Travelport Worldwide Looks to the Horizon

Travelport Worldwide (TVPT) announced mixed fourth-quarter 2016 results on Tuesday, punctuated by modest overall growth and continued momentum for the company's promising eNett commercial payments business. Nonetheless, shares of the travel commerce platform specialist declined nearly 7% as the market digested the news.

Let's take a closer look at what drove Travelport as it ended the year, as well as what investors can expect going forward.

Image source: Travelport.

Travelport results: The raw numbers

Data source: Travelport. 

What happened with Travelport this quarter

• On an adjusted (non-GAAP) basis -- which adds perspective by excluding items like stock-based compensation, restructuring costs, and losses on early extinguishment of debt -- Travelport generated net income of $28.3 million, or $0.23 per share, up from $27.2 million, or $0.22 per share in the same year-ago period.
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 1% year over year, to $130.8 million.
• For the full year of 2016, revenue climbed 6%, to $2.351 billion, near the low end of Travelport's latest guidance for 2016 revenue of $2.35 billion to $2.40 billion.
• Full-year adjusted EBITDA grew 7%, to $574 million (within guidance for $565 million to $580 million), and adjusted net income per share increased 23%, to $1.23 (near the high end of guidance, which called for $1.16 to $1.24).
• Travel commerce platform revenue grew 3% year over year, to $517.7 million, including:
• a marginal $1.6 million increase in Air revenue, to $373.6 million, driven by growth in air segments.
• 10% year over year growth in Beyond Air revenue, to $144.1 million. Within Beyond Air, eNett revenue climbed 43% year over year, to $37 million, driven by an increase in volume of payments settled with existing customers.
• Technology services revenue fell 13% year over year, to $27.7 million, hurt by a reduction in hosting activities and lower development revenue.
• Revenue by geography included:
• a 1% decline in revenue from the United States, to $139.1 million.
• a 14% year-over-year gain in Asia-Pacific revenue, to $124.2 million
• 3% growth in Europe revenue, to $163.8 million
• a slight increase in Latin America and Canada revenue, to $24.2 million
• a 5% decline in Middle East and Africa revenue, to $66.4 million.
• Announced a strategic sourcing partnership agreement with Tata Consultancy Services, helping to consolidate the number of third-party development vendors with which the company must work.
• Signed an agreement to divest Travelport's 51% stake in technology development business IGT Solutions.
• Quarterly cash from operations was $85 million, and free cash flow was $48 million. 
• Net debt at the end of 2016 was $2.205 billion, down from $2.282 billion at the end of 2015.
• Ended the year with cash and equivalents of $140 million.

What management had to say

According to CEO Gordon Wilson:

In 2016, Travelport delivered its highest level of net revenue and adjusted EBITDA growth over the last five years, as we continued to execute against our strategic objectives. [...] Looking ahead, we are delighted to have signed several new and significant agency deals that we expect will drive revenue growth as those customers implement and transact with us. Moreover, we see several longer-term growth opportunities for our business, which has resulted in us increasing our investment levels commencing from the fourth quarter of 2016 and continuing throughout 2017, particularly in the areas of data and analytics, mobile solutions, payments and technology services.

Looking forward 

For the full year of 2017, Travelport anticipates revenue will grow 3% to 5%, or to a range of $2.425 billion to $2.475 billion, assuming modest low-single-digit growth in the global GDS market in the coming year. Adjusted EBITDA should also climb 2% to 4% this year, or to a range of $585 million to $595 million, while adjusted net income is expected to rise 7% to 13%, or to $165 million to $175 million. That should equate adjusted income per diluted share of $1.29 to $1.37, representing growrth of 5% to 12% over last year. Finally, Travelport anticipates free cash flow will be in the range of $165 million to $185 million, or down in the range of 14% to 3% from 2016.

By comparison, analysts' consensus estimates predicted Travelport would deliver 2017 revenue of $2.48 billion, and adjusted earnings of $1.36 per share -- both near the high ends of Travelport's respective guidance ranges. 

To be fair, we should note that growth in Travelport's travel commerce platform should be higher than guidance indicates (in the mid-single-digit percentage range), as its top line will be partly held back by the company's impending sale of IGT Solutions. In addition, Travelport's expected earnings this year will be negatively affected by its plans for increased capital investments and strategic spending -- a long-term-oriented view with which patient investors should be more than comfortable.

All things considered, apart from its slight revenue shortfall relative to expectations in the fourth quarter, there were no big surprises in this otherwise solid report. And I think Travelport investors should be content with where the company stands today.