Sabre Corporation

Good morning and welcome to the Sabre full year and fourth quarter 2020 earnings conference call. My name is Josh and I'll be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to Vice President of Investor Relations, Kevin Chrissy. Please go ahead, sir.

Thanks, Josh, and good morning, everyone. Thank you for joining us for our full year and fourth quarter 2020 earnings call. This morning we issued an earnings press release, which is available on our website at investors.sabre.com. A slide presentation, which accompanies today's prepared remarks, is also available during this call on the Sabre 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 the 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 November 6, 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 are operating loss, and EPS have been adjusted to exclude certain items. The most directly comparable gap measures and reconciliations for non-gap measures are available in the earnings release and other documents posted on our website at investors.saber.com. Participating with me are Sean Minkey, our Chief Executive Officer, and Doug Barnett, our Chief Financial Officer. Steve Sherk, our President of Travel Solutions, and Scott Wilson, our President of Hospitality Solutions, will be available for Q&A after the prepared remarks. 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 fourth quarter, I'd like to reflect briefly on what has been an extraordinary year. In light of the COVID-19 pandemic, 2020 presented the greatest challenges ever faced by the travel industry, with global air and hotel bookings down more than we have seen in any prior year. Against that backdrop, I couldn't be prouder of how many of my Sabre team members around how they responded. They provided exceptional service for our customers and advanced our technology transformation while managing the personal challenges of the pandemic, including operating in a remote work environment. I thank them sincerely for their dedication. As the impact of the COVID-19 virus spread, we took quick and decisive actions to improve our financial position. We reduced our go-forward annual cost by approximately $200 million. This represents a 5% point improvement in EBITDA margin versus 2019, all else equal. Our cost-saving actions included a labor expense reduction of about $175 million per year. We also renegotiated our DXC contract to lower our fixed costs and are consolidating our real estate footprints as we move to a more flexible Work From Anywhere program. Finally, we added liquidity, extended our debt maturities, and ended the year with a cash balance of $1.5 billion. Despite the challenges that 2020 presented, the year also included major advancements in our technology transformation and modernization. We migrated over 250 applications to the cloud and reduced our legacy technology infrastructure. We announced our strategic Google partnership, built our air shopping environment in Google Cloud, and executed on the innovation framework we have in place with the announcement of Sabre Travel AI. We are confidently moving ahead with our technology transformation journey and expect the move to Google Cloud plus our renegotiated DXE contract to reduce our operating costs by more than $100 million per year starting in 2024. Inclusive of our labor reduction, this results in expectations for total cost savings of $275 million starting in 2024, representing a seven percentage point improvement in EBITDA margin versus 2019, all else equal. We also signed key commercial wins and renewals in 2020 for our airline and hotel IT and distribution capabilities. We extended distribution agreements with some of our largest airline customers and recently announced important new distribution agreements with Southwest Airlines and Lufthansa Group. We also announced new competitive wins in IT solutions for reservations and expanded into the low-cost carrier space. And today, I'm pleased to announce we signed two new enterprise-level hospitality wins with Lube Hotel Group and All Inclusive by Marriott International. We believe that after the effects of the COVID-19 pandemic recede, we will be ready with a more profitable cost structure, strong customer engagement, and innovations that advance the future of travel. Turning to slide five, industry air net bookings saw a sequential improvement in the fourth quarter compared to the third quarter. In October, GDS industry net air bookings were down 81 percent. November was down 79 percent, and December was down 77 percent. Every region showed improvement quarter over quarter. Latin America led the way with an 18 percentage point sequential improvement. Our largest region, North America, improved eight percentage points quarter over quarter. In the month of January, the pace of improvement slowed due to the resurgence in COVID-19 cases, lockdowns, and increased travel restrictions. However, daily average booking trends through mid-February are tracking higher than January results and are back in line with 2020 exit levels. North America specifically is tracking better than January and ahead