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Rimini Street, Inc. (NASDAQ:RMNI)
Q2 2020 Earnings Call
Aug 5, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Rimini Street earnings call. My name is Adrian and I'll be your operator for today's call. [Operator Instructions].

I'll now turn the call over to Dean Pohl, Vice President of Investor Relations. Dean, you may begin.

Dean Pohl -- Vice President of Investor Relations

Thank you, operator. I'd like to welcome everyone to Rimini Street's second quarter 2020 earnings conference call. On the call with me today is Seth Ravin, our CEO and Stanley Mbugua, our Chief Accounting Officer. Today, we issued our second quarter ended June 30, 2020 earnings press release, which can be found on our website. A reconciliation of GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in this press release. An explanation of these measures and why we believe they are meaningful is also included in the press release under the heading About Non-GAAP Financial Measures and Certain Key Metrics. A copy of the press release and financial tables including the GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from the Investor Relations section of our website under Investor Events. As a reminder, today's discussion will include forward-looking statements that reflect our current outlook. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We encourage you to review our most recent SEC filings including our Form 10-Q for the second quarter of 2020 for a discussion of the risks that may affect our future results or stock price. Before taking questions, we'll begin with prepared remarks.

With that, I'd like to turn the call over to Seth.

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Thank you, Dean and thank you everyone for joining us today. For the second quarter, we achieved record quarterly revenue of $78.4 million, a year-over-year increase of 12.2%, produced another quarter of net income, generated $17.9 million of operating cash flow and further strengthened the balance sheet with total cash of $73 million at quarter-end. Revenue retention rate for subscriptions, which makes up most of our revenue, remained above 90% with more than 70% of subscription revenue non-cancelable for at least 12 months on a rolling basis. We ended the second quarter with 2,159 active clients, a year-over-year net increase of 13.9% and which included nearly 100 Fortune 500, Fortune Global 100 companies and global government representation. Our quarter-end global employee count was 1,343, a year-over-year increase of 14%. Today we issued guidance for third quarter revenue growth, raised the low-end of 2020 revenue guidance, and affirmed our commitment to the long-term goals of improving free cash flow and growing GAAP profitability. Pandemic Impact. Prior to the pandemic, we were making investments to meet increasing global demand for our expanded product and service portfolio. We have since accelerated our investments to take advantage of additional demand driven by the pandemic and global economic slowdown. The pandemic is creating significant challenges for many organizations and we are the right company at the right time with the right solutions to help these organizations immediately slash IT operating costs, save jobs, stabilize operations, and focus their more limited resources on strategic initiatives. During the second quarter we experienced both the opportunities and the risks of the pandemic.

We signed some new opportunities attributable to the pandemic and believe the pandemic has added meaningful additional pipeline opportunity for the second half of 2020. However, we also had some Rimini Street clients enter bankruptcy and others receive special discounts and extended payment terms to help them navigate these challenging times. All in all, based on the facts and our analysis, we still believe the opportunities created by the pandemic and slowing global economy far outweigh risks and that our strong balance sheet and cash position will provide us with business flexibility and agility to help prospects and clients with special needs while providing us protection against downside risk. As a result of the measures that we have taken in response to the pandemic, including shifting to nearly 100% remote employee, remote sales and virtual marketing models for fiscal year 2020 we are expecting savings from reduced travel, cancelled in-person marketing events, reduced office operating costs and potential rent rebatements related to office closures around the world. We expect to offset some of these savings with increased investments in new marketing programs and expanded sales staff and capabilities, as well as special pandemic related bonuses to help our lower paid employees and employees who become infected. The full extent to which the pandemic impacts our business going forward will depend on numerous rapidly evolving factors that we can cannot reliably predict. Client wins. During the second quarter, we completed 160 geographically diverse sales transactions with new and existing clients. In addition to the many global sales wins shared in press releases, including today's earnings release, I want to share and highlight a few additional significant wins. First is a win with one of the largest global energy companies headquartered in the US. The client moved their large complex Oracle database and middleware landscape to Rimini Street.

