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, Software License Optimization, Software Monetization, and data analysis products. We expect Flexera to maintain sufficient liquidity and generate free cash flow of greater than $100 million annually. We could lower the rating if the company fails in its acquisition-led growth strategy or if increasing competitive threats in the core business segments lead to declines in revenue and EBITDA, resulting in weaker liquidity and negative free cash flow such that we view the capital structure as unsustainable. Although unlikely over the next 12 months given Flexera's

...S&P Global Ratings'-adjusted leverage remains high at more than 10x since the investment by Thoma Bravo, which closed in March of 2021, with limited prospects for material deleveraging. In the nine-months-ended Sept. 30, 2021, Flexera grew revenues in the low-single-digit percentage and sustained S&P Global Ratings'-adjusted around 47%. Our adjusted leverage treats the firm's Class A equity as debt, and secured leverage absent Class A equity would be around 8.7x at Sept. 30, 2021. While we forecast modest revenue growth over the next few years, we expect leverage to remain above 10x in the near term. Despite high adjusted leverage and considerable interest expense, we expect Flexera to generate free cash flow of around $100 million annually. The $65 million undrawn revolver, along with nearly $170 million of cash on hand, provide additional liquidity support. The transition toward its subscription business model is near completion and should drive more stability in the long run. Flexera...

Full Report