Sabre Corporation Reports Second Quarter 2014 Results

- Strong Adjusted EBITDA Growth Across Core Businesses

- Full Year Adjusted EBITDA and Adjusted EPS Guidance Increased

- Board of Directors Declares $0.09 Quarterly Dividend

07 Aug, 2014, 08:00 ET from Sabre Corporation

SOUTHLAKE, Texas, Aug. 7, 2014 /PRNewswire/ -- Sabre Corporation (NASDAQ: SABR) today announced financial results for the quarter ended June 30, 2014.

"We made solid progress in the second quarter both financially and with our initiatives focused on leading the technology transformation of the travel industry," said Tom Klein, Sabre President and CEO.  "We saw particularly strong earnings growth as our customers continue to use our technology to increase revenue, reduce costs, and deliver unique, personalized experiences to travelers. Our investments in innovations that allow customers to leverage data and take advantage of mobile services are setting new industry standards. The strong first half and continued positive trends give us confidence to raise Adjusted EBITDA and Adjusted EPS guidance for the year."

Q2 2014 Financial Summary

Sabre reported total consolidated revenue of $718 million for the quarter ended June 30, 2014, compared to $768 million for the second quarter of 2013. Consolidated net loss for the second quarter of 2014 totaled $10.9 million, compared to a net loss of $116.9 million in the year-ago period. For the second quarter of 2014, Sabre reported a loss per share from continuing operations of $0.03 per share.

Sabre reported Airline and Hospitality Solutions revenue increased 4.9% to $187 million from $178 million in the second quarter of 2013.  Travel Network revenue also increased, rising 1.3% to $462 million from $456 million for the same period of 2013. Sabre, excluding Travelocity, revenue increased 3.6% from $614 million in the second quarter of 2013 to $637 million in the second quarter of 2014.

On an adjusted basis, Sabre reported consolidated adjusted revenue of $720 million for the quarter ended June 30, 2014, compared to $768 million for the second quarter of 2013.  Adjusted revenue excludes the amortization of incentive payments paid under the Expedia strategic marketing agreement related to the restructuring of Travelocity. Total Company Adjusted EBITDA for the three months ended June 30, 2014 was $204 million, a 7.2% increase from $190 million in the prior year period. Sabre reported second quarter 2014 Adjusted Net Income from Continuing Operations (Adjusted EPS) of $0.22 per share.

Three Months Ended June 30,

Six Months Ended June 30,

Financial Highlights (in thousands):

2014

2013

% Change

2014

2013

%

Change

Total Company Excluding Travelocity:

Revenue

$

636,555

$

614,296

3.6

$

1,297,739

$

1,230,869

5.4

Operating Income

$

80,866

$

(55,544)

245.6

$

176,216

$

38,097

362.5

Adjusted EBITDA*

$

212,582

$

181,041

17.4

$

421,493

$

382,490

10.2

Total Company Including Travelocity:

Revenue

$

717,573

$

768,232

(6.6)

$

1,472,983

$

1,527,576

(3.6)

Net Loss Attributable to Sabre Corp.

(10,897)

(116,862)

90.7

(13,740)

(132,626)

89.6

Adjusted Revenue*

$

720,448

$

768,232

(6.2)

$

1,477,733

$

1,527,576

(3.3)

Adjusted EBITDA*

$

203,707

$

190,111

7.2

$

387,423

$

382,615

1.3

Cash Flow from Operations

$

5,310

$

78,673

(93.3)

$

77,508

$

171,056

(54.7)

Capital Expenditures

$

58,944

$

58,786

0.3

$

110,583

$

111,487

(0.8)

Adjusted Capital Expenditures*

$

68,888

$

75,420

(8.7)

$

128,180

$

150,150

(14.6)

Free Cash Flow*

$

(53,634)

$

19,887

(369.7)

$

(33,075)

$

59,569

(155.5)

Adjusted Free Cash Flow*

$

63,219

$

58,236

8.6

$

131,172

$

107,287

22.3

Net Debt (total debt, less cash)

$

2,855,412

$

3,257,052

Net Debt / LTM Adjusted EBITDA

3.6x

4.3x

Airline and Hospitality Solutions:

