Q2 2024 Sabre Corp Earnings Call
This is the first time I've ever played the guitar in a live performance. I'm not used to playing live, so I'm not sure how I'm going to do it. I'm going to try to play it as if I'm playing it live. I'm going to try to play it as if I'm playing it live. I'm going to try to play it as if I'm playing it live.
Rivka: Good morning, and welcome to the Sabre second quarter 2024 earnings conference call. My name is Rivka, and I will be your operator. As a reminder, please note today's call is being recorded.
Rivka: My name is Rivka, and I will be your operator.
Operator: Thank you, and good morning, everyone. Welcome to Sabre's second quarter 2024 earnings call. This morning, we issued an earnings press release, which is available on our website at investors.sabre.com. A slide presentation, which accompanies today's prepared remarks, is also available during the call on the Sabre Investor Relations webpage. A replay of today's call will be available on our website later this morning.
Speaker Change: Thank you, and good morning, everyone. Welcome to Sabre's second quarter 2024 earnings call. This morning, we issued an earnings press release, which is available on our website at investors.sabre.com.
Operator: We advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including the effects of growth strategies, distribution volumes, benefits from our technology transformation, commercial and strategic arrangements, and our financial guidance and targets, free cash flow, and liquidity, among others. Participating with me are Kurt Ekert, President and CEO, and Mike Randolfi, Chief Financial Officer. Scott Wilson, EVP and President of Hospitality Solutions, will be available for Q&A after the prepared remarks. With that, I'll turn the call over to Kurt.
Speaker Change: More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 10-Q for the quarter ended June 30, 2024.
Speaker Change: Participating with me are Kurt Ekert, President and CEO , and Mike Randolfi, Chief Financial Officer. Scott Wilson, EVP and President of Hospitality Solutions, will be available for Q&A after the prepared remarks. With that, I'll turn the call over to Kurt.
Kurt Ekert: Earlier today, we reported second quarter financial results that exceeded our guidance. A Meaningful Increase in Injustice, Yibbida'a. This outperformance gives us the confidence once again to increase our full year 2024 revenue and adjusted EBITDA guidance. First, I will review our second quarter business highlights, including our financial performance and recent commercial wins. Next, I will provide an overview of the progress we have made in our growth strategies. Please turn to slide five.
Kurt Ekert: We remain on track to deliver our target to more than double adjusted EBITDA from 2023 to 2025, driven primarily by our growth strategies as well as cost efficiencies, including our technology transformation.
Mike Randolfi: Turning to slide four, you can see an overview of the topics that Mike and I will cover this morning.
Kurt Ekert: Sabre achieved solid year-on-year revenue growth in the second quarter, driven by a higher distribution booking fee from a richer customer mix, increased CRS transactions in hospitality solutions, and Higher Hotel Distribution Bookings, and D. Lever, the balance sheet. Additionally, we expect the company will generate positive free cash flow in the third quarter, fourth quarter, and for full year 2024. On our second priority, achieving sustainable long-term growth.
Speaker Change: Increased CRS transactions in hospitality solutions.
Kurt Ekert: We continue to grow our share of air distribution bookings on a year-over-year basis, and for the sixth consecutive quarter, we continue to gain momentum in the marketplace with another strong quarter of execution and growth. We also delivered exciting new products in hospitality solutions. Last, our team continued to execute on our technology transformation, as greater operational efficiency drove significant cost savings. We remain on track to achieve our overall targeted cost savings of $250 million in 2025, as compared to 2023. This was driven primarily by softness in Asia group bookings, as well as general softness with leisure intermediary bookings.
Mike Randolfi: We also delivered exciting new products in hospitality solutions. I will touch on both of these shortly.
Speaker Change: Last, our team continued to execute on our technology transformation as greater operational efficiency drove significant cost savings.
Speaker Change: Travel Solutions delivered a solid second quarter. Revenue growth was driven by year-over-year increases in our average booking fee, air distribution industry share expansion, and meaningful growth in hotel distribution bookings.
Speaker Change: This was driven primarily by softness in Asia group bookings and Latin America bookings as well as general softness with leisure intermediary bookings.
Kurt Ekert: Corporate travel volumes were positive for the industry and up between 2% and 3% for Sabre, as well as easier year-over-year comparisons, as we highlighted throughout 2023 and again last quarter. This chart highlights that our share expanded for the sixth consecutive quarter on a year-over-year basis, as well as a rich commercial pipeline, and we delivered just an EBITDA of $10 million, from 6% to 12%, and recurring revenue during the quarter remains strong at 81%, just one year after signing this agreement.
Speaker Change: Corporate travel volumes were positive for the industry and up between 2% and 3% for Sabre.
Speaker Change: Based on recent Sabre commercial wins, as well as easier year-over-year comparisons, we expect year-on-year air distribution bookings growth to resume in the second half of this year and continue to build momentum as we exit 2024.
Speaker Change: Early indicators in Q3 support this outlook.
Speaker Change: As we highlighted throughout 2023, and again last quarter, we are consistently increasing our share of air distribution industry bookings.