The client is also implementing and deploying both the Rimini Street advanced database security and Rimini Street advanced middleware and application security solutions. The client wanted a proven global expert technology support partner they could rely upon to provide the expertise and services needed to extend the life of their mission critical Oracle infrastructure, both with support and an innovative, integrated security solution. Rimini Street was the only vendor that could provide this solution. Next is a win with one of the largest global telecoms headquartered in Australia. The client had previously moved their large complex SAP software landscape to us and found our service, value and partnership to be excellent. Their experience lays the groundwork for a significant multi-million-dollar expansion of our services to cover their large complex Oracle application landscape as well. The client is looking for Rimini Street to benefit from a unified premium support experience across their enterprise software landscape and a better overall service value from a single partner. Lastly is a win with one of the largest advertising conglomerates in the world headquartered in Japan. The client has been interested and watching Rimini Street's fast paced growth across Japan with leading companies as well as known brands, and decided it was time to move its vast SAP landscape to Rimini Street support. The client wants a higher-level support experience, better overall value, and get the support needed to remain on their current products and releases and avoid an expensive migration to SAP's S/4HANA release. Product and Service update. During the second quarter we delivered excellent service to clients, announced even more aggressive service level guarantees, and implemented artificial intelligence technology to reduce resolution times for clients. And we also expanded our service offerings. During the quarter, our global service delivery team closed over 8,000 support cases across 49 countries and delivered nearly 20,000 tax, legal and regulatory updates to clients in 38 countries.

We achieved an average support delivery client satisfaction rating of at least 4.8 out of 5.0 where a 5.0 rating is considered excellent. Building on our current industry leading service level guarantees, today at no additional cost to our clients, we announced in a press release even more aggressive service level guarantees. Our clients are now guaranteed a response to urgent cases in 10 minutes instead of 15 minutes and our response to critical cases in 15 minutes instead of 30 minutes, 24/7 by 365 days. Also during the second quarter, we announced the development and application of our new patent pending artificial intelligence software that was developed by our global service innovation team and has sped up client case resolution by 23%. Additionally, earlier in the quarter we announced the global availability of support for SAP S/4HANA, SAP's newest integrated ERP software offering. And our new large complex S/4HANA client, Nadro, headquartered in Mexico. We have been servicing SAP products since 2008 and now providing award winning proven premium support services to hundreds of clients running SAP Business Suite seven, S/4HANA applications and SAP HANA Inside based databases. With respect to other offerings in our expanded product and service portfolio, we are continuing to see growing pipeline and sales. Pipelines for our new SAP, Oracle, and Salesforce application management services continue to grow, with second half 2020 opportunities the largest yet. Application Management Services, commonly known as AMS, is where we run the system for the client day to day and support services where we provide technical support and required updates through an internal or AMS team who runs the system for the client day to day. Our early experience indicates that AMS service is often two times to three times the annual Rimini software support fees. Further, sales of AMS to existing clients is proving that an integrated Rimini Street support and AMS solution is creating a unique value proposition for the client and demonstrating the new AMS product line strength at a cross sell opportunity.