Revenue

$

186,573

$

177,841

4.9

$

363,290

$

340,288

6.8

Passengers Boarded

131,450

124,359

5.7

249,066

231,884

7.4

Operating Income

$

35,855

$

28,518

25.7

$

62,317

$

51,173

21.8

Adjusted EBITDA*

$

62,554

$

47,675

31.2

$

116,015

$

88,545

31.0

Travel Network:

Revenue

$

462,337

$

456,238

1.3

$

954,064

$

931,544

2.4

Air Bookings

81,053

80,708

0.4

170,098

165,953

2.5

Non-air Bookings

13,861

13,986

(0.9)

27,460

27,033

1.6

Total Bookings

94,914

94,694

0.2

197,558

192,986

2.4

Bookings Share

35.6

%

35.8

%

35.5

%

35.5

%

Operating Income

$

165,597

$

162,071

2.2

$

350,114

$

346,970

0.9

Adjusted EBITDA*

$

197,971

$

188,237

5.2

$

412,814

$

398,540

3.6

Travelocity:

Revenue

$

81,018

$

153,936

(47.4)

$

175,244

$

296,707

(40.9)

Operating Income

$

(12,721)

$

8,449

(250.6)

$

(41,283)

$

(7,464)

(453.1)

Adjusted Revenue*

$

83,893

$

153,936

(45.5)

$

179,994

$

296,707

(39.3)

Adjusted EBITDA*

$

(8,875)

$

9,070

(197.9)

$

(34,070)

$

125

(27356.0)

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

Sabre Airline and Hospitality Solutions and Travel Network Adjusted EBITDA increased 31.2% and 5.2%, respectively. Excluding Travelocity, second quarter 2014 total Adjusted EBITDA increased 17.4% to $213 million from $181 million in the year-ago quarter.

Cash Flow from Operations totaled $5 million for the second quarter of 2014, compared to $79 million in the second quarter of 2013. Adjusted Free Cash flow, which adjusts for the decline in working capital and restructuring costs related to the change in the Travelocity business model and dispositions as well as litigation and other costs (see reconciliation below), totaled $63 million in the second quarter of 2014, an 8.6% increase from $58 million of Adjusted Free Cash Flow in the second quarter of 2013. Adjusted Capital Expenditures, which includes capitalized implementation costs, totaled $69 million for the second quarter of 2014, compared to $75 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.

Solid growth across its customer base led to a 4.9% increase in revenue in the second quarter of 2014.  This revenue growth was driven in part by an increase in passengers boarded through the SabreSonic® airline reservation system. Total passengers boarded were 131 million, a 5.7% increase from 124 million in the second quarter of 2013. Revenue for the quarter was also bolstered by continued growth in Airline Solutions Commercial and Operations Solutions revenue and strong growth in Hospitality Solutions' SynXis Central Reservations System transactions and Digital Marketing Services.

Strong revenue growth and operating leverage across its SaaS and hosted solutions resulted in a 31.2% increase in Airline and Hospitality Solutions Adjusted EBITDA to $63 million for the second quarter of 2014 versus $48 million for the prior year period.

Airline and Hospitality Solutions recently signed several significant new agreements. Examples include:

  • Spirit Airlines selected Sabre Airline Solutions' leading Flight Plan Manager solution.
  • United Airlines selected Sabre Airline Solutions' In-flight Catering solution.
  • Swiss regional carrier and current SabreSonic CSS customer, Darwin Airlines, became the latest airline to expand their Sabre footprint to include a full suite of solutions from Sabre Airline Solutions' portfolio of commercial and operations solutions.
  • Morgans Hotel Group converted to Sabre Hospitality Solutions' SynXis Central Reservations Solution across all of their properties.

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 second quarter, Travel Network revenue increased $6 million, or 1.3%, to $462 million.  Direct billable bookings of 95 million increased slightly versus the prior year period, driven by strong growth in EMEA bookings offset by the unfavorable timing of Easter and a decline of approximately 40% in air travel in Venezuela.

Travel Network second quarter Adjusted EBITDA of $198 million increased 5.2% from $188 million for the second quarter of 2013.

