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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
_____________________

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 31, 2017
_____________________
SABRE CORPORATION
(Exact name of registrant as specified in its charter)
 _____________________
Delaware
 
001-36422
 
20-8647322
(State or other jurisdiction of
incorporation or organization)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
3150 Sabre Drive
Southlake, TX
 
76092
(Address of principal executive offices)
 
(Zip Code)
(682) 605-1000
(Registrant’s telephone number, including area code)
____________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
 
¨
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
¨
 









Item 2.02
Results of Operations and Financial Condition.
On October 31, 2017, Sabre Corporation (“Sabre”) issued a press release and will hold a conference call regarding its financial results for the quarter ended September 30, 2017. A copy of the press release is attached as Exhibit 99.1.
The information in this Item 2.02 of Form 8-K and the attached exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Sabre makes reference to non-GAAP financial measures in the press release. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached press release.
 
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits
 
Exhibit
Number
  
Description
  
Press Release dated October 31, 2017.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
Sabre Corporation
 
 
 
 
Dated:
October 31, 2017
By:
/s/ Richard A. Simonson
 
 
Name:
Richard A. Simonson
 
 
Title:
Chief Financial Officer




Exhibit
 
https://cdn.kscope.io/28b098a21df0877659c4a28b0163a0e5-sabrelogoa20.jpg

Sabre reports third quarter 2017 results

•
Third quarter revenue increased 7.3%
•
Airline and Hospitality Solutions revenue grew 4.8%
•
Travel Network revenue rose 8.6%, with bookings growth of 3.2%
•
Net income attributable to common stockholders increased 122.9% to $91.0 million and diluted net income attributable to common stockholders per share (EPS) increased 135.7% to $0.33 partially due to an insurance settlement
•
Adjusted EBITDA grew 10.5% to $262.9 million and Adjusted EPS grew 14.8% to $0.31
•
Full-year 2017 guidance reiterated

SOUTHLAKE, Texas – October 31, 2017 – Sabre Corporation ("Sabre" or the "Company") (NASDAQ: SABR) today announced financial results for the quarter ended September 30, 2017.

"We executed well this quarter with renewed focus and better organizational alignment and, as a result, delivered solid growth and profitability,” said Sean Menke, Sabre president and CEO. “For the third quarter, Airline and Hospitality Solutions grew 4.8%, supported by 7.7% passengers boarded growth on a consistent carrier basis and Hospitality Solutions growth in the mid-teens. Travel Network revenue increased 8.6% supported by bookings growth in higher value markets, like EMEA, and growth in Asia-Pacific as we ramp up our implementation at a key agency customer."

Mr. Menke continued, "Overall, it was a solid quarter in terms of both performance and execution, which we expect will position us well to achieve our guidance for the full year. As we hit the homestretch of the fourth quarter, we remain steadfast in our efforts to bring increased focus and discipline to the organization, while we continue to invest with the clear objective to be a leading technology partner to the travel industry. Our customers need our help not only with efficient, multi-channel distribution, but in implementing new standards and technologies as they prepare for the future. This is an exciting time for Sabre as the platform at the center of the business of travel."



1


Q3 2017 Financial Summary

Sabre consolidated third quarter revenue increased 7.3% to $900.6 million, compared to $839.0 million in the year ago period.

Net income attributable to common stockholders totaled $91.0 million, an increase of 122.9% from net income of $40.8 million in the third quarter of 2016. The increase in net income attributable to common stockholders is partially due to a $27.5 million settlement, net of tax and accrued legal and related expenses, in the third quarter with our insurance carriers with respect to litigation that was settled in 2012.

Third quarter consolidated Adjusted EBITDA was $262.9 million, a 10.5% increase from $237.9 million in the third quarter of 2016. The increase in consolidated Adjusted EBITDA is the result of Adjusted EBITDA increases at Airline and Hospitality Solutions and Travel Network, partially offset by higher Corporate product and technology costs.

For the quarter, Sabre reported diluted net income attributable to common stockholders per share of $0.33, an increase of 135.7% from $0.14 net income attributable to common shareholders per share in the third quarter of 2016. Adjusted net income from continuing operations per share (Adjusted EPS) increased 14.8% to $0.31 from $0.27 per share in the third quarter of 2016.

Cash provided by operating activities totaled $178.0 million, compared to $168.8 million in the third quarter of 2016. Cash used in investing activities totaled $75.5 million, compared to $89.1 million in the third quarter of 2016. Cash used in financing activities totaled $138.6 million, compared to cash provided by financing activities of $127.7 million in the third quarter of 2016. Third quarter Free Cash Flow was $102.6 million, compared to $79.1 million in the year-ago period. Capital expenditures totaled $75.4 million, compared to $89.6 million in the year-ago period. Adjusted Capital Expenditures, which include capitalized implementation costs, totaled $91.9 million, compared to $110.9 million in the third quarter of 2016.

During the third quarter of 2017, Sabre returned $114.0 million to shareholders including $38.5 million through its regular quarterly dividend and the repurchase of 4,137,683 shares under its share repurchase authorization for approximately $75.5 million in aggregate.


