Q2 2022 Sabre Corp Earnings Call

August 2, 2022

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The contract.

Okay.

Good morning, and welcome to the Sabre second quarter 2022 earnings Conference call My.

My name is Amanda and I will your operator.

As a reminder, please note today's call is being recorded.

I will now turn the call over to Vice President of Investor Relations. Kevin Crissey. Please go ahead Sir.

Thanks, Amanda and good morning, everyone. Thank you for joining us for our second quarter 2022 earnings call.

Morning, We issued an earnings press release, which is available on our website at investors Sabre Dot com, a slide presentation, which accompanies today's prepared remarks is also available during this call on the Sabre Investor Relations webpage, 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, 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.

<unk> 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 Q1 2022 Form 10-Q, and 2021 Form 10-K.

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 had 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 Sean Menke E Chair of the Board and Chief Executive Officer, Kurt <unk>, Our President and Doug Barnett, Our Chief Financial Officer.

With that I'll turn the call over to Sean.

Thanks, Kevin Good morning, everyone and thank you for joining us today.

On slide four you can see an overview of the topics Kurt Doug and I will cover on today's call I'll start by providing perspective on the trends we are seeing in the travel marketplace, including specific bookings passengers boarded and hospitality Crs transaction trends Kirk will then discuss what we expect those trends to mean for our 2020 to financial results.

<unk> and also described the meaningful progress we made in the second quarter towards our technology transformation.

Finally, Doug will take you through the financial results of the quarter.

But before I start I want to thank my favorite team members worldwide.

It continued to do an exceptional job serving our customers, while helping us become the premier global technology platform and travel.

Turning to slide five there are a lot of cross currents in the market right now with Covid travel restrictions receding, but macroeconomic forecast generally falling.

Like to take a couple of minutes to provide perspective on how we see the current environment.

As the impact of the Omicron variant receded in January of this year more countries relax travel restrictions and bookings started to steadily improve again relative to 2019. The second quarter of 2022 actually showed the strongest sequential quarterly bookings improvement since the pandemic recovery started in June of 2020.

Corporate and international travel accelerated nicely during the quarter driving our distribution revenue per booking higher.

Hotel Crs transactions continue to lead the recovery in the second quarter of 2000, 22022, or 102% compared to the same period in 2019.

Solutions passengers boarded recovered 89% in the second quarter versus the same period in 2019.

Total distribution bookings recovery was 57%, which equates to a 63% revenue recovery as a result of the higher booking rate achieved in the second quarter of 2022 versus that same period in 2019.

The sequential quarterly recovery versus 2019 was greater than 10 percentage points in every region in the second quarter.

APAC continues to be the slowest to recover in Latin America. The most recovered excluding the impact of Expedia or recovery was in line with or better than broader GDS industry recovery.

Late in Q2 and into July we've seen the rate of recovery moderate globally. We believe the desire to travel continues to be very strong in fact consumer demand is so great in a number of countries, particularly in Europe travel demand currently outpaces, the ability of airlines and airports to efficiently handle the passenger volume due to staffing shortage and.

Other factors.

This has caused delays cancellations lost bags and lower customer satisfaction, which we believe has constrained near term net new bookings as passenger seek to avoid these issues.

We believe that in response to these operational challenges airlines have reduced their schedules in some countries. They are still flying more seats than they were earlier in the COVID-19 pandemic recovery, but capacity constraints have limited their ability to fully match customer demand.

Consequently airlines seat capacity is currently below demand, which is driven airfares up significantly for example yield or passenger price per mile was up about 33% year over year in the second quarter of 2022 for the three largest U S full service Airlines American Delta and United.

So we believe we are temporarily in a capacity constrained period with higher than normal fares, but importantly, also with consumers eager to fly. Despite these challenges the <unk>.

Good news for travelers and for Sabre is that airlines and airports are working aggressively to improve their operational throughput. It has and have significant financial incentives to do so.

Many airlines have been aggressively hiring and training not just pilots, but also other inflight personnel and airport operations staff to provide operational flexibility.

This hiring has driven airlines' unit costs sharply higher and they want to increased aircraft utilization and see capacity to help spread their cost.

For example, several large U S Airlines suggested on their second quarter earnings call that they expect 2023 capacity to be up more than 15 percentage points from the current levels.

As we look forward to the balance of 2022, we are optimistic for a few different reasons first over the last 18 months, we have seen a strong correlation between hospitality and distribute distribution booking curves with hospitality as a forward indicator of improvement.

On this chart you can see the improving hospitality trends.

Even though it is less COVID-19 related than prior months the correlation is still evident.

Second forward air bookings for travel in August and more specifically September and October are tracking similar to that to that experienced in stronger recovery months. If these trends continue we would assume the passengers are currently looking beyond the near term operational issues and any recessionary pressure has not yet.

Impacted future travel.

Moving to slide six as we've discussed before international bookings are generally more profitable than domestic bookings for sabre. Consequently, as international flying returns more fully we expect our profitability to improve.

To provide context for this opportunity the table presented here shows savers net air booking recovery by region broken out between domestic and international flying.

On a global basis in June and June favorites International recovery was only about six percentage points below domestic however.

