ORCL - Rimini Street: Cheap But Litigation Hurdles Remain Headwinds

2023-12-05 15:58:34 ET

Summary

• Today, we circle back on Rimini Street, which provides enterprise software products and support for various industries, with sales split between the U.S. and the rest of the world.
• The stock is cheap from a price earnings ratio but has had some legal challenges over the years and growth is tepid at the moment.
• An updated analysis around Rimini Street follows in the paragraphs below.

"Success depends upon previous preparation, and without such preparation there is sure to be failure. " - Confucius

Today, we are revisiting Rimini Street, Inc. ( RMNI ) for the first time since our initial article on this small tech concern in June 2022. The stock of this small-cap tech support firm has been volatile over the past couple of years. The shares are cheap but with some caveats. An updated analysis follows below.

Company Overview:

Las Vegas-headquartered Rimini Street provides enterprise software products, services, and support for various industries and offers software support services for Oracle, SAP, and other enterprise software products. Management has positioned the company to:

" focus on the very specialized area of IT strategic and operational needs to run, manage, support, protect, connect, monitor, customize, configure and optimize mission-critical enterprise application, database and technology software ."

Overall sales are roughly split between the U.S. and the rest of the world, or ROW. The company has some 2,000 employees in over 20 countries. The stock currently trades around $3.25 a share and sports an approximate $285 million market capitalization.

Third Quarter Results:

Rimini Street posted its Q3 numbers on November 1st. The company delivered a GAAP profit of 8 cents a share on $107.5 million in revenue. Net income was $6.8 million for the quarter compared to a $400,000 loss in 3Q2022 on a GAAP basis. Gross margins improved from 62% in the prior period a year ago to 63.1% in 3Q2023.

Nearly 87% of overall sales were from subscription revenue. Overall sales in the quarter represented a 5.4% increase in revenue from 3Q2022. U.S. sales came in at $55.7 million, up 4.3% while international revenues grew 6.6% to $51.7 million. Annualized Recurring Revenue or ARR was $416.3 million in the third quarter, up 4.1% from the same period a year ago.

Analyst Commentary & Balance Sheet:

The analyst community is not sanguine of Rimini's current prospects. Since third-quarter results were posted, both TD Cowen ($3 price target) and Craig-Hallum have reissued Hold ratings on the stock while Alliance Global Partners ($4.75 price target) has maintained its Buy rating on the stock.

Just over four percent of the outstanding float in the shares are currently held short. Several insiders have been frequent but generally small sellers of the equity throughout this year. The company's CEO did dispose of nearly $3.3 million worth of stock in early March. For the rest of 2023, insiders have sold just under $500,000 worth of shares collectively.

The company ended the third quarter with approximately $128 million in cash and marketable securities on its balance sheet . Rimini has a long-term debt of approximately $65 million, according to its third-quarter 10-Q . On its third quarter conference call , management stated they have $74.1 million drawn from a credit facility, however.

Verdict:

The company made 44 cents a share in profit in FY2022 on just over $129 million in sales. The current analyst consensus has Rimini Street delivering 47 cents a share in earnings in FY2023 on an approximate five percent rise in revenues. In FY2024, they see profits falling to 38 cents a share on a very slight increase in revenues.

One could argue RMNI is quite cheap at around eight times earnings and just over two times sales. The challenge from an investment standpoint is that the company is producing little growth at the moment. In addition, it has had some legal challenges with Oracle Corporation ( ORCL ) over the years that were delved into within this article on Seeking Alpha in September.

Rimini Street currently has two active proceedings with Oracle, both of which primarily relate to the manner in which Rimini Street provides support services for certain Oracle product lines. Net outside litigation expense was $2.1 million in the third quarter, compared to just over $6 million in the year-ago period. A court ruling in July caused the shares to crumble.

With no clear growth drivers on the horizon, the overhang from its legal issues with Oracle, the global economy set to slow in 2024, and with the shares paying no dividend, it is hard to find a compelling reason to own Rimini Street, Inc. shares even as the stock appears cheap by some key metrics.

"It's better to look ahead and prepare, than to look back and regret ." - Jackie Joyner-Kersee

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