RMNI US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rimini Street, Inc. was formed in the State of Nevada in 2005 (“RSI” or “predecessor”) and, through a merger in 2017 with a public company, became Rimini Street, Inc., a Delaware corporation (referred to as the “Company”, “we” and “us”), trading on the Nasdaq Global Market under the ticker symbol “RMNI”. References to “management” or “management team” refer to the officers and directors of the Company.

A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 that are not in this Report can be found under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on the Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 2, 2022, and is available on the SEC’s website at sec.gov.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to those statements included in Item 8 of this Report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” in Item 1A and elsewhere in this Report. See also “Cautionary Note Regarding Forward-Looking Statements” contained in this Report.

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 on the basis of 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 consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

Overview

Rimini Street, Inc. and its subsidiaries (referred to as “Rimini Street”, the “Company”, “we” and “us”) are global providers of end-to-end enterprise software support, products and services. The Company offers a comprehensive family of unified solutions to run, manage, support, customize, configure, connect, protect, monitor, and optimize clients’ enterprise application, database, and technology software platforms.

We founded Rimini Street to disrupt and redefine the enterprise software support market by developing and delivering innovative new solutions that filled a then-unmet need in the enterprise software market. We became and remain 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.

Over the years, as our reputation for technical capability, value, innovation, responsiveness and trusted reliability grew, clients and prospects began asking us to expand the scope of our support, product and service offerings to meet other needs and opportunities related to their enterprise software. We also heard from prospects and clients that their goals include reducing the number of IT vendors to more manageable numbers from a governance perspective, with a desire to select vendors who can provide a wider scope of IT services and become true trusted partners.

To meet the needs of our clients and prospects and to service a significantly expanded addressable market opportunity, we designed, developed and are now delivering a new, expanded solutions portfolio for a wider array of enterprise software – including an expanded list of supported software; managed services for Oracle, SAP, IBM, Salesforce and open-source database software; and new solutions for security, interoperability, observability and consulting. We also now offer an integrated package of our services in a unique end-to-end, “turnkey” outsourcing option for Oracle and SAP landscapes that optimizes our clients’ existing technologies with a minimum of 15 extended years of operating lifespan and enables our clients to focus their IT talent and budget on higher-value, innovative projects that will support competitive advantage and growth.

As of December 31, 2022, we employed over 1,920 professionals and supported 3,020 active clients globally, including approximately 75 Fortune 500 companies and 17 Fortune Global 100 companies across a broad range of industries. We define an active client as a distinct entity, such as a company, an educational or government institution, or a business unit of a company that purchases our support, products or services. For example, we count as two separate active client instances in circumstances where we provide support for two different products to the same entity. We market and sell our services globally, primarily through our direct sales force, and have wholly-owned subsidiaries in Australia, Brazil, Canada, UAE (Dubai), France, Germany, Hong Kong, India, Israel, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Poland, Singapore, Sweden, Taiwan, the United Kingdom and the United States. We believe our primary competitors for our support services are the enterprise software vendors whose products we service and support, including IBM, Microsoft, Oracle and SAP. We believe our primary competitors for our other solutions include systems integrators, security, interoperability and observability vendors; and IT consulting firms.

Our subscription-based revenue provides a strong foundation for, and visibility into, future period results. We generated revenue of $409.7 million, $374.4 million and $326.8 million for the years ended December 31, 2022, 2021 and 2020, respectively, representing a year-over-year increase of 9% and 15% for 2022 and 2021, respectively. We have a history of losses, and as of December 31, 2022, we had an accumulated deficit of $228.3 million. We recorded net loss of $2.5 million for the year ended December 31, 2022 and we recorded net income of $75.2 million and $11.6 million for the years ended December 31, 2021 and 2020, respectively. We generated approximately 53% of our revenue in the United States and approximately 47% of our revenue from our international business for the year ended December 31, 2022.

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Since our inception, we have financed our operations through cash collected from clients and net proceeds from equity financings and borrowings.

We intend to continue investing for long-term revenue growth and profitability. We have invested and expect to continue investing in expanding our ability 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 enterprise software support, products, and services to address current and evolving client needs.

Recent Developments

On February 22, 2023, the Company amended its Credit Facility. The amendment implemented certain changes in the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”). As of February 28, 2023, the Company has a choice of interest rates between (a) Adjusted Term SOFR and (b) Base Rate, in each case plus an applicable margin. The applicable margin remains the same as the existing Credit Agreement, and is based on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects Adjusted Term SOFR (ranging from 1.75 to 2.50%) or Base Rate (ranging from 0.75 to 1.50%).

In addition, the amendment adjusted the definition of Consolidated EBITDA to provide an addback solely for the fourth fiscal quarter of 2022, and any period including such quarter, that costs and legal fees and expenses incurred by the Company in connection with its ongoing litigation with Oracle up to $10.0 million can be added back and included in the applicable calculation of the Consolidated EBITDA.

On October 10, 2022, our Public Warrants, including the one-half Public Warrant underlying each of our then-outstanding units, and our Private Placement Warrants expired unexercised in accordance with their terms. Prior to this date, each of the units consisted of one-half Public Warrant and one share of our Common Stock. As such, upon the expiration of the Public Warrants, our units were separated into the component underlying securities so that each former unit holder became the beneficial owner of one share of our Common Stock.

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

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

For the year ended December 31, 2022, we acquired an aggregate 0.9 million shares of Common Stock on the open market at a total cost of $4.7 million. Upon completion of all repurchase transactions, the acquired shares of Common Stock were retired.

Additionally, reference is made to Note 6 to our consolidated financial statements included in Part II, Item 8 of this Report for a discussion of developments related to our Series A Preferred Stock and Credit Facility.

Also, reference is made to Note 10 to our consolidated financial statements included in Part II, Item 8 of this Report for a discussion of developments in our litigation with Oracle.

Our Business Model

Enterprise software support, products and services is one of the largest categories of overall global information technology (“IT”) spending. We believe enterprise resource planning (“ERP”), customer relationship management (“CRM”), product lifecycle management (“PLM”) database and technology software systems have become increasingly important in the operation of mission-critical business processes over the last 30 years. Also the costs associated with running and supporting these systems; failure and downtime; security exposure; integrating and monitoring; and maintaining the tax, legal and regulatory compliance of these software systems, have increased in both actual spend and as a percentage of the full IT budget. As a result, we believe that licensees often view enterprise software support, products and services as a mandatory cost of doing business.

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The majority of our revenue through December 31, 2022, was generated from our support solutions.

In a traditional licensing model, the customer typically procures a perpetual software license and pays for the license in a single upfront fee (“perpetual license”), and base software support services can be optionally procured from the software vendor for an annual fee that is typically 20-23% of the total cost of the software license. In a newer subscription-based licensing model, such as software as a service (“SaaS”), the customer generally pays for the usage of the software on a monthly or annual basis (“subscription license”). Under a subscription license, the product license and a base level of software support are generally bundled together as a single purchase, and the base level of software support is not procured separately nor is it an optional purchase.

When we provide our support solutions for a perpetual software license, we generally offer our clients service for a fee that is equal to approximately 50% of the annual fees charged by the software vendor for their base support. When providing supplemental software support for a perpetual license, where the client procures our support service in addition to retaining the software vendor’s base support, we generally offer our clients service for a fee that is equal to approximately 25% of the annual fees charged by the software vendor for their base support. We also offer a special support service, Rimini Street Extra Secure Support, available to clients that require a more rigorous level of security background checks and/or government security clearance for engineers accessing a client’s system than our standard employment security background check and requirements. Clients may be asked to pay an additional fee for Rimini Street Extra Secure Support.

In addition to our support services, we also offer a breadth of enterprise software support, products and services through our full portfolio of solutions at an additional fee that is calculated based on a variety of factors and metrics. Our solutions are designed to meet specific client needs and are designed to provide what we believe is exceptional value and return for the fees charged. For more details about our Solutions Portfolio, please see Item 1 “Business” included in Part I of this Report.

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 December 31, 2022, 2021 and 2020, we had approximately 3,020, 2,840 and 2,480 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 support, 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 December 31, 2022, 2021 and 2020, we had over 1,510, 1,470 and 1,310 unique clients, respectively.

The increase in both our active and unique client counts has been a combination of new unique client wins as well as cross-sales of new support, products and services to existing clients. 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 subscription revenue

We recognize subscription revenue on a daily basis. We define annualized subscription 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 subscription revenue was approximately $420 million, $393 million and $349 million as of December 31, 2022, 2021 and 2020, respectively.

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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-cancelable 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 subscription revenue as of the day prior to the start of the 12-month period. Our revenue retention rate was 92% for each of the years ended December 31, 2022, 2021 and 2020.

Gross margin

We derive revenue through the sale 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 margin is the ratio of gross profit divided by revenue. Our gross margin was approximately 62.8%, 63.6% and 61.4% for the years ended December 31, 2022, 2021 and 2020, respectively. We believe the gross margin provides an indication of how efficiently and effectively we are operating our business and serving our clients.

Factors Affecting Our Operating Performance

Litigation

The information from Item 3, Legal Proceedings and Item 1A, “Risk Factors-—Risks Related to Litigation—“We and our Chief Executive Officer and President 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,” is incorporated by reference herein. For claims on which Oracle has prevailed or may prevail, we have been and could be required to pay substantial damages for our current or past business activities or be enjoined from certain business practices. Any of these outcomes could result in a material adverse effect on our business.

Adoption of enterprise software products and services

We believe the existing market for independent enterprise software support services is underserved. We are a global provider of enterprise software products and services, the leading third-party support provider for Oracle and SAP software products, and a Salesforce partner. We also believe the existing market for our other enterprise software products and services is underserved, and that we have unique products and services that can meet client needs in the marketplace. For example, we provide security, interoperability and compatibility products and services with the Rimini Protect and Rimini Connect solutions.

