Q1 2022 Sabre Corp Earnings Call
Thank you for standing by your Saber Q1, 2020 earnings Conference call. We will begin in approximately one minute again. Thank you for your patience and please continue to standby.
[music].
Okay.
Good morning, and welcome to the Sabre first quarter 2022 earnings conference call.
My name is Daniel 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 President of Investor Relations.
Kevin Christie. Please go ahead Sir.
Thanks, Daniel Good morning, everyone. Thank you for joining us for our first quarter 2022 earnings call. This morning, we issued an earnings press release, which is available on our website at investors Dot <unk> Dot com, a slide presentation, which accompanies today's prepared remarks is also available during this call on the Sabre Investor Relations webpage.
Replay of today's call will be available on our website later this morning.
We would like to advise you that our comments contain forward looking statements that represent our beliefs or expectations about future events, including the duration and effects of COVID-19 industry and recovery trends benefits from our technology transformation and commercial and strategic arrangements, our financial outlook and targets expected revenue cost 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 2021 Form 10-K.
Throughout today's call. We will also be presenting certain non-GAAP financial measures referenced during today's call to adjusted operating income adjusted net income adjusted EBITDA adjusted EBITDA margin adjusted EPS and free cash flow have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures.
<unk> are available in our earnings release and other documents posted on our website at investors Dot <unk> Dot com.
Participating with me are Sean Minke chair of the board and Chief Executive Officer.
Curt Eckert, our president and Doug Barnett, our Chief Financial Officer, Scott Wilson, our president of hospitality solutions will be available for Q&A. After the prepared remarks, and with that I'll turn the call over to Sean.
Thanks, Kevin Good morning, everyone and thank you for joining us today.
It is no secret that the past two years have been a difficult period for the entire global travel ecosystem in which we reside.
At the beginning of the year was a continuation of those headwinds driven in large part by the rise in Nuomi Kron Berrien cases, yet as history has shown when we see a decline in COVID-19 cases and restrictions are lifted travel recovery can be robust.
Since the decline in COVID-19 cases earlier this year, we have been increasingly encouraged by the trajectory of our business and have seen consistent sequential improvement in each of our key volume metrics week over week since January.
Travel trends are improving globally, and our business mix is normalizing towards pre pandemic levels, resulting in higher unit profitability.
The recovery, which has historically been driven by domestic leisure travel is being supported by strong improvements in both international and corporate travel accelerating activity in each of these sectors made April our best month compared to 2019 in terms of bookings recovery since the onset of the COVID-19 pandemic.
<unk> forecast by several airlines and travel agencies have been bullish regarding the outlook for travel recovery supporting the trends we are seeing.
Additionally, we are making solid progress towards our technology transformation, which remains on schedule to deliver expected significant savings by 2025, we believe our technology transformation will be one of the primary facilitators of higher margins and cash flow for sabre when completed.
Bottom line, we are more bullish about favors a near term recovery outlook that at any point since the pandemic started and our and our medium term outlook continues to suggest the opportunity to drive EBITDA EBITDA margin operating income and free cash flow higher than 2019 levels.
Turning to slide five you can see an overview of the topics Kurt Doug and I will cover on today's call.
I'll start by providing a further update regarding the ongoing travel recovery, including specific booking passengers boarded and hospitality Crs transaction trends I'll dig a bit deeper into trends than in past quarters to help provide additional perspective regarding the breadth of the current recovery.
Kurt will then provide an update regarding the solid progress we made in the first quarter on our technology transformation. Finally, Doug will walk you through the results of the quarter and he will close with our financial outlook for 2022 and 2025.
Before I start I do want to thank my sabre teammates around the world.
As we put the challenges of the past two years behind us I want to again express my appreciation for all that they are doing to serve our customers support each other and transform our business and enable new marketplace for personalized travel.
Turning to slide six in April our key metrics, namely distribution gross air bookings.
Solutions passengers boarded and hospitality gross Crs transactions were all at the highest level of recovery versus 2019 since the COVID-19 pandemic started.
March 'twenty to March 2022 was the second best month compared to 2019.
