Good morning and welcome to the Sabre Second Quarter 2024 Earnings Conference Call. My name is Riska and I will 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, Investor Relations and Treasurer, Brian Evans. Please go ahead, sir.

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. 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. 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-Q for the quarter ended June 30, 2024. 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.com. 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 will turn the call over to Kurt.

Thanks, Brian. Hello everyone. I am pleased to share that we delivered another quarter of strategic advancement and success for Sabre driven by the focused execution, hard work and dedication of our team members worldwide. Earlier today, we reported second quarter financial results that exceeded our guidance. We delivered steady revenue growth, a meaningful increase in adjusted EBITDA, significant margin expansion, and we generated positive second quarter free cash flow for the first time in 5 years. This outperformance gives us the confidence once again to increase our full year 2024 revenue and adjusted EBITDA guidance. 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. Turning to Slide 4, you can see an overview of the topics that Mike and I will cover this morning. 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. I will close with a snapshot of two of our new platform product offerings. Finally, Mike will take you through our second quarter financial results and provide an update to our 2024 guidance. Please turn to Slide 5. 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 driven by improved content and higher hotel attach rate. These top line metrics, coupled with strong cost management, drove $129 million of adjusted EBITDA, which was $56 million or 76% above the prior year quarter. Importantly our adjusted EBITDA margin increased by 7 points year-over-year from 10%…

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. 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. The financial results in the first half of 2024 give us confidence to increase both our revenue and adjusted EBITDA guidance for full year 2024 which I will discuss in greater detail shortly. 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. As you can see in the table, we exceeded our second quarter guidance for revenue and adjusted EBITDA and achieve positive free cash flow. The revenue outperformance was primarily driven by a favorable rate mix on air distribution bookings and higher than expected hotel distribution bookings, strong flow through of revenue and lower overall operating expenses drove our adjusted EBITDA beat versus guidance. Turning to Slide 16. Total second quarter revenue was $767 million an increase of $30 million or 4% versus last year. Distribution revenue totaled $551 million a $20 million or 4% increase, compared to $530 million in Q2 2023. Our total distribution bookings were $91 million in the quarter, a 1% increase compared to $90 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. IT Solutions revenue totaled $144 million in the quarter, compared to $140 million in the prior year. Hospitality Solutions continued its strong trajectory with Q2 2024,…

Thank you. [Operator Instructions] Our first question comes from the line of Jed Kelly of Oppenheimer & Company. Your line is now open.

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 with the industry? And then Kurt, 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. 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 we do expect actually to 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. The other aspect with regards to capacity and how we see it affecting Sabre is couple of things. First, keep in mind, even with the capacity reductions, most airlines are still flying about 5% more, or indicating they fly about 5% more, on average, this year, in the second half than last year, 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 ship 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.

Thanks. Jed, this is Kurt on the second question about leisure softness. We saw this broadly across both OTA as well as brick and mortar leisure agencies. On the OTA front, we discussed back in the February call, the increase in direct connectivity 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 connect. 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.

Got it. And then…

What I would tell you is that when we look at Q3 we’ve seen more positive trends. So as we’re 30 days into – 31 days into the new quarter, we’re actually seeing positive GDS market growth, both for corporate and for leisure.

Got it. And then my follow-up is just, just on the hospitality solutions, revenue accelerating you sign some good contracts margins expanding. Can you just talk about how that segment fits into the strategic profile of Sabre and just, is there like potential for it to create higher shareholder value, potentially looking at other strategic alternatives for that segment.

Yes, thanks, Jed. We are, as we’ve indicated, repeatedly now for a number of quarters, our Hospitality Solutions business is on fire. Our products are resonating, 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, doing very well. Our focus is on allowing Hospitality Sto 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 is a very important part of our business strategy.

Thank you.

[Operator Instructions] Our next question comes from the line of James Goodall of Redburn. Your line is now open. James?

Yes. Hi, sorry, sorry everyone. I was on mute. Thanks for taking my question. First one’s just, I guess, on the GDS side of the equation. I was just hoping if you could help square the commentary around the market share gain of 0.2% versus the fact that air bookings were down 1% and your main competitor saw a 3% expansion in bookings. Is that driven by geography? We just love a little bit sort of color there, please. Thank you.

