Sabre Earnings: Another Beat With a Cash Flow Inflection and Improved Liquidity Profile

Like last quarter, Sabre SABR shares rose around 20% from oversold conditions, as it once again surpassed sales and EBITDA guidance and as free cash flow inflected positive, which we have noted could serve as a catalyst. Despite management execution, shares are still down about 35% this year even after today’s pop, which we think is driven by investor’s distaste for debt leverage companies amid a still uncertain economic environment and higher costs of capital. We think this concern is misguided, especially given Sabre’s improved liquidity profile. We don’t plan to materially change our $9 fair value estimate and see shares of this narrow-moat company as meaningfully undervalued, although action is likely to remain volatile.

Revenue and EBITDA of $740 million and $110 million, respectively, compared with guidance of $725 million and $100 million. Nearly 100% of incremental sales growth flowed to EBITDA, which was up nicely from $73 million last quarter and $34 million a year ago, as labor and technology efficiencies take hold. Free cash flow was $39 million versus $20 million guidance and represented the highest print in four years.

Sabre maintained 2023 sales guidance at $2.9 billion-$3 billion, which is above initial guidance in February of $2.8 billion-$3.0 billion. The firm once again increased 2023 EBITDA targets to $345 million from $340 million prior, well above initial guidance in February of $300 million-$320 million. We plan to keep our $2.9 billion and $346 million respective forecasts for the full year largely unchanged.

While Sabre’s debt/EBITDA should finish around 14 times this year, it has improved its liquidity profile. At year-end 2022, it had $1.8 billion due in February 2024 at Libor+2% and another $2 billion maturing in 2025 at a fixed rate of 7.5%. Now it has just $435 million debt due in 2025, $130 million in 2026, and $2.4 billion in 2027 at a blended rate of 8.6%.