Q2 2023 Global Business Travel Group Inc Earnings Call
Solving this efforts Banc of America joined a growing list of participating companies as the first financial institution to.
To sign on to our sustainable Aviation fuel program, which is led by Amex GBT in partnership with shell aviation.
So to sum up our second quarter performance. It provides yet another proof point of our continued financial commercial and technological progress, we clearly reported strong financial results.
Including <unk>.
Our record revenues.
Positive free cash flow and record SME new wins.
As a result, we are raising our full year 2023 guidance.
Continued business travel growth and share gains also gives us confidence as we look ahead to the balance of 2023 and beyond.
So that completes my review of the Q2 highlights I would like to hand, it over to Karen now to discuss the financial results in more detail before we move on to our full year and our Q3 outlook.
Thanks, Paul and Hello, everyone.
Before I get into the talent given this is my first call as CFO of IMAX TVT I want to share my three key priorities when it comes to managing our financial performance.
Lastly at.
Achieving outstanding financial results by growing revenue growing adjusted EBITDA and increasing free cash right.
<unk> has been a key strategic priority.
<unk> and remains a critical area of focus.
<unk>.
Secondly, and importantly, driving continued margin improvement.
And finally, creating capacity to invest and drive long term sustained growth.
Now, let's turn to the highlights.
We had a fantastic quarter. Thanks to the continued hard work across our team to drive performance.
As you had fruitful we delivered strong revenue and adjusted EBITDA growth.
As you think about outperformance we were above guidance in Q2 as a result of revenue outperformance.
Driven by higher volume and higher revenue.
We saw continued momentum in the second quarter across all three financial priorities.
Very importantly, we returned to positive free cash flow.
We continued to reduce our net leverage ratio and delivered year over year margin improvement.
All the while allocating incremental investment dollars with an eye towards driving longer term growth.
Looking at the second quarter results in more detail revenue increased 22% to reach $592 million. This was ahead of our guidance.
As I mentioned in my opening summary, this was partially driven by our strong transaction growth, which was roughly three percentage points ahead of our expectations, but also by our yields.
As a reminder, our yield as measured this revenue item in CTV and reached eight 1% in Q2.
Our strong revenue yield in the quarter was also 30 basis points ahead of our expectations driven by higher performance incentives.
Stop travel revenue increased 23% year over year.
There is a phasing impact on the rescue across the quarters.
Somewhat skewed year over year revenue growth compared to transaction NTT seekers.
I encourage you to look at each one as a whole.
Products and professional services revenue increased 16% with increasing demand coming from Macy's and event management fee.
Now before we talk about adjusted EBITDA, let's discuss expenses.
Our adjusted operating expenses increased 11% in the quarter <unk> revenues grew 22%.
Strong transaction growth drove increased cost of revenue and investments in the business resulted in higher sales.
Marketing and technology expense.
These were partially offset by cost savings and <unk> synergies.
And so this performance translates into delivering $106 million of adjusted EBITDA and continued margin expansion in the second quarter.
Adjusted EBITDA margin reached 18% eight percentage points year over year, and notably the strong margin performance was also ahead of full year 2019 pro forma adjusted EBITDA margin.
As I said in my opening comments we.
<unk> reached a pivotal moment for the company in the second quarter with the achievement of $19 million in positive free cash but.
As expected our working capital position significantly improved versus Q1.
This is in line with the volume working capital and cash flow seasonality, we outlined and detailed law schools.
And as a result, we reported positive cash provided by operating activities.
On our last call I discussed the identity of working capital initiatives, which will drive material benefits over the next 12 months.
I am pleased to say, we have realized some of these benefits earlier than expected and this is really what drove our positive free cash flow in the quarter, which was ahead of our expectations and largely breakeven.
Our leverage ratio net debt divided by last 12 months adjusted EBITDA is approximately three and a half times as of June 30 at this.
This is a significant step down but after the company and a critical proof point in terms of our momentum.
Additionally, the reduction in our leverage ratio will drop to 75 basis point interest rate reduction on our outstanding term loan beginning in the fourth quarter.
