Sabre Corporation — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This annual filing also reports unaudited fourth-quarter results. Sabre provides travel technology through Travel Network, Airline Solutions and Hospitality Solutions.
Financial performance
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $3,867 million | $3,598 million | +7% |
| Operating income | $562 million | $493 million | +14% |
| Net income attributable to common stockholders | $338 million | $243 million | +39% |
| Diluted earnings per share | $1.22 | $0.87 | +40% |
| Adjusted EBITDA | $1,124 million | $1,079 million | +4% |
| Cash from operations | $725 million | $678 million | +7% |
| Free cash flow | $441 million | $362 million | +22% |
Operating margin was approximately 14.5%, up from 13.7%; net margin was approximately 8.7%, up from 6.7%. Adjusted EBITDA margin was approximately 29.1%, compared with 30.0%. These margins are calculated from reported amounts; Adjusted EBITDA is a non-GAAP measure.
Segment revenue: Travel Network was $2,806 million (+10%), Airline Solutions $823 million (+1%), and Hospitality Solutions $273 million (+6%). Direct Billable Bookings increased 6% to 558 million. Airline Solutions Passengers Boarded fell 2.5% to 753 million.
Cash, debt and liquidity: Year-end cash was $509 million; debt was approximately $3.4 billion, including $3.34 billion long-term debt. The $400 million revolver had $385 million available and no borrowings. Working capital was a $169 million surplus, versus an $11 million deficit in 2017. Cash interest paid was $156 million. Sabre paid $154 million in common dividends during the year.
Fourth quarter: Revenue was $924 million, compared with $882 million in Q4 2017. Operating income was $121 million, down from $135 million; net income attributable to common stockholders was $84 million, versus $82 million.
Changes versus the prior period
- Revenue growth was led by Travel Network, where higher booking volumes and average booking fees lifted transaction revenue. Cost of revenue grew 11%, faster than total revenue, partly reflecting higher travel-agency incentives and technology investment.
- Operating income improved partly because 2017 included an $81 million impairment charge tied to Airline Solutions customer Air Berlin. Sabre recorded no comparable impairment charge in 2018.
- The effective tax rate declined to 14.4% from 33.9%. The 2018 provision included a $27 million tax benefit from finalizing accounting for the U.S. Tax Cuts and Jobs Act (TCJA).
- Sabre adopted ASC 606 in 2018 using the modified retrospective method; prior-year results were not restated. Compared with the former standard, ASC 606 increased reported 2018 revenue by $23 million and net income by $13 million. Adoption reduced opening retained deficit by approximately $102 million before tax effects ($78 million net of tax).
- Sabre reorganized reporting into three segments and changed allocation of shared technology costs. This changed segment profitability presentation, not consolidated results.
Outlook, risks and unusual items
- Sabre forecast 2019 capital expenditures of $130–$150 million and expected increased product and technology operating expense as it modernizes systems and shifts development to agile methods. No formal revenue or earnings guidance is provided in the filing.
- The company agreed to acquire Farelogix for $360 million, funded with cash and revolver borrowings. Closing was expected in 2019, subject to regulatory approvals; reviews were ongoing at filing.
- Management expected cash taxes to rise beginning in 2019 as U.S. federal net operating loss carryforwards were substantially utilized. A further approximately $30 million TRA payment was expected in April 2019.
- Management said Travel Network incentive growth, which had been double-digit per booking in 2017 and 2018, was expected to return to single digits in the near term. It also expected hotel-customer consolidation to weigh on Hospitality Solutions growth.
- Key business risks include travel-volume sensitivity, airline direct distribution and supplier pricing pressure, customer concentration, technology modernization and service reliability, cybersecurity, and reliance on third-party technology providers. Airline customers accounted for 81% of trade receivables at year-end.
- Legal and regulatory exposures include the appealed US Airways antitrust judgment, for which Sabre recorded a $32 million accrual and estimated a possible range of $32–$65 million; US Airways separately sought approximately $125 million in legal fees and costs. U.S. DOJ and European Commission antitrust investigations remained unresolved.
- Sabre disclosed prior unauthorized access involving payment and reservation data in a subset of SynXis hotel reservations. It said access had been stopped, but potential costs, penalties and indemnification obligations could be material and were not reasonably estimable.
- Other contingencies include Indian tax litigation with a stated maximum potential exposure of approximately $42 million, and disputed Greek VAT refunds of approximately $20 million; Sabre reported no accrual for these matters based on its assessments.
Most important facts for investors to verify
- Whether Farelogix received regulatory approval and closed, and how the purchase was financed.
- Whether Travel Network booking growth and fee rates can offset incentive costs and continued airline distribution shifts.
- Whether Airline Solutions can stabilize or grow boarded volumes after the Southwest contract termination, and whether Hospitality Solutions faces further customer attrition from consolidation.
- How technology spending, capitalization changes and the $130–$150 million capital expenditure outlook affect operating margins and cash generation.
- Developments in the US Airways appeal, DOJ and EU investigations, SynXis incident costs, and tax/VAT disputes.
- Debt reduction, interest-rate exposure, future cash taxes and TRA payments, and the sustainability of dividends alongside acquisition and investment needs.