Good morning, and welcome to the Sabre Third Quarter 2025 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 Finance, Roushan Zenooz. Please go ahead, sir.

Good morning, and welcome to our third quarter 2025 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 web page. 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 results of our growth strategies, transactions and bookings growth, commercial and strategic arrangements, the effects of the sale of our Hospitality Solutions business and our financial guidance, outlook and expectations, pro forma financial information, free cash flow, net leverage 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 September 30, 2025. 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, normalized adjusted EBITDA and normalized adjusted EBITDA margin 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. Normalized amounts have been adjusted for estimated costs historically allocated to our Hospitality Solutions business, which was sold on July 3, 2025. We are also presenting certain financial information on a pro forma basis to give effect to the sale of the Hospitality Solutions business and we have removed the impact of the $227 million payment in kind interest that was recorded in conjunction with the refinancing activity in the second quarter of 2025 from pro forma free cash flow. Unless otherwise noted, results presented are based on continuing operations. Participating with me are Kurt Ekert, President and CEO; and Mike Randolfi, CFO. With that, I will turn the call over to Kurt.

Thanks, Roushan. Hello, everyone, and thank you for joining us. Earlier today, we reported third quarter results and provided an updated outlook for the remainder of the year. 2025 has been a dynamic year, and I'm encouraged by recent positive commentary from airlines and believe the broader travel environment is stabilizing compared to what we saw earlier this year. Third quarter operational results met our expectations as we focused on controlling what is within our control. I commend our team members for their continued progress against our strategic priorities, generating free cash flow and delevering the balance sheet and driving sustainable growth through innovation. We delivered positive air distribution bookings growth in the third quarter, driven primarily by strong performance in September. Based on our progress around the implementation of new business and our outlook for the remainder of the year, we remain confident in our ability to continue to drive air distribution bookings growth going forward. We have strengthened our balance sheet by growing adjusted EBITDA, generating free cash flow, extending debt maturities and proactively using cash to reduce debt. We have made significant progress over the last 2 years on our strategy for delevering, and we anticipate reducing our net leverage by approximately 50% by year-end 2025 compared to year-end 2023. While there is more work ahead to achieve our long-term leverage goal, we are proud of the progress we have made. Innovation is key to Sabre strategy, and we have been leveraging AI to transform travel. This quarter, we announced two industry firsts, agentic APIs for travel, enabling a new era of AI-driven retailing and Continuous Revenue Optimizer, an offering within our modular AI-native SabreMosaic platform. Further, our payments business continues to see strong customer demand and is growing at a very healthy rate. We have extended…

Thanks, Kurt, and good morning, everyone. Please turn to Slide 11. For the third quarter, Sabre reported revenue of $715 million, up 3% year-on-year, consistent with our guidance range of low to mid-single-digit growth. Distribution revenue grew $24 million, driven primarily by an increase in air and hotel distribution bookings as well as an increase in product revenue. IT Solutions revenue of $140 million was flat year-on-year as growth from passengers boarded was offset by a decrease in license fee revenue. We continue to expect fourth quarter IT Solutions revenue to remain in a similar range of $140 million to $145 million. On a normalized basis, gross margin decreased 130 basis points in the third quarter versus the prior year. The decrease in gross margin is due primarily to two items: lower-than-expected revenue from certain higher-margin product sales and continued FX impacts of the weaker U.S. dollar, where Sabre generates revenue in dollars but pays some agency incentives in local currencies. Looking forward, we expect these gross margin pressures to continue into the fourth quarter. Third quarter 2025 normalized adjusted EBITDA of $150 million increased 23% year-on-year with normalized adjusted EBITDA margin expanding by 340 basis points to 21%. Pro forma free cash flow was $13 million, and we ended the quarter with $683 million of cash on the balance sheet. Moving to Slide 12. As Kurt outlined, third quarter results were largely in line with the expectations we outlined on our second quarter earnings call. Revenue growth of 3% met our guidance for low to mid-single-digit year-on-year growth. Normalized adjusted EBITDA of $150 million was at the high end of our expectations. Pro forma free cash flow of $13 million was below our expectations. The variance was driven approximately 1/3 by lower receipts and 2/3 by higher disbursements. Receipts…

[Operator Instructions] Our first question coming from the line of Josh Baer with Morgan Stanley.