Sabre Travel Network continued to increase the value of the marketplace for participants during the second quarter by increasing content and services. During the quarter, Sabre Travel Network:

  • Renewed content agreements with Scandinavian Airways and Lufthansa.
  • Signed an expanded agreement with International Airline Group (IAG). The agreement includes the addition of ancillary sales for British Airways, Iberia and Iberia Express. Also under the agreement, Vueling will enter the Travel Network for the first time.
  • Launched United's Economy Plus seating offering in the Travel Network marketplace, as well as ancillary sales for seven additional airlines. Travel Network has launched ancillary sales for 20 airlines year to date.
  • Announced the addition of Expedia Affiliate Network hotel content, which will bring approximately 55,000 new properties into the Travel Network when implemented.

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. 

With the new agreement in place and the migration essentially completed, second quarter 2014 Travelocity adjusted revenue declined 45.5% to $84 million compared to $154 million in the second quarter of 2013. Costs declined through the quarter, but the timing of the transition led to a decline in segment Adjusted EBITDA to a loss of $9 million, compared to earnings of $9 million in the second quarter of 2013. The company expects stronger business performance and increasing profitability going forward.

Initial Public Offering

On April 17, 2014, Sabre successfully completed an initial public offering (IPO) of 39,200,000 primary shares of common stock. In addition, the underwriters exercised their option to purchase 5,880,000 additional shares, which closed on April 25, 2014. Sabre shares trade on the NASDAQ Stock Market under the symbol SABR. The net proceeds from the offering were used to reduce outstanding debt, including a $320 million reduction in 2019 8.5% bonds, and a $296 million reduction in Term Loan C borrowings.

Dividend

Sabre's Board of Directors has declared a quarterly dividend of $0.09 cents per share on the Company's common stock. The dividend will be payable on September 16, 2014, to stockholders of record on September 1, 2014.

Business Outlook and Financial Guidance

The following forward-looking statements, as well as those made above, reflect expectations as of August 7, 2014. Sabre assumes no obligation to update these statements. Results may be materially different and are affected by many factors detailed in this release and in Sabre's IPO prospectus and quarterly SEC filings.

In conjunction with the second quarter earnings report, Sabre management reiterated expectations for full year Revenue, while increasing guidance for Adjusted EBITDA, Adjusted Net Income and Adjusted EPS. Adjusted EBITDA guidance was increased from a prior range of $843 - $858 million to a current range of $848 - $863 million, reflecting strength across Sabre excluding Travelocity. Adjusted Net Income guidance was increased from $215 - $230 million to $222 - $237 million. Adjusted EPS guidance was increased from a prior range of $0.86 - $0.92 to current guidance of $0.90 - $0.96.

Full Year 2014 Guidance

($ millions, except EPS)

Sabre Excluding

Travelocity

Travelocity

Sabre

Revenue

$2,575 - $2,595

$410 - $420

$2,985 - $3,015

Adjusted EBITDA

$833 - $843

$15 - $20

$848 - $863

Adjusted Net Income

$222 - $237

Adjusted EPS

$0.90 - $0.96

Conference Call The Company will conduct its second 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, the Company expects to post a file of supplemental financial information 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," "expect," "intend," "plan," "goal," "anticipate," "believe," "estimate," "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, dependence on maintaining and renewing contracts with customers and other counterparties, exposure to pricing pressure in the Travel Networks business, dependence on relationships with travel buyers, changes affecting travel supplier customers, adverse global and regional economic and political conditions, including, but not limited to, conditions in Venezuela and Israel, travel suppliers' usage of alternative distribution models, reliance on third-party distributor partners and joint ventures to extend our GDS services to certain regions, competition in the travel distribution market and solutions markets and exposures relating to the Expedia SMA.  More information about potential risks and uncertainties that could affect our business and results of operations is included in the "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" sections included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 17, 2014. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, Sabre undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made.

