Q3 2023 Sabre Corp Earnings Call

November 2, 2023

[music].

Good morning, and welcome to the Sabre third quarter 2023 earnings Conference call. My name is Felicia Crabtree and I will be your operator as a reminder, please note today's call.

Is being recorded.

I'll now turn the call over to the senior director of Investor Relations, Brian Roberts, Brian. Please go ahead.

Yeah.

Thank you and good morning, everyone welcome to <unk> third quarter 2023 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.

A replay of today's call will be available on our website later this morning.

We advise you that our comments contain forward looking statements that represent our beliefs or expectations about future events, including the impact and extent of the ongoing recovery from the effects of COVID-19 industry trends benefits from our technology transformation commercial and strategic arrangements strategic priorities, our financial outlook and targets.

Revenue adjusted EBITDA free cash flow costs, and expenses cost savings and reductions 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 third quarter.

2023 Form 10-Q.

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

Participating with me are occur <unk>, President and CEO, and Mike <unk> Chief Financial Officer.

Scott Wilson, EVP and president of hospitality solutions will be available for Q&A after the prepared remarks.

With that I will turn the call over to Kurt.

Thank you Brian.

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

We had a successful third quarter.

And have a number of recent accomplishments to articulate on today's call.

Including financial results that exceeded expectations new.

New developments in our strategic partnership with Google.

Important commercial wins and development successes as.

As well as the continued execution of our technology transformation.

In the third quarter.

We exceeded our financial expectations.

And this performance gives us confidence that our strategies to drive sustainable growth with.

With a more efficient operation are delivering results.

The positive momentum that we saw earlier in the year has continued.

Our four strategic priorities.

Which I will review shortly.

Are unchanged and form the foundation of our resource allocation and strategic.

Decision, making.

Before jumping into the details of today's call.

Allow me to commend all of <unk> employees for their hard work.

And dedication to meeting the needs of our customers.

The strong results we are sharing this morning.

Would not be possible without the commitment of all of our team members around the world.

Now I will walk through the agenda for today's call.

On slide four you can see an overview of the topics, Mike and I will cover.

First I will review our business highlights from the third quarter.

And then I will describe trends that give us confidence.

And the fundamentals of our business and <unk> ability to deliver on our priorities.

Next I will provide details on our customer successes.

And innovation achievements during the third quarter.

And then update the progress on our technology transformation.

Finally, Mike will take you through the financial results for the third quarter.

And provide an update to our 2023 outlook.

Turning to slide five.

As we have mentioned in recent quarters.

These are the four key strategic priorities that drive the long term direction for the company.

As I referred to each priority.

I will discuss our accomplishments that highlight our progress towards achieving each of these objectives.

First generating positive free cash flow.

And de levering the balance sheet remain our most important financial objectives.

Solid revenue growth and meaningful cost actions combined to deliver better Q3 results that we had anticipated.

Our performance translated into nearly a 100% flow through of.

Our revenue growth to adjusted EBITDA.

Which helped deliver solid free cash flow in the quarter.

This flow through is illustrative of the strong operating leverage potential of sabre tied to future topline growth.

And as Mike will describe in more detail later.

We have also taken significant steps toward de risking our balance sheet.

By extending the vast majority of our 2025 maturities out to 2027 and beyond.

On our second priority, which is to achieve sustainable long term growth.

We again increased <unk> share of industry air distribution bookings.

On a year over year basis during the third quarter.

We also saw sequential share gains from the second to the third quarter.

Efforts to expand our reach with both agencies and airlines continue to show positive results.

In addition, I am pleased with our recent customer wins and new product announcements that we achieved this quarter.

And I will provide more details on these topics in a moment.

Turning to hospitality solutions.

Our team continues to execute well.

And delivered excellent top and bottom line growth in Q3.

And please keep in mind that the strong results delivered by the team this year.

Do not yet include incremental business from.

From our recently announced agreement with Hyatt.

I am excited about the recent developments that support our third strategic priority.

Which is to drive innovation and enhance our value propositions.

With both existing and new customers.

While our technology transformation to migrate from the mainframe to Google cloud.

Has been moving at pace over the past few years.

Another team of Sabre engineers has been co developing products and solutions utilizing.

Utilizing Google state of the art AI and machine learning capabilities.

Several of our recent announcements show the powerful results of this and other key strategic partnerships.

For example, our new agreement with Virgin Australia takes that carriers revenue management capabilities to the next level by harnessing the power of Sabre is AI driven retail intelligence suite.