We also believe that our total addressable market for our enterprise software products and services is substantially larger than our current client base and the products and services we currently offer. As a result, we believe we have the opportunity to expand our global client base and to further increase adoption of our software products and services within and across existing clients. However, as the market for independent enterprise software support services as well as our other software products and services is still emerging, it is difficult for us to predict the timing of when and if widespread acceptance will occur.

Sales cycle

We sell our services to our clients primarily through our direct sales organization. Our sales cycle, depending on the product or service, typically ranges from six months to a year from when a prospective client is engaged. While we believe that there is a significant market opportunity for our enterprise software support, products and services, we often must educate prospective clients about the value of our products and services, which can result in lengthy and multiple sales cycles, particularly for larger prospective clients, as well as the incurrence of significant marketing expenses. Our typical sales cycle with a prospective client begins with the generation of a sales lead through trade shows, industry events, online marketing, media interviews and articles, inbound calls, outbound calls or client, analyst or other referral. The sales lead is followed by an

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assessment of the prospect’s current software license contract terms where relevant, systems environment, products and releases being used, needs and objectives.

The variability in our sales cycle for software support services is impacted by whether software vendors or other current software support providers are able to convince potential clients that they should renew their software support contract with the existing vendor or procure or renew supplemental support services from the existing vendor, respectively. Another driver of our sales cycle variability is any announcement by a software vendor of their discontinuation, reduction or limitation of support services for a particular software product or release for which we continue to offer a competing support service. In addition, our sales cycle variability for software support is impacted by vendor discounts provided by software vendors to retain existing clients or attract potential clients. Finally, our litigation with Oracle around our support service offerings can also drive sales cycle variability as clients oftentimes perform their own legal due diligence, which can lengthen the sales cycle.

Global Economic Uncertainty and Impact of COVID-19

We have experienced some clients not renewing our services as their businesses have been adversely impacted during the COVID-19 pandemic and the resulting global economic uncertainty, as well as by the further economic disruption caused by the Russian invasion of Ukraine in early fiscal 2022 and recent political turmoil in China. While we do not physically operate in Russia, the Ukraine or in mainland China, these global events, together with fiscal and monetary policy adopted during the pandemic, has increased inflationary cost pressures, negatively impacting the global economy and causing the U.S. Federal Reserve began to raise interest rates in March 2022. We expect additional rate increases in the future. Despite these macroeconomic and geopolitical pressures, we expect to continue to be able to market, sell and provide our current and future products and services to clients globally. We also expect to continue investing in the development and improvement of new and existing products and services to address client needs. Further, although our operations are influenced by general economic conditions, we do not believe the lingering impacts of the COVID-19 pandemic had a significant net impact on our revenue or results of operations during the ended December 31, 2022.

The extent to which any lingering impacts of the COVID-19 pandemic, rising inflation, interest rate increases and continuing global economic and geopolitical uncertainty impact our business going forward, however, will depend on numerous evolving factors we cannot reliably predict, including continued governmental and business actions in response to any lingering impacts of the pandemic and increasing global economic uncertainty, including the possibility of recession or financial market instability. As such, the effects of the COVID-19 pandemic, rising inflation, interest rate increases and other negative impacts on the global economy may not be fully reflected in our financial results until future periods. Refer to “Risk Factors” (Part I, Item 1A of this Report) for a discussion of these factors and other risks.

Key Components of Consolidated Statements of Operations

Revenue. We currently derive nearly all of our revenue from subscription-based contracts for software services. Revenue from these contracts is recognized ratably on a straight-line basis over the applicable service period.

Cost of revenue. Cost of revenue includes salaries, benefits and stock-based compensation expenses associated with our technical support and service delivery organizations, as well as allocated overhead and non-personnel expenses such as outside services, professional fees and travel-related expenses. Allocated overhead includes overhead costs for depreciation of equipment, facilities (consisting of leasehold improvements and rent) and technical operations (including costs for compensation of our personnel and costs associated with our infrastructure). We recognize expenses related to our technical support and service delivery organizations as they are incurred. All other costs include royalties paid for the use of products or services resold or licensed to clients, which were provided by other vendors.

Sales and marketing expenses. Sales and marketing expenses consist primarily of personnel costs for our sales, marketing and business development employees and executives, amortization expense associated with capitalized sales commissions, sales commissions that do not qualify for capitalization, travel related expenses, outside services and allocated overhead. Sales commissions are costs of obtaining customer contracts and are capitalized and then amortized over a period of benefit that we have determined to be 4 years.

General and administrative expenses. General and administrative expenses consist primarily of personnel costs for our administrative, legal, human resources, finance and accounting employees and executives. These expenses also include non-employee expenses, such as travel-related expenses, outside services, legal, auditing and other professional fees, and general corporate expenses, along with an allocation of our general overhead expenses.

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Impairment charges related to operating lease right-of-use assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists for other long-lived assets if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. An impairment charge is recognized for the amount by which the carrying amount of the asset, or asset group, exceeds its fair value.

Reorganization costs.These costs consist primarily of severance costs associated with our reorganization plan that occurred as of the year-end.

Litigation costs and related recoveries, net. Litigation costs consist of legal settlements, pre-judgment interest, and third-party professional fees to defend against litigation claims. In the past, we have had liability insurance policies where a portion of our defense costs and litigation judgments or settlements have been reimbursed under the terms of the policies. Such insurance recoveries were reflected as a reduction of litigation costs upon notification of approval for reimbursement by the insurance company. For legal expenses related to Rimini II litigation, the deferred settlement liability was reduced with a corresponding reduction of legal expenses when the costs were incurred.

Interest expense. Interest expense is incurred under our Credit Facility and other debt obligations. The components of interest expense include the amount of interest payable in cash at the stated interest rate, interest that is payable in kind through additional borrowings, make-whole applicable premium, and accretion of debt discounts and issuance costs (“DDIC”) using the effective interest method.

Loss from change in fair value of redeemable warrants. Loss on change in fair value of redeemable warrants amounted to a loss of $4.2 million for the year ended December 31, 2021. The fair value per warrant changed from $0.35 per warrant as of December 31, 2020 to $1.04 per warrant as of October 29, 2021, which was the date whereby the GP Sponsor Warrants were determined to no longer be treated as a liability.

Other expenses, net. Other expenses, net consists primarily of gains or losses on foreign currency transactions, write-off of deferred debt financing costs related to unsuccessful financings, and interest income.

Income taxes. The provision for income taxes is based on the amount of our taxable income and enacted federal, state and foreign tax rates, as adjusted for allowable credits and deductions. Our provision for income taxes consists primarily of foreign taxes for the periods presented, as our taxable income for U.S. federal and state purposes is offset by net operating losses. In addition, based on all available evidence, we determined that it was more likely than not that we could benefit from our deferred tax assets, resulting in a tax benefit of $62.3 million in the year ended December 31, 2021. In assessing the realizability of deferred tax assets, we considered whether it is more likely than not that some portion or all of the deferred tax assets would not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In prior years, the domestic net deferred tax assets had been fully offset by a valuation allowance because of our lack of domestic earnings history.

Results of Operations

Comparison of Years ended December 31, 2022 and 2021

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Our consolidated statements of operations for the years ended December 31, 2022 and 2021 are presented below (in thousands):

Variance

Cost of revenue:

Operating expenses:

Non-operating expenses:

Loss from change in fair value of redeemable warrants — (4,183) 4,183 (100.0)%

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(1)Includes the portion of costs for information technology, security services and facilities costs that are allocated to cost of revenue. In our consolidated financial statements, such costs are 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 $374.4 million for the year ended December 31, 2021 to $409.7 million for the year ended December 31, 2022, an increase of $35.2 million or 9%. The vast majority of this increase was driven by a 7% increase in the average number of unique clients, as opposed to existing unique clients subscribing to additional services. On a regional basis, United States revenue grew from $199.8 million for fiscal 2021 to $215.4 million for fiscal 2022, an increase of $15.6 million or 8%, while international revenue grew from $174.6 million for fiscal 2021 to $194.3 million for fiscal 2022, an increase of $19.7 million or 11%.

Cost of revenue. Total cost of revenue increased from $136.5 million for the year ended December 31, 2021 to $152.4 million for the year ended December 31, 2022, an increase of $15.9 million or 12%. This increase was primarily due to additional support required for the client growth which resulted in an increase in employee compensation and benefits of $7.3 million, an increase in engineering consulting costs of $4.4 million, an increase in all other costs of $3.5 million and an increase in allocated costs of $0.7 million.

The $7.3 million increase in cost of revenue attributable to employee compensation and benefits for the year ended December 31, 2022, was primarily due to an increase in salaries, wages and benefit costs due to a 20% increase in the average number of employees devoted to cost of revenue functions, annual pay increases, and increased bonus payouts.

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As discussed in Note 10 to our consolidated financial statements included in Item 8 of this Report, in August 2018 Oracle obtained an Injunction from the District Court that prohibits us from using certain processes and could require us to incur additional labor costs to provide support for our clients as contracted. In August 2019, the Court of Appeals entered an order affirming the Injunction and the award of attorneys’ fees that were previously paid to Oracle. 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. Since the date the temporary stay was lifted on the permanent injunction, we have incurred and will continue to incur additional expenses in the range of 1% to 2% of revenue for additional labor costs because the Injunction contains language that could be read to cover some current support practices that are being litigated in the “Rimini II” lawsuit and that have not been found to be infringing.

