Sabre Corporation
Nov 11, 2014
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Sabre Corporation Reports Third Quarter 2014 Results

- Strong Revenue and Adjusted EBITDA Growth Across Core Businesses
- Airline and Hospitality Solutions Revenue Increased 14.3% Year over Year
- Travel Network Revenue Increased 3.7% Year over Year
- Sabre Hospitality Solutions launches SynXis Enterprise Platform
- Full Year Adjusted EBITDA and EPS Guidance Reiterated

SOUTHLAKE, Texas, Nov. 11, 2014 /PRNewswire/ -- Sabre Corporation (NASDAQ: SABR) today announced financial results for the quarter ended September 30, 2014.

"Third quarter results demonstrate continued progress toward our financial and strategic objectives," said Tom Klein, Sabre President and CEO.  "Accelerated bookings growth, combined with sales, implementation, and innovation momentum drove solid revenue and Adjusted EBITDA growth in our Airline and Hospitality Solutions and Travel Network businesses. We reiterate our Adjusted EBITDA and EPS guidance and are well positioned as we approach 2015."

Q3 2014 Financial Summary

Airline and Hospitality Solutions revenue increased 14.3% to $209 million from $183 million in the third quarter of 2013. The increase was driven by a combination of growth in passengers boarded through Sabre Airline Solutions SabreSonic CSS solution, which increased 7.9% in the quarter, and continued strong performance across the Airline Solutions' Commercial and Operations portfolio and Sabre Hospitality Solutions.  As a result of strengthened bookings growth of 3.1%, Travel Network revenue increased 3.7% to $466 million from $450 million for the same period of 2013.

Sabre reported total consolidated third quarter revenue of $756 million, compared to $776 million for the prior year quarter. Consolidated Adjusted revenue for the quarter ended September 30, 2014, was $759 million a decline of 2.1% from $776 million for the third quarter of 2013. Excluding Travelocity, revenue increased 9.0% from $615 million in the third quarter of 2013 to $670 million in the third quarter of 2014.

Consolidated net income for the third quarter 2014 totaled $37 million, compared to $5 million in the previous year quarter. Third quarter consolidated Adjusted EBITDA was $230 million, a 14.2% increase from $201 million in the prior year period. Sabre Airline and Hospitality Solutions Adjusted EBITDA increased 43.4% from the year ago quarter to $82 million for the third quarter of 2014.  Third quarter 2014 Travel Network Adjusted EBITDA increased 5.5% to $194 million. Excluding Travelocity, Adjusted EBITDA increased 10.3% from $194 million in the third quarter of the prior year to $214 million for the third quarter of 2014.

For the third quarter of 2014, Sabre reported income from continuing operations of $0.14 per share. Sabre reported third quarter 2014 Adjusted Net Income from Continuing Operations (Adjusted EPS) of $0.26 per share.
 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

Financial Highlights (in thousands):

2014

 

2013

% Change

 

2014

 

2013

% Change

Total Company Excluding Travelocity:

         

Revenue

$670,325

 

$615,012

9.0

 

$1,968,063

 

$1,845,881

6.6

Operating Income

$104,739

 

$68,808

52.2

 

$280,955

 

$106,905

162.8

Adjusted EBITDA*

$213,972

 

$193,946

10.3

 

$635,466

 

$576,435

10.2

Total Company Including Travelocity:

         

Revenue

$756,303

 

$775,823

(2.5)

 

$2,229,286

 

$2,303,399

(3.2)

Net Income/(Loss) to Sabre Corp.

$36,563

 

$5,372

580.6

 

$22,823

 

($127,254)

117.9

                   

Adjusted Revenue*

$759,178

 

$775,823

(2.1)

 

$2,236,911

 

$2,303,399

(2.9)

Adjusted EBITDA*

$229,926

 

$201,349

14.2

 

$617,350

 

$583,963

5.7

                   

Cash Flow from Operations

$44,171

 

$81,006

(45.5)

 

$121,679

 

$252,062

(51.7)

Capital Expenditures

$49,802

 

$57,257

(13.0)

 

$160,385

 

$168,744

(5.0)

Adjusted Capital Expenditures*

$59,807

 

$67,280

(11.1)

 

$187,987

 

$217,430

(13.5)

                   

Free Cash Flow*

($5,631)

 

$23,749

(123.7)

 

($38,706)

 

$83,318

(146.5)

Adjusted Free Cash Flow*

$72,929

 

$53,200

37.1

 

$204,101

 

$160,487

27.2

                   

Net Debt (total debt, less cash)

$2,944,461

 

$3,280,846

           

Net Debt / LTM Adjusted EBITDA

3.6x

 

4.4x

           

Airline and Hospitality Solutions:

         

Revenue

$208,685

 

$182,505

14.3

 

$571,975

 

$522,794

9.4

Passengers Boarded

136,545

 

126,545

7.9

 

385,611

 

358,428

7.6

Operating Income

$55,640

 

$37,087

50.0

 

$117,957

 

$88,260

33.6

Adjusted EBITDA*

$81,671

 

$56,940

43.4

 

$197,686

 

$145,485

35.9

Travel Network:

         

Revenue

$466,278

 

$449,562

3.7

 

$1,420,341

 

$1,381,105

2.8

Air Bookings

81,047

 

78,314

3.5

 

251,145

 

244,267

2.8

Non-air Bookings

13,806

 

13,701

0.8

 

41,274

 

40,734

1.3

Total Bookings

94,853

 

92,015

3.1

 

292,419

 

285,001

2.6

Bookings Share

36.1%

 

36.4%

   

35.7%

 

35.8%

 

