preference (as defined below), and (ii) $10.00 (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or other similar recapitalization) (the “Per Share Amount”). The Company has the right to convert outstanding shares of Series A Preferred Stock into Common Stock for the Per Share Amount after July 19, 2021, if the Company’s volume weighted average stock price for at least 30 trading days of the 45 consecutive trading days immediately preceding such conversion is greater than $11.50 per share. The Company can exercise this right to convert twice per calendar year for a maximum number of shares of Common Stock equal to the amount that has publicly traded over the 60 consecutive trading days prior to the conversion date (less any shares of Common Stock that have been issued pursuant to any such conversion during such 60-day period).

The Series A Preferred Stock will become mandatorily redeemable, upon the election by the holders of a majority of the then outstanding shares, on or after July 19, 2023. Any and all of the then outstanding liquidation value of the Series A Preferred Stock plus any capitalized PIK Dividends and any unpaid accrued Cash Dividends not previously included in the Liquidation Preference (the “Redemption Amount”) is required to be repaid in full in cash on such redemption date or satisfied in the form of obligations under the Convertible Notes. Additionally, in certain circumstances the Company may require the holders of shares of the Series A Preferred Stock to convert into shares of Common Stock in lieu of cash payable upon redemption.

The Series A Preferred Stock will also become mandatorily redeemable at any time upon the reasonable determination of the holders of a majority of the Series A Preferred Stock then outstanding of the occurrence of a Material Adverse Effect or the occurrence of a Material Litigation Effect (as such terms are defined in the CoD), with the Redemption Amounts payable automatically becoming payment obligations pursuant to the Convertible Notes with a concurrent cancellation of the shares of the Series A Preferred Stock, unless under certain circumstances, the Company redeems the Series A Preferred Stock for cash at such time.

Prior to July 19, 2021, the Company will have the right to redeem up to $80.0 million of shares of the Series A Preferred Stock for cash amounts equal to the Redemption Amount which would include a make-whole premium that provides the holders thereof with full yield maintenance as if the Series A Preferred Stock was held until July 19, 2021, provided that such
redemptions are subject to certain conditions and limitations. After July 19, 2021, the Company will have the right to redeem shares of Series A Preferred Stock for a cash per share amount equal to the Redemption Amount.

The holders of Series A Preferred Stock may exercise their conversion rights prior to any optional redemption. In the event of a liquidation, dissolution or winding up of the Company, the Series A Preferred Stock is entitled to a liquidation preference in the amount of the greater of (i) $1,000 plus accrued but unpaid Dividends (the “Liquidation Preference”), and (ii) the per share amount of all cash, securities and other property to be distributed in respect of the Common Stock such holder would have been entitled to receive for its Series A Preferred Stock on an as-converted basis. In the event of a liquidation, dissolution or winding up of the Company prior to July 19, 2021, the holders are entitled to a make-whole premium that provides the holders thereof with full yield maintenance as if the shares of Series A Preferred Stock were held until July 19, 2021.

Until approximately 95% of the Series A Preferred Stock or Convertible Notes are no longer outstanding, the Company is restricted from incurring Indebtedness (as defined in the June 2019 SPA, March 2019 SPA and 2018 SPA), subject to certain exceptions.

Registration Rights Agreement

The original Registration Rights Agreement required the Company to register the resale of the shares of Common Stock and Series A Preferred Stock issued pursuant to the 2018 SPA. The Company satisfied such registration requirements in November 2018. The Registration Rights Agreements, entered into in connection with both the March 2019 and June 2019 Private Placements, required the Company to register the resale of the shares of Common Stock and Series A Preferred Stock pursuant to the March 2019 SPA and the June 2019 SPA within 120 days of the respective March 7, 2019 and June 20, 2019 closing dates. The Company satisfied all such registration requirements in July 2019. Each such Registration Rights Agreement also includes customary “piggyback” registration rights, suspension rights, indemnification, contribution, and assignment provisions.

Subsequent Event

On October 30, 2020, the Company entered into an agreement with certain of the holders of its Series A Preferred Stock (the “Stock Repurchase Agreement”) to repurchase 5,000 shares of Series A Preferred Stock and the associated obligations pursuant to the Company’s Convertible Secured Promissory Notes outstanding in respect thereof (the “Note Obligations”) for an aggregate purchase price of approximately $4.5 million representing a discount to the face value of such shares of Series A Preferred Stock and no make-whole payments were required. The Stock Repurchase Agreement contains customary representations, warranties and covenants of the parties and waivers relating to the purchased shares of Series A Preferred Stock.
Upon the closing of the transactions contemplated by the Stock Repurchase Agreement, the shares of Series A Preferred Stock purchased by the Company were retired (and the underlying Note Obligations cancelled) and are not eligible for re-issuance by the Company in accordance with the terms of the Certificate of Designations for the Series A Preferred Stock.
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS
 
Common Stock Offering

On August 18, 2020, the Company completed a firm commitment underwritten public offering (the "August 2020 Offering") of 6.1 million shares of its Common Stock at a price of $4.50 per share for total gross proceeds of $27.5 million. Underwriter discounts and commissions were $1.7 million and the underwriter expenses were $0.1 million. The Company also incurred additional professional fees of $0.6 million as part of the transaction, resulting in net proceeds from the August 2020 Offering of approximately $25.1 million. The Company intends to use the net proceeds from the August 2020 Offering for working capital and other general corporate purposes.

Stock Option Plans

The Company’s stock option 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 25, 2020, the Board of Directors authorized an increase of approximately 2.7 million shares available for
grant under the 2013 Plan. For additional information about the Stock Plans, please refer to Note 9 to the Company’s consolidated financial statements for the year ended December 31, 2019, included in the 2019 Form 10-K. The information presented below provides an update for activity under the Stock Plans for the nine months ended September 30, 2020.
 
Restricted Stock Units
 
For the nine months ended September 30, 2020, the Board of Directors granted restricted stock units (“RSUs”) under the 2013 Plan for an aggregate of approximately 1.4 million shares of Common Stock to employees and to non-employee directors of the Company. Other than the RSU grants to continuing directors, which vest on January 2, 2021, and the grant to the Company's non-employee director first elected in June 2020, which vests in part on the first and second anniversary of grant, these RSUs 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 $4.98 per share, the aggregate fair value for the shares underlying the RSUs amounted to $7.1 million as of the grant date that will be recognized as compensation cost over the vesting period. Accordingly, compensation expense related to RSUs of approximately $1.8 million and $1.1 million was recognized for the three months ended September 30, 2020 and 2019, respectively. Compensation expense related to RSUs of $4.3 million and $2.1 million was recognized for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the unrecognized expense of $11.5 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 2.0 years.
 
Stock Options
 
For the nine months ended September 30, 2020, the Board of Directors granted stock options for the purchase of an aggregate of approximately 0.5 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. These stock options generally vest annually for one-third of the awards and expire ten years after the grant date.
 
The following table sets forth a summary of stock option activity under the Stock Plans for the nine months ended September 30, 2020 (shares in thousands): 
 Shares
Price (1)
Term (2)
Outstanding, December 31, 20198,677 $4.55 4.9
Granted464 4.64 
Forfeited(225)6.09 
Expired(137)6.29 
Exercised(1,540)1.06 
Outstanding, September 30, 2020 (3)(4)7,239 5.22 5.3
Vested, September 30, 2020 (3)5,992 5.12 4.6

 
(1)Represents the weighted average exercise price.
(2)Represents the weighted average remaining contractual term until the stock options expire.
(3)As of September 30, 2020, the aggregate intrinsic value of all stock options outstanding was $2.5 million. As of September 30, 2020, the aggregate intrinsic value of vested stock options was $2.5 million.
(4)The number of outstanding stock options that are not expected to ultimately vest due to forfeiture amounted to 0.1 million shares as of September 30, 2020.
The following table presents activity affecting the total number of shares available for grant under the Stock Plans for the nine months ended September 30, 2020 (in thousands):
 
Available, December 31, 20192,884 
Newly authorized by Board of Directors2,700 
Stock options granted(464)
Restricted stock units granted(1,418)
Expired options under Stock Plans137 
Forfeited options under Stock Plans225 
Forfeited restricted stock units under Stock Plans167 
Available, September 30, 20204,231 
 
The aggregate fair value of approximately 0.5 million stock options granted for the nine months ended September 30, 2020 amounted to $0.8 million, or $1.76 per stock option as of the grant date utilizing the Black-Scholes-Merton (“BSM”) method. The fair valued derived under the BSM method will result in the recognition of compensation cost over the vesting period of the stock options. For the nine months ended September 30, 2020, 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:
 
Expected life (in years)6.0
Volatility39%
Dividend yield0%
Risk-free interest rate0.56%
Fair value per common share on date of grant$4.64
 
As of September 30, 2020 and December 31, 2019, total unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, was $1.6 million and $2.2 million, respectively. As of September 30, 2020, the unrecognized costs are expected to be charged to expense on a straight-line basis over a weighted-average vesting period of approximately 1.71.
 
Stock-Based Compensation Expense
 
Stock-based compensation expense attributable to RSUs and stock options is classified as follows (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Cost of revenues$303 $247 $866 $625 
Sales and marketing734 484 1,994 1,132 
General and administrative1,152 890 2,565 2,072 
Total$2,189 $1,621 $5,425 $3,829 

Warrants
 
As of September 30, 2020, warrants were outstanding for an aggregate of 18.1 million shares of Common Stock, including 3.4 million shares of Common Stock exercisable at $5.64 per share, and an aggregate of 14.7 million shares of Common Stock exercisable at $11.50 per share. For additional information about these warrants, please refer to Note 9 to the Company’s consolidated financial statements for the year ended December 31, 2019, included in the 2019 Form 10-K.
v3.20.2
INCOME TAXES
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
 
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed into law, amending portions of relevant US tax laws. The CARES Act contains changes to corporate taxation, including among other things, adjusting net operating loss (NOL) limitations and carryback rules, refundable AMT credits, bonus depreciation and
interest expense limitations. The CARES Act also provides for an Employee Retention Credit, a fully refundable payroll tax credit for certain eligible employers and the ability for all eligible employers to defer payment of the employer share of payroll taxes owed on wages paid for the period ending December 31, 2020 (such deferred payroll taxes are due in two installments: 50% by December 31, 2021 and 50% by December 31, 2022). The Company has elected to defer payroll tax payments which totaled $2.5 million as of September 30, 2020, but it has not yet completed its evaluation of the remaining provisions.