Yes. So first of all, let me just reiterate, in Q2 we gained air distribution industry share for the sixth consecutive quarter. And as we look forward, we’re confident that our share gains will accelerate meaningfully, starting in Q3 and that’s based on significant sign but not yet implemented business, as well as a very rich pipeline. 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 saver share performance. I think what’s going on here maybe an apples-to-oranges comparison, and let me explain so we can see industry MIDT information, which includes all GDS EDIFACT air bookings. We know what our NDC volumes are, 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. We can see that in our – that our competitors in Q2 were slightly below where we were on a year-on-year air distribution volume basis. Specifically, what we’re seeing is that Amadeus numbers for EDIFACT plus NDC distribution are again in the range of and in fact, slightly below where Sabre is on a year-on-year air distribution volume performance, which is obviously different than what they are reporting. So, one possible reason for this is that Sabre does not include NDC IT bookings in its air distribution volumes. For clarity, NDC, it is the technology provided on the airlines side of the NDC API and inside the airline’s technology environment, we consider NDC IT part of our airline solutions, or airline IT business and not part of distribution or distribution volumes. So it may be that others have changed their definition of what comprises distribution volumes, hence comparing apples to what we to what used to be oranges and for us, has not changed. 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.

That makes sense. Thank you, and I guess then just sort of shifting tack onto sort of SabreMosaic, 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 deliver functions. Whereabouts are you with those? Thank you.

Thanks. And great question. So super excited about SabreMosaic, cloud native, fully modular AI infused, really next generation, excellent technology. When you look at SabreMosaic, there are actually 10 product suites that we will at full development, have in place today. We’ve made great progress, predominantly on the offer side. And for example, our retail intelligence suite of products fit in very well in production with some airlines, 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. And in a softening yield environment, these can be very beneficial. 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 in its modularity. It can sit on top of SabreSonic, it can sit on top of a homegrown or any other PSS, and the carrier can also buy this buy component piece. It doesn’t have to buy a monolithic system in this future state. But for order, the typical network carrier has hundreds of applications that hang off of the PSS that they’re using. So there’s a massive change effort that will happen, not only with Sabre involvement, but the airline’s involvement, and most people think that’s a 3, 4, 5-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.

Fantastic. Thank you. And if I could cheekily ask one more you said you’re in late stage, 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 PSS customers, that would be great? Thank you.

I don’t consider cheeky James, if that includes both existing Sabre customers as well as non-Sabre customers.

Fantastic. Awesome. Thanks guys.

Thank you.

Our next question comes from the line of Josh Baer of Morgan Stanley. Your line is now open.

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 how, what portion of that cost of revenues are incentive fee, and how should we expect those to trend going forward in an increasing NDC world?

So, virtually all of the cost of revenue is essentially incentive fee. There is a small portion of sales, salaries that are in there, but it’s all – it’s virtual. Almost all of it is incentive fee. 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% I would expect, as we move forward, 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, the way I would think about NDC is a couple of things. Overall, from what we see so far, what we have experienced in the agreements we have reached, the unit economics are pretty similar on NDC 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 email, 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.

Got it. And we have seen the revenue per booking fee jump up above $6, a couple times now. Is that the right level, or is it closer to the $5.80 region or something else? And if not above $6 just given the mix shift in the types of bookings, is that in part because of NDC weighing on that?

Yes. First, keep in mind, we have had growing NDC volumes over the last year, and in that environment, our booking fee has continued to increase. What I would say is, overall, a couple of things, as we look at, call it, the last couple of quarters, and last quarter specifically, couple of things that have aided our average booking fee. First, we have had a couple of quarters now, where if you look at relative to historical trend, 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. So, as we move forward, I do think we are 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. 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.

Great. Thank you.

One moment for our next question. Our next question comes from the line of James Lee of Mizuho. Your line is now open.

Great. Thanks for taking my questions. Two quarterly questions and one macro question. And one, first on the quarterly, on the margin, obviously, the numbers your guidance are very impressive, congratulations. And can you maybe unpack some of the top drivers you are seeing allow you to drive this EBITDA B2? Secondly, obviously, a lot of people in the airline industry talk about the CrowdStrike issue, just wondering what kind of impact you are seeing in your GDS business. And lastly, on the macro question, I was wondering we can comment about overall business travel environment, given kind of mix economic environment that we are seeing right now. So, we would love to get the state of business travel for you guys. Thank you.

James thanks. Let me take the second and third questions, and I will give Mike back the mic for the third question. So, 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, being a part of the ecosystem and supporting many airlines and other providers, there is a tertiary impact to Sabre, but it’s not material in any way. Secondly, with respect to the business travel environment, what we have seen, and what I think you largely hear from TMCs, 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% per year on a unit basis. And we are pretty bullish that that will be the case going forward. In fact that’s largely what we are 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.

With regard to our B2 and adjusted EBITDA, first, I would just highlight that on revenue, B2 by $17 million. The largest driver of that by far is the average booking fee, which was certainly more favorable than we expected. And then to a smaller degree, as you look at hotel distribution bookings, that exceeded our expectations. I mean that’s up 12%. The team there is doing a great job. And so that helped to support the $17 million of higher revenue. Now, in addition to that, on the cost side, we start – we have realized benefits sooner than expected from our technology transformation. And if you look at Q1, we achieved a lot of our tech transformation milestones. And from that, we have 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.