Operating Income

$164,979

 

$158,476

4.1

 

$515,093

 

$505,446

1.9

Adjusted EBITDA*

$193,823

 

$183,728

5.5

 

$606,637

 

$582,268

4.2

Travelocity:

         

Revenue

$85,978

 

$160,811

(46.5)

 

$261,223

 

$457,518

(42.9)

Operating Income

$11,957

 

$6,166

93.9

 

($29,326)

 

($1,298)

(2159.3)

Adjusted Revenue*

$88,853

 

$160,811

(44.7)

 

$268,848

 

$457,518

(41.2)

Adjusted EBITDA*

$15,954

 

$7,403

115.5

 

($18,116)

 

$7,528

(340.6)

 

*indicates non-GAAP financial measure; see descriptions and reconciliations below

 

 

Cash Flow from Operations totaled $44 million for the third quarter of 2014, compared to $81 million in the third quarter of 2013. Adjusted Free Cash Flow totaled $73 million in the third quarter of 2014, a 37.1% increase from $53 million in the third quarter of 2013. Adjusted Free Cash Flow excludes the effect of the change in the business model at Travelocity, including related restructuring costs and the effect on working capital, as well as the impacts of dispositions, litigation and other costs (see reconciliation below). Adjusted Capital Expenditures, which includes capitalized implementation costs, totaled $60 million for the third quarter of 2014, compared to $67 million in the year-ago period.

Sabre Airline and Hospitality Solutions

Sabre Airline and Hospitality Solutions leverage SaaS and hosted technologies to enable airlines and hoteliers to increase revenue, reduce costs, and provide better travel experiences for their customers. The business segment primarily drives revenue through flat-fees tied to usage events, such as passengers boarded and hotel rooms booked.

Growth across the customer base led to a 14.3% increase in revenue to $209 million in the third quarter of 2014, compared to $183 million in the prior year quarter.  This revenue growth was driven in part by an increase in passengers boarded through the SabreSonic® airline reservation system. Total passengers boarded were 137 million, a 7.9% increase from 127 million in the third quarter of 2013. Solid revenue contributions from our commercial and operations solutions and Hospitality Solutions also contributed to the revenue growth in the quarter.

Continued revenue growth and operating leverage across the SaaS and hosted solutions resulted in a 43.4% increase in Airline and Hospitality Solutions Adjusted EBITDA to $82 million for the third quarter of 2014 versus $57 million for the prior year period.

Sabre Hospitality Solutions launched the SynXis Enterprise Platform. This platform will deliver seamless integration that is designed to enable personalized and intuitive hotel guest experience as well as transform hotel operations, distribution and marketing systems. This exciting launch includes the introduction of the SynXis Property Manager, a hotel property management solution that seamlessly integrates with Sabre's industry-leading central reservation system and has been successfully piloted with several leading hospitality brands.

Sabre Travel Network

Sabre Travel Network is one of the world's largest travel marketplaces, handling more than $100 billion of 2013 travel services transactions with leading solutions for travel agents and travel suppliers. The business primarily recognizes revenue on a transaction-fee basis for travel booked through the Sabre Travel Network.

For the third quarter, Travel Network revenue increased $17 million, or 3.7%, to $466 million.  Direct billable bookings of 95 million increased 3.1% versus the prior year quarter, driven by growth in all regions partially offset by the decline in air travel in Venezuela.

Travel Network third quarter Adjusted EBITDA of $194 million increased 5.5% from $184 million for the third quarter of 2013.

Travelocity

Travelocity includes travelocity.com, the #1 customer satisfaction leader in JD Power's most recent survey, and lastminute.com, one of Europe's strongest travel brands. In August 2013, Sabre entered into a strategic marketing agreement with Expedia that transformed the Travelocity North America business.  Under the agreement, the U.S. and Canadian Travelocity websites are powered by the leading Expedia technology platform and content.   Sabre maintains responsibility for marketing the world-class Travelocity brand. Under the terms of the agreement, Expedia pays Sabre a performance-based marketing fee that varies based on the amount of travel booked through Travelocity-branded websites powered by Expedia. By design, this business model change results in lower revenues to Sabre, but is expected to drive increased profitability as the business realizes the benefit of significantly lower operating expenses.

Third quarter 2014 Travelocity results reflect the effects of the full migration to the new business model. As a result, third quarter 2014 Travelocity Adjusted Revenue declined 44.7% to $89 million, compared to $161 million in the third quarter of 2013, while Adjusted EBITDA increased 116% to $16 million, compared to earnings of $7 million in the third quarter of 2013. The company expects continued solid profitability for Travelocity going forward.

Business Outlook and Financial Guidance

Reflecting strong year-to-date results and continued momentum, management reiterated revenue and Adjusted EBITDA guidance for Sabre excluding Travelocity. Management also reiterated guidance for Travelocity Adjusted EBITDA, consolidated Adjusted EBITDA, consolidated Adjusted Net Income, and Adjusted EPS.

