Sabre Corporation (SABR) Earnings Call Transcript & Summary

Thank you, everyone. Good afternoon. I'm Ashish Sabadra, senior analyst covering business and information services in Deutsche Bank. And we are excited to host Dave Shirt, Executive Vice President and President of Travel Solution; Kevin Crissey, VP of IR; and Jennifer Thorington, Director of IR. Dave, before we jump into the Q&A, can you give some -- a few opening comments?

Sure, Ashish. First, thanks for the opportunity to join you guys. Appreciate that in this virtual Deutsche Bank tech conference cycle here, I'm sure everybody is getting used to that, so hopefully, you guys will be able to hear me clearly. Let me start first with kind of the obvious, which is travel will return. I don't know how many times I've had to listen to a relative, a friend, a colleague tell me about the trip that they've postponed that they want and can't wait to get back on a plane and fly somewhere. So I think we all know that there's pent-up demand, and it's getting more so. It's just a matter of time, I think, before we see our medical and governmental entities do that. To prepare for that, maybe 3 quick things. One, as a management team at Sabre, we took some very aggressive actions to get ourselves ready to go and make sure that we can take advantage of and be prepared for whatever that recovery period looks like over the next year or 2. We get paid on travel volumes, not on price. So that puts us in a place and a position across airlines and hoteliers to help with stimulating demand. The other thing that I would say is that we've got -- part of that aggressive stances put us in a state of a future-state cost basis. So we've really prepared ourselves now so that we aren't dribbing and drabbing through this, but that we've taken aggressive moves, can focus on innovation, competitiveness, our customers and the marketplace, so we are really ready to go as this recovery starts to move itself forward. We also are very focused on our tech transformation. All of you know that, have heard us talk about it over and over. We are using this time to continue that and actually accelerating various aspects of that. Two big things, obviously, our Google deal. Very, very key in this overall situation. We're very excited about the partnership that is happening there. And then making sure that we renegotiated our DXC contract to really unlock a set of savings over the next several years that we think are also going to be very, very key. And then lastly is making sure that structurally, from end to end, we took $200 million of annual costs out of the business. A tough decision, but an important one to get prepared for this. That's 5 points of EBITDA, add to that $75 million of the savings between now and 2024. And then post 2024, we think that we will also continue to add additional room and margin and savings to the business, on top of which, we took all of our existing debt and have pushed it out until 2024. So giving us as much runway to be as secure as possible as we go through it. So that's just a little bit of backdrop. Happy to answer any questions, Ashish, that you might have.

Dave, that was great introduction. And I'll jump on to the tech transformation. You've been leading or very -- being very instrumental in the tech transformation. And so on that front, I was wondering if you could just provide a quick summary of the modules that you've already migrated from mainframe to GCP, Google Cloud Platform, and then time line for migrating the remaining modules.

Yes. We continue to move through that. We're now in a situation where, as you know, we want and have been very aggressive in our transformation. And also, the goal has been to be the first technology provider in the travel ecosystem in the cloud. We are now at the point where we have 65% of our tech in the cloud. Just recently, we completed -- 100% of our GDS Air Shopping is now all in the cloud, and a 100% of our IT airline shopping for our Airline Solutions stack is also in the cloud. And so we expect our technology transformation to be largely complete by the end of 2023. Milestoning is moving along. And then with the combination of Google and DXE, we think that, that will continue to help us drive more and more savings, we think over $100 million of savings starting in 2024 as a combination of those partnerships. So really excited about the progress, and we did not slow down one bit while we went through this -- over this COVID process on that front.

That's great. So maybe can you help us explain like how having this GDS Air Shopping in the cloud, how does that help improve your competitive positioning compared to both Travelport and Amadeus? And also, if you can talk about the response time? But if you can first talk about the competitive positioning, where your competitors are in this process, and then we'll talk about response time.