Speaker Change: Based on signed but not yet implemented business, as well as a rich commercial pipeline, we believe we are on track to achieve further industry share gains.
Speaker Change: Turning to slide 9.
Speaker Change: Our Hospitality Solutions team delivered strong results in the second quarter, supported by continued product improvements and enhancements that are generating increased transactions, product expansion, and customer wins.
Speaker Change: For the second quarter, revenue was up 9% and we delivered just an EBITDA of $10 million.
Speaker Change: Our implementation with Hyatt is going well and we went live with the first Hyatt CRS transactions during Q2, just one year after signing this agreement.
Kurt Ekert: We believe the flexibility and efficiency of our industry-leading platform solution enables rapid IT implementations at scale. We are on track in Hospitality Solutions to achieve double-digit revenue growth; please turn to slide 10. We announced a number of significant commercial wins and important partnerships, following are some examples, on the agency and distribution front. We had a number of wins this past quarter.
Speaker Change: We believe the flexibility and efficiency of our industry-leading platform solution enables rapid IT implementations at scale.
Speaker Change: During the second quarter, we announced a number of significant commercial wins and important partnerships that we believe position us well to achieve both our financial goals and strategic objectives.
Kurt Ekert: The first is that we expect will convert a significant number of distribution bookings to Sabre in 2024 and 2025. We expect to be able to share more specifics regarding these deals later this year. Second, we have a new long-term agreement with Interpart Triple, Korea's largest OTA, to become their majority GDS provider. Finally, we are excited to have signed a large leisure agency in France. We continue to offer more robust functionality to a growing number of carrier and agency partners during the second quarter. Additionally, Sabre will be the first GDS to offer NDC content from LATAM Airlines later this year.
Speaker Change: that we expect will convert a significant number of distribution bookings to Sabre in 2024 and 2025.
Speaker Change: We expect to be able to share more specifics regarding these deals later this year.
Speaker Change: Second, we have a new long-term agreement with Interpart Triple, Korea's largest OTA, to become their majority GDS provider.
Speaker Change: Finally, we are excited to have signed a large leisure agency in France, driven primarily by the value of our multi-source platform.
Speaker Change: Regarding New Distribution Capability, or NDC, we continue to offer more robust functionality to a growing number of carrier and agency partners.
Kurt Ekert: In addition, we also announced an expansion of our partnership with Spotnano to integrate Sabre's NDC content within their platform, targeted at TMCs and corporate travelers, which we just announced yesterday. I commend our teams for achieving a number of significant commercial wins and for expanding on critical partnerships that deliver added value to customers. During the second quarter, we made further progress on each of our six growth strategies. Agencies and other buyers are selecting Sabre as a preferred technology vendor of choice to achieve approximately 100 basis points of share gains, and the hotel attachment rate to air bookings is up four points from 29 percent to 33 percent.
Speaker Change: Our team recently secured renewals for our PRISM data analytic solution with American Airlines and Aeromexico, and for our network planning and optimization software with Singapore Airlines.
Speaker Change: In addition to going live with Hyatt, we also earned a multi-year renewal with Wyndham, the world's largest hotel franchisor for Synexis Property Hub, after successfully migrating more than 5,000 Wyndham hotels onto the platform nearly one year ahead of schedule.
Speaker Change: And we just announced yesterday that Sabre signed a long-term renewal with Wyndham for our Cenexus Central Reservation System.
Speaker Change: reaffirming Sabre Hospitality as their exclusive global CRS provider for nearly two decades. I commend our teams for achieving a number of significant commercial wins and for expanding on critical partnerships that deliver added value to customers.
Speaker Change: On distribution expansion, as I mentioned.
Speaker Change: We successfully drove share games in air distribution.
Speaker Change: Agencies and other buyers are selecting Sabre as a preferred technology vendor of choice, noting our differentiated offerings such as multi-source platform, digital payments, and our hotel distribution offering.
Speaker Change: With hotel bookings up 12% year-over-year. And the hotel attachment rate to air bookings up 4 points, from 29% to 33%.
Kurt Ekert: We believe our hotel distribution platform, which efficiently consolidates a diverse array of content sources globally and delivers them in an intelligent and personalized manner, will continue to drive strong growth. In payments, during the second quarter, virtual card deployments increased 32% year-over-year.
Kurt Ekert: We remain excited about the pace of growth in our digital payments business; we launched Cinexus Concierge AI, which is delivering compelling improvements in productivity and hotelier user experience, and the next generation of Synexis Retailing, which enables greater ancillary revenue opportunities beyond room reservations, using our industry knowledge coupled with the power of artificial intelligence. Another critical piece of our strategic growth plan is our multisource platform. This platform dynamically consumes content. It provides global scale and dynamic pricing capability to our airline customers, while providing industry-best choice, efficiency, and automation to Buyers, via a unified interface of personalized content choices. We believe this is the most seamless offering of its type to buyers in the world.
Speaker Change: Last, we achieved a number of successes during the quarter in hospitality solutions.