Our next generation solution.

And part by Google's machine learning technology.

Under this unique agreement Virgin Australia will deploy our air price IQ and.

And ancillary IQ solutions to utilize flight and.

And market insights to move from static pricing rules to more dynamic real time airfare and ancillary offers.

In addition, we recently launched Sabre upgrade IQ.

<unk> agnostic revenue management solution.

That will help our airline customers deliver more personalized and tailored offers to better managed premium cabin inventory.

This powerful solution is the product of our strategic partnerships with both Google and Hopper.

Upgrade IQ combines google's AI technology with hoppers advanced bidding platform.

So I'll take the premium seat bidding process.

Enabling airlines to communicate in real time with travelers in multiple languages.

Also we launched our new lodging AI solution.

Which embeds Google's advanced machine learning technology to expand our suite of intelligent retailing services to hotel distribution.

This new offering marks the introduction of sabre travel AI capabilities.

The lodging sector.

Where we see significant opportunities to better align hotel property attributes.

With customer trips segmentation and preferences.

To deliver more personalized offerings.

Last our technology transformation to the cloud continues on schedule.

We are realizing both cost efficiency gains.

And strategic go to market advantages from our cloud infrastructure and Google partnership.

In addition, we are seeing significant financial benefits from our cost reduction efforts.

And we are on track.

To realize in 2024.

The full $200 million.

Annual reduced costs that we have previously discussed.

In summary, during the third quarter.

Our team delivered on these priorities and we remain focused on creating long term value for our customers our employees and our shareholders.

Now, let's turn to slide six.

As I mentioned previously our efforts to drive sustainable revenue growth with a lower cost structure.

Resulted in meaningful margin expansion and generated strong adjusted EBITDA and free cash flow growth.

As this chart shows the trajectory of our adjusted EBITDA improvement.

Celebrated in the third quarter.

And we continue to see opportunities for further growth ahead.

Turning to slide seven.

During our most recent two earnings calls we.

We use this table to highlight the increasing share of GDS industry bookings that we have achieved.

And as you can see.

Our share in Q3 23.

Again expanded on both a year over year basis versus Q3 dollars 22.

And on a sequential basis versus last quarter.

We are pleased with these results to date.

And expect that signed but not yet implemented GDS deals.

A robust pipeline and our strong.

<unk> competitive distribution offering.

<unk> us well for continued share gains and future growth.

Please turn to slide eight.

I am pleased to review a number of successful business wins.

And differentiated product offerings with you today that span both travel solutions and hospitality solutions.

We continue to see significant momentum in hospitality solutions.

Most notably we are well advanced in our implementation work with Hyatt.

To provide them with our <unk> central reservation system technology.

Our platform will offer enhanced capabilities that.

That will allow hyatt to improve the experience of its guests.

We expect to begin to go live with highest starting in the first half of 2024.

In addition to our work with Hyatt.

Stay well, the large Australia and hospitality provider.

Recently selected our <unk> platform to enhance and improve their it infrastructure.

And distribution.

We were pleased to sign a new agreement with air France KLM that.

That includes enriched MDC sourced content.

Along with Ed affect content to deliver modern travel retailing technology.

This agreement will provide global travelers with increasingly sophisticated offers with.

With greater choice and transparency.

While enabling air France, and KLM to.

To distribute customized NBC offers.

And the ability to tailor personalized offer bundles.

In addition, we announced a second agreement with Air India, a top 10 global airline within the GDS industry.

Earlier, this week to bring that carriers domestic content to <unk> platform.

This complements our existing agreement for Air India's International content.

That we announced in April.

Importantly.

Air India's domestic content was previously exclusively offered by only one GDS.

And this new agreement highlights the value of <unk> global scale and reach to our customers.

And our potential to outpace the rate of growth in our industry.

We also recently signed an enhanced agreement with Latam Airlines group, Latin America's largest airline to distribute that carriers traditional edit that content.

As well as its MDC offers.

So the global network of Sabre connected agencies.

Once this new NBC connection goes live.

It will enable hundreds of thousands of sabre connected agencies and travel buyers.

To have an even richer experience with a broader range of Latam as products and services.

In addition to these important agreements, we also signed with Scandinavian Airlines and Virgin Australia to.

To provide agencies with significantly expanded access to content and offers from these carriers.

Including dynamically price fares.

And new ancillary services.

These agreements are further evidence that leading airlines seeking modern travel technology solutions.

