Facebook LinkedIn Twitter RSS << Back 11/11/14 Sabre Corporation Reports Third Quarter 2014 Results Q3 Earnings Release 113 KB 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 EndedSeptember 30, Nine Months EndedSeptember 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 EndedSeptember 30, Nine Months EndedSeptember 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 EndedSeptember 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 EndedSeptember 30, Nine Months EndedSeptember 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 EndedSeptember 30, Nine Months EndedSeptember 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 EndedSeptember 30, Nine Months EndedSeptember 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 EndedSeptember 30, Nine Months EndedSeptember 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 EndedSeptember 30, Nine Months EndedSeptember 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. Logo - http://photos.prnewswire.com/prnh/20131216/DA33636LOGO-b SOURCE Sabre Corporation News Provided by Acquire Media