Speaker Change: This platform dynamically consumes and seamlessly offers NDC, low-cost carrier, and traditional Edifact content. It provides global scale and dynamic pricing capability to our airline customers.
Speaker Change: while providing industry-best choice, efficiency, and automation to buyers.
Speaker Change: via a unified interface of personalized content choices.
Kurt Ekert: Our strategic focus on delivering innovation is personified by Sabre Mosaic, our fully modular and cloud-native new technology platform. We believe this offering will revolutionize airline retailing by delivering flexible, open, and scalable offer and order architecture using Google's powerful AI capabilities. Sabre Mosaic enables airlines to dynamically create.
Kurt Ekert: We are hearing strong enthusiasm from our customers and the marketplace and are in late stage negotiations with several carriers for Sabre Mosaic. I will now hand the call over to Mike, who will walk you through our financial performance and forward outlook. Thanks, Kurt. And good morning, everyone.
Speaker Change: and are in late-stage negotiations with several carriers for Sabre Mosaic.
Speaker Change: Overall, we are consistently delivering on our strategy and operating plans and gaining strong momentum.
Mike Randolfi: Please turn to slide 14. The second quarter represented another strong quarter for Sabre, in which we made steady progress towards achieving our financial objectives. Solid revenue growth in conjunction with improved cost efficiency drove strong flow through to our bottom line, resulting in a significant year-over-year improvement in our adjusted EBITDA. We ended the quarter with a cash balance of $634 million, and we expect to be free cash flow positive in Q3, Q4, and for the full year. Please turn to slide 15.
Speaker Change: Thanks Kurt and good morning everyone. Please turn to slide 14. The second quarter represented another strong quarter for Sabre in which we made steady progress towards achieving our financial objectives.
Speaker Change: The financial results in the first half of 2024 give us confidence to increase both our revenue and Adjusted Evita Guidance for full year 2024, which I will discuss in greater detail shortly.
Mike Randolfi: The revenue outperformance was primarily driven by a favorable rate mix on air distribution bookings and higher than expected hotel distribution bookings. A strong flow-through of revenue and lower overall operating expenses drove our adjusted EBITDA beat versus guidance. Turn it to slide 16.
Speaker Change: The revenue outperformance was primarily driven by a favorable rate mix on air distribution bookings and higher than expected hotel distribution bookings.
Speaker Change: Turn it to slide 16.
Mike Randolfi: Distribution revenue totaled $551 million, a $20 million or 4% increase compared to $530 million in Q2 2023. Our average booking fee was $6.05 in the second quarter, up 3% from Q2 2023, as we experienced a richer mix of bookings, including fewer discounted Asia group bookings. We expect accelerating revenue and CRS transaction growth in the second half of the year from our HIAT implementation. We are on track for double-digit revenue growth and double-digit margins in hospitality solutions for the full year 2024.
Speaker Change: Hospitality Solutions continued its strong trajectory, with Q2 2024 revenue totaling $83 million, an approximately $7 million or 9% improvement versus revenue of $77 million in Q2 2023.
Speaker Change: Adjusted EBITDA in the second quarter was $10 million, an improvement of $6 million versus prior year.
Speaker Change: We expect accelerating revenue and CRS transaction growth in the second half of the year from our HIAT implementation. We are on track for double-digit revenue growth and double-digit margins in hospitality solutions for the full year 2024.
Speaker Change: The continued benefit of lower unit costs from our technology transformation and the cost actions implemented last year helped drive our adjusted EBITDA margin from about 10% in Q2 2023 to 17% in the second quarter this year.
Mike Randolfi: Lastly, we generated free cash flow of $8 million in the quarter, which represents the highest second quarter free cash flow generated in five years. For the fourth quarter, we expect revenue of approximately $725 million and adjusted EBITDA of approximately $120 million. Overall, we expect to be free cash flow positive for 2024, with the majority occurring in the fourth quarter. Thank you.
Speaker Change: Lastly, we generated free cash flow of $8 million in the quarter, which represents the highest second quarter free cash flow generated in five years.
Speaker Change: Turning to slide 17, regarding guidance for the third quarter of 2024, we expect revenue of approximately $775 million and adjusted EBITDA of approximately $135 million.
Speaker Change: For the fourth quarter, we expect revenue of approximately $725 million and adjusted EBITDA of approximately $120 million.
Speaker Change: We expect to generate positive free cash flow in both the third and fourth quarters. Overall, we expect to be free cash flow positive for 2024, with the majority occurring in the fourth quarter.
Speaker Change: Our guide for sequentially lower fourth quarter versus third quarter revenue in adjusted EBITDA is driven by seasonality.
Speaker Change: As a reminder, the fourth quarter is typically the lightest quarter for air distribution bookings, but the strongest quarter for free cash flow generation due to favorable seasonality in working capital.
Speaker Change: Sabre took another significant step towards achieving our long-term objectives in the second quarter, and we remain committed to delivering on our strategic priorities in the years to come. And with that, Operator, please open the line for questions.
Operator: Thank you. We will now conduct a question and answer session. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list.
