Sabre Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Sabre provides travel technology through Travel Solutions and Hospitality Solutions. Unless stated otherwise, amounts below are in millions of U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $657.5 | $419.7 | $1,242.4 | $747.2 |
| Operating loss | $(70.2) | $(180.4) | $(149.7) | $(382.9) |
| Net loss attributable to common stockholders | $(192.7) | $(251.3) | $(150.7) | $(517.4) |
| Loss per common share | $(0.59) | $(0.79) | $(0.46) | $(1.62) |
| Adjusted EBITDA (non-GAAP) | $24.5 | $(70.5) | $29.6 | $(180.0) |
Revenue rose 57% in Q2 and 66% for the first half. Operating loss improved; however, Sabre remained loss-making under GAAP. Calculated operating margins were approximately (10.7)% in Q2 2022 versus (43.0)% in Q2 2021, and (12.1)% versus (51.3)% for the respective six-month periods. Adjusted EBITDA is a company-defined non-GAAP measure and is not a substitute for GAAP results.
- Segments: Q2 Travel Solutions revenue was $599.1 million, up 60%; Hospitality Solutions revenue was $66.2 million, up 30%. For the first half, segment revenue increased 71% and 31%, respectively.
- Volume drivers: Q2 direct billable bookings rose 42% to 80.7 million, passengers boarded rose 55% to 160.2 million, and Hospitality central reservation transactions rose 23% to 29.5 million.
- Costs and interest: Q2 technology costs increased 6% to $277.2 million; selling, general and administrative expenses rose 11% to $176.3 million. Net interest expense was $66.9 million in Q2 and $127.9 million for the first half.
- Cash flow: First-half operating cash use was $212.3 million, versus $338.5 million in 2021. Capital expenditures were $33.4 million, producing free cash flow (company-defined) of $(245.7) million versus $(355.7) million. Cash, cash equivalents and restricted cash totaled $1,013.2 million at June 30.
- Debt and liquidity: Balance-sheet debt was $4.749 billion, including $4.733 billion long-term and $16.7 million current. Cash and cash equivalents were $992.2 million; restricted cash was $21.0 million. The filing also cites $6.1 billion of total debt obligations, including $298 million due in the remainder of 2022. Sabre reported compliance with its credit agreement covenants.
- Equity and preferred dividends: Stockholders’ deficit was $606.6 million. The 6.50% mandatory convertible preferred stock had a $329 million liquidation value; cash dividends paid in the first half were $10.7 million.
Material changes and unusual items
- Travel-volume recovery drove much of the revenue improvement, alongside favorable booking-rate mix. Incentive consideration costs increased with booking activity, partly offsetting the revenue recovery.
- Sabre sold its AirCentre portfolio in February for $392 million and recorded a pre-tax gain of approximately $180 million. This gain materially benefited first-half reported results and investing cash flow; the sale included a $12 million second-quarter adjustment for identified contingencies.
- Sabre’s $80 million investment in Global Business Travel Group was valued at $50.5 million at quarter end, with a $30 million unrealized fair-value loss recognized in the first half.
- First-half revenue included approximately $24 million of previously deferred revenue related to a Russian IT Solutions customer; the customer had paid this amount. Sabre also reported an additional $3 million of previously deferred revenue from a customer in liquidation.
- In March, Sabre refinanced approximately $623 million of Term Loan B borrowings, extending their maturity to June 2028; it recorded a $3.5 million debt-extinguishment loss and $1 million of debt modification costs.
Outlook, risks and contingencies
- Management expected 2022 free cash flow to improve year over year and turn positive in Q4, based on anticipated air-travel recovery. This is an expectation, not a guarantee. Management stated it believed liquidity was sufficient for at least the next 12 months, while noting uncertainty around travel demand and COVID-19 impacts.
- Sabre expected significant incremental technology costs in 2022 from technology transformation and cloud migration; migration of Hospitality’s SynXis platform is expected to increase cloud-based transaction costs.
- COVID-19 and travel-industry uncertainty remain central risks, including renewed travel disruption, supplier distress or insolvency, cancellations, credit losses, and effects on liquidity. Travel in Russia, Ukraine and Belarus declined substantially amid the conflict and sanctions; further escalation could adversely affect results.
- Approximately $2.2 billion of variable-rate debt remained LIBOR-indexed. Sabre estimated a transition of the remaining Term Loan B to Prime, under its stated assumptions, could add approximately $22 million of interest over that loan’s remaining life; it intended to seek a different benchmark amendment, with no assurance of agreement.
- Material legal matters include American Airlines’ contract litigation, scheduled for trial in January 2023, and US Airways’ entitlement to seek attorneys’ fees after a jury award of $1 in single damages. Sabre had not accrued US Airways attorneys’ fees because it could not estimate them. Potential Indian tax assessments were estimated at approximately $49 million if authorities prevailed on all specified claims; no liability was recorded because Sabre did not consider an adverse outcome more likely than not.
- After quarter end, Sabre exercised an option to acquire a payments-industry entity for approximately $70 million, expected to be paid in August 2022; the company did not expect a material current-year operating impact.
Investor verification priorities
- Assess whether booking-volume recovery and management’s Q4 positive free-cash-flow expectation materialize, especially after incentive costs and transformation spending.
- Separate recurring operating performance from the AirCentre gain, GBT investment loss, and deferred-revenue recognition.
- Review debt maturity, floating-rate exposure, refinancing terms, and liquidity needs against ongoing operating cash use.
- Monitor American Airlines litigation, potential US Airways attorneys’ fees, and Russian customer collectability and asset exposure.
- Confirm the effects of COVID-19, geopolitical developments, supplier financial health, and cloud migration on volumes, margins, and cash flow.