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Rating Action:

Moody's revises Aptos' outlook to stable from positive; affirms B3 CFR

Global Credit Research - 14 Jul 2017

Approximately $240 million of rated debt affected

New York, July 14, 2017 -- Moody's Investors Service affirmed Aptos, Inc.'s ("Aptos") B3 Corporate Family Rating (CFR) and revised the ratings outlook to stable from positive. Concurrently, Moody's affirmed the company's B3-PD Probability of Default Rating and the B3 on its $225 million first lien term loan. Moody's also assigned a Ba3 rating to the company's $15 million super priority revolving credit facility.

The change in outlook to stable reflects Aptos' weaker than expected operating performance and Moody's expectations of slower deleveraging over the next 12-18 months. Moody's expects Aptos to generate modest free cash flow over the next 12 months and prioritize its cash flows towards potential tuck-in acquisitions, which will inhibit the company's ability to materially reduce its high leverage to below 5.5 times.

Moody's took the following rating actions on Aptos, Inc.:

--Corporate Family Rating, affirmed at B3

--Probability of Default Rating, affirmed at B3-PD

--$225 million senior secured first lien term loan due 2022, affirmed at B3 (LGD4)

--$15 million senior secured first lien revolving credit facility due 2021, assigned Ba3 (LGD1)

--Outlook revised to stable from positive

RATINGS RATIONALE

Aptos' B3 CFR reflects its high debt-to-EBITDA leverage (Moody's adjusted), small scale and aggressive acquisition growth strategy that relies on incremental debt issuance. Moody's estimates Aptos' debt-to-EBITDA (Moody's adjusted) at approximately 6.3 times as of twelve months ended March 31, 2017. The rating also considers the highly competitive nature of the enterprise software market, the company's niche position as a provider of retail software and hardware solutions to mid-market and large specialty retailers, and the risk of potential disruptions from headwinds in the retail industry. Within its narrow market focus, Aptos competes against large players, such as Oracle Micros, Manhattan Associates, and JDA. At the same time, Aptos' credit profile benefits from its leading market position in the niche retail enterprise software market, geographic diversification with deployments to 48 countries, and high customer renewal rates. Aptos' recurring maintenance and subscription revenues is approximately 50%, a level that is below that of many rated enterprise software companies but which nevertheless provide good revenue and operating cash flow stability.

The stable rating outlook reflects Moody's view that the company's credit metrics will gradually improve over the next 12-18 months, such that debt-to-EBITDA (Moody's adjusted) will trend towards 5.5 times. Moody's also anticipates that Aptos will maintain at least adequate liquidity including free cash flow-to-debt in the mid-single digits.

Given Aptos' small scale and relatively high proportion of hardware and professional service revenues compared to many rated enterprise software peers, upgrade leverage hurdles are tighter than for many other B3 rated enterprise software companies. The ratings could be upgraded if debt-to-EBITDA (Moody's adjusted) is expected to remain consistently under 5.5 times and free cash flow to debt greater than 7%.

The ratings could be downgraded if Aptos faces top-line and earnings pressure such that debt-to-EBITDA (Moody's adjusted) is sustained above 7.0 times, or liquidity deteriorates, including increased revolver usage or an inability to sustain positive free cash flow generation.

Aptos, Inc. (formerly Retail Solutions Group, Inc. or Epicor RSG) is a leading provider of retail software solutions including point of sale software for mid-market retailers. RSG has been owned by private equity group Apax Partners since 2011. Prior to 2015, Aptos was a business unit of Epicor Software Corporation.

The principal methodology used in these ratings was Software Industry published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Oleg Markin
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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