Jed Kelly: Hey, great. Thanks for taking my question. Just on the guidance, it seems that you're sort of maintaining your revenue guidance despite some airlines cutting capacity. So can you just kind of frame that in relation to the industry? And then Kirk, I think you mentioned some leisure softness. Can you just discuss what's going on there? And then I have a follow-up. Thanks for the question, Jed.
Kurt Ekert: You know, first, I would just remind you that our baseline assumption for market growth included in our guide is flat to nominal growth. Now, with that, a couple of things I would say is that we do expect to actually transition to stronger air distribution bookings growth in the second half of the year, driven primarily by a lot of the commercial agreements that we've recently reached. So we feel really comfortable overall with our guide.
Speaker Change: included in our guide is flat to nominal.
Speaker Change: A couple of things I would say is we do expect, actually, to transition to
Kurt Ekert: The other aspect with regard to capacity and how we see it affecting Sabre is a couple of things. First, keep in mind that even with the capacity reductions, most airlines are still flying about 5% more or indicating they'll fly about 5% more on average this year in the second half than last year. But with some of the capacity reductions, you tended to be targeted more on lower fare leisure traffic that's domestic. And a lot of the airlines have been working the ship capacity to long-haul international, which has held up a lot better.
Kurt Ekert: And so, net net, we actually think that's a favorable dynamic for us. On the OTA front, we discussed back in the February call the increase in direct connect activity that we had seen over the COVID period. We think there's a small amount of annualization of increased direct connect activity that happened over the past year, but nothing material in terms of new direct connects. And then, broadly, for leisure, it's tough to see from the numbers, but it may be that there's a very slight share shift from the intermediary channel to the airline direct channel, which is partly based on work capacity.
Speaker Change: this year in the second half than last year.
Speaker Change: But with some of the capacity reductions, it tended to be targeted more on lower fare leisure traffic that's domestic. And a lot of the airlines have been working to shift capacity to long-haul international, which has held up a lot better. And so net-net, we actually think that's a favorable dynamic for us.
Speaker Change: On the OTA front, we discussed back in the February call the increase in direct connect activity that we had seen over the COVID period. We think there's a small amount of annualization.
Speaker Change: of Increased Direct Connect Activity that happened over the past year.
Speaker Change: but nothing material in terms of new Direct Connect.
Speaker Change: And then broadly for leisure, it's tough to see from the numbers, but it may be that there's a very slight share shift from the intermediary channel to the airline direct channel, which is partly based on where capacity is today.
Kurt Ekert: When we look at Q3, we've seen more positive trends, so as we're 31 days into the new quarter, we're actually seeing positive GDS market growth, both for corporate and for leadership.
Kurt Ekert: Got it. And then my follow-up question is just on the hospitality solutions, revenue accelerating, you signed some good contracts, margins expanding. Can you just talk about how that segment fits into the strategic plan, potentially looking at other strategic alternatives for that segment. Yeah, thanks, Jed.
Kurt Ekert: We are, as we've indicated repeatedly now for a number of quarters, our hospitality solutions business is on fire. Our products are responding, our CRS, our PMS, and then the new retail studio suite of solutions. We're expanding revenue and margin, we're winning in the enterprise and the mid-tier space, and overall, we are doing very well. Our focus is on allowing hospitality solutions to realize very significant potential. That's a very fragmented market, and those solutions are really gaining a lot of traction. So we see hospitality solutions as a very important part of our business strategy.
Speaker Change: Our Hospitality Solutions business is on fire.
Speaker Change: we're expanding revenue and margin, we're winning in the enterprise and the mid-tier space.
Speaker Change: and overall doing very well. Our focus is on allowing hospitality solutions to realize to very significant potential. That's a very fragmented market and those solutions are really gaining a lot of traction. So we see hospitality solutions as a very important part of our business strategy.
Operator: One moment for our next question.
Speaker Change: Thank you.
Unnamed Speaker: Yeah, hi, sorry. Sorry, everyone. I was on mute. Thanks for taking my question.
Speaker Change: Yeah, hi, sorry, sorry everyone I was on mute. Thanks for taking my question.
Speaker Change: First one's just I guess on on the GDS side of the equation. I was just hoping if you could help
Speaker Change: Yeah.
Speaker Change: And as we look forward, we're confident that our share gains will accelerate meaningfully.
Speaker Change: starting in Q3, and that's based on significant sign but not yet implemented business, as well as a very rich pipeline.
Unnamed Speaker: And again, as we look at the trading in the first part of Q3, we're seeing positive GDS market or industry year-on-year growth, as well as improving sequential Sabre share performance. I think what's going on here may be an apples to oranges comparison, and let me explain.
Speaker Change: And again, as we look at the trading in the first part of Q3, we're seeing positive GDS market or industry year-on-year growth, as well as improving sequential Sabre share performance.
Speaker Change: I think what's going on here may be an apples-to-oranges comparison, and let me explain. So, we can see industry MIDT information, which includes all GDS Edifact air bookings.