Hotel Crs transactions continue to lead and in April were 112% compared to the same period in 2019 on a same hotel basis community Crs transaction volumes in April were about 82% of 2019.
It solutions passengers boarded have recovered 80% in April versus the same period in 2019.
Finally distribution gross bookings recovery was 53% in April versus the same period in 2019.
If we look at sabre and the and the GDS industry recovery, excluding expedia in both periods our distribution gross bookings recovery in April was 64% slightly better than the industry for the month.
Looking at the industry geographically after a slow start in January due to the Omnicom variant the global travel recovery has been gaining some substantial momentum in particular, we are seeing strong recovery trends in parts of the Asia Pacific region I'll provide more details regarding this trend in a few minutes.
Turning to slide seven domestic.
Domestic leisure travel continues to lead the recovery.
In April with the data through the 24th the gap between the recovery in corporate travel management company bookings and non TMC bookings was largest in domestic markets at about seven percentage points. However, the overall recovery percentage versus 2019 was also greatest and domestic market for both managed corporate.
At about 66% and leisure travel at about 73% <unk>.
International travel has recovered to about 58% of 2019 was short haul travel the least recovered due to a slower recover recovery in Asia Pacific.
Turning to slide eight the chart on the left shows the bookings recovery of domestic travel since the beginning of 2021 booked through corporate <unk> and other domestic bookings, which largely represent leisure travel.
As I've indicated earlier domestic leisure travel has recovered more significantly than corporate however, as the graph on the right details the difference in the recovery between corporate and leisure has narrowed significantly as corporate travel has accelerated.
We're also happy about what we're seeing in terms of the breadth of our corporate recovery from a sector perspective.
So still below the total recovery of most other sectors, the financial consulting and it sectors, which are historically heavy travelers ended Q1 accelerating rapidly.
<unk> faster that faster than at any point since the pandemic started.
These sectors also ended the quarter at their highest levels of overall recovery since the pandemic began.
Turning to slide nine as you would expect airlines around the world have been trying to match their flight schedules with anticipated demand, while factoring in potential global travel restrictions.
This approach resulted in a capacity mix, which was heavily skewed towards domestic capacity, which is less profitable for sabre and away from international capacity, which is more profitable for sabre. However, we are now beginning to see this reverse back towards pre COVID-19 pandemic capacity mix as borders reopen and testing requirements are loose.
<unk> or removed.
On slide 10, we provide a heat map showing favors top 20 countries in 2019 based on point of sale bookings and how each has been recovering weekly since the beginning of the year.
The first takeaway from this slide is that an increasing number of countries are moving out of the red and into the Green, which is a good indicator of a geographically broadening recovery with the exception of Russia all of our top countries in North America, Latin America, and EMEA are more than 50% recovered.
Countries in the Asia Pacific region, generally continue to be slower to recover than the rest of the world, but even there we are seeing improvements.
The second takeaway is that as travel restrictions are reduced bookings tend to accelerate very quickly. We've noted this effect on prior earnings calls, but the data for Australia is another example on February 7th Australia announced it would reopen to tour starting February 'twenty one.
Quickly the bookings recovery in Australia went from 34% of 2019 on January 31% to 66% by mid March to 82% by April 18th.
Ill conclude where I started travel trends are improving globally and our business mix is normalizing towards pre pandemic levels, resulting in higher unit profitability based on the most recent trends we are optimistic about the outlook for our business and continued recovery.
And with that I'd like to turn the call over to Kurt.
Thank you Shaun and Hello, everyone.
Let's turn to slide 11.
On last quarters earnings call. We described how our technology transformation include.
Including mainframe offload and migration to Google cloud.
As expected to drive a strong return on investment of over 30%.
And an NPV north of $300 million.
We also detailed how the tech transformation.
As expected to prevent a 50% increase.
And hosting costs.
And exclude the excuse me and enable the avoidance of large capital expenditures to refresh our servers and data centers.
Finally, and perhaps more importantly.
We highlighted in many product enhancements the tech transformation is expected to unlock.
