Rimini Street, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Rimini Street is a global provider of subscription-based enterprise software support and application management services, primarily for Oracle and SAP products, with additional Salesforce-related offerings. The filing covers the quarter and six months ended June 30, 2021. The company reported more than 1,550 employees and 2,645 active clients at quarter-end.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Year-over-year change | Six months ended June 30, 2021 |
|---|---|---|---|
| Revenue | $91.6 million | Up 16.9% | $179.5 million, up 14.8% |
| Gross profit | $57.0 million | Up 18.9% | $111.1 million, up 16.0% |
| Gross margin | 62.2% | Up from 61.2% | 61.9%, up from 61.2% |
| Operating income | $4.6 million | Down 10.7% | $6.5 million, down 26.8% |
| Net income | $6.8 million | Up 132.8% | $3.2 million, down 40.9% |
| Net loss attributable to common stockholders | $4.8 million | Loss of $0.06 per share | $14.7 million, loss of $0.18 per share |
| Operating cash flow | Not separately disclosed | — | $47.2 million, versus $44.2 million |
Quarterly net income benefited from a $3.7 million gain in the fair value of redeemable warrants. Six-month results included a $1.0 million warrant fair-value loss, $7.5 million of litigation costs, $4.7 million of stock-based compensation, and a $0.4 million impairment charge related to operating lease assets.
Cash, cash equivalents and restricted cash were $110.7 million at June 30, 2021, compared with $87.9 million at December 31, 2020. Current liabilities exceeded current assets by $66.1 million, principally because current deferred revenue was $229.8 million. Management noted that clients generally prepay for services and that historical fulfillment costs were approximately 38% of related deferred revenue.
Total deferred revenue was $265.6 million, including $35.9 million classified as noncurrent. Accounts receivable declined to $85.7 million from $117.9 million at year-end. Total liabilities were $349.2 million, and stockholders’ deficit was $156.2 million. Before the July 2021 refinancing, the company had no significant conventional debt outstanding other than lease obligations; it had $18.6 million of operating lease liabilities and $3.1 million of redeemable warrant liability at quarter-end.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by a 36% increase in international revenue to $42.1 million in the quarter, led by Asia-Pacific, while U.S. revenue increased 5%.
- Average unique clients increased 16% in the quarter and 15% for the six-month period. Annualized recurring revenue increased to $362 million from $311 million, and revenue retention improved to 94% from 92%.
- Sales and marketing expense increased 24% in the quarter and 15% for the six-month period as the company expanded personnel and marketing investments. General and administrative expense increased 26% and 32%, respectively.
- Operating income and operating margin declined despite higher revenue because operating expenses grew faster than gross profit. Six-month operating margin was approximately 3.6%, versus 5.7% in the prior-year period.
- The company completed a March 2021 public offering of approximately 7.8 million shares, generating approximately $55.6 million of net proceeds, and used proceeds with other cash to redeem 60,000 Series A preferred shares for $62.3 million in April.
- Remaining Series A preferred shares had a June 30 carrying value of $79.1 million and were scheduled for redemption on July 20, 2021.
- The company revised prior-period financial statements after determining that approximately 6.1 million GP Sponsor Private Placement Warrants had been improperly classified as equity rather than as a liability.
Liquidity, outlook, risks and unusual items
On July 20, 2021, after quarter-end, the company entered into a five-year $90 million term loan and used approximately $88.4 million to redeem all remaining Series A preferred stock. The facility bears interest at LIBOR plus 1.75% to 2.50%, requires annual principal payments of 5%, 5%, 7.5%, 7.5% and 10%, with the balance due at maturity, and includes minimum fixed-charge coverage, leverage and $20 million minimum U.S. cash-liquidity covenants. Management stated that cash and future operating cash flow should fund anticipated needs for at least 12 months, assuming COVID-19 does not significantly impair operations.
No numerical revenue or earnings guidance was provided in the filing. Management expects continued investment in sales, marketing, new services, international expansion, public-company compliance and litigation defense. COVID-19 had no significant net impact on second-quarter revenue or results, but future effects remain uncertain, including potential impacts on renewals, collections, spending and employee operations.
Oracle litigation remains a major contingency. The company faces contempt proceedings related to its injunction and separate Rimini II copyright and other claims. Potential damages cannot be reasonably estimated, and no accrual was recorded because management believes an adverse award is not probable. Approximately 64% of second-quarter revenue was derived from services involving Oracle product lines subject to the Rimini II litigation. Client liquidated-damages provisions totaled approximately $12.8 million, although no liability had been accrued.
Other key risks include competition from Oracle, SAP and independent providers; subscription-renewal and client-concentration dynamics; international currency and operating risks; cybersecurity and data privacy; variable-rate debt and LIBOR transition; the company’s history of losses and accumulated deficit; and dilution from stock options, RSUs and approximately 18.1 million outstanding warrants.
Management concluded that disclosure controls were effective as of June 30, 2021 after implementing remediation for the prior material weakness related to warrant accounting. Investors should verify whether remediation remains effective in subsequent filings.
Important facts for investors to verify
- Post-quarter-end closing terms, covenant compliance and interest expense under the $90 million Credit Facility.
- The actual accounting and cash impact of the July 20, 2021 redemption of the remaining Series A preferred stock.
- Developments, sanctions or damages in the Oracle contempt proceeding and Rimini II litigation.
- Whether revenue retention, annualized recurring revenue and international growth remain sustainable after the reported period.
- The effect of higher sales, marketing, administrative, litigation and debt-service costs on operating margins and free cash flow.
- Subsequent filings confirming remediation of the warrant-classification control weakness and the continuing fair-value volatility of the warrant liability.