LSCS Holdings Inc.

The stable outlook reflects our expectation that the company will improve its overall businesses but cash flow will remain minimal in 2020. It also reflects our expectation for improved free cash flow generation in 2021 and beyond thanks to revenue growth and the reduction of nonrecurring costs. We could lower our rating if LSCS produces cash flow deficits that we would view as unsustainable to the capital structure. This could be a result of unanticipated acquisition, integration headwinds, or large client losses. Although unlikely over the next 12 months, we could raise the rating if LSCS can generate free cash flow above $15 million on a sustained basis. 2019 and 2020 gross revenues of around $500 million and $590 million,

...LSCS Holdings Inc.'s financial sponsor ownership and aggressive financial policy will keep leverage high.LSCS' adjusted debt leverage will likely remain above 7x over the next 12 months, largely as a result of private equity ownership and an aggressive appetite for acquisitions (reflected in the last two years). S&P Global Ratings expects the company will continue to make acquisitions to grow its business. In 2019, the company acquired Field Solutions and Cornerstone Research Group, following several acquisitions in 2018. We expect the debt-financed acquisitions will continue to keep leverage high for the next few years. We believe the company's sponsor ownership will prioritize acquisitions and shareholder returns over deleveraging. The company's small scale and niche focus make it highly vulnerable to competition, industry changes, and operational underperformance. LSCS has little room for integration challenges of newly acquired companies given its small EBITDA base and high leverage....

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