However, we believe expedia share reduction mask, the true international recovery opportunity because expedia bookings are mostly low margin north American domestic bookings, excluding expedia and it's weighted bookings from the relevant period in June Sabres global domestic recovery versus 2019 was about 25 percentage points more than <unk>.

International.

In Asia Pacific International bookings have only recovered to about 40% of the 2019 levels.

The willingness to fly in that region is strong as evidenced by the domestic recovery, but currently travel restrictions greatly curtail APAC international flying.

We estimate that if APAC were to recover to the average of other regions. It would increase our annualized revenues by more than $100 million.

Let me now turn the call over to Curt to walk you through what the trends I just outlined for our financial outlook and to provide an update regarding our technology transformation Kurt.

Thank you Shaun and Hello, everyone.

First I Echo shawn's, thanks to my fellow Sabre teammates around the world.

I've been here for seven months and deeply appreciate the hard work.

Of each of my teammates to serve our customers and to drive <unk> forward.

Now, let's turn to slide number eight.

Today, we increased our 2022 revenue and adjusted EBITDA outlook for each of the booking recovery scenarios.

Specifically, we expect adjusted EBITDA.

To exceed our prior expectation by at least $85 million under each of the booking recovery scenarios.

The improvement in our forecast includes better than expected.

Quarter, adjusted EBITDA of $24 million.

Which was driven in part by stronger than anticipated revenue per booking.

As our business mix improved.

In addition, we expect to add incremental bookings in the back half of the year from recent new customer contracts.

Moving to slide nine.

Given our recent concerns regarding a possible economic slowdown.

We thought it would be useful to provide perspective for how COVID-19 impacted global air travel in 2020 to 2022.

And to compare that to how recessions have historically reduced travel.

As you can see from the table on the right side of this slide global airline passengers tend to grow at a multiple of GDP.

And air travel also tends to be economically resilient.

In past economic downturns, the largest calendar year drop in global passengers was only about 3%.

Typically when a recession occurs airlines reduce fares and find price elastic passengers.

Willing to travel at a discount.

The Covid pandemic effect on air travel as you can see in the chart was completely different.

Perhaps the first time in modern aviation history.

Due to global travel restrictions.

There were essentially no customers able to take advantage of lower airfares.

Airlines resorted to slashing capacity.

Reducing staff raising capital and waiting for travel lanes to reopen.

As the Covid crisis has receded.

We are seeing airlines to reverse these decisions.

They are adding capacity staffing backup and preparing for more normal times.

We estimate about $1 5 billion.

Fewer airline passengers will fly in 2022, then would have had the COVID-19 pandemic not happened.

This admitted admittedly rough estimate represents the gap between how many global passengers, we estimate we'll actually flattish year.

And the number of global passengers in 2019 growing at just two 5% each year through 2022.

Please turn to slide number 10.

As we have highlighted many times, our technology transformation, which.

Which includes mainframe offload and migration to Google Cloud is a key driver of expected savings and margin improvement by 2025.

Additionally, our technology transformation.

It is expected to unlock many product enhancement opportunities, while significantly increasing our productivity flexibility and speed to market.

Which we believe will resonate with our customers.

I am pleased with the progress we have made in the second 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 are to exit our sabre managed data centers and migrate to Google cloud.

And to offload passenger name record a customer reservations database.

From the mainframe to Google cloud and to begin client migrations.

In the second quarter, we migrated hospitality solutions community Central reservation system on schedule to Google Cloud platform.

This was a solid win for our overall cloud migration efforts as the CCR S is the largest hospitality solutions platform with more than 30000 properties.

Our hospitality business can now unlock the benefits of greater scalability agility and velocity provided by Google cloud.

During the second quarter, we also completed a regional extension.

Google Cloud platform in Pryor, Oklahoma.

This regional extension is expected to facilitate rapid migration of database is currently hosted in Tulsa.

Finally, we increased our share of servers on Google cloud by another eight percentage points since the first quarter of 2022.

As of June 30, we had 36, 36% of our total servers in Google Cloud platform.

And continue to expect to end the year with 65% of servers, and Google cloud and 90% of servers in a public cloud.

I'll now hand, the call over to Doug Alright, Thank you Kurt and good morning, everyone.

Turning to the financial summary, slide.

Our financial results in the second quarter of 2022 came in better than expected as a travel recovery accelerated and our mix of business improved.

Total revenue was $658 million, a significant improvement versus revenue of $420 million in Q2 last year, primarily due to the continued recovery in global Air Hotel and other travel bookings distribution revenue totaled $432 million and near doubling Q2 2021 200.

$18 million.

Our distribution bookings totaled $81 million a quarter compared to 2019 net bookings recovered, 252%, 56% and 60% in April may and June and 56% in the quarter as a whole.

Our average booking fee of $5 35.

The quarter exceeded our forecast as our business mix continued to improve and cancellation activity was lower than expected.

$5 35.

<unk> bookings in the second quarter compared to $5 28.

Last quarter $4 96 in the fourth quarter of 2021 and $4 59 in the third quarter of 2021. Additionally, the average booking fee attained in Q2 was 10, 7% higher than the same period in 2019.

The continued sequential improvement is consistent with the broadening of the recovery into more profitable regions and types of travel.

