Good morning and welcome to the American Express Global Business Travel Third Quarter 2024 Earnings Conference Call. As a reminder, please note today’s call is being recorded. I will now turn the call over to the Vice President of Investor Relations, Jennifer Thorington. Please go ahead.

Hello and good morning, everyone. Thank you for joining us for our third quarter 2024 earnings conference call. This morning, we issued an earnings press release, which is available on sec.gov and on our website at investors.amexglobalbusinesstravel.com. A slide presentation, which accompanies today’s prepared remarks is also available on the Amex GBT Investor Relations webpage. We would like to advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including industry and macroeconomic trends, cost savings and acquisition synergies, 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 and other risks and uncertainties is contained in our earnings release issued this morning and our other SEC filings. Throughout today’s call, we will also be presenting certain non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, free cash flow and net debt. All references during today’s call to such non-GAAP financial measures have been adjusted to exclude certain items. Definitions of these terms and the most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the supplemental materials of this presentation and in the earnings release. Participating with me today are Paul Abbott, our Chief Executive Officer and Karen Williams, our Chief Financial Officer. Also joining for the Q&A session today is Eric Bock, our Chief Legal Officer and head of global M&A. With that, I will now turn the call over to Paul. Paul?

Thank you, Jennifer. Welcome to everyone and thank you for joining our third quarter 2024 earnings call. In the third quarter, we continued to drive strong momentum and deliver strong financial results. Our focus on controlling costs and driving operating leverage drove impressive adjusted EBITDA growth with significant margin expansion, giving us confidence to narrow the range and reiterate the midpoint of our full year adjusted EBITDA guidance. Increased demand for our software and services resulted in continued share gains. We have sustained our pace of new wins, and importantly, maintained our very high customer retention rate. Continued free cash flow acceleration remains a very important focus for the company. Our strong third quarter results give us the confidence to raise our full year free cash flow guidance once again. We have previously talked about our capital allocation strategy and I am incredibly pleased with our progress on executing exactly what we said we would do. We have significantly reduced the interest we pay on our debt, continued to deleverage, and strengthen the balance sheet. And we are in a strong position to continue investing in growth and productivity gains, and finance the closing and integration of the CWT acquisition. This significant progress in our financial performance has brought us to an important milestone, returning cash to shareholders. During the quarter, as we previously announced, we executed our first share buyback. And today, I am pleased to report our Board of Directors has approved a new, larger share buyback authorization. Turning to some of the highlights of the third quarter, we continued to execute on our strategy and deliver strong financial results with significant adjusted EBITDA growth. Starting with transaction growth, transactions were up 5%, driven by increased demand for business travel and our share gains. TTV grew by 9%…

Thank you Paul and hello everyone. I have previously talked about my three key priorities when it comes to managing our financial performance, and as a reminder, they are; accelerating cash flow generation, driving operating leverage and continued margin expansion, and importantly, creating capacity to invest and drive long-term sustained growth, both organically and through strategic M&A. And again in the third quarter, I am really happy with the progress we have made in all three of these areas. So, now, let’s turn to our financial performance in more detail. Revenue reached $597 million, up 5% year-over-year. Although revenue growth was more consistent with the first half of the year and transaction growth did not accelerate as much as we expected, we still delivered adjusted EBITDA in line with our expectations, thanks to our rigorous cost control. And importantly, free cash flow exceeded our expectations. Revenue yield, which we define as revenue divided by TTV, was 7.7%. As a reminder, our revenue model is driven by 50% transaction volume, 30% TTV and 20% product and professional services revenue. So, only 30% of our revenue benefits from higher air and hotel pricing. And so, it’s important to highlight as TTV grows faster than transactions, as we saw in the quarter, it has a negative impact on the yield metric. The 30 basis points year-over-year decline was very much in line with our expectations. And I encourage you to look at our overall yield performance on an annualized basis, which we expect to be down 15 to 20 basis points for the full year. This reflects the non-TTV-driven components of the revenue base and continued shift to digital transactions, which has a positive impact on adjusted EBITDA margin. And as previously discussed, there is seasonality in our yield, with Q4 being our…

[Operator Instructions] And our first question comes from Peter Christiansen from Citi. Peter, please go ahead, your line is open.