 

         

Full Year 2014 Guidance

Sabre Excluding

Travelocity

Travelocity*

Sabre*

 

($ millions, except EPS)

Revenue

$2,575 - $2,595

$180 - $190

$2,755 - $2,785

 
         

Adjusted EBITDA

$833 - $843

$15 - $20

$848 - $863

 
         

Adjusted Net Income

   

$222 - $237

 
         

Adjusted EPS

   

$0.90 - $0.96

 
 

*Guidance excludes lastminute.com, not comparable to previous guidance

 

 

Sabre recently announced it is exploring strategic alternatives for lastminute.com, which is reported as part of the Travelocity business unit. With this consideration in mind, 2014 guidance has been updated to exclude lastminute.com financial results and expectations.  There can be no assurance that a transaction will occur as announced or at all. These updates, which exclude the impact of intercompany eliminations, reduce Travelocity business unit 2014 revenue by approximately $33.4 million for the first quarter, $39.0 million for the second quarter and $46.6 million for the third quarter. On the same basis, Travelocity business unit 2014 Adjusted EBITDA guidance has been adjusted to reflect the removal of a loss of $7.3 million for the first quarter, a loss of $1.4 million for the second quarter, and positive Adjusted EBITDA of $1.6 million for third quarter related to lastminute.com operations. Management has updated Travelocity business unit guidance to reflect these changes, as well as to reflect lower than previously expected Travelocity North America revenues. As a result of these changes, guidance for full year 2014 Travelocity Adjusted Revenue is now $180 - $190 million and Adjusted EBITDA guidance of $15-$20 million remains unchanged.

Conference Call

The Company will conduct its third quarter 2014 investor conference call today at 9:00 a.m. Eastern Time.  The live webcast, including accompanying slide presentation, can be accessed via Sabre's Investor Relations website at http://investors.sabre.com.  A recording of the call will be archived for replay following the conference call. 

About the Company

Sabre® is the leading technology provider to the global travel and tourism industry. Sabre's software, data, mobile and distribution solutions are used by hundreds of airlines and thousands of hotels to manage vital operations, such as passenger and guest reservations, revenue management, and flight, network and crew management. Sabre also operates the world's leading travel marketplace, processing more than $100 billion of annual travel spend.  Headquartered in Southlake, Texas, USA, Sabre operates in approximately 60 countries around the world.

Website Information

We routinely post important information for investors on our website, www.sabre.com in the Investor Relations section. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Supplemental Financial Information

In conjunction with today's earnings report, a file of supplemental financial information will be available on the Investor Relations section of our website, www.sabre.com.

Note on Non-GAAP Financial Measures

This press release includes unaudited non-GAAP financial measures, including Adjusted Revenue, Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures, Free Cash Flow, Adjusted Free Cash Flow and the ratios based on these financial measures. We present non-GAAP measures when our management believes that the additional information provides useful information about our operating performance. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-GAAP financial measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP.  See "Non-GAAP Financial Measures" below for an explanation of the non-GAAP measures and "Tabular Reconciliations for non-GAAP Measures" below for a reconciliation of the non-GAAP financial measures to the comparable GAAP measures.

Forward-looking statements

Certain statements herein are forward-looking statements about trends, future events, uncertainties and our plans and expectations of what may happen in the future. Any statements that are not historical or current facts are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "would," "expect," "intend," "believe," "potential" or the negative of these terms or other comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Sabre's actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. The potential risks and uncertainties include, among others, dependency on transaction volumes in the global travel industry, particularly air travel transaction volumes, adverse global and regional economic and political conditions, including, but not limited to, conditions in Venezuela and Russia, exposures relating to the Expedia SMA, dependence on maintaining and renewing contracts with customers and other counterparties, exposure to pricing pressure in the Travel Network business, dependence on relationships with travel buyers, changes affecting travel supplier customers, travel suppliers' usage of alternative distribution models, reliance on third-party distributor partners and joint ventures to extend our GDS services to certain regions and competition in the travel distribution market and solutions markets.  More information about potential risks and uncertainties that could affect our business and results of operations is included in the "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" sections included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 17, 2014. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, Sabre undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made.

Contacts:

 
   

Media

Investors

Nancy St. Pierre

Barry Sievert

682-605-3864

682-605-0214

nancy.stpierre@sabre.com

barry.sievert@sabre.com

 

 

SABRE CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except share amounts)

(Unaudited)

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

Revenue 

$ 756,303

 

$ 775,823

 

$ 2,229,286

 

$ 2,303,399

Cost of revenue (1) (2)

465,689

 

474,090

 

1,399,919

 

1,423,242

Selling, general and administrative(2)

169,183

 

208,033

 

575,413

 

620,226

Impairment

 

2,837

 

 

138,435

Restructuring charges

4,735

 

15,889

 

2,325

 

15,889

Operating income

116,696

 

74,974

 

251,629

 

105,607

Other income (expense):

             

Interest expense, net

(50,153)

 

(63,454)

 

(167,332)

 

(209,653)

Loss on extinguishment of debt

 

 

(33,538)

 

(12,181)

Joint venture equity income

2,867

 

1,841

 

9,367

 

7,873

Other, net

565

 

(2,429)

 

760

 

(1,099)

Total other expense, net

(46,721)

 

(64,042)

 

(190,743)

 

(215,060)

Income (loss) from continuing operations before income taxes

69,975

 

10,932

 

60,886

 

(109,453)

Provision (benefit) for income taxes

30,956

 

7,861

 

27,878

 

(5,229)

Income (loss) from continuing operations

39,019

 

3,071

 

33,008

 

(104,224)

(Loss) income from discontinued operations, net of tax

(1,736)

 

3,015

 

(8,017)

 

(20,895)

Net income (loss)

37,283

 

6,086

 

24,991

 

(125,119)

Net income attributable to noncontrolling interests

720

 

714

 

2,168

 

2,135

Net income (loss) attributable to Sabre Corporation

36,563

 

5,372

 

22,823

 

(127,254)

Preferred stock dividends

 

9,242

 

11,381

 

27,219

Net income (loss) attributable to common shareholders

$   36,563

 

$   (3,870)

 

$      11,442

 

$  (154,473)

               

Basic net income (loss) per share attributable to common shareholders:

           