<unk> to choose sabre.

And we are hard at work building the leading <unk>.

Next generation multi source travel ecosystem to seamlessly incorporate personalized NBC offers alongside other content.

On the agency front.

We signed a number of agreements with both new and existing customers in Q3.

Some of which we have announced.

Examples include our new win.

With unit <unk>, a high growth Chinese business.

Growing into North America, a deepening of our relationship with last minute.

One of the top European Otas specializing in dynamic packaging.

Any renewal with tight square, a large and fast growing agency based in Korea.

Okay.

In it solutions as mentioned earlier.

<unk>, Australia selected our intelligent retail solutions.

This partnership will bring the power of <unk> Air price IQ and ancillary IQ solutions to help Virgin Australia move to more dynamic pricing and intelligent real time offers all powered by Sabre travel AI.

During the quarter.

We also signed a sabre sonic contract extension with Air Serbia.

<unk> renewal with SAP air.

And an agreement to migrate <unk> network planning and optimization to SaaS.

In summary <unk>.

<unk> achieved a number of commercial wins during the third quarter.

That will help us deliver on our strategic priorities.

I will now move on to our technology transformation.

Please turn to slide nine.

Our technology transformation continues on track to deliver our previously articulated cost savings and operational targets.

As you can see in the table at the right.

Our unit cost of compute continues to decline.

The significant efficiency gains we have seen for moving off of the mainframe to.

To Google Cloud helped drive the 10% decrease in our overall adjusted technology costs.

That we reported in the third quarter on a year over year basis.

In terms of operational milestones, we are on track to.

To complete the Tulsa mid range server exit by year end.

As we've communicated previously.

Overall, our technology transformation and innovation are cornerstones of our competitive capabilities and.

We expect to continue to leverage our important strategic partnerships and offerings to.

To deliver better overall experiences to both buyers and suppliers.

Within the global travel marketplace.

Now onto slide 10.

In closing, we again delivered on our priorities in the third quarter.

We generated significant margin expansion and strong free cash flow signed.

Signed important customer agreements.

And launched compelling new products that utilize the best in class technology capabilities.

Of our key strategic partners.

I am proud of our team for delivering these results.

And I am confident that.

<unk> is well positioned to continue delivering on our strategic and financial priorities in the coming quarters.

I will now hand, the call over to Mike to walk you through our third quarter performance and our full year 2023 expectations.

Thanks, Kurt and good morning, everyone. Please turn to slide 11.

As Curt mentioned, we have a number of accomplishments to share with you that highlight the hard work of our sabre team members.

Third quarter was a strong quarter for sabre at an important inflection point in several of our key financial and strategic metrics.

We exceeded guidance in the quarter on solid revenue growth and cost actions that led to significant margin expansion and strong free cash flow generation.

Our technology transformation, and previously announced cost reductions helped drive operating costs down on a year over year basis.

The powerful combination of steady revenue growth and falling costs led to a nearly 100% flow through of incremental revenue dollars to adjusted EBITDA.

As you can see on this slide sabre generated strong year over year improvement in cash from operations and free cash flow.

Hospitality solutions continues to drive better financial results.

After than we had anticipated earlier this year and is now on track to produce an approximate $40 million improvement in adjusted EBITDA This year versus last year.

Additionally, our recent debt exchange offer to extend our 2025 debt maturities out to 2027, better aligns our future perspective free cash flow with our debt maturity schedule.

Overall, the third quarter represents an inflection point.

We are delivering on the actions we set out to achieve and are generating strong financial results that represent a meaningful trajectory shift from the last few years and highlight the potential of Sabres path forward.

Please turn to slide 12.

As you can see from the table, we exceeded our expectations for third quarter revenue adjusted EBITDA and free cash flow and we are encouraged by the momentum we are seeing in our financial results.

Strong revenue generation, coupled with the actions we have taken to lower our cost base has driven margin expansion and increased our free cash flow generation.

This quarter's free cash flow generation is the highest in approximately four years.

Turning to slide 13.

Total Q3 revenue was $740 million, an increase of $77 million.

Or 12% versus last year.

Distribution revenue totaled $525 million.

A $94 million or 22% increase compared to $431 million in Q3 2022.

Our distribution bookings totaled $89 million in the quarter, a 12% increase compared to $80 million in Q3 2022.

Our average booking fee was $5 87 in the third quarter up 9% from Q3 2022, as we continue to realize favorable mix into more profitable regions and types of travel, resulting in higher booking fees.

