10-Q 1 tvpt-20190331x10q.htm 10-Q tvpt_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to          

Commission File No. 001‑36640


Travelport Worldwide Limited

(Exact name of registrant as specified in its charter)

 

 

 

Bermuda

 

98‑0505105

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

Axis One, Axis Park

Langley, Berkshire, SL3 8AG, United Kingdom

(Address of principal executive offices, including zip code)

+44‑1753‑288‑000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  Yes  No 

As of May 9, 2019, there were 126,523,035 shares of the Registrants’ common shares, par value $0.0025 per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

Forward-Looking Statements

1

 

PART I. FINANCIAL INFORMATION

 

Item 1  

 

Financial Statements (unaudited)

3

 

 

Consolidated Condensed Statements of Operations for the Three Months Ended March 31,  2019 and 2018 (unaudited)

3

 

 

Consolidated Condensed Statements of Comprehensive Income for the Three Months Ended March 31,  2019 and 2018 (unaudited)

4

 

 

Consolidated Condensed Balance Sheets as of March 31,  2019 (unaudited) and December 31, 2018

5

 

 

Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31,  2019 and 2018 (unaudited)

6

 

 

Consolidated Condensed Statements of Changes in Total Equity (Deficit) for the Three Months Ended March 31,  2019 and 2018 (unaudited)

8

 

 

Notes to the Consolidated Condensed Financial Statements (unaudited)

9

Item 2  

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3  

 

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4  

 

Controls and Procedures

49

 

PART II. OTHER INFORMATION

 

Item 1 

 

Legal Proceedings

50

Item 1A 

 

Risk Factors

50

Item 2 

 

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3 

 

Defaults upon Senior Securities

50

Item 4  

 

Mine Safety Disclosures

50

Item 5  

 

Other Information

50

Item 6  

 

Exhibits

51

Signatures 

 

 

53

 

 

 

 


 

FORWARD-LOOKING STATEMENTS

The forward-looking statements contained herein involve risks and uncertainties. Many of the statements appear, in particular, in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “potential,” “should,” “will” and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future priorities, goals, strategies, actions to improve business performance, market growth assumptions and expectations, new products, product pricing, changes to our business processes, future business opportunities, capital expenditures, financing needs, financial position and other information that is not historical information. References within this Quarterly Report on Form 10‑Q to “we,” “our,” “us” or “Travelport” refer to Travelport Worldwide Limited, a Bermuda company, and its consolidated subsidiaries.

The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results of continuing operations or those anticipated or predicted by these forward-looking statements:

·

factors affecting the level of travel activity, particularly air travel volume, including security concerns, pandemics, general economic conditions, natural disasters and other disruptions;

·

our ability to obtain travel provider inventory from travel providers, such as airlines, hotels, car rental companies, cruise-lines and other travel providers;

·

our ability to maintain existing relationships with travel agencies and to enter into new relationships on acceptable financial and other terms;

·

our ability to develop and deliver products and services that are valuable to travel agencies and travel providers and generate new revenue streams;

·

the impact on travel provider capacity and inventory resulting from consolidation of the airline industry;

·

our ability to grow adjacencies, such as payment and mobile solutions;

·

general economic and business conditions in the markets in which we operate, including fluctuations in currencies, particularly in the U.S. dollar, and the economic conditions in the eurozone;

·

the impact on business conditions worldwide as a result of political decisions, including the United Kingdom’s (“U.K.”) decision to leave the European Union (“E.U.”);

·

pricing, regulatory and other trends in the travel industry;

·

the impact our outstanding indebtedness may have on the way we operate our business;

·

our ability to achieve expected cost savings from our efforts to improve operational and technological efficiency, including through our consolidation of multiple technology vendors and locations and the centralization of activities;

·

the impact that the potential Merger (as defined below) transaction may have on our operations; and

·

maintenance and protection of our information technology (“IT”) and intellectual property.

1


 

We caution you that the foregoing list of important factors may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the sections captioned “Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 22, 2019, and this Quarterly Report on Form 10-Q, as well as any other cautionary language in this Quarterly Report on Form 10‑Q, provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described in the forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this report could have an adverse effect on our business, results of operations, financial position and cash flows.