We believe our integrated software support and AMS combined offering is a unique and valuable competitive solution in the market that provides clients with a better model, better resources and better outcomes with higher client satisfaction and significant savings of time, labor and money. We are successfully delivering our integrated maintenance and application management solution to clients across a growing variety of industries and geographies. We are also seeing growing interest pipeline and sales for our innovative Advanced Database Security, Advanced Middleware and Application Security, and Browser Proxy interoperability solutions that more and more clients are successfully deploying and using across large server and application landscapes. Competition. Competition with our primary support service competitors, Oracle and SAP, remains fierce. Both software vendors are engaged in continuing efforts to force their licensees to upgrade and migrate from current stable software releases to the vendors' newest immature products as part of expensive and low value ERP refresh projects. Oracle and SAP are planning to end full support of certain major product releases by 2030, leaving current licensees facing either a major upgrade or migration project or a potential move to Rimini Street. Accordingly, more and more companies are evaluating the cost benefit of the vendors' pressured ERP refresh projects and evaluating Rimini Street's support solution. Many licensees do not see the value in incurring unnecessary expenses and disruptions that do not improve their competitive advantage or contribute to their growth. In fact, results from a 2019 Rimini Street survey found that approximately 80% of CIO respondents are not planning to move or are unsure about migrating to Oracle or SAP's new software and plan on remaining on their current systems until at least 2025 or beyond.

Today, given the added financial and economic challenges around the pandemic, we are seeing companies, prospects and existing clients who had planned to invest in expensive new ERP refreshes delaying the move off their existing stable systems to preserve cash and focus their limited budgets on strategic investments and initiatives. Rimini Street is well positioned to compete. Gartner has estimated that Rimini Street has captured over 80% of the global market for third-party enterprise software maintenance services and we are providing clients significant savings, a more robust and responsive service offering, at least 50% off maintenance fees, and up to 90% total operating savings over time. As we have previously stated, we believe the hybrid IT environment that will integrate existing licenses, new SaaS licenses, and cloud deployments will be the IT reality for much longer than expected and a majority of ERP workloads will continue to be on-premise or simply lifted and shifted into the cloud for continued long-term use. With the pandemic and resulting economic challenges, we believe we will see even further extensions of use of the hybrid IT environment. Recent Oracle litigation developments. With respect to Oracle versus Rimini Street that was filed in 2010 and went to trial in 2015, the case has run its course of all appeals.

Presently, court action related to this case is limited to a dispute between the parties over the permanent injunction that has been in place since 2018. Oracle filed a motion with the court contending Rimini Street is not in compliance with the injunction and Rimini Street has responded declaring that we have been and are in compliance with the injunction. The matter is currently scheduled to be fully briefed to the court this summer and we plan to aggressively defend against Oracle's contentions. There is no known timeline for a court ruling. With respect to Rimini Street versus Oracle filed in 2014, the case we filed against Oracle, we are still awaiting rulings on summary judgment motions submitted by both parties in December 2018. Trial is not currently expected to occur until 2022, but could occur earlier or later. Summary. We believe the company executed well through the unique global challenges of the second quarter. We intend to continue executing our 2020 plan focused on revenue growth, disciplined cash management, and continued GAAP net profitability, and we will make adjustments to the plan for additional opportunities or challenges that may develop around the pandemic and related economic impacts.

Now over to you, Stanley.

Stanley Mbugua -- General Vice President and Chief Accounting Officer

Thank you, Seth. As Seth noted, for the second quarter, we achieved record quarterly revenue of $78.4 million, a year-over-year increase of 12.2%. Second quarter annualized subscription revenue was $311 million, a year-over-year increase of 12%. For the first half of 2020, clients within the United States comprised 61% of total revenue while international clients contributed 39% representing aggregate first half of 2020 year-over-year revenue growth rates of 7.2% for the US and 30.4% for international clients. International growth is led by operations in Asia Pacific. Gross margin was 61.2% for the second quarter compared to 64.2% for the second quarter of 2019 and above high-end of our guidance range. The lower year-over-year gross margin reflects our continued investment in an expanded global capacity to deliver new Application Management Services for SAP, Oracle and Salesforce. As well as new expanded delivery capabilities for SAP S/4HANA support services, advanced security solutions, and advanced technical solutions. We continue to believe that gross margin from our established support services will continue to expand and help to partially offset the ramp-up costs of our new products and services. Therefore, we continue to expect our full-year 2020 gross margin to be in the range of 60% to 61%. Sales and marketing expenses as a percentage of revenue were 34.2% for the second quarter, compared to 38.5% for the second quarter of 2019. The decrease as a percentage of revenue is due to a decrease in travel expenses and tradeshow expenses resulting from a switch to all virtual marketing and selling. Despite lower sales and marketing expenses in the first half of 2020, we continue to expect full year 2020 sales and marketing expenses to be in the range of 37% to 39%. General and administrative expenses as a percentage of revenue, which excludes outside litigation costs, was 16.8% for the second quarter compared to 15.2% for the second quarter of 2019.

