Q3 2021 Sabre Corp Earnings Call
Hello, Please stand by your paper third quarter 2021 earnings conference call will begin momentarily. Thank you for your patience and please stand by.
[music].
Yeah.
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 Crissey. 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 Sabre Dot com.
Slide presentation, which accompanies today's prepared remarks is also available during this call on the Sabre Investor Relations Web page 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.
The duration and effects of COVID-19 industry and recovery trends benefits from commercial and strategic arrangement 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, 10-Q, 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 continuing operations adjusted EBITDA adjusted EBITDA margin adjusted EPS and free cash flow and net debt to LTM adjusted EBITDA have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations.
For non-GAAP measures are available in the earnings release and other documents posted on our website at investors Dot <unk> Dot com.
Participating with me are John Magee, 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 and 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 favors business strategy has evolved taking into consideration changes in the travel ecosystem brought on by the COVID-19 pandemic.
He'll also provide details regarding the announced sale of our air Centre 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 P b and hospitality Crs transact transaction trends.
We'll provide you with data regarding how the U S opening for international travel starting November hasn't has improved booking trends.
Then I will provide a commercial and technology update where we are very active in 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 favorite teammates around the world save or just moving at an accelerated pace not just in response to the impact of Covid pandemic, but also as we rapidly advanced 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 is also fundamentally change 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.
I'll 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 safer for long term success.
The assessment reinforced what we already knew that our customers do you incremental revenue generation via advanced merchandising analytics distribution and booking capabilities is 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 arent core to our future or require substantial more investment to scale and achieve the optimal potential.
Giving given these conclusions are strong belief and abroad 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 streamlined specific aspects of our product portfolio <unk>.
Direct our investments in 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 cloud 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 Centre 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 announcements announcements would be made within the strategic elements identified.
Moving to slide six on October 28, we announced that we entered into a definitive agreement to sell air centre to CAE for $392 5 million in cash here.
<unk> centre is our airline operations sweep that generated about $150 million in revenue or about 4% of total favorite of revenue in 2019, which we consider to be more useful comparison than 2020.
Although air Centre 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 centre 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 centre 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 <unk> team for the hard work and dedication they have made it a leading portfolio.
Subsequent to the closing of this transaction.
And transition services agreement or TSA will go into effect the.
The TSA establishes the period of time during which favor will assist CAE in building the necessary environment to operate the air centre portfolio manage customer relationships and monitor the health of related systems and return CAE will compensate favor 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 are already work with CAE get a technology partner, who specializes in the vital role that Air Centre technology plays an airline operations and who has indicated they are committed to investing in future developments in this area.
He requires a product suite, they see as a growth area for their business. The sabre team members, who currently work in their center will move to CAE and become a part of a major player in the airline operation space.
<unk> is able to keenly focus on its core assets priorities and innovation related to personalized travel the cash.
<unk> from the sale will create optionality for continued investment in our business across a more streamlined portfolio and product 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 robotics as well as the rest of our airline retailing distribution and fulfillment capabilities.
Her centre is a distinct portfolio within travel solutions that are supported by about 500 employees.
It includes operation software, such as flight and crew management recovery in 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 operation software such as crew scheduling is important we don't believe it drives revenue growth or customer loyalty for airlines.
Flexible and intelligent nature of our retailing solutions, including our passenger service systems help airlines offer modern day modern retailing experiences enable personalized travel and better serve the unconcerned.
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 eight shows the mix of our 2019 revenue, including and excluding Air Center. Our mix of revenue remains relatively unchanged. In 2019 are center contributed revenue EBITDA and capex of approximately 150 million $55 million and $20 million respectively.
This year, we expect air centre 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 nine before I provide an update regarding travel booking trends, let me summarize the ear center transaction the sale ads $392 5 million of liquidity for 4% of our pre COVID-19 revenue base.
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 and 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 28 versus the same period in 2019.
Solutions passengers boarded are also stronger down 33% in October through the 28 versus 2019 and.
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 28 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 book business booking trends, which are higher margin versus the lower margin leisure bookings specific.
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 is the region with the strongest recovery at 68% of 2019 bookings in October through the 28.
