Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good morning, and welcome to the Sabre fourth quarter and full year 2019 earnings conference call.
Please note that today's call is being recorded and there's also being broadcast live over the Internet honest Sabre corporate website.
This broadcast is the property of sabre any redistribution retransmission or rebroadcast of this call in any form without the expressed written consent. If the company is strictly prohibited.
I'll now turn the call over to the Vice President of Investor Relations. Kevin Crissey. Please go ahead Sir.
Thank you Sydney and good morning, everyone. Thanks for joining us for our fourth quarter and full year 2019 earnings call.
This morning, we issued an earnings press release, which is available on our web site at investors Dot Sabre dotcom.
Slide presentation, which accompanies today's prepared remarks is also available during this call on Sabre IR web page a replay of todays call will be available on our website later this morning.
Throughout today's call, we would be presenting certain non-GAAP financial measures, which have been adjusted to exclude certain items. All references during today's call to EBITDA operating income as a net income have been adjusted for these items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release.
And other document posted on our website at investors Dot Sabre Dot com.
We'd like to advise you that that our comments contain forward looking statements. These statements include among others disclosure of our guidance, including revenue EBITDA operating income as cash flow and margins.
At mountain effects of our incremental technology investment the effects of the Corona virus discussion and expected results of our strategic initiatives.
Medium and longer term outlook are expected segment results.
The amount in effect of changes in capitalization mix and depreciation and amortization the effects of customer financial conditions, and new or renewed agreements strategic partnerships products and implementations our expectations of industry trends, the financial and business results and effects of acquisitions and various other forward looking statements regard.
During our business. These statements involve risks and uncertainties that may cause actual results could differ materially from the statements made on todays conference call.
Information concerning the risks and uncertainties that could affect our financial result is contained in our earnings release issued this morning, Andorra SEC filings, including our third quarter 2019 form 10-Q, and 2018 form 10-K.
Participating with me on todays call or someone monkey, our president and Chief Executive Officer, and don't Barnett Executive Vice President and Chief Financial Officer, Dave Shark, Our executive Vice President and President of travel solutions is also with US today and will be available for Q1 I. After the prepared remarks, Sean will start us off and provide perspective on.
Our strategic initiatives, including or incremental technology investment.
Doug will review, our financial results and forward outlook, well then open the call to your questions with that I'll turn the call over to Sean.
Thanks, Kevin Good morning, everyone and thank you for joining us today.
We have made significant progress in helping to ensure a bright future for our company with a transformative deal with Google a new enterprise win with a core and continued market share growth within our travel network business, but the excitement associated with these successes is tempered by the impact of the Corona virus and concerns throughout the world.
In a few minutes, Doug will review, our 2019 financial results and 2020 guidance. Excluding the current a virus. He will also provide color on what we have seen to date and the expected impacted the corona virus on our first quarter results.
Before getting into the numbers I would like to begin todays call by taking you through three important items. This call may run a little long compared to other quarters because of the clarity I want to provide but going forward, we will try to keep our prepared remarks shorter.
First I will briefly highlight the progress our business has made over the past three years.
Second I will discuss the 150 million incremental technology spend we expect in 2020 and why we believe in committing transitory search spending over the next few years is a valuable decision expected to increase our addressable market and power a highly efficient technology platform further for reduced long term cost final.
I'll explain how this transitory spending fits into our overall strategy.
We believe it is important to favorites continued success and results in an expectation for a better margin structure by 2024.
We are investing to move from as transaction based model to a predictive customer centric model that is focused on the entire travel experience not just the network airline side of the equation and from mainframe infrastructure to the cloud.
We strongly believe the steps we've taken and we'll continue to take and the investments, we're making will put sabre on a path to more profitable growth and help create long term shareholder value.
And following the company you are aware the changes we made over the past several years.
Well 2017, and 2018, we built a strong foundation, we strengthened our management team with best in class technology backgrounds, we made investments in our technology that resulted in measurable improvements and security stability and product health.
Example, over the past two years, our focus on stability has resulted in a 55% decrease in severity won and severity two incidents and 60 minute decrease in average time to resolution.
On the business side, we created the travel solutions Unreal organization over travel network and airline solutions to enhance collaboration across our teams we evolved or go to market approach presented a one sabre engagement that looks across our customers' needs and how to and how their entire portfolio products and services can better enable their success.
Finally, we successfully navigated through a heavy renewal cycle over the past few years at travel network, we renewed by all the out of our Copsix travel agency contracts at airline solutions, we locked down approximately 75% of revenue through 2023, but the high renewal rate of 93% based on total contract.
Value.
The internal focus and investments we made on our technology leadership and business. So in 2017, and 2018 allowed us to shift our focus externally in 2019.
We signed key renewals and won new business at travel network, we generated solid revenue growth the fourth quarter fourth quarter of 2019 marks the eighth consecutive quarter of gains in our GDS share and for the third quarter in a row incentive fee per booking growth moderated to low single digit growth.
Airline solutions, we had a solid revenue growth and commercial traction in new implementations within our air Vision and Air Center commercial and operations portfolio, we feel good about our competitive position with reinvigorated products and capabilities. We believe we're making significant traction in the market on data and analytics. This includes a major renewal of.
Intelligence exchange with southwest Airlines, we continue to be engaged with airlines around the world and look forward to making progress throughout the year.