Gross Profit. Gross profit increased from $238.0 million for the year ended December 31, 2021 to $257.3 million for the year ended December 31, 2022, an increase of $19.3 million or 8%. Gross margin for the year ended December 31, 2021 was 63.6% compared to 62.8% for the year ended December 31, 2022. Our revenue for the year ended December 31, 2022 increased by $35.2 million or 9% compared to the year ended December 31, 2021. Total cost of revenue for the year ended December 31, 2022 increased by $15.9 million, or 12%, compared to the year ended December 31, 2021. Given that the increase in the cost of revenue was 12% compared to the increase in revenue of 9%, it resulted in a decrease of 80 basis points in our gross margin for the year ended December 31, 2022 compared to the year ended December 31, 2021. The lower gross margin for the year ended December 31, 2022 was primarily due to accelerating employee compensation and benefits, engineering consulting costs and all other costs more rapidly than our revenue growth.

Sales and marketing expenses. As a percentage of our revenue, sales and marketing expenses have increased from 34% for the year ended December 31, 2021 to 35% for the year ended December 31, 2022. In dollar terms, sales and marketing expenses increased from $128.5 million for the year ended December 31, 2021 to $143.0 million for the year ended December 31, 2022, an increase of $14.5 million or 11%. This increase was primarily due to (i) a $6.1 million increase in employee compensation and benefits as a result of a 4% increase in average headcount, (ii) an increase in travel and entertainment of $5.8 million, (iii) an increase in trade show costs of $2.7 million, (iv) an increase of all other costs of $1.5 million, and (v) an increase of advertising costs of $0.5 million. These increases were offset by a decline in marketing and promotion costs of $2.1 million.

The $6.1 million increase in sales and marketing expense attributable to employee compensation and benefits for the year ended December 31, 2022 was primarily due to an increase in (i) salaries, wages and benefit costs of $5.5 million due to a 4% increase in the average number of employees devoted to sales and marketing functions, annual pay increases, and higher bonus payouts and (ii) commissions of $0.6 million due to new customer wins in excess of the prior year. Our overall spending increased as we attempt to accelerate our future revenue growth by investing in more resources.

General and administrative. General and administrative expenses increased from $64.2 million for the year ended December 31, 2021 to $75.4 million for the year ended December 31, 2022, an increase of $11.2 million or 17%. This increase was primarily due to (i) increases in compensation and benefit costs of $6.6 million, (ii) an increase in computer software and license costs of $3.1 million, (iii) an increase of travel expenses of $2.3 million, (iv) an increase in other taxes of $1.5 million, (v) an increase in contract labor of $0.9 million, and (vi) an increase in all other costs of $0.5 million. These unfavorable variances were offset, in part, by (i) a reduction in professional fees of $2.7 million, (ii) a favorable increase in our administrative allocations of $0.9 million, and (iii) a reduction in rent of $0.4 million.

The $6.6 million increase in general and administrative expenses attributable to employee compensation and benefits for the year ended December 31, 2022, was primarily due to an increase in salaries, wages and benefit costs of $6.1 million due to a 22% increase in the average number of employees devoted to general and administrative functions, annual pay increases, and increased bonus payouts, and an increase of $0.5 million in stock-based compensation expense.

We expect to continue 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 being a public company. Public company costs that are expected to increase in the future include 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, we currently expect our general and administrative expenses to increase in dollar terms in future periods.

Impairment charges related to operating lease right-of-use assets. We recognized an impairment charge of $1.6 million for the year ended December 31, 2021 compared to $3.0 million for the year ended December 31, 2022, related to our

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office leases as we ceased to use additional portions of our office space due to increased use of remote work. In addition, we revised our estimates for sublease rent due to current real estate market conditions.

Reorganization costs. We recognized reorganization costs of $2.5 million for the year ended December 31, 2022. The costs consist primarily of severance costs associated with our reorganization plan.

Litigation costs and related recoveries, net. For the years ended December 31, 2022 and 2021, litigation costs and related recoveries, net consist of the following (in thousands):

Litigation settlement expense $ — $ 7,530 $ (7,530)

Professional fees and other defense costs of litigation 25,654 16,457 9,197

Litigation costs, net of related insurance recoveries $ 25,265 $ 16,876 $ 8,389

Litigation settlement expense decreased from $7.5 million for the year ended December 31, 2021 to no expense for the year ended December 31, 2022. Following nearly two years of discovery by Oracle, the District Court ruled in favor of the Company with respect to five of the items. With respect to the other five items, the District Court found the Company violated the Injunction, awarded sanctions to Oracle of $0.6 million and ordered that certain computer files be quarantined from use, and notice and proof of such quarantining be provided to Oracle. The District Court also ruled that Oracle may recover its reasonable attorneys’ fees and costs. We estimated those costs to be $6.9 million for the year ended December 31, 2021 with no change to our estimate during the year ended December 31, 2022.

Professional fees and other defense costs associated with litigation increased from $16.5 million for the year ended December 31, 2021 to $25.7 million for the year ended December 31, 2022, an increase of $9.2 million. This increase was primarily due to costs associated with the Rimini II trial, which occurred from November 2022 to December 2022, compared to the costs incurred with our September 2021 hearing related to determining if we had been in contempt of the Injunction.

Insurance costs and related recoveries, net decreased from a net benefit of $7.1 million for the year ended December 31, 2021 to net benefit of $0.4 million for the year ended December 31, 2022. These balances represent insurance proceeds received relating to our litigation costs incurred as part of the injunction proceedings. 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 increased from $1.6 million for the year ended December 31, 2021 to $4.3 million for the year ended December 31, 2022, an increase of $2.7 million. Interest expense increased primarily due to us entering into a five-year Credit Facility for $90 million on July 20, 2021, resulting in only 165 days of interest in the prior year ended December 31, 2021 compared to 365 days during the current year ended December 31, 2022. In addition, our Credit Facility's LIBOR rate increased from 0.13% as of December 31, 2021 to 4.07% as of December 31, 2022. Lastly, we incurred $0.2 million of interest expense during the year ended December 31, 2022, related to the net payment activity associated with our interest rate swap, which was entered into on May 18, 2022.

Loss on change in fair value of redeemable warrants. Loss on change in fair value of redeemable warrants amounted to a loss of $4.2 million for the year ended December 31, 2021 compared to no loss for the year ended December 31, 2022. The fair value per warrant changed from $0.35 per warrant as of December 31, 2020 to $1.04 per warrant as of October 29, 2021, which was the date whereby the GP Sponsor Warrants were determined to no longer be treated as a liability. Hence as of October 29, 2021, no further changes in fair value were recorded to the income statement.

Other expenses, net. For the year ended December 31, 2021, we had other expenses, net of $1.6 million as compared to other expenses net of $13 thousand for the year ended December 31, 2022, a decrease of $1.6 million. For the year ended December 31, 2021, other expense, net of $1.6 million was primarily comprised of foreign exchange losses of $1.4 million and other non-operating expenses of $0.2 million. For the year ended December 31, 2022, we experienced a significant change in foreign currency exchange rates as the U.S. Dollar initially strengthened against the majority of foreign currencies where our foreign entities operate and then weakened during the fourth quarter of 2022. As a result, we ended up experiencing a small gain of $12 thousand for the year ended December 31, 2022. The foreign exchange gain was offset by other non-operating expenses of $25 thousand for the year ended December 31, 2022.

Income taxes. Income taxes went from a benefit of $55.8 million for the year ended December 31, 2021 to a tax expense of $6.3 million for the year ended December 31, 2022, an increase of income tax expense of $62.1 million or 111%.

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This was primarily the result of reducing our valuation allowance by $65.7 million during the year ended December 31, 2021 as we determined that it was more likely than not that we could benefit from our deferred tax assets based on all of the available evidence.

Liquidity and Capital Resources

Overview

As of December 31, 2022, we had a working capital deficit of $71.3 million and we had an accumulated deficit of $228.3 million. We recorded a net loss of $2.5 million and net income of $75.2 million for the years ended December 31, 2022 and 2021, respectively.

Redemption of Series A Preferred Stock

On July 20, 2021, we redeemed the remaining 87,802 shares of our 13.00% Series A Preferred Stock at an aggregate total redemption price of $88.4 million. The total redemption price consisted of $87.8 million related to the outstanding shares of Series A Preferred Stock with a face value of $1,000 per share and $0.6 million related to the dividends earned for the period from July 1, 2021 through July 19, 2021. The redeemed shares of the Series A Preferred Stock, along with the dividends, were recorded on the redemption date of July 20, 2021.

We funded the redemption with borrowings from a five year term loan of $90 million, which was entered into on July 20, 2021 (the “Credit Facility”). The Credit Facility originally bore interest at LIBOR plus a margin ranging from 1.75% to 2.50% and contains certain financial covenants, including a minimum fixed charge coverage ratio, a total leverage ratio, and a minimum liquidity of $20 million in U.S. cash. Annual minimum principal payments over the five year term for the Credit Facility will be 5%, 5%, 7.5%, 7.5%, and 10%, respectively, with the remaining balance due at the end of the term.

On April 16, 2021, we redeemed 60,000 shares of our 13.00% Series A Preferred Stock at an aggregate total redemption price of $62.3 million. The total price consisted of $60.0 million related to the face value of $1,000 per share of Series A Preferred Stock and $2.3 million related to the dividends to be earned for the period from April 1, 2021 through July 18, 2021. The redeemed shares of Series A Preferred Stock, along with the dividends were recorded when the Series A Preferred Stock became mandatorily redeemable on April 16, 2021.

On March 11, 2021, we completed a public offering of 7.8 million shares of our Common Stock (the “March 2021 Offering”) at a price of $7.75 per share for total gross proceeds of $57.0 million. Net proceeds from the March 2021 Offering were $55.6 million after underwriter and offering expenses. We used the net proceeds from the March 2021 Offering to redeem 60,000 shares of Series A Preferred Stock.