Sure. So right now, by all data points that we've seen, we are the first and the largest travel tech player in the cloud. As you know and it's publicly known, Amadeus went through their technology transformations many years ago. It took them 10 years to go through that, similar to some of the stuff that we had done early on. I've been at this now for 3 years since I've been at Sabre. And that puts them more in a client server traditional data center structure. We're kind of leaping that and going right to the cloud. So right now, that puts us first in the space, the largest footprint in the space, and we think a competitive advantage overall. Just performance alone, we're already seeing some significant benefits there. Security, stability, those are foremost in the effort that we have and the way in which we're driving this whole thing. We also know that we have Google by our side. As it stands today, we have over 300 engineers from Google helping us through that process. And as we navigate through this particular journey, that's proving to be very, very helpful and effective across our entire effort. And then as far as the competition, as I said, Amadeus still is in their Erding data center, very limited from what we know and understand in a cloud work. And then Travelport, as you know, has 3 disparate platforms and has that -- all of that work ahead of them in terms of their transformation that they would go through. So that's kind of the position from a benefit perspective and where we see the competition in the technology set. From a competitiveness perspective, I feel really good about our position. One of the -- because of COVID, one of the things I say to the team that I'm upset about is we didn't get a chance to really talk about an enormous win. Jetstar Pacific, recently renamed to Pacific Airlines, fastest-growing carrier -- LCC carrier, growing into a hybrid carrier in Asia Pacific, joint venture between Vietnam Airlines and Qantas, now majority owned by Vietnam, they just went through a competitive offering. We competed and won that deal. That's 6 million PBs growing at 25% at the end of 2019. So can't wait for them to recover and the benefits that, that would bring. We also won a West African airline, the fastest-growing airline in West Africa, Asky. 1.5 million PBs, growing in the mid-teens, very happy with that one as a solution set and the prospects and the future of their connectivity across the African subcontinent. And then Skymark was a big Radixx win. We're pretty excited about Radixx being added. That's part of our tech transformation, moving Radixx to Google Cloud as part of this, which is -- that work is underway as we speak as well. We just won the domestic business at Skymark. Again, competitive situation. That particular situation is 8 million PBs, growing at about 5%. They're the third largest LCC in Japan. So all in all, even in the middle of COVID, we were able to get some of these deals done and feel pretty good about that relative to our competitive positioning from a technology footprint perspective as well.

That's very exciting. So maybe a question on the Airline Solutions. As you pointed out, some pretty significant wins, both competitive wins. And so as you think about the opportunity out there for PSS system coming out of COVID crisis, can you just provide some color on how you think about the pipeline there? Is there opportunity for more competitive takeaways? Also, a number of airlines still maintain a lot of these reservation systems in-house. Is there opportunity for further outsourcing going forward? How is your conversation like with airlines, right?

Yes. A very popular topic that I have been asked at this conference. Look, we just came through our renewal cycle. Many of you know that we secured the majority of our customers and the PBs through 2023. 75% of the customer set, 95% of that stack. And so we're now on the offense side. Those wins were a part of that offensive maneuver. We know that there are 600 million PBs up for grabs going into the 2020 year. Amadeus is going to go through and is in the middle of a very large renewal cycle. People don't make big changes here, but we're certainly trying to do what we can with the marketplace and the pipeline that we see, and we're working on as we go through it. Our recent wins are very important in showcasing the technology improvements, the innovation that we've put into the product to really put ourselves in a situation. If you've listened to any of our earnings calls, you know that we've had really, really strong cross-sell and upsell going into Q1 for the last several quarters in our IT solutions area. And whether that was on the operations portfolio, anything on our AirVision, data analytics, revenue management, planning and scheduling areas, all of those areas have had some very positive growth vectors up to this point. And so I feel pretty good about the competitive position. Like I said, we took Radixx, which was sitting in a situation where they had a whopping 4 salespeople, have already renovated -- sorry, done the technology transformation and reinvention of their portfolio before we acquired them. They had several customers already live on their new environment. They're now almost completely upgraded to the newest environment. And we just took that entire portfolio and rolled it out to the entire sales force that Sabre has globally in every region and every country. That space has virtually been Navitaire's untouched place to be, and now we're going after that space. We see the LCC space is probably one of the faster to recover first in the overall space. And so it's a challenging environment because of where we sit, but we want to be as competitive as possible and then try to add as much value as we can to the space.

That's great, and that's very exciting times ahead for the company. Maybe just focusing on the operations and the marketing, like the AirVision, AirCentre. You talked about pretty good momentum in a lot of different products there. Can you just talk about the opportunity to upsell/cross-sell into your existing customer base?

Yes. I think going into COVID, that was certainly very active. It was occurring. You saw even as recent as this most recent quarter, for example, the Southwest Airlines was a very, very nice renewal extension of our analytics -- data and analytics environment with Intelligence Exchange, multiyear renewal. Some very, very cool applications that we're working with them on in that area that are pretty interesting innovations. And so we've kind of geared ourselves toward that. With COVID, obviously, the priority that airlines are going through right now is survival and protect cash and hunkering down on as much as they can. And so our focus right now has really been primarily on just making sure that the appropriate care and feeding is there, any projects that were already contracted that they have staff and resources aligned to kind of go through that. But we believe, based on the conversations, that we will continue to educate and work with our customers on things that we could provide different help and assistance with them. We continue to do that in various products. They're resizing their fleet. They got to deal with the scheduling issues. They want to look at various customer segments and what they can do there. We're continuing to do -- to look at some things there in the area of pricing and revenue management, some new techniques that they can use with some of the new advanced machine learning-based capabilities we have in our pricing and revenue management capability set. So all of those things are actively being used and experimented in customers. I just think everything has kind of taken a pause right now, and we're just trying to maintain the operation and be as safe as we possibly can with all of them.