At hospitality solutions, we generated strong revenue as well, we recently announced a major collaboration with a core a world leading hotel group with more than 5000 properties around the world.
As our newest enterprise hospitality partner, we expect a core to implement our industry, leading scynexis central reservation system across all of their properties and collaborate on the development of a full service property management system.
This announcement has gathered interest with hoteliers around the world and we believe that will lead to increasing our role in the hospitality industry.
As Doug will describe later, our commercial momentum resulted in solid financial results for the year and free cash flow generation ahead of our guidance.
As we enter 2020, we expect a core business to continue to perform well.
As you're aware, we've been thinking critically about how retailing distribution and fulfillment of travel will look in five to 10 years for airline hotel and travel agency customers.
How do we help airline and hotel customers create new customer centric products that convert shopping into actual bookings and therefore drive more revenue how do they sell these new products and services through any distribution channel, including but not limited to that GDS.
Finally, how do they fulfill these increasingly more complicated customer centric offers sold to the end traveler.
Each one of these items has an influence on the current and future financial performance of our business.
Due to our global role and our critical solutions that facilitate the travel industry, we have a front row seat to the evolving marketplace and understand the interdependent and complexity of the moving pieces, we're committed to being a leader in this evolution and helping our partners get there faster and more effectively than they can on their own. We're also working on how.
We can use data and analytics artificial intelligence machine learning and the cloud to drive value across the industry.
We believe we're well positioned to connect the dots and capitalize on emerging trends in the travel ecosystem that is why today, we have announced or plan to spend an incremental $150 million on technology in 2020 to advance our efforts to be a leading innovator to help continue to meet the demands of our customers and secure a more profitable future for sabre.
The 150 million technology spend is allocate allocated among five strategic initiatives, we've identified to respond to the emerging trends and opportunities.
First is personalize offer.
We intend to accelerate our roadmap for new IP capabilities processes and intelligence that allow suppliers to transition from a transactional focus to a more predictive customer centric approach with personalized offers.
Creating personalized offers isn't only about a new merchandising engine, it's dependent on high performance shopping capabilities shopping volumes over the past few years have grown 50% annually and that is just the tip of the iceberg.
As custom offers continue to evolve we expect a choppy volumes and complexity will continue to grow we believe airlines and more specialized technology providers aren't equipped to manage these volumes and complexity on their own.
We see multiple ways of increasing the total addressable market in revenues in the future. There are approximately 5 billion passengers boarded worldwide on annual basis. If we can unlock one more dollars per passenger boarded that potentially unlocks 5 billion revenue opportunity for the global travel industry.
We believe we will unlock the ability to increase our revenues through sales of Standalone merchandising engine that work with any PSS.
As we stated with our desire to close the parent logic acquisition when permitted to do so.
Additional PSS wins with a go to market strategy that includes advanced merchandising for Lccs with radically and full service carries with Sabre Sonic.
And evolution to a more value based pricing model they compensate for upselling airline sales.
The second strategic initiative is the future of distribution and NDC.
I just described how we intend to enable creation of new customer centric offers the next step is to enable the sales of these offers through an NDC enabled GDS Viet NDC side as well as suppliers direct channel.
Integrating NDC content into the GDF answers the challenges the distribution marketplaces space over the last few years as airlines around the world experiment with different options specifically through in there through the indirect channel.
We believe we can increase the value of the airlines offer and the value of the GDS by integrating NDC content.
Our focus on the future distribution and NDC also helps our agency partners, we intend to aggregate and normalize both the legacy traditional offers and new customer centric offers while ensuring compatibility with or mid and back office systems. We believe our end to end capabilities will allow us to bring additional high value traffic into the GDS.
We continue to grow share in the goal the travel agency marketplace and increase our revenues.
The third strategic initiative is low cost carrier growth.
Over the past several years Lccs have grown over twice as fast as their full service counterparts to reach approximately 30% a global passengers boarded or over 1.3 billion passengers over the next 20 years, we estimate that Lccs will reach approximately 50% of global sea chair or over 4.5 billion passengers boarded annually.
Until our recent radically acquisition, we didnt have a product that was specifically targeted to the LCC space. The capabilities offered bar bolstered by our full suite Sabresonic solutions are not all designed for low cost carriers and the implementation expense and specific price points are not commensurate with our business model.
Now that we own raddatz, we're engaged with a number of LCC customers around the world.
Radically provides opportunities beyond just the PSS system and I'm really excited about our ability to innovate on top of radishes existing offerings. We plan to develop a full suite of retailing distribution of fulfillment capabilities that enable customer centric offers for the LCC market. This creates the opportunity to think long term about LCC distribution through both the direct.
Act and indirect channels.
A full service hotel property management system is the fourth strategic initiative, we already have a best in class Central reservation product in our leading instant access platform and our stated the art Limited service property management system is currently being deployed by window.
Over the past few years, we've engaged with a leading enterprise hoteliers of the world.
Even though we have had positive engagements. It has been clear that they need a full service pms not just our limited service Pms and Crs offerings.
Many of these enterprise hoteliers have expressed frustration with the current full service technology offering.
We expect that our entry into the full service Pms on the back of our collaboration with the core will position us well to help evolve the hospitality industry.