The added year-over-year cost as a percentage of revenue is primarily due to additional employee labor cost compared to the prior year second quarter. In addition, we expect the cost of maintaining the recently updated accounting standards, continued internal control compliance requirements, and planned system implementations to put upward pressure on financial spend in 2020 with a substantial amount of the increased costs mitigated by lower travel expenses in 2020. Therefore, we continue to expect G&A expenses as a percentage of revenue to be in the range of 16% to 18% for the full-year 2020. Lastly, litigation expense was $2.9 million for the second quarter 2020 compared to $144,000 in the prior year second quarter. The prior year included resolution of a legal dispute with a vendor which reduced our outside litigation costs by $1.8 million. Our outside litigation spend is not linear and can fluctuate each quarter based on litigation activities. We continue to expect litigation expense to be in the range of $13 million to $15 million for the full-year 2020. Net income was $3.5 million for the second quarter of 2020 compared to prior year second quarter net income of $6.1 million. Non-GAAP net income was $8.1 million for the second quarter 2020 compared to a non-GAAP net income of $7.3 million for the prior year second quarter. Adjusted EBITDA was $9.6 million for the second quarter 2020 compared to adjusted EBITDA of $8.5 million for the prior year second quarter. Dividends on the Series A Preferred was $3.9 million while payment-in-kind dividends settled in preferred shares was $1.2 million, and accretion of the preferred stock discount was $1.6 million for the second quarter of 2020. Basic and diluted net loss per share attributable to common shareholders was $0.05 for the second quarter of 2020 compared to breakeven net income per share for the prior year second quarter. This takes into account cash and non-cash dividends for the Series A Preferred Stock. Deferred revenue as of June 30, 2020 was approximately $218.5 million, up 6.7% from $204.8 million as of June 30, 2019.

We ended the second quarter of 2020 with total cash of $73 million on our balance sheet, a 45% increase compared to $50.3 million for the prior year second quarter. Cash flow from operations was $17.9 million compared to $18.4 million for the prior year second quarter. Backlog, which includes the sum of pure deferred revenue and non-cancelable future revenue was approximately $464 million as of June 30, 2020, up 14% from $407 million as of June 30, 2019. Now with respect to revenue guidance, we are currently providing third quarter 2020 revenue guidance to be in the range of $78.5 million to $80.5 million. We are also raising the lower end of full-year revenue guidance from $310 million to $314 million and currently providing full year 2020 revenue guidance to be in the range of $314 million to $320 million.

And with that, Operator, we will now take questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Derrick Wood with Cowen and Company. Your line is open.

Derrick Wood -- Cowen and Company -- Analyst

Hey, guys, nice to talk to you today. Maybe this could be both for Seth and maybe Stanley can chime in. But wanted to just talk about the quarter a little bit because deferred revenue growth was a little bit more deceleration than we had modeled. So just curious how much of that was from the bankruptcy impacts or perhaps how much is from deals slipping and taking a little bit longer on the sales cycle. And Stanley, just curious if there was any kind of one-time opt out clause components in deferred revenue to consider.

