Cvent Inc. Outlook Revised To Stable From Positive On Elevated Leverage From Growth Investments; 'B-' Rating Affirmed

  • S&P Global Ratings expects Cvent Inc.'s 2019 credit metrics to be weaker than we forecast due to lower than expected EBITDA generation and increased debt.
  • We are revising the outlook on Cvent to stable from positive and affirming our 'B-' issuer credit rating.
  • We are also affirming our 'B-' issue-level and '3' recovery ratings on the company's first-lien term loan.
  • The stable outlook reflects S&P Global Ratings' view that adjusted leverage will be high, in the low-11x area, for 2019, following a decrease in EBITDA margins as reflected in Cvent's financials over the past 12 months. This decline was due to Cvent's focus on revenue generation by reinvesting into the business. We expect Cvent's leverage to remain above 7x for the foreseeable future.
NEW YORK (S&P Global Ratings) Dec. 19, 2018—S&P Global Ratings today took the 
rating actions listed above. The outlook revision to stable from positive 
reflects S&P Global Ratings' view that leverage will remain high, in the 
low-12x area as of Sept. 30, 2018, and fall to the low-11x area in 2019. Cvent 
did not sustain the EBITDA margins we forecast when we revised the outlook to 
positive on Nov. 2, 2017. This is mainly due to the company's focus on 
top-line revenue growth at the expense of EBITDA margins. Cvent increased 
expense in sales and marketing and on research and development (R&D). This led 
the company to focus on product innovation, international expansion, and new 
sales accounts to drive this growth. For example, Cvent just opened an office 
in Dubai to focus more on expanding to international markets. This 
reinvestment in the business increased revenue for the last four quarters. 
Meanwhile, EBITDA margins declined to leave leverage high. Cvent also looked 
to expand inorganically, acquiring three companies in 2018, one of which is 
financed with debt, increasing adjusted leverage.

The stable outlook on Cvent reflects our view that leverage will be high, in 
the low-12x area as of the quarter ended Sept. 30, 2018. This is due to a mix 
of EBITDA margin compression from large reinvestments into the business and 
newly financed debt used for an acquisition. We expect the reinvestments to 
generate strong top-line revenue growth in the low- to mid-teens percent range 
for the next couple of years, which will compensate for some decreased EBITDA. 
We also expect Cvent to generate positive FOCF for 2018. As such, we 
anticipate the company's credit metrics will remain stable and for leverage to 
decline to the low-11x area by end of 2019.  

We could lower our rating if we come to view the capital structure as 
unsustainable. This could occur if there is sustained negative free cash flow 
or less than adequate liquidity. We believe this would result from a slowdown 
in revenue growth due to cutbacks in business spending during an unfavorable 
economic environment or business disruptions caused by poorly executed 
integrations. 

While unlikely over the next 12 months, we could raise the rating on Cvent if 
the company sustains adjusted leverage in the low-7x area and FOCF to debt 
above 5%. This could be due to new revenues from international expansion, new 
customer wins, a focus on tightening operating expenses, or effectively 
cross-selling its products. 
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