Q3 2024 Sabre Corp Earnings Call
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Okay.
[music].
Continued growth in Crs transactions and.
And a favorable mix within our customer base.
Strong revenue growth contributed to a 67% improvement in.
In our adjusted EBITDA to $11 million with the business expected to continue building momentum in the quarters to come.
Our Hyatt implementation remains on track <unk>.
Prospectively, we expect both double digit transaction and revenue growth.
And we expect to achieve our full year adjusted EBITDA target of nearly $40 million in 2024.
And nearly $70 million in 2025.
Please turn to slide 10.
During Q3.
We continue to invest aggressively in our six growth strategies and I am pleased to share with you. The progress we have made starting with sabre mosaic.
Please turn to slide 11.
Super Mosaic is designed over time.
To replace and modernize traditional PSS systems.
This AI powered technology platform <unk>.
Designed to modernize travel retailing.
Is open modular and flexible, enabling intelligent and personalized offers and orders that extend beyond seat and fair class.
To include a wide variety of additional ancillary and third party service options.
The graphic on the left of this slide.
Provides an overview of the sabre mosaiq product suites.
Our PSS agnostic approach.
Speaker Change: It helped drive our adjusted EBITDA margin from 15% in Q3, 2023% to 17% in the third quarter. This year.
Speaker Change: Lastly, we generated free cash flow of $8 million in the quarter and ended with a cash balance of $690 million.
Speaker Change: Turning to slide 17.
Regarding guidance for the fourth quarter, we expect revenue of approximately $715 million and adjusted EBITDA of approximately $115 million.
Speaker Change: We expect to generate greater than $80 million of free cash flow in the fourth quarter and expect to be positive for the full year 2024.
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 a favorable seasonality in working capital.
Speaker Change: For the full year 2024, we now expect revenue of approximately $3 billion $30 million and adjusted EBITDA of approximately $515 million.
As we exit 2024, we have strong momentum in a number of our important business drivers and believe we are on track to achieve our 2025 targets of greater than $700 million, and adjusted EBITDA and greater than $200 million in free cash flow.
Turning to slide 18, we.
We believe the path we are pursuing has the potential to create significant long term shareholder value the.
The targeted investments we are making in our six growth strategies, coupled with prudent cost management have driven and we expect will continue to drive meaningful increases in adjusted EBITDA and free cash flow.
And all of that is those are recently agreed to agreements we do not yet have the benefit of.
Most of that in our air distribution bookings, so with that what I would say and I'm not going to go too much into 2025 on this call I'm going to save that for February, but what I would say is as we.
We feel very confident very very confident that as we move into 2025 youre going to see the benefit of those agreements that we've reached and youre going to see a meaningful acceleration from share gains and our air distribution bookings.
Yes with respect to the environment.
Speaker Change: Obviously, there has been.
Sort of mixed macroeconomic news globally.
Demand both in corporate and leisure remains pretty strong across all <unk>.
Speaker Change: Geographies.
We're not seeing any real meaningful downward pressure there obviously are some supply constraints on air.
It is not meaningfully impacting our business just.
Speaker Change: Very small impact.
Got it and then just as a follow up.
Just with the new wins kind of looks like.
If we look at it.
Cost of revenue was about call it 57, 5% of.
Speaker Change: Distribution revenue are these new wins are they more high volume, where they might put a little bit of pressure on the gross margins can you just talk about that dynamic.
Speaker Change: Yeah. Thanks, Thanks for that Chad.
Speaker Change: As I mentioned, the new wins that we've seen are largely not yet in our air distribution bookings and largely not yet in our results what I would say as you look at gross margin overtime or look at cost of revenue give or take around the 40% range.
What I would say as we move forward I would expect that gross margin would likely remain around 60% in cost of revenue would likely remain around 40% now if you look at quarter by quarter. It gets lumpy because there's different types of incentives that get paid from time to time in different thresholds to get hit if I look at the prior two quarters, we had revenue.
Speaker Change: Growing faster.
<unk> faster than.
Cost of revenue and.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].
Q for the quarter ended September 32024.
Throughout today's call, we will also be presenting certain non-GAAP financial measures.