Including faster time to market enhanced stability and security.
A globally distributed.
Cloud footprint reduced latency easier customer deployments and lower cost of development.
I am pleased with the progress we've made in the first quarter toward our 2022 technology milestones.
And our tech transformation remains on track to achieve stated goals by the end of 2024.
As a reminder, our two key technology milestones for 2022.
Or to exit our sabre managed data centers and migrating to Google cloud.
And to offline offload passenger name record a customer reservation database from the mainframe to Google cloud.
Specifically in the first quarter, we increased our travel agency shopping volumes and Google cloud.
About 5% at the start of 2022.
About 50, 50 between Google Cloud and AWS by the end of the quarter. Additionally.
Additionally, all airline shopping is now on Google cloud.
In the first quarter, we also launched new Google cloud regions in Australia.
And Singapore, enhancing our global footprint and allowing for faster response times.
Finally, we increased our share of service on Google Cloud by 10 percentage points since the fourth quarter of 2021.
As of March 31.
We had 28% of our total servers and Google cloud platform and expect to end the year with 65% of servers, and Google cloud and 90% of servers in a public cloud.
I'll now pass the call over to Doug.
Thanks, Kirk and good morning, everyone turning to slide 12.
Our financial results in the first quarter of 2022 came in better than expected as travel recovery accelerated after a slow start in January .
As I'll describe shortly we also benefited from $24 million in previously deferred it solutions revenue recognized in the first quarter related to an it solutions customer located in eastern Europe .
Total revenue was 585 million a significant improvement versus revenue of $327 million in Q1 last year, primarily due to continued recovery in global Air Hotel and other travel bookings.
Distribution revenue totaled $343 million on improving versus revenue of $152 million in Q1, 2021, our distribution bookings totaled $65 million in the quarter.
Compared to 2019 net air bookings recovered to 29%, 45% and 52% in January February and March and 42% in the quarter as a whole.
Our average booking fee in the first quarter was $5 28.
Versus $4 96 last quarter $4 59 in the third quarter of 2021 and $3 84 in the second quarter of last year.
The sequential improvement from the fourth quarter is consistent with the broadening of the recovery into more profitable regions and types of travel.
Our average booking fee also was aided by reduced cancellation activity in the quarter.
There are a couple of puts and takes on IQ solutions this quarter.
Overall solutions revenue totaled $191 million in the quarter.
An improvement versus revenue of $137 million last year. This.
This result includes $24 million in revenue Rec.
<unk> recognized in Q1 2022 related to a customer located in eastern Europe for services provided and fully paid for.
The revenue had previously been deferred but became fully recognizable when a change in circumstances assured it was no longer probable that the revenue would be reversed Odisha.
Additionally, the first quarter of 2022 includes only two months of revenue from Air Center as we sold this airline operations portfolio to CAE for $392 million at the end of February .
Passengers boarded totaled $129 million, representing a 69% recovery versus the first quarter of 2019.
Hospitality solutions revenue totaled $56 million, an improvement versus revenue of $42 million in Q1 of 2021 cents.
Central Reservation system transactions were 100% level of 2019 and totaled $23 million in the quarter.
Adjusted EBITDA showed meaningful year over year improvement and was slightly positive in the quarter, reflecting the $24 million revenue recognition item just discussed but more importantly, the continued recovery from COVID-19 pandemic.
The significant year over year improvement 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 and administrative expenses increased due to volume recovery.
<unk> and increased labor and professional service expenses, primarily related to the technology transformation.
Operating income net income and EPS, all improved versus the prior year quarter.
Free cash flow was a negative $156 million in the first quarter.
As we noted on our Q4 earnings call the cash flow impact of overtime variant largely affected Q1 2022, rather than Q4 two.
2021. Additionally, annual incentive compensation was paid in Q1, 2022 and contributes to the seasonality in our free cash flow.
We continue to expect revenue earnings and free cash flow to follow a pattern similar to what we experienced in 2021 with the back half of the year stronger than the front.
We also continue to expect free cash flow to turn positive during the second half of 2022.