This should benefit favor given our position in the region.
Asia Pacific bookings, even though still depressed have seen significant improvement in the trend line is 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 in 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 reaccelerate. It in September October data through the 28 showed further improvements in all regions for both the GDS industry and for Sabre.
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.
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 the September 20th that inbound travel restrictions will become more relaxed starting November eight.
Despite the U S still requiring foreign travelers to be fully vaccinated and show proof of a negative COVID-19 tests or documentation of COVID-19 recovery daily bookings may two 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.
In late September the global business Travel Association Corona virus recovery poll results reported that 73% of respondents have already resumed or plan to resume travelling domestically for business by next year and more than a third of travel managers say their company relies more on TMC now than before the pandemic.
We are seeing these encouraging signs reflected in the north American bookings at our top tmc's, which recover 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 outlooks at most major U S Airlines, who have indicated that they.
We expect near term inflection points and business demand.
Since our last call in August and subsequent to the impact of the Delta variance 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.
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 MDC offers.
We view. This agreement is the latest proof point that the full service carriers recognize the value of the GDS and looked at sabre to help drive revenue and growth additions.
Additionally, southwest Airlines migration to full GDS participation was completed this quarter. We believe there increased participation is helping drive corporate travel for them and corporate booking volumes for US a win win result on.
On the agency side of distribution the environment remains dynamic we were notified of Expedia is intent to shift a significant portion of its GDS business in North America away from Sabre, but we expect to retain higher margins 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 and 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.
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 sabre to consolidate their GDS strategy in response to the pandemic. For example, this quarter, we won incremental North American business from the three from three largest corporate travel agencies have a competitor. These wins include accelerating migration of bookings to favor at TTM.
And travel and transport as well as a new win with American travel associates.
In it solutions, we continued 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 Scott airline since Kazakhstan, we expect passengers boarded to be up substantially. Additionally, this.
This quarter, we added another supersonic when we expanded our presence in Asia with a long term agreement with Bema in Bangladesh Airlines that also includes digital connect and digital experience.
Our low cost carrier PSS Radditz also had a strong quarter with three new wins, including Turkey, a Japanese startup.
Outside of PSS wins, we had key solutions renewal at several carriers, including Copa We also implemented our first flight planning software in China. The flight plan manager at China Eastern.
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 Sonesta, we added new agreements with rebel hospitality and several hundred Red Lion hotels in North America book assist in citizens citizen M hotels in EMEA and Alvarez, our glass in Latin America. Additionally.
Additionally, I'm happy to announce that the latest version of Sonexus 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 some excess property hub across more than 450 properties and we expect that number to climb in.
The thousands over the coming year.
Turning to technology, we previously identified three key technology milestones for 2021 as a reminder, the milestones are to deploy travel solutions are shopping and Google cloud platform or <unk> transition hospitality solutions Crs into DCP with a global footprint and.
My great, 15% of our mid range workload to DCP.
I am pleased to say these milestones are all on or ahead of schedule. Let me briefly provide more details as previously discussed all favor air shopping, including both agency and airline is running in public cloud environment. As a result, we've been able to decommission almost 2000 servers from our sabre managed data centers.
In hospitality, we had a very successful for Nexus Crs code cutover for lube and are now actively processing otas and GDS reservations for them in our European TCP regions.
Finally, we are continuing to make progress building <unk> foundations in support of our midrange workload migration. We are on track to meet or beat our goal of having 15% of mid range workloads migrated to <unk> by year end.
And with that I'd now like to turn the call over to Doug great. Thanks, Sean and good morning, everyone.
Turning to slide 15 as expected the COVID-19 pandemic continued to weigh heavily on our results in Q3. However in the third quarter. However, the third quarter showed significant financial improvement versus Q3 of 2020.
Total revenue was $441 million, a significant improvement versus revenue of $278 million in Q3 last year due to the continued recovery in global Air Hotel and other travel bookings.
Distribution revenue totaled 245, nine an improvement versus revenue of $105 million in Q3 of 2020.
Our distribution bookings totaled $54 million in the quarter.
Compared to 2019 net air bookings were down 60%, 65% and 62% in July August and September and down 62% in the quarter as a whole.