Yes. No, that makes sense. And maybe just a follow-up question there would be on the retailing and merchandising solution. Again, I believe it might have taken the backseat right now just because of what's happening with the airline industry. But coming out of the COVID crisis, how do you think about those solutions going forward? Or how -- what feedback have you received from airlines coming out of the crisis?

Yes. I would say retail and merchandising is still top of mind for everybody. But obviously, filling seats on a plane at whatever level and possibility is the top priority, and we're trying to make sure that we're supporting them as they work their way through that with all of their retailing and distribution needs. We do have a number of customers that we've been talking to them and using this time period to look at new ways in which they can take advantage of some of the newer retailing, ancillary and merchandising capability sets. We continue to roll out a few of those pieces with some of them, experiment with some of them as we work our way through that. But for the most part, I would say right now, most of them are in education and dialoguing mode to be prepared for post recovery as opposed to any significant project work that's progressing right now. Pretty much everything came to a halt and a pause as they're working through furloughs and cash protection and employee situations themselves across their entire carrier line. But we have been continuing to keep the right teams updated, show them some things that they can play around with. And certainly, our move to the cloud makes experimenting a little easier for them as opposed to having to go through a long implementation process or cycle with a number of the technologies as we move through our technology progression as well.

Yes. That's very helpful, Dave, and completely understandable given the environment we are in. It's just the positioning seems like that's improving going forward, so that's great. Maybe just shifting back to the cloud and the Google partnership that you talked about upfront. So we did talk about Sabre migrating to Google Cloud. But in addition, Google -- sorry, Sabre also won the commercial partnership where you're providing the availability data for Google Flights. Can you just talk about where that is? I believe the first phase migration was completed. Can you just help us understand what the opportunity is? And is there opportunity for further commercial partnership going forward with Google?

Yes. So we think there's certainly plenty of commercial opportunities with Google that we're working through. Yes, it is true, Ashish. We did become the availability partner for Google Flights search that is live and active right now. It is part of a commercial agreement between the 2 companies. But that's important, but it's not the one I'm most excited about. What I'm most excited about is having Google as a strategic partner. You probably remember and recall that we signed this agreement. It's a 10-year agreement. It is an exclusive arrangement in the travel space. Google can certainly sell hosting to -- or tools to whoever they want, but anything that they bring innovation wise to the travel ecosystem, that partnership is with us to go through that. And much like our agreement was mirrored after the one that they created for the Mayo Clinic in the health care space, and they've been picking kind of 1 industry partner to be their strategic flavor as they work through that, and so we have an innovation framework. We have a number of projects underway. That -- those projects are joint development work. Some of them will reach market, and some of them won't be commercially correct. But that goes with the concept of innovation and experimentation. And so much like the Google Flights search piece, we have some new things that we're working on with them that, hopefully, over the course of the next several quarters, we'll start to talk a little bit more about, some of the opportunity that's there. But if you just sit back and think about it, we have all the access to not only Google Cloud but every part of Google. So we've already had their AI and their machine learning teams that are kind of the best in the world now with our teams and working through some very interesting ways for us to leverage. We get to remove years of learnings and experimentation that Google has benefited from, and immediately, those things are applied to our portfolio. And so I think our biggest challenge is just prioritizing. It's kind of like being a kid in a candy store. In the middle of COVID, how do you prioritize the things you work on that you think are going to have the most value in the marketplace? And so I think there's many, many commercial opportunities between us and Google and the 2 of us into the marketplace that are available out there for us in the market. So that's part of what we've been working through with them right now and, like I said, look forward to showing some of that off here in the course of the next couple of quarters.

That's very exciting, Dave. That's very exciting. Maybe if I can just ask a follow-up question on that. As you mentioned, some of the capabilities that Google is bringing in to help develop joint product, is there also an opportunity for Google to help out on some of your -- the solution products, like both on the Airline and Hospitality Solution?

Yes. Absolutely. Conversation is across all of our segments, and so we're having LCC discussions, very significant hospitality discussions with them. All things that we think we could bring to the market together and experiment together with ways to reduce friction, increase the overall advertising and interesting access, the ways in which various customer segments could see offers and take advantage of situations in the marketplace, those are all things that we're having cycles of dialogue with Google about.

That's great. Maybe just moving back to GDS. So we saw some, as you talked about, improvement in the air market. We saw net bookings improve. The company provided an update earlier this month where we continue to see improvement in net bookings in July and August. So as we think about the bookings going forward, some of the things that airlines have implemented, like eliminating cancellation fees, any thoughts around how should we think about the recovery going forward?