During the first quarter, we refinanced $625 million or about a third of our term loan b facility maturing in early 2024, which extended the maturity to 2028 subset.
Subsequently, we also entered into interest rate swaps related to about $200 million of this debt converting floating rate to a fixed rate basis. In total our debt is now about 60% fixed rate and 40% floating on a net basis. We ended the first quarter with a cash balance of about $1 2 billion.
Turning to slide 13.
Cosmetically, the slide looks different in the last quarter or 2022 financial outlook remains the same.
We removed the Air Center scenarios as the sale of our center officially closed in Q1. We're also included the incremental technology transformation and SG&A investments detailed last quarter.
Looking ahead to Q2.
We do not expect a repeat of the $24 million revenue recognition benefit from our eastern European High Tech solutions customer and of course <unk> results will not be included in our financial results.
We also expect our average booking fee in the second quarter to be between $4 96.
$4 96 result in Q4 2021 in Q1 2022 to $5 28.
But generally trending higher over time as our mix continues to improve.
For perspective.
Excluding expedia bookings, our 2019 average booking fee would've been 10% to 15% higher than our reported $4 82.
Finally subject to closing, we expect to make an $80 million investment in American Express global business travel during the second quarter for clarity this payment as an investing cash flow and therefore, it's not considered part of free cash flow.
Turning to slide 14.
Although unchanged from last quarter. We've included our 2025 financial targets in this presentation again as a reminder of our financial objectives.
We expect our revenue profitability and free cash flow to grow in the short term as travel recovers globally in the medium term the investments we're making in technology are expected to create the opportunity for unit cost savings and higher margins than pre pandemic levels by 2025.
We continue to believe this opportunity is not fully reflected in the market today. Thanks.
Thanks for joining us today operator, please open up for Q&A.
To ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from Matthew Broome with Mizuho. Your line is now open.
Yes.
Thanks, and hi, Sean cut and Doug.
So definitely appreciate the insight.
Correct.
Narrowing the gap with laser.
Going forward, you expect the coal pad and lesser recoveries to sort of move in lockstep with each other novel or is there any count.
<unk> again.
And otherwise do you expect corporate volume.
Fleet as recovery in the same timeframe as leisure travel.
Yes, Matthew I'll kick this off and thanks for joining us I think the encouraging thing that we're seeing right now.
As we talked about really over the last call it year year and a half what we've seen on the leisure side of the equation.
We look at corporate travel right now, yes, we're encouraged but I think the underlying piece of this is that corporations are happy to have their employees back on the road and that's a very important step.
Is that taking place so as long as we do not see any other sort of cases of Covid outbreak. We believe that the momentum is there the discussions that we have with the travel management companies as well as some of the details that we're providing relative to specific.
Sectors within the business marketplace.
It's all moving towards getting on the road more so.
Unless there is a hiccup relative to more COVID-19 cases.
I think we're moving towards recovery and its one thing that we've talked about as it relates to is really a short term investment opportunity for sabre is playing the recovery side.
Okay.
And then.
Can I also ask about hiring.
What are the areas, where you're looking to sort of that went out to what then.
Mike the technology transformation to be reliant on your hiring plans.
And how are you finding the recruiting environment right now.
Yes, let me let me start at a high level, then I'm going to pass it off to Curt to talk about it. There's a couple of components that are there one we outlined in.
In our call in February that as it relates to just inflationary pressure on wages that we had baked in additional expense. So as we look at the balance of the year.
We don't see anything there as.
As it relates to just hiring in general and I would actually not only the tech side, but even if you look at some of the corporate functions finance HR.
There is continued to be competitive marketplace out there. The team has done a really good job as it relates to managing the tech side of the equation, but it doesn't mean that there is no pressure out there and I'll, let Kurt provided a little color on that.
Thanks, Sean.
As Sean indicated we are.
Fully staffed so we're meeting all of the needs. We have today in terms of <unk> as well as the tech transformation and other investments we're making.
What's happened globally is the.
The regional or domestic differences because of work from anywhere have diminished.
And we certainly have to fight to attract and retain people, we're doing that with respect to compensation.