Said, another way bookings recovered to 38% of 2019 levels in the third quarter.
As Sean mentioned, our third quarter bookings were impacted by some share shift activity.
Even though booking volumes went down sequentially this quarter, largely driven by seasonal trends and the COVID-19 Delta variants are distribution revenue increased quarter over quarter.
We made more money off of lower bookings phase due to a more favorable business slash leisure and domestic question international mix shifts as well as the accretive impact of share shift had on our average booking fee our average booking fee in the third quarter was $4 59.
Versus $3 90.
And $3 84.
In the first and second quarters of this year.
We expect the Expedia share shift activity to result in a bookings impact of approximately 55 million to $70 million and an EBITDA impact of approximately $15 million to $20 million and full year 2020.
Our it solutions revenue totaled $145 million in the quarter, an improvement versus revenue of $132 million last year.
Injures boarded totaled $116 million, representing a 62% recovery versus the third quarter of 2019 sequentially recall that the second quarter benefited from some upfront revenue recognition due to new implementations that went live ahead of schedule.
Hospitality solutions revenue totaled $55 million, an improvement versus revenue of $45 million in Q3 2020.
Hotel bookings continued to lead the COVID-19 travel recovery Central reservation system transactions recovered to 88% of 2019 levels and totaled $27 million in the quarter.
EBITDA showed meaningful full year over year improvement, but remain negative in the quarter, reflecting the continued impact of the COVID-19 pandemic.
The significant year over year improvements in revenue in the quarter was partially offset by increased travel solutions incentives expense and hospitality solutions transaction fees due to higher volumes as expected our technology costs and selling general administrative expenses increased due to volume recovery trends increased labor.
And professional services expenses, including internal investments in risk and security business systems and consulting related to our business strategy as well as increased litigation costs recorded in the third quarter of 2021.
We began to anniversary the longer term cost savings actions put in place in Q3, 2020, including the renegotiation R&D and contract and reduction of about 15% of our workforce exiting September our head count was down 21% versus 2019 year end.
Operating income net income and EPS also showed improvement versus the prior year quarter.
Free cash flow was negative $83 million in the third quarter, a significant sequential improvement versus Q1 and Q2 of this year.
As Sean mentioned the agreement to sell air centers CAE for $392 5 million in cash represents approximately 11 times multiple of 2021 EBITDA.
When we report fourth quarter 2021 results and until the transaction closes the air centre assets will be treated as held for sale on our balance sheet. While Theyre operating results will remain included in our P&L.
When the transaction closes, which we expect to occur in the first quarter of 2022 Sabre will no longer recognized revenue.
<unk> with Air Center products.
Although our reported passengers boarded will not be impacted our revenue per passenger boarded for it solutions will be lower.
Additionally, post close Arizona employees will transition to CAE and the transition services agreement will go into effect, we will be compensated by CAE for the cost related to the TSA activities.
Any additional costs associated with transitioning the business will be excluded from our adjusted results.
Turning to slide 16, we ended the quarter with a cash balance of $1 billion and have no significant near term uses of cash.
The sale of Air Air Center is expected to further strengthen our liquidity position with expected cash proceeds of $392 5 million from the sale of our center upon the closing which is expected early next year. This divestiture creates optionality with regard to how we invest going forward. We plan to continue to invest in our business across a more streamlined portfolio.
And our products areas. We believe have the highest returns remember our target leverage ratio remains unchanged at two 5% to three five times. Therefore, this sale also creates optionality and potentially pay down debt.
As.
You are no doubt are aware, we've taken quick and decisive actions since the onset of the pandemic to reduce our cash usage and raise additional liquidity.
In addition to the proceeds from the expected sale of Air Center, We announced that we established an after market equity distribution program. In August. This ATM program is a continuation or a thoughtful approach on liquidity to date, we have not sold any shares pursuant to the ATM. However, we maintain the flex.
<unk> ability to raise up to $300 million before the end of 2022 as needed or opportunistically.
