Fitch Ratings has assigned a first-time Long-Term Issuer Default Rating (IDR) to
The Rating Outlook is Stable.
ZIP has quickly established itself in the online job recruiting segment, and Fitch expects it to realize continued growth in the coming years. The ratings impact approximately
Key Rating Drivers
Growth Profile: Fitch views ZIP's historic growth profile and trajectory as a credit positive, although its current size with EBITDA less than
Fitch believes a meaningful driver of this growth was heavy media advertising spend that enabled the company to build brand awareness among
Competitive Landscape: Fitch views the
The threat of competition is evident in historical fundamentals of competitor online marketplace operators that faced execution challenges historically, including
Industry Cyclicality: Fitch views the highly cyclical nature of the staffing industry as a key credit consideration that limits the IDR. The company could experience material negative headwinds on revenue, EBITDA and FCF in a prolonged recession given employers would meaningfully reduce jobs being advertised. Peers in the online job market segment experienced revenue declines of more than 30% during 2009 while staffing companies realized declines as high as 30%-40%. ZIP was formed in 2010, but Fitch believes the company could be meaningfully impacted during an economic correction.
Moderate Leverage: ZIP's gross debt/EBITDA in the high-3.0x range is relatively low for the 'B+' rating category, but Fitch believes the staffing industry's cyclicality could lead to meaningfully higher leverage in a relatively short timeframe if economic conditions deteriorate. Revenue declined 14% YoY, for example, in the two quarters following the beginning of the pandemic in the
Solid Liquidity: Fitch expects the company should generate meaningful free cash flow in the future approaching
Derivation Summary
ZIP competes in a large and fragmented online job search industry. Many of its primary peers including LinkedIn, Indeed, Monster, CareerBuilder and others are private or divisions of larger companies and thus are not rated by Fitch. Fitch considers ZIP's rating profile relative to a range of business services and technology companies in our ratings universe, comparing factors including growth, margins, business lifecycle, leverage, CF dynamics, competitive position, among others to arrive at our rating.
Fitch rates industrial staffing provider
Key Assumptions
Revenue growth remains strong in the 15%-20% range through 2024.
EBITDA margins pressured in 2022 due to normalization of opex as the economic recovery continues but improves beyond due to increased revenue scale.
FCF generation remains solid due to limited working capital, cash taxes and capex requirements.
Capital allocation priorities are likely weighted toward M&A over time, although Fitch has not explicitly assumed M&A in its forecast.
Recovery Assumptions:
For entities rated 'B+' and below, where default is closer and recovery prospects are more meaningful to investors, Fitch undertakes a tailored, or bespoke, analysis of recovery upon default for each issuance. The resulting debt instrument rating includes a Recovery Rating or published 'RR' (graded from 'RR1' to 'RR6') and is notched from the IDR accordingly. In this analysis, there are three steps: (i) estimating the distressed enterprise value (EV); (ii) estimating creditor claims; and (iii) distribution of value.
Fitch assumed ZIP would emerge from a default scenario under the going concern approach versus liquidation. Key assumptions used in the recovery analysis are as follows:
Fitch assumes a
Fitch assumes an EV/EBITDA multiple of 6.5x upon emergence from bankruptcy. This multiple is validated based upon comparable public company trading multiples (current & historic), industry M&A, and comparable reorganization multiples Fitch has witnessed historically.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Gross leverage, Fitch-defined as total debt with equity credit/Operating EBITDA, sustained below 3.5x in conjunction with EBITDA scaling to more than
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Gross leverage sustained above 4.5x;
Sustained deterioration in EBITDA margins to mid-teens percentage or lower;
Liquidity pressures, as reflected in FCF trending to low-single digit percentage of revenue or lower;
Deterioration in paid employers, revenues per paid employer or other key metrics, signaling potential competitive and/or market pressures.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Solid Liquidity: ZIP has a solid liquidity position that should enable it to continue to drive growth in the years ahead. Pro forma for the proposed debt issuance, Fitch estimates the company will have approximately
Debt Structure: The company has a relatively simple debt capital structure, with a
Issuer Profile
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Recovery
LT IDR
B+
New Rating
senior unsecured
LT
BB-
New Rating
RR3
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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