Income (loss) from continuing operations

$       0.14

 

$     (0.04)

 

$          0.08

 

$        (0.75)

(Loss) income from discontinued operations

$     (0.01)

 

$       0.02

 

$        (0.03)

 

$        (0.12)

Net income (loss) per common share

$       0.14

 

$     (0.02)

 

$          0.05

 

$        (0.87)

Diluted net income (loss) per share attributable to common shareholders:

           

Income (loss) from continuing operations

$       0.14

 

$     (0.04)

 

$          0.08

 

$        (0.75)

(Loss) income from discontinued operations

$     (0.01)

 

$       0.02

 

$        (0.03)

 

$        (0.12)

Net income (loss) per common share

$       0.13

 

$     (0.02)

 

$          0.05

 

$        (0.87)

Weighted average common shares outstanding:

             

Basic

264,768

 

178,140

 

229,405

 

178,051

Diluted

273,330

 

178,140

 

237,994

 

178,051

               

Dividends per common share

$       0.09

 

$          —

 

$          0.09

 

$             —

               

(1) Includes amortization of upfront incentive consideration

$   10,388

 

$     9,385

 

$      33,177

 

$      28,736

(2) Includes stock-based compensation as follows:

             

Cost of revenue

$     2,172

 

$        544

 

$        5,618

 

$           816

Selling, general and administrative

3,300

 

2,142

 

16,816

 

4,630

               

 

 

SABRE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 
 

September 30, 2014

 

December 31, 2013

Assets

 

Current assets

     

Cash and cash equivalents

$                 157,747

 

$                308,236

Restricted cash

755

 

2,359

Accounts receivable, net

466,753

 

434,288

Prepaid expenses and other current assets

56,315

 

53,378

Current deferred income taxes

39,184

 

41,431

Other receivables, net

28,902

 

29,511

Assets of discontinued operations

9,364

 

13,624

Total current assets

759,020

 

882,827

Property and equipment, net of accumulated depreciation of  $824,146 and $722,916

526,722

 

498,523

Investments in joint ventures

142,639

 

132,082

Goodwill

2,152,590

 

2,138,175

Trademarks and brandnames, net of accumulated amortization of $554,286 and $545,597

307,445

 

323,035

Other intangible assets, net of accumulated amortization of $956,606 and $889,904

261,581

 

311,523

Other assets, net

522,397

 

469,543

Total assets

$              4,672,394

 

$             4,755,708

       

Liabilities, temporary equity and stockholders' equity (deficit)

     

Current liabilities

     

Accounts payable

$                 129,555

 

$                111,386

Travel supplier liabilities and related deferred revenue

107,409

 

213,504

Accrued compensation and related benefits

91,700

 

117,689

Accrued subscriber incentives

168,019

 

142,767

Deferred revenues

176,990

 

136,380

Litigation settlement liability and related deferred revenue

75,409

 

38,920

Other accrued liabilities

210,196

 

267,867

Current portion of debt

22,418

 

86,117

Liabilities of discontinued operations

23,881

 

41,788

Total current liabilities

1,005,577

 

1,156,418

Deferred income taxes

8,601

 

10,253

Other noncurrent liabilities

523,728

 

263,182

Long-term debt

3,065,440

 

3,643,548

Commitments and contingencies (Note 14)

     

Temporary equity

     

Series A Redeemable Preferred Stock: $0.01 par value; 225,000,000 authorized shares; no shares issued and outstanding at September 30, 2014; 87,229,703 shares     issued and 87,184,179 outstanding at December 31, 2013

 

634,843

Stockholders' equity (deficit)

     

Common Stock: $0.01 par value;  450,000,000 authorized shares; 265,224,958 and 178,633,409 shares issued, 264,787,572 and 178,491,568 outstanding at September 30, 2014 and December 31, 2013, respectively

2,652

 

1,786

Additional paid-in capital

1,911,172

 

880,619

Treasury Stock, at cost, 437,386 shares at September 30, 2014

(5,297)

 

Retained deficit

(1,797,944)

 

(1,785,554)

Accumulated other comprehensive loss

(41,592)

 

(49,895)

Noncontrolling interest

57

 

508

Total stockholders' equity (deficit)

69,048

 

(952,536)

Total liabilities, temporary equity and stockholders' equity (deficit)

$              4,672,394

 

$             4,755,708

       

 

 

SABRE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 
 

Nine Months Ended
September 30,

 

2014

 

2013

Operating Activities

     

Net income (loss)

$   24,991

 

$  (125,119)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

     

Depreciation and amortization

230,461

 

230,277

Impairment

 

138,435

Restructuring charges

3,247

 

4,089

Amortization of upfront incentive consideration

33,177

 

28,736

Litigation related (gains) charges

(6,132)

 

6,117

Stock-based compensation expense

22,434

 

5,446

Allowance for doubtful accounts

6,371

 

7,583

Deferred income taxes

6,232

 

(19,357)

Joint venture equity income

(9,367)

 

(7,873)

Dividends received from joint venture investments

2,205

 

Amortization of debt issuance costs

4,779

 

5,323

Debt modification costs

3,290

 

14,003

Loss on extinguishment of debt

33,538

 

12,181

Other

3,658

 

(10,210)

Loss from discontinued operations

8,017

 

20,895

Changes in operating assets and liabilities:

     

Accounts and other receivables

(58,435)

 

(46,394)

Prepaid expenses and other current assets

(10,612)

 

7,314

Capitalized implementation costs

(27,602)

 

(48,686)

Upfront incentive consideration

(31,633)

 

(26,634)

Other assets

(58,120)

 

(63,389)