Unnamed Speaker: So we can see industry MIDT information, which includes all GDS Edifact airbook data. We know what our NDC volumes are, and going by what our competitors have said publicly, namely that NDC is in the low single digits as a proportion of air distribution bookings, we can see that our competitors in Q2 were slightly below where we were on a year-on-year air distribution volume basis, which is obviously different than what they are
Speaker Change: We know what our NDC volumes are.
Speaker Change: And going by what our competitors have said publicly, namely that NDC is in the low single digit as a proportion of air distribution bookings, so let's say for argument's sake, at or below 200 basis points,
Speaker Change: Specifically, what we're seeing is that Amadeus's numbers for EDIFACT plus NDC distribution
Speaker Change: are again in the range of, and in fact slightly below, where Sabre is on a year-on-year air distribution volume performance.
Unnamed Speaker: So one possible reason for this is that on the airlines' side of the NDC API and inside the airlines' technology environment. We consider NDC IT part of our airline solutions or airline IT business and not part of distribution or distribution volume. So it may be that others have changed their definition of what comprises distribution volume.
Speaker Change: We consider NDC IT part of our airline solutions or airline IT business and not part of distribution or distribution volumes.
Speaker Change: So it may be that others have changed their definition of what comprises distribution volumes.
Speaker Change: Hence, comparing apples to what used to be oranges, and for us, has not changed.
Unnamed Speaker: The bottom line is that our offerings are responding well within the marketplace, and we are primed for continued growth. But again, what we're seeing is that we are gaining share. We are outperforming both of our main GDS competitors.
Speaker Change: The bottom line is that our offerings are resonating well within the marketplace and we are primed for continued growth. But again, what we're seeing is that we are gaining share, we are outperforming both of our main GDS competitors.
Unnamed Speaker: That makes sense. Thank you.
Speaker Change: That makes sense, thank you. And I guess then just sort of shifting tack on to sort of Sabre Mosaics.
Speaker Change: and you pointed to this being an offer order system.
Speaker Change: I guess, where are you in terms of the overall development? Could a carrier theoretically run your offer-order system as a standalone today, or is there still some development that needs to be done? And I guess...
Speaker Change: in terms of sort of the rest of the IT stack that will come, so sort of the settle and deliver functions, you know, whereabouts are you with those? Thank you.
Speaker Change: Super excited about Sabre Mosaic, cloud-native, fully modular, AI-infused.
Speaker Change: Today we've made great progress predominantly on the offer side and, for example, our retail intelligence suite of products.
Speaker Change: and can drive revenue accretion for carriers today. And so what we're seeing from a demand standpoint, is the desire to implement the offer or the retail solutions, because there's very little dislocation that an airline has to do to adopt these.
Kurt Ekert: And I guess then just sort of shifting tack on to sort of Sabre Mosaic, and you pointed to this being an offer order system. I guess, where are you in terms of sort of the overall development? Could a carrier theoretically run your offer order system as a standalone today? Or is there still some development that needs to be done? And I guess, in terms of sort of the rest of the IT stack that will come, so sort of the settle and delivery functions, you know, whereabouts are you with those? Thank you.
Speaker Change: and in a softening yield environment, these can be very beneficial.
Speaker Change: Order is more challenging because not only does it involve us deploying technology to displace the traditional PSS, and by the way, the way we built this is
Kurt Ekert: The order is more challenging because not only does it involve us deploying technology to displace the traditional PSS, but by the way, the way we built this is that in its modularity, it can sit on top of Sabre Sonic, it can sit on top of a Homegrown or any other PSS. And the carrier can also buy this bi-component piece. It doesn't have to buy a monolithic system in its future state.
Unnamed Speaker: Fantastic. Thank you. And if I could cheekily ask one more,
Speaker Change: In its modularity, it can sit on top of Sabre Sonic, it can sit on top of a Homegrown or any other PSS.
Speaker Change: And most people think that's a three-, four-, five-year journey. So, on order, suffice to say, we have more development to do in the coming years, but we will do that in conjunction with a couple of key carrier partners, and then we'll promulgate that more broadly.
Kurt Ekert: You said you're in late stage negotiations with several launch carriers. Is there any sort of color that you can give on who they may be, if they're existing Sabre customers, if they're not existing sort of Sabre PFS customers? That would be great. Thank you. I don't consider it cheeky, James. That includes both existing Sabre customers as well as non-Sabre customers.
Kurt Ekert: I don't consider it Cheeky James. That number includes both existing Sabre customers as well as non-Sabre customers.
Speaker Change: I don't consider it cheeky, James. That includes both existing Sabre customers as well as non-Sabre customers.
James: Fantastic. Awesome. Thanks, guys.
Speaker Change: Our next question comes from the line of Josh Baer of Morgan Stanley . Your line is now open.
Unnamed Speaker: Great, thank you for the questions. I wanted to talk about cost of revenues for a little bit, particularly given your momentum around NDC. Just wondering what portion of that cost of revenues is incentive fees and how should we expect those to trend going forward in an increasing NDC world?
Mike Randolfi: So virtually all of the cost of revenue is essentially incentive fees. There's a small portion of sales salaries that are in there, but it's all, almost all of it is incentive fees.