Contacts:

Media                                      

Investors

Nancy St. Pierre                         

Barry Sievert

682-605-3864                               

682-605-0214

nancy.stpierre@sabre.com             

barry.sievert@sabre.com   

 

SABRE CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except share amounts)

(Unaudited)

 

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Revenue

$

717,573

$

768,232

$

1,472,983

$

1,527,576

Cost of revenue (1) (2)

444,276

467,365

934,021

949,152

Selling, general and administrative (2)

205,152

212,364

404,029

412,193

Impairment

135,598

135,598

Operating income (loss)

68,145

(47,095)

134,933

30,633

Other income (expense):

Interest expense, net

(53,235)

(63,669)

(117,179)

(146,199)

Loss on extinguishment of debt

(30,558)

(33,538)

(12,181)

Joint venture equity income

4,059

3,286

6,500

6,032

Other, net

1,082

(3,796)

195

1,330

Total other expense, net

(78,652)

(64,179)

(144,022)

(151,018)

Loss from continuing operations before income taxes

(10,507)

(111,274)

(9,089)

(120,385)

Benefit for income taxes

(5,495)

(8,142)

(3,078)

(13,090)

Loss from continuing operations

(5,012)

(103,132)

(6,011)

(107,295)

Loss from discontinued operations, net of tax

(5,183)

(12,893)

(6,281)

(23,910)

Net loss

(10,195)

(116,025)

(12,292)

(131,205)

Net income attributable to noncontrolling interests

702

837

1,448

1,421

Net loss attributable to Sabre Corporation

(10,897)

(116,862)

(13,740)

(132,626)

Preferred stock dividends

2,235

9,005

11,381

17,977

Net loss attributable to common shareholders

$

(13,132)

$

(125,867)

$

(25,121)

$

(150,603)

Basic and diluted loss per share:

Continuing operations

$

(0.03)

$

(0.63)

$

(0.09)

$

(0.71)

Discontinued operations

(0.02)

(0.07)

(0.03)

(0.13)

Basic and diluted loss per share attributable to common shareholders

(0.05)

(0.71)

(0.12)

(0.85)

Basic and diluted weighted average common shares outstanding

243,801

178,060

211,431

178,007

(1) Includes amortization of upfront incentive consideration

$

11,742

$

9,752

$

22,789

$

19,351

(2) Includes stock-based compensation as follows:

Cost of revenue

$

1,940

$

(186)

$

3,446

$

272

Selling, general and administrative

9,443

222

13,516

2,488

 

SABRE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 

June 30, 2014

December 31, 2013

Assets

Current assets

Cash and cash equivalents

$

252,380

$

308,236

Restricted cash

1,052

2,359

Accounts receivable, net

456,674

434,288

Prepaid expenses and other current assets

46,435

53,378

Current deferred income taxes

40,504

41,431

Other receivables, net

31,202

29,511

Assets of discontinued operations

10,953

13,624

Total current assets

839,200

882,827

Property and equipment, net of accumulated depreciation of  $792,330 and $722,916

512,262

498,523

Investments in joint ventures

142,003

132,082

Goodwill

2,138,263

2,138,175

Trademarks and brandnames, net of accumulated amortization of $549,566 and $545,597

312,066

323,035

Other intangible assets, net of accumulated amortization of $938,233 and $889,904

263,204

311,523

Other assets, net

508,707

469,543

Total assets

$

4,715,705

$

4,755,708

Liabilities, temporary equity and stockholders' equity (deficit)

Current liabilities

Accounts payable

$

131,409

$

111,386

Travel supplier liabilities and related deferred revenue

141,803

213,504

Accrued compensation and related benefits

72,537

117,689

Accrued subscriber incentives

168,756

142,767

Deferred revenues

169,756

136,380

Litigation settlement liability and related deferred revenue

48,263

38,920

Other accrued liabilities

238,589

267,867

Current portion of debt

22,401

86,117

Liabilities of discontinued operations

24,797

41,788

Total current liabilities

1,018,311

1,156,418

Deferred income taxes

10,090

10,253

Other noncurrent liabilities

567,327

263,182

Long-term debt

3,069,502

3,643,548

Commitments and contingencies (Note 13)

Temporary equity

Series A Redeemable Preferred Stock: $0.01 par value; 225,000,000 authorized shares; no shares issued and outstanding at June 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; 265,186,666 and 178,633,409  shares issued, 264,749,280 and 178,491,568 outstanding at June 30, 2014 and December 31, 2013, respectively

2,652

1,786

Additional paid-in capital

1,906,031

880,619

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

(5,297)

Retained deficit

(1,810,675)

(1,785,554)

Accumulated other comprehensive loss

(41,573)

(49,895)

Noncontrolling interest

(663)

508

Total stockholders' equity (deficit)

50,475

(952,536)

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

$

4,715,705

$

4,755,708

 