Accrued compensation and related benefits

(23,104)

 

7,361

Accounts payable and other accrued liabilities

(31,516)

 

109,778

Pension and other postretirement benefits

(4,200)

 

2,186

Cash provided by operating activities

121,679

 

252,062

Investing Activities

     

Additions to property and equipment

(160,385)

 

(168,744)

Acquisition, net of cash acquired

(31,799)

 

(30,476)

Proceeds from sale of business

 

10,000

Other investing activities

235

 

Cash used in investing activities

(191,949)

 

(189,220)

Financing Activities

     

Proceeds of borrowings from lenders

148,307

 

2,540,063

Payments on borrowings from lenders

(797,028)

 

(2,239,538)

Proceeds from issuance of common stock in initial public offering, net

672,137

 

Prepayment fee and debt modification and issuance costs

(30,490)

 

(19,116)

Acquisition-related contingent consideration paid

(27,000)

 

Dividends paid to common shareholders

(23,831)

 

Other financing activities

(1,384)

 

(6,692)

Cash (used in) provided by financing activities

(59,289)

 

274,717

Cash Flows from Discontinued Operations

     

Net cash (used in) provided by operating activities

(25,424)

 

6,352

Net cash provided by investing activities

3,760

 

20,502

Net cash (used in) provided by discontinued operations

(21,664)

 

26,854

Effect of exchange rate changes on cash and cash equivalents

734

 

480

(Decrease) increase in cash and cash equivalents

(150,489)

 

364,893

Cash and cash equivalents at beginning of period

308,236

 

126,695

Cash and cash equivalents at end of period

$ 157,747

 

$   491,588

       

 

Non-GAAP Financial Measures

We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this press release, including Adjusted Revenue, Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures, Free Cash Flow, Adjusted Free Cash Flow and ratios based on these financial measures.

We define Adjusted Revenue as revenue adjusted for the amortization of Expedia Strategic Marketing Agreement (Expedia SMA) incentive payments, which are recorded as a reduction to revenue and are being amortized over the non-cancellable term of the Expedia SMA (see Note 4, Restructuring Charges, to our consolidated financial statements included in Part I, Item 1 of our Quarterly Report on Form 10-Q).

We define Adjusted Net Income as income (loss) from continuing operations adjusted for impairment, acquisition related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, litigation and taxes, including penalties, stock-based compensation, management fees, amortization of Expedia SMA incentive payments and tax impact of net income adjustments.

We define Adjusted EBITDA as Adjusted Net Income adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, amortization of upfront incentive consideration, interest expense, net, and remaining  provision (benefit) for income taxes. This Adjusted EBITDA metric differs from (i) the EBITDA metric referenced in the section entitled "—Liquidity and Capital Resources—Senior Secured Credit Facilities" in Part I, Item 2 of our Quarterly Report on Form 10-Q, which is calculated for the purposes of compliance with our debt covenants, and (ii) the Pre-VCP EBITDA and EBITDA metrics referenced in the section entitled "Compensation Discussion and Analysis" in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on April 17, 2014, which are calculated for the purposes of our annual incentive compensation program and performance-based awards, respectively.

We define Adjusted EPS as Adjusted Net Income divided by the applicable share count.

We define Adjusted Capital Expenditures as additions to property and equipment and capitalized implementation costs during the periods presented.

We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and equipment. We define Adjusted Free Cash Flow as Free Cash Flow plus the cash flow effect of restructuring and other costs, litigation settlement and tax payments for certain items, other litigation costs, management fees and the working capital impact from the Expedia SMA and the sale of TPN (see "Factors Affecting our Results and Comparability -Travelocity Restructuring" in Part I, Item 2 of our Quarterly Report on Form 10-Q).

These non-GAAP financial measures are key metrics used by management and our board of directors to monitor our ongoing core operations because historical results have been significantly impacted by events that are unrelated to our core operations as a result of changes to our business and the regulatory environment. We believe that these non-GAAP financial measures and ratios based on these financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate our ability to service debt obligations, fund capital expenditures and meet working capital requirements. Adjusted Capital Expenditures includes cash flows used in investing activities, for property and equipment, and cash flows used in operating activities, for capitalized implementation costs. Our management uses this combined metric in making product investment decisions and determining development resource requirements. We also believe that Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures, Free Cash Flow, Adjusted Free Cash Flow assist investors in company-to-company and period-to-period comparisons by excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the impact of depreciation and amortization expense. In addition, amounts derived from Adjusted EBITDA are a primary component of certain covenants under our senior secured credit facilities.

Adjusted Revenue, Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures, Free Cash Flow, Adjusted Free Cash Flow and ratios based on these financial measures are not recognized terms under GAAP. These non-GAAP financial measures and ratios based on them have important limitations as analytical tools, and should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating performance or cash flows from operating activities as measures of liquidity. These non-GAAP financial measures and ratios based on them exclude some, but not all, items that affect net income or cash flows from operating activities and these measures may vary among companies. Our use of these measures has limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:

  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements; 
  • Adjusted Net Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; 
  • Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; 
  • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; 
  • Free Cash Flow and Adjusted Free Cash Flow do not reflect the cash requirements necessary to service the principal payments on our indebtedness; 
  • Free Cash Flow and Adjusted Free Cash Flow do not reflect payments related to restructuring, litigation, management fees and Travelocity working capital which reduced the cash available to us; 
  • Free Cash Flow and Adjusted Free Cash Flow remove the impact of accrual-basis accounting on asset accounts and non-debt liability accounts; and 
  • other companies, including companies in our industry, may calculate these non-GAAP financial measures differently, which reduces their usefulness as  comparative measures.    