2


Financial Highlights
(in thousands, except for EPS; unaudited):
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Total Company:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
900,606

 
$
838,982

 
7.3
 
$2,716,622
 
$2,543,767
 
6.8
Operating Income
$
176,796

 
$
90,150

 
96.1
 
$358,840
 
$403,611
 
(11.1)
Net income attributable to common stockholders
$
90,989

 
$
40,815

 
122.9
 
$160,441
 
$218,001
 
(26.4)
Diluted net income attributable to common stockholders per share (EPS)
$
0.33

 
$
0.14

 
135.7
 
$0.57
 
$0.77
 
(26.0)
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Gross Profit*
$
371,232

 
$
344,981

 
7.6
 
$1,140,587
 
$1,106,442
 
3.1
Adjusted EBITDA*
$
262,926

 
$
237,857

 
10.5
 
$821,904
 
$796,821
 
3.1
Adjusted Operating Income*
$
168,105

 
$
150,918

 
11.4
 
$551,543
 
$557,071
 
(1.0)
Adjusted Net Income*
$
86,921

 
$
75,359

 
15.3
 
$302,157
 
$294,054
 
2.8
Adjusted EPS*
$
0.31

 
$
0.27

 
14.8
 
$1.08
 
$1.04
 
3.8
 
 
 
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
178,030

 
$
168,750

 
5.5
 
$455,906
 
$432,534
 
5.4
Cash used in investing activities
$
(75,542
)
 
$
(89,143
)
 
(15.3)
 
$(242,952)
 
$(418,713)
 
(42.0)
Cash (used in) provided by financing activities
$
(138,624
)
 
$
127,687

 
(208.6)
 
$(300,936)
 
$(46,647)
 
545.1
Capital Expenditures
$
75,401

 
$
89,639

 
(15.9)
 
$242,811
 
$254,232
 
(4.5)
Adjusted Capital Expenditures*
$
91,925

 
$
110,948

 
(17.1)
 
$290,779
 
$318,809
 
(8.8)
 
 
 
 
 
 
 
 
 
 
 
 
Free Cash Flow*
$
102,629

 
$
79,111

 
29.7
 
$213,095
 
$178,302
 
19.5
 
 
 
 
 
 
 
 
 
 
 
 
Net Debt (total debt, less cash)
$
3,234,865

 
$
3,192,653

 
 
 
 
 
 
 
 
Net Debt / LTM Adjusted EBITDA*
3.0x

 
3.1x

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Airline and Hospitality Solutions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
274,923

 
$
262,391

 
4.8
 
$804,679
 
$752,940
 
6.9
Operating Income
$
68,448

 
$
53,340

 
28.3
 
$177,056
 
$155,875
 
13.6
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA*
$
111,653

 
$
95,072

 
17.4
 
$298,895
 
$269,955
 
10.7
 
 
 
 
 
 
 
 
 
 
 
 
Passengers Boarded
186,887

 
206,332

 
(9.4)
 
599,097
 
589,512
 
1.6
 
 
 
 
 
 
 
 
 
 
 
 
Travel Network:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
632,349

 
$
582,364

 
8.6
 
$1,931,441
 
$1,805,750
 
7.0
Transaction Revenue
$
588,991

 
$
540,447

 
9.0
 
$1,799,785
 
$1,674,231
 
7.5
Subscriber / Other Revenue
$
43,358

 
$
41,917

 
3.4
 
$131,656
 
$131,520
 
0.1
Operating Income
$
198,422

 
$
182,489

 
8.7
 
$659,722
 
$641,285
 
2.9
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA*
$
237,295

 
$
219,865

 
7.9
 
$773,408
 
$744,626
 
3.9
 
 
 
 
 
 
 
 
 
 
 
 
Total Bookings
129,799

 
125,750

 
3.2
 
403,412
 
388,431
 
3.9
Air Bookings
114,259

 
110,585

 
3.3
 
356,478
 
342,353
 
4.1
Non-air Bookings
15,540

 
15,165

 
2.5
 
46,934
 
46,078
 
1.9
 
 
 
 
 
 
 
 
 
 
 
 
Air Bookings Share
36.5
%
 
37.3
%
 
 
 
36.4%
 
37.2%
 
 
*Indicates non-GAAP financial measure; see descriptions and reconciliations below



3


Sabre Airline and Hospitality Solutions

Third quarter Airline and Hospitality Solutions revenue increased 4.8% to $274.9 million compared to $262.4 million for the same period in 2016. Contributing to the rise in revenue was mid-single digit revenue growth in AirVision and AirCentre solutions and Hospitality Solutions growth in the mid-teens, offset somewhat by a modest decline in SabreSonic revenue due to the ending of legacy reservations system services to Southwest Airlines. Airline passengers boarded declined (9.4)% in the quarter due to the impact of Southwest. Excluding Southwest, total passengers boarded increased 11.5%, driven by the implementation of Alitalia in October 2016 and passengers boarded growth of 7.7% on a consistent carrier basis.

Third quarter Airline and Hospitality Solutions operating income increased 28.3% to $68.4 million from $53.3 million in the prior-year period. Operating income margin was 24.9%, compared to 20.3% for the prior-year quarter. Third quarter Airline and Hospitality Solutions Adjusted EBITDA increased 17.4% to $111.7 million from $95.1 million in the prior-year period. Adjusted EBITDA margin was 40.6%, compared to 36.2% in the prior-year quarter. Airline and Hospitality Solutions operating income and Adjusted EBITDA growth were supported by the benefits from the cost reduction and business alignment program initiated in August of 2017 and higher service-level agreement expenses in the year ago period.

Sabre Travel Network

Third quarter Travel Network revenue increased 8.6% to $632.3 million, compared to $582.4 million for the same period in 2016. Travel Network global bookings increased 3.2% in the quarter, driven by 16.0% growth in EMEA and 10.8% growth in Asia-Pacific. Bookings declined 1.9% in North America and 1.9% in Latin America, dampened by the impact of the recent hurricanes in the U.S. and Caribbean.

