Sabre Corporation

Good morning, and welcome to the Sabre Third Quarter 2020 Earnings Conference Call. My name is Victor, and I will be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to the Vice President of Investor Relations, Kevin Christie. Please go ahead, sir.

Thanks, Victor, and good morning, everyone. Thanks for joining us for our Third Quarter 2020 Earnings Call. This morning we issued an earnings press release, which is available on our website, at investors.saber.com. A slide presentation, which accompanies today's prepared remarks, is also available during this call on the Saber Investor Relations webpage. A replay of today's call will be available on our website later this morning. We would like to advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including the duration and effects of COVID-19, industry trends, expected advancements, cost savings, and liquidity, among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those statements made on today's conference call. More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 10-Q filed on August 10, 2020, and our 2019 Form 10-K. Throughout today's call, we will also be presenting certain non-GAAP financial measures. All references during today's call to EBITDA, operating loss, and EPS have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on our website at investors.saber.com. Participating with me are Sean Mankey, our Chief Executive Officer, and Doug Barnett, our Chief Financial Officer. Dave Sherk, our President of Travel Solutions, and Scott Wilson, our President of Hospitality Solutions, will be available for Q&A after the prepared remarks. And with that, I'll turn the call over to Sean.

Thanks, Kevin. Good morning, everyone, and thank you for joining us today. Before we get into the details of the quarter, I would like to first thank my team members around the world for their sacrifices and ongoing endless efforts. I am humbled and very proud of what they have done for our customers and our company. During today's call, we will focus on a few specific areas, including comments on the ongoing response to the COVID-19 pandemic and customer engagement, the continued progress with our technology transformation and product enhancements, and finally, an update on our financial and balance sheet focus. Early on in the course of the pandemic, we took swift and decisive actions to protect our people, our company, and our balance sheet to give us additional runway to help weather this pandemic. Those actions have allowed us, allowed our team to focus on controlling what we can and using the unprecedented time to challenge traditional thinking, advance innovations, and position Sabre for the future. The COVID-19 pandemic continues to suppress travel demand and impact our customers, partners, and, of course, our financial results. Importantly, Q3 booking trends showed signs of improvement from the second quarter, and we have cautious optimism for ongoing improvements. Even in these tough times, we continue to win new business and lock in long-term commitments with some of our largest customers. Our value in the travel industry continues to be well known as evidenced by the 1,400 airline and agency deals we have signed year to date. Our customers trust us to be there for them now and on the other side of this pandemic. We took decisive actions to reduce our cost structure, manage cash burn, extend our debt maturities, and add to our liquidity position. We've also continued to invest in our technology transformation and migration to Google Cloud. which will further reduce our costs and allow for more efficient product development and deployment. As I'll discuss in more detail in a few minutes, our partnership with Google extends well beyond just a cloud deal. In just the past two weeks, we have announced two major advancements. First, we are pioneering artificial intelligence technology for travel. The technology, known as Sabre Travel AI, is powered by Google's state-of-the-art AI technology and advanced machine learning capabilities. Second, in partnership with Google, we will be accelerating availability of the travel industry's first smart, scalable retail engine. We expect to launch Sabre Smart Retail Engine, the first product powered by Sabre Travel AI, early next year. These advancements are the next step in our Google innovation framework. Putting it all together, we have taken decisive actions to manage through the COVID-19 global pandemic. while continuing to execute and deliver on our technology transformation and product capabilities that will be necessary for our customers to rebound and excel once the impact of the pandemic recedes. Turning to slide five, industry air net bookings improved in the third quarter, slowly but steadily. In July, GDS industry net air bookings were down 94%. August was down 88%, and September down 82%. Improvement has been most pronounced in our largest market, North America. The relative strength of the regional mix helped those savers' gross and net air bookings outperform the industry in the quarter. North American bookings continued to recover in October and demonstrated a 20 percentage point recovery versus July growth rates. Turning to other regions, Latin America has also shown continued signs of improvement. Asia Pacific has been the slowest to recover, but has trended in the right direction. While all other regions showed continued positive improvements in October, the improvements in booking trends stalled in EMEA. Despite this, total industry global bookings were down 80% in October. On slide six, you can see all Sabre Key metrics have shown improvements since record declines driven by the COVID-19 pandemic. In April, all metrics were down approximately 90% or greater, But exiting October, gross bookings were down approximately 80%, passengers boarded down 70%, and gross CRS transactions down 50%. The negative impact from cancellations moderated in the third quarter as cancellations have begun to stabilize in the past few months. Looking at the GDS industry data on a weekly basis through October, you can see net booking trends have continued to improve. As I previously mentioned, the improvement is most pronounced in North America, our largest region. Slide 8 demonstrates the passengers boarded have also shown continued signs of improvement. Excluding airlines that remain significantly impacted by government travel restrictions, passengers boarded for our top 20 carriers approached a 40% recovery in October versus an effectively zero volume environment in April. On slide 9, you can see hotel transactions continue to outpace improvements in our air bookings and passengers boarded. Hospitality industry bookings were down about 50% in the third quarter. The positive trend we were beginning to see in the EMEA region flattened and reversed due to new resurgence of COVID-19 cases and re-implemented travel restrictions in the region. It is clear the COVID-19 pandemic has been unprecedented. On slide 10, we provide perspective for just how unprecedented. Over the last 50 years, global travel volumes has grown at a multiple of GDP. In fact, during this time, there have only been six calendar years in which global passenger volumes declined, and the maximum decline was less than 2 percent. Over the last five decades, average annual growth has been 3.8 percent at its lowest and 8.6 percent at its highest. We have directly benefited