 

Tabular Reconciliations for Non-GAAP Measures

(In thousands, except share amounts; Unaudited)

Reconciliation of net income (loss) to Adjusted Net Income, Adjusted Net Income from Continuing Operations per Share, and to Adjusted EBITDA

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

Net income (loss) attributable to common shareholders

$      36,563

 

$       (3,870)

 

$      11,442

 

$    (154,473)

Loss (income) from discontinued operations, net of tax

1,736

 

(3,015)

 

8,017

 

20,895

Net income attributable to noncontrolling interests(1)

720

 

714

 

2,168

 

2,135

Preferred stock dividends

 

9,242

 

11,381

 

27,219

Income (loss) from continuing operations

39,019

 

3,071

 

33,008

 

(104,224)

Adjustments:

             

Impairment

 

2,837

 

 

138,435

Acquisition related amortization(2a)

23,905

 

35,794

 

83,344

 

107,955

Loss on extinguishment of debt

 

 

33,538

 

12,181

Other, net (4)

(565)

 

2,429

 

(760)

 

1,099

Restructuring and other costs(5)

14,482

 

21,754

 

24,056

 

26,296

Litigation and taxes, including penalties(6)

4,440

 

8,579

 

12,497

 

31,543

Stock-based compensation

5,472

 

2,686

 

22,434

 

5,446

Management fees(7)

193

 

2,126

 

23,701

 

7,347

Amortization of Expedia SMA incentive payments

2,875

 

 

7,625

 

Tax impact of net income adjustments

(19,894)

 

(27,539)

 

(80,614)

 

(78,381)

Adjusted Net Income from continuing operations

$      69,927

 

$      51,737

 

$    158,829

 

$      147,697

Adjusted Net Income from continuing operations
   per share

$          0.26

 

$          0.28

 

$          0.67

 

$            0.80

Weighted-average shares outstanding adjusted for
   assumed inclusion of common stock equivalents

273,330

 

185,322

 

237,994

 

184,893

               

Adjusted Net Income from continuing operations

$      69,927

 

$      51,737

 

$    158,829

 

$      147,697

Adjustments:

             

Depreciation and amortization of property and equipment(2b)

39,524

 

32,936

 

122,409

 

97,687

Amortization of capitalized implementation costs(2c)

9,084

 

8,437

 

27,111

 

27,038

Amortization of upfront incentive consideration(3)

10,388

 

9,385

 

33,177

 

28,736

Interest expense, net

50,153

 

63,454

 

167,332

 

209,653

Remaining provision (benefit) for income taxes

50,850

 

35,400

 

108,492

 

73,152

Adjusted EBITDA

$    229,926

 

$    201,349

 

$    617,350

 

$      583,963

               

 

 

Reconciliation of Adjusted Revenue:

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

Revenue

$ 756,303

 

$ 775,823

 

$ 2,229,286

 

$ 2,303,399

Amortization of Expedia SMA incentive payments

2,875

 

 

7,625

 

Adjusted Revenue

$ 759,178

 

$ 775,823

 

$ 2,236,911

 

$ 2,303,399

               

 

 

Reconciliation of Adjusted Capital Expenditures:

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2014

 

2013

 

2014

 

2013

Additions to property and equipment

$ 49,802

 

$ 57,257

 

$ 160,385

 

$ 168,744

Capitalized implementation costs

10,005

 

10,023

 

27,602

 

48,686

Adjusted Capital Expenditures

$ 59,807

 

$ 67,280

 

$ 187,987

 

$ 217,430

               

 

 

Reconciliation of Adjusted Free Cash Flow:

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 
 

2014

 

2013

 

2014

 

2013

 

Cash provided by operating activities

$ 44,171

 

$ 81,006

 

$ 121,679

 

$ 252,062

 

Cash used in investing activities

(81,601)

 

(84,258)

 

(191,949)

 

(189,220)

 

Cash used in financing activities

(55,708)

 

324,884

 

(59,289)

 

274,717

 
                 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 
 

2014

 

2013

 

2014

 

2013

 

Cash provided by operating activities

$ 44,171

 

$ 81,006

 

$ 121,679

 

$ 252,062

 

Additions to property and equipment

(49,802)

 

(57,257)

 

(160,385)

 

(168,744)

 

Free Cash Flow

(5,631)

 

23,749

 

(38,706)

 

83,318

 

Adjustments:

               

Restructuring and other costs(5) (9)

12,101

 

8,391

 

38,527

 

12,933

 

Litigation settlement and tax payments for certain items(6) (10)

57,542

 

16,006

 

69,286

 

46,221

 

Other litigation costs(6) (9)

4,214

 

2,928

 

11,148

 

10,668

 

Management fees(7) (9)

193

 

2,126

 

23,701

 

7,347

 

Travelocity working capital as impacted by the Expedia SMA and TPN(8)

4,510

 

-

 

100,145

 

-

 

Adjusted Free Cash Flow

$ 72,929

 

$ 53,200

 

$ 204,101

 

$ 160,487

 
                 

 

 

Reconciliation of Adjusted Gross Margin and Adjusted EBITDA by Segment:

 
 

Three Months Ended September 30, 2014

 

Travel
Network

 

Airline and
Hospitality
Solutions

 

Travelocity

 

Eliminations

 

Corporate

 

Total

Operating income (loss)

$     164,979

 

$       55,640

 

$       11,957

 

$               —

 

$    (115,880)

 

$                 116,696

Add back:

                     

Selling, general and administrative

26,583

 

13,236

 

50,059

 

(41)

 

79,346

 

