Travelport Reports Mixed Financial Performance, Launches Refinancing

Travelport today reported a mixed fourth-quarter and full-year 2012 financial performance. Net revenue, operating profit, adjusted EBITDA, overall net loss and segments processed deteriorated during both periods. These metrics, however, were impacted by the loss of the United Airlines master services agreement last year. Excluding that impact, net revenue for the fourth quarter increased $18 million from the fourth quarter of 2011 and adjusted EBITDA increased by $2 million.

At the same time, "in all our key business metrics__RevPas, cost of revenue and gross margin__our 2012 momentum continued in quarter four," according to president and CEO Gordon Wilson, speaking during a conference call. RevPas, defined as average transaction processing revenue divided by the number of segments, now has increased for seven consecutive quarters, while gross margin has grown for five consecutive quarters.

Travelport today also announced that it launched "a comprehensive capital refinancing plan" that Wilson said is "specifically designed to extend 2014 debt maturities, eliminate the debt at Travelport Holdings and simplify the company's capital structure."

If successfully executed, the refinancing plan, Wilson added, "will allow Travelport's management team to continue to focus on growing the business."

The refinancing includes "arrangements to extend until 2016 the maturity date" of senior notes due in 2014 and agreements with lenders of Travelport Holdings Limited's unsecured payment-in-kind loans.

CFO Philip Emery said that "whilst there is no immediate need for any capital restructure actions, we do want to be proactive in managing the balance sheet." The extension of the maturities, he added, "allows the company more runway to execute on its growth initiatives."

'Coming Of Age' Payment Business Aiding Revenue Strategy

Those initiatives__part of Travelport's revenue diversification strategy__include further expanding the eNett payment processing business, which Wilson said "came of age" during 2012, when the settlement volume increased by a factor of 18 versus the prior year.

"The run rate of this business going into 2013 is even higher, and it will be a bottom-line contributor this year as we complete the work to embed it as a default payment option in our points of sale," he explained. "We now regard eNett as a core business going forward."

Another focus area is hotel content. The total number of properties now bookable through Travelport Rooms and More is above 375,000, and the company continues to secure best-available-rate agreements with hoteliers, according to Wilson. "Going into 2013, we are in final testing with a number of online travel agencies, providers of corporate booking tools and even airlines that want to offer their customers this array of hotel content," he said, noting plans to further leverage the Travelport Universal API.

Emery and Wilson cited revenue diversification for Travelport's ongoing improvement in RevPas, which grew 5 percent during the fourth quarter to $5.47 per transaction. Moving forward, the company anticipates "more normal growth" for the metric, in the 2 percent to 3 percent range for 2013.

Meanwhile, "the cost of revenue__the amount we pay to travel agents to make bookings in our system__has stabilized in 2012, up 1 percent in both the fourth quarter and for the full year," Emery said. "In our highly competitive environment, we don't expect cost of revenue to decline, but we do anticipate limiting its growth to low single digits moving forward."

Wilson added that success in limiting such growth "is reflective of the changing dialogue we are having with our travel agency customers, away from merely economic incentives paid for booking transactions to acknowledging the commercial opportunities provided by greater content and beneficial point-of-sale and workflow automation products."

Overall, Travelport's fourth-quarter EBITDA and adjusted EBITDA were $41 million and $89 million, respectively, down from $62 million and $106 million, respectively. Excluding the impact of United and currency exchange rate fluctuations, "the Travelport business was $7 million down in EBITDA terms on a full-year basis," Wilson said.

"The story for 2012 is that underlying revenue has been gaining momentum since the second quarter, following the loss of the United MSA at the end of March 2012," said Emery, noting 4 percent revenue growth in the fourth quarter. "We believe we are on an upward trend in revenue growth."

Including all items, the net loss for the quarter was $165 million, nearly double that of the year-earlier period, while the net loss for full-year 2012 was $236 million.

Owing to the refinancing proposal, Travelport skipped its usual Q&A session between analysts and company executives.