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Sure, I'll take that first, Derrick, and good day. We of course, as we talked about coming into this quarter, we had certainly growing pipelines. But like everybody else, we did have some challenges of disruption in the first month or two of the quarter. So I think like a lot of other companies, people were swirling around. It had nothing really to do with opportunity. It had everything to do with clients being in chaos, prospects being in chaos, and trying to get deals done. So there was certainly a decent number of deals that teed up for the quarter that just didn't get done in the quarter. And I mentioned during my prepared remarks about the increase and the build of the pipeline for Q3. Now all that being said, we did have some very, very good, in fact some record invoicing in the quarter historically. Number one, when you take a look at our invoicing for customers who pay us a year of invoicing in advance, that number was the highest we've ever seen in any quarter. So we did have a good quarter and we had a lot of good pipeline build for the back half just because of that timetable. And of course we do, as you know with our revenue, we net down and we net down deferred revenue as well for things where we have opt outs, where we have bankruptcies, where we have any kind of revenue that we're not ready to recognize, we will net it out. And that's why even in the fourth quarter you remember we picked up a bunch of revenue that had been cleared out and had been ready to recognize. So yeah, you're always going to have those components at well.

Stanley Mbugua -- General Vice President and Chief Accounting Officer

And Derrick, to add to that, to what Seth said, if you really look at our deferred revenue built into the backlog, it's really grown year-over-year. About $219 million of the backlog was deferred revenue which was $202 million a year ago. And to your question of whether we had any contingencies, we didn't have many of those that we think will be released. It was really straight-line standard billings during the quarter.

Derrick Wood -- Cowen and Company -- Analyst

As you think about the pipeline in the second half, obviously you've given revenue guidance and we can back into Q4, but more from a bookings perspective, is that something that's kind of what we normally see, pretty more backend loaded to Q4 or Q3? And I guess, I think you had a nice government win last quarter. Are there any government opportunities in Q3 and fiscal yearend to speak of?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

There were some, yes, there are some government deals as well and opportunities that continue to grow as part of our business, so yes, we do have that. I think in general, the back half of the year, Derrick, in terms of pipeline, is some of the largest pipeline we've ever seen. And it may be reaching record levels. And again, the risks of this pandemic, the risks of this economy, are not as much about the opportunity. I think everyone can put one and one together and say that a company that can provide savings and extend the life of systems while people are pushing off expensive projects and managing cash, that clearly we should see upside to that in the market. The question is really around execution with a lot of these organizations. And I'll give you an example. In the US, we adapted to work from home and this idea of coming in, going back out, shuttering some businesses, there's a lot of disruption that comes and goes. But we're pretty good about managing it. In places like Europe, if you go into France, when France went to home environment, they didn't do work at home, they just went home. They refused to work from home. It was just cultural. They weren't set up for it. And so Europe has a lot more challenge with the COVID situation and it extends longer. So a lot of opportunity but much more challenging to get deals done. Same if you go down to Brazil. Latin America is really struggling as you know with the COVID situation. A lot of chaos, a lot of people not equipped to work from home. And that's created a lot of problems with getting deals done. So while the environment for demand is high, navigating some of these hotspots that have challenges with execution, that's where you're really at in the back half. So that's why you always see us take a very tempered approach. Demand is strong. Execution challenges exist on a global basis and we continue to navigate them. But they can cause some deal slippage. They certainly can add time to a deal and the cycles to it.