For the three months ended September 30, 2020 and 2019, the Company's effective tax rate was 27.8% and 24.9% respectively. For the nine months ended September 30 2020 and 2019, the Company's effective tax rate was 26.3% and 9.1%, respectively. The Company's income tax expense was primarily attributable to earnings in foreign jurisdictions subject to income taxes. For the three months and nine months ended September 30, 2020 and 2019, no income tax expense was recorded in the United States as a result of historical net operating losses being incurred. 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 or nine months ended September 30, 2020 and 2019.
v3.20.2
COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES COMMITMENTS AND CONTINGENCIES
  
Series A Preferred Stock Dividends

In connection with the issuance of Series A Preferred Stock on June 20, 2019, March 7, 2019 and July 19, 2018 as discussed in Note 5, the Company is obligated to pay Cash Dividends and issue additional shares of Series A Preferred Stock in settlement of PIK Dividends. From January 1, 2020 through July 19, 2023, the date until which the Series A Preferred Stock is expected to remain outstanding, estimated Cash Dividends and PIK Dividends required to be declared are as follows (in thousands):
Year Ending December 31:CashPIKTotal
2020$15,819 $4,746 $20,565 
202116,299 4,890 21,189 
202216,794 5,038 21,832 
20239,455 2,837 12,292 
Total$58,367 $17,511 $75,878 

The amounts above do not include the impact of purchasing 5,000 shares of Series A Preferred Stock on October 30, 2020 as discussed in Note 5.

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. The Company's contributions to these plans totaled $0.7 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively. The Company's matching contribution to the plan totaled $2.0 million and $1.9 million for the nine months ended September 30, 2020 and 2019, 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, 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 jury trial in 2015 and subsequent appeals, the final outcome of Rimini I was that Mr. Ravin was found not liable for any claims and the Company was found liable for only one of a dozen claims: “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 filed an appeal. 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 (for additional information on this topic, see Note 11 of the Company’s consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).

Proceeds from U.S. Supreme Court Decision

The total judgment paid by the Company and its insurance carriers reflects a reduction of approximately $12.8 million that the Company had previously paid to Oracle (plus interest of $0.2 million), representing an award of non-taxable expenses to Oracle that was eventually overturned by unanimous decision of the U.S. Supreme Court in March 2019. As mandated by the U.S. Supreme Court, $13.0 million (the principal amount plus post-judgment interest) was refunded to the Company by Oracle in April 2019. A portion of the funds received by the Company will be shared on a pro rata basis with an insurance company that had paid for part of the judgment and a portion of Rimini’s defense costs. This reimbursement will reflect a deduction of the costs of the Company’s past and pending appeal and remand proceedings. As a result of the U.S. Supreme Court decision, the Company recognized a recovery of the non-taxable expenses for $12.8 million and interest income of $0.2 million for the year ended December 31, 2019, excluding any contractual amounts due to the insurance company. The Company recognized costs of $1.1 million for the nine months ended September 30, 2020, as the Company revised its current estimate of the amounts owed to the insurance company (for portions of all previously-paid judgments refunded to the Company on appeal, including the proceeds from the U.S. Supreme Court Decision) to $5.5 million as of September 30, 2020 (for additional information on this topic, see Note 11 of the Company’s consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).

Injunction

Following post-trial motions, the District Court entered a permanent injunction prohibiting the Company from using certain processes, including processes adjudicated as infringing at trial, that the Company ceased using no later than July 2014, which the Company subsequently appealed to the United States Court of Appeals for the Ninth Circuit (“Court of Appeals”), arguing on appeal that the injunction is vague and contains overly-broad language that could be read to cover some of the Company’s current business practices that were not adjudicated to be infringing at trial and that the injunction should not have been issued under applicable law. After multiple rounds of remand and appeal, in August 2019, the Court of Appeals entered an order affirming the permanent injunction. However, the Court of Appeals agreed that the injunction was overbroad in two respects and instructed the District Court to remove the restriction on “local hosting” of J.D. Edwards and Siebel software and the prohibition against “accessing” J.D. Edwards and Siebel software source code.

As a result of the injunction, the Company expects to incur additional expenses in the range of 1% to 2% of revenue for additional labor costs because, as drafted, the injunction contains language that could be read to cover some current support practices ("Process 2.0") that are being litigated in the “Rimini II” lawsuit (as defined below) and that have not been found to be infringing. On July 10, 2020, Oracle filed a motion to show cause contending that the Company is in contempt of the injunction.

The Company filed a response to Oracle’s motion on July 31, 2020. The matter is fully briefed to the District Court and there is no known timeline for a court ruling. At this time, the Company does not have sufficient information regarding possible damages for the contempt asserted by Oracle. As a result, an estimate of the range of loss cannot be reasonably determined. Because the Company believes that it has complied with the injunction and that an award for damages and/or attorneys’ fees is not probable, no accrual has been made as of September 30, 2020. If the District Court grants Oracle’s motion to show cause and if the Company is later found to be in contempt of the injunction, Oracle may seek equitable, punitive and compensatory relief, the outcome of which may have a material adverse effect on the Company’s business and financial condition.
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 Process 2.0 support practices, in use since at least July 2014, do not infringe certain Oracle copyrights (“Rimini II”). Oracle filed counterclaims alleging copyright infringement, which included (i) substantially the same allegations asserted in Rimini I, but limited to clients not addressed in Rimini I, and (ii) new allegations that the Company’s Process 2.0 support practices also infringe Oracle copyrights. Oracle’s counterclaims also included allegations of violation of the Lanham Act, intentional interference with prospective economic advantage, breach of contract and inducing breach of contract, unfair competition, unjust enrichment/restitution and violation of the Digital Millennium Copyright Act. Oracle also sought an accounting. In December 2016, the Company filed an amended complaint against Oracle,
adding claims for intentional interference with contract, intentional interference with prospective economic advantage, violation of the Nevada Deceptive Trade Practices Act, violation of the Lanham Act, and violation of California Business & Professions Code §17200 et seq. Oracle then amended its counterclaims to include requesting declaratory judgment of no intentional interference with contractual relations, no intentional interference with prospective economic advantage, and no violation of California Business & Professions Code §17200 et seq. By stipulation of the parties, the District Court granted the Company’s motion to file the Company’s third amended complaint to add claims arising from Oracle’s purported revocation of the Company’s access to its support websites on behalf of the Company’s clients, which was filed and served in May 2017. In September 2017, the District Court issued an order granting in part and denying in part the Company’s motion to dismiss Oracle’s third amended counterclaims. The District Court granted the Company’s motion to dismiss Oracle’s intentional interference with prospective economic advantage and unjust enrichment counterclaims.

In November 2017, the District Court issued an order granting in part and denying in part Oracle’s motion to dismiss the Company’s third amended complaint. The District Court granted Oracle’s motion to dismiss as to the Company’s third cause of action for a declaratory judgment that Oracle has engaged in copyright misuse, fifth cause of action for intentional interference with prospective economic advantage; sixth cause of action for a violation of Nevada’s Deceptive Trade Practices Act under the “bait and switch” provision of NRS § 598.0917; and seventh cause of action for violation of the Lanham Act. The District Court denied Oracle’s motion as to the Company’s causes of action for intentional interference with contractual relations, violation of Nevada Deceptive Trade Practices Act, under the “false and misleading” provision of NRS §598.0915(8) and unfair competition.

Fact discovery with respect to the above action substantially ended in March 2018, and expert discovery ended in September 2018. In October 2018, the Company and Oracle each filed motions for summary judgment. On September 15, 2020, the District Court issued an order resolving the parties’ seven motions for summary judgment. It found infringement of 17 Oracle PeopleSoft copyrights for work Rimini Street performed for a set of “gap customers” that were acquired after Rimini I was filed and that were using the Process 1.0 support practices before the transition to the Process 2.0 support practices was complete. The District Court also found infringement of four Oracle PeopleSoft copyrights involving support of two specific Company clients. The District Court noted that these two matters were “limited cases” and involved “limited circumstance[s].” There was no finding of infringement on any other Oracle copyrights at issue. All other copyright-related disputes, including the lawfulness of Process 2.0, were not resolved by the order and will be decided by the Rimini II jury at trial.

The order also resolved several of the non-copyright claims asserted by the parties. The District Court’s principal findings were: (i) to allow the Company’s claim for injunctive relief against Oracle for unfair competition in violation of the California Business & Professions Code §17200 et seq. to proceed to trial; (ii) granting summary judgment for Oracle on the Company’s affirmative claims for damages under the Nevada and California unfair and deceptive trade practices statutes; and (iii) holding that Oracle had the right to revoke the Company’s access to its websites. The Court also reiterated that the Company has the legal right to provide aftermarket support for Oracle’s enterprise software.

As of this date, no damages of any kind have been awarded by the District Court in Rimini II. Damages, if any, will be a decision for the Rimini II jury. The Company reserves all rights, including appellate rights, with respect to the September 2020 District Court order and all other District Court and jury rulings and findings in Rimini II. There is currently no trial date scheduled, and while the Company does not expect a trial to occur in this matter earlier than the first half of 2022, the trial could occur earlier or later than that.

At this time, the Company does not have sufficient information regarding possible damages exposure for the counterclaims asserted by Oracle. As to the claims asserted by Oracle, in Case 1, the jury awarded damages in the form of a fair market value license of $35.4 million for the 93 copyrighted works at issue, which the Company has paid. The parties dispute the relevance of that award for Case 2, and the Court has not yet resolved that dispute. The Company maintains that zero damages should be awarded in Case 2. A jury will ultimately determine what amount, if any, of damages to award. Both parties have sought injunctive relief in addition to monetary damages in this matter, and the Company has reserved its rights to appeal regarding the possible recovery of damages by the Company in connection with the Company’s claims against Oracle. As a result, an estimate of the range of loss cannot be reasonably determined. The Company also believes that an award for damages payable to Oracle is not probable, so no accrual has been made as of September 30, 2020. However, as with any jury trial, the ultimate outcome may be different from our best estimates and could have material adverse impact on our financial results and our business.

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

Governmental Inquiry

In March 2018, the Company received a federal grand jury subpoena, issued from the United States District Court for the Northern District of California, requesting the Company to produce certain documents relating to specified support and related operational practices. The Company fully cooperated with this inquiry and the related document requests by April 2019 and has received no further requests since that date.

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 $14.7 million and $22.7 million as of September 30, 2020 and December 31, 2019, 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.
v3.20.2
RELATED PARTY TRANSACTIONS
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS
 
Upon consummation of the merger with GP Investments Acquisition Corp. ("GPIA") in May 2017, an outstanding note payable to GP Sponsor with an initial face amount of approximately $3.0 million was assumed by the Company. An affiliate of GP Sponsor is a member of the Company's Board of Directors. This note was originally non-interest bearing and was not due and payable until the outstanding principal balance under the former Credit Facility was less than $95.0 million. At the inception of this note, the maturity date was expected to occur in June 2020 based on the scheduled principal payments under the former Credit Facility. Interest was initially imputed under this note payable at the rate of 15.0% per annum. The net carrying value of this note payable was $2.4 million as of December 31, 2018, and the Company recognized accretion expense of $0.2 million for the nine months ended September 30, 2019. This note payable was amended twice in 2018, which resulted in further changes to the effective interest rate and maturity date.