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

2


 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

TRAVELPORT WORLDWIDE LIMITED

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months

 

Three Months

 

 

Ended

 

Ended

 

 

March 31,

 

March 31,

(in $ thousands, except share data)

    

2019

    

2018

Net revenue  

 

$

656,539

 

$

677,838

Costs and expenses

 

 

 

 

 

 

Cost of revenue 

 

 

402,032

 

 

426,397

Selling, general and administrative 

 

 

113,194

 

 

125,200

Depreciation and amortization 

 

 

54,026

 

 

48,577

Total costs and expenses 

 

 

569,252

 

 

600,174

Operating income  

 

 

87,287

 

 

77,664

Interest expense, net 

 

 

(34,773)

 

 

(14,935)

Loss on early extinguishment of debt

 

 

(17)

 

 

(27,661)

Other expense

 

 

(2,055)

 

 

(93)

Income from continuing operations before income taxes

 

 

50,442

 

 

34,975

Provision for income taxes 

 

 

(28,050)

 

 

(3,491)

Net income from continuing operations

 

 

22,392

 

 

31,484

Income from discontinued operations, net of tax

 

 

—  

 

 

27,747

Net income

 

 

22,392

 

 

59,231

Net income attributable to non-controlling interest in subsidiaries 

 

 

(2,124)

 

 

(402)

Net income attributable to the Company  

 

$

20,268

 

$

58,829

Income per share – Basic:

 

 

 

 

 

 

Income per share – continuing operations

 

$

0.16

 

$

0.25

Income per share – discontinued operations

 

 

—  

 

 

0.22

Basic income per share

 

$

0.16

 

$

0.47

Weighted average common shares outstanding – Basic 

 

 

126,508,036

 

 

125,428,257

Income per share – Diluted:

 

 

 

 

 

 

Income per share – continuing operations

 

$

0.16

 

$

0.25

Income per share – discontinued operations

 

 

—  

 

 

0.22

Diluted income per share

 

$

0.16

 

$

0.47

Weighted average common shares outstanding – Diluted 

 

 

128,220,382

 

 

126,131,201

Cash dividends declared per common share 

 

$

—  

 

$

0.075

 

See Notes to the Consolidated Condensed Financial Statements

3


 

TRAVELPORT WORLDWIDE LIMITED

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

 

 

 

 

Three Months

 

Three Months

 

Ended

 

Ended

 

March 31,

 

March 31,

(in $ thousands)

2019

 

2018

Net income

$

22,392

 

$

59,231

Other comprehensive income, net of tax:

 

 

 

 

 

Currency translation adjustment, net of tax 

 

105

 

 

4,270

Amortization of actuarial loss to net income, net of tax 

 

3,055

 

 

2,473

Other comprehensive income, net of tax:

 

3,160

 

 

6,743

Comprehensive income

 

25,552

 

 

65,974

Comprehensive income attributable to non-controlling interest in subsidiaries 

 

(2,124)

 

 

(402)

Comprehensive income attributable to the Company 

$

23,428

 

$

65,572

 

See Notes to the Consolidated Condensed Financial Statements

4


 

TRAVELPORT WORLDWIDE LIMITED

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited)

 

 

 

 

 

 

 

March 31,

 

December 31,

(in $ thousands, except share data)

2019

 

2018

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents 

$

247,725

 

$

213,001

Accounts receivable (net of allowances for doubtful accounts of $9,261 and $8,415 as of March 31, 2019 and December 31, 2018, respectively) 

 

259,769

 

 

209,834

Other current assets 

 

115,075

 

 

113,605

Total current assets 

 

622,569

 

 

536,440

Property and equipment, net 

 

487,236

 

 

495,699

Operating lease right-of-use assets

 

57,301

 

 

—  

Goodwill 

 

1,083,081

 

 

1,083,766

Trademarks and tradenames 

 

313,097

 

 

313,097

Other intangible assets, net 

 

408,172

 

 

423,512

Deferred income taxes 

 

21,782

 

 

21,229

Other non-current assets 

 

60,146

 

 

55,314

Total assets 

$

3,053,384

 

$

2,929,057

Liabilities and equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable 

$

81,497

 

$

65,936

Accrued expenses and other current liabilities 

 

529,170

 

 

506,266

Current portion of long-term debt 

 

59,238

 

 

57,497

Current portion of operating lease liabilities

 

12,664

 

 

—  

Total current liabilities 

 

682,569

 

 

629,699

Long-term debt 

 

2,180,284

 

 

2,194,537

Long-term operating lease liabilities

 

57,428

 

 

—  

Deferred income taxes 

 

38,919

 

 

37,254

Other non-current liabilities 

 

216,240

 

 

219,925

Total liabilities 

 

3,175,440

 

 