SABRE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands, except share amounts)

(Unaudited)

Six Months Ended

June 30,

2014

2013

Operating Activities

Net loss

$

(12,292)

$

(131,205)

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

Depreciation and amortization

158,748

153,910

Impairment

135,598

Amortization of upfront incentive consideration

22,789

19,351

Litigation related charges, net

33

4,078

Stock-based compensation expense

16,962

2,760

Allowance for doubtful accounts

3,652

6,531

Deferred income taxes

(17,508)

(19,550)

Joint venture equity income

(6,500)

(6,032)

Amortization of debt issuance costs

3,243

3,637

Debt modification costs

3,290

14,003

Loss on extinguishment of debt

33,538

12,181

Other

8,583

(4,243)

Loss from discontinued operations

6,281

23,910

Changes in operating assets and liabilities:

Accounts and other receivables

(35,593)

(76,995)

Prepaid expenses and other current assets

1,300

6,529

Capitalized implementation costs

(17,597)

(38,663)

Upfront incentive consideration

(25,936)

(18,686)

Other assets

(13,050)

(19,621)

Accrued compensation and related benefits

(45,436)

(28,126)

Accounts payable and other accrued liabilities

(4,899)

131,689

Pension and other postretirement benefits

(2,100)

Cash provided by operating activities

77,508

171,056

Investing Activities

Additions to property and equipment

(110,583)

(111,487)

Proceeds from sale of business

10,000

Other investing activities

235

(3,475)

Cash used in investing activities

(110,348)

(104,962)

Financing Activities

Proceeds of borrowings from lenders

148,307

2,190,063

Payments on borrowings from lenders

(791,427)

(2,218,908)

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

672,645

Prepayment fee and debt modification and issuance costs

(30,490)

(17,199)

Other financing activities

(2,616)

(4,123)

Cash used in financing activities

(3,581)

(50,167)

Cash Flows from Discontinued Operations

Net cash (used in) provided by operating activities

(24,360)

24,295

Net cash provided by investing activities

3,760

20,502

Net cash (used in) provided by discontinued operations

(20,600)

44,797

Effect of exchange rate changes on cash and cash equivalents

1,165

(1,407)

(Decrease) increase in cash and cash equivalents

(55,856)

59,317

Cash and cash equivalents at beginning of period

308,236

126,695

Cash and cash equivalents at end of period

$

252,380

$

186,012

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 contract (see Note 3, 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 expense, loss (gain) on sale of business and assets, 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, and remaining (benefit) provision 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 (Loss) divided by the applicable share count.

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

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

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

 

Tabular Reconciliations for Non-GAAP Measures

(In thousands, except share amounts; Unaudited)

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Net loss attributable to common shareholders

$

(13,132)

$

(125,867)

$

(25,121)

$

(150,603)

Net loss from discontinued operations, net of tax

5,183

12,893

6,281

23,910

Net income attributable to noncontrolling interests(1)

702

837

1,448

1,421

Preferred stock dividends

2,235

9,005

11,381

17,977

Loss from continuing operations

(5,012)

(103,132)

(6,011)

(107,295)

Adjustments:

Impairment

135,598

135,598

Acquisition related amortization(2a)

23,961

36,209

59,439

72,160

Loss on extinguishment of debt

30,558

33,538

12,181

Other, net (4)

(1,082)

3,796

(195)

(1,330)

Restructuring and other costs (5)

6,867

2,376

9,574

4,542

Litigation and taxes, including penalties(6)

2,904

8,326

8,057

22,966

Stock-based compensation

11,383

36

16,962

2,760

Management fees(7)

21,576

2,499

23,508

5,221

Amortization of Expedia SMA incentive payments

2,875

4,750

Tax impact of net income adjustments

(38,649)

(33,703)

(60,720)

(50,842)

Adjusted Net Income from continuing operations

$

55,381

$

52,005

$

88,902

$

95,961

Adjusted Net Income from continuing operations

   per share

$

0.22

$

0.28

$

0.40

$

0.52

Weighted-average shares outstanding adjusted for

   assumed inclusion of common stock equivalents

252,336

184,849

219,969

184,298

Adjusted Net Income from continuing operations

$

55,381

$

52,005

$

88,902

$

95,961

Adjustments:

Depreciation and amortization of property and equipment(2b)

41,304

31,404

82,884

64,751

Amortization of capitalized implementation costs(2c)

8,891

7,720

18,027

18,601

Amortization of upfront incentive consideration(3)

11,742

9,752

22,789

19,351

Interest expense, net

53,235

63,669

117,179

146,199

Remaining provision (benefit) for income taxes

33,154

25,561

57,642

37,752

Adjusted EBITDA

$

203,707

$

190,111

$

387,423

$

382,615

Reconciliation of Adjusted Revenue:

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Revenue

$

717,573

$

768,232

$

1,472,983

$

1,527,576

Amortization of Expedia SMA incentive payments

2,875

4,750

Adjusted Revenue

$

720,448

$

768,232

$

1,477,733

$

1,527,576

Reconciliation of Adjusted Capital Expenditures:

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Additions to property and equipment

$

58,944

$

58,786

$

110,583

$

111,487

Capitalized implementation costs

9,944

16,634

17,597

38,663

Adjusted Capital Expenditures

$

68,888

$

75,420

$

128,180

$

150,150

Reconciliation of Adjusted Free Cash Flow:

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Cash provided by operating activities

$

5,310

$

78,673

$

77,508

$

171,056

Cash used in investing activities

(58,709)

(52,082)

(110,348)

(104,962)

Cash used in financing activities

25,021

(24,100)

(3,581)

(50,167)

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Cash provided by operating activities

$

5,310

$

78,673

$

77,508

$

171,056

Additions to property and equipment

(58,944)

(58,786)

(110,583)

(111,487)

Free Cash Flow

(53,634)

19,887

(33,075)

59,569

Adjustments:

Restructuring and other costs(5) (9)

14,564

2,376

26,426

4,542

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

7,038

26,346

11,744

30,215

Other litigation costs(6) (9)

2,506

7,128

6,934

7,740

Management fees(7) (9)

21,576

2,499

23,508

5,221

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

71,169

-

95,635

-

Adjusted Free Cash Flow

$

63,219

$

58,236

$

131,172

$

107,287

 

Reconciliation of Adjusted Gross Margin and Adjusted EBITDA by Segment:

Three Months Ended June 30, 2014

Travel

Network

Airline and

Hospitality

Solutions

Travelocity

Eliminations

Corporate

Total

Operating income (loss)

$

165,597

$

35,855

$

(12,721)

$

$

(120,586)

$

68,145

Add back:

Selling, general and administrative

24,555

12,924

71,796

(7,348)

103,225

205,152

Cost of revenue adjustments:

Depreciation and amortization(2)

15,267

26,480

971

6,369

49,087

Amortization of upfront incentive    consideration(3)

11,742

11,742

Restructuring and other costs (5)

3,726

3,726

Litigation and taxes, including penalties(6)

333

333

Stock-based compensation

1,940

1,940

Amortization of Expedia SMA incentive payments

2,875

2,875

Adjusted Gross Margin

217,161

75,259

62,921

(7,348)

(4,993)

343,000

Selling, general and administrative

(24,555)

(12,924)

(71,796)

7,348

(103,225)

(205,152)

Joint venture equity income

4,059

4,059

Joint venture intangible amortization(2a)

801

801

Selling, general and administrative adjustments:

Depreciation and amortization(2)

505

219

23,544

24,268

Restructuring and other costs (5)

3,141

3,141

Litigation and taxes, including penalties(6)

2,571

2,571

Stock-based compensation

9,443

9,443

Management fees(7)

21,576

21,576

Adjusted EBITDA

$

197,971

$

62,554

$

(8,875)

$

$

(47,943)

$

203,707

Three Months Ended June 30, 2013

Travel

Network

Airline and

Hospitality

Solutions

Travelocity

Eliminations

Corporate

Total

Operating income (loss)

$

162,071

$

28,518

8,449

$

$

(246,133)

$

(47,095)

Add back:

Selling, general and administrative

30,830

16,301

88,335

(178)

77,076

212,364

Impairment

135,598

135,598

Cost of revenue adjustments:

Depreciation and amortization(2)

11,752

18,925

565

17,270

48,512

Amortization of upfront incentive consideration(3)

9,752

9,752

Restructuring and other costs (5)

