A Forensic Financial Analysis Of Sabre Corp. And Its Related-Party Acquisition Of Abacus Suggests Cash Flow And EBITDA Overstatement

| About: Sabre Corporation (SABR)

Summary

In our opinion, Sabre is a failed LBO from 2007, recycled IPO in 2014, and has risen 80% on a stream of highly questionable earnings “beats”.

We believe Sabre masked headwinds in its core business in 2015 with the related-party acquisition of Abacus. It says Travel Network grows 4-6%, but we think it's close to zero.

Sabre appears to be using creative JV accounting to artificially boost its operating cash flow. Without this accounting gimmick, operating cash flow would have declined in 2015.

Sabre is also boosting EBITDA through aggressive capitalization strategies related to upfront cash incentives to customers.

By adjusting Sabre’s financials, incorporating its TRA, and applying a 6.5–8.0x terminal EBITDA multiple consistent with its 2007 fairness opinion, we get 40-60% downside.

Report Entitled "Sabre Corp.: Slicing Estimates"

Spruce Point Capital Management is pleased to announce it has released the contents of a unique short idea involving Sabre Corp. (NASDAQ: SABR), a recycled LBO taken public in 2014 where we see $12.00-$17.00 per share, or approximately 40% to 60% downside. Our presentation is accessible on our website www.sprucepointcap.com. We also encourage all of our readers to sign-up on our website and to follow us on Twitter @Sprucepointcap for exclusive research updates. Please review our disclaimer at the end of our research report.

I. Executive Summary

Introducing Sabre Corp., An Old Investment Story Taken Public in 2014 after its LBO in 2007. Underlying Business Model Pressure Suggest Questionable Value Creation

Sabre Corp. is a travel tech company with a core business of operating a Global Distribution System ("GDS"), a platform that facilitates travel by bringing together content such as inventory, prices, and availability from a broad array of travel suppliers for a range of travel buyers such as online/physical travel agents and corporate travel departments. Customers include American Airlines (NASDAQ:AAL), United (NYSE:UAL), Delta (NYSE:DAL), and Air Canada (OTCPK:ACDVF). As a middleman between buyers and suppliers, Sabre's biggest risk is disintermediation, whereby its consumers bypass its network, through emerging threats from Google (NASDAQ:GOOG) (NASDAQ:GOOGL), or even worse, suppliers imposing fees to customers for using it (e.g. Lufthansa).

To keep customers happy and loyal, Sabre must offer upfront cash incentives because its contracts are typically short term, and upwards of 20% of contracts renew annually. Our research suggests that Sabre has been offering increasing incentive discounts, which has forced deflationary pricing as evident in declining revenue per transaction. Sabre came public in 2014 after a highly promoted going private LBO in 2007 during the pre-financial crisis buyout mania.

Our research suggests that despite significant M&A and restructuring at Sabre while under private ownership, there has been no value creation in its underlying business, which has sorely disappointed expectations. By ignoring the headline "Adjusted" EBITDA and EPS results and focusing on underlying cash flow economics, it's evident that Sabre is at best a stagnant business. Not surprisingly, Sabre's two private equity sponsors have rapidly exited the stock through 4 secondary issuances, and reduced their ownership from 95% pre-IPO to 25% today!

Management Quietly Starts Liquidating Ahead of the Questionable Related-Party Acquisition of Abacus Int'l

As a result of underlying business pressures, we believe insiders were likely aware that revenue and earnings estimates would not be met in 2015. Management quietly announced on the Q1 2015 conference call in May that they would start liquidating shares under a 10b5-1 program. Realizing that Wall Street punishes earnings misses for "growth" stories fiercely, and needing a cover-up to "beat" estimates, in our opinion, Sabre announced the acquisition of Sabre, its Asian GDS affiliate.

Sabre already owned 35%, and spun the transaction as a way to access faster growing markets, but there's evidence to suggest the transaction may have allowed the company to spring-load revenue and provide a band aid to an injured business. Not surprisingly, by adjusting Sabre's results for the consolidation of Abacus, Sabre's Travel Network segment barely grew in 2015, yet management is still touting mid-to-high single-digit organic growth!

Evidence of Accounting Shenanigans To Inflate Operating Cash Flow and EBITDA:

To support our concerns about the Abacus deal, we sourced its Singapore financial filings and were disappointed to find discrepancies between the figures reported to investors in their SEC filings. Even worse, we found irregularities related to Sabre's JV accounting that suggest it artificially inflated its operating cash flow by representing returns of capital as operating cash flows, when accounting rules dictate that dividends in excess of earnings should be treated as returns of capital, and be treated as investment cash flows. By pro forma adjusting the results, we find that Sabre's operating cash flows declined in 2015, while management represented that they increased! Aggressive accounting strategies appear to be the norm with Sabre.

Our forensic analysis suggests they have become more aggressive in capitalizing upfront customer incentives, which artificially increases earnings and EBITDA. Investors are better served adjusting Sabre's financials to remove the effects of capitalization. As a result, we find Sabre's EBITDA margin actually declined in 2015, but of course, management would like you to believe they expanded...oh the miracles of financial alchemy! Not surprisingly, management's cash bonuses, along with its sponsors' management fees, are solely linked to reported EBITDA. This linkage provides clear incentives to game the EBITDA figures.

Valuation Disconnect Suggesting 40%-60% Downside:

Smelling a fee bonanza from repeated equity and debt issuances, a grand total of 13 analysts all have "Buy" recommendations and see upside to an average price target of $33.42 (+17%). In our opinion, it's easy to refute the bull case from analysts flawed investment assumptions. At approximately 3.4x and 10.5x 2016E Street sales and Adj. EBITDA estimates, respectively, Sabre appears fairly valued to peers (on inflated street numbers) Amadeus (OTCPK:AMADF) and Travelport (NYSE:TVPT). During the heavily touted LBO, venerated investment bankers at Goldman Sachs and Morgan Stanley issued a fairness opinion suggesting a terminal EBITDA multiple range of 6.5x-8.0x.