169,183

Restructuring charges

 

 

 

 

4,735

 

4,735

Cost of revenue adjustments:

                     

Depreciation and amortization(2)

14,264

 

25,871

 

1,122

 

 

5,995

 

47,252

Amortization of upfront incentive
   consideration(3)

10,388

 

 

 

 

 

10,388

Restructuring and other costs(5)

 

 

 

 

4,865

 

4,865

Litigation and taxes, including penalties(6)

 

 

 

 

188

 

188

Stock-based compensation

 

 

 

 

2,172

 

2,172

Amortization of Expedia SMA incentive
   payments

 

 

2,875

 

 

 

2,875

Adjusted Gross Margin

216,214

 

94,747

 

66,013

 

(41)

 

(18,579)

 

358,354

Selling, general and administrative

(26,583)

 

(13,236)

 

(50,059)

 

41

 

(79,346)

 

(169,183)

Joint venture equity income

2,867

 

 

 

 

 

2,867

Joint venture intangible amortization(2a)

801

 

 

 

 

 

801

Selling, general and administrative adjustments:

                     

Depreciation and amortization(2)

524

 

160

 

 

 

23,776

 

24,460

Restructuring and other costs(5)

 

 

 

 

4,882

 

4,882

Litigation and taxes, including penalties(6)

 

 

 

 

4,252

 

4,252

Stock-based compensation

 

 

 

 

3,300

 

3,300

Management fees(7)

 

 

 

 

193

 

193

Adjusted EBITDA

$     193,823

 

$        81,671

 

$        15,954

 

$               —

 

$      (61,522)

 

$                 229,926

                       
                       
                       
 

Three Months Ended September 30, 2013

 

Travel
Network

 

Airline and
Hospitality
Solutions

 

Travelocity

 

Eliminations

 

Corporate

 

Total

Operating income (loss)

$      158,476

 

$        37,087

 

6,166

 

$               —

 

$    (126,755)

 

$                   74,974

Add back:

                     

Selling, general and administrative

27,024

 

9,153

 

95,412

 

(123)

 

76,567

 

208,033

Impairment

 

 

 

 

2,837

 

2,837

Restructuring charges

 

 

 

 

15,889

 

15,889

Cost of revenue adjustments:

                     

Depreciation and amortization(2)

12,621

 

18,299

 

1,132

 

 

17,369

 

49,421

Amortization of upfront incentive
   consideration(3)

9,385

 

 

 

 

 

9,385

Restructuring and other costs(5)

 

 

 

 

2,582

 

2,582

Litigation and taxes, including penalties(6)

 

 

 

 

5,389

 

5,389

Stock-based compensation

 

 

 

 

544

 

544

Adjusted Gross Margin

207,506

 

64,539

 

102,710

 

(123)

 

(5,578)

 

369,054

Selling, general and administrative

(27,024)

 

(9,153)

 

(95,412)

 

123

 

(76,567)

 

(208,033)

Joint venture equity income

1,841

 

 

 

 

 

1,841

Joint venture intangible amortization(2a)

801

 

 

 

 

 

801

Selling, general and administrative adjustments:

                     

Depreciation and amortization(2)

604

 

1,554

 

105

 

 

24,682

 

26,945

Restructuring and other costs(5)

 

 

 

 

3,283

 

3,283

Litigation and taxes, including penalties(6)

 

 

 

 

3,190

 

3,190

Stock-based compensation

 

 

 

 

2,142

 

2,142

Management fees(7)

 

 

 

 

2,126

 

2,126

Adjusted EBITDA

$      183,728

 

$        56,940

 

$          7,403

 

$               —

 

$      (46,722)

 

$                 201,349

                       

 

 

Reconciliation of Adjusted Gross Margin and Adjusted EBITDA by Segment:

 
 

Nine Months Ended September 30, 2014

 

Travel
Network

 

Airline and
Hospitality
Solutions

 

Travelocity

 

Eliminations

 

Corporate

 

Total

Operating income (loss)

$ 515,093

 

$ 117,957

 

$ (29,326)

 

$ —

 

$ (352,095)

 

$ 251,629

Add back:

                     

Selling, general and administrative

76,810

 

38,555

 

202,240

 

(7,498)

 

265,306

 

575,413

Restructuring charges

 

 

 

 

2,325

 

2,325

Cost of revenue adjustments:

                     

Depreciation and amortization(2)

44,943

 

79,034

 

3,585

 

 

29,584

 

157,146

Amortization of upfront incentive
consideration(3)

33,177

 

 

 

 

 

33,177

Restructuring and other costs(5)

 

 

 

 

10,016

 

10,016

Litigation and taxes, including penalties(6)

 

 

 

 

1,127

 

1,127

Stock-based compensation

 

 

 

 

5,618

 

5,618

Amortization of Expedia SMA incentive
payments

 

 

7,625

 

 

 

7,625

Adjusted Gross Margin

670,023

 

235,546

 

184,124

 

(7,498)

 

(38,119)

 

1,044,076

Selling, general and administrative

(76,810)

 

(38,555)

 

(202,240)

 

7,498

 

(265,306)

 

(575,413)

Joint venture equity income

9,367

 

 

 

 

 

9,367

Joint venture intangible amortization(2a)

2,403

 

 

 

 

 

2,403

Selling, general and administrative adjustments:

                     

Depreciation and amortization(2)

1,654

 

695

 

 

 

70,966

 

73,315

Restructuring and other costs(5)

 

 

 

 

11,715

 

11,715

Litigation and taxes, including penalties(6)

 

 

 

 

11,370

 

11,370

Stock-based compensation

 

 

 

 

