Sabre Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Sabre provides travel-distribution and technology solutions through Travel Network, Airline Solutions, and Hospitality Solutions. Results were severely affected by COVID-19 and the resulting collapse in travel activity.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $83.0 million | $1,000.0 million | $742.0 million | $2,049.4 million |
| Operating income (loss) | $(384.1) million | $81.9 million | $(535.5) million | $192.3 million |
| Net income (loss) attributable to common stockholders | $(444.1) million | $27.8 million | $(656.8) million | $84.7 million |
| Diluted loss per share | $(1.61) | Income of $0.10 | $(2.39) | Income of $0.31 |
| Adjusted EBITDA | $(210.3) million | $235.6 million | $(185.9) million | $498.0 million |
Q2 revenue fell 92% year over year; six-month revenue fell 64%. In Q2, cost of revenue of $350.6 million exceeded revenue. Reported six-month operating cash flow was $(395.0) million, versus $257.7 million provided in 2019. Capital expenditures were $39.3 million, resulting in company-defined free cash flow of $(434.4) million, compared with $190.5 million in 2019.
Segments and material changes
- Travel Network: Q2 revenue was $(33.3) million versus $724.6 million a year earlier. Air booking cancellations drove negative net bookings in April and May; the company reported net cancelled bookings of 7.3 million for the quarter. It estimated that greater-than-expected cancellations reduced Q2 revenue by approximately $100 million and reported a $60 million air-booking cancellation reserve at June 30.
- Airline Solutions: Q2 revenue fell 58% to $89.5 million; passengers boarded fell 89% to 19.8 million.
- Hospitality Solutions: Q2 revenue fell 61% to $29.0 million; central reservation system transactions fell 62% to 11.1 million.
- For the first half, Travel Network, Airline Solutions, and Hospitality Solutions revenue declined 74%, 37%, and 40%, respectively. The decline reflected COVID-19, cancellations, and, in Airline Solutions, customer transitions and Jet Airways’ insolvency.
- Cost reductions were partly offset by restructuring costs, higher expected credit-loss provisions, and technology costs. The company recorded $48 million of restructuring charges in Q2 and $73 million in the first half; it also recorded a $46 million Farelogix-related charge in the first quarter.
Cash, debt, and liquidity
- Cash and cash equivalents were $1.306 billion at June 30, up from $436.2 million at year-end 2019. The increase was largely funded by new borrowing, not operating cash generation.
- Debt on the balance sheet was $4.686 billion, compared with $3.344 billion at year-end; face value of total debt was $4.817 billion. Long-term debt was $4.608 billion.
- Sabre issued $775 million of 9.25% senior secured notes and $345 million of 4.00% senior exchangeable notes, both due 2025, and drew $375 million under its $400 million revolver. Only $13.0 million of revolver availability remained after outstanding borrowings and letters of credit.
- Total stockholders’ equity declined to $326.0 million from $947.7 million at year-end. Sabre paid $0.14 per share in Q1; dividends and share repurchases were suspended after March 2020.
Outlook, risks, and unusual items
- Management expects a full-year 2020 net loss on both a GAAP and adjusted basis. It said COVID-19’s duration and financial impact could not be reasonably estimated, but believed available resources would fund liquidity needs for at least the next 12 months. Approximately two-thirds of the cost structure was described as adjustable in the near term.
- The leverage-ratio covenant was suspended for at least Q2 and Q3 2020 following a qualifying Material Travel Event Disruption; Sabre reported compliance with covenants that remained in effect. The suspension and post-Q3 covenant position are important liquidity considerations.
- Cost actions included furloughing approximately one-third of employees in Q2, a reduction in force affecting approximately 800 employees, and about 400 departures through voluntary programs. The restructuring was expected to be substantially complete in Q3; management did not expect further related charges to be significant.
- Beginning in Q3, Sabre planned to combine Travel Network and Airline Solutions into a new Travel Solutions segment, while retaining Hospitality Solutions as a separate segment.
- Material risks include prolonged weak travel demand, airline and hotel bankruptcies, customer credit losses, cancellations and refunds, high leverage and refinancing needs, and possible future goodwill or asset impairments. No material impairment was identified at June 30.
- Contingencies include antitrust investigations and litigation, Indian tax disputes (up to approximately $43 million of taxes, interest, and penalties if the tax authority prevailed on all specified claims), and unresolved potential exposure from prior hospitality-system security incidents. The filing says possible cyber-related costs may be material but cannot be reasonably estimated.
- On August 3, 2020, Sabre extended its DXC Technology contract, adding approximately $560 million of minimum commitments for 2021–2030.
Investor verification checklist
- Check subsequent travel volumes, cancellation-reserve adjustments, and whether the unusually negative Q2 Travel Network revenue reverses or persists.
- Track operating cash burn, cash availability, revolver capacity, debt maturities, refinancing progress, and covenant status after the temporary leverage-covenant suspension.
- Assess the realization and cash cost of restructuring savings, and the effects of customer bankruptcies and credit-loss provisions.
- Review the timing and terms of any dividend resumption, plus the new DXC minimum commitments and their impact on fixed costs.
- Monitor legal, tax, and cybersecurity contingencies, as well as impairment risks if travel recovery assumptions deteriorate.