Third quarter Travel Network operating income increased 8.7% to $198.4 million from $182.5 million in the prior-year period. Operating income margin was 31.4%, compared to 31.3% for the prior-year quarter. Third quarter Travel Network Adjusted EBITDA increased 7.9% to $237.3 million from $219.9 million in the prior-year period. Adjusted EBITDA margin was 37.5%, compared to 37.8% in the prior-year quarter. Travel Network operating income and Adjusted EBITDA growth were supported by the benefits of the cost reduction and business alignment program initiated in August of 2017 and a favorable comparison versus the impairment charge related to a travel agency customer insolvency in the year ago period, offset by growth in incentive expenses primarily due to regional mix and new customer conversions.



4


Business Outlook and Financial Guidance

With respect to the guidance below, full-year Adjusted Net Income guidance consists of full-year expected net income attributable to common stockholders less the estimated impact of loss from discontinued operations, net of tax, of approximately $5 million; net income attributable to non-controlling interests of approximately $5 million; acquisition-related amortization of approximately $100 million; impairment and related charges of $92 million; stock-based compensation expense of approximately $50 million; restructuring and other costs of $25 million; litigation reimbursements, net of $36 million; other items of approximately $20 million; and the tax benefit of these adjustments of approximately $90 million. Full-year Adjusted EPS guidance consists of Adjusted Net Income divided by the projected weighted-average diluted common share count for the full year of approximately 279 million.

Full-year Adjusted EBITDA guidance consists of expected Adjusted Net Income guidance less the impact of depreciation and amortization of property and equipment, amortization of capitalized implementation costs and amortization of upfront incentive consideration of approximately $365 million; interest expense, net of approximately $155 million; and provision for income taxes less tax impact of net income adjustments of approximately $170 million.

Full-year Free Cash Flow guidance consists of expected full-year cash provided by operating activities of $685 million to $705 million less additions to property and equipment of $335 million to $355 million.



5


Full-Year 2017 Guidance

Sabre reiterated full-year 2017 guidance. Consistent with the update provided with its second quarter earnings release, Sabre continues to expect full-year Adjusted Net Income and Adjusted EPS will be in the lower half of their respective ranges.

In summary, Sabre's full-year 2017 guidance is as follows:
 
Range
Growth Rate
($ millions, except for EPS)
Revenue
$3,540 - $3,620
5% - 7%
 
 
 
Adjusted EBITDA
$1,055 - $1,095
1% - 5%
 
 
 
Adjusted Net Income
$370 - $410
0% - 11%
 
 
 
Adjusted EPS
$1.31 - $1.45
0% - 11%
 
 
 
Capitalized Expenditures
$335 - $355
 
 
 
 
Capitalized Implementation Costs
$60 - $70
 
 
 
 
Free Cash Flow
Approximately $350M
 



6


Conference Call

Sabre will conduct its third quarter 2017 investor conference call today at 9:00 a.m. ET. The live webcast and accompanying slide presentation can be accessed via the Investor Relations section of our website, investors.sabre.com. A replay of the event will be available on the website for at least 90 days following the event.

About Sabre

Sabre Corporation is the leading technology provider to the global travel industry. Sabre’s software, data, mobile and distribution solutions are used by hundreds of airlines and thousands of hotel properties to manage critical operations, including passenger and guest reservations, revenue management, flight, network and crew management. Sabre also operates a leading global travel marketplace, which processes more than US$120 billion of global travel spend annually by connecting travel buyers and suppliers. Headquartered in Southlake, Texas, USA, Sabre serves customers in more than 160 countries around the world.

Website Information

We routinely post important information for investors on the Investor Relations section of our website, investors.sabre.com. 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.



7


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, investors.sabre.com.

Industry Data

This release contains industry data, forecasts and other information that we obtained from industry publications and surveys, public filings and internal company sources, and there can be no assurance as to the accuracy or completeness of the included information. Statements as to our ranking, market position, bookings share and market estimates are based on independent industry publications, government publications, third-party forecasts and management’s estimates and assumptions about our markets and our internal research. We have not independently verified this third-party information nor have we ascertained the underlying economic assumptions relied upon in those sources, and we cannot assure you of the accuracy or completeness of this information.



8


Note on Non-GAAP Financial Measures

This press release includes unaudited non-GAAP financial measures, including Adjusted Gross Profit, Adjusted Operating Income, Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures, Free Cash Flow, and the ratios based on these financial measures. In addition, we provide certain forward guidance with respect to Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Free Cash Flow. We are unable to provide this forward guidance on a GAAP basis without unreasonable effort; however, see "Business Outlook and Financial Guidance" for additional information including estimates of certain components of the non-GAAP adjustments contained in the guidance.

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.



9


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 "guidance," “expect,” "anticipate," "positions," "outlook," "estimate," "objective," "will," "project," "believe," “may,” “should,” “would,” “intend," “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, exposure to pricing pressure in the Travel Network business, the implementation and effects of new or renewed agreements, the effects of the implementation of new accounting standards, travel suppliers' usage of alternative distribution models, maintenance of the integrity of our systems and infrastructure and the effect of any security breaches, competition in the travel distribution market and solutions markets, the implementation and results of our cost reduction and business alignment program, failure to adapt to technological developments, dependence on establishing, maintaining and renewing contracts with customers and other counterparties and collecting amounts due to us under these agreements, changes affecting travel supplier customers, use of third-party distributor partners, dependence on relationships with travel buyers, adverse global and regional economic and political conditions, including, but not limited to, economic conditions in countries or regions with traditionally high levels of exports to China or that have commodities-based economies and the effect of "Brexit" and uncertainty due to related negotiations, risks arising from global operations, reliance on third parties to provide information technology services, the financial and business effects of acquisitions, including integration of these acquisitions, our ability to recruit, train and retain employees, including our key executive officers and technical employees, and the effects of litigation. More information about potential risks and uncertainties that could affect our business and results of operations is included in the "Risk Factors" and “Forward-Looking Statements” sections in our Quarterly Report on Form 10-Q filed with the SEC on August 1, 2017 and our Annual Report on Form 10-K filed with the SEC on February 17, 2017 and in our other filings with the SEC. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, 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


10


update or revise any forward-looking statements to reflect circumstances or events after the date they are made.


