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OPERATOR:
Good morning and welcome to Sabre Holdings Corporation's conference call to
discuss the company's strategic refocusing and cost-cutting initiatives, as
well as its proposed acquisition of GetThere. At this time all participants
are in a listen-only mode. Later we will conduct a question and answer
session and instructions will follow at that time. If anyone should require
assistance during the call, please press the star followed by the zero on
your touch-tone phone. As a reminder, this conference is being recorded and
is being broadcast live over the Internet.
The host of today's call is Bill Hannigan, Chairman and Chief Executive
Officer of Sabre Holdings Corporation. This conference call is being
broadcast live on Sabre's Web site and an archived replay of the call will be
available until Friday, September 1.
Before Mr. Hannigan begins, Sabre reminds all of you that comments that will
be discussed today on future matters - such as the proposed acquisition of
Gemini, anticipated cost reductions, and forecasts of growth in revenues,
earnings, or bookings - will constitute forward-looking statements. These
matters are, of course, subject to a number of factors that could cause
actual results to differ materially from our expectations. These factors are
described in the Company's news release and financial statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements.
I would now like to introduce Mr. Hannigan. Please go ahead, sir.
BILL HANNIGAN
Good morning and thank you all for joining us this morning on such short
notice. I'm here with Jeff Jackson, our CFO and joining us on the call is
Gadi Maier, GetThere, Chairman, President and CEO.
This morning - we made several important announcements -a company-wide cost
cutting initiative, a redefinition of our market focus, and an important
acquisition in the Travel
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Marketing & Distribution arena. These announcements each strongly support
Sabre's goals of long-term growth and profitability.
COST CUTTING/STRATEGIC REFOCUSING
I'd like to start by discussing the launch of our worldwide cost cutting
program. As many of you know, we've been taking a hard look at our company
over the past several months - reviewing how we can improve both our growth
strategies and our operating efficiency. Our in-depth analysis included
benchmarking against our competitors and peers and assessing the changing
travel distribution environment. As a result of this process, we're
redefining our market focus and initiating a worldwide strategic cost-cutting
plan that's aimed at reducing overall operating costs on a company-wide
basis, and allowing us to continue investing in existing and new market
opportunities that will drive faster growth and enhanced profitability for
Sabre.
We expect this global cost-cutting plan will generate approximately $100
million in annual pre-tax savings in 2001. To achieve this target, we intend
to (a) eliminate duplicative activities, (b) leverage resources across the
organization so we can operate more efficiently and cost-effectively, and (c)
reduce approximately 1,200 positions from our current employee base of
roughly 10,500 people. We'll achieve the job reductions over the next
several months through attrition and layoffs across all of our organization -
with the U.S. being a key focus. We estimate the program will result in a
one-time charge of approximately $20 million before taxes, mostly related to
severance and outplacement costs. And we plan to take this charge in the
current quarter.
This cost-cutting initiative is an integral part of the new strategy we've
designed to ensure we maintain our leadership position as the premier
technology company for the travel and transportation industries. We have
redefined our market focus to capitalize on our unparalleled strengths in
electronic travel and marketing distribution channel and the IT services
arena. In essence, through this strategy, we will enhance operating
efficiencies and flatten the organization so we can increase our speed and
agility - which are key competitive advantages in today's travel marketplace.
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We have set an aggressive goal to be the world's leading electronic travel
distributor, and a world-class travel marketer - touching and enhancing the
experience of every traveler. As part of that goal, we're committed to
staying ahead of the curve of the rapidly changing markets we serve.
THERE ARE FOUR KEY ELEMENTS IN OUR SHIFT OF MARKET FOCUS.