Given our belief that post-LBO, no underlying financial improvement has been created, and at worst accounting gimmicks are masking deterioration, we find it baffling how analysts can justify the current valuation. Furthermore, analysts fail to adjust their models for Sabre's $387m tax receivable liability that starts coming due in 2017 and has real cash flow implications. We also adjust Sabre's financials for the aggressive capitalization of recurring and normal upfront cash incentives. As a result, we derive a long-term price target of $12.00 - $17.00 per share, or 40-60% downside

II. Brief Overview of Sabre

  • Sabre Corp., headquartered in Southlake, TX comprises two segments: Travel Networks and Airline and Hospitality Solutions. In 2015, the company reported total revenues of $2.9bn, Adj. EBITDA of $941m, Adj. Free Cash Flow of $299m, and Adj. EPS of $1.10/share
  • Sabre was taken private in 2007 by TPG and Silver Lake at a 30% premium for $32.75/share, valuing the deal at approximately $5.0bn (including the assumption of $550m of net debt) and subsequently IPO'ed in April 2014 at $16.00 per share, giving Sabre an enterprise value of $7.5bn. With an 80% appreciation in the shares, Sabre's market cap and enterprise value are $7.8bn and $11.3bn, respectively
  • Travel Networks Segment. 2015 Revenues of $2,102m and Adj. EBITDA of $877m (71% of total revenue and 73% of total Adj. EBITDA 1). Global business-to-business travel marketplace and consists primarily of its Global Distribution System ("GDS") and a broad set of solutions that integrate with its GDS to add value for travel suppliers and travel buyers. GDS facilitates travel by bringing together travel content such as inventory, prices, and availability from a broad array of travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines and tour operators, with a large network of travel buyers, including online travel agencies ("OTAs"), offline travel agencies, travel management companies ("TMCs") and corporate travel departments
  • Airline and Hospitality Solutions Segment: 2015 Revenues of $872m and Adj. EBITDA of $323m (29% of total revenue and 27% of total Adj. EBITDA (1)). Airline and Hospitality Solutions business offers a broad portfolio of software technology products and solutions, through software-as-a-service ("SaaS") and hosted delivery model, to airlines, hotel properties and other travel suppliers. Airline and Hospitality Solutions aggregates Sabre's Airline Solutions and Hospitality Solutions operating segments

(1) pre-corporate overhead

Capital and Debt Structure

  • Sabre IPO'ed at $16/share in April 2014. Its aggressive leverage, reflective of a junk credit status with S&P and Moody's, and its high valuation leave no margin for error in disappointing Wall Street's analysts.
  • Note: We include the $387m book value of the Tax Receivable Agreement liability in our valuation. It has near-term cash implications, with payments expected starting 2017.
  • Other liabilities that could affect the valuation include $96m of pension liabilities and $102m representing the present value of operating leases.
  • Sabre has significant debt of $3.2bn ($3.6bn inc. the TRA) and it has a $381m of available revolving credit as of 12/31/15 which expires in 2018/2019.

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Key Events Inflating Sabre's Stock Price

  • Sabre's IPO priced well below the $18-$20 indicated range, but has appreciated +80% on the back of earnings increases, a debt refinancing, and selective M&A deals. Our report will focus on the "quality" of Sabre's earnings, especially in relation to the aggressive accounting for Sabre's Abacus deal.

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III. Fundamental Short Thesis and Evidence Suggesting Limited/No Value Creation Post LBO

Summary of Fundamental Concerns

  • Sabre's core Travel Network (Pending:GDS) business is under pressure while its transition to higher margin services is slow to materialize, and coming with substantial capex costs.
  • Furthermore, we believe little/no financial value has been created at Sabre Pre/Post its LBO in 2007.

Key Issues

Short-Term Contracts with Significant Renewal Risk: Contracts are typically structured for 1-3 years and a meaningful portion of travel buyer agreements typically representing 15%-20% of bookings are up for renewal in a given year!

Growth Masked By Questionable JV Consolidation: Underlying growth in the Travel Network segment could be closer to zero, yet management is still touting its 6% organic revenue goals, excluding the Abacus consolidation. Our forensic analysis suggests substantial issues, and earnings estimates that would not have been met in 2015 absent the Abacus deal

Deflation: Loss of pricing power is evident in Sabre's declining Revenue per Booking. Our forensic accounting analysis also suggests that Sabre is having to substantially increase upfront customer incentives, yet minimizes the current impact to its financials through aggressive capitalization

Disintermediation: Airlines look to cut costs from middlemen like Sabre. Lufthansa recently imposed a fee to customers for going through a GDS. Google's purchase of ITA Software in 2011 is a major competitive threat that could intensify this trend. Google's settlement with the Dept. of Justice expires in Oct 2016, which could allow it to accelerate its direct to consumer model

Debt: Sabre is saddled with $3.2bn of debt and another $387m of tax payments ("TRA") which start coming due in 2017. Sabre's credit profile is "aggressive" and is rated Ba3 / B+ by Moody's/S&P, respectively. Pro forma for the TRA, we estimate its leverage at 3.8x, leaving little margin for error

Critical Analysis of Sabre's LBO

The Sabre acquisition, which closed in early 2007, was a relic of the pre-financial crisis leverage mania that started to unravel in 2008.

The deal followed the sale of Travelport from Cendant to Blackstone for $4.3 billion in cash, which closed in August 2006.

  • The deal valued Travelport at approximately 7.6x LTM EBITDA and was levered 6.3x Total Debt / LTM EBITDA. TPG and Silver Lake's acquisition of Sabre pushed the bar even higher! According to the fairness opinion, the deal was the richest and most highly levered of all precedent transactions.
  • Sabre was acquired at approximately 10.2x trailing EBITDA with 7.8x Debt / EBITDA.

Valuation and Leverage Predicated on High Expectations:

Greg Mondre, a Managing Director of Silver Lake Partners, said:

"Sabre has a remarkable track record of pioneering and delivering best-in-class technology solutions for the global travel industry. We look forward to working with Sabre's talented management team as they continue to deploy technology as a source of competitive advantage and value-add for customer"

Key Sabre Management All Left:

  • Sabre CEO Sam Gilliland mysteriously ousted ahead of the IPO in 2014.
  • Sabre Treasurer/Chief Accounting Officer/CFO Jeff Jackson leaves for Thayer Ventures.
  • Sabre Controller, later promoted to CFO, Mark Miller, replaced by Rick Simonson in 2013.

According to TPG Partner Karl Peterson:

"We are excited by the opportunity to invest in Sabre given its leadership position in travel technology and distribution and the strength of Travelocity and its other leading online brands. Sabre is well positioned to continue innovating and we look forward to helping management profitably build upon this strong franchise."

Based on our analysis and opinion:

  • Jan 2015: Sabre dumps Travelocity/Lastminute.com as its popularity dwindles, financial performance deteriorates.
  • Adjusted Non-GAAP EBITDA/EPS, it appears that limited/no value has been created at Sabre.