On January 5, 2021, we entered into an agreement with certain of the holders of its Series A Preferred Stock (the “January 2021 Stock Repurchase Agreement”) to repurchase 10,000 shares of Series A Preferred Stock and the associated obligations pursuant to our Convertible Secured Promissory Notes outstanding in respect thereof (the “Note Obligations”) for an aggregate purchase price of approximately $9.0 million representing a discount to the face value of such shares of Series A Preferred Stock and no make-whole payments were required.

The holders of Series A Preferred Stock were 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.

Credit Facility

On February 22, 2023, the Company amended its Credit Facility. The amendment implemented certain changes in the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”). As of February 28, 2023, the Company has a choice of interest rates between (a) Adjusted Term SOFR and (b) Base Rate, in each case plus an applicable margin. The applicable margin remains the same as the existing Credit Agreement, and is based on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects Adjusted Term SOFR (ranging from 1.75 to 2.50%) or Base Rate (ranging from 0.75 to 1.50%).

In addition, the amendment adjusted the definition of Consolidated EBITDA to provide an addback solely for the fourth fiscal quarter of 2022, and any period including such quarter, that costs and legal fees and expenses incurred by the

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Company in connection with its ongoing litigation with Oracle up to $10.0 million can be added back and included in the applicable calculation of the Consolidated EBITDA.

Effective July 20, 2021, we received $89.3 million of net proceeds related to the Credit Facility. The borrowings under the Credit Facility were discounted at 0.375%. As part of the transaction, we incurred issuance costs of $4.2 million, which were capitalized and will be amortized over the term of the Credit Facility.

The Credit Facility originally bore interest at the London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 1.75% to 2.50%. For the year ended December 31, 2022, the interest rate on the Credit Facility was 5.8%. Effective February 28, 2023, we amended the Facility to implement certain changes in the reference rate from LIBOR to SOFR.

The Credit Facility contains certain financial covenants, including a minimum fixed charge coverage ratio greater than 1.25, a total leverage ratio less than 3.75, and a minimum liquidity of $20 million in U.S. cash. Annual minimum principal payments over the five year term for the Credit Facility will be 5%, 5%, 7.5%, 7.5%, and 10%, respectively, with the remaining balance due at the end of the term. For the year ended December 31, 2022, the Company made principal payments of $9.5 million.

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

Please refer to Notes 5 through 8 to the consolidated financial statements included in Part II, Item 8 of this Report for information regarding our Credit Facility, our Series A Preferred Stock and our Common Stock Offerings.

A key component of our business model generally requires that customers prepay us annually for the services we will provide over the following year or longer. As a result, we collect cash from our customers in advance of when the related service costs are incurred, which resulted in deferred revenue of $265.8 million that is included in current liabilities as of December 31, 2022. Therefore, we believe that working capital deficit is not as meaningful in evaluating our liquidity since the costs of fulfilling our commitments to provide services to customers are currently limited to approximately 37% of the related deferred revenue based on our gross margin of 63% for the year ended December 31, 2022.

For the next 12 months, assuming that our operations are not significantly adversely impacted by the lingering impacts of the COVID-19 pandemic or the slowing economy, we believe that cash, cash equivalents, and restricted cash of $109.4 million as of December 31, 2022, plus future cash flow from operating activities will be sufficient to meet our anticipated cash needs including working capital requirements, planned capital expenditures, and our contractual obligations of approximately $16.1 million that are due during the 12 months ending December 31, 2023.

Our future capital requirements depend on many factors, including client growth, number of employees, expansion of sales and marketing activities, the introduction of new and enhanced services offerings and any lingering impacts of the COVID-19 pandemic. We may also enter into arrangements to acquire or invest in complementary businesses, services, technologies, or intellectual property rights in the future. We may choose to seek additional debt or equity financing to support these long-term capital requirements. Alternatively, we may also consider reducing amounts outstanding under our Credit Facility to minimize our exposure to rising interest rates. If interest rates continue to increase as expected and adverse economic changes occur, we may not be able to access credit on terms favorable to us, impacting our ability to support these long-term capital requirements. In an economic downturn, we may also be unable to raise capital through debt or equity financings on terms acceptable to us or at all. Covenants in our Credit Facility could also have consequences on our operations, including restricting or delaying our ability to obtain additional financing, potentially limiting our ability to adjust to rapidly changing market conditions or respond to business opportunities. Additionally, in challenging and uncertain economic environments, we cannot predict when macroeconomic uncertainty may arise, whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business and our liquidity requirements.

As discussed below in greater detail, for the year ended December 31, 2022, we generated cash flows from our operating activities of $34.9 million. We believe our operating cash flows for the year ending December 31, 2022 will be sufficient to fund the portion of our contractual obligations that is not funded with existing capital resources.

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Cash Flows Summary

Presented below is a summary of our operating, investing and financing cash flows for the years ended December 31, 2022 and 2021 (in thousands):

Net cash provided by (used in):

The effect of foreign currency translation was unfavorable by $7.4 million and $6.2 million for the years ended December 31, 2022 and 2021, respectively, due to unfavorable foreign exchange impacts related to foreign cash. For the year ended December 31, 2022, we experienced significant changes in foreign currency exchange rates as the U.S. Dollar strengthened against the majority of foreign currencies where our foreign entities operate until the fourth quarter of 2022, when the U.S. Dollar started to weaken against some of our foreign currencies. The overall strengthening of the U.S. Dollar reduced the reported amount of our foreign-denominated cash and cash equivalents which are translated into U.S. Dollars and reported in our Consolidated Financial Statements for the year ended and as of December 31, 2022.

Cash Flows Provided by Operating Activities

A key component of our business model generally requires that customers prepay us annually for the services we will provide over the following year or longer. As a result, we collect cash in advance of the date when the vast majority of the related services are provided. For the years ended December 31, 2022 and 2021, cash flows provided by operating activities amounted to $34.9 million and $66.9 million, respectively.

For the year ended December 31, 2022, cash flows provided by operating activities amounted to $34.9 million. We recognized a net loss of $2.5 million, non-cash expenses, net amounted to $20.9 million, and favorable changes in operating assets and liabilities, net were $16.5 million for the year ended December 31, 2022. For the year ended December 31, 2022, the non-cash expenses, net amounted to $20.9 million and were comprised of the following: stock-based compensation expense of $10.9 million, amortization and accretion related to ROU assets and liabilities of $5.5 million, a non-cash impairment charge related to ROU assets of $3.0 million, depreciation and amortization expense of $2.5 million, and accretion and amortization of debt discount and issuance costs of $1.0 million. These expenses were offset by a benefit in our deferred tax provision of $2.1 million.

For the year ended December 31, 2022, changes in operating assets and liabilities were favorable by $16.5 million to the operating cash flows due to several items. The first item was a favorable change of $18.9 million for accounts receivable as we collected $434.5 million of accounts receivable during the year ended December 31, 2022 compared to billings, net of $409.3 million, for the year ended December 31, 2022. As a result, our days sales outstanding for accounts receivable was 72 days as of December 31, 2022. In addition, our deferred revenue had a favorable impact on our operating cash flows of $3.2 million, primarily due to changes in foreign exchange rates during the year as billings, net of $409.3 million and revenue of $409.7 million for the year ended December 31, 2022 offset each other. Also, accounts payable had a favorable operating cash flow impact of $2.4 million during the year ended December 31, 2022. This was a result of an increase in the number of our payment days by 22% over the prior year. Accrued compensation, benefits, commissions and other liabilities were also favorable to our operating cash flows for $2.8 million during the year ended December 31, 2022. This was due to having accrued for reorganization costs as of December 31, 2022. These favorable changes were offset by unfavorable changes in prepaid expenses, deposits and other assets of $6.6 million and deferred contract costs of $4.2 million for the year ended December 31, 2022. The change in prepaid expenses, deposits and other assets of $6.6 million was primarily due to making a long-term prepayment of $5.0 million in 2022. The unfavorable change in deferred costs was due to capitalizing $22.0 million of commission costs and amortizing $17.7 million of these costs during the year ended December 31, 2022.

For the year ended December 31, 2021, cash flows provided by operating activities amounted to $66.9 million. We recognized net income of $75.2 million, non-cash expenses resulting in a use of $37.8 million and favorable changes in operating assets and liabilities, net of $29.5 million for the year ended December 31, 2021. For year ended December 31, 2021, the non-cash expenses, net amounted to a use of $37.8 million and were comprised of stock-based compensation expense of $9.7 million, amortization and accretion related to ROU assets and liabilities of $6.1 million, a loss from change in fair value of redeemable warrants of $4.2 million, depreciation and amortization expense of $2.4 million, a non-cash impairment charge related to ROU assets of $1.6 million and accretion and amortization of debt discount and issuance costs of $0.4 million. These

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expenses were offset by a change in our deferred tax asset provision which amounted to a benefit of $62.3 million, related primarily to the reduction in our valuation allowance during 2021.

For the year ended December 31, 2021, changes in operating assets and liabilities were favorable by $29.5 million to the operating cash flows due to several items. The primary reason was due to a favorable change in deferred revenue of $47.3 million as billings, net of $417.8 million for the year ended December 31, 2021 were offset by revenue of $374.4 million for the year ended December 31, 2021. In addition, accrued compensation, benefits and other liabilities was favorable for $3.5 million during the year ended December 31, 2021 primarily because of accruing for legal liabilities as of December 31, 2021. Also, accounts payable were favorable by $2.5 million for the year ended December 31, 2021 because our payment days increased 58% over the prior year. These favorable changes were offset by the unfavorable changes of $18.8 million for accounts receivable, $3.5 million related to prepaid expenses, deposits and other and $1.6 million deferred contract costs. The unfavorable change in accounts receivable of $18.8 million was due to collecting $407.9 million of receivables during the year ended December 31, 2021 compared to billings, net of $417.8 million. Consequently, our days sales outstanding for accounts receivable was 83 days as of December 31, 2021. The unfavorable change of $3.5 million in prepaid expenses, deposits and other assets was due to incremental payments made in 2021. Finally, the deferred contract costs were unfavorable by $1.6 million for the year ended December 31, 2021 as capitalized commissions amounted to $17.5 million for the year ended December 31, 2021, while we amortized $16.0 million of these costs during the year ended December 31, 2021.