References during today's call to adjusted EBITDA, adjusted EBITDA margin 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 Sabre Dot com.
Participating with me are Kurt Eckert, 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'll turn the call over to Kirk.
Thank you, Brian Hello, everyone and thank you for joining today's presentation.
Kurt Eckert: I'm pleased to share that the sabre team delivered significant commercial operational and financial achievements in the third quarter.
Earlier today, we reported third quarter results that highlight the progress we are making toward our key strategic and financial priorities.
We delivered steady year on year revenue growth.
A significant increase in adjusted EBITDA.
Continued margin expansion and positive free cash flow.
We are on track to more than double adjusted EBITDA from 2023 to 2025.
Supported by the continued execution of our growth strategies.
Speaker Change: A strong focus on cost management, and the realization of cost savings objectives tied to our technology transformation.
Speaker Change: I commend our team members around the world for their commitment to innovation.
And their dedication to our customers.
Speaker Change: Turning to slide for you.
You can see an overview of the topics that Mike and I will cover this morning.
First I will review, our third quarter business highlights, including our financial performance then.
Then I will provide an overview of the progress that we've made on our growth strategies.
Finally, Mike will take you through our third quarter financial results.
Particularly in corporate travel, where we hold the leading position.
Speaker Change: <unk> corporate volumes grew between 3% and 4% in the quarter.
We will shortly talk about specific commercial wins that are driving these results.
And we expect to achieve further air distribution industry share gains from our strong commercial pipeline and.
And contract wins that have yet to be implemented.
Speaker Change: Turning to slide nine.
Hospitality solutions revenue increased to $84 million, a 7% year on year improvement.
Representing the highest quarterly revenue and segment history.
Speaker Change: The increase was driven by higher overall customer deployments.
<unk> growth in Crs transactions, and a favorable mix within our customer base.
Strong revenue growth contributed to a 67% improvement.
And our adjusted EBITDA to $11 million with the business expected to continue building momentum in the quarters to come.
Our Hyatt implementation remains on track <unk>.
Speaker Change: Prospectively, we expect both double digit transaction and revenue growth.
Speaker Change: And we expect to achieve our full year adjusted EBITDA target of nearly $40 million in 2024.
And nearly $70 million in 2025.
Please turn to slide 10.
Speaker Change: During Q3.
We continue to invest aggressively in our six growth strategies and I am pleased to share with you. The progress we have made starting with sabre mosaic.
Please turn to slide 11.
Super Mosaic is designed over time.
To replace and modernize traditional PSS systems.
Speaker Change: This AI powered technology platform designed to modernize travel retailing.
Speaker Change: Okay.
Speaker Change: We believe we are well positioned to achieve at least 100 basis points of share gains on an annualized basis by the end of 2024.
And annually for the foreseeable future.
Hotel distribution experienced strong growth in the third quarter with bookings up 9% year on year.
In our hotel attachment rate relative to air bookings increased approximately two percentage points year on year.
Speaker Change: We believe there is significant opportunity ahead to drive strong growth in hotel distribution.
And our confirm our digital payments business, we realized significant contract wins, including Priceline, a leading OTA.
And for a long Fox the largest corporate travel agency in Argentina.
These wins and continued growth in virtual card deployments support our belief.
That our payments business will deliver meaningful long term revenue growth.
Speaker Change: Within it solutions in addition to the progress with say for mosaic.
We signed and implemented an important agreement with air Serbia.
Establishing sabre as an <unk> provider.
Last as mentioned earlier, we are gaining momentum in our hospitality solutions business.
Speaker Change: Crs renewal stand above 90%.
Speaker Change: And we are driving strong growth in <unk> retailing.
Where adoption has doubled since the beginning of the year.
Speaker Change: In summary.
We remain focused on these strategies and are building a strong foundation for long term sustainable growth.
I will now hand, the call over to Mike to walk you through our financial performance and forward outlook.
Thanks, Kirk and good morning, everyone. Please turn to slide 14.
We achieved a number of important financial objectives in the third quarter.
As you can see we generated year on year revenue growth and delivered solid cost management that resulted in higher margins and strong flow through to the bottom line.
Your EBITDA margin from 15% in Q3, 2023% to 17% in the third quarter this year.
