Sabre Corporation (NASDAQ: SABR) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Sabre provides travel distribution and technology through Travel Solutions and Hospitality Solutions. Unless noted, financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $663.4 million | $441.1 million | $1,905.8 million | $1,188.2 million |
| Operating loss | $56.5 million | $156.7 million | $206.3 million | $539.6 million |
| Net loss attributable to Sabre | $135.4 million | $235.2 million | $275.4 million | $741.8 million |
| Net loss per common share | $0.43 | $0.75 | $0.89 | $2.37 |
| Adjusted EBITDA (non-GAAP) | $34.3 million | $(54.9) million | $63.9 million | $(234.9) million |
| Cash used in operating activities | Not presented for quarter | Not presented for quarter | $314.8 million | $408.2 million |
Q3 revenue rose 50% year over year, while the GAAP operating and net losses narrowed. Nine-month GAAP results also improved; however, they include a $180 million pretax gain on the AirCentre sale. Nine-month adjusted operating loss was $37.8 million, versus a $390.9 million loss a year earlier.
Q3 Travel Solutions revenue increased 55% to $603.6 million; Hospitality Solutions revenue increased 22% to $67.5 million. Direct Billable Bookings rose 49.7%, Passengers Boarded rose 55.7%, and Hospitality central reservation transactions rose 18.3% year over year. Higher volumes also increased incentive consideration costs.
For the nine months, free cash flow (company-defined, non-GAAP) was negative $368.2 million, compared with negative $438.6 million in 2021. Investing activities provided $186.3 million, primarily reflecting $392.3 million of AirCentre sale proceeds, partly offset by the $80 million GBT investment, acquisitions and capital expenditures. Cash, cash equivalents and restricted cash totaled $803.8 million at September 30, down $195.6 million since year-end 2021.
Cash and cash equivalents were $782.8 million; restricted cash was $21.0 million. Debt carrying value was $4.742 billion, while face-value debt was $4.826 billion. Interest expense rose 18% in Q3 and 6% for the nine-month period, primarily due to higher term-loan rates. Stockholders’ deficit was $732.0 million. The filing reports $6.3 billion of total debt obligations, including $98 million due during the remainder of 2022.
Material changes and unusual items
- Travel activity continued to recover from pandemic lows, lifting both segment revenue and transaction volumes. Incentive consideration costs increased with higher booking volumes and rates.
- The February 2022 AirCentre divestiture generated $392 million of net cash proceeds and a $180 million pretax gain. AirCentre’s results are included through the sale date.
- Sabre acquired virtual-payments company Conferma in August for $65 million cash plus conversion of an existing loan; the acquisition’s financial impact was not material. Sabre also invested $80 million in Global Business Travel Group shares; the investment’s fair value fell by $35 million through September, recognized as an unrealized loss.
- Russia’s new rules for domestic air-transport information systems, effective October 30, 2022, are expected to restrict or prohibit certain Sabre services there. Sabre recorded a $5 million asset impairment and accelerated amortization that reduced IT Solutions revenue by $4 million in Q3. Approximately $19 million of net assets related to Russian customers remained on the September 30 balance sheet.
- Q3 restructuring and other costs were $9.9 million; nine-month costs were $14.3 million. Nine-month litigation costs, net, were $31.4 million. These and other specified items are excluded from certain company-reported non-GAAP measures.
Outlook, risks and contingencies
- Management expected 2022 free cash flow to improve versus 2021 and turn positive in Q4, based on anticipated air-travel recovery. No specific annual revenue or earnings guidance is provided in the filing.
- Management stated that available resources were expected to fund liquidity needs for at least 12 months, while emphasizing uncertainty around travel recovery and continuing to monitor liquidity.
- Sabre refinanced portions of term loans in March and August 2022, extending maturities on those portions to June 2028. It was in compliance with credit-agreement covenants at September 30. A portion of AirCentre proceeds not deemed reinvested may require a debt paydown in May 2023, expected to be no more than $150 million.
- Floating-rate debt, rising interest rates, pandemic-related travel disruption, airline and customer credit risk, technology transformation and cloud-migration costs, competition and travel-supplier pricing pressure remain material risks. Management estimated a potential $11 million incremental interest cost over the remaining life of the then-LIBOR-linked Term Loan B if it transitioned to Prime under the assumed rate scenario; Sabre intended to seek a different benchmark amendment.
- US Airways’ retrial resulted in a $3 final judgment, which Sabre paid; a separate award of the plaintiff’s reasonable attorneys’ fees and costs remained unresolved. American Airlines’ contract case was dismissed with prejudice on October 10, 2022.
- Indian tax litigation could involve approximately $50 million of taxes, interest and penalties if authorities prevailed on all claims; Sabre had recorded no liability because it did not consider an adverse outcome more likely than not. Sabre also disclosed a voluntary report to the U.K. sanctions authority concerning non-material payments from a Russian carrier, and identified elements of its sanctions-compliance program requiring remediation.
- Management reported disclosure controls were effective. It noted that the planned migration of billing and incentive processing, and October 2022 implementation of Workday, could materially affect internal controls in the future.
Important facts for investors to verify
- Whether booking and passenger volumes, and the resulting revenue recovery, continue while incentive costs and supplier pricing pressures affect profitability.
- Whether Sabre achieves its expectation of positive free cash flow in Q4 2022 and how cash balances evolve against debt service needs.
- The amount and timing of any AirCentre-proceeds debt repayment, and the cost and terms of future floating-rate debt and benchmark transitions.
- The operational, revenue and asset impact of Russia’s rules and sanctions, including collection of amounts due from Russian customers.
- The final attorneys’ fees and costs in the US Airways matter and any material developments in other litigation, tax or regulatory contingencies.
- The distinction between GAAP results and adjusted measures, particularly the effect of the AirCentre gain and other excluded or unusual items.