11


Contacts:

Media
Investors
Tim Enstice
Barry Sievert
+1-682-605-6162
sabre.investorrelations@sabre.com
tim.enstice@sabre.com
 



12


SABRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
$
900,606

 
$
838,982

 
$
2,716,622

 
$
2,543,767

Cost of revenue
631,970

 
593,650

 
1,882,623

 
1,704,232

Selling, general and administrative
91,840

 
155,182

 
383,137

 
435,924

Impairment and related charges
—

 
—

 
92,022

 
—

Operating income
176,796

 
90,150

 
358,840

 
403,611

Other income (expense):
 

 
 

 
 
 
 
Interest expense, net
(38,919
)
 
(38,002
)
 
(116,577
)
 
(116,414
)
Loss on extinguishment of debt
(1,012
)
 
(3,683
)
 
(1,012
)
 
(3,683
)
Joint venture equity income
357

 
718

 
1,768

 
2,244

Other, net
(3,802
)
 
281

 
(19,788
)
 
4,517

Total other expense, net
(43,376
)
 
(40,686
)
 
(135,609
)
 
(113,336
)
Income from continuing operations before income taxes
133,420

 
49,464

 
223,231

 
290,275

Provision for income taxes
40,595

 
7,208

 
56,836

 
79,905

Income from continuing operations
92,825

 
42,256

 
166,395

 
210,370

(Loss) Income from discontinued operations, net of tax
(529
)
 
(394
)
 
(2,228
)
 
10,858

Net income
92,296

 
41,862

 
164,167

 
221,228

Net income attributable to noncontrolling interests
1,307

 
1,047

 
3,726

 
3,227

Income attributable to common stockholders
$
90,989

 
$
40,815

 
$
160,441

 
$
218,001

 
 
 
 
 
 
 
 
Basic net income per share attributable to common
stockholders:
 

 
 

 
 
 
 
Income from continuing operations
$
0.33

 
$
0.15

 
$
0.59

 
$
0.75

(Loss) income from discontinued operations
—

 
—

 
(0.01
)
 
0.04

Net income per common share
$
0.33

 
$
0.15

 
$
0.58

 
$
0.79

Diluted net income per share attributable to common stockholders:
 

 
 

 
 
 
 
Income from continuing operations
$
0.33

 
$
0.15

 
$
0.58

 
$
0.73

(Loss) income from discontinued operations
—

 
—

 
(0.01
)
 
0.04

Net income per common share
$
0.33

 
$
0.14

 
$
0.57

 
$
0.77

Weighted-average common shares outstanding:
 

 
 

 
 
 
 
Basic
277,477

 
278,399

 
277,754

 
277,125

Diluted
278,369

 
283,462

 
279,648

 
282,919

 
 
 
 
 
 
 
 
Dividends per common share
$
0.14

 
$
0.13

 
$
0.42

 
$
0.39


13

SABRE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
268,268

 
$
364,114

Accounts receivable, net
567,266

 
400,667

Prepaid expenses and other current assets
111,358

 
88,600

Total current assets
946,892

 
853,381

Property and equipment, net of accumulated depreciation of $1,173,326 and $986,890
800,094

 
753,279

Investments in joint ventures
26,776

 
25,582

Goodwill
2,553,867

 
2,548,447

Acquired customer relationships, net of accumulated amortization of $680,756 and $646,850
357,039

 
387,632

Other intangible assets, net of accumulated amortization of $580,158 and $538,380
346,028

 
387,805

Deferred income taxes
73,658

 
95,285

Other assets, net
562,134

 
673,159

Total assets
$
5,666,488

 
$
5,724,570

 
 
 
 
Liabilities and stockholders’ equity
 

 
 

Current liabilities
 

 
 

Accounts payable
$
150,265

 
$
168,576

Accrued compensation and related benefits
104,415

 
102,037

Accrued subscriber incentives
269,778

 
216,011

Deferred revenues
163,556

 
187,108

Other accrued liabilities
251,525

 
222,879

Current portion of debt
59,019

 
169,246

Tax Receivable Agreement
59,452

 
100,501

Total current liabilities
1,058,010

 
1,166,358

Deferred income taxes
84,782

 
88,957

Other noncurrent liabilities
468,075

 
567,359

Long-term debt
3,410,532

 
3,276,281

 
 
 
 
Stockholders’ equity
 

 
 

Common Stock: $0.01 par value; 450,000,000 authorized shares; 288,896,172 and 285,461,125 shares issued, 274,756,197 and 276,949,802 shares outstanding at September 30, 2017 and December 31, 2016, respectively
2,889

 
2,854

Additional paid-in capital
2,162,128

 
2,105,843

Treasury Stock, at cost, 14,139,975 and 8,511,323 shares at September 30, 2017 and December 31, 2016, respectively
(329,857
)
 
(221,746
)
Retained deficit
(1,097,149
)
 
(1,141,116
)
Accumulated other comprehensive loss
(96,500
)
 
(122,799
)
Noncontrolling interest
3,578

 
2,579

Total stockholders’ equity
645,089

 
625,615

Total liabilities and stockholders’ equity
$
5,666,488

 
$
5,724,570


14

SABRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Operating Activities
 
 
 
