Good morning and welcome to the Sabre's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Olivia and I'll be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to the Senior Vice President of Investor Relations and Treasurer, Brian Evans. Please go ahead, sir.

Thank you and good morning everyone. Welcome to Sabre's fourth quarter and full year 2023 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 this call on the Sabre Investor Relations webpage. A replay of today's call will be available on our website later this morning. We advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including the effects of cost efficiencies and growth strategies, distribution volumes, benefits from our technology transformation, commercial and strategic arrangements, our financial guidance and targets, expected revenue, adjusted EBITDA, free cash flow, interest, capital expenditures, margins, and liquidity among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 10-K for the year ended December 31st, 2023. 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, adjusted EPS and free cash flow have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and on other documents posted on our website at investors.sabre.com. Participating with me are Kurt Ekert, President and CEO; Mike Randolfi, Chief Financial Officer; Scott Wilson, Executive Vice President 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?

Thanks Brian. Good morning everyone and thank you for joining us today. I'm pleased this morning to discuss the many accomplishments of the Sabre team. Earlier today, we reported our fourth quarter and full year 2023 results that included strong revenue growth, significant margin expansion, and substantial increases in both adjusted EBITDA and operating cash flow, which allowed us to achieve our free cash flow objective for the year. In addition to reviewing our financial performance, I will also spend time highlighting the recent achievements in our technology transformation, our many commercial wins, and our product innovations that help position our portfolio for the future of travel, while helping to deliver sustainable growth. Now, let me walk through the agenda for today's call. On Slide 4, you can see an overview of the topics that Mike and I will cover. First, I will review our business highlights and accomplishments from 2023. Next, I'll provide a brief overview of how the industry landscape is evolving. Finally, before handing it over to Mike, I'll close with a review of our growth strategies and how we believe they position Sabre for success. Mike will then take you through the financial results for the fourth quarter and full year 2023 and provide an update to our 2024 guidance and 2025 targets. Now, let's turn to Slide 5. 2023 was a year of strong execution at Sabre. Our team members around the world delivered the commercial, operational, and product development success that drove the strong financial results depicted on this slide. We generated 15% topline growth in 2023, improved our efficiency and effectively contained costs. These achievements combined to drive significant margin expansion and growth in adjusted EBITDA with a $272 million year-on-year improvement. Importantly, our team achieved positive free cash flow, excluding restructuring for…

Thanks Kurt and good morning everyone. Please turn to Slide 14. I'm pleased to share our 2023 accomplishments that highlight the dedication and hard work of our Sabre team members. As Kurt mentioned previously, we achieved our free cash flow objective for the year on solid revenue growth, effective cost management that led to significant margin expansion, and working capital initiatives that delivered meaningful cash flow benefits. With the actions we have taken, we have developed significant operating leverage in our business that is allowing strong flow-through of topline revenue to the bottom-line. To illustrate this increase in operating leverage, note that in the fourth quarter and in the second half of 2023, we saw adjusted EBITDA grow at a meaningfully greater rate than revenue. For the year, Sabre generated a substantial improvement in both cash from operations and free cash flow. Our distribution business generated a 27% year-over-year increase in revenue on 18% more bookings and solid improvement in our average booking fee. Hospitality Solutions achieved better financial results, faster than we had anticipated on strong growth in CRS transactions and higher average revenue per transaction, driven by strong growth in ancillary sales. This led to an approximate $40 million improvement in adjusted EBITDA in 2023 versus 2022. In addition, we are pleased to have refinanced the vast majority of our 2025 maturity. Please turn to Slide 15. I will now briefly review recent GDS industry booking trends. During the fourth quarter, we experienced softness of GDS bookings late in the year below our expectations. We believe this is largely attributable to the slowdown in corporate travel in Q4, as Kurt mentioned earlier. Despite this, I'm pleased to share that we are seeing significant improvement in GDS volumes and GBS market share performance year-to-date. Now moving to the table.…

Certainly. [Operator Instructions] And our first question coming from the line of Josh Baer from Morgan Stanley. Your line is open.

Great. Thank you for the question. Thinking about what 2025 EBITDA margin could look like if you make some assumption on the EBITDA contribution from growth strategies and gross data, you might get to like $3.5 billion, $3.6 billion in revenue in 2025, with $700 million EBITDA. So, talking about 20% or slightly below margin, high teens, and that's lower than the EBITDA margin from 2019, but 2025 has the cost savings from a successful tech transformation in all the rounds of layoffs and focus on efficiency. So, with just cost of compute down and kind of success on the tech transformation, I guess the question is just why is margin, why could margin be lower in 2025 versus 2019?