1,348

1,348

Litigation and taxes, including penalties(6)

2,627

2,627

Stock-based compensation

(186)

(186)

Adjusted gross margin

214,405

63,744

97,349

(178)

(12,400)

362,920

Selling, general and administrative

(30,830)

(16,301)

(88,335)

178

(77,076)

(212,364)

Joint venture equity income

3,286

3,286

Joint venture intangible amortization(2a)

801

801

Selling, general and administrative adjustments:

Depreciation and amortization(2)

575

232

56

25,157

26,020

Restructuring and other costs (5)

1,028

1,028

Litigation and taxes, including penalties(6)

5,699

5,699

Stock-based compensation

222

222

Management fees(7)

2,499

2,499

Adjusted EBITDA

$

188,237

$

47,675

$

9,070

$

$

(54,871)

$

190,111

Six Months Ended June 30, 2014

Travel

Network

Airline and

Hospitality

Solutions

Travelocity

Eliminations

Corporate

Total

Operating income (loss)

$

350,114

$

62,317

$

(41,283)

$

$

(236,215)

$

134,933

Add back:

Selling, general and administrative

50,227

25,319

152,181

(7,457)

183,759

404,029

Cost of revenue adjustments:

Depreciation and amortization(2)

30,679

53,163

2,463

23,589

109,894

Amortization of upfront incentive consideration(3)

22,789

22,789

Restructuring and other costs (5)

4,942

4,942

Litigation and taxes, including penalties(6)

939

939

Stock-based compensation

3,446

3,446

Amortization of Expedia SMA incentive payments

4,750

4,750

Adjusted Gross Margin

453,809

140,799

118,111

(7,457)

(19,540)

685,722

Selling, general and administrative

(50,227)

(25,319)

(152,181)

7,457

(183,759)

(404,029)

Joint venture equity income

6,500

6,500

Joint venture intangible amortization(2a)

1,602

1,602

Selling, general and administrative adjustments:

Depreciation and amortization(2)

1,130

535

47,189

48,854

Restructuring and other costs (5)

4,632

4,632

Litigation and taxes, including penalties(6)

7,118

7,118

Stock-based compensation

13,516

13,516

Management fees(7)

23,508

23,508

Adjusted EBITDA

$

412,814

$

116,015

$

(34,070)

$

$

(107,336)

$

387,423

Six Months Ended June 30, 2013

Travel

Network

Airline and

Hospitality

Solutions

Travelocity

Eliminations

Corporate

Total

Operating income (loss)

$

346,970

$

51,173

$

(7,464)

$

$

(360,046)

$

30,633

Add back:

Selling, general and administrative

55,180

30,631

176,427

(391)

150,346

412,193

Impairment

135,598

135,598

Cost of revenue adjustments:

Depreciation and amortization(2)

23,561

36,894

6,222

34,343

101,020

Amortization of upfront incentive consideration(3)

19,351

19,351

Restructuring and other costs (5)

1,939

1,939

Litigation and taxes, including penalties(6)

14,475

14,475

Stock-based compensation

272

272

Adjusted gross margin

445,062

118,698

175,185

(391)

(23,073)

715,481

Selling, general and administrative

(55,180)

(30,631)

(176,427)

391

(150,346)

(412,193)

Joint venture equity income

6,032

6,032

Joint venture intangible amortization(2a)

1,602

1,602

Selling, general and administrative adjustments:

Depreciation and amortization(2)

1,024

478

1,367

50,021

52,890

Restructuring and other costs (5)

2,603

2,603

Litigation and taxes, including penalties(6)

8,491

8,491

Stock-based compensation

2,488

2,488

Management fees(7)

5,221

5,221

Adjusted EBITDA

$

398,540

$

88,545

$

125

$

$

(104,595)

$

382,615

 

Non-GAAP Footnotes:

(1)

Net income attributable to non-controlling interests represents an adjustment to include earnings allocated to non-controlling 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 six months ended June 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)

Represents 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 have been paying 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 MSA, earned by the company in such fiscal year up to a maximum of $7 million. In addition, the MSA provides 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 TPN on working capital for the six months ended June 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 six months ended June 30, 2014 and 2013. The payment credits were provided by us as part of our litigation settlement with American Airlines.

 

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SOURCE Sabre Corporation



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