It solutions revenues totaled $168 million on a quarter on improvement versus revenue of $155 million last year. This is a solid result, considering we sold our Arizona portfolio in the first quarter of 2022, which clearly challenging year over year comparison.

Passenger's border from $160 million, representing 89% recovery versus the second quarter of 2019.

<unk> solutions revenue totaled 66 million.

An improving versus revenue of $51 million in Q2 2021.

Central Reservation system transactions were 102% of 2019 levels and totaled $30 million in the quarter.

Adjusted EBITDA of $24 million, so significant year over year improvement and recover from COVID-19 pandemic continued the.

The strong year over year improvement in revenue in the quarter was partially offset by increased travel solutions incentives expense and hospitality solutions transaction fees from higher volumes.

As expected our technology cost increased due to higher hosting costs associated with volume recovery and higher labor and professional service expenses associated with our technology transformation.

Operating income net income and EPS, all improved versus the prior quarter.

Free cash flow was a negative $89 million in the second quarter. We continued 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 expect free cash flow to turn positive in the fourth quarter 2022.

During the second quarter, we closed our $80 million of our investment in shares of global business travel group with GBT. This payment as an investing cash flow and therefore is not considered part of free cash flow.

We ended the second quarter with cash balance of approximately $1 billion.

In conclusion.

The second quarter of 2022 was better than expected.

Making solid progress on our technology transformation and we continue to drive the medium term financial objectives previously outlined Sean back to you great. Thanks, Doug before I open the call for Q&A I want to express my thanks to Doug and wish him a fantastic retirement thus.

Thus tenure with Favre included the largest exogenous shock ever faced by the company a global pandemic.

Doug and his finance team quickly secured the liquidity and financial flexibility to ensure we can manage through the pandemic without having to stop investments critical for our future, including our technology transformation.

During his time as saver, Doug has also oversaw the execution of multiyear agreements with Google and <unk> as well as the consolidation of our global headquarters, including its sale and leaseback. Additionally, Doug has led the investment in our global business systems expected to greatly improve our efficiency and support new business models for the future.

He will be retiring from favor at the end of October you may have seen our announcement last week that Mike <unk> will be joining favor as our new Chief Financial Officer. Later this month to allow a period of transition between the two leaders Doug I know I can speak for all of our sabre teammates and wishing you a great happiness in your next adventures. Thank you for all you have done.

And with that Amanda wed like to open up the call for Q&A.

Thank you to ask a question you will need to press star one on your telephone please.

Please standby will be compile the Q&A roster.

Our first question is from Mark <unk> with Bernstein Research. Please go ahead.

Thank you very much for taking my question and it's really nice to see.

The improvement in the results a couple.

Couple of quick questions. If you don't mind do you have any sense how much the limitation at airports are impacting travel volumes also increased cancellation of <unk>, primarily due to staffing issues.

Is that increasing the booking cancellation rate and then I have a follow up.

Yes, So let me, let me take that Marc and thanks for joining US today, I think where I'd start is in my prepared remarks, I talked about what we're seeing as it related to the booking curve specifically in September and October and what I'm encouraged about Mark is really the recovery going back to what we've seen in probably that may timeframe. When we're seeing nice recovery, taking place we've seen a little bit of softness in.

August so to answer your question, what we've seen is really operational impacts from airlines really that we started seeing in late June in the July timeframe.

If you look at the cancellations, we just saw cancellations spiked for a period of time really over that period. So it is nothing like we are dealing early in the pandemic that you had a lot of cancellations, we've actually seen it moderate back to what we are seeing probably in the early June timeframe.

Yeah, that's not so bad.

Kurt following up on that you said that $1 5 billion fewer passengers will fly in 2022 of them would have had to cut.

That may not happen do you believe that in theory travel will bounce back to 2019 level not to 2019 levels, but 2019 levels theoretically the compounding of the $2 five growth that we haven't seen.

Is that possible.

Yes, if you look back at the chart over the last 2025 years <unk> seen a an annual airline growth CAGR of 4% to 5%.

Pandemic, notwithstanding we expect that to be the trend for a very long period of time, if you look at the growth, especially in markets like Asia Middle East and the amount of aircraft orders that are there that would indicate there is both robust supply and demand opportunity and market.

As we indicated before.

When we looked at forward guidance, we believe that in the next couple of years, we will recover fully back to 2019 levels and then begin to surpass that bolt on leisure and corporate yes, Mark I think just to add to that a little bit because when you do sort of a region by region breakdown I mean, one thing that we have seen we just talked about it as it relates to the U S marketplace domestic marketplace, you almost see it fully Rick.

Covered.

And when you look at other regions of the World that have opened up are you finding that.

Actually fully recovered the nice thing that we're seeing right now is international capacity has increased and even as.

Capacity has moderated over.

Call. It the next sort of month or two we've actually seen that shift of capacity into the international marketplace. Because the demand is there and that bodes well for our business as you know because its the higher rates that we actually earn.

That makes sense I have been traveling internationally and I can tell you. The planes are all full so looks good. Thank you very much for taking my question.

Great. Thank you Mark.

Thank you.

And our next question is from the line of Josh Baer with Morgan Stanley . Your line is now open.