Making sure that we have the right culture, and making sure that we have investments in innovation.
There are exciting and impactful for the folks we're hiring and retaining so we're managing it well to date there is some risk going forward for us and for everybody in the marketplace, but we feel good about where we are.
We're eyes wide open as to what it boils down to its out there. The team is doing a good job of managing it and we'll continue to do it throughout the year.
Alright, perfect. Thanks, very much guys.
Thank you.
Thank you. Our next question comes from Mark <unk> with Bernstein Research. Your line is now open.
Thank you.
But that's fine.
Okay.
I ask you a high level question and obviously.
Any macro issues macro issues to blow everything up here would change everything.
With 42% of 2019 distribution numbers, 69% in 2000, 1990 solutions and 100% of hospitality Triangulating that.
We on track in the directionality of the 60% recovery scenario on page 13 or might be two over or under in terms of the directionality there.
And then I've got a few yes, mark yes, Marc thanks, Thanks for joining us.
Again, as we look at the trajectory of what's taking place we're very positive about those trends that are there.
Provide an enormous amount of information relative to those trends and that's why we put out sort of the.
Sort of the goalpost at different levels out there that it will be okay.
Capable of understanding where it goes but where I sit right now.
I am comfortable relative to the trends that are taking place that allow us to continue to see.
Continued improvement in our financials and the recovery in the near term.
Okay.
I can get I appreciate I know theres a lot of moving parts.
Next question, how does inflation and rising fuel costs.
See radically affect volume recovery or does it not.
One thing to point out as it relates.
Let's focus on sort of sabre. There is if you look at bookings because a lot of this comes back to bookings and what's happening with bookings just a reminder for everybody.
The price of the ticket does not impact <unk> really the number of transactions that are taking place I think the one thing that I focus on market. It does go back to why we look at the capacity and we look at what's happening with bookings.
We're still if you go back to the fourth quarter 2021, the first quarter of this year.
Total market recovery globally. It was only 50%. So I believe there is a lot more room for SMB.
Essentially recovery as it relates to that the thing that we will have to watch is as you look at inflation you look at sort of fuel prices that are out there.
Airlines will try to pass that along I think what we will see in the near term if theyre not able to pass along they will discount because their capacity is still down which still bodes well for safer at this point in time. So there is a lot that I sort of tried to unpack there.
The trends that we're seeing are good now we believe specifically and everybody has a tendency mark we get a lot of questions about specifically the U S and what I point people to is we are a global business.
A lot of improvement in Asia Pacific for example, so that's why we sort of look at it very broad and what's happening.
Because of the way you pick you get paid.
You should be reasonably protected as long as the volumes keep coming back and materials and pricing.
Rising fuel et cetera, right.
That's correct Mark and then the balance of it is what we continue to point to is I must look at it that youre sort of filling up the capacity of where it was historically and what you are finding is you're at sort of that 50%, 60% lower on the international Youre seeing what's happening in Asia Pacific. So theres other regions of the world, where we actually get higher rates.
That are still recovering so again it goes back to what Doug was talking about is if you just look at sort of where we were in the fourth quarter and the first quarter and rate.
We gave you a number as it relates to 2019 ex Expedia. So people can begin to understand where rates can go as you normalize.
Alright, one more question if you don't mind.
Pivoting to technology, because the technology transformation is really going to become I would argue that the next leg of the conversation as the world starts to return to normality.
Given the fact, you've been investing in transforming not just simply lifting and shifting to the cloud, but transforming the product itself to be true modern cloud technology et cetera that should give you benefits from a development point of view of the client point of view.
Point of view could you touch quickly on.
On how big that advantage that should give you at this track technology transformation starts to kick in.
Yes, Thank you Mark.
Number one we've talked about being fully in the cloud will reduce our cost of compute which is pretty substantive for sabre and for our clients. The company. The most important thing probably is our ability to drive throughput and velocity of our product development dollars will be better than it's ever been and that means we'll be able to bring.