Mike Randolfi: The way I would think about it is in a couple of respects. First, I would just say, if you look at our gross margin overall, roughly around 60 percent, I would expect as we move forward, that would generally be the trend, particularly as we look through this year and likely as we'd foresee even into next year. With regard to NDC, there are a couple of things.
Speaker Change: I would expect as we move forward.
Speaker Change: That would generally be the trend, particularly as we look through this year, and likely as we foresee even into next year. With regard to NDC,
Mike Randolfi: Overall, from what we've seen so far, and what we've experienced in the agreements we've reached, the unit economics are pretty similar for NDC economics in most parts of the globe, with maybe a slightly lower average booking fee and a slightly lower incentive fee, with the exception being EMEA, which has a higher average booking fee there. But overall, we would expect the gross margin and, therefore, the cost of revenue to be roughly in similar ranges from a percentage standpoint, as we see today.
Speaker Change: A couple of things. Overall, from what we see so far, what we've experienced in the
Speaker Change: agreements we've reached.
Speaker Change: economics through most parts of the globe, with maybe a slightly lower average booking fee and a slightly lower incentive fee, with the exception being EMEA, which has a higher average booking fee.
Speaker Change: there. But overall we would expect the gross margin and therefore the cost of revenue to be roughly in similar ranges from a percentage standpoint as we see today.
Mike Randolfi: Got it. And I mean, we've seen the revenue per booking fee jump up above six bucks a couple times now. Is that the right level? Or is it closer to the 580? region or something else? And if not above $6, just given the makeshift in the types of bookings, is that in part because of NDC weighing on that?
Speaker Change: Is that the right level, or is it closer to the $5.80 region, or something else, and if not above $6.00, just given the mix shift?
Speaker Change: And the types of bookings is that in part because of NDC weighing on that.
Speaker Change: What I would say is, overall, a couple of things as we look at call at the last couple quarters and the last quarter specifically.
Speaker Change: A couple of things that have aided our average booking fee first.
Speaker Change: We've had a couple of quarters now where, if you look at relative to historical trend,
Speaker Change: Asia Pacific group bookings have trended a fair bit below normal. At some point we see that we see that reverting to a norm. The second thing in the second quarter is EMEA on a relative basis was stronger than the other regions and that's a higher average booking fee.
Mike Randolfi: So as we move forward, I do think we're going to maintain a relatively high booking fee, but I do see it ticking down a little bit below $6, but probably pretty near $6. So I would expect Q3 and Q4 to be lower than where we are today, but I would say still somewhat near $6 is what I would expect.
Speaker Change: So as we move forward, I do think we're going to maintain a relatively rich booking fee, but I do see it ticking down a little bit below $6, but probably pretty near $6.
Speaker Change: Great, thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of James Lee of Mizuho. Your name is, your line is now open.
Unnamed Speaker: Great, thanks for taking my questions. Two quarterly questions and one macro question. And one, first on the quarterly, on the margin beat. Obviously, the numbers, your guidance is very impressive. Congratulations. And can you maybe unpack some of the top drivers you're seeing that allow you to drive this with that beat?
James Lee: Great, thanks for taking my questions. Two quarterly questions and one macro question. And one, first on the quarterly, on the margin be obviously the numbers, your guidance is very impressive. Congratulations. And can you maybe unpack some of the top drivers you're seeing that allow you to...
Unnamed Speaker: And secondly, obviously, a lot of people in the airline industry talk about the crowd strike issues; I was wondering what kind of impact you're seeing in your GDS business. And lastly, on the macro question, I was wondering if you could comment on the overall business travel environment, you know, given the kind of mixed economic environment that we're seeing right now. So we'd love to get the state of business travel from you guys. Thank you.
Speaker Change: to drive that beat. Secondly, obviously a lot of people in the airline industry talk about the CrowdStrike issue, just wondering what kind of impact you see in your GDS business.
Speaker Change: And lastly, on the macro question, I was wondering if we can comment about, you know, overall business travel environment, you know, given kind of mixed economic environment that we're seeing right now. So we'd love to get the state of business travel from you guys. Thank you.
James Lee: James, thanks. Let me take the second and third questions and I'll give Mike back the mic for the third question.
Kurt Ekert: First of all, with respect to CrowdStrike, Sabre does not deploy CrowdStrike security on our systems, so we were not directly impacted by these events. What we've seen and what I think you largely hear from travel management companies, from corporations, and from various supplier customers is that corporate travel is expected to grow at relatively historic rates, and that's sort of 3, 4, 5 percent per year on a unit basis. And we're pretty bullish that that will be the case going forward. In fact, that's largely what we're seeing. So we felt very optimistic and good about that. As you may know, Sabre is very well positioned with our TMC and our corporate footprint to benefit from that growth.
James Lee: So...
Speaker Change: First of all, with respect to CrowdStrike, Sabre does not deploy CrowdStrike security on our systems, so we were not directly impacted by these events. Obviously,
Speaker Change: being a part of the ecosystem and supporting many airlines and other providers, there's a tertiary impact to Sabre, but it's not material in any way. Secondly, with respect to the business travel environment,
James Lee: what we've seen and what...
