Rimini Street(US:RMNI)2021-03-03 21:17Part I Business Rimini Street, Inc. is a global provider of third-party enterprise software support services, primarily for Oracle and SAP products Key Financial Performance (2018-2020, in millions) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | $326.8M | $281.1M | $253.5M | | Revenue Growth (YoY) | 16% | 11% | - | | Net Income (Loss) | $13.0M | $17.5M | ($64.0M) | | International Revenue % | 41% | 36% | 35% | - The company is a leading independent software support provider for Oracle and SAP products, disrupting the traditional vendor support model by offering innovative, value-driven services20 - Rimini Street has expanded its service portfolio to include Application Management Services (AMS) for Oracle and SAP, as well as support for SaaS solutions like Salesforce products, aiming to provide integrated management and support from a single vendor212223 - As of December 31, 2020, the company supported over 2,480 active clients globally, including 75 Fortune 500 and 17 Fortune Global 100 companies, with approximately 1,420 employees26 - The company's pricing model for base software support is typically 50% of the annual fees charged by the software vendor, offering significant cost savings to clients36 Risk Factors The company faces significant risks from ongoing Oracle litigation, an undeveloped market, intense competition, and capital structure obligations - The company is involved in ongoing litigation with Oracle (Rimini I and Rimini II); an adverse outcome could result in substantial damages and/or an injunction against certain business practices, materially harming the business, with Oracle also filing a motion contending contempt of a prior injunction114118121 - A significant portion of revenue (approximately 64% for FY 2020) is derived from support services for Oracle products subject to ongoing litigation, posing a substantial risk if service delivery must be altered126 - The COVID-19 pandemic presents risks including potential delays in prospective clients' decisions, impaired ability of current clients to make timely payments, and reduced client renewal rates, which could adversely affect revenue134135 - The market for independent software support is relatively undeveloped and may not grow, with the company's success depending on convincing enterprises to switch from vendor-provided support136 - The company faces intense competition from enterprise software vendors (Oracle, SAP) who possess greater resources, brand recognition, and may offer discounts or change terms to retain support customers141143 - The Series A Preferred Stock and related Convertible Notes impose restrictions on incurring debt and contain obligations that limit operational flexibility, with a mandatory redemption event potentially triggered by adverse litigation outcomes impacting liquidity206232 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None243 Properties The company leases all its global facilities, with principal executive offices in Las Vegas, Nevada, and numerous other offices worldwide - The company's main offices are in Las Vegas, Nevada, with additional leased offices in various global locations including California, Hong Kong, London, Sydney, São Paulo, and Tokyo244 - All facilities are leased; the company does not own any real property245 Legal Proceedings Details regarding legal proceedings, primarily the Oracle litigation, are incorporated by reference from Note 10 of the financial statements - Details regarding legal proceedings, primarily the litigation with Oracle, are incorporated by reference from Note 10 of the financial statements246 Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable248 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, pays dividends on preferred stock, but not on common stock, and provides a stock performance graph - The company's common stock is traded on the Nasdaq Global Market under the symbol 'RMNI'251 - The company pays a 10.0% cash dividend and a 3.0% payment-in-kind (PIK) dividend annually on its Series A Preferred Stock, with no dividends paid or expected on common stock in the foreseeable future252253 Stock Performance Comparison (Cumulative Total Return) | Date | Rimini Street, Inc. | Nasdaq Composite Index | Dow Jones U.S. Computer Services Index | | :--- | :--- | :--- | :--- | | 10/11/2017 | $100.00 | $100.00 | $100.00 | | 12/31/2017 | $81.31 | $103.81 | $101.53 | | 12/31/2018 | $52.59 | $99.48 | $87.21 | | 12/31/2019 | $39.37 | $134.88 | $107.64 | | 12/31/2020 | $45.10 | $194.17 | $120.27 | Selected Financial Data This section provides a five-year summary of key historical financial data, including balance sheet, operations, and cash flow information Five-Year Selected Financial Data (in thousands) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $326,780 | $281,052 | $253,460 | $214,860 | $160,175 | | Gross Profit | $200,569 | $175,946 | $157,479 | $131,962 | $93,130 | | Operating Income | $17,884 | $22,136 | $29,524 | $25,274 | $13,931 | | Net Income (Loss) | $12,980 | $17,529 | $(63,951) | $(50,024) | $(12,937) | | Total