The second amendment to the loan agreement was effective on December 21, 2018, and provided for an extension of the maturity date from January 4, 2019 to June 28, 2019. In addition, the parties agreed that the note payable would retroactively bear interest at 13.0% per annum from July 19, 2018 through the maturity date. Total retroactive interest amounted to $0.2 million which is accounted for as debt discounts and issuance costs (“DDIC”) that was being accreted through the maturity date. In addition, the second amendment provided for monthly principal payments starting in December 2018 of approximately $0.4 million plus accrued interest. In December 2018, the Company made a payment of $0.6 million, primarily consisting of payment of retroactive interest of $0.2 million and the first monthly principal payment of $0.4 million. The Company made principal and interest payments totaling $2.7 million during the nine months ended September 30, 2019. The effective interest rate for accretion of DDIC was 26.4% for the period from December 21, 2018 through June 28, 2019. The note was paid off on June 28, 2019.
An affiliate of Adams Street Partners ("ASP") is a member of the Company’s Board of Directors. As of September 30, 2020, ASP owned approximately 31.1% of the Company’s issued and outstanding shares of Common Stock. In July 2018, ASP acquired 19,209 shares of Series A Preferred Stock and approximately 0.4 million shares of Common Stock issued in the Initial Private Placement discussed in Note 5 for total consideration of approximately $19.2 million. As of September 30, 2020, ASP had voting control of approximately 27.9% of the Company’s issued and outstanding shares of Common Stock, including voting rights associated with its 20,347 shares of Series A Preferred Stock. Prior to termination on July 19, 2018 of the Company's amended Credit Facility, ASP owned a $10.0 million indirect interest in the amended Credit Facility.
v3.20.2
EARNINGS (LOSS) PER SHARE
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
EARNINGS (LOSS) PER SHARE EARNINGS (LOSS) PER SHARE
The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock to be calculated using the two-class method. The holders of Series A Preferred Stock are entitled to participate in Common Stock dividends, if and when declared, on a one-to-one per-share basis. Accordingly, in periods in which the Company has net income, earnings per share will be computed using the two-class method whereby the pro rata dividends on Common Stock that are also distributable to the holders of Series A Preferred Stock will be deducted from earnings applicable to common stockholders, regardless of whether a dividend is declared for such undistributed earnings. Under the two-class method, earnings for the reporting period are allocated between the holders of the Company's Common Stock and the Series A Preferred Stock based on their respective participation rights in undistributed earnings.

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. Net income allocated to the holders of the Company's Series A Preferred Stock is calculated based on the shareholders’ proportionate share of the weighted average shares of Common Stock outstanding on an if-converted basis. 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 both the three and nine months ended September 30, 2020 and 2019, 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 table sets forth the computation of basic and diluted net income attributable to common stockholders for both the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Income attributable to common stockholders:
  Net income $3,306 $1,360 $9,321 $17,736 
  Dividends and accretion related to Series A Preferred Stock:
    Cash dividends declared(3,968)(3,852)(11,817)(11,192)
    PIK dividends declared(1,190)(1,156)(3,545)(3,358)
    Accretion of discount(1,587)(1,511)(4,702)(4,319)
     (3,439)(5,159)(10,743)(1,133)
    Undistributed earnings allocated using the two-class method— — — — 
      Net loss attributable to common stockholders$(3,439)$(5,159)$(10,743)$(1,133)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Weighted average number of shares of Common Stock outstanding72,377 66,696 69,521 65,625 
Additional shares outstanding if Series A Preferred Stock is converted to Common Stock15,873 15,408 15,756 14,926 
Total shares outstanding if Series A Preferred Stock is converted to Common Stock88,250 82,104 85,277 80,551 
      Percentage of shares allocable to Series A Preferred Stock18.0 %18.8 %18.5 %18.5 %
Weighted average number of shares of Common Stock outstanding:
  Basic72,377 66,696 69,521 65,625 
  Effect of dilutive securities:
    Warrants— — — — 
    Stock options— — — — 
    Restricted stock units— — — — 
  Diluted72,377 66,696 69,521 65,625 
Net loss per share attributable to common stockholders:
  Basic and diluted$(0.05)$(0.08)$(0.15)$(0.02)

For the three months and nine months ended September 30, 2020 and 2019, basic and diluted loss per share attributable to common stockholders were the same because all Common Stock equivalents were anti-dilutive.

As of September 30, 2020 and 2019, the following potential Common Stock equivalents were excluded from the computation of diluted net loss per share for the respective periods ending on these dates since the impact of inclusion was anti-dilutive (in thousands): 
 20202019
Series A Preferred Stock15,873 15,408 
Restricted stock units3,096 2,887 
Stock options7,239 9,312 
Warrants18,128 18,128 
Total44,336 45,735 
v3.20.2
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
9 Months Ended
Sep. 30, 2020
Investments, All Other Investments [Abstract]  
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS 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, 2019, included in the 2019 Form 10-K.
 
As discussed in Note 5, the fair value for the Company's Series A Preferred Stock issuances on June 20, 2019, March 7, 2019 and July 19, 2018 were determined to be $3.0 million, $5.3 million and $126.8 million, respectively, which were utilized to determine the basis for allocating the net proceeds. The fair value was determined by utilizing a combination of a discounted cash flow methodology related to funds generated by the Series A Preferred Stock, along with the BSM option-pricing model in relation to the conversion feature. Key assumptions applied for the discounted cash flow and BSM analysis included (i) three different scenarios whereby the Series A Preferred Stock would remain outstanding between 4 and 5 years along with a probability weighting assigned to each scenario, (ii) an implied yield of the Series A Preferred Stock ranging from 20.9% to 22.9% calibrated to the transaction values as of June 20, 2019, March 7, 2019 and July 19, 2018, respectively, (iii) risk-free interest rates of 1.72%, 2.44% and 2.8% and (iv) historical volatility of 30.0%.

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. As of September 30, 2020, the Company does not have any assets or liabilities that are carried at fair value on a recurring basis.

The carrying amounts of the Company’s financial instruments including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to their short-term maturities. Based on borrowing rates currently available to the Company for debt with similar terms, the carrying value of capital lease obligations approximate fair value as of the respective balance sheet dates.
 
Significant Concentrations
 
The Company attributes revenues to geographic regions based on the location of its clients’ contracting entity. The following table shows revenues by geographic region (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
United States of America$48,160 $44,641 $142,982 $133,126 
International34,358 24,541 95,970 71,798 
Total$82,518 $69,182 $238,952 $204,924 
 
No clients represented more than 10% of revenue for both the three months and nine months ended September 30, 2020 or 2019. As of September 30, 2020 and December 31, 2019, no clients accounted for more than 10% of total net accounts receivable.
 
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 of America. Deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. As of September 30, 2020 and December 31, 2019, the Company had cash, cash equivalents and restricted cash with a single financial institution for an aggregate of $65.2 million and $33.1 million, respectively. As of September 30, 2020 and December 31, 2019, the Company had restricted cash of $0.3 million and $0.4 million, respectively. 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.
v3.20.2
ASC 842 ADOPTION IMPACT
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
ASC 842 ADOPTION IMPACT LEASES
Effective at the start of fiscal 2020, the Company adopted the provisions and expanded disclosure requirements described in Topic 842. The Company adopted the standard using the prospective method. Accordingly, the results for the prior comparable periods were not adjusted to conform to the current period measurement or recognition of results. The Company has operating leases for real estate and equipment with an option to renew the leases for up to one month to five years. Some of the leases include the option to terminate the leases upon 30-days notice with a penalty. The Company's leases have various remaining lease terms ranging from November 2020 to January 2027. 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.

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.

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

The Company has elected to apply the short-term lease exception for all underlying asset classes. That is, leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. The Company's leases do not include significant restrictions or covenants, and residual value guarantees are generally not included within its operating leases. As of September 30, 2020, the Company did not have any material additional operating leases that have not yet commenced.

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

Three Months EndedNine Months Ended
September 30, 2020September 30, 2020
Operating lease expense related to ROU assets and liabilities$1,581 $4,628 
Other lease expense231 846 
Total lease expense$1,812 $5,474 

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

Supplemental Balance Sheet InformationSeptember 30, 2020
Operating lease right-of-use assets, noncurrent$16,585 
Operating lease liabilities, current$4,309 
Operating lease liabilities, noncurrent13,256 
  Total operating lease liabilities$17,565 

As of January 1, 2020, the Company had total operating lease right-of use assets of $18.8 million and total operating lease liabilities of $20.0 million.
Weighted Average Remaining Lease TermYears
Operating leases4.65
Weighted Average Discount Rate
Operating leases11.0 %

Maturities of operating lease liabilities as of September 30, 2020 were as follows (in thousands):

Year ending September 30:
2021$5,999 
20224,935 
20233,184 
20242,704 
20252,470 
Thereafter3,223 
  Total future undiscounted lease payments22,515 
Less imputed interest(4,950)
Total$17,565 

For the three months and the nine months ended September 30, 2020, the Company paid $1.6 million and $4.6 million, respectively, for operating lease liabilities.

Maturities of operating leases accounted for under ASC 840 as of December 31, 2019 were as follows (in thousands):

Year ending December 31, 2019:
2020$5,609 
20215,155 
20224,067 
20232,993 
20242,670 
Thereafter5,065 
$25,559 
v3.20.2
LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Nature of Business
Nature of Business
 
Rimini Street, Inc. (the “Company”) is a global provider of enterprise software support services. The Company’s subscription-based software support products and services offer enterprise software licensees a choice of solutions that replace or supplement the support products and services offered by enterprise software vendors.
Basis of Presentation and Consolidation
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, 2019, included in the Company’s 2019 Annual Report on Form 10-K as filed with the SEC on March 16, 2020 (the “2019 Form 10-K”).
 
The accompanying condensed consolidated balance sheet and related disclosures as of December 31, 2019 have been derived from the Company’s audited financial statements. The Company’s financial condition as of September 30, 2020, and operating results for both the three and nine months ended September 30, 2020 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, 2020.
Use of Estimates
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 significant accounting estimates include, but are not necessarily limited to, 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 operation may be affected.
Recent Accounting Pronouncements
Recent Accounting Pronouncements

Recently Adopted Standards. The following accounting standards were adopted during the fiscal year 2020:

In February 2016, Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases, which requires organizations that lease assets (“lessees”) to recognize on the balance sheet the right of use ("ROU") assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months and to disclose key information about leasing arrangements. Under the new standard, both finance and operating leases will be required to be recognized on the balance sheet. Additional quantitative and qualitative disclosures, including significant judgments made by management, are also required. The Company adopted ASC 842 using the modified retrospective method on January 1, 2020. See Note 12 for the disclosure on the impact of adopting this standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires application of an impairment model known as the current expected credit loss (“CECL”) model to certain financial instruments held at amortized cost, including trade receivables. Using the CECL model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable loss has been incurred. The new guidance was effective for the Company in January 2020. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which provides new guidance on disclosures related to fair value measurements. The guidance is intended to improve the effectiveness of the notes to financial statements by facilitating clearer communication, and it includes multiple new, eliminated and modified disclosure requirements. The guidance was effective for the Company in January 2020. The adoption of this guidance did not have an impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The guidance aligns the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract with the requirements for capitalization costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The new guidance was effective for the Company in January 2020. The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements.
Recently Issued Accounting Standards:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions to the general income tax accounting principles, and clarifies and amends existing guidance to facilitate consistent application of the accounting principles. The new guidance is effective for the Company as of January 1, 2021. The Company is assessing the impact of the adoption of this guidance on its Consolidated Financial Statements.