Thanks for the question, Josh. This is Mike. First, we haven't given more recent update on margin guidance. But if you go back to what we had previously stated in prior earnings calls, we had talked about the adjusted EBITDA margin being essentially in the range by 2025 of 2019. We actually still would think that is the case. We think we'll still be roughly in that range for 2025 compared to 2019. And you really see a lot of the growth initiatives that we're generating have really strong flow-through to the bottom-line. So, if you look at what we're doing, both in terms of cost. There's really strong flow through in the bottom-line. You could tell by the math we presented. We had a 12% margin on adjusted EBITDA in 2023. We see that expanding to 17% based on the guide that we gave today. And we would also expect continued margin expansion from 2024 to 2025 because the initiatives that we're pursuing actually have really strong flow-through to the bottom-line. So, we still think we'll be roughly in the range in 2025 of where we were in 2019.

Got it. Thanks Mike. And then maybe just 1 more on sort of the CapEx free cash flow side. Talk a little bit more about where the $100 million in CapEx dollars are going to be going towards over the next few years? Just a little bit surprised with that level of CapEx and that I think it's higher than what we've seen in the last three or four years. But then again, like you're going to be out of your data centers and not spending on server and network equipment some more kind of context on that CapEx spend and how that contributes to the free cash flow targets? Thank you.

Yes. No, thanks for the question. And by definition, our capital expenditure is almost primarily R&D. It's essentially capitalized labor for software development. And we have been very strategic and we're thinking beyond 2024 and 2025. And as we've looked at driving our strategic growth initiatives forward. There were investments that we thought were really important to make over the course of time. And it's really focused on supporting the growth -- the six growth strategies that Kurt outlined earlier, investment in our multisource content platform, investment in distribution expansion, investment in our hotel B2B distribution, further investment in digital payments. On the next-generation airline IT, you see a lot of progress on airline retailing products. There's continued investment in there that we stepped up as well as Hospitality Solutions. So, we really focused on leaning into our six growth strategies. We think that's going to have legs well beyond the period we're talking about here.

Got it. Thank you.

Thank you. And our next question coming from the line of Jed Kelly with Oppenheimer. Your line is open.

Hey great. I joined the call a little late. Just a couple of questions for me. If we just look at like the overall trajectory of GDS growth kind of where it was versus 2019, can you kind of dig into that more? Is that more of capacity? Or are we starting to see an impact from NDC? And then can you mention how you plan to manage some of your upcoming converts that are due? Thanks.

Jed, thank you for the questions. I'll take the -- this is Kurt. I'll take the first piece and then let Mike deal with the converts. When you look at the overall GDS industry, it's recovered to somewhere in the low 70s on a percentage basis versus 2019. Reminder that our number now excludes Expedia, which migrated off of us during COVID. As I described in my prepared remarks, and Jed, you may not have heard them, I talked about why there has not been full flow-through of industry capacity growth or return to the GDS industry. And I'll go through those very briefly here. Number one is corporate travel is recovered only to about 75% and of its pre-COVID levels on a unit basis. The GDS industry is traditionally a 50-50 corporate and leisure mix. And for Sabre, corporate and TMC comprises a higher proportion of our booking and client portfolio than it does for our competitors. Secondly, if you look traditionally, domestic leisure or short-haul traffic tends to accrue more to airline direct, more complex travel such as long-haul international tends to accrue more to intermediary to the GDS channel. We believe that is still true. If you look at where capacity has been put back during COVID recovery, it has been put back disproportionately on short haul and domestic versus international long haul as compared to the historical proportion of long haul versus short haul. We do not believe that, that is a long-term or permanent trend. So, on each of those, on corporate travel and on short-haul versus long-haul capacity, we're very optimistic about where the industry is headed. Jed, I also spoke about for OTAs, GDSs and Sabre remain the predominant booking channel for OTAs, it remains an important part of our business and we…

Yes. And with -- Jed, with regards to your question on our converts, so a couple of things. I would just first remind you, we ended the year in 2023 with $669 million of cash in our balance sheet. We do expect to generate positive free cash flow this year. We expect that to start building meaningfully in 2025. And so we really see our cash position continuing to strengthen over the course of time. Second, I would highlight, you could see over this past year, we've been very proactive in terms of addressing our maturities and aligning that over time with cash flow generation of the company. And what I would say is you should look for us to continue to be proactive and manage our debt maturities in a way that's most efficient as possible. But beyond that, I wouldn't get into specifics in terms of thoughts around any specific instruments or how we would address it.