Our products to market faster, we'll be able to better serve the needs of the marketplace and our customers and we will be the first of our competition fully in the cloud. So we do believe going forward.
This will put us on the front foot in terms of being a leading innovation platform in the industry.
Hey, Mark I, probably had a couple of things.
What we're seeing right now as it relates to we've been in this for a couple of years, we've talked about this year and extra being the big heavy lifts years, I'm really impressed with what I'm seeing the team get accomplished and as they provide their updates and these are incremental things, but they're essentially beating that theyre getting more savings than they thought they would get out of which is a <unk>.
Good thing for us to see so they continue to manage to that the other thing that Curt was talking about is.
There is definitely more and more from a development perspective that is getting into a different cadence of development, which will be a lot more rapid and that really is going to help us into the future.
Perfect. That's what I was looking for thank you very much <unk>.
Thanks Mark.
Thank you. Our next question comes from Jed Kelly with Oppenheimer. Your line is now open.
It's actually Sam on for Jade, Thanks for taking our questions.
On the guidance and kind of following up on Mark's previous question.
You maintained your guidance ranges, while seeing improved international mix stemming you're lagging countries recovering.
Incorporate improving which is all pretty nice to see.
Where we sit today could you help us better understand what would kind of be the drivers or scenarios that could lead to 'twenty two buttons recovery.
In the lower 50% range.
Yes look we will go to <unk>.
So we gave you.
Through through Goalposts. So you can see what the financial results would be at the different recover levels remember that the goalposts are air bookings recovery numbers. They werent pvs, they werent hospitality solutions transactions Alright, we obviously did factor it in the guidance that we're giving you an improvement in the mix that we assumed would happen which is occurring.
It's probably best guidance I can give you is just goalposts that were presented.
Any more detail there.
Okay, and then I guess.
Follow up moving on a different subject, but just wondering your thoughts on how youre getting some of the consolidation among the low cost carriers that are beginning to see and how it could impact your business moving forward.
Well I think the only consolidation that we're seeing in low cost carriers as the proposed.
Frontier spirit or I guess, it was changed yesterday.
Spirit Jetblue.
Again, if we look at it.
To whats taking place I don't see a large impact whatsoever.
Some of them use our technology others of them use a competitor technology.
This is a unique thing here in the United States on again.
It is here in the United States, but we think very globally.
Thank you.
Thank you. Our next question comes from Victor Chen with Bank of America. Your line is now open.
Hi, Thanks for taking my questions a.
A couple if I may.
So first of all can you provide some color on the deferred revenue as it relates to you talked about eastern Europe as it relates to Ukraine and Russia.
And from Russia have you baked in for the rest of the year.
And then second question regarding booking fee can you help us understand the quarter on quarter improvement from Q4 to Q1.
Presumably there is no further improvement.
From Expedia, so is it largely due to better international mix.
And finally on top of that question.
You talked about you alluded to the fact that expedia it could.
The 10% to 15% higher booking fee for 2019, so with that yet.
$5 30 to $5 50 average booking fee.
Is that from that kind of fee something that we can expect once the mix has normalized a bit.
Other moving parts that we should consider there.
Greg Let me, let me start at the back and then and then go forward with you with regards to the Neff right. Okay. Let me first tell you what problem is going to happen.
Between now and the time, we get to kind of normal recovery, there's going to be kind of swings in enough right because it depends on different strengths of suppliers regions and things like that okay. So the improvement from Q4 to Q1 a lot of it was.
Improvement that we're seeing in international business travel mix and also there was a benefit that we got from lower cancellation reserves.
And we don't expect to benefit from the cancellation reserve going into Q2, hence that's the guidance I gave you for where I thought it would be for Q for Q2 with regards to longer term, you're absolutely correct. The purpose of giving you the guidance with respect to Expedia.
What the <unk> would be excluding the Expedia was to say look as we get to a more normal 2019 trends of domestic leisure and international business mix that we've talked about in the past, yes, absolutely we expect that rate to be able to go up 10% to 15%. So longer term, we would expect as we get to a normal more normal business mix we would.
See that enough continued rifle you just talked about.
