Rimini Street(RMNI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Presents the company's unaudited condensed consolidated financial statements and detailed notes covering its business, accounting policies, and financial position Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $122,574 | $88,792 | | Accounts receivable, net | $74,362 | $130,784 | | Total current assets | $235,157 | $256,276 | | Total assets | $343,030 | $369,063 | | Deferred revenue, current | $234,806 | $257,983 | | Total current liabilities | $295,230 | $324,592 | | Total liabilities | $406,726 | $438,508 | | Total stockholders' deficit | $(63,696) | $(69,445) | - Total assets decreased from $369.1 million as of December 31, 2024, to $343.0 million as of March 31, 2025[11] - Total stockholders' deficit improved from $(69.4) million as of December 31, 2024, to $(63.7) million as of March 31, 2025[11] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Revenue | $104,204 | $106,745 | | Cost of revenue | $40,670 | $42,914 | | Gross profit | $63,534 | $63,831 | | Total operating expenses | $54,173 | $60,468 | | Operating income | $9,361 | $3,363 | | Income before income taxes | $7,609 | $2,986 | | Net income | $3,350 | $1,317 | | Basic Net income per share | $0.04 | $0.01 | | Diluted Net income per share | $0.04 | $0.01 | - Revenue decreased by 2.4% from $106.7 million in Q1 2024 to $104.2 million in Q1 2025[13] - Operating income significantly increased by 178.4% from $3.4 million in Q1 2024 to $9.4 million in Q1 2025[13] - Net income increased by 154.4% from $1.3 million in Q1 2024 to $3.4 million in Q1 2025[13] Unaudited Condensed Consolidated Statements of Stockholders' Deficit Changes in Stockholders' Deficit (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Total Stockholders' Deficit, beginning of period | $(69,445) | $(39,496) | | Net income | $3,350 | $1,317 | | Stock based compensation expense | $2,702 | $2,558 | | Other comprehensive loss | $(309) | $(691) | | Total Stockholders' Deficit, end of period | $(63,696) | $(36,312) | - The total stockholders' deficit improved from $(69.4) million at the beginning of Q1 2025 to $(63.7) million at the end of the period, primarily due to net income[16] Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Net cash provided by operating activities | $33,708 | $11,088 | | Net cash provided by (used in) investing activities | $(895) | $8,654 | | Net cash used in financing activities | $(1,026) | $(1,775) | | Net change in cash, cash equivalents and restricted cash | $34,555 | $13,581 | | Cash, cash equivalents and restricted cash at end of period | $123,777 | $129,433 | - Net cash provided by operating activities increased significantly to $33.7 million in Q1 2025 from $11.1 million in Q1 2024[18] - Cash used in investing activities was $0.9 million in Q1 2025, compared to cash provided of $8.7 million in Q1 2024[18] - The effect of foreign currency translation changes was a favorable $2.8 million in Q1 2025, contrasting with an unfavorable $4.4 million in Q1 2024[179] Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION - Rimini Street, Inc. is a global provider of end-to-end enterprise software support, products, and services[21] - The financial statements are prepared in conformity with U.S. GAAP for interim reporting, with certain information condensed or omitted[22] NOTE 2 — LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES - As of March 31, 2025, current liabilities exceeded current assets by $60.1 million[24] - The company had $123.8 million in available cash, cash equivalents, and restricted cash as of March 31, 2025[24] - The $90 million Original Credit Facility was amended into a new $75 million five-year term loan (2024 Credit Facility) on April 30, 2024[25] - Management believes current cash and future operating cash flow will be sufficient to meet anticipated needs for at least 12 months, assuming no significant adverse impacts from macroeconomic conditions or litigation[26] NOTE 3 - DEFERRED CONTRACT COSTS AND DEFERRED REVENUE Deferred Contract Costs Activity (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Beginning of period | $39,160 | $41,493 | | Capitalized commissions | $2,693 | $2,504 | | Amortized deferred contract costs | $(4,723) | $(5,013) | | End of period | $37,130 | $38,984 | Deferred Revenue Activity (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Beginning of period | $281,197 | $286,974 | | Billings, net | $79,430 | $74,077 | | Revenue