Business Overview and History

Rimini Street, Inc. (RMNI) is a global provider of end-to-end enterprise software support, products, and services, serving as the leading third-party support provider for Oracle, SAP, and VMware software. The company has established itself as a trusted partner, helping organizations worldwide achieve significant cost savings, extend the useful life of their existing software investments, and unlock resources for strategic innovation.

Rimini Street was founded in 2005 in the State of Nevada with the vision of disrupting the traditional enterprise software support model. The company's founders recognized the growing need for more cost-effective and responsive support solutions, as enterprise software customers often faced escalating maintenance fees, limited customization options, and lengthy, costly upgrade cycles from the software vendors.

In 2017, Rimini Street underwent a significant corporate transformation through a merger with a public company, becoming Rimini Street, Inc., a Delaware corporation. This move allowed the company to begin trading on the Nasdaq Global Market under the ticker symbol RMNI, marking a new chapter in its growth and expansion.

As Rimini Street's reputation for technical capability, value, innovation, responsiveness, and trusted reliability grew, clients and prospects began requesting expanded services. This demand led the company to broaden its support, product, and service offerings to address evolving needs and opportunities related to enterprise software.

Legal Challenges

A pivotal moment in Rimini Street's history occurred in January 2010 when Oracle Corporation and its subsidiaries filed a lawsuit against the company and its CEO, Seth Ravin. The lawsuit, known as Oracle USA, Inc. et al. v. Rimini Street, Inc. et al., alleged violations of Oracle's license agreements and copyright infringement. After a jury trial in 2015 and subsequent appeals, the final outcome resulted in Mr. Ravin being cleared of all claims, while the company was found liable for innocent infringement on one claim. Rimini Street was ordered to pay a judgment of $124.4 million in 2016, which it promptly paid and then pursued appeals. The total judgment paid to Oracle after all appeals, including interest, attorneys' fees, and costs, amounted to approximately $89.9 million.

Since November 2018, Rimini Street has been operating under a permanent injunction that prohibits the use of certain support processes found to innocently infringe Oracle copyrights. The company believes it is in substantial compliance with this injunction. In a separate legal action initiated in October 2014, known as Rimini II, the company filed a lawsuit against Oracle seeking a declaratory judgment that its revised support processes do not infringe certain Oracle copyrights. This litigation is ongoing and represents a continuing chapter in the company's legal challenges.

Financial Performance and Ratios

Financials

Rimini Street has demonstrated a mixed financial performance in recent years. As of the latest reporting period in Q3 2024, the company reported revenue of $104.7 million, a 2.6% decrease compared to the same period in the prior year. This revenue decline was primarily due to the company's decision to wind down its Oracle PeopleSoft services, which accounted for approximately 8% of total revenue in the first nine months of 2024.

For the full fiscal year 2023, Rimini Street reported revenue of $431.50 million, with a net income of $26.06 million. The company generated operating cash flow (OCF) of $12.47 million and free cash flow (FCF) of $5.25 million in 2023. However, the most recent quarter (Q3 2024) saw a significant downturn, with a net loss of $43.10 million, negative OCF of $18.51 million, and negative FCF of $19.18 million.

Despite the revenue challenges, Rimini Street has maintained a strong gross profit margin, which reached 60.7% in Q3 2024, down from 62.7% in the prior-year quarter. The company's focus on operational efficiency and cost optimization initiatives have helped offset the revenue headwinds, with non-GAAP operating margins remaining in the low double-digits.

Geographically, Rimini Street's revenue is well-diversified, with approximately 49% generated in the United States and 51% internationally for the third quarter of 2024. Japan represented a significant portion of international revenue, accounting for 10.3% and 9.9% of total revenue for the third quarter and first nine months of 2024, respectively.

Liquidity

Rimini Street's balance sheet remains relatively strong, with $119.5 million in cash and short-term investments as of September 30, 2024. The company's current ratio stands at 0.71, indicating a stable liquidity position, though the working capital deficit of $93.7 million suggests the need for ongoing cash management. The quick ratio, also at 0.71, further underscores the company's ability to meet its short-term obligations.

The company's debt-to-equity ratio is -0.9255 as of September 30, 2024, reflecting a negative equity position due to accumulated losses. Rimini Street has access to a $35 million revolving credit facility, with $15 million drawn as of October 21, 2024, providing additional liquidity if needed.

Navigating Challenges and Unlocking Transformative Opportunities

Rimini Street's journey has not been without its challenges, most notably the ongoing litigation with software giant Oracle. The Rimini I and Rimini II cases, which have spanned over a decade, have resulted in significant legal costs and the implementation of a permanent injunction that has required the company to modify certain support processes for Oracle products.