Our 2023 at year end, we expect leverage of less than three times and continue to target two times to three times net leverage at our target leverage ratio.
Obviously of outlet for growth over the remainder of the year is supported by our customers and industry experts.
Based on our August survey on average our customers expect continued solid year over year growth in net travel spend in H two 2023.
Including 84% of our top 100 customers.
That travel spend to be flat or up in the second half of 2023 bus at the second half of 2022.
<unk> growth is expected across the industrials communications services financial services and insurance services.
And next to the line with Morgan Stanley s, most recent corporate travel survey, which shows expectations for 9% corporate travel growth in the second half of 2023 and 8% growth expected in 2024.
And so let's turn to guidance and key drivers starting with third quarter 2023.
We expect to deliver revenue of between $545 million and $560 million representing growth of 12% to 15%.
This is also on expectations for around 9% transaction growth as we continued to normalize year over year.
And our revenue yields slightly lower than the first and second quarter given seasonality of our business.
We expect operating expenses to trend down sequentially in the third quarter. This is driven by the changes we announced in January relating to our reorganization.
Ah, creating operational efficiencies and reflects our continued focus on cost.
This results in third quarter expectations for $85 million to $95 million and adjusted EBITDA with an adjusted EBITDA margin of 16% to 17% representing year over year adjusted EBITDA margin expansion of eight to nine percentage points.
We have provided Q4 guidance based on our year to date results and our Q3 and updated full year guidance.
As mentioned our expectations for <unk> sales have increased but it's important to remember the seasonality of our business were 801 is stronger than H two.
We expect strong transaction growth to continue in Q4 with a yield in line with full year expectations.
Revenue growth in Q4 is lower due to the outperformance of supply yield in the fourth quarter of 2022.
I'd encourage you to look at transaction growth to understand the momentum in H two year over year growth in aggregate.
I refer you to the appendix of our earnings presentation for more detail.
As we focus on the full year 2023 as you put we are now guiding to revenue of between 225 billion and $2, two 8 billion, which represents 22% to 23% revenue growth.
This translates into $17 million incremental revenue at the midpoint of our guidance.
This increase revenue expectation is based upon our <unk> performance.
Strong volume momentum and our confidence in our previous full year revenue guidance of seven 8%.
On the cost side, we remain focused on our operating expenses, while we expect single digit growth versus revenue growth of 22% to 23%.
This demonstrates the leverage in the model as we have improved operational efficiencies realized cost synergies and achieve benefits from the reorganization.
We continue to expect cost savings to accelerate in the second half of the year driving a reduction in expenses compared to the first half of the year.
And so this results in an incremental $25 million of adjusted EBITDA at the midpoint.
Now I recognize that we would typically expect a pull through of approximately $45 million on incremental revenue of $70 million.
However, as mentioned last quarter, we have some delayed execution of our European restructuring plan, which has impacted the phasing of our cost reduction.
But importantly, we are making incremental product and technology investments in the balance of year.
And strengthen our competitive position.
In total we expect these two items to have approximately $20 million impact.
We are now guiding to full year, adjusted EBITDA of between $365 million and $385 million.
Productivity gains and high operating leverage are expected to deliver 10 to 11 points of full year. Adjusted EBITDA margin expansion. We now expect a margin of 16% to 17%, which is at the high end of our previous guidance.
We anticipate generating positive free cash flow during the second half of the year with much stronger results in Q4, but it's Q3 due to seasonality.
We are confident in our ability to deliver this given our growth expectations.
Seasonality of our working capital and the Egencia working capital optimization plan.
And continue to target two times to three times net leverage at our target leverage ratio.
So in summary, I am confident about our financial performance and the trajectory we.
We delivered strong second quarter revenue growth.
<unk> adjusted EBIT margin expansion.
Positive free cash flow.
Reduced our net leverage ratio and created some capacity to invest for longer term growth.
Our confidence in our forward outlook is underpinned by the expectations for the continued growth in business travel.
<unk> SME growth and share gains.
<unk> in our increase in guidance.
We expect to deliver strong results over the balance of year.