of booking levels at the end of 2020. On slide six, you can see this effect more clearly using weekly data by region. Slight positive trends in North America are reflected, whereas we have seen declines in EMEA and Latin America. The Latin American decline is on the heels of strong recovery through November. On slide seven, we show Sabre volume metrics for air gross bookings passengers boarded, and hotel gross CRS transactions. You can see the hotel CRS transactions have trended in a positive direction since the beginning of the year. Turning to slide eight, hotel transactions are showing pronounced regional differences. This effect started late in the third quarter and has increased. Similar to trends we have seen in airline bookings, the EMEA region has been hardest hit, but Latin America continues to show steady improvement. Turning to slide nine, let me give you some insight into how we view the travel recovery. Although we believe it is prudent to plan our business conservatively, given the current booking environment, we firmly believe there is pent-up demand for travel. As travelers gain confidence, we expect they will return to the skies. We saw this play out during the summer last year in the U.S. when booking trends improved as domestic leisure demand picked up. As new COVID-19 cases spiked in the winter, we saw a corresponding decline in travel volumes, albeit not to the same magnitude. With the rate of new COVID-19 beginning to drop again in late January, we have seen bookings recently start to tick back up. Also seen during the summer last year in the U.S., hotel bookings were the first to recover. We believe this demonstrates that although some travelers may not be ready yet to board a flight, they are willing to drive to their destinations. We expect further increases in traveler confidence to come from COVID-19 vaccinations and testing. As of last week, roughly 10% of the U.S. population has received at least one dose of COVID-19 vaccine. The U.S. is administering about 1.5 billion shots per day, and at this current pace, it is projected that roughly half of the U.S. population would have received at least one dose by mid-June. This appears consistent with what we are hearing from some U.S. airline executives who expect domestic demand may begin to pick up by the second half of 2021. We expect Europe to recover more slowly due to greater fragmentation and tighter travel restrictions. Fortunately, North America is our biggest footprint. In 2019, 55% of our GDS bookings were North America-based, and we have renewed deals with our largest customers in the region and recently signed a new distribution agreement with Southwest. We believe that business travel recovery will be slower than leisure, and when it does, we believe domestic business will proceed long-haul international. Our strong relationships with TMCs and our 80% share of their North American business should help us be an early beneficiary when business travel resumes. On the IT solution side, we have long-term reservations deals with many of the largest North American airlines. Although business travel may be relatively slow to recover, We believe these carriers will do well on the leisure side in the second half of 2021. In hospitality solutions, 45% of our 2019 bookings were North American-based. Therefore, we also expect our hospitality business to benefit should North America lead the recovery. Turning to slide 10, from a commercial standpoint, we also feel well-poised for a travel recovery. We have reached new or extended distribution agreements with airlines around the world to support the recovery, including Southwest and Lufthansa Group. As a result, with the exception of Air India, we have successfully completed distribution deals with all of the outstanding significant carriers. On the IT solution side, we have taken steps to secure a book of business and recently signed large reservation renewals with carriers like WestJet and Lion Air, and we feel confident in our current pursuits of new business. This is all capped with new enterprise central reservations deals with Louvre Hotel Group and all-inclusive by Marriott International and Hospitality Solutions. These are data points that support the increased level of activity associated with third-party providers in the hospitality space. In total, we signed over 2,100 deals in the fourth quarter with airlines, hoteliers, and agencies. This included key new wins and renewals with some of the largest customers and depicted by the logos on this slide. As we look at 2021, in spite of the impact of COVID-19, we believe we have a healthy pipeline and ability to capture new opportunities. Turning to slide 11, I'd like to revisit a slide we first presented last year at this time before the impact of COVID-19 had fully globalized. We outlined five strategic initiatives that are enabling SABR to seize opportunities created by emerging travel trends and increased shareholder value. Let me take a few minutes to update you on the commercial activity that demonstrates our progress against these initiatives. First, I'd like to talk about