Great. Thanks for the question and good to see the improving business mix had an impact throughout the results.

Quick question is a macro question and sort of that exercise looking at past downturns as a roadmap for potential demand and resiliency looking forward.

And it's on the corporate side and just how are you thinking about some of the differences in today's world.

The ubiquity of zoom and digital alternatives to business meetings and conferences that didn't exist in past downturns when youre thinking about the recovery on the corporate side.

So Josh let me, let me kick off and then I'm going to pass it over to Kirk because I think he can provide some besides just based on <unk>.

His previous experience. So if we look at corporate and corporate recovery right now it has closed the gap significantly and with what we have been seeing on the leisure side. So.

With that we're very pleased and I think this is a lot stronger than people had actually anticipated I know if we go back a couple of quarters.

People are questioning us relative to how quickly corporate would recover and we're definitely seeing that I think we're Kirk can pick up is what we're seeing and hearing as it relates to business mix. It may not be the same that people traveling to see but when you think about what's happening within companies and I can speak about <unk>, specifically, we have a lot of internal travel taking place even though we are in.

Work from anywhere environment, So Kurt I'll pass it over to you. Thank you there was clearly a lot of conjecture during COVID-19 about whether there would be long term structural impairment, resulting from newer technologies et cetera.

<unk> seen as Sean indicated a much stronger rebound in corporate travel in 2022 than most people anticipated.

There may be some.

Dampening of travel to see customers, although that's been more robust than we expected and with the fundamental shift to work from anywhere there is going to be a lot more internal corporate travel than it was previously we had in the 2025 guidance. We issued earlier this year we indicate.

At an assumption of 90% corporate recovery by that point in time.

I can tell you I'm much more bullish about where corporate will be at that point in time than I was six months ago, and I think that as you speak to <unk> and corporate travel managers.

Echo that.

Got it.

So just to clear I mean, we didn't talk about the 2025 targets today, but if.

The assumption in them is still 90% recovery, if it was 100% or more that would be upside to those scenarios.

Correct.

Okay, great. Thank you.

Great. Thanks, Josh.

Thank you.

And our next question is from the line of Jed Kelly with Oppenheimer. Your line is open.

Hey, great. Thanks for taking my question nice job on the results and then Doug Congrats on the retirement.

Two questions. If I may just circling back on the corporate travel recovery.

Can you kind of talk about how we should think about that impacting your <unk>.

Margins.

In the back half and into 'twenty three and then can you talk about the airlines.

Out managing their logistics say in the next six to 12 months.

Does that do to your solutions pipeline like do you expect them to start to engage in more contracts and more solution services. Thank you.

Yes, Jeff Thanks for joining us I'm going to let Curt tackle that first question and then I'll take the second question, yes. So we've talked about before and I think this was an in doug's remarks fit.

Our revenue per booking increases.

A shift toward long haul and corporate recovery.

We had previously in prior calls provided guidance that as compared to 2019, and excluding Expedia you should expect to see our revenue per booking increased by 10% to 15% to a range of $5 30 to $5 50.

So we do expect to see upside in the second half of the year as our GDS or distribution mix continues to improve with the recovery in long haul international and also corporate so.

So we think there is upside there.

And then to your second question as it relates to the pipeline and the activities.

From my perspective, it doesn't change anything as it relates to the pipeline and the activity that's going on I think Kurt would echo that the sales team specifically on the airline ITD be it on the low cost carriers and full service carriers is very active right now because people are thinking long term.

The operational issues that airlines are dealing with right now I believe it's temporary because as I stated in my prepared comments they need the capacity out there from a cost perspective, you are still seeing the higher yields in the marketplace. If you go back relative to what airlines have articulated they're expecting high revenue.

<unk> again in the third quarter so.

Again sort of a temporary maybe.

Maybe slow down based on the capacity piece of long term pipeline, we feel good.

And then just a follow up just with the stronger dollar.

In terms of the potential for more Americans don't maybe you want to travel abroad, because obviously stronger dollar benefits them.

See a benefit from that like how does that impact your volume wise. Thanks.

Well, obviously, if more Americans want to travel that's having benefits just remember that the vast majority of our revenues are already in dollars. So there is no FX impact.

From a dot strung out but from a booking perspective, Chad just going back I think a lot of us have been traveling throughout Europe and other places there's a lot of.

U S citizens that are traveling abroad, and we expect that to continue.

Thank you.

And our next question is from the line of Victor Chen with Bank of America.

Your line is now open.

Thank you congrats on the solid quarter flexible taking my questions a couple if I may.

First of all can you give us some color on the recent new customer contracts you alluded to earlier is it leisure culprit in which regions and who are you displacing.

And then secondly.

Just going back to a point of revenue per booking what are some of the key drivers.

Early.

The mix, that's driving it or.

Do you see more infill.

Inflationary pressure.

Ticket pricing driving the revenue per booking.

And then lastly should we still expect free cash flow positive by Q4.

If the volume outlook is at the lower end of your range at 50%.

So there's a lot of questions in there I'm going to let Kurt take the first question then I'll circle back to Doug on your last question.

Hi.

On the first question, which I think is.

Our success on the customer front. So we have had some nice wins in all lines of business, especially in distribution.