recognized | $(104,204) | $(106,745) | | End of period | $256,423 | $254,306 | - Remaining performance obligations amounted to $553.1 million as of March 31, 2025, of which $256.4 million was billed and recorded as deferred revenue[33] NOTE 4 — OTHER FINANCIAL INFORMATION Other Accrued Liabilities (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Accrued sales and other taxes | $7,892 | $8,137 | | Accrued professional fees | $4,524 | $3,857 | | Accrued reorganization costs | $259 | $1,052 | | Total other accrued liabilities | $20,520 | $20,688 | - Reorganization costs of $462 thousand were recognized for the three months ended March 31, 2025, primarily due to severance expense from a cost optimization process[35] NOTE 5 — DEBT Debt (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Term Loan | $69,505 | $70,280 | | Revolving line of credit | $15,000 | $15,000 | | Long-term debt, net of current maturities | $81,412 | $82,187 | - The company refinanced its Original Credit Facility with a new $75.0 million term loan and a $35.0 million revolving line of credit (2024 Credit Facility) on April 30, 2024[37] - The 2024 Credit Facility contains 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 balance of at least $20 million in U.S. cash[41] - The effective interest rate under the Credit Facilities was 8.0% for Q1 2025, down from 8.6% for Q1 2024[43] NOTE 6 — COMMON STOCK OFFERING, RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS - The Board of Directors authorized an increase of approximately 3.6 million shares available for grant under the 2013 Equity Incentive Plan on February 26, 2025[48] - 0.6 million Performance Units (PSUs) were granted on March 4, 2025, with vesting based on adjusted EBITDA and total revenue goals for fiscal year 2025[53] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Cost of revenue | $524 | $515 | | Sales and marketing | $926 | $405 | | General and administrative | $1,252 | $1,638 | | Total | $2,702 | $2,558 | - As of March 31, 2025, 3.4 million warrants were outstanding, exercisable at $5.64 per share[65] NOTE 7 — INCOME TAXES Effective Tax Rate | Period | Effective Tax Rate | | :----------------------------------- | :----------------- | | Three Months Ended March 31, 2025 | 56.0% | | Three Months Ended March 31, 2024 | 55.9% | - Income tax expense increased to $4.3 million in Q1 2025 from $1.7 million in Q1 2024, primarily due to an increase in income before taxes[13][170] NOTE 8 — COMMITMENTS AND CONTINGENCIES - Total minimum purchase obligations were $11.1 million as of March 31, 2025[68] - The Rimini I Injunction, in effect since August 2018, prohibits certain support processes found to infringe Oracle copyrights but does not prohibit support for Oracle products[71] - The District Court vacated the Original Rimini II Injunction and issued a Modified Rimini II Injunction in late April 2025, which contains no limitations on support services for Oracle PeopleSoft products[86][91] - Revenue from Oracle PeopleSoft products was approximately 7% of total revenue for the three months ended March 31, 2025[89] - Oracle was awarded $58.2 million in attorneys' fees and $0.3 million in costs in September 2024, which the company is appealing[96][97] NOTE 9 — RELATED PARTY TRANSACTIONS - An affiliate of Adams Street Partners, a member of the Board of Directors, owned approximately 25.8% of the company's issued and outstanding common stock as of March 31, 2025[103] NOTE 10 —EARNINGS PER SHARE Net Income Per Share Attributable to Common Stockholders | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Basic EPS | $0.04 | $0.01 | | Diluted EPS | $0.04 | $0.01 | Weighted Average Number of Shares of Common Stock Outstanding (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Basic | 91,240 | 89,754 | | Diluted | 93,320 | 90,560 | NOTE 11 — FINANCIAL INSTRUMENTS - All investments as of March 31, 2025, are classified as cash equivalents (Level 1 assets)[109] - The company uses an interest rate swap agreement with a notional value of $40.0 million (fixed payer SOFR rate of 3.71%, initial floating SOFR rate of 5.32%) to manage interest rate risk[111] - The fair value of the interest rate swap agreement was estimated as a liability of $0.2 million as of March 31, 2025[112] NOTE 12 - LEASES Total Lease Expense (in thousands) | Period | Total Lease Expense | | :----------------------------------- | :------------------ | | Three Months Ended March 31, 2025 | $1,380 | | Three Months