Rimini Street closes FY2021 with a confidence-boosting Q4

Phil Wainewright Profile picture for user pwainewright March 4, 2022 Audio mode
Summary:
Rimini Street closed FY2021 with a Q4 profit jump, while its sales and marketing makeover looks set to put its growth ambitions back on track.

Miniature business silhouettes walking on dollar bills © monamis - Fotolia.com
(© monamis - Fotolia.com)

Rimini Street pleased the market yesterday with its Q4 results and plans for a $15 million stock buyback. The third-party support provider's stock price spiked to close more than 25% up on the previous day's close. Revenue was up 14.6% at $374.4 million for the full year, while a surge in Q4 net income brought the total for the year to $75.2 million, more than five times last year's figure.

The Q4 figures provide evidence that sales performance is improving after the lumpiness seen in the prior quarter, as new recruits and managers settle in. Seth Ravin, CEO, told Wall Street analysts:

I do think that the metrics are supporting that this management team, the hires, are kicking in very nicely in an incremental way as they get better ... We are getting good people in the door. And we're getting them trained up.

That is reflected in a strong pipeline and some significant customer wins or expansions in Q4. Noteworthy names include US healthcare staffing firm CHG Healthcare, Brazilian automotive parts and service chain DPaschoal Group, both Korean Air and Philippine Airlines, Korean furniture manufacturer ENEX, Japanese food ingredients maker Mitsubishi Corporate Life Sciences, and Open Universities Australia. Ravin sums up:

We've got more large deals in various stages of sales process than we've ever had as a company ....

We closed a lot of great logos all across the world, across the product lines. So, I think all of that is giving us good confidence that we are continuing to move in the right direction of maturing a team that can deliver the kind of numbers that we want to see in 2022.

Here's a quick summary of the key numbers for Q4 and the full year, which ended December 31st, 2021:

  • Total Q4 revenue was $99.3 million, up 13.0% from $87.8 million in the same quarter a year ago, while ARR ended on $393 million, up 12.6% on last year's Q4 figure of $349 million.
  • Q4 net income was $70.1 million on a GAAP basis, a big jump from the $2.5 million reported for the same period a year ago. The non-GAAP equivalents were $77.8 million, up from $11.1 million a year ago.
  • FY2021 revenue for the full year was $374.4 million, an increase of 14.6% compared to $326.8 million for 2020.
  • FY2021 net income was $75.2 million on a GAAP basis, compared to $11.6 million for 2020. The non-GAAP equivalent was $107.6 million, up from $36.2 million.
  • Cash holdings at year end came to $119.6 million, and the company announced a common stock repurchase plan of up to $15 million over the next two years.
  • There were 2,849 active clients at year end, up 14.6% from last year's figure of 2,487. Revenue retention rate remained stable at 92%.
  • 53% of total revenue came from customers within the US, with a 4.4% growth rate over the prior year, while international clients contributed 47%, growing at 29%. A continuation of that trend will see revenue from international overtake the US in the current year.
  • Revenue guidance for Q1 of the new financial year is in the range $95-96 million and $400-410 million for FY2022 as a whole.

New faces in management

More new faces joined the management team during the quarter, including the promotion of Eric Helmer to the role of Chief Technology Officer (CTO) and the recruitment of Kevin Mease, formerly of Jobvite and Microstrategy, as Chief Product Officer. Earlier this week, the company announced the appointment of former Oracle, IBM, and VMWare marketing executive Jeff Spicer to the newly created role of Chief Marketing Officer.

The quarter also saw the award of a new US patent for Rimini Street's use of AI to streamline service delivery. The technology has been shown to reduce case resolution times by an average of 23%.

Meanwhile, the company's long-running litigations with Oracle lumbered on. Its countersuit against Oracle, often referred to as Rimini 2.0, remains in pre-trial and is thought likely to proceed in 2023. A court order was given in January on the other proceedings on injunction compliance, which began in the wake of the ruling given against Rimini Street in 2015. Ravin summed up the state of play:

Despite extensive discovery by Oracle that commenced over two years ago, and included millions of pages of documents, only 10 items were ultimately before the court in the evidentiary hearing. In its finding and order from the hearing, the court ruled in favor of Rimini Street on five of the items. With respect to the other five items, the court found the company violated the permanent injunction, awarded with $630,000 and ordered that certain computer files be quarantined from use. The court also ordered Oracle may recover its reasonable attorney’s fees...

We respectfully disagree with many of the court's findings.

Although Rimini Street has handed over the $630k, it has lodged an appeal. However the end of both litigations may finally now be in sight, with the potential for each to reach resolution next year. But until that day comes, the company continues to set aside significant sums for litigation expenses, having spent $16.9 million in 2021 and is projecting a further $15-20 million for the current year.

My take

Rimini Street has an ambitious target of closing in on $1 billion in annual revenue by 2026. To do that, it'll have to improve on the 14.5% growth rate achieved in 2021, to 20% annual growth or better. But that's not unrealistic, especially when you look at the 29% growth rate on the international side of the business, which now accounts for around half of total revenue. With the final touches being applied to the recent makeover of sales and marketing, the company seems well positioned to capture and convert more opportunities. Its Q4 tally already represents an impressive list, given that Rimini Street fishes mostly in midmarket waters.

Meanwhile the opportunity is greater than ever. There are many more modernization and digital transformation options available to businesses today, rather than upgrading their core ERP system. As I observed last year, commenting on the trend toward 'wrap-around' modernization:

When there are a growing number of offerings that can be bolted on to an existing system and offer rapid results, who wouldn't choose that path rather than embarking on a multi-year migration project that might not even deliver the expected results? The challenge for ERP vendors is that their hopes are pinned on an acceleration in cloud migration, but their customers have too many other options now.

This is not going to be like the 1990s, when the only choice was to replace one standalone system with another, with the potential fall-out from the Y2K bug providing a hard deadline for action. In today's networked ecosystem, the existing ERP core can simply be plugged into a tissue of interconnected systems that provide all of the transformative digital capabilities around it, while it continues to chug along doing what it's always done.

The customer case study that Ravin chose to cite during the earnings call was one such example:

DPaschoal, a leading automotive parts and service retail chain in Brazil, signed a seven-year agreement with Rimini Street to support its SAP applications. This move accelerates their digital transformation roadmap strategy by liberating limited resources, time, money and personnel to focus on innovation projects ...

After analyzing both the costs and risks associated with a complete platform reimplementation, it was determined there was no significant ROI to update or replace its current SAP applications, nor could their IT team discern a benefit to its business transformation goals by doing so.

This is a market where there's still much to play for, and Rimini Street seems to be shaping up well to benefit from the opportunity.

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