It solutions revenue totaled $147 million in the quarter. This was a $26 million Dickey.

The decline versus revenue of $173 million in the comparable prior year period, driven by the migrations. The vast majority of which is the result of changes in Russian law.

Hospitality solutions revenue totaled approximately $79 million and $11 million or 16% improvement versus revenue of $67 million in Q3 2022.

The 16 points of revenue growth was driven by seven points of Central reservation systems transaction growth and nine points of higher rate per transaction.

Hospitality solutions generated $6 4 million in the third quarter and $7 $9 million.

Of adjusted EBITDA on a year to date basis and is tracking to an approximate $40 million adjusted EBITDA improvement this year versus 2022.

In addition, our recently announced Crs deal with Hyatt, which we expect to go live in 2024 should contribute to the momentum we are already seeing in hospitality solutions.

<unk> adjusted EBITDA of $110 million in Q3 2023.

<unk> $34 million in Q3, 2022 represented a $76 million improvement year over year.

Before I move on I will highlight the significant impact that our cost reduction program is having on our financial performance.

The $76 million year over year increase in adjusted EBITDA in Q3 represents virtually 100% flow through of the $77 million year.

Year over year increase in revenue, we achieved over the same period.

Free cash flow was $39 million in the third quarter, including the impact of restructuring charges, which was better than our prior guidance for free cash flow of $20 million.

Free cash flow, excluding the impact of restructuring was $58 million, which was better than our prior guidance of approximately $50 million.

This was the first third quarter since Q3, 2019 that Sabre has delivered positive free cash flow.

We ended the third quarter with a cash balance of $623 million.

During the quarter, we used $130 million in cash from the balance sheet in connection with our most recent financing.

Before moving to guidance, let's discuss the actions we took during the third quarter to address our 2025 maturities.

Turning to slide 14.

I cannot thank the team enough for their hard work and shifting our financial trajectory, which facilitated the actions on our debt maturities.

Our recent debt exchange offer and the private facility. We executed in June have addressed the vast majority of our nearest term 2025 debt maturities.

Importantly, the cash we have on the balance sheet at the end of the third quarter exceeds the cumulative debt maturities through the end of 2026.

Moving to slide 15 to discuss our guidance.

For the full year, we still expect revenue between $2 9 billion and 3 billion.

Unchanged from last quarter, but at the higher end of our initial expectations for 2023 that we provided in February for revenue of between $2 8 billion.

And $3 billion.

Moving to adjusted EBITDA, We now expect adjusted EBITDA for the full year 2023 of approximately $345 million.

Above our prior guidance last quarter for adjusted EBITDA of approximately $340 million and about 10% above the midpoint of the initial guidance. We provided in February for adjusted EBITDA between $300 million and $320 million.

We believe.

We've continued revenue growth coupled with the significant cost actions, we have taken to improve our efficiency and expand our margins is supportive of improving adjusted EBITDA generation moving forward.

And our free cash flow as noted on our prior earnings call, we expect to be free cash flow positive for full year 2023, excluding the impact of restructuring.

This includes an assumption of approximately $80 million in 2023 for capital expenditures and approximately $375 million and cash interest costs for the full year 2023.

We are currently in our annual and long term planning process and.

And we expect to provide more details on our 2020 for outlook in 2025 targets during our Q4 earnings call in February.

As a reminder, our 2025 targets for $900 million and adjusted EBITDA and $500 million and free cash flow include an assumption for industry air volume growth of 1% to two points sequentially per quarter in.

In recent quarters, we have seen industry air volume growth come in below these levels.

As indicated on our May earnings call.

When we discussed our long term targets each one point of air bookings growth between 2023, and 2025 is worth approximately $12 million and adjusted EBITDA on an annual basis.

In closing steady revenue growth and operating performance drove significant margin expansion for the quarter and nearly 100% flow through of revenue to adjusted EBITDA, which resulted in meaningful free cash flow generation.

In conjunction with these items our debt exchange offer an extension of our 2025 maturities represented an important step in delivering on our strategic priorities that Kurt outlined earlier on this call.

And with that operator, please open the line for questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

And your first question comes from the line of Jed Kelly of Oppenheimer. Please go ahead.

Okay, great great. Thanks, Thanks for taking my questions.

Just two if I may.

Nice job Youre Tech costs were down about 10% you highlighted.