There is no scaled third party technology provider in the marketplace offering a complete stack that includes both central reservations and full service property management on a modern cloud based platform.
We intend to help Hoteliers Creek customer centric offers allow them to sell those through their desire distribution channel and most importantly ensure what their customers have purchase is provided.
With the addition of the full service Pms offering we believe the addressable market for enterprise hoteliers inclusive of their limited service and Crs requirements is more than 2.5 billion annually.
Finally, our technology transformation.
Our customers are continuing to demand more in terms of speed and quality of product delivery. We've made significant progress on our technology roadmap, but we need to move faster to transition our technology stack, which was which was designed to handle transactions rather than customer centric solutions.
Technology transformation of this magnitude is difficult.
To help address this challenge we took the opportunity to think more broadly and pushed the leading technology cloud providers to contemplate a more extensive relationship with sabre to help transform the travel vertical we compete in.
After consideration in negotiations, we signed a historic deal with Google.
Google is partnering to help us complete our tech transformation and build an advanced predictive customer centric travel marketplace.
Benefits of the Google deal include Superior long term economics, including improved price performance with Google cloud versus legacy Datacenters, and our other cloud contracts and technological and financial assistance on Google side to help us migrate off of our mainframe systems and if needed to provide mainframe services.
At what we believe will be better economics after 2023 than what we currently have under our legacy Dx see contract.
As a side note Google Cloud announced last week. It has acquired cornerstone technology to better help customers migrate their mainframe workloads to the cloud which is another data point supporting the commitment googles made.
Other benefits of the granite include application of Google Cloud data analytics artificial intelligence and machine learning to our data elements to help unlock new revenue opportunities.
And innovation framework to explore how we can provide best in class capabilities and solutions together.
And finally, the agreement with Google is a preferred partnership meaning to give saver and opportunity to innovate with Google in a way that is unique in the market.
Ultimately our technology transformation is expected to lower our cost accelerate innovation and provide competitive differentiation.
Dave Shirk is here with us today and can elaborate in the queue in a session on the technical and the technical benefits, we expect from migrating to a cloud based platform.
I want to reiterate we've already taken bold moves that align with the strategic initiatives. This includes our continue to desire to close the fair logic transaction when permitted to do so to support personalize offer in the future of distribution and NDC.
Our acquisition of products to support low cost carrier growth.
Our collaboration with the core to develop a full service Pms and our partnership with Google to advance our technology transformation.
Hopefully you have a better understanding of why these actions and strategic partnerships are so important we will continue to look at opportunities that build out our customer centric travel platform.
Given the opportunities we see we believe now as the time to invest in growth. We believe were $150 million incremental technology spend in 2020 ongoing investment over the next few years and successful execution of our five strategic initiatives will create the advanced marketplace, we envision.
By 2024, our goal is to increase our addressable market by 5 billion or more versus the 18 billion. We believe we can address today position ourselves for increased share lower our cost and generate higher margins.
We think this search spend is a valuable investment to help our transformation and result in the creation of a much more profitable company.
Before I hand, it over to Doug I want to briefly address the global health crisis related the kroner buyers and the impact thousands of people throughout the world our thoughts go out to those impacted.
We have employees and customers dealing with this fluid situation and we'll continue to engage with all parties to help manage through this difficult period.
While we hope its impact a short term in nature, we anticipate that the current of buyers will have a material impact on our 2020 financial results and at this point no. One can predict the timeline and ultimate effects of the operate Doug will provide our preliminary estimate on the Corona virus first quarter financial impact and with that I'll hand, the call over to Doug. Thank.
Sean and good morning, everyone. Despite the macro challenges we faced in 2019 save or close the year with solid revenue growth earnings growth in line with expectations and free cash flow generation higher than our guidance.
In the fourth quarter 2019 revenue was up 2% driven by growth across each of our businesses and recurring revenue totaled 93%.
As a reminder, our income statement has been impacted by both the increase technology operating expenses due to our capitalization rate.
As well as increased DNA from previous capitalization.
The decline in operating income in the quarter is largely the result of these impacts.
Excluding this increase in technology operating expenses operating income increased 3% EPS was down 3%.
Hi, Chris continued to generate a healthy rate of free cash flow, which grew 21% on the quarter 234 million.
For the full year.
Revenue was up 3%.
By 93% recurring revenue.
Consistent with all of 2019.
Quite a full year operating income is largely a result on the impact our income statement from the increase in technology expenses.
Full year operating income and EPS grew 3% and 4% respectively. Excluding the increase in technology operating expenses.
Free cash flow came in above expectations for the year at 466 million representing growth of 6%.
We returned 231 million to shareholders in 2019 via our quarterly dividends and stock repurchases.
I travel network revenue grew 1% in the quarter.
Has experienced in prior quarters growth was limited by channel shift from certain European legacy carriers, and insolvency of jet Airways as well as political and economic pressures in Latin America and Asia Pacific.
Our bookings share growth remained strong.
The fourth quarter, Mark Savers eighth consecutive quarter GDS share gain our global booking share increased by 180 basis points in the quarter so 38.5%.
Total bookings in the quarter grew 1% driven by 5% growth in North America.
North America, which represents more than half of our total bookings remains the fastest growing and most stable region.
Bookings across the international reasons declined in the quarter due to the reasons I just mentioned.
