Sabre Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; it does not provide a clear standalone Q4 income statement summary. Amounts below are full-year unless noted.
Business context
Sabre provides travel distribution and technology services through Travel Solutions, which includes its global distribution system (GDS) and airline software, and Hospitality Solutions, which provides hotel software. In response to COVID-19 and industry changes, Sabre reorganized its airline- and agency-focused operations into the Travel Solutions segment during 2020. Revenue depends substantially on travel transactions, especially air bookings.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1.334 billion | $3.975 billion |
| Operating income (loss) | $(988) million | $363 million |
| Net income (loss) attributable to common stockholders | $(1.280) billion | $159 million |
| Diluted earnings (loss) per share | $(4.42) | $0.57 |
| Adjusted EBITDA | $(373) million | $946 million |
| Cash from operating activities | $(770) million | $581 million |
| Free cash flow | $(836) million | $466 million |
| Capital expenditures | $65 million | $115 million |
- Revenue fell 66% year over year. Travel Solutions revenue declined 68% to $1.177 billion; Hospitality Solutions revenue declined 40% to $175 million.
- Travel Solutions air direct billable bookings decreased 79% to 103 million; total direct billable bookings fell 78% to 125 million. Passengers boarded fell 56% to 323 million. Hospitality central reservation transactions declined 38% to 67 million.
- Operating costs did not fall in line with revenue: technology costs were $1.157 billion, down 10%, while cost of revenue excluding technology costs was $579 million, down 66%. Operating loss equaled approximately 74% of revenue, versus operating income of approximately 9% of revenue in 2019.
- Net interest expense rose 50% to $235 million, principally reflecting new borrowings. A $22 million debt-extinguishment loss and $67 million of other expense also weighed on results. The tax provision was a $40 million benefit; a $202 million valuation allowance on tax losses contributed to the low effective tax rate.
- At year-end, cash and cash equivalents were $1.500 billion; working capital surplus was $1.266 billion. Debt was $4.7 billion on a carrying-value basis and $4.81 billion at face value. Revolver borrowings were $375 million, leaving $15 million available under the facility after letters of credit and other reductions.
- Financing activities provided $1.838 billion in net cash, supporting the year-end cash balance. The company raised $1.1 billion through debt offerings, $598 million net through common and preferred stock offerings, and drew $375 million on its revolver.
Changes, outlook, and notable items
- COVID-19 sharply reduced travel volumes, increased cancellations and customer credit risk, and materially weakened revenue, earnings, operating cash flow and liquidity. The allowance for credit losses reached $98 million, versus $58 million at year-end 2019; the 2020 provision was $66 million.
- Management said it expected the pandemic to continue materially harming financial results and liquidity. It expected cash burn to improve sequentially during 2021, while warning that first-quarter cash flow would be affected by working-capital timing and severance payments.
- Sabre believed available resources would fund liquidity needs for at least the next 12 months, while emphasizing uncertainty around travel recovery and the possibility of additional financing or cost actions. The filing does not provide a clear revenue or earnings forecast.
- Management forecast 2021 capital expenditures of $60 million to $100 million and expected continued technology transformation investment. It anticipated material savings beginning in 2024, subject to execution, timing and cost risks.
- Cost actions included furloughing approximately one-third of staff in Q2, reducing the workforce by about 800 employees and separating approximately 400 others through voluntary programs. Restructuring charges were $86 million. Common dividends and share repurchases were suspended; the 6.50% mandatory convertible preferred stock carries cumulative dividends.
- Debt refinancing extended or replaced maturities, including new 2025 notes and a $637 million term loan due 2027. The leverage covenant was suspended during a defined Material Travel Event Disruption; a $300 million minimum-liquidity requirement applied during the suspension. Sabre reported compliance with covenants not suspended at year-end.
- Farelogix acquisition agreement termination generated a $46 million charge, including termination fees. The company sold and leased back its headquarters for $69 million net proceeds and recorded a $10 million gain.
- Goodwill was $2.64 billion. Sabre reported no goodwill impairment in 2020, but recorded $10 million of capitalized implementation-cost impairments and $5 million related to internally developed software (with additional facilities-related impairment charges disclosed).
Risks and contingencies
- Future results remain highly exposed to travel recovery, cancellations, customer bankruptcies, receivable collection, supplier renegotiations and possible demands for contract concessions.
- High leverage, interest expense, floating-rate borrowings and limited unused revolver capacity may constrain flexibility. Approximately $2.8 billion of variable-rate debt was indexed to LIBOR at year-end; the transition away from LIBOR creates uncertainty.
- Material legal matters include the remanded US Airways antitrust case, scheduled for trial in April 2022; ongoing European Commission and DOJ antitrust investigations; and Indian tax litigation. Potential outcomes and loss ranges are generally uncertain; the filing says no loss was accrued for the US Airways matter.
- A prior hotel-reservation payment-card access incident resulted in state Attorney General settlements; Sabre paid $2 million in Q1 2021 and agreed to security measures. Additional costs or claims could not be reasonably estimated.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included IT Solutions revenue measurement, uncertain tax positions and estimates affected by COVID-19.
Important facts for investors to verify
- Travel booking and passenger volumes, cancellation trends, and the pace and mix of recovery across domestic and international travel.
- Cash burn, liquidity headroom, revolver availability, covenant requirements and the company’s ability to service and refinance debt.
- Customer credit exposure, bankruptcies, the allowance for credit losses and any further supplier contract concessions.
- Execution and costs of the technology transformation, including whether planned savings materialize and when.
- Potential dilution and dividend obligations from the mandatory convertible preferred stock and exchangeable notes.
- Developments in antitrust, tax and cybersecurity matters, including any additional liabilities not estimable in the filing.