Is that the right way to think about the velocity of those costs going down going forward and then just following back Mike on your previous comments, you mentioned airlines industry growth kind of slow or one point of $12 billion adjusted EBITDA on an annual basis is there any change to your <unk>.

Five outlook.

Are you expecting.

<unk> incremental EBITDA growth in 'twenty four.

Yes. Thanks for the question on Tech costs, obviously, we've made significant progress there.

Highlighted in the beginning when we had articulated our resource realignment and cost reduction.

Program back in May the way we are.

Highlighted are talked about trends and what someone should expect is taking the first quarter.

<unk> expenses.

Expenses for cost of revenue.

<unk> expenses in SG&A, if you annualize those.

And you annualize those and then you subtract the $100 million of cost reduction that would occur this year.

That $100 million about 10% of it would apply to cost a reduction in cost of revenue about 45% would apply to the tech costs and about 45% would apply to SG&A.

And Thats.

What would drive that would be the resulting trend in terms of cost. So the trends youre seeing our trends, we would expect to sustain on expenses arent Jed Jed you may Miss Kurt you may recall that as we provided the guidance and we looked at it the 25 target back in May.

We articulated that $300 million of the build toward 2025 improvement.

It would come from reductions in both our technology cost.

And other costs.

Close to two thirds of that would be a reductions in technology costs.

Next couple of years.

Thank you.

And then further further.

I'd also highlight on that May call. We also highlighted and talked about our bill from 2023 to 2025.

In that build we talked about going from approximately $300 million of adjusted EBITDA to approximately $900 million of adjusted EBITDA in 2025, and there are really three components. The very first opponent as Kirt, just mentioned is that $300 million.

With the $300 million being comprised of the resource realignment and cost reduction program that we saw this year, which would be about $100 million of it our technology transformation costs.

Which we expect to generate at least $150 million of benefit from 'twenty three to 2025, and then also just rigor around the non labor non tech costs for the remainder of the bucket that bucket and those cost savings are very very much on track and you see that here today. The second bucket was our strategic growth initiatives. If you recall.

That was $150 million attributable to that bucket of that $150 million at least a third or at least $50 million, we would expect from.

From hospitality solutions, you could see the <unk>.

<unk> trajectory shift we've seen in that business and then the second part.

Of that or the next $50 million would be increased market share.

And you see that this quarter, we gained share both sequentially and on a year over year basis, and then the third part of it is things like payments airline retailing, which are all growing really really really well the third bucket as you highlight is volume and.

And the volume piece each point is approximately $12 million now what I'd highlight is is there's two different components as we look at volume in the more recent period.

As noted in the third quarter, we have seen.

Some flattening in volume to date, we've been able to offset that with favorable revenue and.

And cost also as we look forward.

And we look at what airlines are telegraphing, they're generally telegraphing capacity growth call. It in the mid to upper mid single digits with the skew to international that has historically.

Bob.

Historically accrued to the GDS and so that's what we know at this moment beyond that what I would say is we're working through our 2020 for planning process and our 2025 planning process right now.

Going to respect that process and come back to you in February with a more fulsome update on the next two years.

Thanks.

Alright.

Yes, just one follow up just on the <unk> contract can you speak to the incentives you agreed to.

Heard from prior management team.

Management team. They historically didn't want to go into India, just because that market was tough from a unit economic perspective. Thanks.

Yes, Thanks jet India is one of the largest GDS distribution markets in the world as we indicated in the prepared remarks.

One of our competitors had exclusive content with air India, which one of the larger carriers. There. So this unlocks one of the largest U S markets in the world for US, which was not previously largely addressable are available to us. So as we think about the opportunity to gain share and gain share in a market emerging parts of the world We're really.

First about this.

Commercially and technically the deal we've done here makes great sense for us and we think for our agency customers as well.

Thank you.

One moment for our next question.

The next question comes from the line of Josh Baer of Morgan Stanley Josh. Please go ahead.

Thank you for the question I wanted to ask around MDC.

There were several press releases in the last couple of months about.

Do you see announcements for you.

Just wanted to ask what's driving the momentum now and from a product standpoint.

How you think your <unk> offerings compare like from a competitive.

Standpoint are there still areas of sort of investment or no.

And the investment around NFC as far as.

Your solutions looking at.

Yes, Josh. Thank you very much for the question. So today MDC represents a very small part of intermediary airline distribution.

The range of about 1% from everything that we can see and we're experiencing and this is 11 years. After approximately IATA launched NBC is a construct.