3,081,415

Commitments and contingencies (Note 13) 

 

 

 

 

 

Shareholders’ equity (deficit):

 

 

 

 

 

Preference shares ($0.0025 par value; 225,000,000 shares authorized; no shares issued and outstanding as of March 31, 2019 and December 31, 2018) 

 

—  

 

 

—  

Common shares ($0.0025 par value; 560,000,000 shares authorized; 128,326,915 shares and 128,229,030 shares issued; 126,523,035 shares and 126,436,176 shares outstanding as of March 31, 2019 and December 31, 2018, respectively) 

 

320

 

 

320

Additional paid in capital 

 

2,685,538

 

 

2,680,615

Treasury shares, at cost (1,803,880 shares and 1,792,854 shares as of March 31, 2019 and December 31, 2018, respectively)

 

(27,796)

 

 

(27,623)

Accumulated deficit 

 

(2,628,493)

 

 

(2,648,761)

Accumulated other comprehensive loss 

 

(171,793)

 

 

(174,953)

Total shareholders’ equity (deficit) 

 

(142,224)

 

 

(170,402)

Equity attributable to non-controlling interest in subsidiaries 

 

20,168

 

 

18,044

Total equity (deficit) 

 

(122,056)

 

 

(152,358)

Total liabilities and equity 

$

3,053,384

 

$

2,929,057

 

See Notes to the Consolidated Condensed Financial Statements

5


 

TRAVELPORT WORLDWIDE LIMITED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months

 

Three Months

 

 

Ended

 

Ended

 

 

March 31,

 

March 31,

(in $ thousands)

   

2019

    

2018

Operating activities

 

 

 

 

 

 

Net income 

 

$

22,392

 

$

59,231

Income from discontinued operations, net of tax

 

 

—  

 

 

(27,747)

Net income from continuing operations

 

 

22,392

 

 

31,484

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization 

 

 

54,026

 

 

48,577

Amortization of customer loyalty payments 

 

 

16,454

 

 

22,343

Impairment of long-lived assets

 

 

3,968

 

 

491

Amortization of debt finance costs and debt discount 

 

 

836

 

 

1,890

Loss on early extinguishment of debt

 

 

17

 

 

27,661

Unrealized (gain) loss on foreign exchange derivative instruments 

 

 

(4,448)

 

 

242

Unrealized loss (gain) on interest rate derivative instruments

 

 

7,727

 

 

(10,430)

Equity-based compensation 

 

 

3,843

 

 

5,056

Deferred income taxes 

 

 

1,052

 

 

(9,836)

Customer loyalty payments 

 

 

(18,046)

 

 

(27,366)

Pension liability contribution

 

 

(2,916)

 

 

(338)

Changes in assets and liabilities: 

 

 

 

 

 

 

Accounts receivable, net

 

 

(50,065)

 

 

(62,768)

Other current assets 

 

 

342

 

 

(8,057)

Accounts payable, accrued expenses and other current liabilities 

 

 

41,138

 

 

53,750

Other 

 

 

7,169

 

 

10,398

Net cash provided by operating activities

 

$

83,489

 

$

83,097

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Property and equipment additions 

 

$

(34,097)

 

$

(36,663)

Net cash used in investing activities 

 

$

(34,097)

 

$

(36,663)

 

6


 

TRAVELPORT WORLDWIDE LIMITED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS—(Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months

 

Three Months

 

 

Ended

 

Ended

 

 

March 31,

 

March 31,

(in $ thousands)

 

2019

 

2018

Financing activities

 

 

 

 

 

 

Proceeds from term loans

 

$

 

$

1,400,000

Proceeds from issuance of senior secured notes

 

 

 

 

745,000

Repayment of term loans

 

 

(5,500)

 

 

(2,153,750)

Repayment of finance lease obligations

 

 

(9,366)

 

 

(7,409)

Repayment of other indebtedness

 

 

(263)

 

 

(591)

Debt finance costs and lender fees

 

 

 

 

(17,381)

Dividend to shareholders 

 

 

 

 

(9,427)

Proceeds from share issuance under employee share purchase plan and stock options

 

 

463

 

 

2,088

Treasury share purchase related to vesting of equity awards 

 

 

(173)

 

 

(235)

Net cash used in financing activities 

 

$

(14,839)

 

$

(41,705)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

 

 

202

 

 

397

Net increase in cash, cash equivalents and restricted cash

 

 

34,755

 

 

5,126

Cash, cash equivalents and restricted cash at beginning of period 

 

 

216,380

 