We expect to update you on the ATM program on a quarterly basis with that I'll turn it back to Sean great. Thanks, a lot Doug in conclusion with the travel environment continuing to improve the benefits of our technology investments, taking hold and with our focused strategy. We believe sabre is well positioned to take advantage of post pandemic opportunities.
Unlock shareholder value and with that I'd like to thank my employees around the world for all the continued hard work that they do and we would like to begin to take questions at this point.
Thank you.
Just a question you will need to press star one on your telephone.
Your question press the pound key.
Keith Please standby, while we compile the Q&A roster.
Our first question comes from Matthew Broome with Mizuho Securities. You May proceed with your question.
Oh, thanks, very much for taking my questions.
From the data you provided it looks like you're seeing an improvement in volumes on both the international on the corporate side.
Are you starting to develop a better insight as to what sort of longer term that you think will look like once we move past this near term recovery for both categories and following on from that are you still seeing a free cash flow breakeven at sort of 50.
<unk> 50, 657% of 2000, and I can start things with a favorable mix.
And maybe mid sixties with an unfavorable mix.
Yes, Matthew this is Shawn I'll take the first part of that question and then pass it off the dog to answer the second question for you. So.
We are encouraged as you would imagine by the trends that are taking place and the one thing that we had talked about in the second quarter earnings call is sort of a lumpiness in the recovery and believe long term as we continue to see.
Restrictions travel standards be more sustained in nature that we would continue to see the recovery and Thats really what we have seen if you go back to the middle part of September is the growth. That's there the thing that I'm also encouraged about.
Is what we have seen on the business and international side and again this gets into markets opening Thats also our strong belief that <unk>.
Individuals will be out on the road as we look into 2022.
Have not provided any guidance, but at this point I do feel confident that the trends that we're seeing right now as long as we do not see spike in Covid cases that recovery will continue to take place and with that I'll hand, it over to date and so it regards to the cash flow breakeven, let's level set for a minute remember the guidance, we provided before centering around returning to bookings.
<unk> and Crs levels of 2019, and then obviously factor in the business slash leisure and domestic slash international mixes with that we arrived at a range of 55% to 65%.
Obviously, I think with the shift of some of the.
Leisure moving away and raising.
The the <unk>.
<unk> I think we shipped a little bit to the left to the 65% on a more normal environment recovery now so it's a little less recovery now probably breakeven than before so this is the one thing. We had mentioned is when we start to see specifically international and business traffic coming up as a percentage of total bookings that's really good as it relates to the breakeven.
Free cash flow number and that's what we're beginning to see.
Okay.
That's helpful. Thanks, and then in terms of the Expedia and use.
Is there any more context, you can provide around that decision.
What they did it go into effect.
Sure.
No.
The financial impact how much of the bookings the uplift.
It was driven by that.
Yes, so the <unk>.
Important thing is as I read through our prepared remarks, and Doug did as well.
Impact is really in North America, which we've talked about as being really it's a low margin business and it really came out in the numbers, but maybe some of the thoughts behind that and I'll pass off to Dave to share sure Sean.
Maybe first as to the why.
Their CEO I think it's known publicly he has been the new CEO has been taking steps to simplify their business and their operations.
We have to say that their focus on what appears to be a single source strategy is pretty unusual.
And as a result, when we look at Otas and while we continue to gain share and wins globally.
The Otas typically will focus on three things redundancy, which.
Which is kind of obvious content availability and speed and for US it's kind of counterintuitive that they made that move based on our cloud migration and the continued technology improvements that we execute too and so the other thing that I would say to you. This this started in third quarter had no material.
Cereal financial impact, but more importantly, these bookings are very low margin North America bookings as Sean was referring to and we werent financially incentivize to try to keep them. So.
Our international and domestic mix is definitely moving in our favor and as evidenced by the Q3 booking fee.
And lastly, your question on the average booking through the majority of the average booking fee increase this quarter was actually due to the better business TMC and international mix and it had to deal with the loss of Expedia.
Okay.
Okay.
Great.
I'll leave it that thanks very much.
Thank you. Our next question comes from Mark <unk> with Bernstein Research you May proceed with your question.
Thank you very much and thank you for the details I'd like to drill in a little more on the air centers sale I understand completely the desire to focus the business on the core.
