Flexera Software LLC

The stable outlook reflects our expectation that Flexera will continue to deliver consistent operating performance over the next 12 months, with modest revenue and EBITDA growth, due to continued adoption of its IT asset management, SLO, and data analysis products. We also expect it will generate free cash flow of greater than $50 million over the next 12 months. We could lower the rating if the company fails in its acquisition-led growth strategy or if increasing competitive threat in core business segments leads to declines in revenue and EBITDA, resulting in weakened liquidity and negative free cash flow such that we view the capital structure as unsustainable. We could raise the issuer credit rating to 'B' if Flexera continues to

...The company operates in a fragmented and competitive market. We view Flexera Software LLC as a comparatively small player within the enterprise software market. The company primarily competes with Gemalto in the software monetization space, ServiceNow and Snow Software in the software asset management and software license optimization (SLO) space, and faces increased competition from larger integrated IT solution providers with greater scale and financial resources. Secular trends, including visibility to enterprise security platforms, small and medium-size business adoption in the enterprise market, and increased adoption of cloud-based software, provide growth prospects for the business. While incremental debt issuance has kept leverage high, consistent free operating cash flow (FOCF) provides adequate liquidity. Since an ownership change in 2018, Flexera has issued $250 million add-on debt to pay dividends to its equity owners (Ontario Teachers' Pension Plan Board, TA Associates, and...

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