...- UKG continues to rapidly scale its revenue base with higher proportions of subscription revenue, which will likely benefit its future operating prospects. However, the growth investments driving this and the costs of remedying a ransomware incident have compressed profitability. Due to lower levels of profitability, the interest burden on the company's significant debt load, and the aggressive financial policies it has pursued, UKG has run a cash flow deficit and maintained weak credit metrics over the last 15 months. - While current cash flow and leverage metrics appear unsustainable, the company still enjoys attractive secular demand trends, higher proportions of recurring subscription revenue, improved operating leverage, and decreasing one-time expenses. These offer good prospects to reduce leverage and improve free cash flow generation in the coming quarters. - Based on these expectations and with limited cushion for underperformance, we affirmed all of our ratings on UKG, including...