But a couple of questions on this.
The first is was asked center simply much more capital intensive than the rest of the business second was the SAP.
Sales organization really that much separate was there a technology stack difference with some other difference between the businesses.
Any color you could give would be much appreciated and then a quick follow up.
Yes, no problem, Mark and thanks for joining the call. So what I'd like to do is actually take you back to probably when I took over the organization, Dave Shirk joined me.
If you look at this business and we provided essentially the revenue from 2022 at a $150 million what I would tell you Mark is the amount of time that I spent that Dave had spent.
In proportion to the revenue was a lot higher meaning.
And you'll remember this we are spending a lot of time on <unk>.
Stability.
Making sure that the product is where it needed to be and in many of those conversations with airlines around the world. Although I wanted to talk about was the obsolete and when are we going to make sure that it is healthy and in the right place and David and team have done a great job in doing that but the one thing that's clear about it is it does drive a lot of attention because of the nature of the other thing that.
It's important to call out as it relates to air Centre.
And it really does get into as I mentioned, the nature of the businesses. There's a lot of regulatory side with it. So we look at it from the CAA the FAA or international regulatory bodies specific work rules on carriers as well as pilot Union. So you'll find that there is a different sort of development mentality that is required.
Place there.
And when we look at it just based on where we are right now market. It isn't core to what's taking place on how do we make sure that we're spending our time.
On what are the most important things that are going to drive revenue into the future. This is one that we had been approached in the past about potentially a disposition of it but the thing that we're very thoughtful about is if we.
If we would sell the air centre portfolio many of the customers that are air centre.
Customers are going to continue to be safer customers and we wanted to make sure that any acquirer was actually one that has strong relationships with customers.
We knew that they wanted to invest and build upon it and the other thing is just really for our sabre team members that they'd have a good place to go and work with that.
From a capital.
Sort of dipped.
Deployment into it it's one that as we go through every budget cycle.
A decent amount of dollars that went into it from a sales perspective I'll, let Dave just talk about the sales cycle, a little bit yeah. So mark just to add to what Sean was saying the sales cycle.
It is a different buying center.
Then the retailing and distribution side and so different.
Persona and executive approach and purchasing cycle that would go on around that.
The sales teams are always shared and multi product and multi oriented but in the case of our air central portfolio. The pre sales team is dedicated to that because as Shaun was describing the various regional labor issues et cetera.
Unique aspects to that that was a part of that structure and the transaction model for it.
And you also asked a question about what their uniqueness or something interesting in the technology stack that made it different or whatever.
Again.
It's a different technology stack, but it's still technology and so at the end of the day. It really comes back down to like I said, the buying center being different in the way in which it is sold and the types of evaluation criteria associated with it for the head of operations and the way in which they would evaluate the solution in the stack that's around it. So that just gives you a little bit more color I think to answer your question.
That's extremely helpful and I do appreciate one other quick follow up you mentioned that you're on schedule or maybe even ahead in terms of your cloud migration.
Does any of this accelerate any of the later steps in the process do you still think you'll you'll meet the longer term goals in terms of the cloud migration do you think you can get ahead of it potentially any color additional color longer term would be appreciated.
Sure Mark I would say as far as our progress goes.
Really good about the progress that the teams have been making we've stayed very very steady.
The resourcing the support we've gotten from Google and this particular transformation in the cloud movement, we're absolutely on track as Sean commented in his comments.
For our 15% target, we just put the entire travel solutions.
Are shopping piece into the Google cloud.
So we're right now all signs would indicate that we are definitely on track for our 2020 for process in the set of steps that we have and the milestones that we have.
Windup for us internally as far as Air Center, maybe having some positive impact and eventually accelerating things or something that it's still too early for us as we mentioned we have a transition services agreement.
We will be thoughtfully working through the movement of our customers over to CAE and I'd like to get a little bit further through that before I'd say that we could accelerate things through it but again, we're pleased with where we're at and we're definitely on track for the milestones that we said we would need the other thing Mark and this is really within the hospitality I mean, there was an enormous amount of heavy lifting.