FIRST, WE WILL CONTINUE TO TAKE ACTIONS TO EXTEND OUR BUSINESS IN TRAVEL
DISTRIBUTION AND EXPAND OUR TRAVEL MARKETING BUSINESS. THERE ARE SOME GREAT
OPPORTUNITIES IN THIS AREA, AS YOU'VE SEEN FROM TODAY'S GETTHERE ACQUISITION
ANNOUNCEMENT AND OTHER RECENT ACQUISITIONS. We're enhancing our abilities to
deliver tools to our customers that will enable one-to-one marketing and
stimulate demand in these high-growth travel channels.
SECOND, WE ALSO SEE STRONG GROWTH OPPORTUNITY IN THE AREAS OF SOFTWARE,
RESERVATIONS HOSTING AND WEB HOSTING. This draws on our competencies in
airline software solutions and our understanding of airline IT. And it
allows us to leverage our strengths in high-value, high-margin areas.
THIRD, WE'RE CHANGING THE WAY IN WHICH WE BID FOR LARGE IT OUTSOURCING
CONTRACTS. We'll no longer go it alone when bidding for facility management
opportunities. These pursuits require considerable time and resources, and
by their nature, DO NOT PROVIDE THE SAME OPPORTUNITY FOR VALUE CREATION, AS
DO OUR OTHER BUSINESSES.
Instead, we'll partner with complementary IT firms to bid for those types of
contracts - with Sabre focusing on the areas that rely on our software,
consulting, multi-host and web hosting capabilities. A good example of this
is the Air Canada RFP. We are teaming with CGI to go after this opportunity.
We believe that this type of partnering will allow us to focus on our core
competencies, and to produce predictable revenue and earnings growth. It is
important to note, however, that we are fully committed to supporting and
actively growing our current customers in this area.
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AND FOURTH, OUR SOFTWARE BUSINESS IS MORE IMPORTANT TO US THAN EVER BEFORE,
AND WE NEED TO CONTINUE TO TAKE ACTIONS TO FURTHER DEVELOP OUR HIGH-END
CAPABILITIES. WE'RE THE MARKET LEADER IN AIRLINE SOFTWARE AND WE HAVE A LONG
HISTORY OF AIRLINE SOLUTIONS INNOVATION. TO STAY IN THE LEAD, AMONG OTHER
THINGS WE NEED TO DRAW ON OUR SKILLS IN THE SOFTWARE BUSINESS AND INVEST TO
STANDARDIZE AND FURTHER PRODUCTIZE OUR SOFTWARE SOLUTIONS IN AN INTEGRATED
SUITE TO INCREASE SALES AND MARGINS IN THAT BUSINESS.
ID LIKE TO TALK A LITTLE BIT ABOUT THE TREMENDOUS GROWTH OPPORTUNITIES IN
ONLINE TRAVEL. ACCORDING TO FORRESTER RESEARCH, ONLINE TRAVEL DISTRIBUTION
IN THE U.S. IS EXPECTED TO REACH OVER $29 BILLION BY 2003 - ALMOST TEN-FOLD
THE 1998 LEVEL. AND THAT'S WITH ONLINE TRAVEL STILL IN ITS INFANCY. TODAY,
ONLINE TRAVEL REPRESENTS ONLY A SMALL PERCENTAGE OF TOTAL TRAVEL SALES, BUT
BY 2003 IT SHOULD BE AT LEAST 10% AND IS ANTICIPATED TO CONTINUE TO GROW
RAPIDLY.
With the GetThere acquisition, which I'll talk about in more detail in a
minute, Sabre will be the undisputed leader in ALL channels of travel
distribution, including:
- One: the traditional travel agency channel
- Two: the consumer online channel with Travelocity
- Three: corporate online travel systems with Sabre BTS and GetThere
- And Four, Supplier Direct, through our own efforts as well as those of
GetThere
As you can see, there's a lot of room for us to grow our business. And
that's why we need to ensure we are fast, nimble, and prepared in every way
to capture opportunities to grow our company.
Our transaction with GetThere is a perfect example of this. So are other
recent acquisitions, including Gradient Solutions and our 51 percent interest
in Dillon Communications Systems in the business-to-business travel arena,
and the merger earlier this year of Preview Travel and Travelocity.com in the
consumer travel arena.