So we can now move into Q&A, Paul and I are joined by Eric <unk>, who is our chief legal the global head of M&A and compliance and corporate Secretary Operator. Please go ahead and open the lines.
Thank you we will now start the Q&A session, if you'd like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered you can withdraw your question by pressing Star and then two.
When preparing to ask your question. Please ensure that your device and your microphone unmeet you'd likely.
The first question today comes from the line of Toni Kaplan with Morgan Stanley . Tony. Please go ahead. Your line is now open.
Thanks, so much.
It looks like a lot of continued progress on the SME side of the business I was hoping you could give some additional color around the pipeline for new clients there.
Verticals in particular standing out more than others any sort of changes and in the pipeline versus normal you know just.
Wanted to get more color there. Thanks.
Yeah, sure Hi tonnage Paul Thanks for the question.
Overall, the SME pipeline looks really strong and as I mentioned in my prepared remarks there.
We've reached a record level of of new signings over the last 12 months and that's really driven by the momentum in the last quarter. So.
Really pleased with the momentum in terms of the F&B signings overall.
Because it's such a broad segments, it's really across all industries. There is no real specific industry that I would call out one of the areas of focus for US, though has been the managed segment because of the overall $950 billion opportunity $600 billion of that is in the.
Unmanaged segments. So that's that's a sub segment that we watch really really carefully.
And we're about up to about 30% of our SME new wins are coming from that.
<unk> segment, so pipeline looks really strong really good momentum in Q2.
And continuing strength in the manage segment as well.
And I think that the.
The value proposition.
Choice that we offer now who is the egencia platform.
<unk> T select platform.
Innovation is definitely helping us to increase our win rates the percentage of customers that we win that we target has also been tracking up quite nicely as well given the broadest set of offers that we have in the market.
So those.
Those would be the highlights.
Yeah.
Yes terrific.
And maybe Eric I was hoping you could talk about the M&A pipeline what you're.
Seeing in the market if valuations.
How valuations are and then also just maybe just strategically.
Anything that you guys or.
Good.
Considering doing from a either technology wise perspective or.
Any other capabilities that would be useful and trying to attack the the.
The market. Thanks.
Yes, thanks for the question.
Such an evaluation too much but strategically.
SME continues to be a focus area huge opportunity as Paul.
Pointed out let's call it geographic.
Select geographic areas, where we think.
Operating proprietary is better.
And then yes, the capabilities and technology areas, we are continuing to look at.
We do have a pipeline we are evaluating opportunities, but it is M&A. So no assurances that we'll get in across the line.
We continue to be bookstore.
Terrific. Thank you.
The next question comes from Duane <unk> with Evercore ISI Duane. Please go ahead. Your line is now open.
Hey, Thank you.
Just on the new customer wins, and I think focused on the SME segment can you speak to how much of your revenue growth.
And your transaction growth was driven by new wins or customers that you didn't have 12 months ago.
And as you think about recovery potential out of these wins shape your kind of longer term thinking about what recovery looks like.
Shouldn't we be well ahead of 100% at some point and when do you think we get to retire 2019 comps.
Well, we've already retired 2019 comps as you may have seen in the presentation.
Going back to your your question.
If you.
Look at the SME segment, specifically, we grew at 15% in the second quarter and half of that was net new wins, so should I think about seven points of that being organic.
Improvement in seven or eight points of that being net new wins.
If you look at our kind of full year performance.
Taking the midpoint of our.
<unk> kind of growth.
In 2023, that's about 22% growth year over year.
Should think about kind of five points of that really coming from net new wins in the full year 2023.
And.
With the pipeline that we have.
We feel confident that we can kind of continue that momentum.
Into 2024.
Okay, and then maybe you could touch on.
If there was any surprise my guess is most of this was conservatism, but to the extent that there was any positive surprise over.
Over the balance of <unk>.
<unk> sort of surprised you the most.
Yeah.
Yeah, I wouldn't I wouldn't say its conservatism I mean, basically our H one results.
In terms of sales growth and three points higher than we had.
<unk> forecast for each one.
I think we previously guided to two points of recovery per quarter.