Ended March 31, 2024 | $1,225 | Operating Lease Liabilities (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Current | $3,869 | $3,967 | | Noncurrent | $6,842 | $7,064 | | Total | $10,711 | $11,031 | - The weighted average remaining lease term for operating leases is 3.1 years, with a weighted average discount rate of 8.2%[118] NOTE 13 - SEGMENT AND GEOGRAPHIC INFORMATION - The company operates as one operating segment, with performance assessed based on consolidated net income[119] Revenue by Geographic Region (in thousands) | Region | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | United States of America | $50,095 | $53,808 | | International | $54,109 | $52,937 | | Total | $104,204 | $106,745 | - Japan represented 10.4% of total revenue in Q1 2025, up from 9.6% in Q1 2024[121] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of financial performance, highlighting revenue trends, cost management, liquidity, and the impact of economic factors and litigation CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS - The report includes forward-looking statements about future results, business strategy, and operations, identified by words like "anticipate," "expect," "may," "will," etc[124] - Forward-looking statements are subject to numerous risks and uncertainties, including those detailed in the "Risk Factors" section, and actual results may differ materially[125] Overview - Rimini Street provides end-to-end enterprise software support, products, and services, expanding its portfolio to include managed services, security, interoperability, observability, and consulting[130][132] - The company offers Rimini ONE™, a unified package for Oracle and SAP landscapes, designed to optimize existing technologies and extend operating lifespan[132] - As of March 31, 2025, the company supported over 3,090 active clients globally, including 71 Fortune 500 companies and 19 Fortune Global 100 companies[137] - The company announced it would continue to wind down services for Oracle PeopleSoft products, which accounted for approximately 7% of total revenue in Q1 2025[140] Global Economic Uncertainty - Global economic uncertainty, including interest rate and inflationary pressures, geopolitical conflicts, and trade policies, has led some clients not to renew services[142][143] - Despite these pressures, the company expects to continue marketing, selling, and providing products/services globally and investing in development[143] - The economic disruptions did not have a significant net impact on Q1 2025 revenue or results of operations[143] Recent Developments - Recent developments regarding litigation with Oracle are discussed in Note 8 of the Unaudited Condensed Consolidated Financial Statements[145] Key Business Metrics Client Counts | Metric | As of March 31, 2025 | As of March 31, 2024 | Change | | :------------------- | :------------------- | :------------------- | :----- | | Active Clients | 3,092 | 3,040 | +52 | | Unique Clients | 1,575 | 1,535 | +40 | Annualized Recurring Revenue (in millions) | Period | Annualized Recurring Revenue | | :----------------------------------- | :--------------------------- | | As of March 31, 2025 | $396 | | As of March 31, 2024 | $416 | - Annualized recurring revenue declined due to a recent reduction in client retention[151] Revenue Retention Rate | Period | Revenue Retention Rate | | :----------------------------------- | :--------------------- | | 12 months ended March 31, 2025 | 88% | | 12 months ended March 31, 2024 | 89% | - Gross profit margin improved by 120 basis points to 61.0% in Q1 2025, compared to 59.8% in Q1 2024, due to better management of costs in non-core products and services[155] Results of Operations Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Variance Amount | Variance Percent | | :----------------------------------- | :---------------------------------- | :---------------------------------- | :---------------- | :--------------- | | Revenue | $104,204 | $106,745 | $(2,541) | (2.4)% | | Cost of revenue | $40,670 | $42,914 | $(2,244) | (5.2)% | | Gross profit | $63,534 | $63,831 | $(297) | (0.5)% | | Gross profit margin | 61.0% | 59.8% | | | | Total operating expenses | $54,173 | $60,468 | $(6,295) | (10.4)% | | Operating income | $9,361 | $3,363 | $5,998 | 178.4% | | Net income | $3,350 | $1,317 | $2,033 | 154.4% | - Revenue declined by 2% due to attrition of some large client contracts, despite an increase in unique clients[157] - Sales and