Small cap travel software and technology stock Sabre Corporation (NASDAQ: SABR) has already lost most of its value in the wake of the Coronavirus pandemic and curbs on travel:
Small cap Sabre Corporation is a leading software and technology company that powers the global travel industry, serving a wide range of travel companies including airlines, hoteliers, travel agencies and other suppliers. The Company provides retailing, distribution and fulfilment solutions that help its customers operate more efficiently, drive revenue and offer personalized traveler experiences. Sabre Corporation's technology platform manages more than $260B worth of global travel spend annually and serves customers in more than 160 countries around the world.
On Friday, Sabre Corporation announced significant cost reductions ($200 million worth) and the withdraw of guidance provided on its February 26, 2020 earnings call (dividends and share repurchases had already been suspended). President and CEO Sean Menke commented:
"This is an unprecedented time. The global travel industry is facing challenges beyond what has been experienced before. We believe Sabre is well positioned to navigate this challenging environment. We are fortunate that significant aspects of our cost structure are variable and are taking steps to help align our other costs with the current demand environment. We have identified and are in the process of removing over $200 million in cash costs from the business in 2020. Given the magnitude of travel decline and the unknown duration of the COVID-19 impact, we will continue to monitor travel activity and take additional steps should we determine they are necessary."
CFO Doug Barnett added:
"As it relates to our liquidity, we drew down our revolver in the amount $375 million, which adds to our existing cash balance of $436 million as of 2019 year-end. Additionally, our credit agreement permits us to suspend the financial covenant related to the maintenance of our leverage ratio if a "Material Travel Event Disruption" has occurred. We believe that recent capacity reductions by domestic airlines will lead in the coming months to a finding that a Material Travel Event Disruption has occurred. We also note that about two-thirds of our cost structure is adjustable in the near-term. We will continue to assess the travel environment and whether additional cost actions beyond the $200 million announced today are necessary."
In February, Sabre Corporation had reported that Q4 revenue increased 1.9% to $941.4 million and net income attributable to common stockholders totaled $10.1 million versus $84.4 million. For the full-year 2019, total consolidated revenue increased 2.8% to $3.975 billion and net income attributable to common stockholders totaled $158.6 million versus $337.5 million due to increased technology related expenses and higher tax rates. The Company announced an expected commitment of $150 million of additional technology spend in 2020. The CEO made extensive comments that included:
"Throughout 2017 and 2018, we built a strong technology foundation and an expert leadership team while enhancing collaboration across our business and successfully navigating a heavy customer renewal cycle. In 2019, we saw the commercial benefits with new business wins. We 2 ended 2019 with a strong GDS share gain at Travel Network, solid Airline Solutions revenue growth and continued strong revenue growth at Hospitality Solutions. We also advanced our technology transformation activities and generated Free Cash Flow ahead of our guidance…”
“… Our strategic initiatives are focused on creation and distribution of personalized offers including through NDC, increasing our footprint in low-cost carrier growth and innovation, building a full-service hotel property management system, and completing our technology transformation. We’ve already made bold moves aligning with these strategic initiatives, including our acquisition of Radixx, our continued desire to close the Farelogix acquisition and new collaboration plans with Accor. In addition, we are partnering with Google to facilitate our technology transformation and help unlock future revenue opportunities. There are 5 billion passengers boarded annually around the globe. Unlocking just one more dollar of value per passenger boarded potentially represents a $5 billion opportunity for the global travel industry.”
Analyst Matthew Broome with Mizuho Securities USA did recently point out in a note: “While the near-term costs have risen meaningfully and we reduce estimates, we continue to expect the (company) to realize significant operating benefits once it exits its legacy data center facility in 2023.” So the wild card appears to be Coronavirus and the aftermath effects on the travel industry which could last years.