And so we were expecting a kind of a two point improvement in recovery rate.
In Q2 versus Q1, and we actually saw a four point improvement.
So I guess you could call it conservative but that.
That was really the.
The difference between what we guided to previously and bought actually played out in the second quarter.
I wouldn't say there were any surprises in terms of the overall trends in SMA continues to outpace global multinational 16 points ahead in terms of the recovery rates and so on.
Obviously, our focus there has been very helpful.
APAC continues as a region to outperform.
EMEA.
The Americas, although PMA.
And Americas was still double digit growth and hotel continues to outpace their hotel was the other area.
Where we definitely saw outperformance in the second quarter.
I think we had 14%.
On hotel, which was a little ahead of our.
<unk> costs for the quarter.
So no no major surprises join us that's more sort of continuation of the trends that we were already seen.
Okay very good thank you.
Yeah.
The next question comes from Lee Horowitz with Deutsche Bank.
Please go ahead. Your line is now open.
Hi, This is Jeff finer answer Lee Thanks for taking my question.
So beyond the third quarter have the aspects of it.
Landing in the major customers more confidence.
During.
Business travel season.
I know you called out the customer survey in the second half of it because this is formed.
You're more constructive outlook for the full year.
I think we started two.
Pieces of customer research in our previous comments Theres, a independent survey that was done by <unk>.
Morgan Stanley .
Business travel trends for the second half of the year.
Forecast at a 9% year over year increase.
Increase our.
One survey as we go out to our top 100 global multinational customers each quarter, we ask them to refresh their forecast for the balance of the year.
And I'd say it was largely consistent with the prior quarter.
So those really are the two.
To data.
Data points, obviously, there's still.
A degree of uncertainty in the macroeconomic environment and I think that's reflected in the forecast that we get from our customers and obviously Morgan Stanley of reflected in that survey.
But to answer your question directly.
Got it.
We havent really revised.
Our outlook for the second half of the year.
That significantly I think what we've seen is an outperformance in the first half of this year.
Essentially forecasted for that level of performance.
Performance to continue.
Great.
And obviously you have a large support organization.
Got it.
<unk> capabilities are evolving rapidly including with debt.
You mentioned.
How quickly do you think you may be able to realize these cost savings from these technologies.
Yeah well.
We have some <unk>.
See automation.
The significant opportunity for us to improve productivity and increase.
Our our margins.
That is not just.
Driven by generative AI.
We are always looking for opportunities to automate.
Demand, that's coming into our existing <unk>.
<unk> channel.
Ora E mail channel and to build out features on our software platforms Gensia Neo in order to automate that demand and to increase the number of transactions.
Going through our digital platforms, and I think I mentioned in the remarks there that.
We now have 77% of our total transactions coming through digital channels over.
Over 60% of those now on our own software platform. So the point I'm, making here is that.
The automation.
Using big data using AI is not new to us it's something that we're already doing however, the power of <unk>.
Large language models and generative AI.
It enables us to potentially take that to another level and we are identifying a number of use cases use cases have also been proven in other industries.
Other parts of the travel industry and we're looking at how.
What impact those use cases could have but in productivity over the next.
A couple of years.
And so we definitely see it as a significant opportunity.
I would say, it's something that at a later date.
We would.
Look to discuss in more detail.
Okay, great. Thank you.
The next question comes from Peter Christiansen with Citi Group.
Peter. Please go ahead. Your line is now open.
Yeah.
Thank you good morning.
Nice execution quarter and welcome aboard Kieran.
My first question is on the pro services side really nice growth there.
Just curious if we should think about the cadence.
<unk> of that of that segment of results for the second half how are you feeling about upside.
Potential there and if theres any seasonality that we should be thinking.
Hi, Peter.
<unk>.
Thank you again.
They see a wealth of things.
The professional stuff within the sector.
Expect continued momentum Bernie.
The second half and as we look more holistically at revenue.
There is clearly a seasonality impact as we pointed out but as you think about our guidance.
The increased revenue by $70 million and $43 million of that increase is flowing through in the second half.