16,816

 

16,816

Management fees(7)

 

 

 

 

23,701

 

23,701

Adjusted EBITDA

$ 606,637

 

$ 197,686

 

$ (18,116)

 

$ —

 

$ (168,857)

 

$ 617,350

                       
 

Nine Months Ended September 30, 2013

 

Travel
Network

 

Airline and
Hospitality
Solutions

 

Travelocity

 

Eliminations

 

Corporate

 

Total

Operating income (loss)

$ 505,446

 

$ 88,260

 

$ (1,298)

 

$ —

 

$ (486,801)

 

$ 105,607

Add back:

                     

Selling, general and administrative

82,204

 

39,784

 

271,839

 

(514)

 

226,913

 

620,226

Impairment

 

 

 

 

138,435

 

138,435

Restructuring charges

 

 

 

 

15,889

 

15,889

Cost of revenue adjustments:

                     

Depreciation and amortization(2)

36,182

 

55,193

 

7,354

 

 

51,712

 

150,441

Amortization of upfront incentive
consideration(3)

28,736

 

 

 

 

 

28,736

Restructuring and other costs(5)

 

 

 

 

4,521

 

4,521

Litigation and taxes, including penalties(6)

 

 

 

 

19,864

 

19,864

Stock-based compensation

 

 

 

 

816

 

816

Adjusted Gross Margin

652,568

 

183,237

 

277,895

 

(514)

 

(28,651)

 

1,084,535

Selling, general and administrative

(82,204)

 

(39,784)

 

(271,839)

 

514

 

(226,913)

 

(620,226)

Joint venture equity income

7,873

 

 

 

 

 

7,873

Joint venture intangible amortization(2a)

2,403

 

 

 

 

 

2,403

Selling, general and administrative adjustments:

                     

Depreciation and amortization(2)

1,628

 

2,032

 

1,472

 

 

74,704

 

79,836

Restructuring and other costs(5)

 

 

 

 

5,886

 

5,886

Litigation and taxes, including penalties(6)

 

 

 

 

11,679

 

11,679

Stock-based compensation

 

 

 

 

4,630

 

4,630

Management fees(7)

 

 

 

 

7,347

 

7,347

Adjusted EBITDA

$ 582,268

 

$ 145,485

 

$ 7,528

 

$ —

 

$ (151,318)

 

$ 583,963

                       

 

 

Non-GAAP Footnotes:

(1)

Net income attributable to noncontrolling interests represents an adjustment to include earnings allocated to noncontrolling interests held in Sabre Travel Network Middle East of 40% for all periods presented and in Sabre Seyahat Dagitim Sistemleri A.S. of 40% beginning in April 2014 for the three and nine months ended September 30, 2014.

(2)

Depreciation and amortization expenses:

 

a.

Acquisition related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date and amortization of the excess basis in our underlying equity in joint ventures.

 

b.

Depreciation and amortization of property and equipment includes software developed for internal use.

 

c.

Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model.

(3)

Our Travel Network business at times provides upfront incentive consideration to travel agency subscribers at the inception or modification of a service contract, which are capitalized and amortized to cost of revenue over an average expected life of the service contract, generally over three to five years. Such consideration is made with the objective of increasing the number of clients or to ensure or improve customer loyalty. Such service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed the cost of the incentive consideration provided upfront. Such service contracts with travel agency subscribers require that the customer commit to achieving certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those objectives are not met.

(4)

Other, net primarily represents foreign exchange gains and losses related to the remeasurement of foreign currency denominated balances included in our consolidated balance sheets into the relevant functional currency.

(5)

Restructuring and other costs represents charges associated with business restructuring and associated changes implemented which resulted in severance benefits related to employee terminations, integration and facility opening or closing costs and other business reorganization costs.

(6)

Litigation settlement and tax payments for certain items represent charges or settlements associated with airline antitrust litigation as well as payments or reserves taken in relation to certain retroactive hotel occupancy and excise tax disputes.

(7)

We paid an annual management fee to TPG Global, LLC ("TPG") and Silver Lake Management Company ("Silver Lake") in an amount between (i) $5 million and (ii) $7 million, the actual amount of which is calculated based upon 1% of Adjusted EBITDA, as defined in the management services agreement ("MSA"), earned by the company in such fiscal year up to a maximum of $7 million. In addition, the MSA provided for the reimbursement of certain costs incurred by TPG and Silver Lake, which are included in this line item. The MSA was terminated in connection with our initial public offering.

(8)

Represents the impact of the Expedia SMA and the sale of TPN on working capital for the nine months ended September 30, 2014, which is primarily attributable to the migration of bookings from our technology platform to Expedia's platform and wind down activities associated with TPN (see "Factors Affecting our Results and Comparability—Travelocity Restructuring").

(9)

The adjustments to reconcile cash provided by operating activities to Adjusted Free Cash Flow reflect the amounts expensed in our statements of operations in the respective periods adjusted for cash and non-cash portions in instances where material.

(10)

Includes payment credits used by American Airlines to pay for purchases of our technology services during the nine months ended September 30, 2014 and 2013. The payment credits were provided by us as part of our litigation settlement with American Airlines. Also includes a $50 million payment to American Airlines made in the third quarter of 2014 in conjunction with the new Airline Solutions contract, which will be amortized as a reduction to revenue over the contract term. This payment reduces payment credits originally offered to American Airlines as part of the litigation settlement in 2012, contingent on the signature of a new reservation agreement, which were extended to include the combined American Airlines and US Airways reservations contract. The payment credits would have been utilized for future billings under the new agreement.

 

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SOURCE Sabre Corporation

 

 

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