 

122,039

Cash, cash equivalents and restricted cash at end of period (Note 8)

 

$

251,135

 

$

127,165

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Interest payments, net of capitalized interest

 

$

37,267

 

$

31,530

Income tax payments, net of refunds

 

 

8,118

 

 

11,902

Right-of-use assets obtained in exchange for finance lease liabilities

 

 

1,943

 

 

2,164

Non-cash purchase of property and equipment

 

 

 

 

4,220

 

See Notes to the Consolidated Condensed Financial Statements

7


 

TRAVELPORT WORLDWIDE LIMITED

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN TOTAL EQUITY (DEFICIT)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Non-

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Other

 

Controlling

 

Total

 

Common Shares

 

Paid in

 

Treasury Shares

 

Accumulated

 

Comprehensive

 

Interest in

 

Equity

(in $ thousands, except share data)

Number

 

 

Amount

 

Capital

 

Number

 

 

Amount

 

Deficit

 

Loss

 

Subsidiaries

 

(Deficit)

Balance as of December 31, 2018

128,229,030

 

$

320

 

$

2,680,615

 

1,792,854

 

$

(27,623)

 

$

(2,648,761)

 

$

(174,953)

 

$

18,044

 

$

(152,358)

Equity-based compensation 

97,885

 

 

—  

 

 

4,923

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

4,923

Treasury shares purchased in relation to vesting of equity awards 

—  

 

 

—  

 

 

—  

 

11,026

 

 

(173)

 

 

—  

 

 

—  

 

 

—  

 

 

(173)

Comprehensive income, net of tax 

—  

 

 

—  

 

 

—  

 

—  

 

 

—  

 

 

20,268

 

 

3,160

 

 

2,124

 

 

25,552

Balance as of March 31, 2019

128,326,915

 

$

320

 

$

2,685,538

 

1,803,880

 

$

(27,796)

 

$

(2,628,493)

 

$

(171,793)

 

$

20,168

 

$

(122,056)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Non-

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Other

 

Controlling

 

Total

 

Common Shares

 

Paid in

 

Treasury Shares

 

Accumulated

 

Comprehensive

 

Interest in

 

Equity

(in $ thousands, except share data)

Number

 

 

Amount

 

Capital

 

Number

 

 

Amount

 

Deficit

 

Loss

 

Subsidiaries

 

(Deficit)

Balance as of December 31, 2017

126,967,010

 

$

317

 

$

2,700,133

 

1,620,397

 

$

(24,755)

 

$

(2,722,375)

 

$

(155,621)

 

$

9,980

 

$

(192,321)

Change in accounting policy for revenue recognition

—  

 

 

 —

 

 

—  

 

—  

 

 

 —

 

 

986

 

 

 —

 

 

—  

 

 

986

Dividend to shareholders ($0.075 per common share) 

—  

 

 

—  

 

 

(9,699)

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

(9,699)

Equity-based compensation 

293,143

 

 

 1

 

 

7,342

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

956

 

 

8,299

Purchase of non-controlling interest in a subsidiary

—  

 

 

—  

 

 

(1,887)

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

1,887

 

 

 —

Treasury shares purchased in relation to vesting of equity awards 

—  

 

 

—  

 

 

—  

 

17,445

 

 

(235)

 

 

—  

 

 

—  

 

 

—  

 

 

(235)

Treasury shares issued in relation to vesting of equity awards

—  

 

 

—  

 

 

(123)

 

(8,008)

 

 

123

 

 

—  

 

 

—  

 

 

—  

 

 

Comprehensive income, net of tax 

—  

 

 

—  

 

 

—  

 

—  

 

 

—  

 

 

58,829

 

 

6,743

 

 

402

 

 

65,974

Balance as of March 31, 2018

127,260,153

 

$

318

 

$

2,695,766

 

1,629,834

 

$

(24,867)

 

$

(2,662,560)

 

$

(148,878)

 

$

13,225

 

$

(126,996)

 

See Notes to the Consolidated Condensed Financial Statements

 

 

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

1.

Basis of Presentation and the Merger

Basis of Presentation

Travelport Worldwide Limited (the “Company” or “Travelport”) is a technology company that operates a travel commerce platform providing distribution, technology, payment, mobile and other solutions for the global travel and tourism industry, with a presence in approximately 180 countries and territories.

