Sabre Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Sabre provides technology and travel distribution services through Travel Network and Airline and Hospitality Solutions. Travelocity was divested during 2015 and is reported as discontinued operations.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $2.961 billion | $2.631 billion |
| Operating income | $459.8 million | $421.3 million |
| Operating margin | 15.5% | 16.0% |
| Continuing-operations income | $234.6 million | $110.9 million |
| Net income attributable to Sabre | $545.5 million | $69.2 million |
| Operating cash flow | $529.2 million | $387.7 million |
| Capital expenditures | $286.7 million | $227.2 million |
| Free cash flow (company-defined) | $242.5 million | $160.4 million |
| Adjusted EBITDA (non-GAAP) | $941.6 million | $840.0 million |
- Revenue increased 13%; Travel Network revenue rose 13% to $2.103 billion and Airline and Hospitality Solutions rose 11% to $872.1 million.
- Travel Network direct billable bookings grew 17.7% to 442.7 million, including the acquired Abacus business; excluding Abacus, bookings increased 6%. Airline Solutions passengers boarded increased 14.5% to 584.9 million.
- Reported net income included $314.4 million of income from discontinued operations. Continuing-operations income was $234.6 million; diluted continuing-operations EPS was $0.83. FY2015 diluted EPS including discontinued operations was $1.95.
- Fourth-quarter revenue was $758.5 million, operating income $109.4 million, continuing-operations income $29.5 million, and net income attributable to common stockholders $129.4 million.
- Cash and equivalents were $321.1 million at year-end, versus $155.7 million a year earlier. Working capital remained in deficit at $222.4 million.
- Debt face value was $3.396 billion ($3.360 billion carrying value); the company reported $381 million of available revolver capacity after letters of credit. The $165 million senior unsecured notes due March 2016 were to be repaid using cash, revolver borrowings, or debt offerings. Sabre reported compliance with debt covenants.
- Cash dividends paid were $98.6 million. The board declared a $0.13-per-share dividend payable in March 2016.
Material changes and unusual items
- Sabre acquired the remaining 65% of Abacus and related national marketing companies for net cash consideration of $442 million, consolidating the business from July 1, 2015. Abacus contributed $187 million of revenue and $13 million of continuing-operations income after acquisition.
- Sabre sold Travelocity.com for $280 million cash and sold lastminute.com; these transactions drove substantial discontinued-operations gains. FY2015 discontinued-operations income was $314.4 million, including a $143 million after-tax Travelocity.com sale gain, a $24 million after-tax lastminute.com sale gain, and a $40 million gain from a favorable Hawaii tax ruling. A $93 million U.S. tax benefit related to lastminute.com was also recorded in discontinued operations.
- Continuing-operations results included a $78 million gain on remeasurement of Sabre’s previously held Abacus interest and a $12 million gain from settling a pre-existing agreement. Debt extinguishment losses were $38.8 million.
- Interest expense declined 21% to $173.3 million, reflecting lower-cost refinancing and prior debt repayments. The effective tax rate rose to 33.7% from 5.4%, in part because certain favorable 2014 tax items did not recur.
- Sabre issued $530 million of 5.375% secured notes due 2023 and $500 million of 5.25% secured notes due 2023, using proceeds to refinance debt, repurchase $99 million of shares, and help fund the subsequent Trust Group acquisition.
Outlook, commentary, and risks
- Management stated that cash from operations, cash on hand, and the revolver were expected to provide adequate liquidity for operating and capital needs over the next 12 months. This is not a guarantee of future cash generation.
- For 2016, Sabre expected approximately $300 million of capital expenditures and $95 million of capitalized implementation costs, substantially offset by $60 million to $80 million of customer upfront solution fees.
- In January 2016, Sabre completed the $159 million net-cash acquisition of Trust Group, a hotel reservations and marketing provider; purchase accounting and pro forma information were not yet available in the filing.
- Key business risks include dependence on travel transaction volumes, airline and travel-agency contract renewals, pricing and incentive pressure, supplier direct distribution, customer concentration, competition, cybersecurity and system outages, third-party technology dependence, and international, currency, regulatory, and tax exposure.
- Material legal matters include the US Airways antitrust litigation, the unresolved DOJ investigation, consumer class-action claims, Indian tax proceedings, and continuing hotel occupancy-tax litigation tied to the divested Travelocity business. The company recorded no loss accrual for the US Airways case, which it described as not probable; potential outcomes remain uncertain.
- Sabre disclosed a cybersecurity incident involving third-party-managed servers; its investigation found no loss or unauthorized access to traveler data, including payment-card or personally identifiable information.
- Sabre cited a $94 million unfunded pension obligation, a $387 million estimated tax receivable agreement liability, and $3.3 billion of goodwill and intangible assets. Impairment, tax, and pension estimates could change.
- The company reported effective disclosure controls and effective internal control over financial reporting. Management’s assessment excluded Abacus, which represented about 17% of assets and 6% of revenue; the independent auditor’s internal-control opinion likewise excluded Abacus.
Most important facts for investors to verify
- Separate recurring operating performance from the significant divestiture gains and other nonrecurring items in reported 2015 net income.
- Assess how much of Travel Network’s booking and revenue growth came from Abacus versus underlying organic growth, and monitor incentive costs and booking-fee trends.
- Review debt maturities, refinancing of the $165 million notes due in March 2016, covenant headroom, and the effect of the Trust Group acquisition and dividends on liquidity.
- Track developments and potential financial exposure in antitrust, Indian tax, and former-Travelocity occupancy-tax matters; the filing does not provide a clear aggregate maximum loss for all proceedings.
- Evaluate the assumptions behind management’s 2016 capital spending and implementation-cost expectations, and the integration and returns of Abacus and Trust Group.