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GETTHERE ACQUISITION
And now, I'd like to turn to GetThere - and tell you why we acquired the
company and how it fits into our overall strategy for profitable growth.
Merging GetThere with our Sabre Business Travel Solutions (BTS) unit is a
strategic move that sends a very clear signal that we are serious about being
the premier electronic travel marketing and distribution company in all
channels. I've made comments in the past about our strategy to double down
on our strengths in this business - and this action certainly is in keeping
with that strategy.
FOR THOSE OF YOU WHO ARE NOT VERY FAMILIAR WITH THE ONLINE CORPORATE TRAVEL
INDUSTRY, COMPANIES LIKE SABRE BTS AND GETTHERE PROVIDE A TECHNOLOGY PLATFORM
THAT ALLOWS CORPORATIONS TO LOWER TRAVEL COSTS BY REDUCING CORPORATE TRAVEL
AGENCY FEES AND ENHANCING ENFORCEMENT OF CORPORATE TRAVEL POLICIES. THEY
ALSO ENABLE CORPORATE CUSTOMERS TO BETTER MANAGE THE CORPORATE TRAVEL PROCESS
BY ALLOWING INTEGRATION OF KEY DATA INTO THEIR SYSTEMS TO FACILITATE EXPENSE
REPORTING, ACCOUNTING AND OTHER ADMINISTRATIVE FUNCTIONS.
Online corporate travel is an extremely fast growing channel with enormous
potential for even stronger growth in the future. According to Forrester
Research, the "managed" online corporate channel represented $1.6 billion in
travel sales in 1999 and is expected to grow to $11.3 billion by 2003.
The fast-paced growth of online corporate travel is reflected in the
extraordinary growth of BTS and GetThere. Travel transactions booked through
BTS are increasing at a rate of over 250% year over year, and in the first
quarter of this year, GetThere reported revenue growth of 187% over the first
quarter of 1999.
The corporate online space is very competitive, but two leaders have emerged
- our BTS team, and the GetThere team. THERE WILL NO LONGER BE ANY ARGUMENT
ABOUT WHO LEADS IN THE ONLINE CORPORATE TRAVEL CHANNEL -- BECAUSE THIS
ACQUISITION WILL ESTABLISH SABRE AS THE LEADER IN BOTH ONLINE CORPORATE
TRAVEL AS WELL AS E-COMMERCE TRAVEL PLATFORMS FOR AIRLINES, SUPPLIERS, AND
AGENCIES.
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BY COMBINING THE STRENGTHS OF BOTH COMPANIES, WE WILL PROVIDE THE MOST
POWERFUL AND FLEXIBLE ONLINE PLATFORM FOR MANAGING CORPORATE TRAVEL IN OUR
INDUSTRY, WITH THE BROADEST RANGE OF SERVICES AND CONTENT. WE WILL ALSO
SIGNIFICANTLY EXPAND OUR CAPABILITIES IN WEB DEVELOPMENT AND WEB HOSTING FOR
TRAVEL SUPPLIERS AND TRAVEL AGENCIES. IN ADDITION, THE TRANSACTION WILL
PROVIDE US GDS-INDEPENDENT CONNECTIVITY AND WILL POSITION SABRE TO BECOME THE
LEADER IN SUPPLIER DIRECT DISTRIBUTION MODELS.
The combined business will benefit from an unparalleled roster of blue-chip
customers. Corporate customers like Cisco, Citicorp, Dell, GE, Lucent, Nike
and Nortel. And airline customers like United, America West, US Airways and
SwissAir. No other company in the travel industry can cite such a long list
of premier customers.
