Sabre Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Sabre provides travel distribution and technology services through Travel Solutions and software solutions for hoteliers through Hospitality Solutions. Results reflect the continuing COVID-19 travel downturn.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $327.5 million | $659.0 million |
| Operating loss | $202.6 million | $151.4 million |
| Operating margin | (61.9)% | (23.0)% |
| Net loss attributable to common stockholders | $266.1 million; $0.84 per share | $212.7 million; $0.78 per share |
| Adjusted EBITDA (non-GAAP) | $(109.5) million | $6.2 million |
| Cash from operating activities | $(197.4) million | $40.4 million |
| Free cash flow (non-GAAP) | $(203.8) million | $12.0 million |
Revenue fell 50%. Travel Solutions revenue declined 52% to $288.9 million; Hospitality Solutions declined 29% to $42.2 million. Operating costs also decreased, but not enough to offset the revenue decline. Interest expense rose 71% to $64.1 million, principally reflecting debt issued or refinanced in 2020. Other, net was $11.6 million of income, including a $14.5 million gain on sale of an investment; Q1 2020 included a $46 million Farelogix termination-related charge.
At March 31, cash and cash equivalents were $1.285 billion, down $214.7 million from year-end 2020. Current assets were $1.733 billion and current liabilities $642.0 million. Debt was $4.741 billion on the balance sheet (face value $4.801 billion), including $375 million drawn on the $400 million revolver. Only $14.7 million of revolver capacity remained available after letters of credit. Stockholders’ equity was $31.7 million.
Material changes and operating drivers
- Travel Solutions Direct Billable Bookings fell 54.6% to 38.9 million; air bookings declined 51.5% and lodging, ground and sea bookings 71.7%. Passengers Boarded fell 55.1% to 75.2 million.
- Hospitality Solutions central reservation transactions fell 16.5% to 17.6 million. Management reported continued improvement in volume metrics, led by Hospitality, but domestic bookings remained ahead of international bookings, weighing on revenue.
- Lower bookings reduced incentive consideration costs. Cost reductions and lower credit-loss provisions also helped contain expenses. Technology costs declined 22%; management said technology expense is less variable than revenue.
- Q1 2020 included a $36.4 million provision for expected credit losses, compared with a $2.2 million benefit in Q1 2021. The allowance for credit losses was $92.7 million at quarter-end.
Outlook, risks and unusual items
- Sabre gave no quantitative revenue or earnings guidance in the supplied filing text. Management expected COVID-19’s effects on travel, financial results and liquidity to remain materially negative, potentially beyond the containment of the outbreak. It said cash resources should fund liquidity needs for at least 12 months, while noting substantial uncertainty and continued monitoring.
- Management estimated roughly two-thirds of the cost structure could be adjusted in the near term. It also expected interest expense could be significantly higher in 2021 than in 2020; technology depreciation and amortization could be significantly lower.
- The leverage-ratio covenant was suspended for Q1 and Q2 2021 following a qualifying travel disruption. Management expected suspension could continue through the rest of 2021, depending on recovery. During suspension, Sabre must maintain at least $300 million of liquidity monthly and faces restrictions on certain payments, investments and debt actions. Sabre reported compliance with covenants not suspended.
- COVID-19 remains a key risk to bookings, customer solvency, cancellations, credit losses, cash flows and asset values. The air booking cancellation reserve was $18 million. No goodwill impairment was recorded in Q1; future impairments could be material.
- Debt-related considerations include approximately $2.8 billion of variable-rate debt indexed to LIBOR and the transition from LIBOR. The $345 million senior exchangeable notes became exchangeable at holders’ option in Q2 2021; the filing reported an if-converted value $304 million above principal, creating potential dilution or cash settlement implications.
- Contingencies include the remanded US Airways antitrust case, with trial scheduled for April 2022; European Commission and Department of Justice investigations; and Indian tax litigation. Sabre reported no accrual for the US Airways matter and estimated potential Indian tax, interest and penalties of about $45 million if the authorities prevailed fully.
- Sabre paid $2 million in Q1 2021 under settlements with certain state Attorneys General relating to the prior SynXis payment-data incident. Separately, an April 2021 Radixx reservation-system malware event was disclosed after quarter-end; the investigation as of the filing indicated Sabre’s other systems were not affected and the Radixx customer database was not compromised.
- The strategic realignment begun in 2020 was substantially complete; Sabre had incurred $80 million in related restructuring costs to date and did not expect significant additional charges. Common dividends and share repurchases remained suspended; preferred stock dividends continued to accrue at 6.50%.
Important facts for investors to verify
- Whether travel volumes, especially international and air bookings, recover enough to improve revenue and operating cash flow.
- Cash burn, revolver availability, the $300 million minimum-liquidity requirement, and the timing and terms of any refinancing or additional capital needs.
- Debt service and potential dilution or settlement choices relating to the exchangeable notes and mandatory convertible preferred stock.
- Customer credit quality, cancellation-related cash requirements, and the assumptions supporting the credit-loss and cancellation reserves.
- Developments in antitrust, tax and cybersecurity matters, including possible costs or liabilities not accrued or estimable in the filing.
- Comparability of adjusted measures: Adjusted EBITDA, Adjusted Operating Loss and Free Cash Flow are non-GAAP measures and should be considered alongside GAAP results.