To be able to get move on the cloud and again this was using the landing zone that we set up in Europe. So again, if you take a step back and we look at what we're doing is having these deployments took around the world as you very well know that reduces the latency, which allows from one of stability perspective.
A reliability perspective, but also from a speed speed speed perspective, and the other thing that I would note is just the amount of learning that has taken place within the within the Sabre organization of what we're doing it's only going to help us get better at this as we're moving forward. So I'm very optimistic relative to hitting the timelines that we have met already.
And then how we will continue to work through it over the next year or two.
It makes complete sense in fact SAP propose the comment you made earlier about the decision and the Expedia made doesn't make sense, given where you're going and we have finished getting there. Thank you again.
Thank you Mark.
Thank you and our next question comes from Jed Kelly with Oppenheimer. You May proceed with your question.
Hey, Thanks for taking my question.
Expedia is there something structurally going on here where the.
The Otas are trying to control their tech stack given they haven't seen a lot of volumes during the pandemic.
Less volumes.
<unk> taken a look at their technology, you're looking at.
Booking holdings right, they're building out their own flight product two it seems like it's.
Little more vertically stack I mean is there anything structural going on there.
Chad This is Sean.
Then I look at it the answer is no.
I know you follow Expedia pretty closely.
With Peter coming onboard there there has been this drive on simplification, which has been pushed down into the organization.
And this is one relative to what's taking place.
When we look at it and we.
We walk you through it there's not much of an EBITDA impact on us even where the volumes are.
<unk> thousand 19.
We have not disclosed that yet.
But if you go back I mean, if you look at if you if you look at.
The numbers that we provided you that's on a pretty significant sort of rebound in 2019 levels and you didn't see the impact on it so im giving you sort of a ballpark of what that impact is.
Got it Okay, and then like when you were negotiating them, we'd like your Google cloud and everything your Doctor you've done like how did that go.
Yeah.
Sorry, Mark with Expedia or sorry, Jed with it.
You made a huge investment in Google cloud and I thought this would improve relationships with customers improve the retailing right and to lose this contract that's pretty significant loss I mean, they're the largest don't go well.
Erica yes to be clear, we didn't lose the contract we stated that in the comments right. It's the North American business, which is a low margin business. While we also called out as the number of wins that we have been getting.
So when you look at it.
Blow it out of context relative to the impact. This is something that is being done at expedia. When we look at everything else that's happening in jet across the board I am very comfortable with where we are right now.
Okay, and then anything you can talk about for 'twenty. Two like are you looking at like any business trends call like something like the mobile World Congress or conference, which you generally get a lot of international travelers. During February I mean anything that you can point to on what Youre seeing for like a business recovery.
Well again as we identified in the comments the business recoveries, there as well as international travel I think we went through them pretty much detailed yet of our comfort and what we're seeing right now.
Alright, thank you.
Thank you.
Okay.
To ask a question you will need to press star one on your telephone. Our next question comes from Josh Baer with Morgan Stanley. You May proceed with your question.
Thanks for the question.
Sometimes we get the mix the actual mix of domestic leisure just looking.
For any color on that mix just given the.
Booking fee in the quarter.
Yes, the mix was a little bit obviously a bit more favorable.
Domestic and international so basically 43% now, whereas before remember as more time. It was 70 25 now you see it as coming back because it's come from 25% to 43% recovery.
The sorry, 48 could you just repeat that.
Yes, so so last quarter to domestic leisure was basically 50% of all of our bookings this quarter declined to 43%. So obviously that shift is going to the international marketplace.
Okay got it.
That makes sense and then just thinking through some of the other product portfolio areas.
With Air Centre in mind, I mean is there.
Sure.
If I think about like some excess property hub or property management systems.
Does that fit in with the operations sort of.
Theme of Air Centre or is that more directly part of the strategic focus areas.
It's different right I mean, if you look at it.
Core operating system, it's no different than sort of look at the airline PSS system Radick Sabre Sonic you have Crs that sits on top of it. So it's a little different I think.
I'd point you to is we talked about Air Center, but we've also done some small.
No.
Dispositions of a product called Air pass, which really is a cost management.
System within travel solutions as well as trams, which is some back office stuff.