Just for a strong book of business and continued share gain our bookings growth exceeded that of the GDS industry, which declined 3%.
The three European legacy carriers, and jet Airways had a 3% negative impact on GDS industry bookings growth in the quarter.
Because we are relatively less exposed to these issues the impact to sabre air bookings was approximately 1.5%.
Average booking fee was roughly flat in the quarter incentive fee per booking growth was inline with expectations and the low single digits. This is a third consecutive quarter, we've seen a moderation and incentive fees.
Travel network operating income declined in the quarter largely due to the increase and technology operating expenses.
For full year 2019, our bookings growth in travel network outperformed the GDS industry.
Full year revenue growth of 3% was also supported by an increase in average booking fee.
The decline in full year operating income was largely due to the increase in technology operating expenses as mentioned incentive fee for booking growth stabilize the low single digits over the last three quarters of the year.
As we've discussed all year there are certain factors outside our control continued to impact airline solutions performance in 2019.
These include the insolvency jet Airways.
Significant volume reductions and large carrier in Asia due to an unfortunate seven focus on mass incident.
And that the migrations of Philippine Airlines in Bangkok Airlines. These impacts were partially offset by the consolidation of products into our financial results.
In the fourth quarter Airwatch solutions revenue grew 3% supported by 10% growth and Airvision Air Central revenue.
Camera Soc revenues declined 1% to quarter.
Passengers boarded grew 3.2% in the quarter, primarily driven by racks.
Airline solutions operating income was down versus the prior year.
Excluding the increase in technology expenses operating income grew 4%.
The full year 2019 airline solutions revenue grew 2%.
Excluding the increase in technology expenses operating income grew 22%.
In the fourth quarter hospitality solutions revenue grew 7% driven by 7% growth into next the software and services revenue Central reservation system transactions increased 16% during the quarter.
The increase in technology expenses, resulting operating loss for hospitality solutions in the quarter.
These trends of hospitality solutions also quite to the full year.
Revenue grew 7% year over year with 22% growth in Crs transactions for full year operating loss was largely a result of the increase in technology operating expenses.
Total technology spend in the quarter was 257 million up 6% year over year remember this captures all spend and current technology, both capitalize on expense for hosting third party software and research and development.
Total technology expenses impacting the TNL was 310 million.
From a full year technology spend totaled 1.03 billion.
3% increase versus 2018.
As we described we capitalized 9% of our total technology spend in 2019 versus 26% and 2018, Therefore total technology expense impact in that PML was 1.2 billion.
Full year free cash flow totaled 466 million representing growth of 6% year over year.
We ended the year with approximately 3 billion net debt leverage ratio of 3.1 times.
As a reminder, our priorities for uses of cash flow are as follows continued investment in our technology strategic M&A dividends and share repurchases to offset natural evolution.
Sean gave you a high level overview of the incremental 150 million, we expect to spend on technology in 2020 or so.
So let me give you the specifics these expenditures Arca support opportunistic investments and upfront costs above what we expected fourth technology transformation.
As higher technology spend can be broken down as follows approximate 100 million relates to the technology transformation.
At approximately $50 million as for opportunistic investments for the four other strategic initiatives and internal business systems to support these initiatives.
Let me provide more detail in 2020, and we'll be paying higher mainframe costs than previously expected to be more cautious with customer transitions.
Since our partner priorities staff stable and secure systems for our customers Ttwenty four by seven we needed a slowdown that migration of certain modules to the cloud.
As you can imagine.
Hi, grading 40, plus year old technology is difficult.
And we ran into some migration issues.
For example, modules for especially management, including establishing new log in session for travel agent and authentication to use a security credentials for interaction with the system. We're plans to be offloaded by the end of 2019, but we're not this will result in us having to pay for mainframe capacity in 2020.
Then we weren't planning on.
In 2020, we will also be incurring higher than expected expected cloud bubble costs.
However, as we pull the marketplace of the future.
We still have to maintain our current technology footprint for our customers.
We will be paying for cloud computing cost inefficiencies and excess surge capacity across our two sabre manage data centers in north, Texas as well as a cloud services managed by eight have us.
As we move through 2019, and we're pursuing the Google partnership we've put optimization work our whole.
Therefore, we will begin to enhancing efficiency of our cloud environments, when you're getting migrating to Google cloud.
In addition, we will also incur incremental development spend to rewrite coat.
This is related to our mainframe all phone.
Exit from our legacy Tulsa data center.
As Sean described.
We expect that our new strategic partnership approval will help buffer these challenges in the future credit.
Our agreement with Google includes provision of mainframe services beyond 2023, if needed.
At our economics than our current legacy contracts, we also work with Google to optimize our cloud environment as we migrate to their cloud footprint.
In summary for 2000 point, we plan to spend an incremental $150 million on technology to support our five strategic initiatives.
We expect the majority of the incremental technology expenditures will not just impact 2000 point.
As we move through 2020 and began to realize the benefits are working partnership with Google, We will be able to refine the view of technology spend 2021 and beyond.
Turning to our 2000 point financial outlook.
Please note the guidance that follows excludes the impact of accruing a virus.
Our core business is performing well and in line with our previous expectations from a core business in isolation, excluding the incremental technology spend we expect the falling.
Low single digit revenue growth in line with growth in global travel.