James Lee: I think you largely hear from TMCs, corporations, and from various supplier customers
Speaker Change: With regard to our BEAT and adjusted EBITDA, first, I would just highlight that on revenue,
James Lee: is the average booking fee, which is certainly more favorable than we expected. And then to a smaller degree, as you look at hotel distribution bookings,
James Lee: That's exceeded our expectations. I mean, that's up 12%. The team there is doing a great job. And so that helped support the 17 million dollars of higher revenue. Now, in addition to that, on the cost side,
James Lee: benefit sooner than expected from our technology transformation. And if you look at...
James Lee: Q1, we achieved a lot of our tech transformation milestones.
James Lee: and from that we've now come down to a much more favorable run rate in terms of technology expense, even more favorable than we expected. Those are the drivers of our B2 adjusted EBITDA.
Speaker Change: Thanks so much.
Speaker Change: And then second, we saw American Airlines and Vodafone's distribution strategy in the quarter. How have your conversations with travel agents changed since then? And are their priorities different to what they were about, call it, three months ago? Thanks.
Speaker Change: Thanks. Let me take these first. I think your question was on Sabre Mosaic. Is that the first question?
Kurt Ekert: Yeah, so we actually, we've stabilized the LNIT business, as you can see, with revenue and the buying performance now. And we've gotten a lot, I think, a lot healthier relationships than we have historically. Sabre Mosaic is getting great resonance in the market. From a near-term standpoint, you won't see material financial impact here, largely because what's being sold now is more on the offer side, basically our revenue suite of products. From a mid- to long-term standpoint, there is a longer buying cycle, and there's a long implementation cycle here. We believe this has the promise of being a catalyst to turn airline IT back into a strong growth business for Sabre again, over the medium to long term. So we're very excited about that.
James Lee: Yeah, correct. The revenue and earnings opportunity from that.
Speaker Change: From a near-term standpoint, you won't see material financial impact here.
Speaker Change: largely because what's being sold now is more on the offer side.
James Lee: are basically our revenue suite of products.
James Lee: from a mid- to long-term standpoint.
James Lee: There is a longer buying cycle and there's a long implementation cycle here. We believe this has the promise.
James Lee: of being a catalyst to turn airline IT back into a strong growth business for Sabre, again, over the medium to long term. So we're very excited about that. In terms of what the commercials will be or the unit economics.
Kurt Ekert: In terms of what the commercials will be or the unit economics... It's very possible that the industry will move away from the traditional PB model that's used in the PSS business. But it's too early to tell exactly what the new model will be and where we will end up. We have a point of view, but I wouldn't share that from a market standpoint yet. With respect to AA, AA is a key customer of ours. We really value them, and they believe it will be the best scale model in the marketplace.
James Lee: It's very possible that the industry will move away from the traditional PB model that's used in the PSS business.
James Lee: But it's too early to tell exactly what the new model will be and where we will end up. We have a point of view, but I wouldn't share that from a market standpoint yet. With respect to AA, AA is a key customer of ours. We really value them.
James Lee: We think it's great that they've seen, and others have seen, the benefits that intermediaries and corporate travel and leisure agencies, etc. can bring to them in terms of very qualified, high-yield eyeballs.
James Lee: and the functionality we've built.
James Lee: as part of our multi-source platform, we think is second to none. And so what we're hearing from large TMC customers, large brick-and-mortar customers, OTAs, is that the mousetrap we have delivered, they believe, will be the best-scaled model in the marketplace.
Speaker Change: are they from? And then, separately, I think Sabre historically, if I remember correctly, has a higher split of corporate versus leisure. And given, I think you have a lot of corporate wins.
Speaker Change: in the past couple quarters, how has that split evolved compared to 2019 levels?
Kurt Ekert: Victor, thank you for all the questions. I'm going to do my best to address them. And if I don't, please just chime back in and tell me what I missed. I tried to capture all that.
Speaker Change: Please just chime back in and tell me what I missed. I tried to capture all that. Let me start with you with the last piece first, which is software demand amongst
Speaker Change: suppliers. As we indicated, we're seeing robust demand for our hospitality solutions products and very robust growth there. So we think into the future, we're going to continue to see 10% revenue CAGR prospectively with expanding margins over the next several years. So we're very bullish on that space.
Kurt Ekert: Let me start with the last piece first, which is software demand amongst suppliers. As we indicated, we're seeing robust demand for our hospitality solutions products and very robust growth there. So we think into the future, we're going to continue to see 10% revenue CAGR prospectively, with expanding margins over the next several years. So we're very bullish on that space. By 2030, that's probably aspirational.
James Lee: in the airline solutions space.
James Lee: What we're seeing in terms of the most demand today is for two different areas.
James Lee: The model there can be gain share and or a license fee, and then secondly, we're seeing a lot of renewed enthusiasm for PRISM, which provides reporting and information on the corporate marketplace to help airlines optimize their corporate performance.