That said, what you've heard and seen for many carriers around the world is a desire to sell their inventory more dynamically and <unk> as they do would be to say and this is a mechanism to help accomplish that so there is strategic rationale as airlines become better and better our retailing and we as an intermediary to help airlines differentiate.

And sell their product as they want to sell it.

It's very important one of the things that is changing in the ecosystem is that this is not just about plugging into the node of the airline MDC API, but more so it's building the functionality that is required for buyers corporations and agencies for example to be able to do things in a manner that works for them and.

And drives efficiency and drives user experience without degrading those two things as.

As would happen if you simply plugged into content into their existing infrastructures. So I can tell you for example that by the end of the year. We will have built out 90% of the use cases that are required by our agency customers and thereabout 600 unique use cases that are new so that we're able to make sure that both sides of the ecosystem are able to <unk>.

Once that we.

We've talked about what we're building is a multi source content platform that enables us to seamlessly consume both at a packed at NBC content.

And then on redistribute that normalized fashion to and through any buyers in the world.

We believe that what we're producing will be the best platform in the industry for the long term and support the needs of both the suppliers, but do it in a way again that makes sense, where the buyer community. So we feel very good about where NBC is going to go in future years.

The thing I would add on that is as we discuss forward looking commentary incorporated in that forward looking commentary is an expectation that MDC continues to grow.

Our forward looking commentary reflects that.

Perfect. Thank you and if I could just ask one on the.

2025.

The 900 million plus in EBITDA going to 500 and free cash flow. If you could talk through some of the assumptions on working capital.

In those numbers just thinking through.

Interest.

Taxes, but then also just working capital in that bridge.

So free cash yet yes.

Yes, im not going to go into too many specifics on that at this time, Josh what I would say is we are not assuming.

A significant impact on working capital either positively or negatively in 2025, but beyond that we will provide just a more wholesome update in February on 2025.

Okay. Thanks.

One moment for your next question.

The next question comes from the line of Dan <unk> of Morningstar. Dan. Please go ahead.

Hey, good morning, guys. Thanks for taking my question, so just going back to the $150 million strategic growth in the 2025 guidance.

You guys have said.

At least one third coming from hospitality any color you can provide on how much higher kind of gets you to that one third and then what would you anticipate would be the implementation time frame for Hyatt I know you guys set on this quarter that it will begin in the first half of next year. Thanks.

Yes. Thank you good question.

So when we look at the strategic growth initiatives just to a caller that once again and we looked at $150 million.

EBITDA accretion between now and 2025, what we articulated was we expect to see one third of that from hospitality solutions.

One third from GDS share growth and one third from an amalgam of <unk>.

Airline retailing payments.

Hotel attachment.

Specific to our hospitality solutions and Hyatt, we're not going to break out the details of the agreement with Hyatt.

But it is indicative of the traction that we're getting with in excess which traditionally has been the leading mid market hotels Crs provider, but this basically demonstrates our ability to compete and win in the enterprise CRM space.

And so what I want to do is turn it over to Scott Wilson, who lead JHS and he could talk in more detail about the implementation and the value that we're bringing there.

Okay.

Thanks Kurt.

Yes.

So you actually got a.

A couple of things that are really important here.

Let's start with the <unk> implementation as we mentioned is going to be starting in the first half of the year and we believe that will be vastly completed with that by the end of next year.

So most of that revenue gain that we expect through that contract is going to be fully realized by the end of next year, which we think is just a great accomplishment by the team and our partner in Hyatt.

The second Kurt talked about the <unk> platform overall continues to be very strong within the market. We actually have renewal rates. This year, our highest they've been since since the pandemic.

In fact, some of the highest ever and we continue to win new business in areas outside of the enterprise space as well and the third key piece is the introduction of retail studio this year, which would it unlocks a new Tam for us which is around retailing in the hotel space something that's a little bit more mature in the airline space, but has a lot of growth and upside that we're seeing good traction on.

In the hotel space as well if you take those three things combined and we feel very good about that $50 million.

Will contribute by the end of 'twenty five.

Okay, Great very helpful. And then if I can just squeeze in one more quick one.

Any color that you can give on just how air booking trends.

I have been tracking over your key regions and that's it for me. Thanks.

Sure I'll tell I'll just talk about it in terms of what we're seeing in terms of recovery.

Relative to 2019, I mean, as you know for the most part North America has fully recovered.

What <unk> seen is as.

Asia is probably still recovered versus 2019 in the mid sixties euro.