Great. Thanks so much.

One moment for our next question. Our next question comes from the line of Alex Irving of Bernstein. Your line is now open.

Hi. Good morning. Two from me, please. First on Mosaic and following up on James’ question earlier on. How do you think about the revenue and earnings opportunity here as you begin to implement customers, both gross and net of any replacement of existing Sabre products? And then second, we saw American Airlines and modified distribution strategy in the quarter. How had your conversations with travel agents changed since then? And are their priorities different to what they were about, call it three months ago? Thanks.

Yes. Thanks. And let me take these first on. I think your question was on SabreMosaic, is that the first question?

Yes. Correct, the revenue and earnings opportunity from that.

Yes. So, we actually – we built – we have stabilized the Airline IT business, as you can see with the revenue and the buying performance now. And we have gotten a lot, I think a lot healthier relationships than we had historically, SabreMosaic is getting great resonance in the market. From a near-term standpoint, you won’t see material financial impact here, largely because of 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 is 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 are very excited about that. 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. We think it’s great that they have seen and others have seen the benefits that intermediaries and corporate travel and leisure agencies, etcetera, can bring to them in terms of very qualified, high yield eyeballs. We do think NDC is here to stay. And as we go forward, it will continue to grow. We think we are very well positioned with our NDC connectivity and the functionality we built as part of our multi-source platform, we think is second to none. And so what we are hearing from the large TMC customers, large brick and mortar customers, OTAs, is that the mousetrap we delivered, which they believe will be the best scale model in the marketplace.

One moment for our next question. Our next question comes from the line of Victor Chang of Bank of America. Your line is now open.

Hi. Good morning. Thanks for taking my questions. Maybe going back on the bookings side, I think you have explained a bit about the differences versus Amadeus, but looking at H2 as well, I think Amadeus is dynamically soft to Q3. I think you are saying, you are more confident Q3, Q4 growth. I think you mentioned that some commercial wins, can you talk a bit about that? Is that more on the corporate side or leisure side? And maybe which regions are they from? And then separately, what – 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 in the past couple of quarters, how has that split evolved compared to 2019 levels? And if I think about that actually, if you are higher – if you have a higher corporate mix, and give a more favorable corporate growth going forward, is that what is driving your confidence into H2? And then last question is with regards to just investment, in general, software investment, I think a number of companies within our coverage, obviously report about soft demand for software, particularly in the airlines sector. I think one of your peers talk a lot about airlines being reluctant to spend on new software. Is that what you are seeing as well, maybe longer sales cycle in the hotel and airlines space on the software?

Victor, thank you for all the questions. I am 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. Let me start with the last piece first, which is software demand amongst suppliers. As we indicated, we are seeing robust demand for our hospitality solutions products, and very robust growth there. So, we think into the future, we are going to continue to see 10% revenue CAGR prospectively with expanding margins over the next several years. So, we are very bullish on that space. In the airline solutions space, what we are seeing in terms of the most demand today is for two different areas. One is for our retail intelligence or revenue accretion products, because these can be bolted onto an airline’s existing technologies, speedy solutions. The model there can be gained share and do our license fee. And then secondly, we are seeing a lot of renewed enthusiasm for PRISM, which provides reporting and information on the corporate marketplace to help airlines optimize their corporate performance. So, I would say, while, yes, I have heard that there is relative softness, we have not seen or experienced that. The one thing I would say is with respect to SabreMosaic and the industry transition from PSS onto offer and order, I don’t know that the industry will have converted fully to offer an order by 2030, that’s probably aspirational. We look at this as a much longer horizon. I think you will see offer get traction in the next several years. And again, the order piece is going to take longer. Let me touch on the booking commentary. And I spoke earlier about the apples-to-oranges comparison. Let me just illustrate the…

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 – had a higher corporate mix, if I am correct.

We have I think the highest TMC corporate mix of any of the GDSs, by far. It is a minority portion of our overall booking portfolio, but we are relatively much more exposed to that than our competition.

Understood. Thank you. And maybe if I can squeeze one last one in. On American, obviously, now they are moving content back on EDIFACT and back on GDSs, have you seen some positive effect in July already from that?

Yes, thank you. We are not going to comment specifically on American. I would say, overall, we are seeing improving trends in Q3 both on a market and a share basis for Sabre. And we certainly appreciate the relationship with American.

Got it. Thank you. Very clear.

I am showing no further questions at this time. I would now like to turn it back to Mr. Kurt Ekert for closing remarks.

Thanks everyone for your continued interest. We are excited about the momentum that we are gaining in the marketplace. We look forward to speaking to you again next quarter. Thank you.

Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.