Analyst Hype and Failed LBO Expectations

Sell-side analyst comments on Sabre have proven to be overly optimistic... shocker!

Morgan Stanley Analyst: In a research note published before the agreement was announced, the analyst suggested that Sabre's would-be buyers might be able to afford an even higher price. "Under private equity ownership aggressive cost-cutting could yield higher margins and lower [capital expenditures], and in that case a $34 [per share] value could be possible." - Source

Spruce Point Reality Check: A higher offer never emerged. Under private equity ownership, cost cuts have not stemmed the surge in capex, making cash flow unchanged.

Bear Stearns Analyst: "While this transaction was widely anticipated, we think Sabre remains attractive to financial and/or strategic buyers given the highly visible cash flows from the global travel distribution business and the potential growth that the online travel agency (Travelocity) can offer." - Source

Spruce Point Reality Check: Only 1 strategic buyer expressed interest in Sabre. Travelocity was a bust and was sold, and Sabre appears to be using accounting tricks to mask declining free cash flow.

Rochdale Securities Analyst: "They (Sabre) have strong cash flow and good business fundamentals" - Source.

Spruce Point Reality Check: What may have been true in the past, may not be true in the present!

Limited Strategic Interest in Sabre

The short case is supported in knowing there was limited strategic interest in acquiring Sabre during the prior strategic alternative process. Given our belief that Sabre's growth remains at risk of further deterioration, and that accounting gimmickry appears to be used to embellish its result, we think strategic buyer interest will continue to remain unlikely.

Background of Merger Sabre Proxy:

The board considered Company Z's proposal and draft merger agreement and discussed with our management and advisors a potential combination with Company Z at our board meeting on October 13, 2006. The discussion included a consideration of the relative risks and merits of a combination with Company Z as compared to a possible take-private transaction that would not present any potentially significant regulatory or other non-consummation risk or delay. After a period during which our senior management and advisors discussed with Company Z the potential issues that would be presented in a combination transaction, our board instructed our management to cease discussions with Company Z and inform Company Z that the board was focused on avoiding substantial non-consummation risk for the Company. Our management informed Company Z of this decision.

" During the exploratory sale process, we were also contacted on several occasions by certain other companies, with which we had very preliminary discussions regarding potential strategic transactions. None of these discussions progressed to a significant extent, and no other company made a specific proposal to acquire Sabre Holdings"

Evidence of Disintermediation: Lufthansa Imposes Fees on GDS Use

In June 2015, Lufthansa, took the decisive step to penalize customers with higher fees for booking tickets indirectly through GDS providers. Lufthansa was noted as a major customer of Sabre. What is stopping other airlines from following Lufthansa's lead - such as Air France-KLM - also reportedly evaluating a similar surcharge pricing strategy?

According to Sabre's S-1 IPO Filing: "Our largest Travel Network suppliers include American Airlines, Delta, US Airways, United, Air Canada, Lufthansa, Air France, British Airways and Emirates."

Lufthansa Redirects Commercial Strategy:

"The new commercial strategy also includes a clear cost differentiation in the various booking channels. Presently, the costs for using global distribution systems (GDS) are several times higher than for other booking methods, such as our own online portal www.LH.com. In total, the yearly GDS costs come to a three-digit million euro amount for the Lufthansa Group. These services, however, are primarily used by other partners in the value chain. A large number of services are paid by the Lufthansa Group carriers, but are only partly used by them. Among others, the GDS services comprise functionalities, which offer many extra services in addition to the basic features of booking, processing and ticketing. Such examples include the option of combining and booking world-wide, multi-airline flight offers, as well as, an integrated booking and invoice processing.

As of 1 September 2015, the Lufthansa Group airlines will, therefore, include a surcharge, the "Distribution Cost Charge" (DCC) of EUR 16 for every ticket issued by a booking channel using GDS. The new charge will not be added to flight tickets purchased using own booking channels. This predominately includes the airlines' websites (www.LH.com, www.swiss.com,austrian.com, ;www.brusselsairlines.com), as well as, the service center and ticket counter at the airports. Travel agencies will also be able to book tickets without the DCC, using the online portal at www.LHGroup-agent.com. Furthermore, corporate customers will be able to book their individually negotiated contract rates excluding the DCC at www.LH.com. Customers of Lufthansa Group Airlines can of course count on continued fare transparency. The display of the ticket will always show the final fare."

Major Downside Catalyst Forthcoming: Google Threat Rises in October 2016

In July 2010, Google announced its acquisition of ITA Software for $700m. Google said the acquisition of ITA, which organizes data such as flight times, ticket availability and prices, will enable it to create online search tools to help people find such information more easily on the Web. The deal spooked industry participants, who formed a group and released a video in an attempt to warn about the dangers of Google entering the business. In April 2011, the Dept. of Justice cleared the transaction, but imposed conditions limiting how Google could use the technology.

After the Justice Department's consent decree expires in October 2016, Google will be able to do what it pleases with ITA, and that makes people like internet travel experts Ed Hasbrouck nervous.

"The real danger is of Google dominance of personalized pricing," he says. "Imagine Google being able to incorporate everything it knows about you from your use of all Google services into decisions about what price to put on each airline ticket. Airlines or services with less info on which to base such price personalization would have a hard time competing with Google."

Sabre mentions direct to consumer risk in its 10-K, page 42:

"Travel suppliers continue to look for ways to decrease their costs and to increase their control over distribution. Airline consolidations, pricing pressure during contract renegotiations and the use of direct distribution may continue to subject our business to challenges. The shift from indirect distribution channels, such as our GDS, to direct distribution channels, may result from increased content availability on supplier operated websites or from increased participation of meta search engines, such as Kayak and Google, which direct consumers to supplier operated websites. This trend may adversely affect our Travel Network contract renegotiations with suppliers that use alternative distribution channel s. For example, airlines may withhold part of their content for distribution exclusively through their own direct distribution channels or offer more attractive terms for content available through those direct channels."

Sabre's Results Failing Initial Expectations

Sabre's Management outlined long-term projections for its business from 2007-2012 in its proxy statement prior to its take private transaction which closed March 20, 2007. Since then, Sabre has made numerous divestitures and some acquisitions, although many acquisitions have been immaterial to results. We attempted to reconcile actual 2012 revenues vs. projections by adjusting the reported results for acquisitions and divestitures. Our back of the envelope estimate suggests that Sabre's 2012 results sorely disappointed expectations and could be evidence of erosion of its core business.