from the steady growth in global travel volume. Our resilient, volume-based business model filters out noise from fluctuations in the price of air tickets or hotel room nights. While our customers may have to put a $500 ticket on sale for $200 to stimulate demand, we enjoy a transaction-based revenue stream. Because of this and the recovery data we have shared, we feel we will be well-positioned for an early COVID-19 recovery. We strongly believe there is pent-up demand for travel and that the industry will continue to recover from this extraordinary time. Let me now turn to a commercial update. Despite the challenges presented by COVID-19, we continue to win new business and sign key renewals. As I mentioned, we signed 1,400 individual airline and agency deals so far this year. These are in addition to several thousand hospitality deals also signed year to date. Let me take a second and highlight a few that closed in the third quarter. In distribution, we were very happy to announce a distribution renewal with one of our largest customers, American Airlines. In addition, We added SAS in Scandinavia and Jeju Air, a top South Korea low-cost carrier, to the list of marquee airlines we have renewed this year. You may recall we highlighted renewals with United, Emirates, and Copa last quarter. Airlines are turning to establish efficient, robust distribution channels such as our GDS to fill seats and distribute their inventory far and wide in this historic low-demand environment. As further proof points of this, in Q3, we also signed new distribution agreements with FlyGangwon and AirPremier both in South Korea, Thai Smile Airways, a subsidiary of Thai Airways, Air Belgium, and Voyage Air in Bulgaria. We also made strong progress with agencies, including a new win and a competitive takeaway with BidTravel, the largest travel agency network in Southern Africa. We also signed incremental conversions with Royal Travel in the U.K., Berghansen in Norway, and Alpersan in the Middle East. Finally, we signed other key renewals in the quarter, such as Travel Store, the largest TMC in California, TripActions, an online travel management company, Travelmatic in Italy, and Tandem Travel in New Zealand. Turning to our IT solutions portfolio, after only a couple of quarters of integration with a Radix product family, we are already seeing positive movement even despite COVID. In Q3, we signed a new Radix agreement with ViaTravel, a major tour operator in Vietnam that launched its own flight operations. Via Travel is a third airline in Vietnam using Sabre capabilities. To help our customers navigate through COVID-19, we launched Radix Touchless Go, a complete no-touch checking process that assists with boarding, bag tags, and other services, all from a customer's smartphone. In IT operations, we implemented recovery manager ops at Air China and China Eastern. We implemented dynamic pricing engine for Etihad, which helps airlines navigate through this crisis without historic data to rely on. We delivered a seat recommendation solution in partnership with American Airlines, which enables optimal passenger seat reassignment after schedule or equipment changes based on algorithms and business rules. And finally, we implemented a proration engine for Southwest Airlines, which allows airlines to see real-time revenue earnings for each segment in a multi-legged segment. This is a significant improvement versus the historic norm of seeing segment profitability seven to 30 days later in accounting roll-up. Southwest is the first airline to implement this innovative product. As I mentioned, I continue to be pleased with the progress we are making on our technology transformation. As a reminder, the move to the Google Cloud has many advantages, including greater stability with higher availability, faster recovery, industry-leading security, and many other enhancements all at reduced unit operating costs, with right-size deployments and the ability to scale up and down quickly. Our tech migration is helping us already. We significantly reduced our infrastructure footprint. Year-to-date, we have reduced over 2,500 physical servers across our major data centers in Texas and Oklahoma, which represents a reduction of nearly 30% and has resulted in millions of dollars of annual savings. As Doug will explain in more detail later, by the end of 2023, we expect the move to the Google Cloud and our new DXC contract to reduce our operating costs by more than $100 million per year. Beyond the work to migrate to Google Cloud, we have discussed other important parts of our partnership with Google, specifically co-innovation to transform the future of travel. We are now beginning to execute on this aspect of our partnership. In October, we introduced Sabre Travel AI. This advancement is part of our Google innovation framework and is an industry first in travel. Sabre Travel AI is infused with Google's state-of-the-art AI and advanced machine learning technology. Specifically, Sabre Travel AI capitalizes on Google Cloud AI solutions and automated machine learning tools that sense, analyze, and predict consumer behavior using real-time shopping information and sophisticated travel-specific business insights. We expect Travel AI can enrich products across all businesses we support, airlines, hotels, and agencies, using next-generation technology advancements. We are integrating Sabre Travel AI into certain products in our existing portfolio with plans to bring these to market in 2021. Earlier this week, we unveiled the first product powered by Sabre Travel AI technology. Partnering with Google, we are accelerating availability of the travel industry's first smart, scalable retail engine, with launch planned in the first quarter of 2021. Powered by state-of-the-art AI technology and advanced machine learning capability, Sabre Smart Retail Engine will be the first of its kind in travel, designed to be both PFS and channel agnostic. We expect the Sabre Smart Retail Engine to be available to both current and future airline customers regardless of their business model, PSS, or GDS. Sabre Smart Retail Engine is a new innovation that integrates Sabre's dynamic offer management and customer segmentation capabilities with Google's proven and powerful merchandising solution to use real-time shopping data, available content, and AI and ML-based decision support models to test and learn and generate the most optimal offers available. These personalized offer bundles are dynamically priced using customer segmentation techniques can include ancillaries such as seats and baggage, and will eventually include third-party content such as rental cars and hotel stays. Ultimately, we are bringing together some of the brightest minds from Google and Sabre to build and connect the right offer to the right traveler at the right time to increase traveler satisfaction and provide airlines the opportunity to drive new and creative business opportunities. We are excited to bring Sabre's smart retail engine as part of our offer management strategy. one of our strategic initiatives announced at the beginning of this year, and a step towards achieving our 2025 vision of delivering truly personalized travel. These are examples of how we are thinking about the future. We are making the investments now that we expect will position us for success post-COVID recovery. And with that, I would like to turn the call over to Doug.