Thank you. Good morning. Thanks for the chance to ask questions. Karen, really impressive on the free cash flow generation here. If we think about current run rate, and I guess, on a stand-alone basis, do you think that we should rank cost savings as a potential to increase the free cash flow yield or the free cash flow margin further? Or is it more a function of finding working cap efficiencies or even CapEx efficiencies considering that you still are investing, granted, I recognize this is on a stand-alone basis, but it would be good to get a sense of the runway you see for free cash flow expansion going forward? Thank you.

Yes, Pete, thanks for the question. So, certainly, my expect -- we're very happy, I would say, first off, in terms of the momentum that we're continuing to see. And our profit growth in terms of that continued margin expansion, given our focus around cost will continue to be a big component. But to your second point, as you think about the CapEx side, as we focus in terms of really that productivity and making our CapEx spend go further in terms of the investments that we're making from AI and just that productivity, that will also contribute in addition to just continuing to chip away in terms of the interest expense. And you heard us on this call in terms of -- obviously, we have the refinancing, but there's further reductions in terms of that interest expense given some of the swaps that we've done from a derivative perspective. And so again, we feel good about that.

That's fair. Thank you. That's helpful. And Paul, I wanted to ask about SME on some of the activity, we obviously slowed down in the last two quarters. Just curious if you're seeing that broadly across, I guess, all industry verticals? Or are there certain soft areas that we should be mindful of? Thank you.

Yes. Thanks for the question, Pete. I think if you look at the SME growth rate in the quarter, it did actually move up a point versus last quarter, still below global multinational. But hopefully, that is a kind of stabilization of the decline that we've seen over the last -- decline in the growth rates over the last few quarters. And I think as I said last quarter, if you look across different industries, it's very well reported that small, midsized businesses have certainly been feeling the pressure of higher prices and obviously, much higher interest rates. And so now that we're seeing interest rates gradually move down in the Eurozone and the U.K. and the U.S., hopefully, we can keep inflation under control and those interest rates continue to decline, we think that will improve confidence with small to midsized businesses as we go into 2025. If you look at -- I think I shared this data point before, we look at the Amex card spending with small businesses across a very large base in the U.S., that card spending also stabilized in the third quarter. So, I think hopefully, we're seeing that stabilization. And as the macro conditions improve and interest rates continue to move down, we'll start to see a gradual improvement.

Super helpful. Thank you, Paul, thank you, Karen.

The next question comes from Duane Pfennigwerth from Evercore ISI. Duane, your line is open, please go ahead.

Hey, thanks. Nice operating leverage this quarter. But just curious about the spread between TTV growth and revenue growth. Is that at all a function of your customer mix? Is this about large multinationals growing faster than SMEs? Is that part of the driver?

Duane, thanks for the question. And see, it is higher than what we have traditionally seen in terms of that spread, although when you look back to Q1, it's very much in line with what we've seen. And really, what we're seeing drive this is essentially a component is being driven by the international mix, but then also price, if you think about more at the front of the plane that is really helping in terms of that. What I would say as well, Duane, is just remember in terms of the TTV growth, it's -- from a revenue perspective, it makes up 30%. And so you have that denominator component the numerator component that can skew it.

Thanks. And then just maybe you could expand a little bit on the drivers of improved free cash flow, and I appreciate the detail you gave us in the presentation. But specifically, what is driving lower investment this year? Is it -- should we think about it more as timing or projects that you're no longer pursuing, but just any more detail on the drivers of the improved free cash flow outlook? Thank you.