Cash Flows Used in Investing Activities

Cash flows used in investing activities were primarily driven by investment purchases, investment sales and capital expenditures for computer equipment as we continued to invest in our business infrastructure and advance our geographic expansion. Cash used in investing activities totaled $24.4 million and $2.1 million for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022, cash used in investing activities of $24.4 million consisted of investment purchases of $31.2 million, offset in part by investment sales of $11.1 million as we began to invest funds in September 2022, and capital expenditures of $4.3 million. The capital expenditures of $4.3 million consisted of new computer equipment and capitalized development costs for a new payroll and client portal system in our U.S. entity.

For the year ended December 31, 2021, capital expenditures of $2.1 million consisted of new computer equipment and leasehold improvements of $1.1 million for our U.S. facilities, and $1.0 million for computer equipment at our foreign locations, primarily in India.

Cash Flows from Financing Activities

For the year ended December 31, 2022, cash utilized in financing activities of $13.6 million was attributable to principal payments related to the Credit Facility of $9.5 million, payments to repurchase shares of Common Stock totaling $4.7 million and finance lease payments of $0.3 million. These cash uses were offset by proceeds of $1.0 million received from stock option exercises.

For the year ended December 31, 2021, cash utilized in financing activities of $26.6 million was attributable to payments to repurchase shares of Series A Preferred Stock totaling $156.8 million, which included $87.8 million in July 2021, $60.0 million in April 2021 and $9.0 million in January 2021; recurring dividend payments $9.7 million and a make-whole dividend payments of $2.9 million; payments related to debt issuance costs of $4.2 million; payments for professional fees associated with our March 2021 Offering of $1.3 million; principal payments related to the Credit Facility of $2.3 million; payments of $1.1 million related to treasury stockand capital lease payments of $0.4 million. These cash uses were offset by proceeds of $89.3 million from the new Credit Facility, proceeds of $57.0 million generated from the March 2021 Offering and proceeds of $5.9 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. The imposition of the Transition Tax set forth in the U.S. Tax Cuts and Jobs Act of 2017 may reduce or eliminate U.S. federal deferred taxes on the unremitted earnings of our foreign subsidiaries. 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

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income taxes on undistributed earnings of our foreign subsidiaries. As of December 31, 2022, we had cash and cash equivalents of $65.0 million in our foreign subsidiaries.

Contractual Obligations

The following table summarizes our contractual obligations on an undiscounted basis as of December 31, 2022 and the period in which each contractual obligation is due (in thousands):

Year Ending December 31:

Credit Facility

Lease obligations:

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our 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.

With respect to our significant accounting policies that are described in Note 2 to our consolidated financial statements included in Item 8 of this Report, we believe that the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Income Taxes and Valuation of Deferred Tax Assets

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Significant judgment is required in determining income tax benefit or expense and in evaluating uncertainties under ASC 740. Deferred taxes are recorded for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are established when it is determined that it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company’s deferred tax assets are primarily the result of U.S. federal net operating loss carryforwards (“NOLs”) and tax credit carryforwards.

During the year ended December 31, 2021, we released our valuation allowance related to our deferred tax assets and recognized a $55.8 million income tax benefit. Management determined that, as a result of generating pretax earnings, utilization of net operating loss carryovers and projected pre-tax earnings, there is sufficient positive evidence to conclude that it is more likely than not that its U.S. deferred taxes are realizable. The realization of deferred tax assets is dependent upon on our ability to generate sufficient future taxable income during the periods in which those temporary differences become deductible, prior to the expiration of the tax attributes. The evaluation of deferred tax assets requires judgment in assessing the

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likely future tax consequences of events that have been recognized in our financial statements or tax returns and forecasting future profitability.

We assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets within the applicable expiration period. While we believe that we have utilized a reasonable method to determine our deferred tax assets and the related release of our valuation allowance, should factors and conditions differ materially from those used by us, the actual realization of deferred tax assets could differ materially from the reported amounts.

Loss Contingencies

We are subject to various loss contingencies arising in the ordinary course of business. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If some amount within a range of probable loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, when no amount within a range of probable loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. If we determine that a loss is reasonably possible and the range of the loss is estimable, then we disclose the range of the possible loss if the upper end of the range is material. If we cannot estimate the range of loss, we will disclose the reason why it cannot estimate the range of loss, if there is a reasonable possibility that the amount of loss may be material. We regularly evaluate current information available to it to determine whether an accrual is required, an accrual should be adjusted and if a range of possible loss should be disclosed.

Recent Accounting Pronouncements

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 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 Consolidated Financial Statements included in Item 8 of this Report.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and amended in December 2020 with ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2020-04 provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2024, as amended by ASU 2022-06. As of December 31, 2022, we have not adopted any expedients and exceptions under ASU 2020-04, however we will be adopting ASU 2020-04 effective January 1, 2023.

Item 7A. 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. We generated between 41% and 47% of our revenue from our international business for the years ended December 31, 2022, 2021 and 2020. 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 with the expectation that we will initiate such a program and we may in the future hedge selected significant transactions denominated in currencies other than the U.S. Dollar.

As of December 31, 2022, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have impacted our income before income taxes by a plus or minus of $1.1 million in our Consolidated Statements of Operations and Comprehensive Income (Loss) and would have impacted the effect of foreign currency changes on cash by a plus or minus $6.5 million in our Consolidated Statement of Cash Flows.

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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.

Variable Rate Debt

In July 2021, we entered into the Credit Facility, which originally bore interest at LIBOR plus a margin ranging from 1.75% to 2.50%. Effective February 28, 2023, we amended our Credit Facility to implement certain changes in the reference rate from LIBOR to SOFR. Accordingly, we were previously exposed to market risk due to variable interest rates based on LIBOR and are currently exposed to market risk due to variable interest rates based on SOFR.As of December 31, 2022, we had $74.8 million outstanding debt under the Credit Facility. As of this date, a reasonably possible hypothetical adverse change of 100 basis points in would have resulted in an increase of approximately $0.1 million in annual interest expense. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and Note 5 of our consolidated financial statements included in Part II, Item 8 of this Report for more information related to the Credit Facility.

Inflation Risk

With regards to inflation risk and other economic conditions, please refer to Item 1A. Risk Factors included in Part I of this Report.

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Item 8. Financial Statements and Supplementary Data

TABLE OF CONTENTS

Page

Report of Independent Registered Public Accounting Firm 59

Financial Statements:

Consolidated Balance Sheets 61

Consolidated Statements of Operations and Comprehensive Income (Loss) 62

Consolidated Statements of Stockholders’ Deficit 63

Consolidated Statements of Cash Flows 64

Notes to Consolidated Financial Statements 66

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

Rimini Street, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Rimini Street, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of revenue contracts with non-standard provisions

As discussed in Note 2 and Note 4 to the consolidated financial statements, the Company recognized $409,662 thousand in revenue which was primarily derived from the subscription-based software support revenue for the year ended December 31, 2022. A significant portion of the Company’s contracts contain non-standard provisions which require judgment to determine the appropriate accounting through the five-step framework prescribed by ASC Topic 606 – Revenue from Contracts with Customers.

We identified the evaluation of revenue contracts with non-standard provisions related to subscription-based software support revenue as a critical audit matter. This matter required a higher degree of auditor judgment to assess whether non-standard provisions in contracts and amendments were appropriately evaluated by management.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control over the Company's subscription-based software support revenue processes that included identifying and evaluating non-standard contract provisions. We applied auditor judgment to determine the nature and extent of procedures to be performed over subscriptions-based software support revenue. For a selection of revenue transactions, we developed independent expectations of the revenue recognized based on the provisions in contracts and amendments and compared them to the amounts recorded by the Company.

We also evaluated the overall sufficiency of the audit evidence over revenue by assessing the results of our procedures.

/s/ KPMG LLP

We have served as the Company’s auditor since 2016.

Santa Clara, California

March 1, 2023

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RIMINI STREET, INC.

Consolidated Balance Sheets

(In thousands, except per share amounts)

December 31,

ASSETS

Current assets:

Short-term investments 20,115 —

Long-term assets:

Operating lease right-of-use assets 7,142 12,722

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

Current liabilities:

Current maturities of long-term debt $ 4,789 $ 3,664

Accrued compensation, benefits and commissions 37,459 36,558

Operating lease liabilities, current 4,223 4,227

Long-term liabilities:

Long-term debt, net of current maturities 70,003 79,655

Operating lease liabilities, noncurrent 9,094 12,511

Commitments and contingencies (Note 10)

Stockholders’ deficit:

Accumulated other comprehensive loss (4,195) (2,724)

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

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RIMINI STREET, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share amounts)

Years Ended December 31,

Operating expenses:

Reorganization costs 2,525 — —

Litigation costs and related recoveries:

Litigation settlement expense — 7,530 —

Non-operating expenses:

Loss from change in fair value of redeemable warrants — (4,183) (1,394)

Other comprehensive income:

Derivative instrument and other adjustments, net of tax 1,009 — —

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

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RIMINI STREET, INC.

