Rimini Street, Inc. — Fiscal 2023 Form 10-K Summary
Business context and reporting period
Rimini Street is a global provider of independent enterprise software support, managed services, security, interoperability, observability and consulting solutions. Its primary supported platforms include Oracle, SAP, Salesforce, Microsoft, IBM and open-source databases. The filing covers the fiscal year ended December 31, 2023, and was filed February 28, 2024. The company operated as one reportable segment.
At year-end, Rimini Street employed more than 2,120 professionals and supported more than 3,030 active clients globally, including 73 Fortune 500 companies and 20 Fortune Global 100 companies. Approximately 49% of fiscal 2023 revenue was generated internationally; Japan represented 10% of total revenue.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $431.5 million | $409.7 million | Up 5.3% |
| Gross profit | $269.0 million | $257.3 million | Up 4.5% |
| Gross margin | 62.3% | 62.8% | Down 50 basis points |
| Operating income | $43.8 million | $8.1 million | Up $35.7 million |
| Net income | $26.1 million | $(2.5) million | Improved by $28.5 million |
| Diluted EPS | $0.29 | $(0.03) | Improved |
| Cash flow from operations | $12.5 million | $34.9 million | Down $22.4 million |
Revenue growth reflected a 2% increase in average unique clients and a 3% increase in average revenue per unique client. U.S. revenue increased 2% to $220.0 million, while international revenue increased 9% to $211.5 million.
Annualized subscription revenue was approximately $432 million at December 31, 2023, compared with $420 million at December 31, 2022. Active clients increased to approximately 3,030 from 3,020, and unique clients increased to more than 1,530 from approximately 1,510. The revenue retention rate declined to 90% from 92%, primarily because certain clients did not renew specific subscriptions in the fourth quarter.
Cost of revenue increased 7% to $162.5 million, exceeding revenue growth and contributing to the gross-margin decline. Higher employee compensation, engineering consulting costs, outside services and software licenses were the principal drivers.
Operating expenses declined 10% to $225.2 million. Sales and marketing expense was broadly stable at $142.3 million, general and administrative expense declined 3% to $73.0 million, and there were no comparable 2023 impairment charges related to operating lease assets. Litigation costs and related recoveries declined to $9.8 million from $25.3 million, although 2023 included a $2.7 million incremental expense related to the Oracle Rimini I settlement.
Liquidity, debt and capital allocation
- Cash, cash equivalents and restricted cash totaled $115.9 million at December 31, 2023, including $65.4 million held by foreign subsidiaries.
- Working capital was negative $47.7 million, primarily because current liabilities included $263.1 million of deferred revenue. Management stated that deferred revenue generally requires fulfillment costs of approximately 38% of the related balance.
- Remaining performance obligations totaled $606.8 million, including $287.0 million billed and recorded as deferred revenue.
- Debt under the Credit Facility was approximately $70.1 million net on the balance sheet, or approximately $72.6 million of outstanding principal before discounts and issuance costs. Total indebtedness, including finance leases, was approximately $73.0 million.
- The Credit Facility bears variable interest linked to SOFR or a base rate. The reported interest rate was 7.21% at year-end, and interest expense increased to $5.5 million from $4.3 million.
- The company made $5.6 million of principal payments in 2023 and had approximately $40 million of incremental borrowing capacity, subject to facility terms.
- Debt covenants include minimum fixed-charge coverage, maximum leverage and minimum U.S. cash liquidity of $20 million. The company reported compliance with its covenants.
- The company repurchased approximately 0.2 million shares for $1.0 million in 2023 under a $50 million authorization. It does not currently intend to pay common-stock dividends.
Management expects cash, cash equivalents, restricted cash and future operating cash flow to fund anticipated needs for at least the next 12 months, assuming no significant adverse impact from macroeconomic conditions or Oracle litigation. Contractual obligations due in 2024 totaled approximately $21.7 million.
Material changes versus the prior comparable period
- Revenue increased 5.3%, but gross margin declined from 62.8% to 62.3% as service-delivery costs grew faster than revenue.
- Operating income improved substantially because of revenue growth, lower operating expenses, lower litigation spending, and the absence of 2022 lease-impairment and significant reorganization charges.
- The company moved from a $2.5 million net loss in 2022 to $26.1 million of net income in 2023.
- Operating cash flow declined materially to $12.5 million, driven by unfavorable changes in deferred revenue, accrued liabilities, accounts receivable and other working-capital items. The 2023 cash outflows included the $9.7 million Oracle Rimini I attorneys’ fees and costs settlement.
- Interest expense increased as variable borrowing costs rose following the transition from LIBOR to SOFR.
- Revenue retention declined two percentage points to 90%, although management stated that fourth-quarter net billings were flat year over year because higher new-client invoicing offset lost larger contracts.
Guidance, outlook, management commentary and risks
The filing does not provide a clear numerical revenue or earnings forecast for fiscal 2024. Management expects to continue investing in sales and marketing, international expansion, new supported vendors and products, managed services, Rimini ONE and other portfolio offerings. The company views hybrid IT environments, vendor-support cost pressures and demand for longer software lifecycles as growth opportunities.
The most significant contingency is the continuing Oracle litigation. The Rimini I contempt proceedings were resolved after a $9.7 million payment in December 2023, and the company believes it is in substantial compliance with the Rimini I injunction.
In the separate Rimini II matter, the District Court found infringement involving Oracle PeopleSoft and Oracle Database products and issued an injunction. The injunction was administratively stayed and was not effective as of the filing date. Rimini Street appealed; the Ninth Circuit lifted the appellate stay in January 2024, with oral argument anticipated in June 2024. Oracle separately sought approximately $70.6 million of attorneys’ fees and costs. No decision had been issued as of the filing date; the company considered a material award reasonably possible but not probable and had accrued no related amount.
PeopleSoft services represented approximately 8% of 2023 revenue, while services for Oracle products collectively represented approximately 64%. If the Rimini II injunction becomes effective or the appeal is unsuccessful, the company may incur additional service-delivery costs, lose clients or revenue, and face material effects on cash flow and profitability. The company had not accrued these future compliance costs because they were not estimable.
Other principal risks include client-retention declines, lengthy and variable sales cycles, competition from Oracle, SAP and large systems integrators, cybersecurity and privacy events, foreign-exchange exposure, rising interest rates, dependence on key personnel, possible tax liabilities and the company’s history of accumulated losses. The company had an accumulated deficit of $202.2 million at year-end despite 2023 profitability.
Management and KPMG concluded that internal control over financial reporting was effective as of December 31, 2023. KPMG’s critical audit matter involved evaluating revenue contracts containing non-standard provisions.
Investor verification checklist
- Verify the timing and outcome of the Rimini II appeal, the status of the injunction and any Oracle attorneys’ fee award.
- Assess the potential revenue, cost and client-retention impact if restrictions on PeopleSoft-related services become effective.
- Monitor revenue retention, renewal rates, net billings, annualized subscription revenue and new-client additions.
- Reconcile reported net income with operating cash flow and track working-capital movements, particularly deferred revenue and accrued liabilities.
- Review SOFR-based borrowing costs, scheduled debt amortization, covenant compliance and remaining liquidity.
- Evaluate whether international growth and newer offerings such as managed services and Rimini ONE offset pressure on the core support business.
- Review outstanding warrants, stock-based compensation and the potential dilution from approximately 3.4 million exercisable warrants and other equity awards.