Which really is reflecting that that the body is the full talks about earlier and expectations that way.
With some impact from yield as well, but majority through some volume.
That's helpful and then Paul just curious.
If you had any qualitative thoughts on travel inflation business travel inflation generally.
If you are seeing in cooling on the pricing side, and whether or not you think that's impacting corporate travel.
Yes, we saw.
Average ticket price in the second quarter was two points higher from the first quarter. So average ticket price related to air.
And then.
On hotel average daily rates were 3% higher.
In the second quarter versus first quarter. So we are still seeing some moderate quarter over quarter.
Increases there.
On the side.
There.
Is going to be additional capacity coming in in the second half of the year.
If you look at the global numbers, they are quite high, but we tend to sort of back out China.
Really look at the U S and Europe .
So.
This.
3% to 5% additional capacity coming into the second half of the year.
Opposed to the first half of the year.
If you look at the major carriers in those geographies.
I don't see.
A higher proportion of that capacity that's coming in is on international routes.
So I do think as that capacity comes online.
Essentially as the.
Economy.
<unk> starts to roll with the interest rate increases.
It's logical.
To see some I think leveling off.
Of ATP.
ATP and average daily rates in the second half of the year and that's essentially what we've assumed.
Our plan for the second half, we've assumed a kind of a leveling off.
Pulp price in the second half of the year.
Yeah.
That's super helpful. Thanks, again, and congrats on this quarter.
Thank you.
Our next question comes from Stephen Ju with Credit Suisse. Steven. Please go ahead. Your line is now open.
Great. Thank you so much.
So I guess a follow up on the 110% versus 2019.
Wondering if you can talk about whether we are ahead of where we used to be at a unit basis or if some of this was due to.
The higher pricing overall.
I guess.
If you could update us on.
The sales cycles for some of the larger enterprise or potential client, whether it's getting easier now, but the same or more difficult.
With hopefully corporate attitudes towards spending start to loosen up a little bit more.
Yeah.
Yes, Hi, Steve.
<unk>.
Follow the first part of your question.
Would you mind, just clarifying that for me.
Oh sure Youre CTV is 110% in the second quarter versus what was the case in 2019 right. So there is unit growth and then there is price inflation.
That's happened because of capacity constraints, so I'm just wondering.
Between price and volume like what drove a lot of the.
The greater value overall volume.
As we kind of think about you just highlighted additional capacity coming on next year, so how pricing might be impacted.
As we think about 'twenty four and beyond.
Sure.
Yes, Steven I'm not following a 110% of 2019.
Our CTV recovery kind of full year is around the 80%, 80% Mark So I'm not sure if there's a.
Misunderstanding there.
In terms of the 100.
You highlighted transaction recovery versus 2019.
On the XL the Kpis that you present, there for the second quarter.
Yes, well, we can take it offline if it's at 80%.
There is a valid.
But I guess on the second question.
If you could update us on I guess the sales cycles in terms of what you might be seeing whether they're getting easier or shorter or about the same.
Yes sure.
For the for the global multinational.
Accounts first.
First thing I would say is that we have a very.
Active and healthy pipeline.
I would say, there's nothing materially different in terms of the sales cycles and global multinational they've always been.
In that sort of 9% to 12 month range.
For very large companies to complete sophisticated global RFP process.
So no real material change in global multinational.
I would say that.
As SMA becomes.
Hi, a share about.
Signings, which at which it is.
And we are bringing more and more customers in from that on the manage segment those.
Sales cycles, and close rates are much shorter and the implementation of ramp up time is shorter. So if you look at our entire book Youre going to see an improvement, but it's driven really by mix driven really by mix in terms of much higher share of SME signings.
Okay understood. Okay. Thank you.
Thank you.
At this time, we have no further questions I will turn the call back to Paul Abbott for closing remarks.
Great well. Thank you in closing thank you so much to our colleagues IMAX GBT around the world for their dedication to our customers on the strong results that they have delivered.
Im very confident in our position and our outlook for growth in 2023 and beyond. Thank you to all of you for joining us and your continued interest in the company.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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Okay.
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