Consolidated Statements of Stockholders’ Deficit

(In thousands)

Shares Amount

Stock-based compensation expense — — 7,461 — — — 7,461

Restricted stock units vested 1,114 — — — — — —

Return related to repurchase of Series A Preferred Stock — — (83) — — — (83)

Accretion of discount on Series A Preferred Stock — — (6,275) — — — (6,275)

Paid and payable in cash on Series A Preferred Stock — — (15,713) — — — (15,713)

Paid and payable in kind on Series A Preferred Stock — — (4,738) — — — (4,738)

Foreign currency translation gain — — — 1,111 — — 1,111

Stock-based compensation expense — — 9,710 — — — 9,710

Restricted stock units vested 1,604 — — — — — —

Accretion of discount on Series A Preferred Stock — — (2,277) — — — (2,277)

Paid and payable in cash on Series A Preferred Stock — — (5,839) — — — (5,839)

Paid and payable in kind on Series A Preferred Stock — — (1,752) — — — (1,752)

Reclassification of GP Sponsor Warrant liability — — 6,305 — — — 6,305

Foreign currency translation loss — — — (2,406) — — (2,406)

Stock-based compensation expense — — 10,895 — — — 10,895

Exercise of stock options for cash 554 — 1,012 — — — 1,012

Restricted stock units vested 1,649 — — — — — —

Issuance of Common Stock 60 — — — — — —

Retired shares of Common Stock (853) — (4,740) — — — (4,740)

Other comprehensive loss — — — (1,471) — — (1,471)

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

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RIMINI STREET, INC.

Consolidated Statements of Cash Flows

(In thousands)

Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash provided by operating activities:

Accretion and amortization of debt discount and issuance costs 973 441 —

Amortization and accretion related to ROU assets 5,530 6,139 6,192

Loss from change in fair value of redeemable warrants — 4,183 1,394

Changes in operating assets and liabilities:

CASH FLOWS USED IN INVESTING ACTIVITIES:

Payment for purchase of short term investments (31,215) — —

Proceeds from sale of short term investments 11,101 — —

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of Credit Facility — 89,313 —

Debt issuance costs paid — (4,184) —

Principal payments on borrowings (9,500) (2,250) —

Payments to repurchase shares of Series A Preferred Stock — (8,951) (4,500)

Payment of cash dividends of Series A Preferred Stock — (9,735) (15,781)

Payments to repurchase and retire Common Stock (4,740) — —

Payments for treasury stock — (1,116) —

Proceeds from exercise of employee stock options 1,012 5,864 1,808

Principal payments on financing leases (313) (428) (256)

Net cash provided by (used in) financing activities (13,568) (26,565) 6,375

Effect of foreign currency changes on cash (7,441) (6,191) 2,526

Net change in cash, cash equivalents and restricted cash (10,556) 32,081 49,521

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

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RIMINI STREET, INC.

Consolidated Statements of Cash Flows, Continued

(In thousands)

Years Ended December 31,

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Underwriter discounts and commissions — 1,050 143

Underwriter expenses — 27 300

Redeemable Series A Preferred Stock Dividends and Accretion:

Accrued cash dividends $ — $ — $ 3,842

Accrued PIK dividends — — 1,193

Accretion of discount on Series A Preferred Stock — 2,277 6,275

Issuance of Series A Preferred Stock for PIK Dividends — 2,891 4,680

Increase in principal related to the Credit Facility discount $ — $ 62 $ —

Purchase of equipment under capital lease obligations — — 1,640

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

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

Nature of Business

Rimini Street, Inc. was formed in the State of Nevada in 2005 (“RSI” or “predecessor”) and, through a merger in 2017 with a public company, became Rimini Street, Inc., a Delaware corporation (referred to as the “Company”, “we” and “us”), trading on the Nasdaq Global Market under the ticker symbol “RMNI”. The Company is a global provider of enterprise software support services. Its subscription-based software support products and services offer enterprise software licensees a choice of solutions that replace or supplement the support products offered by enterprise software vendors.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The 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.

Liquidity

As of December 31, 2022, the Company's current liabilities exceeded its current assets by $71.3 million, and the Company incurred a net loss of $2.5 million for the year ended December 31, 2022. As of December 31, 2022, the Company had available cash, cash equivalents and restricted cash of $109.4 million. As of December 31, 2022, the Company’s current liabilities included $265.8 million of deferred revenue whereby the historical costs of fulfilling the Company’s commitments to provide services to its customers was approximately 37% of the related deferred revenue for the year ended December 31, 2022.

On July 20, 2021, the Company redeemed the remaining 87,802 shares of its 13.00% Series A Preferred Stock at an aggregate total redemption price of $88.4 million. The total redemption price consisted of $87.8 million related to the outstanding shares of Series A Preferred Stock with a face value of $1,000 per share and $0.6 million or $6.86 per share of Series A Preferred Stock related to the dividends earned for the period from July 1, 2021 through July 19, 2021. The redeemed shares of the Series A Preferred Stock, along with the dividends, were recorded on the redemption date of July 20, 2021.

The Company funded the July 20, 2021 redemption with borrowings from a five year term loan of $90 million, which was entered into on July 20, 2021 (the “Credit Facility”). Annual minimum principal payments over the five year term for the Credit Facility will be 5%, 5%, 7.5%, 7.5% and 10%, respectively, with the remaining balance due at the end of the term. See Note 5 for further information regarding the Company's Credit Facility.

As discussed in Note 7, the Company completed a firm commitment underwritten public offering on March 11, 2021 (the “March 2021 Offering”) of 7.8 million shares of its common stock, par value $0.0001 per share (“Common Stock”), at a price of $7.75 per share for total gross proceeds of $57.0 million. Underwriter discounts and commissions were $2.9 million and the underwriter expenses were $0.2 million. The Company also incurred additional professional fees and expenses of $1.3 million as part of the transaction, resulting in net proceeds from the March 2021 Offering of approximately $55.6 million. The Company had previously 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.

Additionally, the Company is obligated to make operating and financing lease payments that are due within the next 12 months in the aggregate amount of $5.7 million. In March 2020, the World Health Organization declared the outbreak of a novel strain of the coronavirus (“COVID-19”) to be a pandemic. 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

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

anticipated cash needs, including Credit Facility repayments, working capital needs, capital expenditures and other contractual obligations for at least 12 months from the issuance date of these financial statements.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. The full extent to which the COVID-19 pandemic will impact the Company's business and operating results will depend on circumstances which are highly uncertain and cannot be accurately predicted. 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, the allowance for doubtful accounts receivable, valuation assumptions for stock options, operating lease right-of-use assets and liabilities, deferred income taxes and the related valuation allowances, accretion of discounts on debt and Series A Preferred Stock, and the evaluation and measurement of contingencies. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operation may be affected.

Risks and Uncertainties

Inherent in the Company’s business are various risks and uncertainties, including its limited operating history in a rapidly changing industry. These risks include the Company’s ability to manage its rapid growth and its ability to attract new customers and expand sales to existing customers, risks related to litigation, as well as other risks and uncertainties. In the event that the Company does not successfully execute its business plan, certain assets may not be recoverable, certain liabilities may not be paid and investments in its capital stock may not be recoverable. The Company’s success depends upon the acceptance of its expertise in providing services, development of sales and distribution channels, and its ability to generate significant revenues and cash flows from the use of this expertise.

Segments

The Company’s chief operating decision maker (the “CODM”), who is the Company’s Chief Executive Officer and President, allocates resources and assesses performance based on financial information of the Company. The CODM reviews financial information presented on an entity-level basis for purposes of making operating decisions and assessing financial performance. The entity-level financial information is identical to the information presented in the accompanying consolidated statements of operations and comprehensive loss. Accordingly, the Company has determined that it operates in a single operating and reportable segment.

Cash, Cash Equivalents and Restricted Cash

All highly liquid investments purchased with an original maturity of three months or less that are freely available for the Company’s immediate and general business use are classified as cash and cash equivalents. Cash and cash equivalents consist primarily of demand deposits with financial institutions. The restricted cash consists of demand deposits that are pledged as collateral for corporate credit card debts.

Allowance for Doubtful Accounts

The Company records a provision for doubtful accounts based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts receivable, its historical write-offs, the credit worthiness of customers, and general economic conditions. Account balances are charged off against the allowance when the Company believes that it is probable that the receivable will not be recovered. Actual write-offs may either be in excess or less than the estimated allowance.

Property and Equipment

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the following assets:

Years

Computer equipment 1 - 3

Furniture and fixtures 3 - 7

Capitalized software costs 3

Leasehold improvements Up to 8 years, not to exceed lease term

Maintenance and repairs are expensed as incurred. Application development costs related to internal use software projects are capitalized and included in property and equipment. Preliminary planning activities and post implementation activities for internal use software projects are expensed as incurred. Construction-in-progress primarily consists of computer equipment and leasehold improvements that have not yet been placed into service for their intended use. Depreciation and amortization commence when assets are initially placed into service for their intended use.

Deferred Contract Costs

Costs incurred to obtain new client contracts and to extend existing client contracts are primarily comprised of sales commissions. Initial sales commissions are generally deferred and amortized over their estimated useful life, which is generally 4 years. We determined the period of benefit by taking into consideration the estimated life cycles for our customers, our technology and other factors. We recognized amortization expense related to deferred contract costs of $17.7 million, $16.0 million and $14.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertain tax positions in accordance with ASC 740, Income Taxes (“ASC 740”), which applies to all tax positions related to income taxes. Under ASC 740, tax benefits are recognized when it is more-likely-than-not that a tax position will be sustained upon examination by the authorities. The Company recognizes interest and penalties accrued related to uncertain tax benefits as a component of income tax expense.