The flip side of that is what we have been doing with intelligent retailing in hospitality you look at the acquisition of <unk>.
We'll be talking about essentially savior.
My stuff, which gets into air price IQ, which we'll be talking about later this week and announcement as well as the ancillary IQ. So again youre seeing us moving away from certain things that are not core and making sure as we bring in new things and launch new products that theyre very much in alignment with our strategy.
Got it.
Just in.
In thinking about the sale of Air Center.
Just wondering like if liquidity was not an issue.
Yes.
Do you think that I know, it's a tough question, but just getting a sense for like Theres different reasons, maybe for the sale.
Like how big was the liquidity of.
A factor for liquidity wasn't an issue.
Is this part of the prior strategic plans. Thanks.
Yeah, I mean, if you if.
If you listen to the response that I had for Mark Moeller.
I think I went through it in detail you've got to go back in time is what this is this is not anything focus on liquidity. This was one that as we looked at it was not core and the one thing that we're very focused on is making sure that.
If we had if.
We sold this really the disposition that I went to the right buyer, which CAE is a great buyer and thats because of the alignment that they have so it was more driven on that than anything else. This was not.
This was not liquidity focus and again, we've talked about really where we are liquidity sits at $1 billion. We do have.
Access to unsecured debt.
We have the ATM program that's out there. So again, we've been very thoughtful we've been very focused because I think what you're getting to is how do we feel about it and we continue to be very thoughtful managing through.
Our capital structure, and what we need to do and we want to make sure that we're nimble relative to the.
The opportunities that may sit out there.
Operator, I think we can go to the next question.
Thank you. Our next question comes from Neil Steer with Redburn you May proceed with your question.
Hi, Thanks, very much can you hear me okay.
Yes Neil.
Thanks.
Back to the subject of Expedia, but I just wanted to clarify something it sounds per se.
That was part of the business that you've lost that.
You suggested it could.
From the answer to an earlier question. It seems that you're close to north American domestic but you seem to be keeping parts of the business. But then in response to a question earlier on I think easy.
You'll have shown I would tell you mentioned that the expedia.
So packaging.
So the question is are you at.
Thanks.
Meaningful Expedia Walgreens.
In the near term and is there a range.
The Expedia goes completely towards Evs globally.
You're welcome to go together.
Yes to be clear, we have an expedia contract thats in place.
With that it's just north American volumes that we talk about Neil if you look at other volumes. They are still in place. So it's almost that simple.
So it's just the north American domestic that you chose not to chase after will be because the economics, what's attractive is that correct.
That's correct and we walk you through the impact of that which as we stated is immaterial.
Okay. Thanks.
Just looking at some of the shop.
When you show the data with booking trends insightful it looks as though you could actually be quite close.
If trends show a small improvement in free cash flow neutral in the fourth quarter is that something you are expecting for pets coming to pump.
Yes.
We're not providing any guidance deal, but if you go back to.
What we have been talking about as it relates to breakeven we watched the bookings very closely it's why we share that information.
And again as we look into the future. We will continue to share the information that allows us to see the recovery in a positive way.
Okay. Thanks, and then just one final one is there any update on you had a couple of course with scale, we see a very positive announcements with.
With Delta.
And American airline seems to take take offense to that contract and how it is being put in play what's the latest on the relationship between American and Delta in that contract.
So you may remember that that they filed a temporary injunction on that actually last week. The judge ruled that the temporary injunction was denied.
We are in the market discussing with other airlines us discussing with agencies and continue to be focused on the innovation.
That we're rolling out to the marketplace and this is really new airline storefront as well as value based pricing.
Great. Thanks, so much thank you.
Thanks Neil.
Thank you and our next question comes from Victor Chen with Bank of America. You May proceed with your question.
Hi, Thanks for taking the question.
Just going back to Expedia can you put the impact into.
Into context, you mentioned.
$5 7 million bookings.
2022, obviously, you havent disclosed assumptions.
Assumptions for 2022 is it broadly in line with.
Some industry forecasts of asphalt cost youre having.
Yes, let me walk you through the way that I think it would be best helpful is it.
