Sabre Corp Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated January 26, 2015, provides an update on recent business developments and preliminary financial results for the fourth quarter and full year ended December 31, 2014. Sabre Corporation is executing a strategic shift to focus on Airline and Hospitality Solutions and Travel Network, exiting its online travel agency business. Consequently, the Travelocity segment is being reclassified as discontinued operations following the completed sale of Travelocity.com to Expedia, Inc. on January 23, 2015, for $280 million in cash.
Key Financial Metrics
The following metrics reflect preliminary results for continuing operations (excluding Travelocity) and pro forma historical data:
- Q4 2014 Revenue: Expected between $639 million and $654 million (up 1.9% to 4.3% year-over-year).
- Q4 2014 Operating Income: Expected between $99 million and $109 million (up 15.4% to 27.1% year-over-year).
- Q4 2014 Adjusted EBITDA: Expected between $194 million and $204 million (flat to up 5.0% year-over-year).
- Q4 2014 Net Income: Expected between $41 million and $51 million (up 139.6% to 197.5% year-over-year).
- Full Year 2014 Revenue: Expected between $2,624 million and $2,639 million (up 4.0% to 4.6% year-over-year).
- Full Year 2014 Adjusted EBITDA: Expected between $835 million and $845 million (up 7.2% to 8.5% year-over-year).
- Full Year 2014 Adjusted Net Income: Expected between $227 million and $237 million (up 24.9% to 30.3% year-over-year).
Pro forma historical data for the nine months ended September 30, 2014, shows Adjusted EBITDA of $641 million and Adjusted Net Income from Continuing Operations of $173 million.
Material Changes and Segment Performance
Airline and Hospitality Solutions: Q4 revenue is expected to increase 12.7% to 15.4% to between $213 million and $218 million, driven by a 4.5% increase in passengers boarded through SabreSonic CSS and growth in AirCentre and AirVision solutions. Full year revenue growth is expected to be 10.1% to 10.9%.
Travel Network: Q4 revenue is expected to decrease 0.2% to 2.5% to between $429 million and $439 million due to lower joint venture data processing revenues resulting from contract minimums met in prior quarters. This was partially offset by a 1% increase in Direct Billable Bookings. Full year revenue is expected to grow 1.6% to 2.1%.
Discontinued Operations: The Travelocity segment, which contributed $269 million to Adjusted Revenue and $(18) million to Adjusted EBITDA for the nine months ended September 30, 2014, is now classified as discontinued. A binding offer to acquire lastminute.com for approximately $120 million is also pending.
Outlook, Risks, and Unusual Items
Possible Acquisition: Sabre may enter into an agreement in Q1 2015 to acquire a company within the Travel Network segment. The transaction is expected to close in Q2 2015, requiring approximately $500 million in funds. Management expects the deal to be neutral to Adjusted EPS in 2015 and positive thereafter.
Legal Proceedings: In the US Airways antitrust litigation, a summary judgment eliminated claims related to a majority of alleged damages. Remaining single damages claims are estimated at $45 million or $73 million. If a motion for reconsideration is granted, claims could rise to $184 million or $274 million.
Unusual Items: The Q4 reconciliation includes a $66 million charge related to an increase in the TRA liability, which was fully offset by a benefit from the reduction in a valuation allowance against deferred tax assets.
Risks: Forward-looking statements are subject to risks including dependency on global travel volumes, economic conditions in Venezuela and Russia, contract renewals, and competition in travel distribution.
Investor Verification Checklist
- Verify the final closing of the Travelocity.com sale to Expedia and the receipt of $280 million cash.
- Confirm the status and expected closing date of the lastminute.com acquisition by Bravofly Rumbo Group.
- Monitor the outcome of the US Airways motion for reconsideration regarding antitrust damages.
- Assess the likelihood and terms of the proposed $500 million acquisition in the Travel Network segment.
- Review the final audited Q4 2014 results to confirm they fall within the preliminary ranges provided.