You know about some for example recently like GBT at Hopper. There are also some other wins, which we have not at this point announced you can expect to see volume gains in the back half of the year that are baked into our full year guidance and there will be additional sequential gains that we expect to see 2023.

And you had two questions one would be the bookings theme was the free cash flow sequential gains that we expect to see in 2023.

And you had two questions one would be the booking fee and will be free cash flow, yes under any scenario. The scenarios. We presented we expect to be free cash flow positive in the fourth quarter and then Youre correct. The business mix is what's helping drive the average revenue per booking fee.

That's why we actually put the one slide out there because I think it's sort of indicative I mean this is one thing we have been talking about and we're actually seeing it play out is as the revenue per booking fee. Yes. So that's why we actually put the one slide out there because I think it's sort of indicative and this is one thing we have been talking about and we're actually seeing it play out is as the mix moves in our favor.

Ever.

Going to see improvements in the booking fee and that's exactly what's taking place right now.

Thank you.

Just one more follow up on that.

But you expect given the mix should improve.

But we're going to continue to improve in Q3 and full.

We have not provided guy, but as you would think relative to the mix and what's taking place is moving favorably in our direction.

Got it thank you.

Thank you and at this time Im showing no further questions I'd like to turn the call back over to Mr. <unk> for closing remarks.

Great. Thank you very much Amanda so as you can imagine we're very proud of the progress we made in the second quarter.

As you can see as it relates to just the Q&A as well as our comments were pretty optimistic about the future and what's taking place and we look forward to talking to you.

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Good morning, and welcome to the Sabre second quarter 2020 earnings Conference call.

My name is Amanda and I'll be your operator.

As a reminder, please note today's call is being recorded.

I will now turn the call over to Vice President of Investor Relations. Kevin Crissey. Please go ahead Sir.

Thanks, Amanda and good morning, everyone. Thank you for joining us for our second quarter 2022 earnings call.

This morning, we issued an earnings press release, which is available on our website at investors Sabre Dot com, a slide presentation, which accompanies today's prepared remarks is also available during this call on the Sabre Investor Relations webpage, a replay of today's call will be available on our website later this morning.

Including our Q1 2022 Form 10-Q, and 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.

<unk> measures are available in the earnings release and other documents posted on our website at investors Dot <unk> Dot com.

Participating with me are Sean Menke E Chair of the Board and Chief Executive Officer, Kurt <unk>, Our President and Doug Barnett, Our Chief Financial Officer with that I'll turn the call over to Sean.

Thanks, Kevin Good morning, everyone and thank you for joining us today.

<unk> and also described the meaningful progress we made in the second quarter towards our technology transformation.

Finally, Doug will take you through the financial results of the quarter.

But before I start I want to thank my favorite team members worldwide.

Continued to do an exceptional job, serving our customers, while helping us become the premier global technology platform and travel.

Turning to slide five there are a lot of cross currents in the market right now with Covid travel restrictions receding, but macroeconomic forecast generally falling I'd like to take a couple of minutes to provide perspective on how we see the current environment.

Corporate and international travel accelerated nicely during the quarter driving our distribution revenue per booking higher.

Hotel Crs transactions continue to lead the recovery in the second quarter of 2000, 22022, or 102% compared to the same period in 2019.

It solutions passengers boarded recovered 89% in the second quarter versus the same period in 2019.

The total distribution bookings recovery was 57%, which equates to a 63% revenue recovery as a result of the higher booking rate achieved in the second quarter of 2022 versus that same period in 2019.

The sequential quarterly recovery versus 2019 was greater than 10 percentage points in every region in the second quarter.

APAC continues to be the slowest to recover in Latin America. The most recovered.

Excluding the impact of Expedia or recovery was in line with or better than broader GDS industry recovery.

Late in Q2 and into July we've seen the rate of recovery moderate.

Globally, we believe the desire to travel continues to be very strong in fact consumer demand is so great in a number of countries, particularly in Europe travel demand currently outpaces the ability of airlines and airports to efficiently handle the passenger volume due to staffing shortage and other factors.

This has caused delays cancellations lost bags and lower customer satisfaction, which we believe has constrained near term net new bookings as passenger seek to avoid these issues.

So we believe we are temporarily in a capacity constrained period with higher than normal fares, but importantly, also with consumers eager to fly. Despite these challenges the <unk>.

Good news for travelers and for Sabre is that airlines and airports are working aggressively to improve their operational throughput and has and have significant financial incentives to do so.

Many airlines have been aggressively hiring and training not just pilots, but also other in flight personnel and airport operations staff to provide operational flexibility.

This hiring has driven airlines' unit costs sharply higher and they want to increased aircraft utilization and seat capacity to help spread the cost.

For example, several large U S Airlines suggested on their second quarter earnings call that they expect 2023 capacity to be up more than 15 percentage points from the current levels.

On this chart you can see the improving hospitality trends.

Even though it is less COVID-19 related than prior months. The correlation is still evident second forward air bookings for travel in August and more specifically September and October are tracking similar to that to that experienced in stronger recovery months. If these trends continue we would assume the passengers are currently looking beyond.

In the near term operational issues and any recessionary pressure has not yet.