Europe is like in the seventies I would say the one trend that we've seen that as a little more notable we've actually seen Latin America back up a little bit.

Over the last few months.

And thats trended back a little bit, but that's generally what we've seen.

Okay. Thank you.

One moment for your next question.

The next question comes from the line of Victor Chen of Bank of America. Victor. Please go ahead.

Hi morning, Thanks for taking my questions a couple if I may.

Just going back to <unk> on the point on revenue per booking.

Can you give us some color obviously, 9%.

From a quarter year on year is very solid.

Im sure Theres, some pricing element in the mix improving.

And often you talk about it.

And on a region mix homeland, the way mix and business leisure mix, but maybe one question I want to ask is.

Does it matter, which.

What tier of airlines.

The bookings associated with the question I asked about this is as over the last couple of months, we've seen American airlines, moving a bit more into NBC, United moving to MDC as well.

And it seems that if the volumes are.

<unk> are coming down for these tier one carriers, which presumably has a lower revenue per booking.

That has a tailwind on revenue bookings that.

Right assumptions Fink.

Or am I off.

Victor Thank you and let me start and then turn it over to Mike. So first of all MDC today represents only about 1% of the GDS marketplace. So the impact on the average fee per booking is relatively small.

Yes, the other thing that's a very important part so the primary driver is really that we've seen within the mix regionally.

We've seen our mix be pretty favorable and really within the carrier mix has been favorable we have due to carriers, where the average booking fee is higher but to curts point the impact from MDC has been de Minimis on our average booking fee.

And it's really that MDC MDC at this stage is a very very very small part of the industry and from everything we see represents.

One maybe to 1% to 2% of intermediary distribution globally.

Gotcha.

I was just looking at some data from arc talking about U S bookings have been talk about 10% of MDC bookings as a percentage of indirect U S bookings.

And of GBS as a whole it's still roughly like you said, 1% to 2% does.

Does that mean as some of the bookings gets shifted to MDC that ges is not capturing that opportunity.

Hey, Victor Thank you for the question.

I think theres two things that get conflated in the industry. One is called direct connect the others NBC direct connect is where typically larger otas have direct connected.

With Airlines and this started back 10 years to 15 years ago.

And they basically have done that without the use of the GDS.

So that's nothing new in the industry and we think that that has for a while represented about 10% of global airline intermediary distribution.

That would be price line with United for example, and within that I don't know that the construct of what is traditional versus NBC.

In terms of walk us through those pipes, what I can tell you, though if you look outside of that 10% is we're not seeing any change in the structure of the marketplace.

As you know has recovered to about 75% on a unit basis of what it was in 2019, albeit much higher on a dollar basis.

We believe that substantially all of that business continues to flow through our sector.

And in all the other forms of leisure distribution, we don't think theres been a change either so I think that what you have is that within the direct channel.

Again, which has been there for quite a long period of time preceding COVID-19.

That there may be certain activity there.

Carriers are call it new technology.

Within the the true intermediary marketplace, we don't see any change yes, one other thing I would highlight Victor is as you think about in D. C and you think about Andy and economics generally what we're seeing is is that the economics of MDC agreements.

Look pretty similar to what you see today around most of the globe with the exception of Europe, where Europe is you do have some of the highest booking fees around the globe, but for sabre that only represents 15% of our bookings and so.

The transition we wouldn't expect to have nearly a.

A significant impact maybe maybe a little bit more in that region.

Got it very clear and maybe if I can squeeze in one last one note to that.

Passing this sport and the airline side also appears to be a tad lower quarter on quarter as a percent of 2019.

If you can provide a bit of color as to what's trending in there.

Yes, an airline I mean, the primary the primary impact on a year over year basis is going to be that the migrations. The vast majority of which was attributable to Russia that impact is about $33 million.

You adjust for that you'd obviously have growth in airline it is driven by higher passengers boarded.

Alright got it thank you.

One moment for your next question.

The next question comes from the line of Tobias <unk> from <unk>.

Bernstein Tobias. Please go ahead.

Good morning, gentlemen, thank you for taking my question just one from me.

Deep dives into the Apple Kings again.

It appears that the application recovery.

This quarter and could you comment on the phone lines on where that potentially new non level has been reached and how do you see that going into Q4 also considering that you've just commented on the recovery you still ongoing everywhere else. Thank you.

Tobias. Thank you when you look at the GDS marketplace, which is what we're talking about here.

Traditionally that marketplace has been comprised about 50% corporate our TMC bookings and about 50% leisure as.