The Travel Commerce Platform, through which the Company facilitates travel commerce, connects the world’s leading travel providers (“customers”), such as airlines, hotel chains and car rental companies with online and offline travel buyers, including travel agencies, travel management companies and corporations. As customer needs and technologies evolve, Travelport continues to invest in its Travel Commerce Platform. Travelport has led innovation in electronic distribution and merchandising of airline core and ancillary products and extensively diversified its offerings to hotel, car rental, rail, cruise-line and tour operators. In addition, Travelport has leveraged its domain expertise in the travel industry to design a pioneering business-to-business (“B2B”) travel payment solution that addresses the need of travel agencies to efficiently and securely make payments to travel providers globally. The Company also has a strong focus on mobile commerce, providing a wide range of services that allows airlines, hotels, corporate travel management companies and travel agencies to engage with their customers through digital services, including apps, corporate booking tools and mobile messaging. Travelport utilizes the extensive data managed by its platform to provide an array of additional services, such as advertising solutions, subscription services, business intelligence data services, and marketing-oriented analytical tools to travel agencies, travel providers and other travel data users. Through its Technology Services, Travelport provides critical information technology and hosting services to airlines, such as shopping, ticketing, departure control, business intelligence and other solutions, enabling them to focus on their core business competencies and reduce costs. The Company hosts reservations, inventory management and other related critical systems for Delta Air Lines Inc.

The Company has two operating and reportable segments, Travel Solutions and Payment Solutions (see Note 16 –  Segment and Geographical Information).

These consolidated condensed financial statements and other consolidated condensed financial information included in this Quarterly Report on Form 10‑Q are unaudited, with the exception of the December 31, 2018 consolidated condensed balance sheet, which was derived from audited consolidated financial statements. These consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting. Certain disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

In presenting the consolidated condensed financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the consolidated condensed financial statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These consolidated condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.

The Merger

On December 9, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Toro Private Holdings III, Ltd. (“Parent”), and following the execution of the joinder agreement, dated December 11, 2018, Toro Private Holdings IV, Ltd. (“Merger Sub”), pursuant to which Merger Sub will merge with and into Travelport,

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

with Travelport continuing as the surviving company and a wholly owned subsidiary of Parent (the “Merger”). Parent and Merger Sub are each affiliated with Siris Partners IV (Cayman) Main, L.P. and Siris Partners IV (Cayman) Parallel, L.P. (collectively, “Siris Cayman Fund IV”). Parent, Merger Sub and Siris Cayman Fund IV are each affiliated with Siris Capital Group, LLC (“Siris”). Siris is a private equity firm headquartered in New York, New York. Elliott Associates, L.P. and Elliott International, L.P. (collectively, the “Elliott Funds”) have agreed to invest alongside Siris Cayman Fund IV in the transactions contemplated by the Merger Agreement and are each affiliated with Evergreen Coast Capital Corp. (“Evergreen”). Evergreen is an affiliate of Elliott Management Corporation that is specifically focused on private equity investments.

If the Merger is completed, the shareholders of the Company will be entitled to receive $15.75 in cash, less any applicable withholding taxes, for each common share of Travelport owned by them.  Further, the common shares of the Company will no longer be publicly traded and will be delisted from the New York Stock Exchange. In addition, the common shares of the Company will be deregistered under the Securities Exchange Act of 1934, as amended, and the Company will no longer file periodic reports with the SEC.

The shareholders of the Company approved the Merger on March 15, 2019. However, the consummation of the Merger is subject to additional closing conditions, including approval under the competition laws of Russia.

2. Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on lease accounting that establishes a right-of-use (“ROU”) model and requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Under this guidance, leases are classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. The guidance requires adoption using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued further guidance to provide another option for transition under which the comparative periods presented in the financial statements in the year of adoption were not required to be restated. Under this transition method, a company could apply the transition provisions on January 1, 2019 (i.e. the effective date).

The Company adopted the provisions of this guidance effective January 1, 2019, applying the modified retrospective method to all qualifying leases existing at, or entered into, after January 1, 2019 and with a lease term of greater than 12 months. The Company elected to apply the package of practical expedients that does not require it to reassess the following for any expired or existing leases at the transition date: (i) whether any contractual arrangements are or contain leases, (ii) lease classification as operating or finance and (iii) initial direct costs incurred.

The adoption of the new lease guidance as of January 1, 2019 resulted in an increase in the Company’s total assets of $61 million and an increase in its total liabilities of $74 million, arising from the recognition of operating lease ROU assets and operating lease liabilities. The difference of $13 million represented deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of operating lease ROU assets. The accounting for finance leases under the new guidance remained substantially unchanged and there was no impact on the Company’s finance lease assets and obligations upon adoption of this guidance.