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Questionable LBO Value Creation

Both Sabre and its analysts would love investors to focus on its growing Adjusted EPS and EBITDA. However, the sad reality is that despite years of financial engineering, restructuring, and transitioning to more SAAS solutions, Sabre's free cash flow and margins remain largely unchanged from Pre-LBO levels. This has very important implications for Sabre's valuation, which we discuss later in the valuation section.

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As a technology company, it's disappointing that Sabre has not found a way to leverage technology to make its business more efficient.

As indicated in the charts below, the company has not been able to increase the efficiency of its business as measured by Revenue per Employee and Adj Cash Flow per Employee. We believe this supports our view that a valuation expansion for Sabre is not warranted.

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EBITDA is inherently susceptible to accounting distortions. Instead, we evaluate its business by comparing its operating cash flow to average assets and employees vs. Travelport and Amadeus.

We find that Sabre has the worst capital efficiency in the industry.

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Strong Evidence of Deflation and a Cracking Business Model

Management does not steer investors towards evaluating revenue per transaction, but we've unraveled the mystery for investors; the picture is not pretty!

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Is Sabre a Buy While Insiders Jump Ship and the Company Dilutes?

Since its IPO in April 2014, the three largest beneficial owners of Sabre have conducted 4 secondary issuances, and dropped their combined beneficial ownership from 95% (pre-IPO) to 25% as of March 2nd, 2016. While insiders have been selling, the Company has quietly been diluting shareholders. Basic shares outstanding have risen by 17m or 6.5% since the IPO.

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IV. Accounting, Financial and Governance Concerns

It's important to evaluate the incentive structure that motivates management and insiders. Accordingly, we observe that Sabre's management variable incentive comp is entirely linked to Adjusted EBITDA. Furthermore, its shareholders also extract management fees tied to Adjusted EBITDA. Therefore, we believe investors should carefully scrutinize the quality of Sabre's EBITDA to make sure management and insiders are not inflating this metric to extract unjust compensation.

Corporate Performance Measure

"For purposes of the 2014 EIP, the Compensation Committee selected EBITDA as the sole performance measure. The Compensation Committee believed this measure continued to be the best indicator of both corporate and business segment profitability and that overall profitability would best position us for a successful re-entry into the public marketplace. For purposes of the 2014 EIP, EBITDA was adjusted to exclude the following items: goodwill impairments, prior period non-cash adjustments, and one-time costs associated with specific business enhancement initiatives. Our Board of Directors approved these adjustments to better reflect the efforts and performance of our executive officers in relation to the current year's business performance, as well as to encourage them to make decisions that improve the potential for future growth without being penalized for the short-term investment required to achieve that growth. In addition to these adjustments, for purposes of the 2014 EIP, EBITDA was calculated before making allowance for the amounts payable pursuant to the Sabre Corporation Variable Compensation Plan, our annual incentive compensation plan for employees at the level below senior vice president ("Adjusted Pre-VCP/EIP EBITDA") (Spruce Point Note: Sabre does not provide details on the materiality of this adjustment)."

Management Services Agreement

"On March 30, 2007, we entered into the MSA with affiliates of TPG and Silver Lake (the "Managers") to provide us with management, advisory and consulting services. Pursuant to the MSA, we have been required to pay to the Managers management fees, payable quarterly in arrears, totaling to between $5 million to $7 million per year, 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. During the years ended December 31, 2013, 2012 and 2011, the annual management fee paid to the Managers was $7 million in each year. Additionally, we reimbursed the Managers for all out-of-pocket expenses incurred by them or their affiliates in connection with services provided to us pursuant to the MSA. For the years ended December 31, 2013 and 2012 the amount reimbursed in expenses was $2 million and $1 million, respectively. For the year ended December 31, 2011, the amount reimbursed in expenses was not material. In connection with the completion our initial public offering in April 2014 and in contemplation of providing continued services to the company after the initial public offering, the Managers received a fee payable pursuant to the MSA in an amount equal to, in the aggregate, $21 million plus other unpaid fees and expenses and, thereafter, the MSA was terminated. The MSA included customary exculpation and indemnification provisions in favor of the affiliates of TPG and Silver Lake."

Source: Sabre Proxy Statement

Abacus Deal in 2015 Deserves Major Scrutiny

Sabre announced its acquisition of 65% of Abacus in May 2015. This related party transaction deserves significant scrutiny because Sabre previously controlled 35% of Abacus before acquiring the remaining ownership and consolidating results!

Quick Background on Abacus International

  • Singapore-based Asian Pacific GDS operator.
  • Owned by a consortium of 11 Asian airlines alongside Sabre.
  • Abacus serves more than 100,000 travel agents across the Asia-Pacific region's 59 markets and has both global and uniquely local relationships with airlines and hotels, including the a portfolio of low-cost content and Chinese airline content.
  • 600 employees.

Quick Overview of Transaction Terms

Paid $411 million in net cash for the 65% it didn't own and guided to $50m of incremental EBITDA for 2016.

  • Implies total valuation of $632m enterprise value or 8x 2016E EBITDA. Sabre projected funding with $250m of cash and $160m of incremental net debt.
  • Pro forma Net Debt/LTM Adj. EBITDA leverage would increase to 3.0x from 3.3x.
  • The acquisition includes new long-term distribution agreements between Sabre and the 11 airline owners of Abacus.
  • Sabre projected $10m of annual cost synergies by 2017.
  • Originally projected to close on Aug 1st, the deal closed July 1st.

Source: Company press release and presentation

Critical Review of Abacus Deal: Industry View vs. Analyst and Management Promotion

Sabre's Management:

CEO Klein: "Acquiring Abacus immediately combines the global capabilities of Sabre with the deep local market expertise of the leading Asia-Pacific GDS. This powerful combination will give customers even more innovation and service options, while allowing Sabre to accelerate growth globally in a very capital efficient way - and to gain regional synergies in all three of our businesses serving travel agents, airlines and hospitality companies."

CEO of Abacus Robert Bailey: "With our extended network in Asia-Pacific, Abacus has built a trusted brand of unique significance and scale. We now have the opportunity to take the business forward even faster, broadening the scope within the Sabre family and with the support of our shareholder carriers. This is great news for the industry in Asia-Pacific...."

