Sabre Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Sabre provides travel marketplace and technology services through Travel Network, Airline Solutions and Hospitality Solutions. Results were materially affected by COVID-19 and the sharp decline in global travel.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $659.0 million | $1,049.4 million | Down 37% |
| Operating income (loss) | $(151.4) million | $110.4 million | Turned to loss |
| Net income (loss) attributable to common stockholders | $(212.7) million | $56.9 million | Turned to loss |
| Diluted EPS | $(0.78) | $0.20 | Turned to loss |
| Adjusted EBITDA | $24.4 million | $262.3 million | Down 91% |
| Cash provided by operating activities | $40.4 million | $152.0 million | Down $111.6 million |
| Free cash flow | $12.0 million | $114.1 million | Down $102.1 million |
GAAP gross profit was $47.5 million, or approximately 7.2% of revenue, versus $261.8 million, or approximately 25.0%, a year earlier. The 2020 operating loss included $25.3 million of restructuring costs and a $46 million Farelogix-related charge in other expense. Other expense totaled $47.5 million, compared with $1.9 million in Q1 2019. The income tax line was a $27.3 million benefit, reflecting an 11% effective tax rate versus 17% a year earlier.
Revenue by segment: Travel Network revenue fell 45% to $427.7 million; Airline Solutions fell 16% to $179.9 million; Hospitality Solutions fell 19% to $59.2 million. Total direct billable bookings declined 44.7% to 85.8 million, airline passengers boarded fell 10.1% to 167.4 million, and Hospitality central reservation transactions declined 8.7% to 21.0 million.
Balance sheet and debt: Cash and cash equivalents were $684.5 million at March 31, up from $436.2 million at year-end. Total current assets were $1.196 billion and current liabilities $968.3 million. Debt carrying value was approximately $3.699 billion, versus $3.343 billion at year-end; this included $375 million drawn on the $400 million revolver. Revolver availability was $13.5 million after letters of credit. Total stockholders’ equity declined to $682.7 million from $947.7 million.
Material changes and drivers
- COVID-19 drove the severe drop in transaction volumes and revenue. Travel Network air bookings declined 47.4%; lower volume also reduced incentive consideration costs.
- Selling, general and administrative expense rose 31% to $198.9 million, including a $36 million provision for expected credit losses and additional severance and legal costs. The allowance for credit losses reached $102.8 million at quarter-end.
- Cash from operations declined substantially. Management attributed a $121 million reduction in receivables to lower revenue and billings, which supported operating cash flow during the quarter.
- Sabre paid a $0.14-per-share dividend in Q1 ($38.5 million total), then suspended future quarterly dividends and share repurchases effective March 2020. No shares were repurchased in the quarter.
Outlook, risks and unusual items
- Management expects COVID-19 to continue materially harming results and liquidity, with Q2 2020 performance expected to be affected more severely than Q1. It expects a full-year 2020 net loss on both GAAP and adjusted bases; the filing provides no quantified full-year forecast.
- Management said approximately two-thirds of the cost structure is adjustable in the near term and believes available resources are sufficient for liquidity needs for at least 12 months. It cautioned that the duration and effects of the pandemic make estimates uncertain. Cost actions included pay and discretionary-spending reductions, voluntary programs, and Q2 furloughs affecting approximately one-third of employees.
- On April 17, 2020, after quarter-end, Sabre issued $775 million of 9.25% senior secured notes and $345 million of 4.00% senior exchangeable notes, both due 2025, for general corporate purposes. These increase financing obligations; exchangeable notes may be settled in shares, cash, or a combination under specified circumstances.
- Farelogix acquisition developments resulted in a $46 million Q1 charge. Sabre and Farelogix terminated the agreement on May 1, 2020; Sabre reported paying $21 million of termination fees in Q2. The CMA blocked the acquisition, and the DOJ appealed a U.S. trial court ruling favorable to Sabre.
- No goodwill impairment was recorded, but Airline Solutions’ estimated fair value approximated carrying value; $372 million of related goodwill could be impaired if recovery assumptions weaken. Future impairments could be material, though noncash.
- Other significant exposures include potential airline and travel-partner insolvencies, cancellations and refunds, ongoing antitrust and tax matters, and possible costs or liabilities from previously disclosed hospitality-system security incidents. Sabre reported no material Q1 impairment of other long-lived assets.
Most important facts for investors to verify
- Subsequent-quarter bookings, revenue and cash burn, and whether liquidity remains adequate as travel demand recovers or deteriorates.
- Cash, borrowing availability, total debt and interest burden after the April 2020 note issuance, including any use of proceeds.
- Actual results of cost reductions and furloughs, and the timing and amount of any resumed dividend or repurchases.
- Credit-loss and cancellation-reserve developments, including customer defaults, refunds and airline or hotel insolvencies.
- Airline Solutions goodwill impairment assumptions and the status and potential exposure of material litigation and investigations.