Rating Action: Moody's upgrades Quorum's CFR to B3, first lien debt to B2; outlook stableGlobal Credit Research - 28 Apr 2021Approximately $390 million of rated debt affectedNew York, April 28, 2021 -- Moody's Investors Service, ("Moody's") upgraded QBS Parent, Inc.'s (dba "Quorum") corporate family rating ("CFR") to B3, from Caa1, and its probability of default rating to B3-PD, from Caa1-PD. Moody's also upgraded the oil and gas ("O&G") software provider's senior secured first-lien debt, including a $35 million revolving credit facility and $355 million term loan, to B2, from B3. The outlook is stable. Upgrades: ..Issuer: QBS Parent, Inc. .... Corporate Family Rating, Upgraded to B3 from Caa1.... Probability of Default Rating, Upgraded to B3-PD from Caa1-PD ....Senior Secured Bank Credit Facility, Upgraded to B2 (LGD3) from B3 (LGD3) Outlook Actions: ..Issuer: QBS Parent, Inc. ....Outlook, Remains Stable RATINGS RATIONALE Quorum's ratings upgrade reflects the company's relative operating stability through 2020's upheaval in the energy markets, and Moody's expectations for improving leverage and continued positive, albeit modest, free cash flow in 2021. While Quorum's revenue fell, as expected, in 2020 (by low double-digit percentages), the company maintained stable, high-30%s EBITDA margins, delivered positive free cash flow for the year and, as of early 2021, improved its liquidity position. Although high, Moody's-adjusted debt-to-EBITDA leverage has held within 8.0 times, and with incrementally improved results anticipated for 2021, Moody's expects leverage to ease at least another half turn this year, while liquidity improves further. (Moody's adjusted debt includes a $15 million capitalized lease adjustment and no drawings under Quorum's $35 million revolver.)Having reached lows of below $20 a barrel in April of 2020, benchmark crude oil prices have tripled since then, returning to similarly strong levels reached in 2018 and 2019, while North American oil rig counts have rebounded by 65% since mid-year 2020 lows. The strengthening macro fundamentals support Moody's expectation for a return to low- to mid-single-digit percentage revenue growth for Quorum this year. Moody's outlook for the global energy industry is positive, based on our expectation of a continued recovery and sustained improvement in fundamental conditions across the industry in the next 12-18 months. Pent-up consumer demand and a pickup in trade and manufacturing activity around the world are spurring a rebound in economic activity, encouraging a faster recovery in demand and prices for oil and gas through late 2021 and into early 2022Quorum's rating is supported by the transformative early 2019 acquisition of Coastal Flow, which boosted and diversified the company's revenue mix as it now derives incremental revenue from operationally focused services in the midstream segment of the energy process chain. As a result of this and other acquisitions, Quorum is moving beyond largely upstream ERP services, and into midstream operations that are less exposed to energy commodity prices than the upstream segment. Coastal Flow's inclusion provides some insulation from energy market volatility that has once again buffeted the industry. Additionally, Quorum's companywide transition to a more recurring, subscription-based revenue model provides an ancillary cushion against commodity volatility.Moody's considers Quorum's liquidity adequate and improving. Balance sheet cash averaged just over $30 million for the four quarter ends of 2020. The measure was boosted by drawing fully under the company's $35 million revolving credit facility in the first half of the year. But since then Quorum has generated enough free cash flow (including monies from the seasonally strong first quarter of 2021), to pay off the revolver in full and still have a healthy cash balance at present. Although the facility has been increased gradually over the past several years (from $15 million in 2014), it is now modest relative to Quorum's growing scale, interest burden, and proclivity for acquisitions. As it has in the past, the company may draw temporarily on the facility in order to make an acquisition, and then replenish its capacity using cash from operations and/or proceeds from an add-on term loan. A steadily growing portion of its revenues is recurring, subscription-based (more than 60%), and as a result Quorum generates most of its cash in the first quarter, with the balance depleting during the seasonally weaker latter quarters of the year. The first- and second-lien term loans include no financial maintenance covenants, while the revolver includes a static, maximum first-lien net leverage covenant set at 7.25 times and that is triggered at 35% utilization. At present there is a slightly better than 30% cushion relative to the covenant maximum.The stable outlook is in part based on Moody's favorable expectations for the broader global energy industry. Moody's expects a continued recovery and sustained improvement in fundamental conditions across the energy industry in the next 12-18 months. Quorum's stable outlook reflects Moody's expectation for single-digit revenue growth, moderate deleveraging, and modestly positive free cash flow. Moody's also expects financial leverage by year end 2021 to decline towards 7.0 times, a slow improvement in interest coverage, and free cash flow as a percentage of debt of better than 3.0%.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade Quorum's ratings if the company generates revenue growth of at least upper-single-digit percentages, if we expect debt-to-EBITDA will remain below 6.0 times, and if free cash flow is sustained at least at mid-single digits as a percentage of debt.Moody's could downgrade the ratings if revenues and EBITDA in 2021 fall, rather than grow modestly as expected, reflective, possibly, of longer and deeper than anticipated disruption to social and economic activity due to the COVID-19 epidemic. The ratings could also be downgraded if Moody's expects that free cash flow will turn negative, or if access to the revolver is threatened.Headquartered in Houston, TX, Quorum is a software and consulting company that designs, develops, implements, and supports primarily ERP software solutions to companies in the North American energy industry. In addition to Quorum's software business, the company provides gas and liquid measurement services as a result of the purchase of Coastal Flow Measurement Inc. in March 2019. The company is owned by affiliates of Thoma Bravo Partners as the result of a late-2018 LBO.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.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_1263068.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. Kevin Stuebe 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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