In July 2023, the District Court issued findings of fact and conclusions of law in the Rimini II case, accompanied by a permanent injunction against Rimini Street. This injunction primarily impacts Rimini Street's support for Oracle's PeopleSoft software product. The company has filed an appeal of both the District Court's decision and the injunction, which is currently stayed and not effective. Additionally, Rimini Street is appealing the District Court's subsequent award of $58.5 million in attorneys' fees and costs to Oracle.

Despite these legal hurdles, Rimini Street has demonstrated resilience and agility in adapting its business model. The company's recent announcement of a strategic partnership with ServiceNow represents a transformative opportunity, as the two companies collaborate to deliver a unique solution that integrates Rimini Street's enterprise software support with ServiceNow's AI-powered platform. This innovative offering, dubbed "Transformation without Disruption," enables clients to extend the useful life of their existing ERP and enterprise applications while unlocking the power of next-generation technologies, all without the need for costly upgrades or migrations.

Rimini Street has also expanded its support services for VMware, addressing the growing demand from clients seeking to avoid the vendor's transition to a subscription-based pricing model and maintain the flexibility to determine their future virtualization strategy. This diversification into adjacent enterprise software segments has helped the company broaden its addressable market and reduce its reliance on any single vendor.

Solutions Portfolio

Rimini Street offers a comprehensive family of unified solutions to run, manage, support, customize, configure, connect, protect, monitor, and optimize its clients' enterprise application, database, and technology software platforms. The company's Solutions Portfolio includes:

1. Support Solutions: The primary driver of Rimini Street's revenue, offering software support services for approximately 50% of the annual fees charged by the enterprise software vendor for their base support. The company also provides a supplemental software support service and a specialized "Rimini Street Extra Secure Support" service for clients requiring more rigorous security measures.

2. Application Management Services (AMS) and Rimini ONE: These offerings manage and maintain clients' enterprise software applications, with Rimini ONE providing a turnkey outsourcing option for Oracle and SAP software landscapes.

3. Other Solutions: Including products and services for security, interoperability, observability, and consulting related to enterprise software platforms.

Outlook and Risks

While Rimini Street continues to navigate the challenges posed by the Oracle litigation, the company remains cautiously optimistic about its long-term prospects. The successful execution of its cost optimization plan, which aims to reduce net operating costs by $35 million annually, is expected to bolster profitability and cash flow generation. As of the latest update, approximately $14.9 million of these net annualized reductions have been achieved.

However, the company's financial performance remains vulnerable to client churn and the pace of its new logo acquisition. Rimini Street's ability to maintain and grow its client base, particularly in the face of continued software vendor pressure, will be a key determinant of its future success. The company's annualized recurring revenue was $402.00 million as of September 30, 2024, down from $416.00 million in the prior year period, while the revenue retention rate was 89% for the 12 months ended September 30, 2024, down from 94% in the prior year period.

Furthermore, the ongoing global economic uncertainty, including inflationary pressures and geopolitical tensions, may impact the spending priorities of Rimini Street's clients, posing additional risks to the company's revenue and growth trajectory.

The market for independent enterprise software support services remains relatively undeveloped and may not grow quickly or at all. Rimini Street faces significant competition from enterprise software vendors, such as Oracle and SAP, as well as from other companies offering independent enterprise software support, products, and services.

Due to the ongoing litigation and its potential impacts, Rimini Street has suspended providing guidance on future financial results until there is more clarity around the situation. The company has stated that if it does not adequately reorganize its operations to optimize costs or does not ultimately prevail in the post-trial litigation matters, it could have a material adverse impact on the business and financial results.

Conclusion

Rimini Street has carved out a unique niche in the enterprise software support market, providing clients with a cost-effective and responsive alternative to traditional vendor-provided maintenance. Despite the challenges posed by the Oracle litigation and the broader economic environment, the company has demonstrated resilience and a willingness to adapt its business model to capture new opportunities.

The strategic partnership with ServiceNow and the expansion of Rimini Street's support offerings for VMware highlight the company's commitment to innovation and diversification. As Rimini Street navigates the path ahead, its ability to maintain its competitive edge, manage legal risks, and capitalize on emerging market trends will be crucial in unlocking long-term value for its shareholders. The company's focus on cost optimization and operational efficiency will be key factors in improving its financial performance and positioning itself for sustainable growth in the evolving enterprise software support landscape.