Rimini Street Must Prove Its Revenue Rebound Can Survive Heavy AI Spending And Choppy Billings

Rimini Street finally broke a long losing streak on the top line last quarter, yet the stock has gone the other way. Shares have fallen about 13% since the company reported its return to growth, trailing the S&P 500 by roughly 17 percentage points. That disconnect sets up the third-quarter report, due after the close on October 29, as a test of whether the recovery is durable or whether the market was right to doubt it.

The Street is looking for earnings of $0.07 a share on revenue of about $110.7 million. That would mean roughly 7% revenue growth from the year-ago $103.4 million and a 40% jump in EPS from $0.05. Management guided to revenue of $110 million to $112 million, so consensus sits slightly below the midpoint and leans toward the low end. That is a modest bar. It also implies revenue slipping a bit from the prior quarter's $111.1 million, which leaves room for an upside surprise if the second-quarter momentum carried through.

That momentum was real on the metrics that matter for a support business. Reported revenue growth swung to 6.7% after several quarters of declines or near-flat results, and growth excluding the wind-down of the PeopleSoft business hit 10%. Revenue retention climbed back to 90%, a level management had flagged as a key milestone, and gross margin recovered to 60.9%, back above its 60% target. Validation this quarter would mean retention holding at or above 90%, gross margin staying north of 60%, and ex-PeopleSoft growth remaining near double digits. A slide back to 88% retention or a gross margin dip would suggest the second quarter was a high-water mark rather than a turning point.

The harder questions sit below revenue. Billings fell almost 9% in the second quarter after surging nearly 20% in the first, and management blamed renewal timing. A rebound in third-quarter billings would support that explanation; another decline would make it harder to dismiss. Growth in remaining performance obligations also slowed sharply, to about 8% from 16% in the first quarter, and the count of new $1 million-plus deals dropped to 14 from 19 two quarters earlier. Those are the leading indicators of whether new products are filling the pipeline. The company has leaned on a newly launched AI governance product, ServiceNow pilots moving into production, and a European antitrust decision restricting SAP licensing practices as fresh demand drivers. This report is an early chance to see whether those catalysts translate into larger deals and firmer bookings.

Profitability is the other swing factor. Adjusted EBITDA margin sank to 9.5% from 13.4% a year earlier as sales and marketing spending jumped and new product launches lifted costs. Management said sales spending was around its peak, while also acknowledging elevated sales-rep turnover during a shift toward AI-focused selling. Signs that expenses are leveling off would make the 40% EPS growth estimate look reachable; further cost creep would undercut it, and so would evidence that turnover is disrupting productivity. Strong cash conversion and a debt balance cut to $48.4 million give the company a cushion, but they will not offset a margin miss in the market's eyes.

Sentiment has cooled noticeably, with bullish readings falling to about 13% from 40% ahead of the last report. The stock, at $4.13, hovers just above its 200-day moving average and near the $4.00 bottom of its post-earnings range, far from the $5.68 high. Expectations are subdued, which lowers the hurdle. The central issue is whether Rimini Street can show that its revenue and retention recovery is being matched by stabilizing billings and costs. Without that, holding guidance rather than raising it will keep looking like caution rather than conservatism.

This earnings preview was originally published on Earnings Whispers.

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