I was hoping we could just run through the updated FY '25 guidance again and help bridge from what it was last quarter to this quarter. And really focusing on EBITDA and free cash flow. I know you called out some of the headwinds from government shutdown, but really just wondering why EBITDA is now $20 million lower from the midpoint and free cash flow $50 million. And I know you were talking through some of the receipts and disbursements. I would think some of that would sort of normalize or those September receipts come in, in Q4. And so why the bigger move in free cash flow versus EBITDA?

Yes. So I'll take that question. So if you go from the midpoint of our guide last time at $550 million to $530 million, the biggest component of that is going to be the $10 million to $12 million impact from the government shutdown. The other difference is, as you look from Q3 to Q4, as we highlighted in our prepared remarks, we did have lower margin from FX and lower high-margin product sales. We do expect that to continue into the fourth quarter. And so that's essentially your difference between your $550 million and $530 million. If you recall, your -- what correlated in terms of free cash flow to $530 million of EBITDA was $100 million of free cash flow last quarter. And as I articulated this quarter, there was a difference between our expectations of around $27 million. We expected to come in around $40 million of free cash flow. Instead, we came in around $13 million. And to be clear, about 1/3 of that was due to receipts, 2/3 was due to disbursements. On the receipts, the way to think about that is as we came through the third quarter, as we articulated, receipts are essentially determined by the prior couple of months in the quarter. And August, in particular, fell short. And we had a strong September, which would bode well for receipts in October. However, we had a step down in bookings that wasn't in our original projection because of the government shutdown. So that gets offset in the fourth quarter. So when you get into early next year, because we would expect this quarter to be back-end loaded, we would expect to have slightly higher receipts than we would have otherwise, but it won't necessarily show up in the fourth quarter. On disbursements, essentially, there were elements there that were timing. So of the disbursements, the way I would think about it, is there's a portion of our disbursements that were made in September that we either contemplated in forecasted for Q4 or early 2025. However, because of timing of work, because of timing of combination of invoices, commercial negotiations, disbursements were slightly different. For example, we had a $7.5 million disbursement in the September month that we originally had forecasted for Q1 of 2026, and it was tied to an agency commercial agreement. But because of what was best for the commercial agreement overall, the payment was made in September. So you don't necessarily get that back this year, and that's what drives you from the $100 million to the $70 million.

Okay. That's really helpful. And just to clarify on the government shutdown impacts, maybe everyone else knows this, but is this because of like staffing, airport and safety? Is it actual government travel spend that's impacted? Or is it more related to the impacts to the consumer and the macro when you quantify that?

Yes. Thanks, Josh. To date, the impact is almost entirely travel by government employees and/or U.S. military. We have a high concentration of the U.S. military and government as a component of our business. Just for clarity, for example, in 2024, U.S. military government represent about 4% of our global air distribution volumes. That number is quite de minimis in terms of current trading volumes. To date, we've not seen a material impact in terms of the overall industry. But obviously, if you look at operating issues in airports with air traffic control, that is a risk going forward, but not something that's, again, material to date.

Our next question coming from the line of Victor Cheng with Bank of America.

This is Carla for Victor Cheng at Bank of America. Two questions from my side. The first one is what's the mix of your air bookings that is tied to the U.S. government travel? And how can we think about the impact of bookings in Q4 if the shutdown continues? And second question, do you have any updates on your current NDC mix? Is it still in the low single digits?

Yes. Thank you, Carla. For clarity, when you say what is the mix of U.S. military and government, can you clarify what you're asking there?

Yes. So just the mix of your air bookings that is tied to the U.S. government? And how can we kind of forecast our bookings estimates based on the shutdown?

Okay. We don't break out the details of our military and government if you're asking domestic versus long haul, for example. Again, if you go back to last year, that was about 4% of our air trading volume in the distribution business. That number is quite de minimis in terms of current trading right now. NDC remains a low single-digit number for us. That's between 2% and 3% of our air distribution volumes. It is growing at a rapid rate. We do expect it to scale as we go forward. And I will emphasize, as we noted during our prepared remarks, we now have 41 live NDC connections. These are the same API connections that you would get if you were a direct connect or any other provider. We have leading functionality that is facing buyers and travel agencies. We feel we are very well positioned in this two-sided market as NDC scales to be a grower.