EBITDA margin in the mid Twentys.
EPS of $1.10 to $1.30.
And free cash flow generation of approximately 485 million.
When we factor in the incremental technologies spend we discussed earlier.
We expect no change to our revenue expectations of low single digit growth.
Well EBITDA margin in the high teens.
50 cents, a 70 cents and free cash flow approximately 335 million.
As mentioned this 2020 guidance includes.
150 million impact to EBITDA and free cash flow from incremental cash technology spend.
Also in 2000 point, we expect to see continued decline in our capitalization rate.
As such we expect an additional 50 million dollar impact to EBITDA from this that does not impact total technology spend or free cash flow.
And as a result of these items, we expect reduction in 2000 point as about 60 cents.
Now, let's turn to Corrado virus.
History shows that help EBITDA epidemics, having major impact on global travel.
Quarter to date GDS industry bookings are down mid teens.
We have little insight as to when to expect relief.
As a result of this uncertainty we're providing our preliminary estimate for how we believe the Corona virus will impact our first quarter 2020 results.
Based on a quarterly bookings decline we've already observed we believe parana buyers will reduce our first quarter of 2000 points financial results while falling.
Approximately 100 million is 150 million lower revenue.
59 to 80 million lower EBITDA.
14 cents at 23 cents lower EPS.
50 million to 80 million lower free cash flow.
Like all companies, we do not know the duration of the outbreak or what is full year impact on global travel will be.
Therefore, we cannot reasonably estimate impact to our full year 2020 financial results.
Turning to our longer term outlook by 2024, our goal is to increase our addressable market by 5 billion or more versus the 18 billion. We believe we can address today.
Position ourselves for increased share.
Lower our cost structure and generate EBITDA margins of 26% or higher.
With that I'd like to turn it back to Sean Thanks, Doug in conclusion in 2019, we proved the progress we're making a solid financial results and recently announced major commercial wins and strategic partnerships as we enter 2020, we announced our commitment to pursuing new opportunistic investments and additional funding of our technology transformation.
Sabre, we believe we are building a better position company to help evolve the model transition centric to predictive and customer centric network airline focused a trip focused and mainframe to cloud.
This is all supported by bold moves we have already taken to help achieve our goals. We are building to save or the future sabre expected to have significantly larger larger addressable market and new revenue growth opportunities plus lower cost and better long term margin per a profile and I'm very confident about the strategy.
As we move into our Q1 day I would ask that you respect we cannot address any questions regarding bear logics acquisition to due to the ongoing little quick litigation and pending decisions by the U.S. Federal Court in the United Kingdoms competition end markets authority at this time, we'd like to open the call for your questions operator.
Ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question press the pound key in the interest of time, we ask that you. Please limit yourself to one question and one follow up please standby well we've compiled acuity roster.
And our first question comes from John King with Bank of America. Please proceed with your question.
Yeah. Good morning, Thank you for taking the questions. Just two questions. Please say on the technology investment. It seems like essentially 100 million advantage and 50 million is basically stranded costs. Because project is obviously a little bit behind way uses machine to be to the question I guess is.
If not what to continue and that would you be further delays in decommissioning some of that the mainframe infrastructure, which is not a risk and what would be the potential impact as we look into 20 to 21. If this does happen more slowly than you then you hope at the moment.
And then the second one is just on the Corona virus issue. If you can talk to the impacts of on time versus away bookings for what you're seeing that whether you've seen anything.
I appreciate the mid teens guidance for the market, but the anything that has not gotten worse than February Oh. It was January and February fairly consistently thank you.
Thanks, John and I'll I'll kick it off and then Doug and Dave will also jump in on the technology piece I think it's important that you break it into three buckets and Youre talking about.
100 million and when you look at at the one thing that we talked about is.
Some of the slowness in the transition offer the mainframe into the cloud.
And this goes into also session management that Doug got into a little detail with things like that we're going to have to be cautious with we see that cost increasing.
Into 2020, because of what Didnt get off loaded I think the important thing is if you look at the other $50 million. This goes back to the cloud piece and I cannot stay how important our thought process was relative to where we were in 2019.
Opportunity that presented itself as we looked at do we actually go further with current cloud providers ADW asked or with Microsoft Azure and we were provided an opportunity to really look at all three players and in doing that it was just not cloud. It was our they capable of actually helping us with mainframe offload are they came.
It will have helping us think about more innovation into the future and we started negotiations with the three parties that really went through the back half of the year and in doing that what became abundantly clear is all three parties were willing to engage in a more strategic relationship with sabre.
They're very focused on the travel vertical and this is one thing I don't think people completely understand is how cloud providers are look looking at specific verticals that are out there and what we found specifically with Google is the focus of how do we help grow.
How do we looked at travel sector and how do we make sure that we're engaged in it and more from a cloud perspective, and they look at US as said essentially a gateway the ability for us to win more PSS systems, the ability for us to a win more in the hospitality to more shopping as you would assume that drives more volumes. So how do they help us essentially look at putting to bear.
Yes technology stack, that's out there and in doing that it was not only the cloud perspective that we were able to put together with them, but it really does get into the partnership that we have with them relative to mainframe offload teams that are sitting side by side and I can tell you. The teams are already sitting by side by side on how do we think more through this mainframe offload the other important piece.
