Moody's Ratings has downgraded California-based non-profit research firm
The downgrade affects $130 million in debt outstanding as of fiscal year-end 2024, including $118 million related to an operating lease.
The debt includes $18.59 million in refunded revenue bonds
The outlook has been revised to stable from negative.
Reductions in federal funding in fiscal year 2025 and anticipated lower funding levels in the near term were cited by Moody's for the downgrade.
The downgrade to Baa1 "reflects reduced federal funding in fiscal year 2025 and anticipated lower funding levels in the near term," Moody's analysts said.
SRI International is a large, standalone research institute headquartered in Menlo Park, California, with locations in Virginia and New Jersey. In fiscal 2024, SRI generated over $440 million in operating revenue, primarily from research conducted for the U.S. government, industry, and other sponsors, Moody's said.
"The SRI ventures team works with entrepreneurs looking to address significant market needs and make a substantial impact, launching an average of 10 ventures per year," the firm said in a
"SRI's track record of successful ventures spans areas such as aerospace, automation, artificial intelligence, drug discovery, robotics, and geospatial. SRI's ventures portfolio includes companies like Siri (acquired by Apple), Leo Labs, and Intuitive Surgical."
Moody's ticked off several reasons SRI was able to retain its investment-grade rating. Those included its larger operating scale and long track record conducting specialized research for government agencies. It also has strategic locations in the Silicon Valley and on the east coast that give it a competitive advantage, Moody's said.
The redevelopment of its Menlo Park campus will help maintain good brand positioning , Moody's said.
SRI began working with Lane Partners, a local developer, in 2021 to completely
The firm's challenges include variable operating performance resulting partly from significant declines in federal grant revenues in fiscal 2025, a situation expected to continue in the near term.
The size of operations compared to spendable cash and investments is a concern, Moody's said, but it's partly ameliorated by closely managed operations.
"The stable outlook reflects the expectation that operating performance will stabilize beyond fiscal 2025 given management's willingness and ability to match expenses with revenues in a reduced federal funding environment," Moody's said.
Factors that could lead to an upgrade include: significant improvement in operating performance with consistent strong operating and EBITDA margins, substantial and sustained increase in cash and investments and successful redevelopment of its Menlo Park campus.
What could lead to a downgrade are further declines in cash and liquidity, inability to meet one times debt service coverage and increase in leverage.