  • Warning: Robert Bailey left Abacus a few months later to be CEO at Linkswood Group according to his LinkedIn Profile.

Wall Street Analysts' Views:

  • Morgan Stanley: "Abacus now gives Sabre control over an entity with substantial presence in the largest, fastest growth travel market in the world."
  • Goldman Sachs: "Still, we view the announcement positively as it removes uncertainty and helps simplify the passenger booking numbers as well as the income statement."
  • Deutsche Bank: "... We would expect Sabre to accelerate Abacus growth from 7% in 2014 to high single/low double digit growth through share gains."

Industry Insider View:

  • Asset shuffling? On February 24, 2012, Sabre completed the sale of its 51% stake in Sabre Pacific, which had been jointly owned, to Abacus for $46m million of proceeds. Now, the company will re-inherit Sabre Pacific, through its Abacus buyout!
  • Sabre is doubling down on its traditional, low-margin, air GDS business: Runs counter to the [IPO] narrative of growth led by the hospitality services division.
  • Abacus has lost significant Asia Pacific market share to rivals: For a decade, Abacus has been losing market share to rivals Amadeus and Travelport in a steady loss of a point a year.
  • In 2002, Abacus/Sabre had 57% market share of GDS bookings in Asia Pacific, counted as one-way segment volume, on average.
  • Today, that figure is much lower, in the mid-30s percentage-wise, said sources. Higher Incentives to come? Sabre has lost share because it has been slower to hike fees it charges its partner airlines. Amadeus/Travelport receive higher fees from suppliers allowing them to pay higher incentive fees to travel agency subscribers. Sabre might be willing to match competitors' higher level of incentives to travel agents, speculates one former executive.
  • Sources: Tnooz, "Sabre is Ready to spend $500m, and Abacus is likely target" - Jan 27, 2015 Tnooz, "Sabre confirms $411 million Abacus takeover"- May 14, 2015.

Warning: Management Quietly Starts Dumping Shares Ahead of Abacus Deal

Sabre's management started a 10b5-1 insider stock sale program in early May 5, 2015 less than ten days before the Abacus transaction was announced on May 14, 2015. It is also noteworthy that management did not put this disclosure in writing within its earnings press release, its 10-Q filing or by 8-K filing. Instead, management made the selective disclosure during its conference call. While not a technical disclosure violation, best practices may have merited expanded disclosure.

Q1 2015 Conference Call

"Before turning the call over to Rick to walk through the financials and the forward look, there is one housekeeping matter that I wanted to address. Several members of the executive team, myself included, have entered into 10b5-1 plans to begin selling a portion of our Sabre equity. As you know, we were privately held for over seven years and during that time no equity was sold by management. As a result, several of us have options that will be expiring in the near term and normal needs for diversification after such a long period. We'll continue to hold significant stakes in Sabre stock, keeping our interests aligned with yours."

Spruce Point Note: Certain members of Sabre management joined in the past few years. The statement suggests that the entire management team waited seven years to sell.

While exact details of the 10b5-1 program have not been disclosed to investors, we analyzed recent sales through Form 4 filings.

  • As of the latest proxy statement filed 2/28/15, all executive officers and directors owned 6.2m shares or 2.3% of total shares outstanding.
  • Form 4 filings indicate that a range of executives and directors have sold including the CEO/CFO and EVP of Sabre Travel Network.
  • We estimate total insider sales of 2.3m shares at $27.15/sh average price, reaping $64.4m in proceeds.
  • Viewed in context of insider holdings pre-10b5-1, insiders have sold 37% of their holdings.

Warning: Low Quality Earnings Guidance Post Abacus Deal Announcement

Spruce Point has consistently warned its readers about the perils of investing in companies that have characteristics of diverging earnings and cash flow. Little more than two months after issuing updated guidance for the Abacus acquisition, Sabre increased guidance during its Q2'2015 earnings results. In Sabre's case, its "Adjusted" EBITDA and EPS started diverging from free cash flow after it "raised guidance" post the acquisition of Abacus.

Sabre increased sales guidance by 2.1%, Adj. EBITDA by 2.8%, and Adjusted EPS range by 4.7%-5.0%, yet high-end Adjusted Free Cash Flow fell by 3.3% from $300m+ to $290m+.

The increase was specifically called out to be related to the Travel Network by the CFO on the conf call:

"Now, specific to Travel Network, strong first half growth and continued momentum has led us to increase our full year expectations. We expect continued strong Travel Network growth in the back half of the year even before considering the impact of Abacus. So, excluding Abacus, we now expect full year Travel Network revenue growth of over 5% on bookings growth of approximately 6%, well within our medium-term expectations of 4% to 6% topline growth, and ahead of our expectations we previously communicated for 2015 in Travel Network. Including Abacus, beginning July 1, we now expect Travel Network revenue growth of 13% or more driven by bookings growth of approximately 17%."

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Source: Abacus Presentation, May 14, 2015 and Q2 2015 Earnings Presentation, Aug 4, 2015.

Warning: Low Quality Earnings, Or Worse, Evidence of Spring-Loading Revenues?

This accounting maneuver came under scrutiny during the Tyco scandal and has been studied by academics at Yale. According to the Abacus deal investor presentation, Sabre estimated that 2015 revenue would increase by $120m (assuming 8/1/15 closing) as a result of the Abacus acquisition consolidation. However, the deal actually closed a month earlier on 7/1/15. In its Q3'15 10-Q (p. 7) and later in its FY 2015 10-K filing (p. 78), Sabre made the following disclosures:

"Since the acquisition date, Abacus contributed $96 million of revenue and $1 million of income from continuing operations for the three and nine months ended September 30, 2015." (1)

(1) Note: When asked on the Q3'15 earnings conference call, the CFO said the impact of the Abacus acquisition was approximately $70-75m for the quarter, significantly less than disclosed in the 10-Q which was filed with the SEC on the same day.

"Since the acquisition date, Abacus contributed $187 million of revenue and $13 million of income from continuing operations for the year ended December 31, 2015."

Warning: Something Does Not Add Up!

  • How is it possible that Q4 revenues declined to $91m ($187m-$96m), yet income surged $12m ($13m-$1m) or 1,200%. Sabre guided to $10m of total synergies by 2017. Did it somehow exceed its target in just 1 quarter?
  • By closing one month early, Sabre added $67m of incremental revenue in 2015 above the $120m estimate ($187m-$120m).
  • Recall that the $120m initial revenue estimate assuming an 8/1/15 closing would result in 5 months of revenue consolidation or approximately $24m of sales per month. Therefore, we would have expected approximately $144m ($120m+$24m) of full year 2015 Abacus revenue from the addition of the extra month.

