Shares Outstanding 88.4M Warrants 14.7m Oct 22 $11.50 (intent to expire $0) Stock Price $6.2 Mkt Cap $534M Cash $158M Insider ownership >10% 1. Company overview – Rimini Street ‘RMNI’ Rimini Street is a software support and maintenance 3rd party provider for ERP platforms and database platforms around SAP, Oracle, and Salesforce. Seth Ravin founded Rimini Street in 2005, revenues have grown from humble beginnings to current FY run rate of $400M+, based on data of the
best investing websites. Seth developed TomorrowNow a similar business (purchased by SAP 2005) and had a management role at Peoplesoft (purchased by Oracle). Knowledgeable in this sector, Seth decided to continue building a challenger. Oracle & SAP sell support services to their clients at almost (Oracle) 70% operating margins and their customer service is not optimal. In May 2017 RMNI merged with a SPAC to become public. Rimini had been having difficulty managing its cash flow, due to being dragged through litigation from Oracle. Back in 2014 Rimini was ordered to pay $90M to Oracle. The Current annual litigation fees are between $15 & $20M. In the early days of Rimini these unnecessary fees were a big burden, yet it did not stop Rimini from growing 2014 revenue from $85M to $400M in 2021. Litigation is still on going. Its like a game of cat & mouse. Oracle win, Rimini appeal, and some or all of the charges are dropped….. Companies typically transfer to Rimini Street services for two reasons. Save on annual support costs. The client may sign into a 5- 10 years contract from
stock price in Excel. Clients migrate to Rimini until they have evaluated their long-term ERP plans. Why are there services better than the incumbents? 1. Lower annual fees 2. Each employee have a minimum of 15 years’ experience in the respective ERP system 3. Response time less than 10 Min and urgent cases even less 4. Client satisfaction ave 4.9/5 In 2018 Rimini issued $140M of preferred shares, with a coupon rate of 13% split between 10% cash dividend and 3% PIK, to redeem the existing debt facilities that were too restrictive for Rimini. Yes, it was an expensive alternative. The interest payment was averaging $15m annually (according to
stock price in Excel) and diluting share count at 3% per annum. Rimini 2.0 – 2020 In August 20 & March 21 Rimini issued appx $82M worth of new shares and raised a $90m Bank facility at LIBOR + 1.75% - 2.50% and repurchased in multiple tranches all the remaining Preferred shares, thus cleaning the balance sheet somewhat and also lowering interest payments significantly. The business has been dogged with negativity due to the Oracle saga and Seth also has a reputation of creating not the most pleasant culture across the firm. Also warrants have been a headwind for share price to appreciate. 14.7M warrants with an exercise price of $11.50 are due to expire in Oct 22 and management have assumed them to expire out the money. Though Rimini focused on cleaning the balance sheet and I expect good things to be achieved over the next few years. There are two geographical segments to sales. North America & rest of world. Since 2019 revenue for North America slowed to an averaged of 10% annually, whereas international sales grew appx 30-35% annually. Management have acknowledged the issues in North America and recently changed the sales team leaders and are focussing each team to smaller geographical locations. Balance Sheet 31.03.22 Long term debt of $78M Cash balance is at $158M and deferred revenue (current/non-current) is ~ $300M. and non-cancellable, future revenue was approximately $258 million (off balance sheet) Income Statement Gross margins were 62% and this is expected to increase to 62.5-63.5% for full year 2022. Management has big ambitions to push gross margins to 65% by 2026 and also to achieve operating margins of 20%. They have guided for 7.2% for FY22 and look forward monitor this year’s progress. I believe FY22 to be achievable as sales & Marketing does not grow as fast top line. The goal for FY2026 revenue is $1BN with 20% operating margins. Is this achievable? I am unsure about the revenue target as they have been struggling to achieve more than 15% annual growth over the past few years, but I believe margins are achievable. I believe current valuations is too cheap to ignore. Cash currently consists of 30% of the market cap (yes, I ignored debt). Price to free cash flow is in the single digits. Do your own due diligence. Not investment advice. But if you would like to know more about our analysis, check out these useful SEC filings:
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