Kurt Ekert: We look at this as a much longer horizon. I think you'll see offering attraction in the next several years. And again, the order piece is going to take longer. Let me touch on the booking commentary.
James Lee: I don't know that the industry will have converted fully to offer and order by 2030, that's probably aspirational.
Speaker Change: We look at this as a much longer horizon. I think you'll see off-road attraction in the next several years.
Speaker Change: Let me let me touch on the booking commentary, and I spoke earlier about the apples to oranges comparison. Let me just illustrate the point, and then I'll talk a bit about Sabre. So.
Kurt Ekert: And I spoke earlier about the apples to oranges comparison. Let me just illustrate the point. And then I'll talk a bit about Sabre.
James Lee: When I was talking about NDC IT as compared to an NDC distribution component
Kurt Ekert: When I was talking about NDC IT as compared to an NDC distribution component, so in a scenario, for example, where a technology company, let's in this case say, Amadeus, is providing NDC IT to one of its hosted carriers. And let's say Sabre, for example, is connected to that airline's NDC API, and we're then sitting between that NDC API and the buyer, and we're facilitating the NDC transaction; we would consider or count that within our air distribution volume.
James Lee: And let's say Sabre, for example, is connected to that airline's NDC API, and we're then sitting between that NDC API and the buyer, and we're facilitating the NDC transaction, we would consider or count that within our air distribution volumes.
James Lee: within that volume as well. It may be, we don't know, that Amadeus is actually counting the NDC-IT booking.
James Lee: in their air distribution volumes. But again, we're not positive what's going on there. For us, in terms of what we are seeing is...
Kurt Ekert: Acceleration of volume and revenue into the second half of the year and going forward. We are seeing share gains, as we indicated, from very large leisure customers. It's sort of a mix.
James Lee: When I look at the, I can't offer a lot more detail on the carriers that we've won, or excuse me, the agencies that we've won beyond what we've said already. We will do that prospectively, but I would say it's a mix of OTA,
Kurt Ekert: And then geographically, we actually had our two biggest wins ever in each France and Spain in the last quarter. This was our biggest win in Asia, Interpark, for quite a while. The two North American wins that I talked about are both very meaningful, you know, sort of in the well over 10 million segments that we will convert from these two. And our pipeline is very rich. So we're seeing that basically strength across the board.
James Lee: very large leisure customers. It's sort of a mix.
James Lee: And then geographically, we actually have our two biggest wins ever in each France and Spain in the last quarter. This is our biggest win in Asia, Interpark, in quite a while. The two North American wins, which I talked about, are both very meaningful.
James Lee: You know, sort of in the well over 10 million segments that we will convert from these two, and our pipeline is very rich. So we're seeing that basically strength across the board. Our multi-source platform, our hotel distribution offering, and our payment solutions are really resonating well with customers.
Kurt Ekert: Our multi-source platform, our hotel distribution offering, and our payment solutions are really resonating well with customers. And today, I'd say versus 10 years ago, where the choice of GDS may have been one where the agency or the buyer felt more agnostic. And they chose based on similar technology and similar content. They are now telling us that this is a technology decision and that we're becoming one of, if not their, technology provider of choice. So that's really changing the dynamic of how decisions are made in the marketplace. Victor, if I failed to address any of the points you asked, please let me know.
Speaker Change: and today I'd say versus say 10 years ago where the choice of GDS may have been one where the agency or the buyer felt more agnostic and they chose based on similar technology and similar content.
Speaker Change: they now are telling us that this is a technology decision and that we're becoming one of, if not their technology provider of choice. So that's really changing the dynamic of how decisions are made in the marketplace. And Victor, if I failed to address any of the points you asked, please let me know.
Victor: I think it's very clear. Maybe just one last point is on the split of corporate versus leisure, any color that you can talk about. I think you basically have more of a higher corporate mix, if I'm correct.
Victor: We have, I think, the highest TMC and corporate mix of any of the GDSs by far. It is a minority portion of our overall booking portfolio, but we're relatively much more exposed to that than our competition.
Unnamed Speaker: Understood. Thank you. And maybe I can squeeze one last one in.
Unnamed Speaker: On American, obviously, now they're moving content back on Edifact and back on GDSs. Have you seen some positive effects from that in July already?
Speaker Change: Understood, thank you. And maybe if I can squeeze one last one in. On American, obviously, now they're moving content back on Edifact and back on GDSs. Have you seen some positive effect in July already from that?
Speaker Change: Yeah, thank you. We're not going to comment specifically on, you know, American. I would say overall we're seeing improving trends in Q3, both on a market and a share basis for Sabre. And we certainly appreciate the relationship with American.
Speaker Change: Thank you very much.
Speaker Change: I am showing no further questions at this time. I would now like to turn it back to Mr. Kurt Ekert for closing remarks.
Operator: Thank you everyone for your continued interest. We're excited about the momentum that we're gaining in the marketplace. We look forward to speaking to you again next quarter.
Kurt Ekert: Thanks everyone for your continued interest. We're excited about the momentum that we're gaining in the marketplace. We look forward to speaking to you again next quarter. Thank you.
Speaker Change: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.