marketing expenses decreased by 12% ($4.9 million), primarily due to a $4.0 million reduction in travel and entertainment costs from a sales training event[162] - Litigation costs and related recoveries, net, decreased by $1.0 million (34.2%) due to the timing of costs related to the Rimini II appeal[167] Liquidity and Capital Resources - As of March 31, 2025, the company had a working capital deficit of $60.1 million and an accumulated deficit of $235.1 million[171] - Available cash, cash equivalents, and restricted cash totaled $123.8 million as of March 31, 2025[171] - The 2024 Credit Facility includes a $75.0 million term loan and a $35.0 million revolving line of credit, with $20.0 million net available borrowings as of March 31, 2025[172] Cash Flows Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Operating activities | $33,708 | $11,088 | | Investing activities | $(895) | $8,654 | | Financing activities | $(1,026) | $(1,775) | - Cash flows from operating activities significantly increased to $33.7 million in Q1 2025, driven by net income and favorable changes in operating assets and liabilities[182] Critical Accounting Estimates - No material changes in critical accounting policies and estimates have occurred since the filing of the 2024 Form 10-K[194] Recent Accounting Pronouncements - ASU 2023-09, "Income Taxes - Improvements to Income Tax Disclosures," effective for annual periods beginning after December 15, 2024, will result in additional disclosures but no impact on financial statements[30] - ASU 2024-03 and ASU 2025-01, requiring disaggregation of income statement expenses, are effective for annual periods beginning after December 15, 2026, and are currently being assessed for impact[196][197] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Addresses the company's exposure to foreign currency exchange and interest rate risks, and its use of derivatives to mitigate these risks - The company has foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. Dollar, primarily Euro, British Pound Sterling, Brazilian Real, Australian Dollar, Indian Rupee, and Japanese Yen[199] - A hypothetical 10% change in foreign currency exchange rates would impact income before income taxes by +/- $3.6 million and cash flows by +/- $2.8 million[200] - The company is exposed to market risk due to variable interest rates based on SOFR for its 2024 Credit Facility debt[203] - A hypothetical adverse change of 100 basis points in SOFR would result in an increase of approximately $0.9 million in annual interest expense[203] ITEM 4. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of March 31, 2025 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025, to provide reasonable assurance for timely and accurate SEC reporting[207] - There were no material changes in internal control over financial reporting during the fiscal quarter ended March 31, 2025[208] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Details ongoing litigation, primarily with Oracle, are incorporated by reference from Note 8 of the financial statements - Legal proceedings, primarily ongoing litigation with Oracle, are incorporated by reference from Note 8 of the Unaudited Condensed Consolidated Financial Statements[210] - Ordinary course litigation is not expected to have a material adverse effect on the business, though litigation can impact costs and management resources[210] ITEM 1A. Risk Factors Outlines factors that could adversely affect the business, including risks from litigation, economic uncertainties, competition, and operations Risks Related to Our Business, Operations and Industry - Ongoing litigation with Oracle poses risks of substantial attorneys' fees, costs, and injunctions against certain business practices[217] - Economic uncertainties, including rising inflation, could increase operational costs and negatively impact demand for products and services[214] - The market for independent software support services is relatively undeveloped and may not grow as anticipated[214] - The company faces significant competition from enterprise software vendors and other independent providers[214] Risks Related to Litigation - The company is subject to a permanent injunction (Rimini I Injunction) since August 2018, defining how support services can be provided for certain Oracle product lines[220] - In the Rimini II litigation, Oracle withdrew all monetary damages claims, and the Ninth Circuit vacated multiple copyright rulings and