Research Update: Linux Software And Service Provider SUSE Outlook Revised To Negative On Weaker Operational Performance; Affirmed At 'B+'

Our adjusted EBITDA figure for Germany-based SUSE S.A., parent of SUSE Linux, was materially lower in fiscal year ended Oct. 31, 2023 (fiscal 2023) than we forecast, due to larger nonrecurring and transformation-related costs than assumed in our base case. We forecast the company's EBITDA will remain under pressure in fiscal 2024, mainly because of SUSE's ongoing investment in sales and marketing, leading to adjusted debt to EBITDA staying above 6.0x and free operating cash flow (FOCF) lower than $40 million. We expect the company's credit metrics will significantly improve in fiscal 2025, supported by top-line acceleration and margin expansion, underpinned by improving sales execution; but a weak macroeconomic environment or persistent sales issues could derail the company's recovery plan.

...- Our adjusted EBITDA figure for Germany-based SUSE S.A., parent of SUSE Linux, was materially lower in fiscal year ended Oct. 31, 2023 (fiscal 2023) than we forecast, due to larger nonrecurring and transformation-related costs than assumed in our base case. - We forecast the company's EBITDA will remain under pressure in fiscal 2024, mainly because of SUSE's ongoing investment in sales and marketing, leading to adjusted debt to EBITDA staying above 6.0x and free operating cash flow (FOCF) lower than $40 million. - We expect the company's credit metrics will significantly improve in fiscal 2025, supported by top-line acceleration and margin expansion, underpinned by improving sales execution; but a weak macroeconomic environment or persistent sales issues could derail the company's recovery plan. - We therefore revised our outlook on SUSE to negative from stable, and affirmed our 'B+' long-term issuer credit rating. - The negative outlook indicates that we could lower our ratings on SUSE...

Research Update