Got it. And just one follow-up. I mean, I think typically, before COVID, 1Q used to be the high watermark for EBITDA. Looking at your guide, I don't know if that's going to be the case this year. So, can you just give us a sense on like just the quarterly trajectory, how we should be thinking about the cadence? Thanks.

Yes. So, thanks for the question. So, a couple of things. And in general, you're right, seasonally, first quarter is the strongest volume quarter. Now, there's a couple of things that are helping as we progress through the year. First of all, our growth strategies; Hospitality Solution, GDS expansion, our growth in our payments business, increased hotel attach on air, we see that all building momentum as the year progresses. And so that offsets some of the seasonal difference. At the same time, if you look at -- in our build on 2024, where we have the cost initiatives, about one-third of the $115 million of cost savings that we expect in 2024, about one-third of that is from tech transformation, and we expect that to be realized through the P&L -- I'm sorry, one-third of the $135 million that we expect this year, about $45 million of tech transformation costs, we expect those benefits to be realized in the P&L as the year progresses, and we'd expect them to be greater as we get to the fourth quarter than the first quarter. So, you're right in that the first quarter generally has stronger seasonality but the benefits of our strategic growth initiatives and the tech transformation support higher EBITDA as the year progresses. .

Thank you.

Our next question coming from the line Dan Wasiolek with Morningstar. Your line is open.

Hey, thanks for taking my question. So just looking at the 2025 targets, just want to make sure on the cost efficiencies, $250 million, that's not a change from prior guidance. I believe tech transformation, $150 million and then the cost savings annualized $200 million that's $350 million. So, just kind of wondering if there's been any change with that? And then when you talk about GDS flat phenomenal, I wondering if you can provide any further quantification on what nominal might mean for overall GDS funds that you're incorporating in that $700 million?

Yes, I mean I would start with the last question first. The flat to nominal is pretty darn close to flat, in terms of that baseline assumption. So, that's the way I would think about it. With regards to the cost efficiency bucket, you previously had indicated on our May earnings call last year, that we expected about $300 million in cost efficiency benefits. About $100 million of that was annualization of actions that we -- we're taking in 2023 that would annualize that you get a run rate benefit in 2024, greater than $150 million of that was from tech transformation. And the remainder was some other non-labor cost savings. What I would say is we're on track and more than on track to achieve all of that. However, what occurred in 2023 is we actually realized a lot of the benefits earlier than we expected. We were able to accelerate them. And that essentially was able to offset some of the lower volumes that ensued throughout the year. So, I would remind you that on May when we had our earnings call volumes in terms of industry recovery of air distribution bookings were around 61%. At that time, we had indicated that we expected going forward, 1 to 2 percentage points of sequential air distribution booking volume. That would have had us exiting the year around the mid-60s in terms of recovery relative to 2019. We exited the year at 58% and that difference essentially was offset by accelerated cost savings. So, we are more than achieving the full $300 million that we set out to achieve. But because we were able to complete those actions earlier, the lapping benefit is less on a year-over-year basis.

Okay. No, that's perfect. And then just maybe one more for me. On the revenue per air booking up nicely like you talked about. And it seems like you guys have pointed out some, I guess, potential to be optimistic that kind of that mix benefit that you saw in 2023 might take place in 2024. Is that fair to kind of assume that maybe that revenue per -- that pricing might be enduring maybe in 2024?

Thanks for the question. So, on the average booking fee, I would say, particularly around Q4, I would view Q4 as a high watermark. One, we had a very, very rich -- better than typical mix of bookings traffic in terms of both the mix of carrier and region. We also saw when we saw a pullback in December, in addition to corporate travel, we saw a very big pullback in group bookings. And those group bookings tend to come at a much lower average booking fee. So, when you have the absence of them, it causes a skew up in booking fees. Now, what I would say is as we've come into the year in January and February, we have seen a significant step-up in our air distribution bookings as we've seen strength in corporate bookings, and we've seen a resumption in air distribution bookings from group bookings. And so because group bookings are a lot stronger as we've entered the year, we would see -- we would expect to see that the average booking fee to moderate somewhat from the 609 that we saw in the fourth quarter.