Financial information for the reporting periods beginning after January 1, 2019 is presented under the new lease guidance, while prior period amounts are not adjusted and continue to be reported under the previous lease guidance, resulting in a balance sheet presentation that is not comparable to the prior periods in the first year of adoption. Under the

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

new guidance, leases previously described as capital lease assets and capital lease liabilities are now referred to as finance lease ROU assets and finance lease liabilities, respectively, to conform to the current period presentation.

There was no impact on Company’s accumulated deficit balance as of January 1, 2019. Further, there was no impact on the Company’s consolidated condensed statements of operations, total equity (deficit) and cash flows for the quarter ended March 31, 2019 resulting from the application of new lease guidance (see Note 12 – Leases).

Accounting Pronouncements Not Yet Adopted

Intangibles—Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued new guidance on a customer’s accounting for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor, which is a service contract. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. This guidance is effective for the Company for the interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. The Company can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date this guidance is first applied or (2) retrospectively. The Company is currently evaluating the impact of this guidance on its consolidated condensed financial statements.

Defined Benefit Plans

In August 2018, the FASB issued new guidance that amends certain of the existing guidance to add, remove and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The guidance requires a company to additionally disclose reasons for significant gains and losses affecting the benefit obligation for the period. The guidance no longer requires certain disclosures, including disclosures on the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for post-retirement health care benefits. This guidance is effective for the Company for the annual reporting periods ending after December 15, 2020 and has to be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated condensed financial statements.

Fair Value Measurements

In August 2018, the FASB issued new guidance that amends certain of the existing guidance to add, remove and modify disclosure requirements related to fair value measurements. The guidance requires additional disclosures, including the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance no longer requires certain disclosures, including the policy for timing of transfers between levels of the fair value hierarchy and valuation processes for Level 3 fair value measurements. This guidance is effective for the Company for the reporting periods beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this guidance. The Company is currently evaluating the impact of this guidance on its consolidated condensed financial statements.

Financial Instruments—Credit Losses

In June 2016, the FASB issued guidance that amends the accounting for credit losses on financial instruments. The guidance adds an impairment model that is based on expected losses rather than incurred losses. Under this new guidance,

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

allowance for credit losses will be recognized based on the estimate of expected credit losses, which will result in more timely recognition of such losses. The guidance requires all available relevant information to be considered when estimating expected credit losses, including details about past events, current conditions and reasonable and supportable forecasts and their implications for expected credit losses. The new guidance is applicable to the Company for interim and annual reporting periods beginning after December 15, 2019 and requires its application using a retrospective transition method. The Company is currently evaluating the impact of the amended guidance on its consolidated condensed financial statements.

3. Revenue

The following table presents the Company’s net revenue disaggregated by its source. Sales and usage-based taxes are excluded from net revenue.

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

(in $ thousands)

March 31, 2019

 

March 31, 2018

Air 

$

452,687

 

$

472,935

Beyond Air 

 

180,412

 

 

179,751

Travel Commerce Platform (1)

 

633,099

 

 

652,686

Technology Services 

 

23,440

 

 

25,152

Net revenue

$

656,539

 

$

677,838

(1)

Includes $15 million and $18 million of Travel Commerce Platform revenue for the three months ended March 31, 2019 and 2018, respectively, that does not represent revenue recognized from contracts with customers.

The Company’s operations are organized into two operating segments: (i) Travel Solutions and (ii) Payment Solutions. Travel Solutions comprise Air, Beyond Air (excluding the Company’s B2B travel payment solutions) and Technology Services. Payment Solutions comprise the Company’s B2B travel payment solutions through eNett International (Jersey) Limited (“eNett”).  The table below sets forth segment net revenue:

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

(in $ thousands)

March 31, 2019

 

March 31, 2018

Travel Solutions

$

573,158

 

$

604,059

Payment Solutions

 

83,381

 

 

73,779

Net revenue

$

656,539

 

$

677,838

 

The table below sets forth Travel Commerce Platform revenue disaggregated by region:

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

(in $ thousands)

March 31, 2019

 

March 31, 2018

Asia Pacific

$

158,664

 

$

141,551

Europe

 

218,947

 

 

244,442

Latin America and Canada

 

33,125

 

 

29,859

Middle East and Africa

 

84,747

 

 

79,106

International 

 

495,483

 

 

494,958

United States

 

137,616

 

 

157,728

Travel Commerce Platform (1)

$

633,099

 

$

652,686


(1)

Includes $15 million and $18 million of Travel Commerce Platform revenue for the three months ended March 31, 2019 and 2018, respectively, that does not represent revenue recognized from contracts with customers.