Net income
$
164,167

 
$
221,228

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation and amortization
295,729

 
303,956

Amortization of upfront incentive consideration
50,298

 
43,372

Litigation-related credits
—

 
(25,527
)
Stock-based compensation expense
34,413

 
36,012

Allowance for doubtful accounts
7,879

 
9,232

Impairment and related charges
92,022

 
—

Deferred income taxes
8,340

 
66,676

Joint venture equity income
(1,768
)
 
(2,244
)
Dividends received from joint venture investments
1,088

 
—

Amortization of debt issuance costs
4,916

 
6,738

Loss on modification of debt
14,758

 
—

Loss on extinguishment of debt
1,012

 
3,683

Other
10,680

 
4,303

Loss (income) from discontinued operations
2,228

 
(10,858
)
Changes in operating assets and liabilities:
 

 
 

Accounts and other receivables
(188,021
)
 
(70,906
)
Prepaid expenses and other current assets
518

 
(19,508
)
Capitalized implementation costs
(47,968
)
 
(64,577
)
Upfront incentive consideration
(61,087
)
 
(55,284
)
Other assets
(20,957
)
 
(18,105
)
Accrued compensation and related benefits
2,161

 
(21,540
)
Accounts payable and other accrued liabilities
53,444

 
8,424

Deferred revenue including upfront solution fees
32,054

 
17,459

Cash provided by operating activities
455,906

 
432,534

Investing Activities
 

 
 

Additions to property and equipment
(242,811
)
 
(254,232
)
Acquisition, net of cash acquired
—

 
(164,481
)
Other investing activities
(141
)
 
—

Cash used in investing activities
(242,952
)
 
(418,713
)
Financing Activities
 

 
 

Proceeds of borrowings from lenders
1,897,625

 
1,055,000

Payments on borrowings from lenders
(1,868,655
)
 
(994,287
)
Payments on Tax Receivable Agreement
(99,241
)
 
—

Debt issuance and modification costs
(19,052
)
 
(11,377
)
Net proceeds on the settlement of equity-based awards
11,466

 
17,111

Cash dividends paid to common stockholders
(116,474
)
 
(108,358
)
Repurchase of common stock
(97,671
)
 
—

Other financing activities
(8,934
)
 
(4,736
)
Cash used in financing activities
(300,936
)
 
(46,647
)
Cash Flows from Discontinued Operations
 

 
 

Cash used in operating activities
(3,636
)
 
(15,766
)
Cash provided by investing activities
—

 
—

Cash used in discontinued operations
(3,636
)
 
(15,766
)
Effect of exchange rate changes on cash and cash equivalents
(4,228
)
 
(536
)
Decrease in cash and cash equivalents
(95,846
)
 
(49,128
)
Cash and cash equivalents at beginning of period
364,114

 
321,132

Cash and cash equivalents at end of period
$
268,268

 
$
272,004


15

Tabular Reconciliations for Non-GAAP Measures
(In thousands, except per share amounts; unaudited)

Reconciliation of Net income to Adjusted Net Income from continuing operations and Adjusted EBITDA:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to common stockholders
$
90,989

 
$
40,815

 
$
160,441

 
$
218,001

Loss (income) from discontinued operations, net of tax
529

 
394

 
2,228

 
(10,858
)
Net income attributable to noncontrolling interests(1)
1,307

 
1,047

 
3,726

 
3,227

Income from continuing operations
92,825

 
42,256

 
166,395

 
210,370

Adjustments:
 

 
 

 
 

 
 

Acquisition-related amortization(2a)
20,226

 
39,430

 
75,666

 
107,578

Impairment and related charges(8)
—

 
—

 
92,022

 
—

Loss on extinguishment of debt
1,012

 
3,683

 
1,012

 
3,683

Other, net (4)
3,802

 
(281
)
 
19,788

 
(4,517
)
Restructuring and other costs (5)
—

 
583

 
25,304

 
1,823

Acquisition-related costs(6)
—

 
90

 
—

 
714

Litigation (reimbursements) costs, net(7)
(40,929
)
 
7,034

 
(36,470
)
 
5,089

Stock-based compensation
11,655

 
12,913

 
34,413

 
36,012

Tax impact of net income adjustments
(1,670
)
 
(30,349
)
 
(75,973
)
 
(66,698
)
Adjusted Net Income from continuing operations
$
86,921

 
$
75,359

 
$
302,157

 
$
294,054

Adjusted Net Income from continuing operations per share
$
0.31

 
$
0.27

 
$
1.08

 
$
1.04

Diluted weighted-average common shares outstanding
278,369

 
283,462

 
279,648

 
282,919

 
 
 
 
 
 
 
 
Adjusted Net Income from continuing operations
$
86,921

 
$
75,359

 
$
302,157

 
$
294,054

Adjustments:
 

 
 

 
 

 
 

Depreciation and amortization of property and equipment(2b)
66,332

 
58,271

 
191,442

 
168,150

Amortization of capitalized implementation costs(2c)
10,484

 
11,529

 
28,621

 
28,228

Amortization of upfront incentive consideration(3)
18,005

 
17,139

 
50,298

 
43,372

Interest expense, net
38,919

 
38,002

 
116,577

 
116,414

Remaining provision for income taxes
42,265

 
37,557

 
132,809

 
146,603

Adjusted EBITDA
$
262,926

 
$
237,857

 
$
821,904

 
$
796,821


Reconciliation of Operating Income to Adjusted Operating Income:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Operating income
$
176,796

 
$
90,150

 
$
358,840

 
$
403,611

Adjustments:
 

 
 