Derrick Wood -- Cowen and Company -- Analyst

Yep, that's helpful. Thanks. I guess you did mention that you're accelerating investment and you're seeing increased demand and bigger pipelines. Anything to highlight in terms of where you're accelerating? I mean I see more TV ads for Rimini Street, so that's one area. Just wondering how that's doing. And are you at the point where you are kind of accelerating sales capacity yet or is it kind of trending at similar levels?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I think you're watching us, as we mentioned even last quarter, we think that the opportunity on top of what was already growing, because you know when we did our initial guidance for 2020, we had already come out of it it was really a pre-COVID guidance. So we had already seen the growth that we're turning around. We went ahead and we talked about an accelerated growth in 2020 coming off the bottom end of that curve, starting to reaccelerate as a percent of revenue in terms of the growth side. We saw COVID add to that. We are going to continue to I think accelerate and expand our investment in the revenue generating engine of the business. As I went through in the prepared remarks, where we've been making significant investment, the product service portfolio, building out and even talking about how you see us upsizing existing clients with major wins. I wanted to give you some sample of that. And I think that the combination of which gives us good tailwinds for growth. And we're going to get an investment more in sales heads, we're going to put it in more marketing. You've seen the television advertising. It's global. We also launched a brand-new website. If you haven't been out there, it's a completely new platform. It goes along with our pathing for specific roles that we're selling to. So we're making a lot of big marketing investments to reach out. The phone is ringing and I can tell you we have the highest website volume in visits we've ever had, so that is showing a great trend. The phone is ringing more than it ever has. So I think that all of that is showing that the marketing investments we're making are paying off. The execution now is really about working through the COVID world and making sure that we can execute on all the opportunity out there. And like I said, there's pockets of challenges and we're going to continue to push and work through it. But we think it's all very positive for the back half.

Derrick Wood -- Cowen and Company -- Analyst

Good. Last one for me, I see you guys announced the new COO. What are some of the initiatives that you'd like to see him push forward?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Well I think as most people know, first he took 12 direct reports from me, which is a great thing. And we're excited to have him. He, Gerard, has you will have seen in his bio, a lot of experience, for Rackspace and HP, and he's taking on the field operations. So that's allowing me to free up on a lot of other things. As you can imagine, taking over that number of direct reports and is doing a very, very nice job. He's a seasoned executive in operations and he'll be able to spend more time and focus on field execution which is again ramping sales reps, building out the revenue operations, focused on retention, working with our global clients executives to make sure that our clients are even happier, buying more. All those things are falling into Gerard's space, as well as overseeing the SAP and Oracle product lines. And he has a lot of experience in that area. So it's great to have him onboard. He's making a difference already. And we're just excited to keep building out the executive team. And as you know, Derrick, I mean this is all about scaling. As Rimini Street moved from $100 million to $250 million to pushing near $300 million, as we continue our acceleration to $500 million and $1 billion, we have to add additional executives to again focus on that scaling. And that is a global scaling initiative.

Derrick Wood -- Cowen and Company -- Analyst

Very good. Thanks for the color.

Operator

Our next question comes from Brian Kinstlinger from Alliance Global Partners.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. You mentioned, to Derrick's question, several contracts were teed up that didn't happen given the pandemic. Does that mean the customer is generally reupped for a year with the OEM and those opportunities for those specific customers are now pushed out by a full year?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I would say some of them did. But again, very unusual times with the pandemic. A lot of those deals were able to push into the third quarter without reupping with a software vendor. Interestingly enough, something we hadn't seen before in terms of any kind of trend, but a lot of the customers decided to go self-support on an interim basis. Because the reason they didn't get the contracts done were their internal operations and they figured that it would take them maybe a few more weeks, maybe another month. And they decided rather than reup with a vendor, a good number of them just decided to go without any support and try to wing it themselves for a few weeks. And with us out there as certainly an emergency backstop because we're working with them to complete contract. So I think it's a different kind of scenario where they're working to get it done, they just needed more time to get through all the cycles for it. So I think again, that boded well for a good number of those deals to just simply slip over the line into the next quarter.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

