Sabre Corporation

Good morning, and welcome to the Sabre Third Quarter 2021 Earnings Conference Call. My name is Josh, 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 Crissie. Please go ahead, sir.

Thanks, Josh, and good morning, everyone. Thank you for joining us for our Third Quarter 2021 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 and recovery trends, benefits from commercial and strategic arrangements, expected revenue, costs and expenses, cost savings, margins 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 second quarter 2021 10Q statement and our Form 10-K from 2020. Throughout today's call, we will also be presenting certain non-GAAP financial measures. All references during today's call to adjusted operating loss, adjusted net loss from continued operations, adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, free cash flow, and net debt to LTM adjusted EBITDA 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 Minky, our Chief Executive Officer, and Doug Barnett, our Chief Financial Officer. Dave Shirk, 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. We have a lot of material for you today, so let me give you a quick overview of the topics we will cover. I'll start today's call by discussing how Saver's business strategy has evolved, taking into consideration changes in the travel ecosystem brought on by the COVID-19 pandemic. I'll also provide details regarding the announced sale of our Air Center operations portfolio to CAE and how that sale fits into our strategy. Then I'll provide an update regarding the ongoing travel recovery, including specific booking, passengers boarded or PB, and hospitality CRS transaction trends. I'll also provide you with data regarding how the U.S. opening for international travel starting in November has improved booking trends. Then I'll provide a commercial and technology update where we are very active and making great progress. And finally, I'll turn the call over to Doug to walk you through the quarter results and key financial metrics. But before I start, I'd like to thank all my Sabre teammates around the world. Sabre is moving at an accelerated pace, not just in response to the impact of COVID pandemic, but also as we rapidly advance modern retailing and develop a new marketplace for personalized travel. In this pursuit, my teammates are working extraordinarily hard, and I'm very appreciative and proud of their results. Turning to slide five, the COVID-19 pandemic unambiguously impacted travel demand, whether business or leisure, domestic or international. We believe it has also fundamentally changed the way the travel industry, Sabre included, will operate going forward. Given this evolving landscape, we have been taking a critical look at Sabre, challenging norms and reexamining the way we do business. Our review focused on industry trends and technology, current and future capabilities, desired growth and returns, ongoing investment requirements, and financial health and flexibility. We believe this exercise was necessary to help position Sabre for long-term success. The assessment reinforced what we already knew, that our customers view incremental revenue generation via advanced merchandising, analytics, distribution, and booking capabilities as a key priority on the path to recovery. It also showed that we arguably have some areas of our business that while important to our customers, aren't core to our future or require substantial more investment to scale and achieve their optimal potential. Given these conclusions, our strong belief in a broad global recovery across both business and leisure travel, we are focusing our strategy to capitalize on a post-pandemic opportunities and with a goal to accelerate the unlocking of shareholder value. Specifically, our strategy is to narrow our current business and streamline specific aspects of our product portfolio, direct our investments and team member resources to the activities that generate revenue through retailing, distribution, and fulfillment of personalized travel experiences, execute on specific initiatives that complement and expand travel distribution capabilities, deliver our technology transformation while continuing to accelerate our innovation and migration to the Google Cloud, leverage the leadership team to bring us into the future while attracting, developing, and retaining key talent throughout the organization, and maintain our financial strength and flexibility to support our strategic plans. We believe this focus will enable us to accelerate our growth. The sale of our Air Center portfolio is an illustration of a step we are taking to achieve our objective of simplifying our business and streamlining our product portfolio. Looking to the future, any other potential announcement announcements would be made within the strategic elements identified. Moving to slide six, on October 28th, we announced that we entered into a definitive agreement to sell Air Center to CAE for $392.5 million in cash. Air Center is our airline operations suite that generated about $150 million in revenue, or about 4% of total SABR2 revenue in 2019, which we consider to be a more useful comparison than 2020. Although Air Center is a valuable suite of solutions designed to help airlines operate their businesses with efficiency and precision, its products are not associated with creating, distributing, or fulfilling personalized retailing experiences. Therefore, we believe it now makes sense for another company to steer the Air Center portfolio going forward. Pending the timing of the relevant regulatory approvals, which could impact our timeline, we are targeting a closing date in Q1 of 2022. At closing, CAE will acquire Air Center. Related technology and intellectual property and Air Center employees will transition to CAE. I want to acknowledge that this is a major change for those transitioning teammates and thank the entire Air Center team for the hard work and dedication they have made in a leading portfolio. Subsequent to the closing of this transaction, a Transition Services Agreement, or TSA, will go into effect. The TSA establishes the period of time during which SABR will assist CAE in building the necessary environment to operate the air center portfolio, manage customer relationships, and monitor the health of related systems. In