Lastly, we generated free cash flow of $8 million in the quarter and ended with a cash balance of $690 million.
Speaker Change: Turning to slide 17.
Regarding guidance for the fourth quarter, we expect revenue of approximately $715 million and adjusted EBITDA of approximately $115 million.
Speaker Change: We expect to generate greater than $80 million of free cash flow in the fourth quarter and expect to be positive for the full year 2024.
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.
For the full year 2024, we now expect revenue of approximately $3 billion $30 million and adjusted EBITDA of approximately $515 million.
As we exit 2024, we have strong momentum in a number of our important business drivers and believe we are on track to achieve our 2025 targets of greater than $700 million, and adjusted EBITDA and greater than $200 million and free cash flow.
Speaker Change: Turning to slide 18.
Speaker Change: We believe the path we are pursuing has the potential to create significant long term shareholder value.
Target investments, we are making in our six growth strategies, coupled with prudent cost management have driven and we expect will continue to drive meaningful increases in adjusted EBITDA and free cash flow.
We believe our anticipated earnings improvement has the potential to increase enterprise value over the long term.
Speaker Change: As we prioritize utilizing expected free cash flow to pay down debt, we believe that overtime will comprise a smaller proportion.
And equity a larger proportion of our enterprise value further enhancing shareholder value.
Speaker Change: And with that operator, please open the line for questions.
Thank you at this time, we will conduct a question and answer session to ask a question you will need to press star one on your telephone and wait for your name to be announced to.
Speaker Change: Withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Josh Baer of Morgan Stanley. Your line is now open.
Great. Thank you for the question I guess wanted to dig in maybe to the revenue.
And sort of talking about small differences across several lines, hoping to get a little more color for.
The revenue Miss versus the guidance there and then.
What I'm looking at it solutions growth down after growing last quarter just wondering.
Even though like passengers boarded was flat.
Like last quarter, you had passengers boarded down but that segment still grew so maybe we can start there with overall revenue in it solutions dynamics.
Yes. Thanks for the question you know what I would say in terms of our revenue differences versus the 775.
There is no discernible trend or anything really notable.
Speaker Change: Specifically to call out versus our internal expectations. It really wasn't an aggregation of what I'd call. Some very small differences for example.
Our our air distribution bookings fell short of our internal expectations by 200000 bookings on a $79 million.
Speaker Change: Base.
Speaker Change: And so thats $1 $2 million of the $10 million difference and there is an aggregation I would say a small differences like that that's some to $10 million.
Speaker Change: Now with regards to <unk>.
It solutions, we've talked about in prior quarters. It solutions with generally in line with where we expected we expected it to be as we've talked about in prior quarters.
Roughly in the 140 to $145 range.
This year.
That's about where we're landing.
Speaker Change: And with regard to year over year. There was some in period revenue last year associated with D migrated carriers.
Speaker Change: Not attributable to PBS that didn't necessarily repeat this year now as we look forward.
A couple of things that I would say with regards to airline it specifically as we've talked about.
We believe we have stabilized that business we think.
The baseline at this stages in that $140 million to $145 million range on a quarterly basis, but what I would say is as we are now getting past the impact of D migrated that they might do migrations two things will happen youll start to see the benefit of PB growth come through but the other thing is as you know as we've known.
Speaker Change: We've had significant commercial wins over the last several quarters.
As far as it goes with airline.
Speaker Change: That goes to mosaic.
Speaker Change: You saw.
<unk>, Australia announced the full offer order suite in working with US on that you see Riyadh on the offer side and what so what I'd say is as you look at the next few quarters going forward, we're probably in the $140 million to $145 million range, but at some point during 2025 I expect it to start to inflect up.
Meaningfully and start to see more growth in that revenue stream.
Great that is helpful. And then the other topic just wanted to ask about is free cash flow.
You have EBITDA up considerably year over year Capex is about the same I think just hoping you could talk about some of the moving pieces in working capital and the Delta between.
The trajectory of EBITDA that we've seen this quarter and so far this year in free cash flow and what gives you confidence in getting to the positive mark for the full year like basically the big Q4. Thanks.
Speaker Change: Yes.