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

Contract Balances

Contract assets represent the Company’s right to consideration in exchange for services transferred to a customer when that right is conditioned on the Company’s future performance obligations. Contract liabilities represent the Company’s obligation to transfer services to a customer for which the Company has received consideration (or the amount is due) from the customer.

As of March 31, 2019, the Company did not have contract assets. The opening and closing balances of the Company’s accounts receivable and contract liabilities (current and non-current) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract Liabilities

(in $ thousands)

 

 

Accounts Receivable, net (1)

 

 

Deferred Revenue (current) (1)

 

 

Deferred Revenue

(non-current) (1)

Balance as of March 31, 2019

 

$

213,474

 

$

14,918

 

$

7,171

Balance as of December 31, 2018

 

 

167,447

 

 

14,449

 

 

7,462

Increase (Decrease)

 

$

46,027

 

$

469

 

$

(291)


(1)

Accounts receivable, net, and deferred revenue exclude balances not related to contracts with customers.

Substantially all of the Company’s Air revenue within its Travel Commerce Platform is collected through the International Air Transport Association (“IATA”), the Airline Clearing House (“ACH”) and other similar clearing houses, whereby the payments are submitted monthly to the IATA or the ACH and are settled (on a net basis) within approximately 30 days. Airlines that do not settle payments through them and customers in Beyond Air and Technology Services are generally invoiced on a monthly basis, and the payments are generally received within approximately 30 to 60 days.

Deferred revenue is recorded when a performance obligation has not been satisfied but an invoice has been raised. The cash payments received or due in advance of the satisfaction of the Company’s performance obligations were offset by $5 million of net revenue recognized that was included in the deferred revenue balance as of December 31, 2018.

Remaining Performance Obligations

As of March 31, 2019, the aggregate amount of the transaction price allocated to the Company’s remaining performance obligations was approximately $47 million, of which the Company expects to recognize revenue of approximately 82% over the next 24 months, including approximately 52% over the next 12 months.

The Company does not disclose the value of its unsatisfied performance obligations for (i) contracts with an original expected term of one year or less and (ii) contracts for which the Company recognizes revenue at the amounts to which it has the right to invoice for services performed.

 

4. Income Taxes

The Company’s tax provision differs significantly from the expected provision amount calculated at the U.S. federal statutory rate primarily as a result of (i) being subject to income tax in numerous non-U.S. jurisdictions with varying income tax rates, (ii) a valuation allowance maintained in various jurisdictions, including the U.S. and the U.K., due to historical losses in such jurisdictions, (iii) certain expenses that are not deductible for tax or do not secure an effective tax deduction under the relevant jurisdictions, including limitation to the tax deductibility of interest expense in the U.K., (iv) certain income or gains that are not subject to tax and (v) items identified as discrete during the interim periods. 

As of December 31, 2018, the Company had U.S. federal net operating losses (“NOL”) carry forwards of approximately $399 million, which expire between 2030 and 2037 and $17 million that can be utilized indefinitely, state

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

NOL carry forwards, which expire between 2019 and 2038, and alternative minimum tax and other tax credits carry forward of approximately $28 million. The Company had other non–U.S. NOL carry forwards of $393 million that expire between three years and indefinitely. As of December 31, 2018, the deferred tax asset in respect of these U.S. and non–U.S. NOL carry forwards and U.S. tax credits was $208 million. The Company believes it is more likely than not that the benefit from certain U.S. federal, U.S. state and non–U.S. NOL carry forwards and other deferred tax assets will not be realized. Consequently, the Company has recorded valuation allowances of $186 million against such deferred tax assets as of December 31, 2018. The Company also maintains a deferred tax asset of $101 million resulting from intra-entity transfer of assets (intra-group intangibles) with an associated full valuation allowance (as it is more-likely-than-not that this deferred tax asset will not be realized).

The Company regularly assesses its ability to realize deferred tax assets. As of March 31, 2019, the Company’s estimated annual effective tax rate includes the impact of releasing a portion of the valuation allowance associated with the U.S. NOL carry forwards due to an increase in taxable temporary differences that support deferred tax asset utilization. However, the Company maintains a valuation allowance on the remaining deferred tax assets. Future realized earnings performance and changes in future earnings projections, among other factors, may cause an adjustment to the conclusion as to whether it is more likely than not that the Company will realize the benefit of the deferred tax assets. This would impact the income tax expense in the period for which it is determined that these factors have changed.

