S&P revises KCIBT view to negative

S&P said it revised the outlook on KCIBT Holdings LP to negative from stable and are affirmed all its ratings on the company.

“The negative outlook reflects our view that persistently high leverage and modest free cash flow generation, coupled with the company’s small earnings scale leaves it vulnerable to geopolitical risks or economic recessions that may lower demand for travel visas and limit financial flexibility or liquidity. We expect KCIBT to maintain adequate liquidity over the next 12 months and barring unexpected operating cost increases, we believe the company will be able to improve its leverage to the mid-to-high-8x area as contributions from its acquisitions enhance its scale,” said S&P in a press release.

A slower-than-expected recognition of earnings from its acquisition of Emigra Worldwide, revenue headwinds, and several one-time costs depressed EBITDA margins. Relative to S&P’s previous forecast, which assumed an improvement in profitability from acquisition-related synergies, KCIBT’s adjusted EBITDA margin has declined by about 500 basis points as of the 12 months ended Sept. 30, from the same period last year. In addition to facing foreign-exchange headwinds in its non-U.S. markets (which represent about 62% of its sales), and slow sales cycles in its immigration business, profitability was hurt by changes in revenue and cost recognition policies relating to the Emigra acquisition, resulting in an incurrence of costs without the associated revenue offset, the agency said.

Specifically, S&P said it expects KCIBT to recognize the full-year contribution of global immigration provider Emigra Worldwide in 2020, and absent large acquisitions we expect about $5 million-$6 million of non-reoccurring earn-out payments and costs to roll-off in 2020. The agency projects adjusted leverage to be in the high-9x area in 2019, and that it improves to the mid-to-high-8x area next year.

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