 
 
 
 
Impairment and related charges (8)
—

 
—

 
92,022

 
—

Joint venture equity income
357

 
718

 
1,768

 
2,244

Acquisition-related amortization(2a)
20,226

 
39,430

 
75,666

 
107,578

Restructuring and other costs (5)
—

 
583

 
25,304

 
1,823

Acquisition-related costs(6)
—

 
90

 
—

 
714

Litigation (reimbursements) costs, net(7)
(40,929
)
 
7,034

 
(36,470
)
 
5,089

Stock-based compensation
11,655

 
12,913

 
34,413

 
36,012

Adjusted Operating Income
$
168,105

 
$
150,918

 
$
551,543

 
$
557,071



16


Reconciliation of Adjusted Capital Expenditures:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Additions to property and equipment
$
75,401

 
$
89,639

 
$
242,811

 
$
254,232

Capitalized implementation costs
16,524

 
21,309

 
47,968

 
64,577

Adjusted Capital Expenditures
$
91,925

 
$
110,948

 
$
290,779

 
$
318,809


Reconciliation of Free Cash Flow:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Cash provided by operating activities
$
178,030

 
$
168,750

 
$
455,906

 
$
432,534

Cash used in investing activities
(75,542
)
 
(89,143
)
 
(242,952
)
 
(418,713
)
Cash used in financing activities
(138,624
)
 
127,687

 
(300,936
)
 
(46,647
)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Cash provided by operating activities
$
178,030

 
$
168,750

 
$
455,906

 
$
432,534

Additions to property and equipment
(75,401
)
 
(89,639
)
 
(242,811
)
 
(254,232
)
Free Cash Flow
$
102,629

 
$
79,111

 
213,095

 
178,302


17

Reconciliation of Net Income to LTM Adjusted EBITDA (for Net Debt Ratio):

 
Three Months Ended
 
 
 
Dec 31, 2016
 
Mar 31, 2017
 
Jun 30, 2017
 
Sep 30, 2017
 
LTM
Net income attributable to common stockholders
$
24,561

 
$
75,939

 
$
(6,487
)
 
$
90,989

 
$
185,002

(Income) loss from discontinued operations, net of tax
5,309

 
477

 
1,222

 
529

 
7,537

Net income attributable to noncontrolling interests(1)
1,150

 
1,306

 
1,113

 
1,307

 
4,876

Income from continuing operations
31,020

 
77,722

 
(4,152
)
 
92,825

 
197,415

Adjustments:
 
 
 
 
 
 
 
 
 
Acquisition-related amortization(2a)
35,847

 
35,181

 
20,259

 
20,226

 
111,513

Impairment and related charges(8)
—

 
—

 
92,022

 
—

 
92,022

Loss on extinguishment of debt
—

 
—

 
—

 
1,012

 
1,012

Other, net (4)
(23,100
)
 
15,234

 
752

 
3,802

 
(3,312
)
Restructuring and other costs (5)
16,463

 
—

 
25,304

 
—

 
41,767

Acquisition-related costs(6)
65

 
—

 
—

 
—

 
65

Litigation (reimbursements) costs, net(7)
41,906

 
3,501

 
958

 
(40,929
)
 
5,436

Stock-based compensation
12,512

 
8,034

 
14,724

 
11,655

 
46,925

Depreciation and amortization of property and equipment(2b)
65,153

 
61,300

 
63,810

 
66,332

 
256,595

Amortization of capitalized implementation costs(2c)
9,030

 
9,189

 
8,948

 
10,484

 
37,651

Amortization of upfront incentive consideration(3)
12,352

 
16,132

 
16,161

 
18,005

 
62,650

Interest expense, net
41,837

 
39,561

 
38,097

 
38,919

 
158,414

Provision for income taxes
6,740

 
31,707

 
(15,466
)
 
40,595

 
63,576

Adjusted EBITDA
$
249,825

 
$
297,561

 
$
261,417

 
$
262,926

 
$
1,071,729

 
 
 
 
 
 
 
 
 
 
Net Debt (total debt, less cash)
 
 
 
 
 
 
 
 
$
3,234,865

Net Debt / LTM Adjusted EBITDA
 
 
 
 
 
 
 
 
3.0x



 
Three Months Ended
 
 
 
Dec 31, 2015
 
Mar 31, 2016
 
Jun 30, 2016
 
Sep 30, 2016
 
LTM
Net income attributable to common stockholders
$
129,441

 
$
105,167

 
$
72,019

 
$
40,815

 
$
347,442

(Income) loss from discontinued operations, net of tax
(100,909
)
 
(13,350
)
 
2,098

 
394

 
(111,767
)
Net income attributable to noncontrolling interests(1)
980

 
1,102

 
1,078

 
1,047

 
4,207

Income from continuing operations
29,512

 
92,919

 
75,195

 
42,256

 
239,882

Adjustments:
 
 
 
 
 
 
 
 
 
Acquisition-related amortization (2a)
31,851

 
34,130

 
34,018

 
39,430

 
139,429

Loss on extinguishment of debt
5,548

 
—

 
—

 
3,683

 
9,231

Other, net (4)
(3,057
)
 
(3,360
)
 
(876
)
 
(281
)
 
(7,574
)
Restructuring and other costs (5)
368

 
124

 
1,116

 
583

 
2,191

Acquisition-related costs (6)
1,223

 
108

 
516

 
90

 
1,937

Litigation costs, net (7)
1,912

 
(3,846
)
 