In January 2020, the FASB issued ASU 2020-1, Investments—Equity Securities (Topic 321), Investments - Equity and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The guidance clarifies interactions between current accounting standards on equity securities, equity method and joint ventures, and derivatives and hedging. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for the Company as of January 1, 2021. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The guidance eliminates the beneficial conversion and cash conversion accounting for convertible instruments. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The new guidance is effective for the Company as of January 1, 2022. The Company is assessing the impact of the adoption of this guidance on its Consolidated Financial Statements.
Earnings Per Share computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock to be calculated using the two-class method. The holders of Series A Preferred Stock are entitled to participate in Common Stock dividends, if and when declared, on a one-to-one per-share basis. Accordingly, in periods in which the Company has net income, earnings per share will be computed using the two-class method whereby the pro rata dividends on Common Stock that are also distributable to the holders of Series A Preferred Stock will be deducted from earnings applicable to common stockholders, regardless of whether a dividend is declared for such undistributed earnings. Under the two-class method, earnings for the reporting period are allocated between the holders of the Company's Common Stock and the Series A Preferred Stock based on their respective participation rights in undistributed earnings.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. Net income allocated to the holders of the Company's Series A Preferred Stock is calculated based on the shareholders’ proportionate share of the weighted average shares of Common Stock outstanding on an if-converted basis. 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.
v3.20.2
DEFERRED CONTRACT COSTS AND DEFERRED REVENUE (Tables)
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Contract liabilities
Activity for deferred contract costs for the three and nine months ended September 30, 2020 and 2019 is shown below (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Deferred contract costs, current and noncurrent, as of the beginning of period$29,384 $25,947 $28,049 $27,080 
Capitalized commissions during the period7,123 3,104 15,165 8,039 
Amortized deferred contract costs during the period(3,585)(3,144)(10,292)(9,212)
Deferred contract costs, current and noncurrent, as of the end of period$32,922 $25,907 $32,922 $25,907 

Deferred revenue activity for the three and nine months ended September 30, 2020 and 2019 is shown below (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Deferred revenue, current and noncurrent, as of the beginning of period$218,506 $204,845 $235,498 $196,706 
Billings, net68,309 51,262 207,751 195,143 
Revenue recognized(82,518)(69,182)(238,952)(204,924)
Deferred revenue, current and noncurrent, as of the end of period$204,297 $186,925 $204,297 $186,925 
v3.20.2
OTHER FINANCIAL INFORMATION (Tables)
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Other Accrued Liabilities
As of September 30, 2020 and December 31, 2019, other accrued liabilities consist of the following (in thousands):
 
 20202019
Accrued sales and other taxes$2,587 $5,752 
Accrued professional fees4,936 4,367 
Accrued dividends on Redeemable Series A Preferred Stock3,977 3,889 
Current maturities of capital lease obligations449 222 
Income taxes payable1,471 1,091 
Appeal proceeds payable to insurance company— 4,388 
Other accrued expenses3,614 3,638 
Total other accrued liabilities$17,034 $23,347 
Schedule of Interest Expense
The components of interest expense are presented below (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Accretion expense for GP Sponsor note payable$— $— $— $185 
Interest on other borrowings10 27 35 190 
  Total interest expense$10 $27 $35 $375 
v3.20.2
REDEEMABLE SERIES A PREFERRED STOCK (Tables)
9 Months Ended
Sep. 30, 2020
Temporary Equity Disclosure [Abstract]  
Allocation Private Placement Proceeds The allocation of the net proceeds as of the Closing Date, along with changes in the net carrying value of the Series A Preferred Stock through September 30, 2020 are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on July 19, 2018:
  Series A Preferred Stock140,000 $126,763 
(1)
$— $— $126,763 
  Common Stock— — 20,131 
(2)
— 20,131 
  Convertible Notes— — — — — 
    Total140,000 $126,763 $20,131 $— $146,894 
Relative fair value allocation on July 19, 2018
  Aggregate cash proceeds on July 19, 2018140,000 $114,773 
(3)
$18,227 
(3)
$— $133,000 
  Incremental and direct costs— (3,994)
(4)
(634)
(4)
— (4,628)
Net carrying value on July 19, 2018140,000 $110,779 
 
$17,593 $— $128,372 

_________________
1.The liquidation preference for each share of Series A Preferred Stock on the closing date for the Initial Private Placement was $1,000 per for an aggregate liquidation preference of $140.0 million. The estimated fair value of the Series A Preferred Stock was approximately $126.8 million on July 19, 2018, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
2.The fair value of the issuance of approximately 2.9 million shares of the Common Stock was based on the last closing price of $6.95 per share on the date prior to closing the transaction.
3.The aggregate cash proceeds of $133.0 million on July 19, 2018 were allocated pro rata based on the fair value of all consideration issued.
4.Incremental and direct costs of the Initial Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs include financial advisory and professional fees of $2.7 million that were incurred by the Company, and due diligence and professional fees incurred by the investors of $1.9 million.
The allocation of the net proceeds from the March 2019 Private Placement are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on March 7, 2019:
  Series A Preferred Stock6,500 $5,313 
(1)
$— $— $5,313 
  Common Stock— — 722 
(2)
— 722 
  Convertible Notes— — — — — 
    Total6,500 $5,313 $722 $— $6,035 
Relative fair value allocation on March 7, 2019:
  Aggregate cash proceeds on March 7, 20196,500 $5,093 
(3)
$692 
(3)
$— $5,785 
  Incremental and direct costs— (661)
(4)
(90)
(4)
— (751)
Net carrying value on March 7, 20196,500 $4,432 $602 $— $5,034 


(1)The liquidation preference for each share of Series A Preferred Stock on the closing date for the March 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $6.5 million. The estimated fair value of the Series A Preferred Stock was approximately $5.3 million on March 7, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)The fair value of the issuance of approximately 134,483 shares of the Common Stock was based on the closing price of $5.37 per share on the date prior to closing of the transaction.
(3)The aggregate cash proceeds of $5.8 million on March 7, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)Incremental and direct costs related to the March 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 85,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.5 million and financial advisory and professional fees that were incurred of approximately $0.3 million that were either paid or accrued directly by the Company as of March 31, 2019.
The allocation of the net proceeds from the June 2019 Private Placement are set forth below (dollars in thousands):
Series A Preferred StockCommonConvertible
SharesAmountStockNotesTotal
Fair value on June 20, 2019:
  Series A Preferred Stock3,500 $2,997 
(1)
$— $— $2,997 
  Common Stock— — 376 
(2)
— 376 
  Convertible Notes— — — — — 
    Total3,500 $2,997 $376 $— $3,373 
Relative fair value allocation on June 20, 2019:
  Aggregate cash proceeds on June 20, 20193,500 $2,954 
(3)
$371 
(3)
$— $3,325 
  Incremental and direct costs— (301)
(4)
(38)
(4)
— (339)
Net carrying value on June 20, 20193,500 $2,653 $333 $— $2,986 
(1)The liquidation preference for each share of Series A Preferred Stock on the closing date for the June 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $3.5 million. The estimated fair value of the Series A Preferred Stock was approximately $3.0 million on June 20, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)The fair value of the issuance of approximately 72,414 shares of the Common Stock was based on the closing price of $5.19 per share on the date prior to closing of the transaction.
(3)The aggregate cash proceeds of $3.3 million on June 20, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)Incremental and direct costs related to the June 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 35,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.2 million and financial advisory and professional fees that were incurred of approximately $0.2 million that were either paid or accrued directly by the Company as of June 30, 2019.
Temporary Equity
The changes in the net carrying value of Series A Preferred Stock from December 31, 2019 to September 30, 2020 are set forth below (dollars in thousands):
Series A Preferred Stock
SharesAmount
Net carrying value as of December 31, 2019155,231 $131,316 
Issuance of shares to settle PIK Dividends on January 2, 20201,170 1,170 
Accretion of discount for the three months ended March 31, 2020— 1,547 
Issuance of shares to settle PIK Dividends on April 1, 20201,153 1,153 
Accretion of discount for the three months ended June 30, 2020— 1,567 
Issuance of shares to settle PIK Dividends on July 1, 20201,175 1,175 
Accretion of discount for the three months ended September 30, 2020— 1,588 
Net carrying value as of September 30, 2020158,729 $139,516 
Dividends Declared Presented below is a summary of total and per share dividends declared through September 30, 2020 (dollars in thousands, except per share amounts):
Dividends Payable in:TotalDividends
CashPIKDividendsPer Share
Dividends payable as of December 31, 2019$3,889 $1,156 $5,045 $32.50 
  Cash Dividends @ 10% per annum
3,910 — 3,910 25.00 
  PIK Dividends @ 3% per annum
— 1,167 1,167 7.46 
Fractional PIK shares settled for cash— 0.04 
Less dividends settled January 2, 2020(3,931)(1,170)(5,101)(32.61)
Dividends payable as of March 31, 20203,874 1,153 5,027 32.14 
  Cash Dividends @ 10% per annum
3,939 — 3,939 25.00 
  PIK Dividends @ 3% per annum
— 1,175 1,175 7.46 
Fractional PIK shares settled for cash— 0.04 
Less dividends settled April 1 , 2020(3,874)(1,153)(5,027)(31.91)
Dividends payable as of June 30, 20203,946 1,175 5,121 32.50 
  Cash Dividends @ 10% per annum
3,968 — 3,968 25.00 
  PIK Dividends @ 3% per annum
— 1,182 1,182 7.45 
Fractional PIK shares settled for cash— 0.06 
Less dividends settled July 1, 2020(3,946)(1,175)(5,121)(32.26)
Dividends payable as of September 30, 2020$3,977 $1,182 $5,159 $32.50 
From January 1, 2020 through July 19, 2023, the date until which the Series A Preferred Stock is expected to remain outstanding, estimated Cash Dividends and PIK Dividends required to be declared are as follows (in thousands):
Year Ending December 31:CashPIKTotal
2020$15,819 $4,746 $20,565 
202116,299 4,890 21,189 
202216,794 5,038 21,832 
20239,455 2,837 12,292 
Total$58,367 $17,511 $75,878 
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS (Tables)
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of Stock Option Activity
The following table sets forth a summary of stock option activity under the Stock Plans for the nine months ended September 30, 2020 (shares in thousands): 
 Shares
Price (1)
Term (2)
Outstanding, December 31, 20198,677 $4.55 4.9
Granted464 4.64 
Forfeited(225)6.09 
Expired(137)6.29 
Exercised(1,540)1.06 
Outstanding, September 30, 2020 (3)(4)7,239 5.22 5.3
Vested, September 30, 2020 (3)5,992 5.12 4.6