So this is the responsibility that they have at the end of 2023, when the DMC relationship actually the contract comes to an end Google has responsibility. It actually gives us flexibility that we didn't have before on maybe there are certain components that we don't want to take off of the mainframe maybe there are certain things that we actually want to advance in what's taking place so in looking.
At that and looking at what's taking place and why we're being relatively cautious about 20 and 21 on the tech side. There is moving pieces, but if you see how it all comes together and this is why we point to really 2024, because we get to the end of the DMC contract. We're in a much better place compared to where we were one year ago and I'm really excited.
About this partnership because there really is going to allow us to really manage through some difficulty as it relates to technology transformation, but everything that I've talked about as it relates to the strategy, it's going to allow us to execute in a better way that I think where we were before.
Your second question as it relates to just the Corona virus and what's taking place. So we saw really the acceleration take place mid part of the January's when we started seeing.
The booking impact.
And that's what Doug talked about us where that mid teens, what we're seeing as you would assume is that on on a booking slowdown cancellation slow down we've seen more in the APAC region John.
When you find EMEA has been second and then the North American marketplaces as you as you know is.
The biggest penetration we have we have seen slowed down there as well, but not to the degree that we've actually seen in Asia Pacific.
And John I was just had a little color on on your question around the tax, but I would break 100 million down and about $50 million as it relates to mainframe 50 relates to cloud with regards to cloud situation remember, we could have optimize our cloud environments in 2019, but as I mentioned chose not to because of the agreement that we're moving forward with Google.
Well, we'll have we'll spend our time in 2020 is is creating those landing zones to where we'll move our cloud environment too. So we could have some more mobile cost going again into 2021, however, due to yet the long term economics that we're achieving from this movie relationship. It makes sense to encourage those costs near term now because the long term benefit from that.
Relationship.
Thank you I appreciate the color.
Thank you and our next question comes from Ashish Sabadra with Deutsche Bank. Please proceed with your question.
Hi, guys, maybe just a follow up on on the technology spend and.
Is there we need to think about I know you've not quantified the impact 2021, but just as you think about where we are right now and the piece of.
Transitioning away from mainstream how should we think about it.
Any color on on the 2021 impact on how we should think about thanks.
She is I just mentioned I need to think about within 150 million incremental spend that we're not going to happen technology I kind of read sets that total technology spend around 1 billion too I would expect that to grow a little bit as we move into 2021. After we get the landing zones from Google up and running and then begin to get efficiencies is 21 I would expect Ben.
Kurt going out to 2022, and 23 and also as I mentioned in 20 pork into the EBITDA margins we referenced.
Okay. That's helpful and maybe just a quick question on the GDS industry challenges right.
John You mentioned, a couple of who is related to utopian legacy Cadieux isn't just few but we've seen GDS industry being under pressure for the last 17 quarters now.
So couple of questions that everyone is died driving from Allstate incremental spend that 50 million dollar opportunistic spend that's one and secondly, when do we expect the GDS industry do appreciate and maybe a final question on back would be just.
If the tedious industry challenges persist.
What would you have to invest more going forward. Thanks. Thanks.
It's a good question Ashish and it really gets into the heart of you know what I've outlined as it relates to the strategic initiatives, what we're doing what's taking place because we studied this day in day out.
If you go back to what I have articulated since I've taken over the organization three years ago is the transformation in the marketplace and ads as what is happening is you have be it on the airline side in the hotel side.
People are wanting to move to what is modern day retailing more customer centric and that taking place you have seen that there has been pressure that has been put on the GDS because people are trying to find ways of generating more revenue and you know where I look at it we have seem the most impact actually happened in the European marketplace for reasons that we talked about in the past.
Yes.
But this is one that if everybody is paying attention. There are changes that are happening and in doing that the investments that I just walked through our clearly aligned on actually making sure that when we look into the future. We're right in the middle of this transformation that we're helping our customers be able to have modern day retailing that as customer centric.
Nature, we have to think long and hard about how does that go into the distribution channels and.
Be careful about talking about fair logics, but when you look at fair logics and the things that we're looking at its about how do we enable because it has to be done not only in the direct channel, but have to be in the indirect channel and what people often forget it's just not on the the airliner the hospitality side. The equation. It is our responsibility to look at our travel agency customers in part.
Owners and how do we make sure that what is being done on the airline side equation and wanting to sell these new products and services can actually be fulfilled on the agency side and important to them. It's also how does it migrate into their mid and back office. So when I walk through where we are what we're doing its with that in mind understanding.
At the model is changing it is being pressured but we're not idly sitting here watching it happen is how do we help our customers of all and that's why we're investing in technology, because we know that the opportunity is there. It's just we have pieces that we have to essentially migrate and there is new technologies that need to be brought to bear.
Thanks, that's helpful.
Thank you next question comes from Matthew Broome with Mizuho Securities. Please proceed with your question.
Hi, Thanks very much.
It sounds like migrating off the mainframe systems is maybe.
I guess, a little more complex than.
Than had been initially thought it I mean is there any risk that you won't be able to exit. It's also dates ascension twentytwenty three or does the Google mainframe.
As provide us sort of a relatively easy way to relocate those services.
Until they eventually sort of ready to be up so probably sort of migrates to the public cloud.
Yeah, Matthew this is Dave.
You've kind of.