1,901

 
7,034

 
7,001

Stock-based compensation
6,643

 
10,289

 
12,810

 
12,913

 
42,655

Depreciation and amortization of property and equipment (2b)
56,366

 
53,665

 
56,214

 
58,271

 
224,516

Amortization of capitalized implementation costs (2c)
8,409

 
8,488

 
8,211

 
11,529

 
36,637

Amortization of upfront incentive consideration (3)
11,946

 
12,337

 
13,896

 
17,139

 
55,318

Interest expense, net
43,655

 
41,202

 
37,210

 
38,002

 
160,069

Provision for income taxes
34,386

 
41,424

 
31,273

 
7,208

 
114,291

Adjusted EBITDA
$
228,762

 
$
287,480

 
$
271,484

 
$
237,857

 
$
1,025,583

 
 
 
 
 
 
 
 
 
 
Net Debt (total debt, less cash)
 
 
 
 
 
 
 
 
$
3,192,653

Net Debt / LTM Adjusted EBITDA
 
 
 
 
 
 
 
 
3.1x


18

Reconciliation of Operating Income (loss) to Adjusted Gross Profit and Adjusted EBITDA by segment:
 
Three Months Ended September 30, 2017
 
Travel
Network
 
Airline and
Hospitality
Solutions
 
Corporate
 
Total
Operating income (loss)
$
198,422

 
$
68,448

 
$
(90,074
)
 
$
176,796

Add back:
 
 
 
 
 
 
 
Selling, general and administrative
34,494

 
21,292

 
36,054

 
91,840

Cost of revenue adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
19,219

 
42,329

 
18,428

 
79,976

Amortization of upfront incentive consideration(3)
18,005

 
—

 
—

 
18,005

Stock-based compensation
—

 
—

 
4,615

 
4,615

Adjusted Gross Profit
270,140

 
132,069

 
(30,977
)
 
371,232

Selling, general and administrative
(34,494
)
 
(21,292
)
 
(36,054
)
 
(91,840
)
Joint venture equity income
357

 
—

 
—

 
357

Selling, general and administrative adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
1,292

 
876

 
14,898

 
17,066

Litigation reimbursements(7)
—

 
—

 
(40,929
)
 
(40,929
)
Stock-based compensation
—

 
—

 
7,040

 
7,040

Adjusted EBITDA
$
237,295

 
$
111,653

 
$
(86,022
)
 
$
262,926

 
 
 
 
 
 
 
 
Operating income margin
31.4
%
 
24.9
%
 
NM

 
19.6
%
Adjusted EBITDA margin
37.5
%
 
40.6
%
 
NM

 
29.2
%
  
 
Three Months Ended September 30, 2016
 
Travel
Network
 
Airline and
Hospitality
Solutions
 
Corporate
 
Total
Operating income (loss)
$
182,489

 
$
53,340

 
$
(145,679
)
 
$
90,150

Add back:
 
 
 
 
 
 
 
Selling, general and administrative
37,583

 
19,405

 
98,194

 
155,182

Cost of revenue adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
18,446

 
41,391

 
17,560

 
77,397

Amortization of upfront incentive consideration(3)
17,139

 
—

 
—

 
17,139

Stock-based compensation
—

 
—

 
5,113

 
5,113

Adjusted Gross Profit
255,657

 
114,136

 
(24,812
)
 
344,981

Selling, general and administrative
(37,583
)
 
(19,405
)
 
(98,194
)
 
(155,182
)
Joint venture equity income
718

 
—

 
—

 
718

Selling, general and administrative adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
1,073

 
341

 
30,419

 
31,833

Restructuring and other costs (5)
—

 
—

 
583

 
583

Acquisition-related costs(6)
—

 
—

 
90

 
90

Litigation costs(7)
—

 
—

 
7,034

 
7,034

Stock-based compensation
—

 
—

 
7,800

 
7,800

Adjusted EBITDA
$
219,865

 
$
95,072

 
$
(77,080
)
 
$
237,857

 
 
 
 
 
 
 
 
Operating income margin
31.3
%
 
20.3
%
 
NM

 
10.7
%
Adjusted EBITDA margin
37.8
%
 
36.2
%
 
NM

 
28.4
%

19

 
Nine Months Ended September 30, 2017
 
Travel
Network
 
Airline and
Hospitality
Solutions
 
Corporate
 
Total
Operating income (loss)
$
659,722

 
$
177,056

 
$
(477,938
)
 
$
358,840

Add back:
 
 
 
 
 
 
 
Selling, general and administrative
95,676

 
63,871

 
223,590

 
383,137

Impairment and related charges(8)
—

 
—

 
92,022

 
92,022

Cost of revenue adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
57,611

 
119,332

 
52,745

 
229,688

Restructuring and other costs (5)
—

 
—

 
12,976

 
12,976

Amortization of upfront incentive consideration(3)
50,298

 
—

 
—

 
50,298

 Stock-based compensation
—

 
—

 
13,626

 
13,626

Adjusted Gross Profit
863,307

 
360,259

 
(82,979
)
 
1,140,587

Selling, general and administrative
(95,676
)
 
(63,871
)
 
(223,590
)
 
(383,137
)
Joint venture equity income
1,768

 
—

 
—

 
1,768

Selling, general and administrative adjustments:


 


 


 


Depreciation and amortization(2)
4,009

 
2,507

 
59,525

 
66,041

Restructuring and other costs (5)
—

 
—

 
12,328

 
12,328

Litigation reimbursements(7)
—

 
—

 
(36,470
)
 
(36,470
)
Stock-based compensation
—

 
—

 
20,787

 
20,787

Adjusted EBITDA
$
773,408

 
$
298,895

 
$
(250,399
)
 
$
821,904

 
 
 
 
 
 
 
 