 
(1)Represents the weighted average exercise price.
(2)Represents the weighted average remaining contractual term until the stock options expire.
(3)As of September 30, 2020, the aggregate intrinsic value of all stock options outstanding was $2.5 million. As of September 30, 2020, the aggregate intrinsic value of vested stock options was $2.5 million.
(4)The number of outstanding stock options that are not expected to ultimately vest due to forfeiture amounted to 0.1 million shares as of September 30, 2020.
Schedule of Shares Available for Grant Activity
The following table presents activity affecting the total number of shares available for grant under the Stock Plans for the nine months ended September 30, 2020 (in thousands):
 
Available, December 31, 20192,884 
Newly authorized by Board of Directors2,700 
Stock options granted(464)
Restricted stock units granted(1,418)
Expired options under Stock Plans137 
Forfeited options under Stock Plans225 
Forfeited restricted stock units under Stock Plans167 
Available, September 30, 20204,231 
Schedule of Assumptions of Fair Value of Stock Option Grants For the nine months ended September 30, 2020, 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:
 
Expected life (in years)6.0
Volatility39%
Dividend yield0%
Risk-free interest rate0.56%
Fair value per common share on date of grant$4.64
Schedule of Stock-based Compensation Expense
Stock-based compensation expense attributable to RSUs and stock options is classified as follows (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Cost of revenues$303 $247 $866 $625 
Sales and marketing734 484 1,994 1,132 
General and administrative1,152 890 2,565 2,072 
Total$2,189 $1,621 $5,425 $3,829 
v3.20.2
COMMITMENTS AND CONTINGENCIES (Tables)
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Dividends Declared Presented below is a summary of total and per share dividends declared through September 30, 2020 (dollars in thousands, except per share amounts):
Dividends Payable in:TotalDividends
CashPIKDividendsPer Share
Dividends payable as of December 31, 2019$3,889 $1,156 $5,045 $32.50 
  Cash Dividends @ 10% per annum
3,910 — 3,910 25.00 
  PIK Dividends @ 3% per annum
— 1,167 1,167 7.46 
Fractional PIK shares settled for cash— 0.04 
Less dividends settled January 2, 2020(3,931)(1,170)(5,101)(32.61)
Dividends payable as of March 31, 20203,874 1,153 5,027 32.14 
  Cash Dividends @ 10% per annum
3,939 — 3,939 25.00 
  PIK Dividends @ 3% per annum
— 1,175 1,175 7.46 
Fractional PIK shares settled for cash— 0.04 
Less dividends settled April 1 , 2020(3,874)(1,153)(5,027)(31.91)
Dividends payable as of June 30, 20203,946 1,175 5,121 32.50 
  Cash Dividends @ 10% per annum
3,968 — 3,968 25.00 
  PIK Dividends @ 3% per annum
— 1,182 1,182 7.45 
Fractional PIK shares settled for cash— 0.06 
Less dividends settled July 1, 2020(3,946)(1,175)(5,121)(32.26)
Dividends payable as of September 30, 2020$3,977 $1,182 $5,159 $32.50 
From January 1, 2020 through July 19, 2023, the date until which the Series A Preferred Stock is expected to remain outstanding, estimated Cash Dividends and PIK Dividends required to be declared are as follows (in thousands):
Year Ending December 31:CashPIKTotal
2020$15,819 $4,746 $20,565 
202116,299 4,890 21,189 
202216,794 5,038 21,832 
20239,455 2,837 12,292 
Total$58,367 $17,511 $75,878 
v3.20.2
EARNINGS (LOSS) PER SHARE (Tables)
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted The following table sets forth the computation of basic and diluted net income attributable to common stockholders for both the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Income attributable to common stockholders:
  Net income $3,306 $1,360 $9,321 $17,736 
  Dividends and accretion related to Series A Preferred Stock:
    Cash dividends declared(3,968)(3,852)(11,817)(11,192)
    PIK dividends declared(1,190)(1,156)(3,545)(3,358)
    Accretion of discount(1,587)(1,511)(4,702)(4,319)
     (3,439)(5,159)(10,743)(1,133)
    Undistributed earnings allocated using the two-class method— — — — 
      Net loss attributable to common stockholders$(3,439)$(5,159)$(10,743)$(1,133)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Weighted average number of shares of Common Stock outstanding72,377 66,696 69,521 65,625 
Additional shares outstanding if Series A Preferred Stock is converted to Common Stock15,873 15,408 15,756 14,926 
Total shares outstanding if Series A Preferred Stock is converted to Common Stock88,250 82,104 85,277 80,551 
      Percentage of shares allocable to Series A Preferred Stock18.0 %18.8 %18.5 %18.5 %
Weighted average number of shares of Common Stock outstanding:
  Basic72,377 66,696 69,521 65,625 
  Effect of dilutive securities:
    Warrants— — — — 
    Stock options— — — — 
    Restricted stock units— — — — 
  Diluted72,377 66,696 69,521 65,625 
Net loss per share attributable to common stockholders:
  Basic and diluted$(0.05)$(0.08)$(0.15)$(0.02)
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
As of September 30, 2020 and 2019, the following potential Common Stock equivalents were excluded from the computation of diluted net loss per share for the respective periods ending on these dates since the impact of inclusion was anti-dilutive (in thousands): 
 20202019
Series A Preferred Stock15,873 15,408 
Restricted stock units3,096 2,887 
Stock options7,239 9,312 
Warrants18,128 18,128 
Total44,336 45,735 
v3.20.2
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS (Tables)
9 Months Ended
Sep. 30, 2020
Investments, All Other Investments [Abstract]  
Schedule of Revenues by Geographic Regions
The Company attributes revenues to geographic regions based on the location of its clients’ contracting entity. The following table shows revenues by geographic region (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
United States of America$48,160 $44,641 $142,982 $133,126 
International34,358 24,541 95,970 71,798 
Total$82,518 $69,182 $238,952 $204,924 
v3.20.2
ASC 842 ADOPTION IMPACT (Tables)
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Components of lease expense
The components of lease expense and supplemental balance sheet information were as follows (in thousands):

Three Months EndedNine Months Ended
September 30, 2020September 30, 2020
Operating lease expense related to ROU assets and liabilities$1,581 $4,628 
Other lease expense231 846 
Total lease expense$1,812 $5,474 

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

Supplemental Balance Sheet InformationSeptember 30, 2020
Operating lease right-of-use assets, noncurrent$16,585 
Operating lease liabilities, current$4,309 
Operating lease liabilities, noncurrent13,256 
  Total operating lease liabilities$17,565 

As of January 1, 2020, the Company had total operating lease right-of use assets of $18.8 million and total operating lease liabilities of $20.0 million.
Weighted Average Remaining Lease TermYears
Operating leases4.65
Weighted Average Discount Rate
Operating leases11.0 %
Maturities of operating lease liabilities
Maturities of operating lease liabilities as of September 30, 2020 were as follows (in thousands):

Year ending September 30:
2021$5,999 
20224,935 
20233,184 
20242,704 
20252,470 
Thereafter3,223 
  Total future undiscounted lease payments22,515 
Less imputed interest(4,950)
Total$17,565 
Schedule of Future Minimum Lease Payments for Operating Leases
Maturities of operating leases accounted for under ASC 840 as of December 31, 2019 were as follows (in thousands):