First I would just highlight Q4 is typically our seasonally strongest free cash flow.
And so.
What you what we see in terms of.
Q4 is aligned with our EBITDA, our working capital and the trends that we're seeing so it does give us a high degree of confidence I would remind you. If you go back and you replay the earnings calls from last year last year, we have generated about $150 million, one time benefit from our working capital.
<unk> off the balance sheet. So now we are lapping that and so you don't get that same benefit.
Speaker Change: This year. So those are the big differences year over year, but as we move forward I would say and we go into 2025 like I said, we've for 'twenty 'twenty four we expect to be breakeven, we expect to generate greater than $80 million in Q4 of this year.
And next year, we feel very very <unk>.
Much on track with our target of greater than $200 million next year.
Speaker Change: Great. Thanks.
One moment for our next question.
Our next question comes from the line of Jed Kelly of Oppenheimer <unk> Company. Your line is now open.
Jed Kelly: Hey, great. Thanks.
Jed Kelly: Thanks for taking my question.
And in your prepared remarks.
Air distribution is building momentum into 2005.
Jed Kelly: Should we expect like a slight reacceleration in that segment going into next year in order to hit that guidance and then can you just talk about the overall travel environment, where.
Where we are where you think we stand.
Jed Kelly: Into the next next.
Jed Kelly: Next year. Thanks.
Yes, with regard to air distributions booking first thanks, Jed and with regards to air distribution bookings.
Speaker Change: I'd remind you is over the last.
Speaker Change: Few months, you've heard sabre announced significant commercial wins.
World travel, we announced another one of the largest domestic agencies that hasnt been announced enter park Triple a new agency win last quarter in Spain and France.
Speaker Change: We've had significant progress on MDC. So my point on all of that is those are recently agreed to agreements we do not yet have the benefit of most of that in our air distribution bookings, so with that what I would say and I'm not going to go too much into 2025 on this call I'm going to save that for February, but what I will.
Jed Kelly: Would say is as we.
Jed Kelly: We feel very confident very very confident that as we move into 2025 youre going to see the benefit of those agreements that we've reached and youre going to see a meaningful acceleration from share gains and our air distribution bookings.
Yes with respect to the environment.
Obviously, there has been.
Sort of mixed macroeconomic news globally.
Demand both in corporate and leisure remains pretty strong across all geographies.
Jed Kelly: Geographies.
We're not seeing any real meaningful downward pressure there obviously are some supply constraints on air.
That is not meaningfully impacting our business just.
Jed Kelly: A very small impact.
Speaker Change: Got it and then just as a follow up.
Just with the new wins, it kind of looks like.
And if we look at it.
Cost of revenue was about call it 57, 5% of.
Distribution revenue are these new wins are in a more high volume, where they might put a little bit of pressure on the gross margins can you just talk about that dynamic.
Yeah. Thanks, Thanks for that Chad.
Speaker Change: As I mentioned, the new wins that we've seen are largely not yet in our air distribution bookings and largely not yet in our results what I would say as you look at gross margin overtime or look at cost of revenue give or take around the 40% range.
What I would say as we move forward I would expect that gross margin would likely remain around 60% in cost of revenue would likely remain around 40% now if you look at quarter by quarter. It gets lumpy because there's different types of incentives that get paid from time to time in different thresholds to get hit if I look at the prior two quarters, we had revenue.
Speaker Change: Are you growing faster.
Faster than.
And then cost of revenue and.
Speaker Change: And so I think you have to look at this over an extended period of time, but what I would say is if you. If I were to foreshadow I would expect us to still have a cost of revenue of roughly around 40% as we move forward over the longer term.
Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Our next question comes from the line of Victor Tsang of Bank of America. Your line is now open.
Hi, good morning, Thanks for taking my questions a couple if I may.
Can you maybe give us some color as well on how you guide to Q4 was a bit of a lower revenue.
Jed Kelly: Growth.
And the bookings performance Q4 to date.
I think there seems to be a technician.
Kitchen frontier loss.
Jed Kelly: If of course of that is there any specific reason.
Jed Kelly: Is it down to you know on favorable economic terms and some of the rationale.
Jed Kelly: Around that.