As we've indicated corporate it has recovered to about 75% on a unit basis in 2019 levels now.

Now Aaron hotel yields are much higher so the dollar recovery is actually much higher or much closer to historical norms.

One of the things that Jack thing as a governor we believe on corporate travel is corporate procurement budgeting, where they basically you are saying you can only grow unit corporation by so much year on year.

The good news is as you think about corporate travel historically.

It was.

Closer to $1 five trillion dollars sector before COVID-19 and over the 20 year history, including the impact of 911 in the financial crisis had a 4% to 5% annual CAGR.

So certainly we expect that part of the business to grow.

It has grown traditionally.

Has there been some impairment relative to the size of that sector. We don't know at this point, but that is possible and then when you look at leisure recovery.

Leisure is the other sort of half of the GDS sector.

It leaves much more tower complex long haul international travel, where more simple point to point domestic travel just tended to accrue to direct.

Airline distribution historically, we think thats the case and so whats happened is capacity has not been put back substantially on long haul international as it has been put back on short haul. We think that is disproportionately negatively impacted the GDS business. So you're right that the recovery has been slower than we had anticipated in the past two quarters.

<unk>.

We're not going to comment prospectively other than let me just say again, what Mike said, which is we.

And the build toward the $900 million EBITDA target for 2025.

We had indicated back in may.

That came with the assumption of a 1% to 2% or one 5% quarterly sequential growth in market size.

We're assessing what we believe is going to be the trend over the next couple of years and we'll come back in February with updated guidance, yes, and the only.

The only other thing I would add with regards to 2023 and our fourth quarter assumptions incorporated in that is we assumed what we've seen is current trends, which are closer to flat in the third quarter and I would say if you back into our Q4 expectations you can see it's amongst the best adjusted EBITDA performance in years.

Expected to be the best free cash flow generative quarter in years and so we're really we're really pleased with our performance and we're really seeing on those actions, which we can control we are delivering.

Thank you.

One moment for your final question.

Yeah.

The final question comes from the line of James <unk> from Redburn Atlantic James. Please go ahead.

Hi, everyone. Thanks for taking my question just one just follow up on in terms of sort of current bookings and we've had many U S and European Airlines talking positively about a pickup in managed business travel spend into the winter period. So I'm, just wondering if that sort of flat sequential.

Sequential bookings that you saw Q2 to Q3 has scope to increase going into Q4.

Yeah.

Yes. Thanks for the question Josh one while there are reasons to be optimistic we framed our guide really based on the trends we've seen coming out of 2023. So what I would say is out of Q3. So in Q3, I mean, we obviously saw flatter booking trends than than we'd like.

But those are the assumptions that we took into our Q4 assumption.

Alright, yes, we'd be all I should say, we feel given our given our footprint with <unk>.

TMC is that handle much of the managed travel business, we feel very well positioned as that part of the market recovers to benefit from that.

Okay. Thank you and then I guess, maybe just.

Long term question on the add on side.

I mean I have got the impression that many more add ons.

Including your largest PSS costner already themselves towards the transition away from legacy PSS architecture and towards that of offline order based system. So I was just wondering if you could talk to how well you think you're set up for that that transition.

Developed to date.

Would be great. Thank you.

James Thank you as we've indicated.

Everybody is pursuing this long term agenda I add is one order standard which is the new offer order PNR less technology, we have invested very aggressively in both offer an order capabilities the tip of the spear, where we're going to market leading right. Now is on the retail intelligence suite of solutions, we're beginning to get great market.

Traction with customer signing up and buying this because it doesn't require a wholesale operating changes on their side to implement these capabilities one of the challenges with offer an order.

Is that.

A lot of the airline systems processes and organizations are built around the traditional <unk>.

In our PSS structure, and so most carriers see this as a long term multiyear journey.

710, maybe more years.

So we are in conversation with a number of both sabre and non sabre PSS customers about working with them on this journey and providing our technology. So.

We think theres an opportunity for us to disrupt the marketplace and we're leaning in very aggressively to what we believe is a great opportunity.

Great. Thank you.

Thank you I would now like to turn it back over to Curt accurate for closing remarks.

Yeah.

Thank you and thank you again for joining US today. We appreciate your interest in Sabre and look forward to speaking with you again soon and that concludes today's call.

Thank you for your participation in today's conference.

This does conclude this program you may now disconnect.

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Q3 2023 Sabre Corp Earnings Call

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