Operating income margin
34.2
%
 
22.0
%
 
NM

 
13.2
%
Adjusted EBITDA margin
40.0
%
 
37.1
%
 
NM

 
30.3
%

 
Nine Months Ended September 30, 2016
 
Travel
Network
 
Airline and
Hospitality
Solutions
 
Corporate
 
Total

 
 
 
 
 
 
 
Operating income (loss)
$
641,285

 
$
155,875

 
$
(393,549
)
 
$
403,611

Add back:
 
 
 
 
 
 
 
Selling, general and administrative
103,701

 
54,408

 
277,815

 
435,924

Cost of revenue adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
54,199

 
113,198

 
41,879

 
209,276

Amortization of upfront incentive consideration(3)
43,372

 
—

 
—

 
43,372

 Stock-based compensation
—

 
—

 
14,259

 
14,259

Adjusted Gross Profit
842,557

 
323,481

 
(59,596
)
 
1,106,442

Selling, general and administrative
(103,701
)
 
(54,408
)
 
(277,815
)
 
(435,924
)
Joint venture equity income
2,244

 
—

 
—

 
2,244

Selling, general and administrative adjustments:
 
 
 
 
 
 
 
Depreciation and amortization(2)
3,526

 
882

 
90,272

 
94,680

Restructuring and other costs (5)
—

 
—

 
1,823

 
1,823

Acquisition-related costs(6)
—

 
—

 
714

 
714

Litigation costs(7)
—

 
—

 
5,089

 
5,089

Stock-based compensation
—

 
—

 
21,753

 
21,753

Adjusted EBITDA
$
744,626

 
$
269,955

 
$
(217,760
)
 
$
796,821

 
 
 
 
 
 
 
 
Operating income margin
35.5
%
 
20.7
%
 
NM

 
15.9
%
Adjusted EBITDA margin
41.2
%
 
35.9
%
 
NM

 
31.3
%

20

Non-GAAP Financial Measures

We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures, including Adjusted Gross Profit, Adjusted Operating Income, Adjusted Net Income, Adjusted EBITDA, Adjusted Net Income from continuing operations per share (Adjusted EPS), Adjusted Capital Expenditures, Free Cash Flow and ratios based on these financial measures.

We define Adjusted Gross Profit as operating income (loss) adjusted for selling, general and administrative expenses, impairment and related charges, amortization of upfront incentive consideration, and the cost of revenue portion of depreciation and amortization, restructuring and other costs, litigation costs, net, and stock-based compensation included in cost of revenue.

We define Adjusted Operating Income as operating income adjusted for joint venture equity income, acquisition-related amortization, restructuring and other costs, acquisition-related costs, litigation (reimbursements) costs, net, and stock-based compensation.

We define Adjusted Net Income as net income attributable to common stockholders adjusted for income (loss) from discontinued operations, net of tax, net income attributable to noncontrolling interests, acquisition-related amortization, impairment and related charges, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs (reimbursements), net, stock-based compensation and the 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.

We define Adjusted Net Income from continuing operations per share (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.

We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and equipment.

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 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 include 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 Gross Profit, Adjusted Operating Income, Adjusted Net Income, Adjusted

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EBITDA, Adjusted EPS and Adjusted Capital Expenditures 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 Gross Profit, Adjusted Operating Income, Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures, 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:

•
these non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation expense and amortization of acquired intangible assets;

•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted Gross Profit and Adjusted EBITDA do not reflect cash requirements for such replacements;

•
Adjusted Operating Income, Adjusted Net Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

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Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;

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Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

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Free Cash Flow removes the impact of accrual-basis accounting on asset accounts and non-debt liability accounts, and does not reflect the cash requirements necessary to service the principal payments on our indebtedness; and

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other companies, including companies in our industry, may calculate Adjusted Gross Profit, Adjusted Operating Income, Adjusted Net Income, Adjusted EBITDA, Adjusted EPS, Adjusted Capital Expenditures or Free Cash Flow differently, which reduces their usefulness as comparative measures.


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Non-GAAP Footnotes

(1)
Net income attributable to noncontrolling interests represents an adjustment to include earnings allocated to noncontrolling interests held in (i) Sabre Travel Network Middle East of 40%, (ii) Sabre Seyahat Dagitim Sistemleri A.S. of 40%, and (iii) Abacus International Lanka Pte Ltd of 40%.
(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)
In the nine months ended 2017, we recognized a $15 million loss related to debt modification costs associated with our debt refinancing. In the first quarter of 2016, we recognized a gain of $6 million associated with the receipt of an earn-out payment from the sale of a business in 2013. In addition, other, net includes 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 represent 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. In the second quarter of 2017, we recorded $25 million charge associated with an announced action to reduce our workforce. This reduction aligns our operations with business needs and implements an ongoing cost and organizational structure consistent with our expected growth needs and opportunities.

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(6)
Acquisition-related costs represent fees and expenses incurred associated with the acquisition of the Trust Group and Airpas Aviation.
(7)
Litigation costs (reimbursements), net represent charges and legal fee reimbursements associated with antitrust litigation. In the third quarter of 2017, we recorded a $43 million reimbursement, net of accrued legal and related expenses, from a settlement with our insurance carriers with respect to the American Airlines litigation.
(8)
In the three months ended June 30, 2017, we recorded an impairment charge of $92 million associated with net capitalized contract costs related to an Airline Solutions' customer based on our analysis of the recoverability of such amounts. A formal contract dispute resolution process was commenced and due to the uncertainty of the ultimate outcome, we recorded this estimated charge. In the third quarter of 2017, the customer entered insolvency proceedings and our assessment of the impairment charge recorded in the second quarter did not change.

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