Impairment of Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized only if the carrying amount of the long-lived assets is not recoverable and exceeds their fair value. The carrying amount of a long-lived asset is not recoverable if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. An impairment charge is recognized for the amount by which the carrying amount of the asset, or asset group, exceeds its fair value. The Company recognized an impairment charge of $3.0 million, $1.6 million and $1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, related to two of its office leases as the Company ceased use of a portion of the office space due to increased remote work since the COVID-19 pandemic.

Debt Issuance Costs and Discounts

Debt issuance costs are costs incurred to obtain new debt financing or modify existing debt financing and consist of incremental direct costs incurred for professional fees and due diligence services, including reimbursement of similar costs incurred by the lenders. Debt issuance costs are allocated proportionately between funded and unfunded portions of debt. Amounts paid to the lenders when a financing is consummated are a reduction of the proceeds and are treated as a debt discount. Debt issuance costs and discounts related to funded debt are presented in the accompanying consolidated balance sheet as a reduction in the

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

carrying value of the debt and are accreted to interest expense using the effective interest method. Debt issuance costs related to unfunded debt is presented in the accompanying consolidated balance sheet as a long-term asset and are amortized using the straight-line method over the contractual term of the debt agreement. Unamortized deferred debt issuance costs are not charged to expense when the related debt becomes a demand obligation due to the violation of terms so long as it is probable that the lenders will either waive the violation or will agree to amend or restructure the terms of the indebtedness. If either circumstance is probable, the deferred debt issuance costs continue to be amortized over the remaining term of the initial amortization period. If it is not probable, the costs will be charged to expense. Debt discounts and issuance costs are collectively referred to as DDIC.

Accounting for Series A Preferred Stock

Series A Preferred Stock was previously classified as mezzanine equity in the Company’s consolidated balance sheet since the holders had redemption rights beginning in July 2023 (and earlier under certain circumstances). Discounts and incremental and direct costs incurred to consummate the Private Placement were allocated pro rata between the Series A Preferred Stock and the Common Stock issued based on the relative fair value on the Closing Date. The discount related to Series A Preferred Stock was being accreted using the effective interest method. Accordingly, the carrying value of the Series A Preferred Stock was being increased with a corresponding reduction in additional paid-in capital from the issuance date of July 19, 2018 until the final redemption on July 20, 2021, when the carrying value was equal to the aggregate liquidation preference. The Company recorded a liability for dividends in the period incurred. Accrued dividends were a component of the liquidation preference until paid in cash or settled in additional shares of Series A Preferred Stock. Accretion and accrued dividends were treated as deductions in the calculation of earnings attributable to common stockholders. As noted above, the remaining shares of Series A Preferred Stock were redeemed on July 20, 2021.

Revenue Recognition

Revenue is primarily derived from support services, and to a lesser extent, software licensing and related maintenance and professional services.

Revenue is recognized when performance obligations, as stipulated in the contracts, are transferred to a customer for an amount that reflects the consideration the Company expects to receive in exchange for those support services and service contracts. This occurs when the contracts are executed by both parties, the rights and obligations of the parties are identified, payment terms are identified, the contracts have commercial substance and collectability of consideration is probable. The Company's contracts generally do not contain any refund provisions other than in the event of our non-performance or breach. However, the Company's contracts may include non-standard terms negotiated with each respective client that may impact the amount and timing of revenue recognized.

The Company determines revenue recognition through the following steps:

•Identification of the contract with the customer.

•Identification of the performance obligations.

•Determination of the transaction price.

•Allocation of the transaction price to the performance obligations.

•Recognition of revenue when the performance obligations are satisfied.

Most of the Company's contracts contain a single performance obligation for subscription support services. In a limited number of arrangements, the Company also licenses software and related maintenance services under term-based arrangements or provides professional services. The Company’s performance obligations are evaluated for whether they can be distinct or should be accounted for as one performance obligation and primarily consist of (i) subscription support services or (ii) professional services sold on a time and materials basis.

The transaction price is generally the same as the contractual price. Typically, the structure of our arrangements do not give rise to variable consideration. However, in those instances where variable consideration should exist, the Company includes in its estimates, additional revenue for variable consideration when it has an enforceable right, the amount can be estimated reliably and its realization is probable.

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subscription Services

The Company’s subscription support services are part of a comprehensive support program that helps clients keep their software and systems running smoothly and in full legal compliance. Subscription support services include product support (fixes and installation support), security, advanced support (performance tuning and interoperability), strategic roadmap services (upgrade process), global tax, legal and regulatory services, global security, proactive support services, strategic roadmap services, device and user interface support and account management services. Subscription contracts are generally non-cancelable and do not contain general rights of return. The Company’s support subscription is viewed as a stand-ready performance obligation comprised of a series of distinct services that is satisfied ratably over time as the services are provided. A time-elapsed output method is used to measure progress as the Company's efforts are expended evenly throughout the period given the nature of the promise is a stand-ready service.

Other Services

Other services include both software licensing services and professional services. The Company’s software licensing includes both internally developed software licenses as well as third party licenses. The Company’s professional services consist of various consulting services, which include project oversight, minor software customization or enhancement, and testing of client-developed software customization. Services may be provided solely by the Company, by a partner of the Company, or in combination with the Company's partners. The Company’s professional services are generally provided under a separate statement of work from our subscription support services. Revenue is recognized as services are performed.

Revenues generally include any taxes withheld by foreign customers and subsequently remitted to governmental authorities in those foreign jurisdictions. Foreign withholding taxes included in revenues amounted to $3.9 million, $3.3 million and $2.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company's remaining performance obligations represent all future non-cancellable revenue under contract that has not yet been recognized as revenue, and includes deferred revenue and unbilled amounts. As of December 31, 2022, remaining performance obligations amounted to $577.9 million, of which $299.9 million was billed and recorded as deferred revenue.

Deferred revenue is a contract liability that consists of billings issued that are non-cancellable and payments received in advance of revenue recognition. The Company typically invoices its customers at the beginning of the contract term, in annual and multi-year installments. Deferred revenue is recognized as the Company satisfies its performance obligations over the term of the contracted service period. The Company expects to recognize revenue on approximately $265.8 million of the billed remaining performance obligations over the next 12 months, with the remaining deferred revenue balance recognized thereafter.

Advertising

Advertising costs are charged to sales and marketing expense in the period incurred.

Legal Costs and Deferred Settlement Proceeds

Legal fees and costs are charged to general and administrative expense as incurred, other than legal fees and costs that are accounted for as deferred offering costs and debt issuance costs. The proceeds from legal fee insurance coverage prepaid settlements were accounted for as a deferred liability that was reduced as legal expenses related to the litigation were incurred.

Loss Contingencies

The Company is subject to various loss contingencies arising in the ordinary course of business. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If some amount within a range of probable loss appears to be a better estimate than any other amount within the range, the Company accrues that amount. Alternatively, when no amount within a range of probable loss appears to be a better estimate than any other amount, the Company accrues the lowest amount in the range. If the Company determines that a loss is reasonably possible and the range of the loss is estimable, then the Company discloses the range of the possible loss if the upper end of the range is material. If the Company cannot estimate the range of loss, it will disclose the reason why it cannot estimate the range of loss, if there is a reasonable possibility that the amount of loss may be material. The Company

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

regularly evaluates current information available to it to determine whether an accrual is required, an accrual should be adjusted and if a range of possible loss should be disclosed.

Stock-Based Compensation

The Company measures the cost of employee and director services received in exchange for all equity awards granted, based on the fair market value of the award as of the grant date. The Company computes the fair value of options using the Black-Scholes-Merton (“BSM”) option pricing model. The Company recognizes the cost of the equity awards over the period that services are provided to earn the award, usually the vesting period. For awards granted which contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award was, in substance, a single award. Stock-based compensation expense is recognized based on awards ultimately expected to vest whereby estimates of forfeitures are based upon historical experience.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings.

The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. Interest and penalties related to income taxes are recognized in the provision for income taxes.

Foreign Currency

The Company’s reporting currency is the U.S. Dollar, while the functional currencies of its foreign subsidiaries are their respective local currencies. The asset and liability accounts of the foreign subsidiaries are translated from their local currencies at the exchange rates in effect on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the period. Gains and losses resulting from the translation of the subsidiary balance sheets are recorded net of tax as a component of accumulated other comprehensive loss. Gains and losses from foreign currency transactions are recorded in other income and expense in the consolidated statements of operations and comprehensive loss. The tax effect has not been material to date.

Earnings (Loss) Per Common Share

Basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for each period presented. Diluted net loss per common share is computed using the treasury stock method by giving effect to the exercise of all potential shares of Common Stock, including stock options and warrants, and the conversion of RSI Preferred Stock, to the extent dilutive. RSI Preferred Stock participated in dividends but was not considered participating securities when there was a net loss because the holders did not have a contractual obligation to share in the losses.

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 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.

Recent Accounting Pronouncements

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following accounting standards were adopted during the fiscal year 2022:

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 was effective for us as of January 1, 2022. The impact of the adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

NOTE 3 — LEASES

Operating 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 in the range of 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 January 2023 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.

The Company uses a discount rate to calculate the ROU asset and lease liability. As most of the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments.

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 December 31, 2022, the Company did not have any material additional operating leases that have not yet commenced.

The components of operating lease expense and supplemental balance sheet information for the years ended December 31, were as follows (in thousands):

Other information related to leases as of December 31, was as follows (in thousands):

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Balance Sheet Information 2022 2021

Operating lease right-of-use assets, noncurrent $ 7,142 $ 12,722

Operating lease liabilities, current $ 4,223 $ 4,227

Operating lease liabilities, noncurrent 9,094 12,511

Total operating lease liabilities $ 13,317 $ 16,738

Weighted Average Remaining Lease Term Years

Operating Leases 3.2

Weighted Average Discount Rate

Operating Leases 10.2 %

Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands):

Year Ending December 31:

Thereafter —

Total future undiscounted lease payments 15,669

Less imputed interest (2,352)

For the years ended December 31, 2022 and 2021, the Company paid $5.5 million and $6.1 million, respectively, for operating leases.

