Sabre Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless stated. Sabre provides travel technology through Travel Network and Airline and Hospitality Solutions. In Q1 2015, it completed its exit from online travel agencies by selling Travelocity.com and lastminute.com; their results are reported as discontinued operations.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $710.3 million | $666.4 million | Up 7% |
| Operating income | $119.0 million | $103.7 million | Up 15% |
| Operating margin | 16.7% | 15.6% | Up 1.1 percentage points |
| Continuing-operations income | $49.3 million | $22.0 million | Up 125% |
| Net income (loss) attributable to common shareholders | $207.5 million | ($12.0 million) | Improved |
| Adjusted EBITDA | $243.6 million | $211.3 million | Up 15% |
| Operating cash flow | $131.8 million | $94.3 million | Up $37.5 million |
| Free cash flow | $69.9 million | $44.7 million | Up $25.2 million |
Common diluted EPS was $0.75, including $0.57 from discontinued operations; continuing-operations diluted EPS was $0.18. In Q1 2014, diluted EPS was a loss of $0.06, including a $0.13 loss from discontinued operations. Adjusted EBITDA and free cash flow are non-GAAP measures; Sabre cautions they are not substitutes for GAAP results or cash flows.
Revenue and operating trends
- Travel Network revenue increased 3% to $507.9 million. Direct Billable Bookings rose 2.7% to 105.4 million; the average booking fee declined, partly reflecting the US Airways–American Airlines merger.
- Airline and Hospitality Solutions revenue increased 16% to $204.9 million. Airline Solutions growth included higher SabreSonic CSS usage and product adoption, plus $10 million recognized on an extended customer services contract; Hospitality Solutions benefited from higher reservation transactions.
- Passengers Boarded increased 7.2% to 126.1 million. Adjusted EBITDA increased 8% in Travel Network to $232.1 million and 34% in Airline and Hospitality Solutions to $71.5 million.
- Interest expense declined 27% to $46.5 million, primarily due to prior-year debt prepayments and lower rates following the 2014 repricing. Joint-venture equity income rose to $8.5 million, including Sabre’s share of a partner’s tax-reserve release.
Cash, debt and liquidity
- At March 31, cash and cash equivalents were $458.6 million, versus $155.7 million at year-end. Current assets were $1.137 billion and current liabilities $1.232 billion.
- Total debt was approximately $3.079 billion at face value. The balance sheet reported $417.2 million current debt and $2.662 billion long-term debt. No revolving-credit borrowings were outstanding; reported revolver availability was $364.3 million after letters of credit.
- Cash from continuing operations was $131.8 million. Capital spending was $61.9 million, while capitalized implementation costs were another $14.3 million. Cash from discontinued operations included $280 million of Travelocity.com sale proceeds; discontinued operations used $18.2 million in operating cash.
- Sabre paid $24.4 million in common dividends, or $0.09 per share. The board declared another $0.09 dividend for payment in June 2015, subject to the stated terms.
- After quarter-end, Sabre issued $530 million of 5.375% senior secured notes due 2023 and used proceeds to redeem the $480 million 2019 notes, paying a 6.375% redemption premium and other amounts. Sabre expected to record an approximately $32 million extinguishment loss in Q2.
Dispositions, outlook and risks
- Travelocity.com was sold for $280 million cash; lastminute.com was transferred with net liabilities and no significant cash proceeds. The discontinued-operations statement reported $263.6 million in pre-tax gains on business sales and $158.9 million in after-tax discontinued-operations income. The disposal materially boosted reported net income and cash; continuing-operations results better reflect the remaining business.
- Management said cash from operations, cash on hand and the revolver should cover operating and capital needs over the next 12 months. No specific revenue or earnings guidance was provided. Sabre was actively negotiating a possible non-U.S. Travel Network acquisition requiring approximately $500 million, including related costs; completion and terms were uncertain.
- Management reported no material changes to previously disclosed factors affecting results. Key exposures include airline booking volumes and fees, customer and supplier concentration, foreign exchange and interest rates, technology investment, and execution of customer contracts.
- Sabre deferred revenue recognition on certain Venezuela receivables until collection; $9 million remained outstanding at quarter-end. The company also disclosed potentially material VAT refund collection uncertainty.
- Material legal matters include US Airways antitrust litigation, the unresolved DOJ investigation, and hotel/car tax disputes associated with the divested Travelocity business. The US Airways case’s claimed remaining single damages were $45 million or $73 million before trebling; the company disputed the claims. The DOJ had not closed its investigation. Hotel-tax reserves included $18 million for identified matters, including Hawaii; other outcomes could exceed recorded reserves.
- Sabre stated it was in compliance with debt covenants at quarter-end. Its credit agreement includes a maximum senior secured leverage ratio that applies when revolver use exceeds specified thresholds; the 2015 limit was 4.5 to 1.0.
Most important facts to verify
- Separate recurring continuing-operations earnings from the $158.9 million discontinued-operations gain-driven result.
- Confirm the April 2015 refinancing’s final cash costs, Q2 extinguishment loss and effect on interest expense and maturities.
- Monitor operating cash conversion, elevated capital and implementation spending, and the current-liability position.
- Track the proposed approximately $500 million acquisition, if pursued, and its funding, terms and expected returns.
- Follow the outcomes and potential cash exposure of the US Airways, DOJ, Hawaii and other hotel-tax matters, along with collection of Venezuela receivables and VAT claims.