Navex TopCo Inc.

The stable outlook reflects our expectation that continued growth in the GRC software market, increased penetration into existing customer base, and a high degree of recurring revenue will enable Navex to continue generating positive free cash flow and reduce leverage to the low-6x area over the next 12 months. We could lower the rating if an industry downturn, operational challenges, or intensifying competitive pressures lead to customer defections and margin erosion, such that the company generates negative free cash flow on a sustained basis, liquidity becomes constrained, or we deem the capital structure unsustainable. Although unlikely over the next 12 months, over the longer term we could consider an upgrade if Navex consistently achieves revenue and EBITDA growth through product

...Navex has maintained stable performance through the COVID-19 pandemic. In 2020, like other software businesses, the company had to endure the macroeconomic effects stemming from COVID-19, which created tremendous uncertainty over potential revenue disruptions. However, Navex has not experienced any major disruptions in its performance because of good demand for its governance, risk and compliance (GRC) solutions such as its EthicsPoint product, even in a remote work environment. Companies use these solutions to deal with increasingly global and complex GRC requirements from both the government and stakeholders. Due to its good recurring revenue in the high-80% area, which we believe helps mitigate market volatility, Navex was able to optimize its cost structure such that EBITDA and unadjusted free operating cash flow (FOCF) increased in 2020. While we believe Navex will experience some EBITDA contraction in 2021, we still believe its capital structure is sustainable. Like many companies...

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