Packaged future travel.

Moving to slide six as we've discussed before international bookings are generally more profitable than domestic bookings for sabre. Consequently, as international client returns more fully we expect our profitability to improve.

To provide context for this opportunity the table presented here shows savers net air booking recovery by region broken out between domestic and international flying.

On a global basis in June and June favorites International recovery was only about six percentage points below domestic however.

International.

In Asia Pacific International bookings have only recovered to about 40% of the 2019 levels.

The willingness to fly in that region is strong as evidenced by the domestic recovery, but currently travel restrictions greatly curtail APAC international flying.

We estimate that if APAC were to recover to the average of other regions. It would increase our annualized revenues by more than $100 million.

Let me now turn the call over to Curt to walk you through what the trends I just outlined for our financial outlook and to provide an update regarding our technology transformation Kurt.

Thank you Shaun and Hello, everyone.

First I Echo shawn's, thanks to my fellow Sabre teammates around the world.

I've been here for seven months and deeply appreciate the hard work.

Of each of my teammates to serve our customers and to drive <unk> forward.

Now, let's turn to slide number eight.

Today, we increased our 2022 revenue and adjusted EBITDA outlook for each of the booking recovery scenarios.

Specifically, we expect adjusted EBITDA.

To exceed our prior expectation by at least $85 million under each of the booking recovery scenarios.

The improvement in our forecast includes better than expected.

Quarter, adjusted EBITDA of $24 million.

Which was driven in part by stronger than anticipated revenue per booking.

As our business mix improved.

In addition, we expect to add incremental bookings in the back half of the year from recent new customer contracts.

Moving to slide nine.

Given recent concerns regarding a possible economic slowdown.

We thought it would be useful to provide perspective for how COVID-19 impacted global air travel in 2020 to 2022.

And to compare that to how recessions have historically reduced travel.

As you can see from the table on the right side of this slide.

Global airline passengers tend to grow at a multiple of GDP.

And air travel also tends to be economically resilient.

In past economic downturns, the largest calendar year drop in global passengers was only about 3%.

Typically when a recession occurs airlines reduce fares and find price elastic passengers willing to travel at a discount.

The Covid pandemic effect on air travel as you can see in the chart was completely different.

Perhaps the first time in modern aviation history due.

Due to global travel restrictions.

There were essentially no customers able to take advantage of lower airfares.

Airlines resorted to slashing capacity.

Reducing staff raising capital and waiting for travel lanes to reopen.

As the Covid crisis has receded.

We are seeing airlines to reverse these decisions.

We are adding capacity staffing backup and preparing for more normal times.

We estimate about $1 5 billion.

Fewer airline passengers will fly in 2022, then would have had the COVID-19 pandemic not happened.

This admitted admittedly rough estimate represents the gap between how many global passengers, we estimate we'll actually flattish year.

And the number of global passengers in 2019 growing at just two 5% each year through 2022.

Please turn to slide number 10.

As we have highlighted many times our technology transformation.

Which includes mainframe offload and migration to Google Cloud is a key driver of expected savings and margin improvement by 2025.

Additionally, our technology transformation.

As expected to unlock many product enhancement opportunities, while significantly increasing our productivity.

<unk> ability and speed to market.

Which we believe will resonate with our customers.

I am pleased with the progress we have made in the second 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 are to exit our sabre managed data centers and migrate to Google cloud.

And to offload passenger name record a customer reservation database.

From the mainframe to Google cloud and to begin client migrations.

In the second quarter, we migrated hospitality solutions.

Immunity Central reservation system on schedule to Google Cloud platform.

This was a solid win for our overall cloud migration efforts as the CCR S is the largest hospitality solutions platform with more than 30000 properties.

Our hospitality business can now unlock the benefits of greater scalability agility and velocity provided by Google cloud.

During the second quarter, we also completed a regional extension.

Google Cloud platform in Pryor, Oklahoma.

This regional extension is expected to facilitate rapid migration of database is currently hosted in Tulsa.

Finally, we increased our share of servers on Google cloud by another eight percentage points since the first quarter of 2022.

As of June 30, we had 36, 36% of our total servers and Google cloud platform and.

And continue to expect to end the year with 65% of servers, and Google cloud and 90% of servers in a public cloud.

I'll now hand, the call over to Doug Alright, Thank you Kurt and good morning, everyone.

The financial summary, slide.

Financial results in the second quarter of 2022 came in better than expected as the travel recovery accelerated and our mix of business improved.

$18 million or.

Our distribution bookings totaled 81 million in the quarter compared to 2019 net bookings recovered, 252%, 56% and 60% in April may and June and 56% in the quarter as a whole.

Our average booking fee of $5 35.

Quarter exceeded our forecast as our business mix continued to improve and cancellation activity was lower than expected.

$5 35, an average booking fee in the second quarter compared to $5 28.

Last quarter $4 96 in the fourth quarter of 2021 and $4 59 in the third quarter of 2021. Additionally, the average booking fee attained in Q2 was $10, 7% higher than the same period in 2019.

The continued sequential improvement is consistent with the broadening of the recovery into more profitable regions and types of travel.