parts of the Lanham Act ruling, remanding issues to the District Court[224][229] - The District Court issued a Modified Rimini II Injunction in April 2025, which does not limit support services for Oracle PeopleSoft products but prohibits certain public statements[234][238][240] - Oracle was awarded $58.2 million in attorneys' fees and $0.3 million in costs in September 2024, which the company is appealing[242] - Adverse outcomes in litigation could result in substantial civil assessments, default on the 2024 Credit Facility, and material adverse effects on business and financial condition[246][247] Other Risks Related to Our Business, Operations and Industry - Economic uncertainties, including inflation and geopolitical conflicts, may lead clients to reduce IT budgets, impacting demand and payment timeliness[258] - Significant competition from enterprise software vendors (Oracle, SAP) and other independent providers, who may have greater resources and offer discounts, could impede sales and reduce margins[261] - Declining client retention rates, due to factors like clients licensing new software versions or moving to other vendors, could harm future revenue and operations[269][271] - Allegations of intellectual property infringement, including from generative AI use, could adversely impact marketing, sales, reputation, and incur costly litigation[280][281] - Cybersecurity threats are increasing; compromised data security measures could harm reputation, lead to client loss, and incur significant liabilities[300][304] Risks Related to our Indebtedness, Capitalization Matters and Corporate Governance - The company's indebtedness ($86.2 million as of March 31, 2025) may limit operational/financing flexibility, require significant cash for payments, and increase vulnerability to economic downturns[325][326] - The 2024 Credit Facility imposes operating and financial restrictions, including covenants on liens, asset sales, mergers, and debt, with a breach potentially leading to accelerated debt repayment[327][329] - Variable rate indebtedness (SOFR-based) exposes the company to interest rate risk; a 100 basis point increase in SOFR could raise annual interest expense by $0.9 million[330][331] - Exercise of outstanding warrants (3.4 million shares at $5.64/share) will dilute existing stockholders and may depress the market price[65][332][334] Risks Relating to our Corporate Governance - The company's certificate of incorporation and bylaws, along with DGCL, contain anti-takeover provisions (e.g., classified board, preferred stock issuance, limitations on stockholder actions) that could delay or prevent acquisitions[340][341] - Bylaws designate Delaware courts as the exclusive forum for disputes, potentially limiting stockholders' choice of judicial forum[344][345] General Risks - Future acquisitions or strategic investments may be difficult to identify and integrate, divert management attention, disrupt business, and dilute stockholder value[346] - Changes in the commercial insurance market (higher premiums, deductibles, lower limits) may impact the ability to maintain adequate insurance coverage at a reasonable cost[347] - Catastrophic events (online attacks, natural disasters, geopolitical instability) could disrupt network infrastructure, IT systems, and business operations, leading to system interruptions and reputational harm[349] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds States that no repurchases of common stock occurred during the three months ended March 31, 2025 - No repurchases of Common Stock occurred during the three months ended March 31, 2025[353] ITEM 3. Defaults Upon Senior Securities Reports that no defaults upon senior securities occurred during the period - There were no defaults upon senior securities[354] ITEM 4. Mine Safety Disclosures States that the disclosure item for mine safety is not applicable to the company - This item is not applicable[355] ITEM 5. Other Information Discloses that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025, except for automatic share sales to satisfy tax withholding upon RSU/PSU settlement[356][357] ITEM 6. Exhibits Lists the exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL data files - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Bylaws, CEO/CFO certifications, and Inline XBRL documents[359] SIGNATURES - The report is signed by Seth A. Ravin (President, CEO, and Chairman) and Michael L. Perica (EVP and CFO) on May 1, 2025[364]