personalized offers. We've already started conversations with key customers regarding our Sabre smart retail engine and dynamic availability products. The recently announced Sabre Sonic Renewal with WestJet also includes an expansion in our dynamic availability, digital connect, and intelligence exchange solutions. Additionally, we are currently deploying an ancillary dynamic pricing engine using machine learning for Etihad and implemented intelligence exchange ancillaries at check-in and auto check-in with them. Finally, we are growing our share in the revenue optimization space with recent go-lives at several carriers including JetBlue and Gulf Air. Second, the future of distribution in NDC. Our GDS is attracting new content and functionality with carriers seeking to penetrate the TMC market. In December, we extended and expanded our GDS distribution partnership with Southwest Airlines to a new full participation agreement. We also reached a groundbreaking agreement with Lufthansa Group that not only included their current content through traditional GDS connectivity, but also enables content via NDC. This flexible agreement fits a post-pandemic world and shows the progress we have made with NDC. We achieved IATA Level 4 certification as an NDC aggregator and have four NDC partners now in production. This is all in addition to extending our GDS agreements with some of our largest customers, including American and United Airlines. Third, low-cost carriers. Our acquisition of Radix has helped us specifically target the fast-growing low-cost carrier space. In addition to the new LCC reservation customer wins discussed on prior calls, this quarter we added another competitive win with Air Moldova. We've been investing in Radix to expand its capabilities, including the development of outbound interline and code sharing, and we believe we can continue to expand our sales opportunities with even more competitive offering. This is particularly important as we navigate through COVID-19 as we expect the leisure segment to lead the recovery. Fourth, a full-service hotel property management system. This initiative is the one that has been most directly impacted by COVID-19 since our plans to develop a full-service PMS with Accor have been put on hold in response to the pandemic. However, in addition to addressing the full-service property management needs of hoteliers, we remain focused on growing our CRS business. In 2020, we stayed engaged with several enterprise hotelier pursuits. As mentioned, we assigned not one but two new enterprise wins with Loop Hotels, Europe's second-largest enterprise hotel group, and all-inclusive by Marriott International. Together, they represent over 1,600 hotel properties across 54 countries, with the majority coming from Louvre. More hoteliers are turning to Sabre to broaden their distribution and reach with our Synexis CRS and to drive incremental revenue opportunities by delivering personalized offers with our Synexis intelligent retailing capabilities. Finally, our technology transformation. In 2020, Synexis As mentioned, we migrated over 250 production applications to the public cloud, eliminated over 2,500 legacy servers, and decommissioned all Sabre managed data centers outside of the United States. We completed mainframe offloads and successfully migrated clients across security, inventory, reservations, ticketing, and payment solutions capabilities. This includes our new agency session management and security product that we talked about last year. We implemented our first Google Cloud Platform development and certification environments in multiple regions across the United States and Europe, including one with incredibly low latency to our current infrastructure in Tulsa, Oklahoma. We also built out development, certification, and production environments in the Google Cloud Platform for our air shopping. We have three key tech transformation milestones for 2021. First, we plan to move at least 15% of our mid-range workloads to the Google Cloud Platform. Second, our first production application, Travel Solutions Air Shopping, is planned to go live in production in the Google Cloud platform in the first part of 2021. We believe running our future air shopping growth on GCP is important in a post-COVID-19 recovery because of its scalability and cost efficiency. And third, we expect Hospitality Solutions CRS to also go live in production in Google Cloud this year with a global multi-location footprint. In summary, we believe the progress with our strategic initiatives and our commercial successes position us well for the other side of the current crisis. We strengthened our financial position, which enabled us to continue to make critical technology investments, including our strategic partnership with Google. We believe we are entering an era of competitive strength, with our product and commercial teams working together to create innovative new products more efficiently. In 2021, we will continue this important work, As the travel environment rebounds, we will be ready. And with that, I'd like to turn the call over to Doug. Doug?