It solutions revenues totaled $168 million in the quarter, an improvement versus revenue of $155 million last year. This is a solid result, considering we sold our Arizona portfolio in the first quarter of 2022, which clearly challenging year over year comparison.

Passenger's border from $160 million, representing 89% recovery versus the second quarter of 2019.

<unk> solutions revenue totaled $66 million.

An improving versus revenue of $51 million in Q2 2021 central.

Revision system transactions were 102% of 2019 levels and totaled $30 million in the quarter.

Adjusted EBITDA of $24 million, so significant year over year improvement and recover from COVID-19 pandemic continues with.

The strong year over year improvement in revenue in the quarter was partially offset by increased travel solutions incentives expense and hospitality solutions transaction fees from higher volumes.

As expected our technology cost increased due to higher hosting costs associated with volume recovery and higher labor and professional service expenses associated with our technology transformation.

Operating income net income and EPS, all improved versus the prior quarter.

We ended the second quarter with cash balance of approximately $1 billion.

In conclusion.

The second quarter of 2022 was better than expected, we're making solid progress on our technology transformation. We will continue to drive the medium term financial objectives previously outlined John back to you great. Thanks, Doug before I open the call for Q&A I want to express my thanks to Doug and wish him a fantastic retirement.

Thus tenure with Favre included the largest exogenous shock ever faced by the company a global pandemic, Doug and his finance team quickly secured the liquidity and financial flexibility to ensure we can manage through the pandemic without having to stop investments critical for our future, including our technology transformation during <unk>.

As time Saver, Doug has also oversaw the execution of multiyear agreements with Google and <unk> as well as the consolidation of our global headquarters, including its sale and leaseback. Additionally, Doug has led the investment in our global business systems expected to greatly improve our efficiency and support new business models for the future.

Doug will be retiring from favor at the end of October you may have seen our announcement last week that Mike <unk> will be joining <unk> as our new Chief Financial Officer. Later this month to allow a period of transition between the two leaders Doug I know I can speak for all of our sabre teammates and wishing you a great happiness in your next adventures.

For all you have done.

And with that Amanda wed like to open up the call for Q&A.

Thank you to ask a question you will need to press star one one on your telephone please.

Please standby, we will be compile the Q&A roster.

Our first question is from Mark Butler with Bernstein Research. Please go ahead.

Thank you very much for taking my question and it's really nice to see.

The improvement in the results come.

Couple of quick questions. If you don't mind do you have any sense how much the limitation at airports are impacting travel volumes also increased cancellation of flights primarily due to staffing issues.

Is that increasing the booking cancellation rate and then I have a follow up.

Yes, So let me, let me take that Marc and thanks for joining US today, I think where I would start is in my prepared remarks, I talked about what we're seeing as it related to the booking curve specifically in September and October and what I'm encouraged about Mark is really the recovery going back to what we've seen in probably that may timeframe. When we're seeing nice recovery, taking place we've seen a little bit of softness in.

August so to answer your question, what we've seen is really operational impacts from airlines really that we started seeing in late June in the July timeframe.

If you look at the cancellations, we just saw cancellations spiked for a period of time really over that period. So it's nothing like we're dealing early in the pandemic that you had a lot of cancellations, we've actually seen it moderate back to what we are seeing probably in the early June timeframe.

Yeah, that's not so bad I'm Curt following up on that you said that $1 5 billion fewer passengers will fly in 2022, then would have had.

And then maybe not happen do you believe that in theory travel will bounce back to 2019 levels not to 2019 levels for 2019 levels because theoretically the compounding of the $2 five growth that we haven't seen.

Is that possible.

Yes, if you look back at the chart over the last 2025 years, you've seen a an annual airline growth CAGR of 4% to 5%.

As we indicated before.

When we looked at forward guidance, we believe that in the next couple of years, we will recover fully back to 2019 levels and then begin to surpass that bolt on leisure and corporate yes, Mark I think just to add to that a little bit because when you do sort of a region by region breakdown I mean, one thing that we have seen and we just talked about it as it relates to the U S marketplace domestic marketplace, you almost see it fully Rick.

Covered.

And when you look at other regions of the World that have opened up you are finding that they are essentially fully recovered. The nice thing that we're seeing right now is international capacity has increased and even as.

Capacity has moderated over.

That makes sense I have been traveling internationally and I can tell you. The planes are all full so looks good. Thank you very much for taking my question.

Great. Thank you Mark.

Thank you.

And our next question is from the line of Josh <unk> with Morgan Stanley . Your line is now open.

Great. Thanks for the question and good to see the improving business mix had an impact throughout the results.

Quick question is a macro question and sort of that exercise looking at past downturns as a roadmap for potential demand and resiliency looking forward.

And it's on the corporate side and just how are you thinking about some of the differences in today's world.

<unk> kind of ubiquity of zoom and digital alternatives to business meetings and conferences that didn't exist in past downturns when youre thinking about the recovery on the corporate side.

So Josh let me, let me kick off and then I'm going to pass it over to Kirk because I think he can provide some besides just based on his previous experience. So if we look at corporate and corporate recovery right. Now it has closed the gap significantly and with what we have been seeing on the leisure side. So.

With that we're very pleased and I think this is a lot stronger than people had actually anticipated I know if we go back a couple of quarters.