Assets | $279,935 | $201,220 | $146,523 | $145,781 | $99,378 | | Total Liabilities | $343,019 | $292,497 | $257,923 | $319,910 | $312,888 | | Stockholders' Deficit | $(200,938) | $(222,593) | $(225,398) | $(174,127) | $(213,510) | | Net Cash from Ops | $42,103 | $20,386 | $22,382 | $29,163 | $(59,609) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 16.3% revenue increase in 2020, a slight gross margin decrease, rising operating expenses, and strong operating cash flow Comparison of Operations: 2020 vs. 2019 (in thousands) | Line Item | 2020 | 2019 | Variance ($) | Variance (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $326,780 | $281,052 | $45,728 | 16.3% | | Gross Profit | $200,569 | $175,946 | $24,623 | 14.0% | | Gross Margin | 61.4% | 62.6% | - | - | | Total Operating Expenses | $182,685 | $153,810 | $28,875 | 18.8% | | Operating Income | $17,884 | $22,136 | ($4,252) | (19.2)% | | Net Income | $12,980 | $17,529 | ($4,549) | (26.0)% | Key Business Metrics (2018-2020) | Metric | As of Dec 31, 2020 | As of Dec 31, 2019 | As of Dec 31, 2018 | | :--- | :--- | :--- | :--- | | Active Clients | >2,480 | >2,060 | >1,800 | | Annualized Subscription Revenue | ~$349M | ~$302M | ~$271M | | Revenue Retention Rate | 92% | 92% | 91% | - The COVID-19 pandemic had no significant net impact on 2020 results, with cost savings from reduced travel and marketing events partially offset by special employee bonuses, and the company deferred $3.3 million in payroll tax payments under the CARES Act277278281 - The company's business model relies on multi-year subscription contracts, generally with an initial non-cancelable period of two to three years, with fees typically invoiced annually in advance, providing strong revenue visibility289290 - Cash flow from operations was $42.1 million in 2020, a significant increase from $20.4 million in 2019, primarily driven by net income adjusted for non-cash expenses and a favorable change in operating assets and liabilities, including a $22.7 million increase in deferred revenue374376377 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exchange, impacting 41% of 2020 revenue, though a 10% change is not deemed material - The company is exposed to foreign currency exchange risk as international revenue accounted for 41% of total revenue in 2020, with key currencies including the Euro, British Pound Sterling, Brazilian Real, Australian Dollar, Indian Rupee, and Japanese Yen412 - A hypothetical 10% change in foreign currency exchange rates would not have had a material impact on the consolidated financial statements for the periods presented413 - The company does not have material exposure to interest rate risk as it holds cash for working capital and does not engage in significant investment activities, and inflation risk is also considered immaterial414415 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2018-2020, including the auditor's report and detailed notes Consolidated Balance Sheet Data (as of Dec 31, in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $87,575 | $37,952 | | Accounts receivable, net | $117,937 | $111,574 | | Total Assets | $279,935 | $201,220 | | Deferred revenue (current) | $228,967 | $205,771 | | Total Liabilities | $343,019 | $292,497 | | Redeemable Series A Preferred Stock | $137,854 | $131,316 | | Total Stockholders' Deficit | ($200,938) | ($222,593) | Consolidated Statement of Operations Data (Year ended Dec 31, in thousands) | Account | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | $326,780 | $281,052 | $253,460 | | Gross Profit | $200,569 | $175,946 | $157,479 | | Operating Income | $17,884 | $22,136 | $29,524 | | Net Income (Loss) | $12,980 | $17,529 | ($63,951) | - The independent auditor's report from KPMG LLP identified two critical audit matters: the evaluation of revenue contracts with non-standard provisions and the assessment of contingencies related to the Rimini II litigation with Oracle429430433 - Note 10 details the ongoing litigation with Oracle, where a court found infringement on certain Oracle copyrights in September 2020, but damages have not yet been determined, and the company believes an award for damages is not probable and has not accrued a loss644645649 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting or financial disclosure matters - None676 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report679 - Based on an evaluation against the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020682 Other Information The company reports no other information for this item - None685 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement Executive Compensation Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and related matters is incorporated by reference from the 2021 Proxy Statement Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement Part IV Exhibits and Financial Statement Schedules This section lists financial statements from Item 8 and provides a detailed index of all exhibits filed or incorporated by reference Form 10-K Summary This item is not applicable - Not applicable703