For the three months ended March 31, 2019, the Company recognized a $10 million charge for uncertain tax position related to the realizability of U.K. NOL carry forwards. In the first quarter of 2018, the Company expected that there would be future taxable income in the U.K. other than the reversal of deferred tax liabilities. Consequently, the Company realized a net benefit of $10 million following the release of the valuation allowance on the deferred tax assets associated with its U.K. NOL carry forwards.

5. Other Current Assets

Other current assets consisted of:

 

 

 

 

 

 

 

March 31,

 

December 31,

(in $ thousands)

2019

 

2018

Prepaid expenses 

$

33,853

 

$

40,679

Sales and use tax receivables 

 

29,226

 

 

27,768

Prepaid incentives 

 

20,220

 

 

14,316

Client funds 

 

18,403

 

 

11,224

Derivative assets 

 

4,617

 

 

9,700

Other 

 

8,756

 

 

9,918

 

$

115,075

 

$

113,605

 

Client funds represent cash held on behalf of clients for a short period of time before being transferred to travel industry partners. A compensating balance is held in accrued expenses and other current liabilities as customer prepayments.

 

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

6. Property and Equipment, Net

Property and equipment, net, consisted of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Accumulated

 

 

 

(in $ thousands)

Cost

 

depreciation

 

Net

 

 

Cost

 

depreciation

 

Net

Capitalized software 

$

1,058,612

 

$

(816,579)

 

$

242,033

 

 

$

989,410

 

$

(787,544)

 

$

201,866

Computer equipment 

 

118,723

 

 

(92,208)

 

 

26,515

 

 

 

120,673

 

 

(89,716)

 

 

30,957

Finance lease right-of-use assets

 

215,596

 

 

(84,800)

 

 

130,796

 

 

 

215,065

 

 

(75,780)

 

 

139,285

Building and leasehold improvements 

 

32,579

 

 

(15,979)

 

 

16,600

 

 

 

32,235

 

 

(15,282)

 

 

16,953

Construction in progress 

 

71,292

 

 

 

 

71,292

 

 

 

106,638

 

 

 

 

106,638

 

$

1,496,802

 

$

(1,009,566)

 

$

487,236

 

 

$

1,464,021

 

$

(968,322)

 

$

495,699

 

The Company recorded depreciation expense (including depreciation on finance lease ROU assets) of $44 million and $38 million for the three months ended March 31, 2019 and 2018, respectively.

7. Intangible Assets

The changes in the carrying amount of goodwill and intangible assets of the Company between January 1, 2019 and March 31, 2019 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1,

 

 

 

 

 

 

 

Foreign

 

March 31,

(in $ thousands)

    

2019

    

Additions

    

Retirements

    

Exchange

    

2019

Non-Amortizable Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill 

 

$

1,083,766

 

$

 

$

 

$

(685)

 

$

1,083,081

Trademarks and tradenames

 

 

313,097

 

 

 

 

 

 

 

 

313,097

Other Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangible assets

 

 

743,317

 

 

 

 

 

 

(9)

 

 

743,308

Accumulated amortization

 

 

(502,019)

 

 

(10,165)

 

 

 

 

 6

 

 

(512,178)

Acquired intangible assets, net

 

 

241,298

 

 

(10,165)

 

 

 

 

(3)

 

 

231,130

Customer loyalty payments

 

 

370,851

 

 

24,235

 

 

(39,245)

 

 

698

 

 

356,539

Accumulated amortization

 

 

(188,637)

 

 

(22,223)

 

 

31,724

 

 

(361)

 

 

(179,497)

Customer loyalty payments, net

 

 

182,214

 

 

2,012

 

 

(7,521)

 

 

337

 

 

177,042

Other intangible assets, net

 

$

423,512

 

$

(8,153)

 

$

(7,521)

 

$

334

 

$

408,172

 

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TRAVELPORT WORLDWIDE LIMITED

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

The changes in the carrying amount of goodwill and intangible assets of the Company between January 1, 2018 and March 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1,

 

 

 

 

 

 

 

Foreign

 

March 31,

(in $ thousands)

    

2018

    

Additions

    

Retirements

    

Exchange

    

2018

Non-Amortizable Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

1,089,590

 

$

 

$

 

$

925

 

$

1,090,515

Trademarks and tradenames