BOTTOM LINE, THE COMBINATION OF THESE TWO LEADERS REPRESENTS A UNIQUE
OPPORTUNITY TO CREATE SIGNIFICANTLY ENHANCED VALUE FOR THE SHAREHOLDERS OF
BOTH COMPANIES. THE COMBINATION CREATES ENHANCED REVENUE-GENERATING
OPPORTUNITIES IN A RAPIDLY CHANGING GLOBAL TRAVEL DISTRIBUTION MARKET,
POSITIONING SABRE TO BE A STRONG COMPETITOR IN THE ON-LINE TRAVEL
DISTRIBUTION CHANNELS. WE ALSO EXPECT THE COMBINATION TO GENERATE COST
SYNERGIES IN MARKETING AND OVERALL GENERAL AND ADMINISTRATIVE EXPENSES.
THE COMBINED ENTITY WILL HAVE ESTIMATED 2000 REVENUES OF $50 MILLION. THIS
TRANSACTION, COMBINED WITH THE COST-CUTTING INITIATIVE OUTLINED EARLIER, IS
EXPECTED TO BE NEUTRAL TO SABRE'S EARNINGS IN 2001, EXCLUDING GOODWILL
AMORTIZATION.
This all-cash transaction - which was unanimously approved by GetThere's
board of directors -- is valued at $757 million, or $17.75 per GetThere
share. We expect to launch the first step tender offer in the week of
September 4th, and we expect to close in the fourth quarter of this year.
The transaction is subject to regulatory clearance and other customary
conditions.
The new company will be based in Menlo Park, California - GetThere's current
headquarters, and will also have a large presence in Fort Worth where BTS is
located.
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I'm pleased to report that Gadi Maier, GetThere's chairman, president and
CEO, will be president of the new organization, and Scott Smith, senior vice
president and general manager of Sabre BTS, will report to Gadi and will lead
the corporate marketing function for the new company. I look forward to
working with Gadi and his talented team to take this company to its next
level of growth.
I'll turn it over to you now, Gadi to say a few words about the transaction.
GADI MAIER
Thanks Bill. I am very excited about the opportunities that lie ahead for
this new company - and in turn, for our customers, shareholders, and
employees.
By bringing together the two key players in the online corporate travel
channel, we will establish the industry's leading e-commerce platform for
both corporations and travel suppliers, with the best-of-breed technology,
knowledge base, and talented people to further enhance opportunities for
growth within this travel channel.
I'm eager to take on the challenges of leveraging our leadership role in this
fast-growing travel channel and I look forward to exploring new avenues of
revenue and profit growth. The increased scale and scope of the combined
entity will create a highly scalable infrastructure and produce a number of
synergies that will enhance top- and bottom-line performance and accelerate
our profitability. This will ultimately create value for our shareholders.
In the near term, my team and I will be very focused on ensuring that the
eventual integration of the two companies goes smoothly for our customers and
employees. We intend to take the best practices of both companies and
migrate to a new platform with the goal of creating significant benefits for
our customers. As a GDS-independent company with strong relationships with
major airlines, innovative technologies and a strong position in the global
travel distribution industry overall, we will create a company with
capabilities that few can match.
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I look forward to working with Bill, Scott, Jeff and the other members of
Sabre management to achieve the ambitious goals we've set for this exciting
new company.
Now, I'll turn the call back over to Bill.
BILL HANNIGAN:
Thanks, Gadi.
Stepping back a moment, I'd just like to reiterate that the initiatives I've
outlined this morning - our new growth strategy and company-wide cost-cutting
plan, and our merger with GetThere - are all aimed at enhancing our ability
to deliver long-term value to our shareholders. We have worked hard to secure
leadership roles in our core Travel and Marketing distribution and IT
software solutions businesses, and we plan to maintain that role through a
combination of complementary strategies aimed at (a) increasing productivity
and efficiency and enhance customer service, (b) creating significant
operating cost savings to reinvest into other parts of the business, and (c)
cultivating and growing our high-potential emerging businesses.
All of us at Sabre intend to remain a key architect in shaping the future of
travel services, driving innovation and change in the global travel market,
and we believe these initiatives will provide us the platform to achieve that.
Now I'd like to turn the call over to Q&A. Operator?
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