Sabre Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Sabre provides travel distribution and technology through Travel Solutions and hospitality software through Hospitality Solutions. Amounts below are in U.S. dollars.
Financial performance and liquidity
- Q2 revenue: $737.5 million, up 12% year over year. GAAP operating loss was $42.2 million, improving from $70.2 million; net loss attributable to Sabre was $123.9 million versus $187.4 million. Common-stockholder loss per share was $0.39 versus $0.59.
- Q2 adjusted results: Adjusted Operating Income was $46.1 million versus a $9.3 million loss; Adjusted EBITDA was $73.0 million versus $24.5 million. These are non-GAAP measures.
- First-half revenue: $1.480 billion, up 19%. GAAP operating loss was $42.4 million versus $149.7 million; net loss attributable to Sabre was $222.9 million versus $140.0 million. Adjusted EBITDA was $131.1 million versus $29.6 million.
- Revenue by segment: Q2 Travel Solutions revenue was $670.8 million (+12%); Hospitality Solutions was $76.7 million (+16%). Distribution growth reflected higher booking volumes and improved international and corporate booking mix. IT Solutions revenue declined, partly due to Russian customer de-migrations.
- Margins and costs: GAAP operating margin was approximately (5.7)% in Q2 versus (10.7)% a year earlier; first-half margin was approximately (2.9)% versus (12.1)%. Higher incentive consideration costs rose with booking volumes; technology costs were broadly flat year over year in the first half.
- Cash flow: First-half operating cash used was $99.2 million, versus $212.3 million used in 2022. Capital expenditures were $48.2 million, making Free Cash Flow (a non-GAAP measure) negative $147.4 million, compared with negative $245.7 million. Cash, cash equivalents and restricted cash ended at $727.2 million, down $88.7 million from year-end 2022.
- Debt and liquidity: June 30 debt carrying value was $4.802 billion, net of issuance costs and discounts; face value was $4.930 billion. Cash and cash equivalents were $706.1 million, with $50.4 million available under the $200 million AR facility. Sabre reported compliance with debt covenants and stated it expects resources to meet liquidity needs for at least 12 months.
Material changes versus prior period
- Travel volumes improved: Q2 direct billable bookings rose 12%, passengers boarded 8%, and Hospitality Solutions transactions 8%. First-half increases were 28%, 17%, and 14%, respectively.
- Interest expense increased 59% in Q2 to $106.1 million and 61% in the first half to $205.9 million, primarily from higher rates and the debt structure. This contributed to continued GAAP net losses despite stronger operating performance.
- The June refinancing replaced $650 million of 9.25% 2025 secured notes and repaid $15 million of term loans using a new $700 million secured term loan due 2028. The new loan carries a high floating rate; Sabre elected to pay interest in kind, deferring cash interest while increasing the loan balance.
- Prior-year first-half results included a $180 million pre-tax AirCentre sale gain. Its absence materially affects comparison of reported earnings and other income.
- Cash used in operating activities improved, but working capital demands, capital spending, interest payments and restructuring cash outlays remain material.
Outlook, risks and unusual items
- Management expects approximately $80 million of 2023 capital expenditures and about $70 million of 2023 restructuring costs, mostly paid during 2023. The cost-reduction plan is expected to reduce annual operating expense by approximately $200 million; execution may generate further charges.
- Management expects to be a U.S. federal cash taxpayer in 2023, while anticipating use of available net operating losses and tax credits. The effective tax rate was below 1% in the first half, and a $515 million valuation allowance was recorded against deferred tax assets.
- Travel recovery remains uncertain. Revenue is transaction-volume dependent, and management cited ongoing pandemic-related and economic uncertainty, rising incentive costs, customer and supplier financial risks, and continuing negative effects from Russian regulatory changes.
- Sabre faces substantial leverage and refinancing risk, exposure to floating interest rates, and limited flexibility to obtain additional secured debt. Its new 2028 loan has an 11.50% cash-interest floor and a 17.50% cash-interest ceiling; required foreign-subsidiary cash balances and other collateral and covenant conditions apply.
- In the US Airways antitrust matter, the court adopted a recommendation that the plaintiff is entitled to reasonable legal fees; US Airways sought approximately $139 million in June 2023. Sabre disputes the request and could not estimate a reasonably possible or probable amount above its accrual. The award remains unresolved.
- Indian tax litigation could expose the group to approximately $21 million of taxes, interest and penalties if authorities prevail; Sabre has recorded no liability for these claims. It also accrued $9 million for other tax matters in the first half.
- Mandatory convertible preferred stock was scheduled to convert on September 1, 2023 into approximately 39–47 million common shares, subject to the conversion formula. The board declared a $1.625-per-share preferred dividend payable that date. This prospective conversion could materially dilute common shareholders.
- Sabre reported effective disclosure controls. It completed another phase of a new billing system implementation in March 2023 and expects further migration that could materially affect internal financial controls.
Important facts for investors to verify
- Whether travel-volume gains translate into durable revenue and margin improvement after rising agency incentive costs.
- Cash generation, debt-service capacity and refinancing terms, including the cash-versus-payment-in-kind interest election and covenant requirements.
- The final US Airways attorneys’ fee award, the existing accrual, and developments in other tax and legal matters.
- Actual restructuring spending and realized annual savings compared with the $70 million cost and $200 million annual expense-reduction estimates.
- The preferred-stock conversion share count and resulting dilution, alongside the company’s cash and liquidity position.