Warning: Questionable Earnings "Beat" in 2015

Given our concerns raised on the previous slide about the Abacus transaction and numbers not making sense, it's worth questioning the quality of the earnings "beats" in subsequent quarters.

  • So how did Q3 financial results play out for Sabre? The company reported revenue of $785m and $0.29c of Adj. EPS and beat Wall St. estimates by just 1 cent and revenue estimates by just $11.7m!

"Earnings, adjusted for one-time gains and costs, came to 29 cents per share. The results exceeded Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 28 cents per share. The provider of technology services to the travel industry posted revenue of $785 million in the period, which also beat Street forecasts. Six analysts surveyed by Zacks expected $773.3 million"

Source: Associated Press

  • Also in Q4, Sabre yet again beat Wall St. earnings estimates by 1 cent, but disappointed on the revenue line by posting $758.5.m vs. $762.1m estimates.

"Earnings, adjusted for one-time gains and costs, were 27 cents per share. The results exceeded Wall Street expectations. The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 26 cents per share. The provider of technology services to the travel industry posted revenue of $758.5 million in the period, falling short of Street forecasts. Four analysts surveyed by Zacks expected $762.1 million."

Source: Associated Press

The Ugly Reality of Sabre's Core Business

By adjusting Sabre's financials to remove the impact of Abacus, we find that its revenue growth rate declined significantly during 2015, well below management's guidance range of 4%-6%.

Note management's quote:

"So, excluding Abacus, we now expect full year Travel Network revenue growth of over 5% on bookings growth of approximately 6%, well within our medium-term expectations of 4% to 6% topline growth, and ahead of our expectations we previously communicated for 2015 in Travel Network."

Source: Q2'2015 Conf Call - Aug 5, 2015

Q3 2015: 10-Q filing post 7/1/15 close (page 7)

"Since the acquisition date, Abacus contributed $96 million of revenue and $1 million of income from continuing operations for the three and nine months ended September 30, 2015."

FY 2015: 10-K filing (page 78)

"Since the acquisition date, Abacus contributed $187 million of revenue and $13 million of income from continuing operations for the year ended December 31, 2015."

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Management Still Touting Travel Network Growth Excluding Abacus in 2016…

Sabre's management is still touting 6% growth in the Travel Network segment well into 2016 despite strong evidence to suggest they fell well short of this goal in 2015! CFO on FY 2015 Conference Call, Feb 9, 2016.

"Travel Network revenue increased 22% and EBITDA increased 21% in the quarter supported by our overall bookings growth. Excluding the impact of consolidating Abacus, Travel Network revenue increased approximately 6% in the quarter. Bookings increased 33% in the quarter. Growth was driven by the acquisition of Abacus as well as solid growth across our North America and Europe, Middle East, Africa business. Even when excluding the positive impact of the Abacus acquisition, global bookings increased a strong 8% overall in the quarter."

"At Travel Network we delivered global growth and increased share. Globally, our 2015 share increased a full point to 36.6% with 80 basis points of growth in North America and 170 basis points of growth in EMEA. Acquiring Abacus bolstered our position giving us control of our destiny in the fastest-growing travel region in the world. With that integration well underway, we're now getting much deeper with our Asia-Pacific customers to ensure that we have the right solutions for the market and create opportunities to grow market share. In EMEA we continue to grow the business which is much faster than market growth rates."

And also the CFO at the Goldman Sachs Tech and Internet Conf, Feb 10 2016

<Q - James Schneider>: That's super helpful overview. So, maybe, Rick, you want to take the guidance question. Maybe just, I think by any stretch the 2016 guidance you guys issued yesterday was pretty strong. Can you maybe just help us - but also include the effect of a couple of acquisitions in there that you've done. So can you maybe unpack first the guidance, kind of what the impact of the acquisitions is and then kind of what the underlying volume assumptions are on the Travel Network side, as well as the kind of growth assumptions...

<A - Richard A. Simonson>: Sure.

<Q - James Schneider>: ...for solutions?

<A - Richard A. Simonson>: For 2016, so in the Travel Network side, and it's been very representative of what we showed in fourth quarter where we had strong double-digit top line revenue and bookings growth. That was benefited from our acquisition of Abacus, the go-to-market entity that we had a minority interest. We took full control of that. But our underlying bookings in the fourth quarter, revenue and bookings, we're running 6%, 7%, 8%. And again, so our core business is growing above the rate of general travel growth. That sets up well on how we're positioned and a bit of market share gain overall. We see that trend repeating itself essentially in 2016 and that's how you get to those strong teens growth rate in revenue and bookings for Travel Network. But you still have mid to high-single digit organic growth rate adjusting for the Abacus acquisition and Travel Network.

Source: FY 2015 Earnings Presentation, Feb 8, 2016

More Evidence of Abacus Int'l Accounting Issues

We sourced the financial statements of Abacus International Pte Ltd., the filings of the acquired business. Source: Singapore Registry.

  • There are some clear discrepancies between figures reported to investors in Sabre's SEC filings.
  • Our major concerns are that revenues booked by Sabre are substantially higher than related party purchases noted by Abacus.
  • Furthermore, receivables from Abacus as noted by Sabre are higher than payables noted by Abacus.

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More Evidence of Joint Venture Accounting Concerns

Sabre recognizes its proportionate share of earnings from joint ventures under the "Equity Method" which means it recognizes non-cash earnings through the income statement, and deducts it from the cash flow statement. However, actual cash dividends received are accounted for as an increase in operating cash flow. Take careful notice that in 2015, dividends exceeded the actual earnings from joint ventures.

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Operating Cash Flow Appears Overstated, Actually Declined in 2015

Because Sabre received more dividends than income in 2015, accounting rules dictate that excess cash must be accounted for as a "Return of Capital" and not a " Return on Capital." (1) As a result, we are justified in reclassifying $13.9m of cash from operations, to cash flow from investing. On a pro-forma basis, Sabre's Adjusted Free Cash Flow appears to have declined in 2015 by 2.6%!

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Source: Sabre SEC Filings

(1) ASC 230-10-45-12 as noted in E&Y's Statement of Cash Flows guide, June 2015.

(2) Represents dividends in excess of income, which should be reclassified as an investing cash flow, not from operations.