Year ending December 31, 2019:
2020$5,609 
20215,155 
20224,067 
20232,993 
20242,670 
Thereafter5,065 
$25,559 
v3.20.2
LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Aug. 18, 2020
Jun. 20, 2019
Mar. 07, 2019
Jul. 19, 2018
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Significant Accounting Policies Disclosure [Line Items]                        
Working capital deficit         $ 64,700              
Net income (loss) attributable to parent         3,306 $ 1,360 $ 9,321 $ 17,736        
Cash, cash equivalents, restricted cash and restricted cash equivalents         83,743 $ 42,161 83,743 42,161     $ 38,388 $ 25,206
Deferred revenue, current         $ 179,500   179,500          
Historical cost of goods and services (as a percent of deferred revenue)         39.00%              
Underwriter discounts and commissions             1,650 0        
Underwriter expenses             143 $ 0        
Professional fees       $ 200                
Gross cash proceeds       $ 133,000                
Cash dividends payable (as a percent)       10.00%                
Dividends payable         $ 75,878   75,878          
Initial dividend period (in years)       5 years                
Cash dividends payable after five year period (as a percent)       13.00%                
Operating and capital lease payments due within next twelve months         $ 7,000   $ 7,000          
Minimum                        
Significant Accounting Policies Disclosure [Line Items]                        
Dividends payable       $ 3,900                
Maximum                        
Significant Accounting Policies Disclosure [Line Items]                        
Dividends payable       4,300                
Revolving Credit Facility                        
Significant Accounting Policies Disclosure [Line Items]                        
Repayments of lines of credit       $ 132,800                
Common Stock                        
Significant Accounting Policies Disclosure [Line Items]                        
New stock issued during period (shares)   72,414 134,483 2,900,000                
Series A Preferred Stock                        
Significant Accounting Policies Disclosure [Line Items]                        
Dividend rate (as a percent)   13.00%     13.00%   13.00%          
Temporary equity, par value (usd per share)   $ 0.0001                    
New stock issued during period (shares)       140,000                
Dividends payable         $ 5,159   $ 5,159   $ 5,121 $ 5,027 $ 5,045  
August 2020 Offering                        
Significant Accounting Policies Disclosure [Line Items]                        
Sale of stock (shares) 6,100,000                      
Price per share (usd per share) $ 4.50                      
Gross proceeds $ 27,500                      
Underwriter discounts and commissions 1,700                      
Underwriter expenses 100                      
Professional fees 600                      
Consideration received $ 25,100                      
August 2020 Offering | Common Stock                        
Significant Accounting Policies Disclosure [Line Items]                        
New stock issued during period (shares)         6,100,000 0 6,100,000 0        
Private Placement                        
Significant Accounting Policies Disclosure [Line Items]                        
Consideration received   $ 2,986 $ 5,034 $ 128,372                
Private Placement | Common Stock                        
Significant Accounting Policies Disclosure [Line Items]                        
Sale of stock (shares)   72,414 134,483                  
New stock issued during period (shares)   72,414 134,483   0 0 0 207,000        
Private Placement | Series A Preferred Stock                        
Significant Accounting Policies Disclosure [Line Items]                        
Sale of stock (shares)   3,500 6,500 140,000                
v3.20.2
DEFERRED CONTRACT COSTS AND DEFERRED REVENUE (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Capitalized Contract Cost, Net [Abstract]          
Deferred contract costs, current and noncurrent, as of the beginning of period $ 29,384 $ 25,947 $ 28,049 $ 27,080  
Capitalized commissions during the period 7,123 3,104 15,165 8,039  
Amortized deferred contract costs during the period (3,585) (3,144) (10,292) (9,212)  
Deferred contract costs, current and noncurrent, as of the end of period 32,922 25,907 32,922 25,907  
Change in Contract with Customer, Liability [Abstract]          
Deferred revenue, current and noncurrent, as of the beginning of period 218,506 204,845 235,498 196,706  
Billings, net 68,309 51,262 207,751 195,143  
Revenue recognized (82,518) (69,182) (238,952) (204,924)  
Deferred revenue, current and noncurrent, as of the end of period 204,297 $ 186,925 204,297 $ 186,925  
Deferred revenue, current 179,512   179,512   $ 205,771
Deferred revenue, noncurrent $ 24,785   $ 24,785   $ 29,727
v3.20.2
OTHER FINANCIAL INFORMATION - Other Accrued Liabilities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Accrued sales and other taxes $ 2,587 $ 5,752
Accrued professional fees 4,936 4,367
Accrued dividends on Redeemable Series A Preferred Stock 3,977 3,889
Current maturities of capital lease obligations 449 222
Income taxes payable 1,471 1,091
Appeal proceeds payable to insurance company 0 4,388
Other accrued expenses 3,614 3,638
Total other accrued liabilities $ 17,034 $ 23,347
v3.20.2
OTHER FINANCIAL INFORMATION - Interest Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]        
Accretion expense for GP Sponsor note payable $ 0 $ 0 $ 0 $ 185
Interest on other borrowings 10 27 35 190
Total interest expense $ 10 $ 27 $ 35 $ 375
v3.20.2
REDEEMABLE SERIES A PREFERRED STOCK - Narrative (Details)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Oct. 01, 2020
shares
Jun. 20, 2019
USD ($)
$ / shares
shares
Mar. 07, 2019
USD ($)
$ / shares
shares
Jul. 19, 2018
USD ($)
$ / shares
shares
Sep. 30, 2020
USD ($)
$ / shares
shares
Sep. 30, 2019
shares
Jun. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
day
$ / shares
shares
Sep. 30, 2019
USD ($)
shares
Oct. 30, 2020
USD ($)
shares
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
shares
Securities Purchase Agreements [Abstract]                          
Net proceeds from issuance of Series A Preferred Stock and Common Stock               $ 0 $ 9,110        
Discount on shares       $ 7,000                  
Line of credit unpaid transaction costs       2,700                  
Stock issuance costs               $ 253 $ 452        
Professional fees       $ 200                  
Certificate Of Designations [Abstract]                          
Redeemable preferred stock, shares authorized (shares) | shares         180,000     180,000         180,000
Number of years dividend will be effective               5 years          
Dividends payable, current         $ 4,000     $ 4,000          
Dividends payable, non-current         $ 1,200     $ 1,200          
Temporary equity, liquidation preference (usd per share) | $ / shares       $ 1,000 $ 10.00     $ 10.00          
Temporary stock outstanding (shares) | shares         158,729     158,729         155,000
Temporary equity, shares issued upon conversion         1     1          
Threshold trading days | day               30          
Threshold consecutive trading days               45 days          
Threshold stock price, minimum (usd per share) | $ / shares               $ 11.50          
Consecutive trading days prior to conversion date | day               60          
Liquidation preference in case of liquidation, dissolution, or winding up of company               $ 80,000          
Temporary equity, liquidation preference per share, in event of liquidation, dissolution, or winding up of company (usd per share) | $ / shares         $ 1,000     $ 1,000          
Outstanding percentage, indebtedness restriction (as a percent)               95.00%          
Subsequent Event                          
Certificate Of Designations [Abstract]                          
Series A Preferred stock issued for PIK dividends (shares) | shares 1,182                        
Funded Debt                          
Securities Purchase Agreements [Abstract]                          
Repayments of lines of credit       $ 132,800                  
Private Placement                          
Securities Purchase Agreements [Abstract]                          
Net proceeds from issuance of Series A Preferred Stock and Common Stock   $ 3,325 $ 5,785 133,000                  
Discount on shares   200 700                    
Incremental and direct transaction costs   339 751 4,628                  
Stock issuance costs   $ 300 $ 800 2,700                  
Discount on shares (as a percent)   5.00% 11.00%                    
Consideration received   $ 2,986 $ 5,034 $ 128,372                  
Incremental and direct costs, shares issued, cost   $ 200 $ 500                    
Series A Preferred Stock                          
Securities Purchase Agreements [Abstract]                          
New stock issued during period (shares) | shares       140,000                  
Certificate Of Designations [Abstract]                          
Dividend rate (as a percent)   13.00%     13.00%     13.00%          
Series A Preferred Stock | Subsequent Event                          
Certificate Of Designations [Abstract]                          
Shares authorized to be repurchased (in shares) | shares                   5,000      
Value of shares authorized to be repurchased                   $ 4,500      
Series A Preferred Stock | Private Placement                          
Securities Purchase Agreements [Abstract]                          
Sale of stock (shares) | shares   3,500 6,500 140,000                  
Net proceeds from issuance of Series A Preferred Stock and Common Stock   $ 2,954 $ 5,093 $ 114,773                  
Incremental and direct transaction costs   $ 301 $ 661 $ 3,994                  
Certificate Of Designations [Abstract]                          
Temporary equity, liquidation preference (usd per share) | $ / shares   $ 1,000 $ 1,000                    
Temporary stock outstanding (shares) | shares         158,729     158,729         155,231
Common Stock                          
Certificate Of Designations [Abstract]                          
Temporary equity, shares issued upon conversion (shares) | shares         15,800,000     15,800,000          
Common Stock                          
Securities Purchase Agreements [Abstract]                          
New stock issued during period (shares) | shares   72,414 134,483 2,900,000                  
Common Stock | Private Placement                          
Securities Purchase Agreements [Abstract]                          
Sale of stock (shares) | shares   72,414 134,483                    
New stock issued during period (shares) | shares   72,414 134,483   0 0   0 207,000        
Net proceeds from issuance of Series A Preferred Stock and Common Stock   $ 371 $ 692 $ 18,227                  
Incremental and direct transaction costs   $ 38 $ 90 634                  
Incremental and direct costs (shares) | shares   35,000 85,000                    
Due Diligence And Professional Fees | Private Placement                          
Securities Purchase Agreements [Abstract]                          
Incremental and direct transaction costs   $ 200 $ 300 $ 1,900     $ 300            
Cash Dividend                          
Certificate Of Designations [Abstract]                          
Dividend rate (as a percent)         10.00%     10.00%     10.00% 10.00%  
Paid-In-Kind Dividend                          
Certificate Of Designations [Abstract]                          
Dividend rate (as a percent)         3.00%     3.00%     3.00% 3.00%  
v3.20.2
REDEEMABLE SERIES A PREFERRED STOCK - Series A Preferred Stock Summary (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Jun. 20, 2019
Mar. 07, 2019
Jul. 19, 2018
Sep. 30, 2020
Sep. 30, 2019
Jun. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Temporary Equity [Line Items]                  
Net proceeds from issuance of Series A Preferred Stock and Common Stock             $ 0 $ 9,110  
Net carrying value       $ 139,516     139,516   $ 131,316
Common stock issued       $ 8     $ 8   7
Footnotes [Abstract]                  
Temporary equity, liquidation preference (usd per share)     $ 1,000 $ 10.00     $ 10.00    
Redeemable preferred stock, liquidation preference $ 3,500 $ 6,500 $ 140,000 $ 158,729     $ 158,729   $ 155,231
Net proceeds from issuance of Series A Preferred Stock and Common Stock             0 9,110  
Series A Preferred Stock                  
Footnotes [Abstract]                  
New stock issued during period (shares)     140,000            