If I look at your press release, all the new logos you won were part of APAC and then I think your comments highlighted the strongest growth rates were in Asia Pacific. Can you talk about the success you're having there? To what do you attribute the accelerated growth rate? Is it better work-from-home infrastructure? Is it more sales people? Is it smaller numbers?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I think Asia Pacific has just been a machine. And they have we have continued to expand out there. I think also, what I'd point to some of this, Brian, is they have coped with COVID better than a lot of parts of the world because they went through SARS, etc. So deals in Taiwan where Taiwan is operating well. We're not talking about core China here, but we're talking about down in Singapore, Malaysia, across Korea where we're very strong, Japan very strong. So I think a lot of it had to do with their ability to execute through sort of the global chaos. But it's been an up and coming theater for us and has been leading global expansion for a while. Now our friends in Europe of course want to challenge that. They want to grow. They have the opportunities to grow. They're just not trying, as I mentioned, especially France and few other countries, very hobbled where we do a lot of business traditionally, very hobbled by the fact that businesses are closed and they're not working from home. And that makes it really hard to get a lot of deals done there right now. And it's taking months to really get back to any kind of functioning normal for places like France. So Europe has to deal with some of those challenges, but they're coming along, they're growing their operation. Latin America, with our new you saw our announcement, we put a new GM in charge of Mexico and Central America. A lot of opportunity in that region as well, but hampered by COVID right now. So again, opportunities and challenges to get through it. So I think you're going to continue to see APAC probably lead for a while because things are just easier to get done over there right now. But I think you're going to watch the rest of the global community which has done fairly well pick up as they normalize through the COVID situation.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. Then can you highlight the demand you're seeing for the relatively new application management service offerings? I know you commented on it, but what percentage maybe of revenue is it today? And has the pandemic hurt, helped or had no impact do you think on this offering?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I think AMS is a very service revenue stream to come. You know I've always talked about learning to walk before we run and I'm very conservative about these big new product introductions. They're going well. The clients are very happy with the service. and at the value that we wanted to. And we wanted to make sure that all those things worked the way we expected them to before we go in large scale execution. And I've also talked before about the fact that it is a different sale. It's a different sales motion than our current support. And we're still working through some of the go to market on a global basis as we pick up new countries and we've expended to new countries providing the service. But there's still work to be done. And so we're taking it very carefully and that's why we're not breaking it out yet. We're not guiding anything. We're going to provide additional information with press releases, with client case studies that will help everyone understand it. But we're still in more of a launch phase than a full production phase because it's a pretty extensive product line. And you see that we've been adding people. That's one of the reasons gross margin primarily is down is because we've added a lot of bodies into the AMS side that that will continue to suppress gross margin on a blended basis while of course our existing support product continued to imported gross margin as an offset. But yes, we've got to pay our way into it for a little bit. But I'm still very bullish on the product line and I think you'll hear more about it from us coming up quarter-over-quarter.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. Last question I have on price. Clearly, you've had to give some concessions to help struggling customers out. Assuming those customers survive and stay with you, will price be a couple of point benefit next year to growth? Do those prices come back when those customers are stabilized? Or do you think they'll remain a little bit lower?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I think we've been taking a pretty good approach to the way we've handled it. What we did with our teams was, we laid out, just like everybody else, and I'm sure every other company you're talking to, everyone is beating up their vendors to get them discount in this day and age. That's just the way it is. Whether they need it or not, they're doing it. And we set out a very rigorous program. We've always had a rigorous renewals and price management program which has allowed us to manage the kind of margins of delivery that we have. Now, when it comes to helping clients, we set out a list of priorities and we tell them, first, let's talk about what is the issue? Is it cash flow right now? If it is cash flow right now, maybe we give them quarterly payments for this year. But we don't try to amend contracts for long term periods. We really say, how can we help you right now with your current emergency situation? Do we need to delay the payment? Do we need to just give you quarterly to help with cash flow? And we work our way through it without trying to get to any kind of discount to the product. Because again, this time will pass.

And what we don't want to do is set low water marks and change pricing and then find that then the economy comes back two years later, you're set at that low water mark. So we're very, very good about that. So we'll work closely to find the best matters. The other thing we do is we will work to get something in exchange for something. Our team is very good about that. So if we're going to give quarterly payments or we're going to do something to help them through this, we will ask for something in return, often an extended contract. And we have increased the extended contracts. As you know, we have 70% is non-cancelable for at least 12 months. We have added a lot of multiyear agreements in return for some of that help. We also will ask for case studies, we will ask for special references. Things that help us sell additional customers. So I think because of that, just because we take a little bit of hit maybe in the money or some of the cash flow, as you've seen, we're at record cash numbers because we're very diligent on collecting cash and managing cash. So I think the combination of what we've done will yield big benefits for us and I think you're not going to see long term impact because of the help we're giving clients today.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great, thanks so much for all your time.