Evidence of Aggressive Upfront Incentive Capitalization

While capitalization of upfront cash incentives is not outright disallowed under GAAP, Spruce Point believes it is an aggressive accounting choice to capitalize normal and recurring operating expenses.

This accounting choice increases current period earnings by stretching out expenses over future periods. Our analysis will illustrate that Sabre appears to be making more aggressive use of this capitalization strategy.

By our calculation, upfront capitalized incentives surged from $53.7m to $63.5m in 2015, an 18% increase. We believe investors would be better served by evaluating its business by deducting upfront cash incentives.

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Sabre warns of upfront incentives it must offer, but does not focus attention on quantifying the impact for investors:

"We must compete with other GDSs and other competitors for their business by offering competitive upfront incentive consideration, which, due to the strong bargaining power of these large travel buyers, tend to increase in each round of contract renewals."(1)

  • Isn't it ironic that prior to finalizing its take-private LBO in 2007, Sabre led investors to believe that incentive costs would fall!

"Additionally, with the launch of our Efficient Access Solution (see Note 5 to the Consolidated Financial Statements) we expect to lower incentive costs over time" (2)

  • Pre-LBO Sabre capitalized and amortized expenses over a short period of generally 3 years:

"Certain service contracts with significant travel agency subscribers contain booking productivity clauses and other provisions that allow subscribers to receive cash payments or other consideration. We establish liabilities for these commitments and recognize the related expense as the subscribers earn incentives based on the applicable contractual terms. Accrued incentives liabilities at December 31, 2006 and 2005 were approximately $107 million and $82 million, respectively. Periodically, we make cash payments to subscribers at inception or modification of a service contract which are deferred and amortized over the expected life of the service contract, which is generally three years." (2)

  • Post-LBO Sabre capitalizes incentives and amortizes them 3-5 years to earnings, allowing it to stretch out and reduce expenses

"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." (1)

(1) Sabre's 2015 10-K, page 6 and page 38.

(2) Sabre 2007 10-K, Trends in Cost Reduction, page 33 and Summary of Significant Accounting Policies, page 77.

Upfront Customer Incentives Rising Fast as a % of Travel Network Revenues

Customer Incentives Payments Not Reconciling

  • Sabre reports beginning and ending account balances within "Other Assets," and non-cash amortization of upfront customer incentives.
  • By mathematical deduction, we can calculate the annual capitalized incentive amount.
  • There's a slight discrepancy in 2014 of $2.6m in 2014.

Incentives Payments Growing as % of Travel Network Revenue

  • Comparing reported capitalized amounts to Travel Network revenue, we find it growing rapidly as a % of revenue.
  • Aggressively capitalization policies are worthy of close scrutiny.

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Ratio of Upfront Cash Incentive Capitalization to Amortization Rose Sharply in 2015

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CEO Appears to Dodge the Question of Pricing on the Abacus Call:

<Q: Analyst, James Schneider>: " Good morning. Congratulations, and thanks for taking my question. I was wondering if you can maybe address how the new airline agreements, the long-term agreements differ from the old ones you might have had, both - maybe just if you can comment on with directionally pricing and what is the term length of the new agreements

<A: CEO, Thomas Klein>: " Yeah. I'm not going to give you a whole lot of detail there, Jim. I appreciate why you asked the question, but there's only so much and so far I can go. They are confidential contracts. I will say they are very long-term and they lock in any of the components that we felt drove value in the joint venture."

Also Worth Investigating Questionable Accounting for Deferred Customer Advances

Sabre says that "Deferred Customer Advances and Discounts are amortized are amortized in future periods as the related revenue is earned."

If this is true, our forensic analysis fails to identify these amortization amounts, but it appears they are rapidly growing as a % of revenue.

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V. Valuation and Sell-Side Disconnect

Wall St. Analysts Hyper Bullish on Sabre, a Unanimous Buy Recommendation!

Sabre Corp. has a large roster of analysts saying unanimously "BUY!" On average analysts see upside to $33.42 per share or approximately 17% above the current trading price.

Note: based on $28.50 stock price

Easy to Refute the Bull Case on Sabre Corp.: Analysts' Investment Highlights vs. Spruce Point's Rebuttal

"Defensive growth + catalysts = 2016 outperformer. As one of the more defensive names in tech, potential catalysts ahead and front-end loaded guidance, we expect the shares to outperform."

Rebuttal: There is nothing defensive about Sabre's business. Its Travel Network business (>70% of revenues and EBITDA) is not a guaranteed recurring revenue source with long sticky contracts, but rather tied to the cyclicality of the airline and travel business. Our research suggest its core business is not growing at the mid single digit rate management suggests, but in fact is at best stagnant.

"Free Cash Flow generation is finally inflecting"

Rebuttal: Yes, inflecting downward! Our forensic analysis suggests that Sabre included JV dividends in excess of JV income to bolster 2015 operating cash flow. By reclassifying the excess dividend as an investment cash flow, we find that Sabre's Adjusted Free Cash Flow declined in 2015!

"Guidance over Street expectations was a bright spot considering the company has established a track record of beating its guidance since going public in 2014"

Rebuttal: This analyst doesn't appear to have looked carefully! In our opinion, Sabre closed the Abacus deal a month early and may have spring-loaded revenues to account for its Q2'15 earnings beat. Furthermore, by removing the effect of the Abacus deal, Sabre would have all but certainly missed its 2015 targets.

"SABR is well established with over $2.7 billion in revenue, substantial barriers to entry in the core GDS business, and is set up for strong and improving fundamentals into 2016/2017, in our view"

Rebuttal: Sounds like wishful thinking. What good are barriers when deflation is causing decreasing revenue per transaction and customer incentives are rising? Furthermore, barriers cannot stop the disintermediation away from GDS that is occurring as evidenced by the Lufthansa news and Google's entry in to the business.

"As Sabre continues to execute with better visibility around core revenue growth, expanding EBITDA margins, declining leverage, long-term EPS growth, a 2.0% dividend yield and real investor return as fundamentals accelerate out of 2015, we expect Sabre's multiple to re-rate to levels closer to that of Amadeus' with headwinds and Travelocity noise behind the company."

Rebuttal: In our opinion, Sabre's multiple should re-rate lower not higher! There's no evidence that under private ownership, and since coming public again in 2014, that Sabre's has improved its overall cash flow or capital efficiency. The fairness opinion from the LBO suggested a terminal EBITDA multiple of 6.5x -8.0x. We believe this is the appropriate valuation range given Sabre's fundamental challenges and low earnings quality.