Answered your question with your last comment that's there to the points that Sean was making having Google there as that strategic partner to help us work through that and kind of the extra added insurance of that partnership.
Certainly gives us the goal around 2023 that we're moving through.
I think the bigger thing on this is to note that while we've had things that have moved from 19 to 20. We've also had some pretty good successes. We've continued to make good progress on the way our checking systems work, we've made good progress and the way in which ultimately which are gate agent based search and schedule and change activities are working is.
Well and so yes, there will be things.
As you can imagine 40 years of code history. There are things that you discover as you go through it and because we run a 24 by seven by 365 operation, We just would rather be abundantly cautious as we work our way through that focus on our customers and making sure that we don't have any unexpected impacts associated with that so.
Again with the Google relationship there are methodologies that they are already talking to us about in terms of ways in which we can test ways in which we can move that capability set weight ways in which we can transfer some of that capability set in different models than we've traditionally been using and I think that plus the cornerstone acquisition that they've just done they.
Where we know for a fact that they were instrumental in some of the work that Amadeus went through on their offload that knowledge will be brought to bear now and Google helping us in the partnership as we see it so how that piece plays itself out and what we look like were actually pretty optimistic about what they're going to be able to do to assist us with the offload process and being very very cautious and care.
Full about the migration.
Okay. That's that's helpful. Thanks and.
Can you can you talk about any changes from the competitive environment for the travel Disabuse me sort of the full course or and what you're seeing on the pricing travel agencies.
No the environment didn't change much from what we've seen throughout 19 as you see we took share. Despite some of the GDS a slowdown pieces that were referred to earlier in the call in the comments.
But you know our technology continues to be very positively received in the travel space. We continue to make inroads and we're going to continue to operate in the same fashion, but we haven't seen any material shift or change in the competitive landscape than what we saw throughout 2019.
Matthew the one thing.
Method and one thing I'd add just in relation to that is you know in the conversations today and I can reflect where I, where I was when I was running travel network four years ago.
Is the amount of conversation is taking place as it relates to technology technology capabilities going forward. It's amazing how that is actually change in the focus at agencies are having an understanding and this is what's really important when I look at our strategy. It's just not essentially the GDS side. It does go back to essentially how.
Offers are being created how they are going to be pushed through the distribution channels.
That is really front and center to a number of.
Agencies around the world.
Okay.
Thank you.
Thank you.
Good day, ladies and gentlemen ask a question you want me to press Star One and our next question comes from Jed Kelly with Oppenheimer. Please proceed with your question.
Great. Thanks for taking my question and I appreciate the color on the Corona buyers.
Just stepping back.
Can you sort of talk what this I guess two years ago, you laid out a pretty good technology strategy at your March Investor Day.
And what's changed competitively or in the market that that's caused you to sort of change here.
Change your strategic outlook and.
How should we expect to see this this tech incremental technology investments.
Impacts the airline solutions wind right.
Yes, Jeff I'll kick off as Sean that I'll hand, it over to Dave If you go back two years.
We really did talk about the changes that were happening in the marketplace.
In the strategy that we had and where we were driving and that gets into the bottom broader distribution side and much of that is what we have been.
You know acting upon and what's taking place. If you look at you know the things that we've looked at a little bit differently and I wouldn't say added it looked at it differently. We just sort of increased the Tam size and Thats really going after the low cost carrier side of the equation. We didn't talk about that really back then we were more focused on the full service carriers, but when we look at the growth.
No cost carriers, what's happening in the marketplace.
The influence of they just have on full service carriers and how they act in the marketplace.
That is one that we felt that we really needed to get into.
When we when I talk about the full service property management system and I alluded. This in my prepared comments is in spending a lot of time with executives around the world.
It was not just the limited service property management system and see our that they were looking for and we have those engagements, but it was truly I need a complete stack of full service and limited service property management system as well as a Crs system.
And in doing that they are also looking at how do they think about more modern day retailing in the capabilities of debt of additional revenue moving forward and that made a lot of sense for us to be able to do that so when you look at it.
Much of what we're doing is in line with what we talked about two years ago, a big part of it is just our focus on the technology technology transformation.
Learning things over the past couple of years, but then the other important part of this is and this is often what I tell the team and I walk the board through this is we absorbed data all the time on what's happening in the marketplace. The question is how do we react and doing that and it goes back to what I mentioned as it related to engaging with.
Three large technology cloud providers, and who could actually help us through this transformation, Dave I don't if you want to add anything I mean, just to get to comment on the strategy from a from a path perspective that we laid out two years ago in particular to our solution stack a lot of we shared with you guys. It was the get healthy and the competitiveness of.
The investment that was there I'm really really pleased with what we've seen over the last two years with Air Centre in Air Vision and the ultimately the cross sell and up sell that started to occur around that.
Also think that from a PSS competitive perspective, you've seen us renew.
You know very significant percentage of our accounts is that's come through that as well, which bodes well.
The renewal of that you, we referred to with southwest in our I X or intelligence exchange capability for data and analytics again. These are all really to us very positive signs of our competitive position in the marketplace. I think the other thing maybe just to keep in mind is that the PSS space is changing its not just about the reservation piece, it's the capability set that sits around.