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Sure.

Operator

The next question comes from Mark Schappel from Benchmark. Your line is open.

Mark Schappel -- Benchmark -- Analyst

Hi, good afternoon and thank you for taking my question. Seth, in your prepared remarks you mentioned the competition from SAP and Oracle remains fierce. I was wondering if you're seeing discounting from these vendors above and beyond the norm as they try to keep their customers on maintenance?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I would say yes. There's always been, despite denial from them, there's always been a certain amount of discount. And it often gets more frantic as the customer reaffirms that they plan to move to us. So there's been a long history of that that we have had in the sales cycle. Do I see bigger discounting? More aggressive? I think it's on a deal by deal basis. Some of the deals we took in the quarter, they're multi, multi-million-dollar deals for these guys. And that gets a lot of attention within the software vendor. And I would say on those deals they worked very hard to try to keep them with additional discounts as part of the mix. But obviously, we're very good at helping clients understand that even if they drop their prices, even if they matched our prices on an annualized basis, because they require migrations and upgrades, they can't get the kind of support that we're offering, the combination of which is, even for the same money, we offer a better overall return value. And I think that's key because they have come in. And occasionally they have tried to match our price exactly. If you can imagine that, coming 50% off, and the clients say no, we prefer the value mix and we think we're still getting a far better return on the investment by going to Rimini Street. So that's all part of our sales process.

Mark Schappel -- Benchmark -- Analyst

Great, that's helpful. Then I realize the company continues to invest in sales capacity, in particular as you go after your market opportunity. But what's the thought on margin expansion or operating margins going forward?

Seth Ravin -- Chief Executive Officer and Chairman of the Board

I think in terms of expansion, we've given the guidance. In terms of the range, we're going to be bringing down, overall, we're going to be bringing down sales and marketing expense as we said, sort of the midterm vision is that mid 30s number. We're bringing down G&A to that 12% to 14% type number. I mean these are all we know where we want to go. We have to make some investments now and I think as you well recognize, because we had been held back so long on sales and marketing investment, just due to covenants on the prior financing, that were released only in 2018 midyear. We're still in the process of catching up to get the growth engine back to where it was. And I think you go back and you look at a few years of numbers and you look prior to that, that financing where we got constrained down to 31% sales and marketing, it takes a little while still to build up and reignite the engine. And I think you're seeing the numbers already reflecting results from that process. And I think the goal here is to continue to make the investments to take advantage of the market. We are over 80% of the third-party market. We want to continue that expansion. We want to continue that growth. And I think we're doing the right thing in continuing that investment now. But long term, we'll hit the at mid-30s. So I think we're going to have the right mix of cost and flow a lot more money to the bottom line as we've been committed to doing.

Mark Schappel -- Benchmark -- Analyst

Great, thank you. That's all from me.

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Sure.

Operator

Thank you. [Operator Instructions]. And we have no further questions. I will turn the call back over to the presenters for final remarks.

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Great, thank you very much. And thanks, everyone, for attending the call today. Look forward to our next call. Please stay safe out there. Obviously, this is a dangerous constantly changing situation in the world and we look forward to having another call and hopefully with better times. So thank you very much, everybody. Appreciate the time today.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Dean Pohl -- Vice President of Investor Relations

Seth Ravin -- Chief Executive Officer and Chairman of the Board

Stanley Mbugua -- General Vice President and Chief Accounting Officer

Derrick Wood -- Cowen and Company -- Analyst

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Mark Schappel -- Benchmark -- Analyst

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