Finance Leases

The Company has entered into various financing lease agreements for certain computer equipment, with one lease agreement outstanding as of December 31, 2022. The remaining lease term is 34 months with an annual implied interest rate of 7.9%. As of December 31, 2022, the future annual minimum lease payments under financing lease obligations are as follows (in thousands):

Year ending December 31:

Total minimum lease payments 1,128

Less amounts representing interest 114

Present value of minimum lease payments 1,014

Less current portion, included in accrued expenses 333

Long-term obligation, included in other long-term liabilities $ 681

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, the carrying values of leased equipment (included as a component of property and equipment) in the consolidated balance sheets, were as follows (in thousands):

Leased computer equipment $ 4,954 $ 4,954

Less accumulated depreciation (4,453) (3,907)

NOTE 4 — OTHER FINANCIAL INFORMATION

Cash, cash equivalents and restricted cash

As of December 31, 2022 and 2021, cash, cash equivalents and restricted cash were as follows (in thousands):

Total cash, cash equivalents and restricted cash $ 109,434 $ 119,990

Allowance for Doubtful Accounts

Activity in the allowance for doubtful accounts is set forth below for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Write offs, net of recoveries (71) (402) (1,881)

In 2020, write offs, net of recoveries was significant due to collection issues and client bankruptcies resulting, in part, to the COVID-19 pandemic.

Prepaid Expenses and Other Current Assets

As of December 31, 2022 and 2021, prepaid expenses and other current assets consisted of the following (in thousands):

Prepaid expenses and deposits $ 12,145 $ 9,387

Foreign tax refunds receivable 2,792 3,068

Property and Equipment

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, property and equipment consisted of the following (in thousands):

Capitalized software costs 825 435

Property and equipment, net $ 6,113 $ 4,435

Depreciation expense was $2.5 million, $2.4 million and $1.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Deferred Contract Costs

Activity for deferred contract costs for the years ended December 31, 2022 and 2021 was provided below (in thousands):

Capitalized commissions during the period 21,960 17,519

Amortized deferred contract costs during the period (17,743) (15,955)

Other Accrued Liabilities

As of December 31, 2022 and 2021, other accrued liabilities consisted of the following (in thousands):

Accrued sales and other taxes $ 6,878 $ 8,805

Accrued reorganization costs 2,526 —

Current maturities of capital lease obligations 333 315

Accrued litigation settlement costs 6,979 7,530

Deferred Revenue

Activity for deferred revenue for the years ended December 31, 2022 and 2021 was provided below (in thousands):

Advertising

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising expenses were $1.7 million, $1.2 million and $3.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Other Expenses, Net

For the years ended December 31, 2022, 2021 and 2020, other expenses, net consisted of the following (in thousands):

Interest and other income $ 228 $ 55 $ 24

Foreign currency gain (loss) 12 (1,394) (77)

Total other expenses, net $ (13) $ (1,605) $ (258)

NOTE 5 — DEBT

Debt is presented net of debt discounts and issuance costs in the Company's balance sheets. As of December 31, 2022 and December 31, 2021, debt consisted of the following (in thousands):

Long-term debt, net of current maturities $ 70,003 $ 79,655

On May 31, 2022, the Company prepaid $5.0 million of indebtedness outstanding under its Credit Facility with no prepayment penalty. On December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the Company made its required quarterly principal payments of $1.1 million, respectively, which totaled $4.5 million for the year ended December 31, 2022.

On May 31, 2022, the Company also amended the Credit Facility to increase the aggregate value of the Common Stock shares that can be repurchased by the Company to $50 million during the term of the Credit Facility.

Effective July 20, 2021, the Company received $89.3 million of net proceeds related to the Credit Facility. The borrowings under the Credit Facility were discounted at 0.375%. As part of the transaction, the Company incurred issuance costs of $4.2 million, which were capitalized and are being amortized over the term of the Credit Facility.

The Credit Facility originally bore interest at the London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 1.75% to 2.50%. From January 1, 2022 through March 31, 2022, the margin for the Credit Facility was 2.25%. Effective April 1, 2022, the margin for the Credit Facility decreased to 1.75% for the remainder of fiscal year 2022. For the year ended December 31, 2022 and 2021, the effective interest rates on the Credit Facility were 4.8% and 3.5%, respectively. Effective February 28, 2023, the Company amended the Credit Facility to implement certain changes in the reference rate from LIBOR to SOFR.

The fair value of the Credit Facility was $78.8 million (Level 2 inputs) as of December 31, 2022 compared to the carrying value of $77.8 million as of December 31, 2022. The LIBOR rate as of December 31, 2021 was not materially different from the interest rate for the year ended December 31, 2021. Hence the fair value of the Credit Facility approximated the carrying value as of December 31, 2021.

The Credit Facility contains certain financial covenants, including a minimum fixed charge coverage ratio greater than 1.25, a total leverage ratio less than 3.75, and a minimum liquidity of $20 million in U.S. cash. Annual minimum principal payments over the five year term for the Credit Facility will be 5%, 5%, 7.5%, 7.5%, and 10%, respectively, with the remaining balance due at the end of the term. For the year ended December 31, 2021, the Company made principal payments of $2.3 million.

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

On May 18, 2022, the Company entered into an interest rate swap agreement with a notional value of $40 million, with a fixed payer LIBOR rate of 2.9935% and an initial floating LIBOR rate of 0.93557%. The floating rate is reset at each month end and has an embedded floor rate of 0.0%. The term of the interest rate swap agreement coincides with that of the Credit Facility. See Note 13 for further information regarding the fair value accounting for the interest rate swap agreement. Effective February 28, 2023, the interest rate swap agreement was amended in connection with the amendment of the Credit Facility to implement certain changes in the reference rate from LIBOR to SOFR, as described below.

Subsequent Event

On February 22, 2023, the Company amended its Credit Facility. The amendment implemented certain changes in the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”). As of February 28, 2023, the Company has a choice of interest rates between (a) Adjusted Term SOFR and (b) Base Rate, in each case plus an applicable margin. The applicable margin remains the same as the existing Credit Agreement, and is based on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects Adjusted Term SOFR (ranging from 1.75 to 2.50%) or Base Rate (ranging from 0.75 to 1.50%).

In addition, the amendment adjusted the definition of Consolidated EBITDA to provide an addback solely for the fourth fiscal quarter of 2022, and any period including such quarter, that costs and legal fees and expenses incurred by the Company in connection with its ongoing litigation with Oracle up to $10.0 million can be added back and included in the applicable calculation of the Consolidated EBITDA.

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

Interest Expense

The components of interest expense for the years ended December 31, 2022, 2021 and 2020 are presented below (in thousands):

Credit Facility:

Accretion expense related to discount and issuance costs 973 442 —

Interest on other borrowings 93 131 77

NOTE 6 — REDEEMABLE SERIES A PREFERRED STOCK

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series A Preferred Stock was previously classified as mezzanine equity in the Company’s consolidated balance sheet from July 19, 2018 through July 20, 2021 because the holders had redemption rights beginning in July 2023 (and earlier under certain circumstances). Discounts and incremental and direct costs incurred to consummate the Private Placement were allocated pro rata between the Series A Preferred Stock and the Common Stock issued based on the relative fair value on the Closing Date of three different transactions, which are listed below. The discount related to Series A Preferred Stock was being accreted using the effective interest method. Accordingly, the carrying value of the Series A Preferred Stock was being increased with a corresponding reduction in additional paid-in capital from the issuance date of July 19, 2018 until the final redemption on July 20, 2021, when the carrying value will be equal to the aggregate liquidation preference. The Company recorded a liability for dividends in the period incurred. Accrued dividends were a component of the liquidation preference until paid in cash or settled in additional shares of Series A Preferred Stock. Accretion and accrued dividends are treated as deductions in the calculation of earnings attributable to common stockholders.

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 December 31, 2019 are set forth below (dollars in thousands):

Series A Preferred Stock Common Convertible

Shares Amount Stock Notes Total

Convertible Notes — — — — —

Relative fair value allocation on July 19, 2018:

_________________

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 13 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.

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, (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 Certificate of Designations and are subject to the provisions set forth in an amended Security Agreement, a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement entered into in connection with the 2018 Securities Purchase Agreement discussed below. 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 Stock Common Convertible

Shares Amount Stock Notes Total

Fair value on March 7, 2019:

Convertible Notes — — — — —

Relative fair value allocation on March 7, 2019:

Incremental and direct costs — (661) (4) (90) (4) — (751)

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 13 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

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RIMINI STREET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Certificate of Designations (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 Securities Purchase Agreement discussed below.The accredited investors in the June 2019 Private Placement are not affiliated with the accredited investors in the March 2019 Private Placement 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 Stock Common Convertible

Shares Amount Stock Notes Total

Convertible Notes — — — — —

Relative fair value allocation on June 20, 2019:

Incremental and direct costs — (301) (4) (38) (4) — (339)

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 13 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.

On July 20, 2021, the Company redeemed the remaining 87,802 shares of its 13.00% Series A Preferred Stock at an aggregate total redemption price of $88.4 million. The total price consisted of $87.8 million related to the outstanding shares of Series A Preferred Stock with a face value of $1,000 per share and $0.6 million or $6.86 per share of Series A Preferred Stock related to the dividends earned for the period from July 1, 2021 through July 19, 2021. The redeemed shares of the Series A Preferred Stock, along with the dividends, were recorded on the redemption date of July 20, 2021.

The Company funded the July 20, 2021 redemption with borrowings under the Credit Facility. See Note 5 for further information regarding the Company's Credit Facility.