People are questioning us relative to how quickly corporate would recover and we're definitely seeing that I think we're kirk and pick up is what we're seeing and hearing as it relates to business mix. It may not be the same that people traveling to see but when you think about what's happening within companies and I can speak about sabre, specifically, we have a lot of internal travel taking place even though we're in there.

We've seen as Sean indicated a much stronger rebound in corporate travel in 2022 than most people anticipated.

There may be some.

At an assumption of 90% corporate recovery by that point in time.

I can tell you I'm much more bullish about where corporate will be at that point in time than I was six months ago, and I think that as you speak to <unk> and corporate travel managers, they would echo that.

Got it.

So just to clear I mean, we didn't talk about the 2025 targets today, but if.

The assumption in them is still 90% recovery, if it was 100% or more that would be upside to those scenarios.

Correct.

Okay, great. Thank you.

Great. Thanks, Josh.

Thank you.

And our next question is from the line of Jed Kelly with Oppenheimer. Your line is open.

Hey, great. Thanks for taking my questions nice job on the results and then Doug Congrats on the retirement.

Two questions. If I may just circling back on the corporate travel recovery.

Can you kind of talk about how we should think about that impacting your margins.

In the back half and into 'twenty three.

Then can you talk about the airlines.

Managing their logistics.

Hey in the next six to 12 months.

Does that do to your solutions pipeline like you expect them to start to engage in more contracts and one for more solution services. Thank you.

Our revenue per booking increases.

With a shift towards long haul and corporate recovery.

So we do expect to see upside in the second half of the year.

Our GDS or distribution mix continues to improve with the recovery in long haul international and also corporate so.

So we think there is upside there.

And then to your second question Jed as it relates to the pipeline and the activities.

The operational issues that airlines are dealing with right now I believe it's temporary because as I stated in my my prepared comments they need the capacity out there from a cost perspective, you are still seeing the higher yields in the marketplace. If you go back relative to what airlines have articulated they're expecting high revenue.

Again in the third quarter so.

Again sort of a temporary maybe.

Maybe slow down based on the capacity piece of long term pipeline, we feel good.

And then just a follow up just just with the stronger dollar.

In terms of the potential for more Americans don't maybe you want to travel abroad, because obviously the stronger dollar benefit to them.

See a benefit from that like how does that impact your volume wise. Thanks.

Well I'll say, if more Americans want to travel that's having benefits just remember that the vast majority of our revenues are already in dollars. So there is no FX impact.

From a dot strung out but from a booking perspective, Chad just going back I think a lot of us have been traveling throughout Europe and other places there's a lot of.

U S citizens that are traveling abroad, and we expect that to continue.

Thank you.

And our next question is from the line of Victor Chen with Bank of America.

Your line is now open.

Thank you congrats on the solid quarter of flexible taking my questions. A couple if I may.

First of all can you give us some color on the recent new customer contracts you alluded to earlier is it leisure culprit in which regions in quarter you're displacing.

And then secondly.

Just going back to the point of revenue per booking what are some of the key drivers.

Really the mix driving it or.

Do you see more.

Inflationary pressure.

Ticket pricing driving the revenue per booking.

Then lastly should we still expect free cash flow positive by Q4.

If the volume outlook is at the lower end of your range at 50%.

So there's a lot of questions in there I'm going to let Kurt take the first question then I'll circle back to Doug on your last question.

Victor.

<unk>.

On the first question, which I think is.

Our success on the customer front. So we have had some nice wins in all lines of business, especially in distribution.

You know about some for example recently like GBT in Hopper. There are also some other wins, which we have not at this point announced you can expect to see volume gains in the back half of the year that are baked into our full year guidance and there will be additional sequential gains that we expect to see in 2023.

And you had two questions one would be the booking fee and what would the free cash flow sequential gains that we expect to see in 2023.

And you had two questions one would be the booking fee and what would the free cash flow, yes under any scenario. The scenarios. We presented we expect to be free cash flow positive in the fourth quarter, and then Youre correct with admit the business mix is what's helping drive the average.

Our revenue per booking fee, yes. So that's why we actually put the one slide out there because I think it's sort of indicative I mean this is one thing we have been talking about and we're actually seeing it play out is as the revenue per booking fee. Yes. So that's why we actually put the one slide out there because I think it's sort of indicative and this is one thing we have been talking about and we're actually seeing it play.

Al is as the mix moves in our favor we're going to see improvements in the booking fee and that's exactly what's taking place right now.

Thank you.

Just one more follow up on that.

But you expect given the mix should improve.

If we're going to continue to improve in Q3 and full.

We have not provided guy, but as you would think relative to the mix and what's taking place is moving favorably in our direction.

Got it thank you.

Thank you and at this time Im showing no further questions I'd like to turn the call back over to Mr. Mackey for closing remarks.

Great. Thank you very much Amanda so as you can imagine we're very proud of the progress we made in the second quarter.

As you can see as it relates to just the Q&A as well as our comments were pretty optimistic about the future and what's taking place and we look forward to talking to you.

In November .

Thank you again for joining us. This morning, we appreciate your interest in paper and look forward to speaking with you again soon.

Q2 2022 Sabre Corp Earnings Call

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