Sabre reports drop in debt due to IPO amid profit growth

While overall adjusted revenue dipped 6.2%, Sabre posted strong revenue growth in EBTIDA in the second quarter of 2014. Total revenue was in the black, coming in at $637 million (3.6% increase) while the overall EBITDA picture for the company's various segments was solid, with a year-over-year comparison:

Airline & Hospitality Solutions revenue: $187 MM, a 4.9% increase
Travel Network revenue: $462 MM, a 1.3% increase
Airline & Hospitality EBITDA: $63 MM, a 31.2% increase
Travel Network EBITDA: $198 MM, a 5.2% increase

Overall, total adjusted EBITA was $204 million (a 7.2% increase) and, when taking Travelocity out of the equation, the adjusted EBITDA was $213 million (a 17.4% increase). The recent onboarding of new customers onto the SabreSonic airline reservation system saw a year-over-year increase in boarded passengers of 5.7%, which helped bolster revenues. Other additional revenue contributions came from growth in Airline Solutions Commercial and Operations Solutions, alongside growth in Hospitality Solutions’ SynXis Central Reservations System and digital marketing solutions. Net debt dropped significantly after hovering at around $3.5 billion for several quarters. This was due to the $616 million in debt reduction delivered by the IPO proceeds. The target leverage ratio is around 3x to 3.5x debt-to-EBITDA, and the company is targeting being at the top end of that range for the rest of the year.

Travelocity was once again a drag on the overall picture this quarter, posting a loss. Last quarter's earnings saw a 34% drop in Travelocity revenue, and this dip continued unabated this quarter with a 45.5% YoY decline to $84 million. The company pinned this lackluster performance on the completion of the Expedia marketing partnership transition, and forecasts a turnaround with increased profitability in the remaining year. Basically, the company drastically reduced marketing spend to focus on the transition, says CFO Rick Simonson:

Travelocity, things are going great, they are working to the model. We did pull back millions in marketing spend in Q2, which cost us some revenue. We want to make sure that we get it right, so we’re going to ramp that up in Q3. And we expect that to deliver the revenue in Q3 and Q4. That’s why we give good confidence in reitataring the guidance despite shortfall driven by the Travelocity marketing issue. The business is performing well on the platform. We expect continued momentum in 2015.

Mobile was a strong point of performance, as the company seeks to grow share with mobile solutions for customers. The company enjoyed a doubling of the number of trips managed by TripCase, and a significant uptake in the TripCase corporate product. The linkup with General Electric was highlighted on the call by CEO Tom Klein: "We feel good about our abilities to attract new customers and keep our current customers [with our mobile products]."

This performance resulted in an Earnings per Share of 22 cents and Sabre announced a per-share dividend of 9 cents to be paid out on September 16th to shareholders of record on September 1. The closing question-and-answer session brought up some new segments of growth, such as the Saas-based property management solution that the company has moved out of Beta this year. "We think we will deliver innovation and be quicker than some of the current premise-based providers can do," says CEO Tom Klein. Other discussed initiatives are the incremental economics to be gained from the small-but-growing interest in virtual payments, and the means that this method provides to reduce leakage and manage travel spend in advance without having to rely on issuing credit cards or reimbursing from personal cards. Further discussion on Oracle's purchase of Micros was triggered by an analyst question, and, per CEO Klein, the company is "bullish on hospitality, as we believe it's underserved. We work with Oracle, and we have deep expertise in hospitality." Sabre's own "narrow focus" on helping hotels increase revenue and serve guests better will be the differentiator against larger companies that have broad vertical offerings. Sabre also provided the following updated guidance for the remainder of the year.