Okay, perfect. Thanks guys.

Thank you. And our next question coming from the line of Alex Irving with Bernstein. Your line is open.

Hi, good morning. Two for me, please, if I may. First of all, just thinking about your GDS unit booking fee. That was up 9% year-on-year in the third quarter and 11% in the fourth quarter. What's driving that acceleration, please help us to disaggregate into its constituent parts? My second question, more on the cost side of things. Do you have any leeway on travel agent incentives as a lever to reduce costs and improve your EBITDA? Is that something you could cut? Or is it something that you would cut? Thanks.

Alex, thank you -- on the first piece, which is the average booking fee. Remember that's looking at all components of revenue as compared to the units of air booking. And so you have a few things going on. One is the mix of the type of air booking we're getting globally. The other is that as we grow our land, ground, and sea bookings, which grew at a very strong rate through the year. And secondly, with payments, you'll see that accrue in to the average revenue per booking. With respect to the incentive structure, we compete in a vigorous industry economics, which are one of the mechanisms by which we compete, which is a very normal construct for a B2B industry. And we value the business that we get from our buyer or agency customers. So, I'm not going to comment prospectively on the way we view that, other than say, it's a competitive dynamic along with content and technology and product and service.

Thanks.

Thank you. And our next question is coming from the line of Victor Cheng with Bank of America. Your line is open.

Hi. Thanks for taking my question. Maybe first of all, I want to break down a bit more on the corporate travel. I believe we can broadly bucket down to manage corporate travel versus unmanaged corporate travel. And I think managed corporate travel, which is where GDS over-index is -- has been recovering a bit slower. Do you think this is structural or this will reverse over time with more managed corporate travel coming back? And then secondly, can you provide any comments on the high contribution? Is it -- has it started to implement, I think you said in start of 2024, so should we expect some revenue contribution this year? And then finally, you talked about this earlier on the call as well. But on the 2025 outlook about the GDS growth that you're making, can you talk a bit about some of the tailwinds and headwinds because when I think about -- in the last couple of years where it's more domestic and more leisure, that's why GDS growth has been slower versus the air travel. But in the next year or two, should we not expect international and especially corporate to recover more. And so GDS to be recovering in line or at least not flat growth versus the broader air recovery? Thank you.

Victor, thank you for the three questions. This is Kurt. Let me take them in order. First of all, on corporate travel, you're right. What we look at when we talk about corporate travel is largely managed corporate travel, which is what largely transacts through TMCs. And if you look structurally, that's a business that on a unit basis, is about three quarters of the size it was globally versus pre-COVID. If you read all of the analyst reports and you listen to market conjecture, signs are that corporate travel will grow prospectively very well. I believe on a 20-year CAGR, you're proceeding COVID, corporate travel or managed corporate travel had grown basically at 4% to 5% per year to a $1.3 trillion industry. So, again, you'd say structurally today, it's a smaller industry. And the question going forward, will it grow at that historical rate or may grow faster because there's still some recovery left in there. There's a wide range of potential scenarios, and I think that's uncertain, but we're confident that, that growth is going to come. And again, we think we're very well-positioned because we are proportionately more highly indexed against TMC and corporate travel than our competitive peers. With Hyatt specifically, as we indicated, we'll be beginning the implementation of Hyatt in the first half of this calendar year. And we'll see that ramp up, we think, starting in Q2 pretty well going forward. The last question is about headwinds and tailwinds on our 2025 outlook with respect to GDS market growth. As I indicated in my prepared remarks and the question earlier, with respect to both corporate travel recovery prospectively or growth. And two, international long-haul capacity coming back more robustly in the years ahead, we feel very optimistic and confident that we're going to see both of those trends continue. OTAs have obviously performed relatively well during COVID, and I mentioned some level of Direct Connect activity there. But if based on the conversations we're having with this clientele, we think there's recapture and growth opportunity there as well. So, I'd say that a lot of the headwinds that the GDS market has faced, we have faced here through the COVID recovery period. Our hope and our optimism is that we're going to see more tailwinds prospectively than what we've realized in recent years.

Okay. Thank you.

And I see no further questions in the queue at this time. I will now turn the call back over to Mr. Ekert for any closing remarks. .

Thank you everyone again for joining us this morning. We do appreciate your interest in Sabre and look forward to speaking with all of you again very soon.

Ladies and gentlemen, that does conclude conference for today. Thank you for your participation. You may now disconnect.