Rimini Street(RMNI) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the six months ended June 30, 2023, show revenue growth and a significant increase in net income compared to the prior year, with total assets decreasing slightly and cash flow from operations significantly decreasing year-over-year Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $123,543 | $109,008 | | Accounts receivable, net | $85,065 | $116,093 | | Total current assets | $264,994 | $281,706 | | Total assets | $370,857 | $391,041 | | Liabilities & Stockholders' Deficit | | | | Deferred revenue, current | $259,102 | $265,840 | | Total current liabilities | $329,228 | $353,027 | | Long-term debt, net | $67,113 | $70,003 | | Total liabilities | $432,918 | $468,211 | | Total stockholders' deficit | $(62,061) | $(77,170) | Condensed Consolidated Statements of Operations (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $106,421 | $101,200 | $211,933 | $199,110 | | Gross Profit | $67,073 | $63,856 | $133,242 | $124,559 | | Operating Income | $10,295 | $5,688 | $20,980 | $11,630 | | Net Income | $4,268 | $110 | $9,907 | $3,197 | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,749 | $60,773 | | Net cash used in investing activities | $(1,140) | $(1,722) | | Net cash used in financing activities | $(3,348) | $(10,731) | Notes to Unaudited Condensed Consolidated Financial Statements Key notes highlight a working capital deficit of $64.2 million, which management believes is manageable, alongside an amended credit facility, ongoing significant legal proceedings with Oracle, and an accrual for potential attorneys' fees - As of June 30, 2023, the company had a working capital deficit of $64.2 million, with current liabilities exceeding current assets; however, management believes current cash and future cash flows will be sufficient to meet obligations for at least the next 12 months, partly because the historical cost to fulfill the $259.1 million in current deferred revenue is approximately 37%[26][28] - On February 22, 2023, the company amended its Credit Facility to change the reference interest rate from LIBOR to the Secured Overnight Financing Rate (SOFR)[35] - The Board of Directors authorized an increase to the stock repurchase program to up to $50.0 million over four years, starting May 28, 2022[47] - In the 'Rimini II' litigation, a District Court issued a permanent injunction on July 24, 2023, primarily limiting support services for Oracle's PeopleSoft software; revenue from PeopleSoft support was about 8% of total revenue in Q2 2023, and the company has appealed the decision and filed a motion to stay the injunction[78][79][81] - For the 'Rimini I' injunction proceedings, the company has accrued $6.9 million as of June 30, 2023, as an estimate for Oracle's reasonable attorneys' fees and costs[72] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 5% revenue increase for Q2 2023, driven by international growth, and an 81% increase in operating income due to decreased litigation costs, while asserting sufficient liquidity despite a working capital deficit Key Business Metrics | Metric | As of/For the 12 months ended June 30, 2023 | As of/For the 12 months ended June 30, 2022 | | :--- | :--- | :--- | | Active Clients | > 3,020 | > 2,900 | | Annualized Recurring Revenue | $410 million | $397 million | | Revenue Retention Rate | 94% | 95% | Q2 2023 vs Q2 2022 Performance (in thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $106,421 | $101,200 | $5,221 | 5.2% | | Gross Profit | $67,073 | $63,856 | $3,217 | 5.0% | | Operating Income | $10,295 | $5,688 | $4,607 | 81.0% | | Net Income | $4,268 | $110 | $4,158 | 3,780.0% | - The 5% revenue growth in Q2 2023 was primarily driven by an 11% increase in international revenue, particularly from Japan and Australia[147] - Litigation costs, net of recoveries, decreased significantly by 79.7% from $3.1 million in Q2 2022 to $0.6 million in Q2 2023, which was a primary driver of the 81% increase in operating income[146][155] - The company has a working capital deficit of $64.2 million, but management believes liquidity is sufficient, partly because the historical cost to fulfill the $259.1 million in current deferred revenue is only about 37% of that amount[174][177] - Cash flow from operating activities decreased to $21.7 million for the first six months of 2023, down from $60.8 million in the same period of 2022, mainly due to unfavorable changes in accrued liabilities, deferred revenue, and accounts payable[181][183][185][187] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from foreign currency exchange rates and interest rate fluctuations, with international revenue contributing significantly to currency volatility and variable-rate debt creating interest rate risk partially mitigated by a swap agreement - The company faces foreign currency risk as 49% of its revenue for Q2 2023 was from international business; a hypothetical 10% change in foreign currency exchange rates would impact income before taxes by approximately $1.9 million[200][201] - The company is exposed to interest rate risk through its variable-rate Credit Facility, which transitioned from LIBOR to SOFR; as of June 30, 2023, a 100-basis-point increase in SOFR would result in an approximate $0.8 million increase in annual interest expense[204] - To mitigate interest rate risk, the company entered into an interest rate swap agreement with a notional value of $40.0 million[204] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[207] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[208] PART II. OTHER INFORMATION Legal Proceedings This section incorporates by reference the detailed discussion of legal proceedings from Note 8 of the financial statements, highlighting the ongoing litigation with Oracle as a central contingency - The details of the company's legal proceedings, particularly the ongoing litigation with Oracle, are described in Note 8 to the Unaudited Condensed Consolidated Financial Statements and are incorporated by reference into this section[211] Risk Factors The company identifies significant risks, primarily the ongoing litigation with Oracle, which could lead to substantial costs and injunctions, alongside intense competition, economic uncertainties, and risks related to its indebtedness - The most significant risk factor is the continuing litigation with Oracle; adverse outcomes could lead to substantial attorneys' fees, costs, and injunctions against business practices, which could materially harm the business[217][220] - A significant portion of revenue is derived from support for Oracle software products that are subject to the Rimini I and Rimini II injunctions; for the six months ended June 30, 2023, approximately 43% of revenue came from Oracle products under the Rimini I injunction compliance, with the PeopleSoft product line accounting for about 9% of total revenue[244] - The company faces significant competition from enterprise software vendors (like Oracle and SAP) and other independent support providers, which could harm its ability to add and retain clients[256] - Economic uncertainties, including rising inflation and potential recession, could reduce IT budgets and negatively affect demand for the company's services, client renewal rates, and the ability of clients to make timely payments[252][254] - The company's Credit Facility imposes operating and financial restrictions, and its variable rate debt (tied to SOFR) subjects it to interest rate risk[320][321] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased 248,170 shares of common stock for approximately $1.0 million under its stock repurchase program, with approximately $44.2 million remaining available for future repurchases Common Stock Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2023 | 0 | $— | $45,260,000 | | May 2023 | 213,170 | $4.06 | $44,402,000 | | June 2023 | 35,000 | $4.45 | $44,246,000 | | Total Q2 | 248,170 | | $44,246,000 | Defaults Upon Senior Securities None - There were no defaults upon senior securities during the reporting period[347] Mine Safety Disclosures Not applicable - This item is not applicable to the company[348] Other Information The company disclosed that its RSU and PSU award agreements include mandatory "sell-to-cover" provisions for tax withholding, which may be considered "non-Rule 10b5-1 trading arrangements", affecting six executive officers including the CEO and CFO - The company's RSU and PSU agreements contain mandatory "sell-to-cover" provisions to satisfy tax withholding obligations, which may be considered "non-Rule 10b5-1 trading arrangements"[351] - Six executive officers, including CEO Seth Ravin and CFO Michael Perica, received RSU and PSU awards effective April 3, 2023, subject to these arrangements[352] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and XBRL data files