Speaker Change: I have more follow ups.
Speaker Change: Sure Yeah. Thank you Victor.
With respect to Q4 and booking trends so far I would say what we're seeing our trends are relatively consistent with what we reported for Q3.
Speaker Change: Nothing substantially different.
Speaker Change: <unk>.
As we look at Turkish and content generally.
We obviously did not reach agreement on mutually beneficial terms with Turkish and.
And therefore as you indicated we don't have the content of Turkish currently.
Speaker Change: As we've said previously we went to great lengths in our discussion with Turkey is to reach a new agreement for both traditional and NBC content.
We're disappointed that they were unwilling to consider terms that would allow us to meet the needs of the ecosystem travel agencies et cetera to compete fairly for their business and so we've got the challenges that this brings to the ecosystem.
That said, we believe that the fully integrated breadth and depth of travel content that we have brings immense value to all parties in the ecosystem and we hope to reach agreement with Turkish.
Speaker Change: In the near future.
I would mention the Turkish is a carrier with a relatively smaller home market. So the value of the distribution. We bring we feel is tremendous.
But we feel very good about our competitive position overall.
Very clear and maybe if we talk about revenue per booking seems to be growing a bit slower than previously.
Normalized kind of revenue per booking going forward.
Any kind of implications or impact from pricing and mix or MPC going forward and maybe last question is with regards to 'twenty five outlook, obviously you talk about.
Speaker Change: Confident on over $700 million EBITDA in 'twenty five.
Speaker Change: But I guess, if I look at the bridge that you had and kind of last year.
Speaker Change: And.
Now we're experiencing some GDS volume growth I guess that will bring you maybe closer to 750 or 800, depending on the share gains you have.
Speaker Change: With that breach is that still a realistic goal.
Speaker Change: So on the average booking fee I'll start with that so.
So if you look at it if you move forward just sequentially. It looked at the fourth quarter I would expect in the fourth quarter for your average booking fee to tick back over $6.
And there's a couple of things there first there is a small portion of revenue and distribution, that's actually somewhat fixed and seasonally you generate less bookings.
Speaker Change: In the fourth quarter, so that obviously.
It helps create a little bit of an upward trend seasonally the second thing is which is also tends to be a seasonal impact you have a lot of you.
Your Asia grew bookings that tend to have lower booking fees. So as I look to Q4, I would expect that the average booking fee would be comfortably over $6.
As I look forward beyond that I would say that I would expect our average booking fee without getting into too much detail on 2025.
To be in that in that $6 range.
Now with that being said said with regard to our 2025 outlook.
I'd remind you on our February earnings call.
We broke out a bridge for 2025.
We highlighted from 2023 to 2025.
Speaker Change: We would generate around $250 million of cost efficiency.
Speaker Change: Partly from our tech transformation as well as other cost initiatives and $115 million.
Speaker Change: Of strategic from.
Speaker Change: Our growth strategies as we look at 2025 as I've articulated we feel very confident that we're on track for greater than $700 million of adjusted EBITDA and greater than $200 million on free cash flow I would highlight that.
Commercial wins, we have are part of our six growth strategies that Curt has articulated and that's included in that $115 million of strategic growth initiatives that we've outlined now I would also highlight that our baseline assumption separate from our growth initiatives is for flat to moderate.
Speaker Change: Industry.
Air bookings GDS air bookings growth.
Should that prove to be more favorable as.
As we've articulated each point is worth about $13 million to adjusted EBITDA. So we think there is certainly potential to do better than $700 million, but at this stage I would say, we're very much on track toward our $700 million goal.
As a reminder to ask a question. Please press star one on your phone and wait for your name to be announced.
This concludes the question and answer session I would now like to turn it back over to Mr. Craig <unk> for closing remarks.
Craig: Thank you very much operator first of all I'd like to.
Have a moment of silence on behalf of my New York Yankees.
Tough game last night seriously.
Speaker Change: We're happy with the progress, we're making as Mike indicated we felt very much on track for the strategic transformation of Sabre and we look forward to continuing to talk to you in future quarters about this so thank you and happy Halloween.
Thank you for your participation in today's conference. This concludes the program you may now disconnect.