Yes, sure, Duane. So, it's primarily driven in terms of the interest expense. So part of it is just as a result of the refinancing, and you'll see that the interest expense in the quarter was significantly lower because you had the accrued interest in the second quarter. So, that is the biggest driver. In terms of the CapEx spend, -- we are still investing. We haven't changed in terms of -- or shifted our priorities in terms of those investments. It is a mix of us just being -- continuing, as I just talked about earlier on the call, continuing to be very focused in making that those dollars go further in terms of productivity saves, low-cost locations and such in terms of where we're hiring some of those roles. In addition to there is a small component of just phasing, but it's much more about the interest expense story.

Got it. And then maybe just one last one, and this is a question we got from a client this morning. Just thinking about the timing lag between your transactions and when that sort of business travel is actually consumed. We tend to think about business travel as fairly close in within a week or two. So, is -- would you say that your 3Q transactions are representative of activity in the third quarter and consumption in the third quarter? Or do you view it as leading in nature at all?

Ni, you're right. It's a pretty tight window between actual transactions and travel. So, you should certainly think about our transaction performance relating to activity in July, August, and September.

Thank you.

[Operator Instructions] The next question comes from Lee Horowitz from Deutsche Bank. Lee, your line is open, please go ahead.

Hi thanks. So, maybe sticking with the SME growth for the year. It's obviously a bit constrained by the macro environment. I guess as we look out to next year and beyond, thanks to reason that maybe a healthier backdrop would drive SME demand to be stronger than it is this year and perhaps grow more quickly. Is SME returning sort of the base lever that gets you from the low end of your long-term range that you're going to deliver this year versus touching up near the high end?

Yes. Look, I think that's fair. I think macroeconomic conditions would obviously help across the base. But certainly, I do think that the SME segment is more sensitive to those conditions. So, I think you will see an improvement in, I think, the SME growth rates in the fourth quarter. And Karen referenced some of the investments that we've made in the second half of this year in order to accelerate our SME growth rates. We've made further investments in our SME sales and marketing channels that we think will also help in terms of share gains and growth rates as we move into 2025. So, it's not all about the macro conditions. We obviously have to focus on the things that we can control, and that's making sure that we're driving greater productivity and greater results from all of our SME sales and marketing channels as well. But I think your question is a good one. It's definitely a lever for us as we look into 2025.

Great. Thanks. And then we've been talking a lot about your ability to leverage generative AI across your cost base, highlighted about 70%, I think, of costs. I guess at this point, can you -- you gave some nice metrics on time savings and the things that you've been able to achieve there. But any quantification of how much time or cost you've actually taken out of the business by leveraging these technologies to-date? And what you think the opportunity is going forward? Like how much of that 70% of your cost base can you actually affect real cost change going forward?

Yes. Look, I think if you look at our margin expansion opportunity, we see it as a significant continued runway for margin expansion. I think Karen has mentioned before, 100 basis points per annum minimum moving up to the mid-20s. And we do see automation broadly playing a critical role in that. It's not just about AI. We have RPA that we're using in certain parts of our business. We have moving transactions to our software platforms, which is taking demand out of the voice channel into our digital channels where we have a higher margin and a higher ROI. And it's also then using AI and using generative AI in different use cases across the business. So, I think it's tough to put a dollar number specifically on generative AI use cases. But I think the best way to look at it is it's a very important lever to help us deliver that continued margin expansion that we've committed to. And look, you see it in the third quarter, you see 300 basis points of margin expansion year-over-year. You see 1% growth in OpEx versus 5% growth in revenues. But we're also in parallel with that, investing more in the business, investing more in our AI capabilities, investing more in our SME growth channels, investing more in our software platforms. So, that operating expense is coming through productivity gains, not through investment reduction. It's coming through productivity gains that are being driven significantly by a series of different automation levers, including AI.

Helpful. Thank you.

[Operator Instructions] As we have no further questions, I'll hand the call back to Paul Abbott.

Well, thank you to everyone for joining us. I want to finally kind of thank our team for their dedication to our customers and the very strong results that they've delivered again this quarter. We remain very confident that 2024 is going to be another year of growth, share gains, continued margin expansion, accelerating cash flow, which, of course, is enabling us to return more cash to shareholders. So, thank you very much for joining us today and your continued interest in American Express Global Business Travel. Thank you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.