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Rating Action: Moody's assigns first-time B3 CFR to Matrix Parent; stable outlookGlobal Credit Research - 27 Jan 2022New York, January 27, 2022 -- Moody's Investors Service (Moody's) has assigned a first-time B3 corporate family rating (CFR) and a B3-PD probability of default rating (PDR) to Matrix Parent, Inc. (Matrix), doing business as Mobileum. Moody's has also assigned a B2 rating to the company's first lien senior secured credit facilities, which consist of a $55 million five year revolver (undrawn at close), $380 million seven year term loan and $100 million seven year delayed draw term loan (undrawn at close and with 18 month availability), and a Caa2 rating to the company's $160 million eight year second lien term loan. The outlook is stable.The parent of Matrix, Matrix Holdings, Inc. (Matrix Holdings), will receive a strategic growth investment from H.I.G. Capital LLC (H.I.G.) and will be owned by H.I.G. and existing investor Audax Group (Audax). H.I.G. and Audax (the Sponsors) and existing management will acquire the assets of Mobile Acquisition Corp. (Mobile Acquisition), a software and services entity focused on end markets serving mostly mobile telecommunications operators. Under a definitive agreement signed on December 25, 2021, H.I.G. and Matrix management will acquire a majority stake in Mobile Acquisition with Audax maintaining a significant minority investment. Mobile Acquisition will continue to exist and will be a direct, wholly-owned subsidiary of Matrix and will remain in the structure as a guarantor. As the ultimate holding company Matrix Holdings will be a guarantor as well. Moody's expects audited financials will be provided at the Matrix Holdings level going forward. Proceeds from the first lien senior secured credit facilities, second lien term loan, new cash equity and rollover equity will be used to finance the acquisition of Mobile Acquisition (including customary purchase price adjustments and transaction fees and expenses), with $15 million of cash applied to the balance sheet for working capital purposes. The acquisition is expected to close following completion of this debt issuance.Assignments:..Issuer: Matrix Parent, Inc..... Corporate Family Rating, Assigned B3.... Probability of Default Rating, Assigned B3-PD....Senior Secured Multi Currency Revolving Credit Facility, Assigned B2 (LGD3)....Senior Secured 1st Lien Term Loan, Assigned B2 (LGD3)....Senior Secured 1st Lien Delayed Draw Term Loan, Assigned B2 (LGD3)....Senior Secured 2nd Lien Term Loan, Assigned Caa2 (LGD5)Outlook Actions:..Issuer: Matrix Parent, Inc.....Outlook, Assigned StableRATINGS RATIONALEMatrix's B3 CFR reflects high leverage of over 8x debt/EBITDA (Moody's adjusted) on a pro forma basis at year-end December 31, 2021, small business scale, execution uncertainties following recent acquisition-fueled expansion and exposure to fragmented and competitive end markets. Moody's expects Matrix will grow its top line at near high single-digit rates given attractive growth across several of its end markets and the ability to better cross sell and upsell to existing customers with a more comprehensive product suite following several years of transformative acquisition activity. Given the fragmented nature of the company's end markets, Moody's expects the Sponsors will selectively pursue complementary tuck-in acquisitions to strengthen market positioning and augment organic growth potential, as evidenced by a sizable delayed draw term loan which underscores this financial strategy. Over time Matrix may seek larger industry consolidation opportunities as well that could result in integration and operational execution risks and sustained high debt levels.Matrix benefits from broad geographic revenue diversification and a customer base comprised of global telecom operators, including almost all global Tier 1 telecom operators. The company has moderately high revenue concentration among its top ten customers, but retention rates are consistently high and Matrix's top 15 customers have average tenures exceeding 10 years. Moody's believes the critical nature of the company's embedded software and related services contributes to customer stickiness and effective barriers to exit. Matrix operates across four main businesses ranked as following in descending order by revenue contribution: Roaming and Network Services; Fraud, Security and Business Assurance; Testing and Service Assurance; and Engagement and Experience. Moody's believes profitability across the company's segments are similar other than Testing services, which is subscription-based and has meaningfully higher margins than the company overall. Moody's notes that Matrix pioneered the development of mobile roaming steering software used broadly among telecom operators, and believes Matrix has the dominant share in this defined roaming steering market. Matrix's roaming software steers mobile subscribers onto preferred networks to minimize mainly international wholesale roaming costs to its telecom customers licensed to embed this software in their networks.Matrix is in the early stages of operating as a fully integrated software vendor following five acquisitions since October 2018, including a June 2021 acquisition of Niometrics which serves a fast growing network analytics end market aimed at improving customer experience. Many of the company's acquisitions have been single point solution providers or smaller and undermanaged businesses within larger enterprises. Through integration savings and cross selling and upselling opportunities utilizing a unified global sales force, solid execution will determine the pace of continued margin improvement and accelerating revenue growth. Moody's also believes Matrix has a dominant position in roaming testing market share in its Testing and Service assurance business, and defensibly strong positions in more fragmented end markets in other business areas. The company's aggregate end market size, which is estimated to be in excess of $4 billion per several third party sources, is growing at rates well above its primary telecom customers. Matrix will also benefit from the steady rollout of 5G services, industrial IoT and increasing private network development, all of which will create more complexity in roaming and will drive services and analytics revenue growth.Liquidity is expected to be very good, supported by an estimated $15 million of cash at the close of the transaction, full availability under a $55 million revolver and a $100 million delayed draw term loan, and Moody's expectation for around $20 million of free cash flow over the next 12 months. Matrix's capital investments are modest, as is annual term loan amortization. The proposed revolver will contain a first lien net leverage ratio financial covenant set at 35% cushion to closing leverage and springing at 35% utilization.Moody's anticipates that Matrix's private equity ownership will result in somewhat aggressive financial policies, a key ESG consideration, that will sustain elevated debt/EBITDA levels (Moody's adjusted).The stable outlook reflects Moody's expectation for steady revenue growth, which along with improving operating margins will sustain leverage below 8x debt/EBITDA (Moody's adjusted) over the next 12 to 18 months. It also reflects the expectation that Matrix will maintain very good liquidity and generate positive free cash flow.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if Matrix's scale is increased substantially through consistent organic revenue and EBITDA growth such that debt/EBITDA (Moody's adjusted) is expected to be sustained below 6x and free cash flow to debt is sustained around 5%.The ratings could be downgraded if growth slows significantly, free cash flow becomes negative on other than a temporary basis or if liquidity weakens.As proposed, the revolver, term loan and delayed draw term loan are expected to provide covenant flexibility that if utilized could negatively impact creditors. Notable terms include the following:Incremental debt capacity up to the greater of 100% of Consolidated EBITDA or a dollar amount equal to 100% of Consolidated EBITDA as of the closing date , plus the unused capacity reallocated from the general debt basket, plus unlimited amounts so long as pro forma Consolidated First Lien Net Leverage Ratio does not exceed closing date leverage (assumed to be approximately 4.6x).Amounts up to the greater of (A) 100% of Consolidated EBITDA on the Closing Date and (B) 100.0% of Consolidated EBITDA may be incurred with an earlier maturity date than the initial term loans.The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities. The credit agreement does not have express "blocker" provisions which prohibit the transfer of specified assets to unrestricted subsidiaries; such transfers are permitted subject to carve-out capacity and other conditions .Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees.The credit agreement has no limitations on up-tiering transactions.The above are proposed terms and the final terms of the credit agreement may be materially different.The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Cupertino, CA, Matrix is the leading provider of integrated analytic solutions for roaming and network services, security, risk management, and testing and monitoring solutions for the telecommunications industry.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. Neil Mack, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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