return, CAE will compensate SABR for the cost of these activities. Doug will provide additional detail on how the sale will impact our reported financials. We believe this is a win-win-win scenario for everyone involved. This transaction is expected to benefit airline customers, CAE, team members, and Sabre. Air Center customers, many of whom already work with CAE, get a technology partner who specializes in the vital role that Air Center technology plays in airline operations and who has indicated they are committed to investing in future developments in this area. CAE acquires a product suite they see as a growth area for their business. The Sabre team members who currently work in Air Center will move to CAE and become a part of a major player in the airline operations space. Sabre is able to keenly focus on its core assets, priorities, and innovation related to personalized travel. The cash proceeds from the sale will create optionality for continued investment in our business across a more streamlined portfolio in products areas we believe have the highest returns and or pay down debt. Slide seven depicts the IT Solutions products within Sabre Travel Solutions business. On the left side are the capabilities that will remain with Sabre. These include our passenger service systems, Sabre Sonic and Radix, as well as the rest of our airline retailing, distribution, and fulfillment capabilities. Air Center is a distinct portfolio within Travel Solutions that is supported by about 500 employees. It includes operations software, such as flight and crew management, recovery, and airport resource management. Post-divestiture, we expect to no longer offer airline and airport operations software. We intend to continue leading the industry in next-generation retailing. While operations software, such as crew scheduling, is important, we don't believe it drives revenue growth or customer loyalty for airlines. The flexible and intelligent nature of our retailing solutions, including our passenger service systems, help airlines offer modern retailing experiences enable personalized travel, and better serve the end consumer. We are also focused on advancing our intelligent retailing solutions for hoteliers to optimize revenue while improving the guest experience. With the use of artificial intelligence and machine learning capabilities, we believe we are helping to shape the future of travel retailing and that we can provide the reliable performance, scalability, industry reach, and global support to help airlines and hoteliers move forward in this dynamic environment. Slide 8 shows the mix of our 2019 revenue, including and excluding Air Center. Our mix of revenue remains relatively unchanged. In 2019, Air Center contributed revenue EBITDA and CapEx of approximately $150 million, $55 million, and $20 million, respectively. This year, we expect Air Center to contribute revenue of approximately $115 million to $125 million, EBITDA of approximately $30 million to $40 million, and CapEx of approximately $5 million to $10 million. Therefore, the sale as a multiple of 2021 EBITDA was approximately 11 times. Turning to slide 9, before I provide an update regarding travel booking trends, let me summarize the Air Center transaction. The sale adds $392.5 million of liquidity for 4% of our pre-COVID-19 revenue base. It allows us to focus our resources on our core competencies to help generate higher returns. Finally, and very importantly, the sale does not change our expectations that Sabre will operate with higher margins and operating leverage post-COVID-19. Turning to slide 10, after a slowdown in travel bookings beginning mid-June associated with increased Delta variant COVID-19 cases, we've seen volume trends start to improve again across distribution, IT solutions, and hospitality solutions. As has been the case since the start of the recovery, hotel CRS transactions are leading, down 10% in October through the 28th versus the same period in 2019. IT solutions passengers boarded are also stronger, down 33% in October through the 28th versus 2019. And finally, distribution gross bookings recovery in October is trending to be back in line with what we saw in June, down 54% through October 28th versus 2019. In fact, the seven-day moving average towards the end of October is the highest point of recovery we have seen to date. We are encouraged that the current recovery is being driven by all regions. Most importantly, we are seeing improving international and business booking trends, which are higher margin versus the lower margin leisure bookings specific to the U.S., that were an early driver of travel recovery. Turning to slide 11, the chart on the left shows weekly GDS industry net air bookings by region. The positive standout region is Latin America, which recently passed North America as the region with the strongest recovery at 68 percent of 2019 bookings in October through the 28th. This should benefit SABR given our position in the region. Asia Pacific bookings, even though still depressed, have seen significant improvement in the trend line as more markets begin to reopen. The chart on the right shows the inverse relationship between COVID-19 new case counts in the United States and North American GDS bookings. With vaccinations continuing to increase globally and new COVID-19 cases declining again, we feel optimistic about the near-term bookings outlook. Turning to slide 12. This is a different view of the data, but the themes are the same. The global travel recovery, which was quite strong through mid-June, slowed in July and August but re-accelerated in September. October data through the 28th showed further improvements in all regions for both the GDS industry and for SABR. Turning to slide 13, As we've expressed on previous calls, we believe the greatest inhibitor to global travel recovery are the ongoing and changing travel restrictions throughout the world. The latest proof point for this view is the increase in bookings into and out of the United States in response to the announcement made on September 20th that inbound travel restrictions will become more relaxed starting November 8th. Despite the U.S. still requiring foreign travelers to be fully vaccinated and show proof of a negative COVID-19 test, or documentation of COVID-19 recovery, daily bookings made to and from the U.S. have