With regards to your first question, which is the deferred revenue.
It does relate to Aeroflot and so let me explain to you how that came about during the pandemic. It wasn't uncommon for our carriers to come to us because most of the contracts that we have on the PV on the passenger reported standpoint have minimums and obviously when the pandemic hit a lot of the carriers were operating at the minimum they.
To be so it came in and asked would ask for relief on those minimums and.
Typically we negotiate and say okay. We will give you a reduction in the minimums down to a lower level provided then you extend the term of the contract of the PSS system. So we are in negotiations with Aeroflot about doing that so think about the thing with this way we were continuing to build in 2021 the old.
Higher minimums negotiated for a contract extension at the lower minimums, Hence why we were doing was receiving cash at the higher level recognizing revenue at the lower level and deferring the difference.
Honestly with what's taking place right now.
That region, we're no longer continuing negotiated with regards to an extension of the PSS contract. So we have to recognize that revenue.
I think that's clear.
Thank you.
Thank you.
Okay.
Thank you. Our next question comes from Josh Baer with Morgan Stanley . Your line is now open.
Great. Thanks for the question I wanted to revisit some of the 2025 targets.
Last quarter, we actually talked about the underlying assumption for a 90% recovery.
In corporate.
Embedded in those targets and the rest spilling over to leisure just wanted to confirm that was the right level and the right level for all three of the 2025 scenarios.
Yes again.
As we look at this Josh it's based on our best prediction of what the future is going to be.
See I mean, the one thing that we're seeing right now.
As it relates to corporate recovery is probably a little bit stronger than we would've expected. So again those are the assumptions and.
As we stand at this point in time, that's where we will keep them for the forward guidance.
Where we'll land in 2025, as we get more information and we've been very focused on providing information we can make those adjustments, but we feel comfortable with where we set those.
Estimates as well as those volumes into the future.
Okay. So it is not 90 embedded in your assumption is 90%.
Across all three areas.
Yes, sorry.
Okay. No. That's helpful and then so I guess what's that.
Flying is very.
Very different recoveries and leisure across the three different scenarios, where 120% scenario.
There's a lot of upside the leisure, especially factoring in.
The last Expedia business.
So how.
I guess how should we.
Analysts investors get.
Comfortable that even the 100% scenario of 120% scenario is at all realistic just given I think what it implies if you take out $75 million in Expedia bookings from 2019.
Pretty robust.
Recovery is it embedding share gains.
Could provide any more context on I guess, the leisure portion of the recovery in those.
Scenarios.
Yes, I think the important thing let me just go back to something we just stated that I think is important relative to what we saw in April . So if you exclude expedia. The one thing that we talked about is essentially our bookings recovery is ahead or is above the average from all GDS is the other thing that I want to point you.
Two is the stuff that we have been doing the recent announcement with Amex GBT.
<unk> to be are the team has been very.
Focus relative to.
Where the growth is taking place we've talked about the arrangement with Hopper Hopper is one of the fastest growing and this is more leisure focused brokers that are out there I believe that they are probably in the top 10 top 15 for us at this point in time.
So again.
People have a tendency to focus on one customer there's a lot that's going on in Kurt I don't know if financing I would simply say.
There are two dynamics there one is what will be the long term pace of market recovery.
We recover leisure and corporate for that matter back in 2018 levels or in fact will there be growth above those numbers.
We don't know the answer and that's why we provide a different goalposts.
As you mentioned share as Sean mentioned, if you normalize out Expedia, we're seeing share improvement in the GDS business.
Our pipeline is quite robust.
And just other things don't forget with regards to Expediate yeah.
The bookings numbers right, but remember the contribution to profitability was quite low from from Expedia business.
Okay.
Yes.
Really helpful.
Context I appreciate it.
Last question just on the expense side of the 2025 target.
That's kind of embedded in the margin targets there just wondering if.
If like in those targets, you're leaving room to revisit some of the initiatives that were put on pause in 2020 like just thinking about the full service property management solution or some of those other growth initiatives.
The demand comes back.
And the environment is.
Really positive and Youre looking to invest just wondering like if.