Private Placement                  
Temporary Equity [Line Items]                  
Temporary stock issued 2,997 5,313 $ 126,763            
Issuance of Common Stock 3,373 6,035 146,894            
Net proceeds from issuance of Series A Preferred Stock and Common Stock 3,325 5,785 133,000            
Incremental and direct costs (339) (751) (4,628)            
Consideration received 2,986 5,034 128,372            
Footnotes [Abstract]                  
Temporary stock issued 2,997 5,313 126,763            
Net proceeds from issuance of Series A Preferred Stock and Common Stock 3,325 5,785 133,000            
Incremental and direct costs, shares issued, cost 200 500              
Incremental and direct transaction costs $ 339 $ 751 $ 4,628            
Private Placement | Series A Preferred Stock                  
Temporary Equity [Line Items]                  
Temporary stock issued (shares) 3,500 6,500 140,000            
Temporary stock issued $ 2,997 $ 5,313 $ 126,763            
Net proceeds from issuance of Series A Preferred Stock and Common Stock 2,954 5,093 114,773            
Incremental and direct costs (301) (661) (3,994)            
Net carrying value $ 2,653 $ 4,432 110,779            
Footnotes [Abstract]                  
Temporary equity, liquidation preference (usd per share) $ 1,000 $ 1,000              
Temporary stock issued $ 2,997 $ 5,313 126,763            
Net proceeds from issuance of Series A Preferred Stock and Common Stock 2,954 5,093 114,773            
Incremental and direct transaction costs $ 301 $ 661 $ 3,994            
Common Stock                  
Footnotes [Abstract]                  
New stock issued during period (shares) 72,414 134,483 2,900,000            
Shares issued (usd per share) $ 5.19 $ 5.37 $ 6.95            
Common Stock | Private Placement                  
Temporary Equity [Line Items]                  
Issuance of Common Stock $ 376 $ 722 $ 20,131 $ 0 $ 0   $ 0 $ 0  
Net proceeds from issuance of Series A Preferred Stock and Common Stock 371 692 18,227            
Incremental and direct costs (38) (90) (634)            
Common stock issued $ 333 $ 602 17,593            
Footnotes [Abstract]                  
New stock issued during period (shares) 72,414 134,483   0 0   0 207,000  
Net proceeds from issuance of Series A Preferred Stock and Common Stock $ 371 $ 692 18,227            
Incremental and direct costs (shares) 35,000 85,000              
Incremental and direct transaction costs $ 38 $ 90 634            
Due Diligence And Professional Fees | Private Placement                  
Temporary Equity [Line Items]                  
Incremental and direct costs (200) (300) (1,900)     $ (300)      
Footnotes [Abstract]                  
Incremental and direct transaction costs $ 200 $ 300 1,900     $ 300      
Financial Advisor And Professional Fees | Private Placement                  
Temporary Equity [Line Items]                  
Incremental and direct costs     (2,700)            
Footnotes [Abstract]                  
Incremental and direct transaction costs     $ 2,700            
v3.20.2
REDEEMABLE SERIES A PREFERRED STOCK - Change in Value of Temporary Equity (Details) - USD ($)
$ in Thousands
3 Months Ended
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Increase (Decrease) in Temporary Equity [Roll Forward]      
Temporary equity, beginning balance (shares)     155,000
Temporary equity, ending balance (shares) 158,729    
Private Placement | Series A Preferred Stock      
Increase (Decrease) in Temporary Equity [Roll Forward]      
Temporary equity, beginning balance (shares)     155,231
Temporary equity, beginning balance     $ 131,316
Temporary equity issued for paid-in-kind dividends (shares) 1,175 1,153 1,170
Temporary equity issued for paid-in-kind dividends $ 1,175 $ 1,153 $ 1,170
Accretion of discount (shares) 0 0 0
Accretion of discount $ 1,588 $ 1,567 $ 1,547
Temporary equity, ending balance (shares) 158,729    
Temporary equity, ending balance $ 139,516    
v3.20.2
REDEEMABLE SERIES A PREFERRED STOCK - Dividends (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Jun. 20, 2019
Dividends Payable [Roll Forward]                
Dividends, cash $ 3,968     $ 3,852 $ 11,817 $ 11,192    
Dividends, paid-in-kind 1,190     $ 1,156 3,545 3,358    
Payments of cash dividends on Series A Preferred Stock         (11,750) $ (10,883)    
Dividends payable end of period $ 75,878       $ 75,878      
Cash Dividend                
Dividends Payable [Roll Forward]                
Dividend rate (as a percent) 10.00% 10.00% 10.00%   10.00%      
Dividends payable end of period $ 58,367       $ 58,367      
Paid-In-Kind Dividend                
Dividends Payable [Roll Forward]                
Dividend rate (as a percent) 3.00% 3.00% 3.00%   3.00%      
Dividends payable end of period $ 17,511       $ 17,511      
Series A Preferred Stock                
Dividends Payable [Roll Forward]                
Dividends payable start of period $ 5,121 $ 5,027 $ 5,045   $ 5,045      
Dividend rate (as a percent) 13.00%       13.00%     13.00%
Dividends payable (usd per share) $ 32.50 $ 32.50 $ 32.14   $ 32.50   $ 32.50  
Payments of cash dividends on Series A Preferred Stock $ (5,121) $ (5,027) $ (5,101)          
Dividends, cash paid (usd per share) $ (32.26) $ (31.91) $ (32.61)          
Dividends payable end of period $ 5,159 $ 5,121 $ 5,027   $ 5,159      
Series A Preferred Stock | Cash Dividend                
Dividends Payable [Roll Forward]                
Dividends payable start of period 3,946 3,874 3,889   $ 3,889      
Dividends, cash 3,968 3,939 3,910          
Dividends $ 3,968 $ 3,939 $ 3,910          
Dividends payable (usd per share) $ 25.00 $ 25.00 $ 25.00   $ 25.00      
Payments of cash dividends on Series A Preferred Stock $ (3,946) $ (3,874) $ (3,931)          
Dividends payable end of period 3,977 3,946 3,874   $ 3,977      
Series A Preferred Stock | Paid-In-Kind Dividend                
Dividends Payable [Roll Forward]                
Dividends payable start of period 1,175 1,153 1,156   $ 1,156      
Dividends, paid-in-kind 1,182 1,175 1,167          
Dividends $ 1,182 $ 1,175 $ 1,167          
Dividends payable (usd per share) $ 7.45 $ 7.46 $ 7.46   $ 7.45      
Payments of cash dividends on Series A Preferred Stock $ (1,175) $ (1,153) $ (1,170)          
Dividends payable end of period 1,182 1,175 1,153   $ 1,182      
Series A Preferred Stock | Fractional Shares                
Dividends Payable [Roll Forward]                
Dividends, cash 9 7 6          
Dividends $ 9 $ 7 $ 6          
Dividends payable (usd per share) $ 0.06 $ 0.04 $ 0.04   $ 0.06      
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS - Narrative (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Aug. 18, 2020
Feb. 25, 2020
Jul. 19, 2018
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Common Stock Offering [Abstract]                
Underwriter discounts and commissions           $ 1,650 $ 0  
Underwriter expenses           $ 143 0  
Professional fees     $ 200          
Stock available for grant newly authorized by Board of Directors (shares)           2,700    
Restricted Stock Units [Abstract]                
Stock-based compensation expense       $ 2,189 $ 1,621 $ 5,425 3,829  
Stock Options [Abstract]                
Stock options granted in period (shares)           464    
Warrants [Abstract]                
Warrants outstanding (shares)       18,100   18,100    
August 2020 Offering                
Common Stock Offering [Abstract]                
Sale of stock (shares) 6,100              
Price per share (usd per share) $ 4.50              
Gross proceeds $ 27,500              
Underwriter discounts and commissions 1,700              
Underwriter expenses 100              
Professional fees 600              
Consideration received $ 25,100              
Exercise Price $5.64                
Warrants [Abstract]                
Warrants outstanding (shares)       3,400   3,400    
Exercise price of warrants (USD per share)       $ 5.64   $ 5.64    
Exercise Price $11.50                
Warrants [Abstract]                
Warrants outstanding (shares)       14,700   14,700    
Exercise price of warrants (USD per share)       $ 11.50   $ 11.50    
Stock options                
Restricted Stock Units [Abstract]                
Period for recognition of compensation costs not yet recognized related to nonvested awards           1 year 8 months 15 days    
Stock Options [Abstract]                
Stock options granted in period (shares)           500    
Fair value of stock options granted           $ 800    
Weighted-average grant date fair value per share of options granted in period (usd per share)           $ 1.76    
Unrecognized compensation costs       $ 1,600   $ 1,600   $ 2,200
Period for recognition of compensation costs not yet recognized related to nonvested awards           1 year 8 months 15 days    
2013 Plan                
Common Stock Offering [Abstract]                
Stock available for grant newly authorized by Board of Directors (shares)   2,700            
2013 Plan | Restricted stock units                
Restricted Stock Units [Abstract]                
Restricted stock units granted in period (shares)           1,400    
Share price of common stock on date of grant of RSUs (USD per share)           $ 4.98    
Aggregate fair value of shares underlying RSU's           $ 7,100    
Stock-based compensation expense       1,800 $ 1,100 4,300 $ 2,100  
Compensation costs not yet recognized of nonvested awards       $ 11,500   $ 11,500    
Period for recognition of compensation costs not yet recognized related to nonvested awards           2 years    
Stock Options [Abstract]                
Period for recognition of compensation costs not yet recognized related to nonvested awards           2 years    
2013 Plan | Restricted stock units | Minimum                
Restricted Stock Units [Abstract]                
Award vesting period           12 months    
2013 Plan | Restricted stock units | Maximum                
Restricted Stock Units [Abstract]                
Award vesting period           36 months    
2013 Plan | Stock options                
Stock Options [Abstract]                
Award vesting rights (percentage)           33.33%    
Stock Plans | Stock options                
Stock Options [Abstract]                
Term of vested options (years)           10 years    
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS - Stock Option Activity (Details)
$ / shares in Units, shares in Thousands, $ in Millions
9 Months Ended 12 Months Ended
Sep. 30, 2020
USD ($)
$ / shares
shares
Dec. 31, 2019
$ / shares
shares
Shares    
Outstanding at beginning of period (shares) 8,677  
Granted (shares) 464  
Forfeited (shares) (225)  
Expired (shares) (137)  
Exercised (shares) (1,540)  
Outstanding at end of period (shares) 7,239 8,677
Vested at end of period (shares) 5,992  
Price    
Outstanding at beginning of period (USD per share) | $ / shares $ 4.55  
Granted (USD per share) | $ / shares 4.64  
Forfeited (USD per share) | $ / shares 6.09  
Expired (USD per share) | $ / shares 6.29  
Exercised (USD per share) | $ / shares 1.06  
Outstanding at end of period (USD per share) | $ / shares 5.22 $ 4.55
Vested (USD per share) | $ / shares $ 5.12  
Term    
Term of outstanding options 5 years 3 months 18 days 4 years 10 months 24 days
Term of vested options (years) 4 years 7 months 6 days  
Aggregate intrinsic value of stock options outstanding | $ $ 2.5  
Aggregate intrinsic value of vested stock options | $ $ 2.5  
Outstanding stock options not expected to vest due to forfeitures (shares) 100  
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS - Shares Available for Grant (Details)
shares in Thousands
9 Months Ended
Sep. 30, 2020
shares
Shares Available for Grant [Roll Forward]  
Available at beginning of period (shares) 2,884
Newly authorized by Board of Directors (shares) 2,700
Stock options granted (shares) (464)
Restricted stock units granted (shares) (1,418)
Expired options under Stock Plans (shares) 137
Forfeited options under Stock Plans (shares) 225
Forfeited restricted stock units under Stock Plans (shares) 167
Available at end of period (shares) 4,231
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS - Assumptions of Fair Value of Stock Option Grants (Details)
9 Months Ended
Sep. 30, 2020
$ / shares
Share-based Payment Arrangement [Abstract]  
Expected life (in years) 6 years
Volatility (as a percent) 39.00%
Dividend yield (as a percent) 0.00%
Risk-free interest rate (as a percent) 0.56%
Fair value per common share on date of grant (USD per share) $ 4.64
v3.20.2
COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS - Stock-based Compensation Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock-based compensation expense $ 2,189 $ 1,621 $ 5,425 $ 3,829
Cost of revenues        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock-based compensation expense 303 247 866 625
Sales and marketing        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock-based compensation expense 734 484 1,994 1,132
General and administrative        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock-based compensation expense $ 1,152 $ 890 $ 2,565 $ 2,072
v3.20.2
INCOME TAXES (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Investments, Owned, Federal Income Tax Note [Line Items]        
Deferred payroll tax payments $ 2,500,000   $ 2,500,000  
Federal statutory income tax rate (as a percent) 27.80% 24.90% 26.30% 9.10%
Income tax expense (benefit) $ 1,272,000 $ 451,000 $ 3,327,000 $ 1,777,000
Domestic Tax Authority        
Investments, Owned, Federal Income Tax Note [Line Items]        
Income tax expense (benefit) $ 0 $ 0 $ 0 $ 0
v3.20.2
COMMITMENTS AND CONTINGENCIES - Series A Preferred Stock Dividends (Details)
$ in Thousands
Sep. 30, 2020
USD ($)
Dividends Payable [Line Items]  
2020 $ 20,565
2021 21,189
2022 21,832
2023 12,292
Total 75,878
Cash Dividend  
Dividends Payable [Line Items]  
2020 15,819
2021 16,299
2022 16,794
2023 9,455
Total 58,367
Paid-In-Kind Dividend  
Dividends Payable [Line Items]  
2020 4,746
2021 4,890
2022 5,038
2023 2,837
Total $ 17,511
v3.20.2
COMMITMENTS AND CONTINGENCIES - Narrative (Details)
$ in Millions
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 15, 2020
copyright
client
claim
Apr. 30, 2019
USD ($)
Mar. 31, 2019
USD ($)
Sep. 30, 2020
USD ($)
copyright
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
copyright
Sep. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2016
USD ($)
Loss Contingencies [Line Items]                  
Employer contribution       $ 0.7 $ 0.6 $ 2.0 $ 1.9    
Current carrying value of guarantor obligations       14.7   $ 14.7   $ 22.7  
Revenue | Labor Costs | Minimum                  
Loss Contingencies [Line Items]                  
Concentration risk (percentage)           1.00%      
Revenue | Labor Costs | Maximum                  
Loss Contingencies [Line Items]                  
Concentration risk (percentage)           2.00%      
Oracle Litigation                  
Loss Contingencies [Line Items]                  
Damages awarded           $ 89.9     $ 124.4
Litigation settlement, amount awarded from other party     $ 12.8            
Interest from litigation settlement     $ 0.2         0.2  
Proceeds from legal settlement   $ 13.0              
Recovery of non-taxable expenses               $ 12.8  
Loss in period           1.1      
Loss contingency accrual       $ 5.5   $ 5.5      
Oracle Litigation II                  
Loss Contingencies [Line Items]                  
Number of claims settled | claim 7                
Number of matters | claim 2                
Oracle Litigation II | Gap Customers                  
Loss Contingencies [Line Items]                  
Copyrights infringed | copyright 17                
Oracle Litigation II | Two Specific Company Clients                  
Loss Contingencies [Line Items]                  
Copyrights infringed | copyright 4                
Number of clients | client 2                
Oracle Litigation - Counterclaim                  
Loss Contingencies [Line Items]                  
Copyrights infringed | copyright       93   93      
Amount awarded to other party           $ 35.4      
v3.20.2
RELATED PARTY TRANSACTIONS (Details) - USD ($)
1 Months Ended 6 Months Ended 9 Months Ended
Jul. 19, 2018
Dec. 31, 2018
Jul. 31, 2018
Jun. 28, 2019
Sep. 30, 2020
Sep. 30, 2019
Jul. 18, 2018
May 31, 2017
Related Party Transaction [Line Items]                
Face amount (less than)         $ 95,000,000.0      
Notes payable due to related party   $ 2,400,000            
Stated interest rate (as a percent) 13.00%              
Interest expense due to related party $ 200,000 200,000       $ 200,000    
Periodic payment amount of principal   400,000            
Debt Instrument, Periodic Payment, Interest   $ 600,000            
Repayments of related party debt           $ 2,700,000    
Interest rate       26.40%        
Common Class A Stock                
Related Party Transaction [Line Items]                
New stock issued during period (shares)     400,000          
Series A Preferred Stock                
Related Party Transaction [Line Items]                
New stock issued during period (shares) 140,000              
GP Sponsor                
Related Party Transaction [Line Items]                
Notes payable               $ 3,000,000.0
Stated interest rate (as a percent) 15.00%              
Adams Street Partners                
Related Party Transaction [Line Items]                
Carrying value of preferred stock outstanding             $ 10,000,000.0  
Adams Street Partners | Series A Preferred Stock                
Related Party Transaction [Line Items]                
New stock issued during period (shares)     19,209          
Voting rights associated with shares of Series A Preferred Stock (shares)         20,347      
Adams Street Partners | Common Stock                
Related Party Transaction [Line Items]                
Ownership of common stock outstanding (as a percent)         31.10%      
Adams Street Partners | Common Stock | Voting control ownership                
Related Party Transaction [Line Items]                
Percentage of Common Stock under voting control (as a percent)         27.90%      
Private Placements | Affiliated Entity                
Related Party Transaction [Line Items]                
Total consideration     $ 19,200,000          
v3.20.2
EARNINGS (LOSS) PER SHARE - Earnings per share (Details)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
$ / shares
shares
Sep. 30, 2019
USD ($)
$ / shares
shares
Sep. 30, 2020
USD ($)
$ / shares
shares
Sep. 30, 2019
USD ($)
$ / shares
shares
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]        
Temporary equity, conversion ratio     1  
Net income | $ $ 3,306 $ 1,360 $ 9,321 $ 17,736
Cash dividends declared | $ (3,968) (3,852) (11,817) (11,192)
PIK dividends declared | $ (1,190) (1,156) (3,545) (3,358)
Accretion of discount | $ (1,587) (1,511) (4,702) (4,319)
Net (loss) income after dividends and accretion | $ (3,439) (5,159) (10,743) (1,133)
Undistributed earnings allocated using the two-class method | $ 0 0 0 0
Net loss attributable to common stockholders | $ $ (3,439) $ (5,159) $ (10,743) $ (1,133)
Weighted average number of shares outstanding, basic (shares) | shares 72,377 66,696 69,521 65,625
Additional shares outstanding if Series A Preferred Stock is converted to Common Stock (shares) | shares 15,873 15,408 15,756 14,926
Total shares outstanding if Series A Preferred Stock is converted to Common Stock (shares) | shares 88,250 82,104 85,277 80,551
Percentage of shares allocable to Series A Preferred Stock (percent) 18.00% 18.80% 18.50% 18.50%
Weighted average number of shares outstanding, diluted (shares) | shares 72,377 66,696 69,521 65,625
Basic and diluted (usd per share) | $ / shares $ (0.05) $ (0.08) $ (0.15) $ (0.02)
Warrants        
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]        
Weighted average number of shares outstanding, diluted (shares) | shares 0 0 0 0
Stock options        
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]        
Weighted average number of shares outstanding, diluted (shares) | shares 0 0 0 0
Restricted stock units        
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]        
Weighted average number of shares outstanding, diluted (shares) | shares 0 0 0 0
v3.20.2
EARNINGS (LOSS) PER SHARE - Summary (Details) - shares
shares in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from the computation of earnings per share (shares) 44,336 45,735
Series A Preferred Stock    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from the computation of earnings per share (shares) 15,873 15,408
Restricted stock units    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from the computation of earnings per share (shares) 3,096 2,887
Stock options    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from the computation of earnings per share (shares) 7,239 9,312
Warrants    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from the computation of earnings per share (shares) 18,128 18,128
v3.20.2
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS - Narrative (Details)
$ in Thousands
Jun. 20, 2019
USD ($)
Mar. 07, 2019
USD ($)
Jul. 19, 2018
USD ($)
Sep. 30, 2020
USD ($)
year
Dec. 31, 2019
USD ($)
Concentration Risk [Line Items]          
Cash and cash equivalents       $ 83,410 $ 37,952
Single Financial Institution          
Concentration Risk [Line Items]          
Cash and cash equivalents       65,200 33,100
Current restricted cash       $ 300 $ 400
Private Placement          
Concentration Risk [Line Items]          
Temporary stock issued $ 2,997 $ 5,313 $ 126,763    
Series A Preferred Stock | Private Placement          
Concentration Risk [Line Items]          
Temporary stock issued $ 2,997 $ 5,313 $ 126,763    
Measurement Input, Expected Term | Series A Preferred Stock | Minimum          
Concentration Risk [Line Items]          
Measurement input (as a percent) | year       4  
Measurement Input, Expected Term | Series A Preferred Stock | Maximum          
Concentration Risk [Line Items]          
Measurement input (as a percent) | year       5  
Measurement Input, Implied Yield | Series A Preferred Stock | Minimum          
Concentration Risk [Line Items]          
Measurement input (as a percent)       0.209  
Measurement Input, Implied Yield | Series A Preferred Stock | Maximum          
Concentration Risk [Line Items]          
Measurement input (as a percent)       0.229  
Measurement Input, Risk Free Interest Rate | Series A Preferred Stock          
Concentration Risk [Line Items]          
Measurement input (as a percent) 0.0172 0.0244 0.028    
Measurement Input, Price Volatility | Series A Preferred Stock          
Concentration Risk [Line Items]          
Measurement input (as a percent)       0.300  
v3.20.2
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS - Summary (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Disaggregation of Revenue [Line Items]        
Revenue $ 82,518 $ 69,182 $ 238,952 $ 204,924
United States of America        
Disaggregation of Revenue [Line Items]        
Revenue 48,160 44,641 142,982 133,126
International        
Disaggregation of Revenue [Line Items]        
Revenue $ 34,358 $ 24,541 $ 95,970 $ 71,798
v3.20.2
ASC 842 ADOPTION IMPACT - Narrative (Details)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
day
Sep. 30, 2020
USD ($)
day
Jan. 01, 2020
USD ($)
Dec. 31, 2019
USD ($)
Lessee, Lease, Description [Line Items]        
Days notice required to terminate (days) | day 30 30    
Operating lease right-of-use assets $ 16,585 $ 16,585 $ 18,800 $ 0
Total operating lease liabilities 17,565 17,565 $ 20,000  
Operating lease payments $ 1,600 $ 4,600    
Minimum        
Lessee, Lease, Description [Line Items]        
Operating lease renewal term (years) 1 month 1 month    
Maximum        
Lessee, Lease, Description [Line Items]        
Operating lease renewal term (years) 5 years 5 years    
v3.20.2
ASC 842 ADOPTION IMPACT - Components of lease expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2020
Leases [Abstract]    
Operating lease expense related to ROU assets and liabilities $ 1,581 $ 4,628
Other lease expense 231 846
Total lease expense $ 1,812 $ 5,474
v3.20.2
ASC 842 ADOPTION IMPACT - Supplemental balance sheet information (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Jan. 01, 2020
Dec. 31, 2019
Leases [Abstract]      
Operating lease right-of-use assets $ 16,585 $ 18,800 $ 0
Operating lease liabilities, current 4,309   0
Operating lease liabilities, noncurrent 13,256   $ 0
Operating Lease, Liability, Total $ 17,565 $ 20,000  
Weighted average remaining lease term, operating leases (years) 4 years 7 months 24 days    
Weighted average discount rate, operating leases (as a percent) 11.00%    
v3.20.2
ASC 842 ADOPTION IMPACT - Maturities of lease liability (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Jan. 01, 2020
Dec. 31, 2019
Leases [Abstract]      
2021 $ 5,999    
2022 4,935    
2023 3,184    
2024 2,704    
2025 2,470    
Thereafter 3,223    
Total future undiscounted lease payments 22,515    
Less imputed interest (4,950)    
Total $ 17,565 $ 20,000  
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]      
2020     $ 5,609
2021     5,155
2022     4,067
2023     2,993
2024     2,670
Thereafter     5,065
Total     $ 25,559