"Bull case includes the company sees a pricing lift as it penetrates new European and emerging markets which can be 20%+ higher than its concentrated market in the US."

Rebuttal: How many times have investors been pitched "blue sky international opportunities" C'mon sell-side analysts, come up with an original selling point please! Sabre operates in a globally competitive business. It would be overly optimistic to assume Sabre can easily penetrate any mature market and achieve substantially higher pricing.

What's the Right EBITDA Multiple for Sabre?

Sabre's LBO multiple in 2007 at 10.2x was a function of a leverage bubble that ultimately burst. Precedent transactions (including its recent Abacus deal), and its own fairness opinion, suggest a long-term "terminal multiple" in the 6.5x-8.0x range. Given evidence of core deterioration in its business being masked by accounting shenanigans, Sabre should not get a multiple expansion.

  • "Goldman Sachs selected exit multiples ranging from 5.5x to 7.5x in order to calculate the terminal value based upon factors including precedent transaction analyses and the Company's forward EBITDA Multiple prior to announcement."
  • "Morgan Stanley selected exit multiples ranging from 7.0x to 8.0x last twelve months EBITDA in order to calculate the terminal value by applying this multiple to Sabre Holdings' estimated fiscal year 2011 EBITDA. The exit multiples of 7.0x to 8.0x were based upon analyses of transaction multiples of selected precedent transactions."
  • "Bear Stearns used LTM EBITDA exit multiples of 7.0x to 8.0x for the Multi-Year Outlook cases and 6.5x to 7.5x for the Extended Outlook cases. In estimating the terminal value exit multiples, Bear Stearns considered Sabre Holdings' current and recent trading multiples, adjusted downward to reflect declining future growth in EBITDA as projected by Sabre Holdings' relative to current EBITDA growth rates."

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Analysts Again Fail to Include Hefty Tax Receivable Agreement in the Valuation

As noted in our previous research on Planet Fitness (NYSE:PLNT), we believe tax receivable agreements ("TRA") are widely misunderstood and often ignored by analysts and investors for their impact on cash flow and valuation. We suggest reading the NY Times article "Private Equity Squeezing Out Cash Long After the IPO." Sabre has a "TRA" with imminent cash flow implications for 2017 and problematic accounting implications.

According to Sabre's 10-K:

"Based on current tax laws and assuming that we and our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the TRA, we estimate that future payments under the TRA relating to the Pre-IPO Tax Assets to total $387 million."" Any payments made under the TRA will be classified as a financing activity in our statement of cash flows."

Warning: We believe this would be an incorrect financial classification of TRA payments. In reality, the payments should be classified as operating cash flows! There are numerous examples of companies correctly accounting for payments as deductions of operating cash flows, and ultimately free cash flow including PBF Energy, Change Healthcare, Premier, Inc., and Berry Plastics

"The timing of future payments under the TRA is uncertain and dependent on the timing of the realization of taxable income. We expect to make the total required payments over the next five years with no material payments to occur before 2017."

Warning: Expected payments are rapidly approaching. Analysts largely fail to account for these payments as a reduction to operating and free cash flow.

Valuation Inflated on Abnormally High EPS Growth Expectations

On the surface, Sabre's valuation appears in line with peers Travelport and Amadeus. However, by adjusting its enterprise value for the tax receivable agreement liability and its EBITDA for the aggressive capitalization of upfront incentives, Sabre's valuation is rich. Sabre's high YoY EPS growth is a function of the partial year 2015 Abacus consolidation, is supporting the valuation.

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Realistic Price Target Implies 40%-60% Downside

  • Sabre's valuation needs to be re-rated to reflect its terminal multiple indicated by the exact same analysts that conducted its fairness opinion in 2007.
  • Sabre has not demonstrated any meaningful underlying business improvements resulting in cash flow enhancement.
  • Meanwhile, there is evidence that Sabre is having to offer greater upfront cash incentivizes to maintain relationships, while the risks that Sabre is disintermediated by the likes of Google and others increases.
  • Furthermore, Sabre should trade at a discount to peers due to the evidence we presented which suggests aggressive accounting and potential irregularities.

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Thanks again for your interest in our investment ideas.

About Spruce Point Capital Management

Spruce Point Capital Management, LLC is a New York based investment manager founded in 2009. The firm focuses on short-selling, special situations, and value investment opportunities. The firm conducts in depth forensic fundamental research and takes an activist approach to investing. Our research challenges conventional thinking with deep fundamental analysis, analytical rigor, and conclusions rooted with our unique viewpoints. For more information visit us at our website to sign-up follow us on Twitter @Sprucepointcap.

Disclaimer

This research presentation report expresses our research opinions, which we have based upon interpretation of certain facts and observations, all of which are based upon publicly available information, and all of which are set out in this research presentation report. Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward looking statements, expectations, pro forma analyses, estimates, and projections. You should assume these types of statements, expectations, pro forma analyses, estimates, and projections may turn out to be incorrect for reasons beyond Spruce Point Capital Management LLC's control. This is not investment or accounting advice nor should it be construed as such. Use of Spruce Point Capital Management LLC's research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. All figures assumed to be in US Dollars, unless specified otherwise.

You should assume that as of the publication date of any presentation, report or letter, Spruce Point Capital Management LLC (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our subscribers and clients has a short position in all stocks (and/or are long puts/short call options of the stock) covered herein, including without limitation Sabre Corporation. ("SABR"), and therefore stand to realize significant gains in the event that the price of its stock declines. Following publication of any presentation, report or letter, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation.

This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. Spruce Point Capital Management LLC is not registered as an investment advisor, broker/dealer, or accounting firm.

To the best of our ability and belief, as of the date hereof, all information contained herein is accurate and reliable and does not omit to state material facts necessary to make the statements herein not misleading, and all information has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer, or to any other person or entity that was breached by the transmission of information to Spruce Point Capital Management LLC. However, Spruce Point Capital Management LLC recognizes that there may be non-public information in the possession of Sabre Corporation. or other insiders of Sabre Corporation that has not been publicly disclosed by Sabre Corporation. Therefore, such information contained herein is presented "as is," without warranty of any kind - whether express or implied. Spruce Point Capital Management LLC makes no other representations, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All rights reserved. This document may not be reproduced or disseminated in whole or in part without the prior written consent of Spruce Point Capital Management LLC.

Disclosure: I am/we are short SABR, PLNT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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