Around that whether that's pricing revenue management some of the dynamic nature. So the way in which offers get created and how that piece plays out with merchandising retailing and commerce capabilities. We have continued to invest in these we've continued to drive sales to the cloud and continued to strengthen our competitive position.
And so take that plus now the addition of Radditz, which we couldn't address the LCC space at all.
That footprint, we now have full commercial and operational capabilities for both the full service and the low cost space.
And so as I look at that.
We've talked before about in that plan about 650 million of PBS that are up for renewal, mostly from our biggest competitor.
We're pretty active in the market and I'm optimistic about what the next couple of years will look like for US and the biggest thing was just to get that comfort and cross sell up sell happening within the portfolio. So that our existing customers saw the value of the portfolio as a go forward. So we'll try to build off of that.
And we're very very conscious of where we need to pursue and continue to evolve the portfolio.
And just as a follow up.
This would the current operating environment.
You see this pushing out the renewal cycle.
Further out past 2020 now.
I don't I don't think it pushes the renewal cycle out it's certainly causes conversations to continue and go on.
But at the end of the day contracts are up and people have to make decisions and they have to work their way through that and the technology as you've alluded to continues to change at a pretty significant pace and I think all of the carriers hoteliers et cetera.
Our very very conscious of the fact that they need to take a closer look at the technology.
Thank you.
Thank you and our next question comes from Neil Steer with Redburn. Please proceed with your question.
Hi, Thanks, very much for taking my questions just to clarify on the guidance.
Right the virus.
Yes.
The wording that you've used in the press release over since just based on the impact you've seen in the third quarter. So you saw.
Presume that spend to continue right away three months and obviously I also laclede published a paper.
In which they just as it could be a stick to a seventh month defense. So.
That's what Youve done.
Yes, what you've seen in January and February and that will be the impact on the full yes, that's right.
No the guy the guidance, but again was just a first quarter impact.
And it was based on what we've seen on quarter to date that Sean talking about.
Well, that's just the Q1 impact.
Okay.
Yes, I mean, we have not provided full year, because we don't know it for years I mean, everybody is sorted in that does include March. So it's a full first quarter impact based on the impact that we have seen if you go back and everybody is doing a comparison back to Sars in 2003, the timing of the too.
Issues really does sort of fit the same relative to earlier in the year. What we saw was essentially double digit booking decline mid teens booking decline in the first two quarters and then we saw on the back half of the year in 2003 bookings increase I think on a full year basis, it was right and right around 9% booking impact but.
We're like everybody else, we're monitoring we're seeing.
What I can share is over the past couple of days, we've seen increased cancellations in the European marketplace or bookings slowdown in the European marketplace. So this is very fluid and what we're seeing.
Like I understand that 15% in percentage terms of the looking back to Q1 less to do the quite dramatic percentages essentially writing off to says that the earnings in the round about a third of EBITDA in the pools.
Yep.
Okay.
Just one unrelated question, which is with regards to I know, obviously you have to cancel them I looked at somewhat dependent colonsay.
Is it fair to assume that the.
The technology spend guidance that you've made the 29 expense and looking into the commentary that can you 2021.
Based on an assumption that.
San Logics proceeds in other words, those technology spend could end up being considered to be higher sand objects does not safe.
Well.
Neil I again, if I go back relative to.
Fair logics into plans that we have a fair logics I'm going to hold off until we get to conclusion with the with the trial here in the U.S. as well so cama in the UK and we can provide more color thereafter.
Okay. Thanks very much.
Thank you again, ladies and gentleman asked a question. Please press star one and our next question comes from Josh Spector with Morgan Stanley. Please proceed with your question.
Thanks for the question I'm I think the thanks, I highlighted partnerships and acquisitions are clearly strategic and the increased investments around those priorities.
The personalized offers NDC LCC in full service makes a lot of sense. My question is switch with this in mind. How are you thinking about the return on these investments.
You mentioned like the increasing cam goals, but I'm wondering how how you're thinking about the return on the investments as far as.
Revenue growth or long term growth prospects.
Clearly the spend will do two things one lower our cost structure, because obviously, we're going to get to a much more efficient and cheaper footprint to have our technology and obviously, you're actually correct. While most of the investments that we're talking about now we're going to generate revenue probably out in the 23 and 24 range quite candidly they wont to do it.
Much more near term, except for you will get some of the core revenue you're going to kick in in 21 more in 22. So absolutely. We have looked at this as a expanding our marketplace and also creating a ability to generate a higher topline.
And if I could just follow up on the kind of the 2024 picture.
The 26% EBITDA margin target.
How how should we think about that compared to the over 30% EBITDA margins that we've seen just a couple of years ago is there kind of like a pass for continuing expansion beyond.
Thank you must remember that the 30, plus EBITDA margins that you had in the past when we were capitalized at almost $250 million, where the technology. We're now down to by the time, we get out to 2020 in 2021, we're capitalizing less than 50 million. So probably on an apples to apples basis. If you want to go back those would have been much lower.
In the 30% that you're talking about.
Thank you.
And with that I would like to turn the call back to Mr.. Thank you for closing remarks Mr. Keith.
Right once again.
Oh, thank everybody for their time this morning to for us to walk through the number of things that are happening at Sabre Asia.
As you can see a lot of things are going on but as I mentioned I'm very confident in the things that are taking place my look forward to updating you at the end of the first quarter. Thank you very much.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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