This morning Travelport revealed its bond exchange plans as it released its full-year results for 2012. The company announced that its management had negotiated a comprehensive refinancing plan to simplify its capital structure and refinance 2014 maturities.
In a conference call today, CEO Gordon Wilson and CFO Philip Emery discussed both topics, plus future revenue opportunities for the US-headquartered global distribution system (GDS) that is backed by private equity firm Blackstone.
The call had been repeatedly rescheduled since Thursday as the latest round of negotiations went down to the wire and through the weekend and yesterday.
If the refinancing is approved, a select group of bondholders will go restricted in a deal with Travelport. As context, there's a lawsuit underway by holders of the borrower's 2011 unsecured and subordinated bonds, who question whether a past investment was allowed under the indentures governing the notes.
The negotiations come after the global distribution system (GDS) provider signed a loan amendment with Credit Suisse to receive up to $630 million in add-on second lien debt capacity that comes due at the start of 2016.
Mixed news
Overall, the financial picture presented was an improvement from mid 2011, when talk of bankruptcy was in the air, to a period of stability and right-sizing.
Parent company Travelport Limited's earnings were within line with analysts' expectations. But the expectations were low, and the results in striking contrast to the generally more positive recent financial statements by rival Amadeus.
Overall, Travelport's quarterly net loss nearly doubled to $171 million from $84 million.
A key factor: During the fourth quarter of 2012, Travelport processed 3.3% fewer segments globally than it did a year earlier to 77 million and 2.2% for full year 2012—eyebrow-raising figures that Wilson blamed on airlines contracting North America capacity. The Americas region had the largest year-over-year decline, down 6.1% to 37 million segments.
Fourth-quarter adjusted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was 16% lower than the comparable period a year earlier, meaning $89 million, while the fiscal year adjusted EBITDA was 10% lower than prior year, or $455 million.
Emery pointed out that, if you exclude the impact of foreign exchange rate changes between the dollar and the euro related to debt payment and the loss of the United hosting services contract, Q4 adjusted EBITDA is merely flat compared to prior year, with full year EBITDA only 1% lower compared to prior year, which was in line with management's expectations.
Wilson added that fourth quarter 2013 will be the last quarter in which any significant year-over-year compare related to the loss of the United hosting services contract will affect the interpretation of results.
Looking for bright spots
Wilson says it plans to emphasize transactions not dependent on airline ticket sales to generate revenue growth in 2013.
Wilson claims that underlying revenue has started to increase, noting repeatedly that it was enjoying the seventh consecutive quarter of growth in RevPas—calculated by dividing total transaction processing net revenue by the number of segments.
For full year 2012, RevPas was up 3% in the full year, and grew 5% in the fourth quarter to an average of $5.44 per transaction. Wilson anticipated RevPas growth of between 2% and 3% in 2013.
Gross margin improved, too, up 5% in the latest quarter, for the sixth consecutive quarter of growth, and 3% for the year in full. Wilson says this was achieved by limiting the growth of cost of revenue to a growth of merely 1%. Wilson anticipates that cost can continue to stay in low single digits in the coming year, because, he says:
"Travelport continues to change its dialogue with travel agency customers away from focusing merely on economic incentives paid per booking transaction to acknowledging the commercial opportunities provided by the GDS's content, beneficial points of sale and workflow automation products."
Wilson said it had 35 new airline content agreements in 2012, including the recent announcement of participation by Scoot and Virgin Australia -- bringing its total to more than 400 airlines worldwide.
He particularly touted an agreement with Virgin Australia, which had previously relied mostly on direct sales. The airline's CEO has apparently called out that
the proportion of bookings made through the GDS since its launch on the GDS systems in mid-January has increased five-fold, and the GDS bookings have typically had a 10% yield premium over average bookings, said the airline.
Travelport also signed up many major travel management companies (TMCs) in Canada, Saudi Arabia, and Russia. The company's bookings in Russia alone grew more than 50% as a result of its deals, which included one with the country's largest TMC.
In a parallel effort, Travelport increased hotels with over 375,000 unique properties fully bookable, compared with 275,000 at the start of 2012.
Since mid-January, American Airlines has reverted to paying a non-discounted fees and charges in the US and non-US points of sale for the chance to display its fares through Travelport. Talks over contract terms are still continuing between the GDS and the airline, says Wilson.
Travelport has set aside an "appropriate reserve" in case a commercial settlement is possible.
Incremental growth
Getting its travel agent customers to adopt newer technologies has been a key goal of Wilson.
As of the start of the year, 70% of agents using its desktop platform have upgraded to enhanced booking tools. In January, Travelport surveyed users of Worldspan's desktop platform and found that 40% have converted to an upgraded system. In May, Wilson promises to make a public update on future operations.
He anticipates significant revenue growth from the company's eNett, a specialist payment solution for the travel industry using that's a joint venture between Travelport and PSP International. Growth in virtual credit card for B2B payments grew 18 times in 2012, in terms of the amount settled. It will be embedded as a default option in its points of sale.
The company is also accelerating its sale of Airline IT Solutions technology to airlines in Latin America and Europe, with strong uptake among low cost carriers.
The company has extended its partnership with IBM by buying more hardware for existing systems architecture and extending licensing agreements for software infrastructure.
Interestingly, Wilson quoted IATA as commended Travelport for being "significantly ahead of its competitors" in adapting to new distribution capabilities, for aggregating and displaying travel content, especially ancillaries, in next-generation APIs, and output this content into new point-of-sale systems.
See the full presentation/slidedeck Travelport discussed today: Travelport Q4 2012 Earnings Presentation FINAL by