If you think of 2019 volumes and we're not giving any guidance as it relates to 2022, but if you look at 2019 volumes and you actually assume a V.
Very strong recovery in bookings and I'm talking in the magnitude of.
Call It 70 plus percent recovery.
And talking about a bookings impact of $55 million to $70 million again, I'm looking at the high end, but what that translates into and this will I keep going back to.
The low margin business in North America that we've called out it only has about a 15 million to $20 million impact on EBITDA.
Gotcha. Thank you and then.
Can you comment on the historical growth of assets, presumably it is slower growing part of the it solutions.
So should we expect a stronger growth in the remaining portfolio in the long run.
Yes.
Yes so.
Victor on the first part yes, you are correct in terms of the.
The previous growth rate of Air Center as far as the rest of the portfolio.
Again, we're not giving guidance, but as I've stated in past calls we continue to do cross sell and upsell and we continue to be.
Pretty positive on the new innovations and trying to build up the pipeline for those things and the interest level as we start to bring those out.
Also the case that whether it's data analytics, whether its our revenue management product set or some of the new retailing and merchandising capability sets. We see those also is positive.
Out there in the marketplace and getting a lot of.
First line interest from those as we start to move through that so that would be our optimism for where we had.
Gotcha and then.
Just two final ones on hospitality, Okay in Q3 Crs bookings.
Back up to 88% of 2019 revenue is only 75%.
Can you help me consolidate difference, particularly given hospitality if I understand it correctly should have a bigger fixed component and then maybe just one final one if I may on the.
Hospitality revenue is it correct to assume that the majority of that comes from Crs and <unk>.
So can you comment on what kinds of hotel in terms of size and region.
The next stage property hub, we'll be targeting it given and what the opportunity is for PMI space given some of the well established players.
Thank you.
Yes, quite a bit and they're happy to answer this is Scott Wilson.
Let's get to the first part, which really has to do with kind of the recovery and how that translates into revenue keep in mind. The market is recovering a little bit differently than in the airline space, but it is still a story of haves and have nots.
A lot of the local drive type hotels limited service hotels, that's the preponderance of the recovery right now if youre looking at your Big SUV Center business oriented hotels, those or not.
Obviously, we would have a corresponding revenue recovery that goes in line with the full recovery of the market not just the part of the market that is recovering.
Grateful to see the part that is recovering we are looking forward to the rest of the market recovery.
Going forward.
Going to the kind of the next part is the revenue generally driven by Crs, yes. The preponderance of the revenue does come from our Crs Thats, our traditional our traditional space.
And then.
Great.
Last part really was pivoting now towards towards Pms.
What was the specific question about property hub.
Yeah, just thinking obviously in the Pms area.
So I was just wondering.
Swaps in excess property hub Hulu.
Are you talking <unk>.
Got it.
Customers.
It totally makes sense. So a quick reminder, nexus property hub is actually our latest generation all cloud limited service oriented property management system, focusing on North America, obviously is well known our launch partner and our biggest partner has been women properties.
We actually have.
Started well.
Well over 100 of their properties on <unk> property hub and that will go into their most of their portfolio over the next two years.
We are in conversations with any other North American Limited service Hotel here, who can student property management solution. We believe that it is a truly miss.
Mission purpose solutions for the limited service players, we think there's a lot of opportunity for us to go in that right.
Right now with the growth that we have we will be one of the largest property management systems in the world when we finish our existing contract rollout.
So we go from there.
We go through a very very healthy position that we think sets us up well to win additional opportunities in North America for limited service properties.
Gotcha. Thank you.
Thank you and I am not showing any further questions. At this time I would now like to turn the call back over to Mr. <unk> for any further remarks.
Great. Thank you very much and I want to thank everybody who has.
Joining us on the call today I again want to thank.
My team members around the world.
Excited about a number of things that are taking place the tech transformation and how we continue to move forward. The commercial progress Thats been made but also the signs that we're seeing as it relates to bookings recovery specific to international and business trends that are out there and we look forward to talking to you in the future to provide more updates. So again, thanks for joining us today.
Yeah.
Thank you.
<unk> concludes today's conference call. Thank you for participating you may now disconnect.
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