We're going to hear about incremental investments that might cause a revision to those margin targets where fares.
Projects and growth initiatives that are already factored into those scenarios. Thank you.
Josh Thank you.
So first of all our long term vision is to become the leading platform player in this industry.
When we look at the outlook that we provided in the <unk>. There are a number of investments that are underway or will come prospectively.
And there was growth associated with those.
And we're very comfortable that those are going to be meaningful.
I mean.
Meaningful areas of the business as we go forward.
We are also looking at other opportunities for growth that are not fully baked into the <unk> I'll give you. An example, and that will be when we look at hotel distribution.
While we if you go back to 2018 had a very good sized hotel distribution business. We believe the growth opportunity there is substantial.
And that will be with both product and commercial investment.
So we're going to look discreetly for example at the opportunity to make additional investments there, but generally as you look at the <unk>. There are investments there that we have not talked about simply because we're not ready to disclose that to the marketplace to our customers yet.
The important thing is you go back to just the <unk> I mean, we have a lot of heavy lifting that we need to do in the tech transformation Thats the primary focus.
As you look at the recovery it really takes sort of where we are in growing that out.
Curt has joined the organization, we believe that and he's identified some areas of opportunity, but thats going to be balanced relative to what is the return going to be on those types of investments, but right. Now. This organization is very focused on executing the plan that it has and hitting those targets that we have put out there in 2025 relative to.
The savings that are there because it is very much tech driven.
Great. Thank you.
Thank you.
Thank you.
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Our next question comes from Neil steer with Redburn. Your line is now open.
Hi, Thanks very much.
Follow on question, if I may you.
You mentioned, obviously the average reservation fee I don't as 2996 and you called out in fact.
The impact of cancellation.
With a clear factor.
Factor in the sequential improvement was that.
The major factor.
Two is that it will be very much in mind.
In that <unk>.
The improvement.
I would say without going into too much detail look at the combination of a couple of things one was the better business mix as we talked about and then also the cancellation.
The amount of value that I addressed.
I can call it a little.
About half and half between those two items.
Okay.
No reason to suppose that on an underlying basis youll not still going to get.
Absolutely.
Absent the cancellation effect.
That would be sequential improvement as we go from Q1 to Q2, yes. It will.
You're going to be a smooth the mix change in the positive direction.
Hey, Neal I think the best way of looking at it is and this is Sean the sequential improvement you see from <unk> to <unk>, if you essentially exclude.
The cancellation there is a step up and I think thats, what youre driving to understand is there a sequential step up to answer your question is yes.
If you look at what Doug had stated as it relates to the fee going back to pre Covid 2019, as the mix continues to improve we do believe that there will be sequential improvement taking place.
Okay. Thanks, and then just.
Digging down into the detail you very tiny David.
Some flavor for the Texas, where youll see recovery come through you you called out I think financial consulting in it too.
Still remaining.
Below trend.
Could you give us some guidance as to when those taxes relative to 2019 levels I mean, they're obviously the sectors that we have the affinity to this role and I'm just wondering how far lagging the market. We are in terms of back to travel.
Yes, Neil I don't want to go into the level of detail, but again I think the momentum we've seen as very positive and Thats why we called it out.
Okay. Thanks very much.
Thank you.
Showing no further questions at this time I would now like to turn the conference back over to Sean <unk> for closing remarks.
Great I'd like to thank everybody for joining us for our first quarter earnings call I think the two things that are important to call out that we've been saying for a while is really just short term investment opportunity for sabre.
We definitely are seeing the recovery in what's taking place with this organization.
As I continue to see what's happening here I do get excited about the recovery I think the other thing and that's why we keep talking about the technology and the work that's getting done it's a long term investment opportunity at this organization. So you couple those relative to what we're seeing as it relates to recovery the capability of this organization to continue to execute on this technology.
Transformation.
In the past couple of years, it's been really tough as everybody knows but I'm definitely seeing the opportunity for a bright future. So again, thank you for joining us today.
This concludes today's conference call. Thank you for participating you may now disconnect.
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