nearly doubled since the announcement. We remain optimistic about the return of corporate travel, with nearly 60% of the U.S. population now fully vaccinated. Companies are starting to bring employees back to offices and planning in-person meetings and gatherings. We strongly believe there is pent-up demand for businesses to resume travel to cultivate relationships and compete. In late September, the Global Business Travel Association's Coronavirus Recovery Poll results reported that 73% of respondents have already resumed or plan to resume traveling domestically for business by next year. And more than a third of travel managers say their company relies more on TMCs now than before the pandemic. We have seen these encouraging signs reflected in the North American bookings at our top TMCs. which recovered to nearly 55% of 2019 levels by the third week of October. The improving corporate travel trends we have seen in our bookings data is in line with a positive trending outlook that most major U.S. airlines, who have indicated that they expect near-term inflection points in business demand. Since our last call in August and subsequent to the impact of the Delta variants on bookings thereafter, We began to see a positive shift in mid-September with pronounced improvements in both corporate and international bookings. These trends have accelerated as markets throughout the world continue to open and corporate travelers begin to hit the road. These trends also are encouraging not only for the volume increases, but because they also represent higher revenue and margin bookings. Turning to slide 14. As has been the case, we remain very active commercially in each of our businesses. We signed or renewed hundreds of agreements in the quarter across travel solutions and hospitality solutions. Some of the notable logos are depicted on this slide. In distribution, we were happy to welcome Emirates back to our GDS marketplace with a new long-term agreement that includes the creation and distribution of NDC offers. We view this agreement is the latest proof point that the full service carriers recognize the value of the GDS and look to SABR to help drive revenue and growth. Additionally, Southwest Airlines' migration to full GDS participation was completed this quarter. We believe their increased participation is helping drive corporate travel for them and corporate booking volumes for us, a win-win result. On the agency side of distribution, the environment remains dynamic. We were notified of Expedia's intent to shift a significant portion of its GDS business in North America away from Sabre, but we expect to retain higher margin bookings that are not related to intra-North American travel. Although we expect this shift will result in the loss of some volumes, it is important to remember that not all share is created equal in the GDS. As we have discussed, U.S. domestic leisure bookings are at our lowest revenue and margin bookings. Therefore, this volume shift is anticipated to have a favorable impact on our overall average booking fee, as is evident in our Q3 results, which Doug will discuss in further detail. On the flip side, we are seeing agencies moving more of their bookings to SABR to consolidate their GDS strategy in response to the pandemic. For example, this quarter, we won incremental North American business from three largest corporate travel agencies of our competitor, These wins include accelerating migration of bookings to Sabre at CTM and travel and transport, as well as a new win with American Travel Associates. In IT Solutions, we continue to be very pleased with our net passenger service system wins. Based on the recent successful cutover, a fast-growing goal in Brazil to our Sabre Sonic PSS, combined with other recent wins, including SCAT Airlines in Kazakhstan, we expect passengers boarded to be up substantially. Additionally, this quarter, we added another sabersonic win. We expanded our presence in Asia with a long-term agreement with Beeman Bangladesh Airlines. That also includes Digital Connect and Digital Experience. Our low-cost carrier, PSS Radix, also had a strong quarter with three new wins, including Toki, a Japanese startup. Outside of PSS wins, we had key IT solutions renewal at several carriers, including COPA, We also implemented our first flight planning software in China with Flight Plan Manager at China Eastern. Finally, our team members continue to work closely with customers to assist with changes to code sharing and alliances as airlines adjust routes, destinations, and alliance structures to help prepare for life after the pandemic. In hospitality solutions, in addition to many renewals, including Senesta, we added new agreements with Rebel Hospitality and several hundred Red Lion hotels in North America, Book Assist and Citizen M Hotels in EMEA, and Alvarez Arguelles in Latin America. Additionally, I'm happy to announce that the latest version of Synexis Property Hub, our modern cloud-based limited service property management system, is broadly available to all customers. With the release, our launch customers are implementing Synexis Property Hub across more than 450 properties, and we expect that the number to climb into the thousands over the coming year. Turning to technology, we've previously identified three key technology milestones for 2021. As a reminder, the milestones are to deploy Travel Solutions Air Shopping in Google Cloud Platform, or GCP, transition Hospitality Solutions CRS into GCP with a global footprint, and migrate 15% of our mid-range workload to GCP. I'm pleased to say these milestones are all on or ahead of schedule. Let me briefly provide more details. As previously discussed, all Sabre air shopping, including both agency and airline, is running in public cloud environment. As a result, we've been able to decommission almost 2,000 servers from our Sabre managed data centers. In hospitality, we had a very successful Synexis CRS cutover for Louvre and are now actively processing OTA and GDS reservations for them in our European GCP regions. Finally, we are continuing to make progress building GCP foundations in support of our mid-range workload migration. We are on track to meet or beat our goal of having 15% of mid-range workloads migrated to GCP by year-end. And with that, I'd now like to turn the call over to Doug.