Our next question coming from the line of Jack Halpert with Cantor Fitzgerald.

Just two quick ones, please. So kind of coming back to the government travel piece of this. I think you're pretty clear about the headwinds for 4Q. But I guess, historically, when there's been government shutdowns and they kind of come to an end, like do you typically see like an immediate payback in demand? Or is there sort of a bit of a lagged recovery? That's kind of the first one. And then second one, just quickly on payments. Obviously, growth there has been pretty solid the past couple of quarters, and you had the slide about it in the deck. But can you talk a little bit more about the strategy here and how incremental you think you can -- this can be to your business going forward? And then maybe talk about sort of the margin profile of the business as well.

Thanks, Jack. On the government, -- we don't know obviously when the shutdown will be resolved. We imagine it will happen in the fourth quarter, but who knows. We anticipate being back to normalcy in the first quarter, but it will probably phase its way between here and there. With respect to payments, the payments business, again, which is comprised of Sabre Direct Pay, which is a set of product capabilities that we have both in our distribution and our IT business as well as our Conferma Virtual Payments business. That business is scaling at a 40% top line rate. Really, it's very compelling what we have there. We have not, at this point, broken out the revenue or the margin details of that business. That may be something that we do prospectively. But we think the value opportunity and the scale opportunity there is tremendous versus our current position.

[Operator Instructions] Our next question coming from the line of Alex Irving with Bernstein.

Two for me, please. First, on Agentic API. Could you please help us to understand how you intend to monetize this? Specifically, are airlines unable to do their own Agentic API to do the same thing essentially for free. So who's going to pay you and for what specifically? Second, on booking growth for 2026, I think you mentioned earlier about being positioned for mid-single-digit bookings growth. What assumptions underpin that? If you could please break that down between, say, known new business migrations, specific headwinds lapping and your expectations for underlying industry growth?

Thank you, Alex. Let me deal first with the booking growth for 2026. As we indicated, we expect mid-single-digit bookings growth in 2026. That assumes a flattish GDS or distribution marketplace and then strong organic performance by Sabre with continued converted business as well as the implementation of our incremental low-cost carrier solution. With respect to Agentic AI, it is very early. I think you're going to see, number one, Agentic AI emerge as a new channel in and of itself, maybe similar to the way online travel agents emerged starting about 30 years ago. And I think that will take share away from both intermediary and supplier direct channels. What we have developed in terms of our API solution is, we think, the leading intermediary API solution for the marketplace. This can sit directly behind an API, Agentic API agent and/or a large tech platform. And it's also fit for purpose that it can be used by our travel agency and our airline or hotel customers to help them power their Agentic AI profile going forward. In terms of what is the commercial model, obviously, we think the largest opportunity is for us to be an intermediary distribution player, but there may be an IT element to this as well. That will become more apparent in the quarters as we go forward.

And our next question coming from the line of Dan Wasiolek with Morningstar.

So two, if I may. The first, your booking fee looks like it was pretty strong and stable this quarter at -- I think, around $6.06. Just wondering how we should think about that as we look into 2026. And then wondering if you could maybe provide some more detail in your prepared comments, you kind of talked about a stabilization in the overall industry and industry demand, just the conversations maybe you're having with your partners and customers to kind of arrive at that?

I'll take the booking fee. If you look at the strength in our booking fee year-over-year, it was driven by significant nontransactional revenue that's benefiting us. So it's not necessarily tied to a specific booking. And we expect that to continue to be additive over time. With regards to 2026 booking fee, at this stage, we're not going to provide any other commentary beyond what was in our prepared remarks with 2026, but we'll give you a lot more context on that in the February call.

Thanks, Dan. With respect to industry demand, it's a bit of a mixed bag. What you're hearing and seeing from commentary from many different intermediaries and then supplier customers, and this is underpinned by a lot of private conversations that we've had with our clientele is leisure demand is positive year-on-year, fairly robust. Our corporate demand, what you're seeing is prices elevate or strong yield, and you've seen some improvement on a sequential basis in corporate demand, but it is still negative year-on-year on a unit basis. And so a lot of the commentary you hear from suppliers is around yield accretion or yield improvement relative to where we were 6 months. The volume environment has improved, but it's still -- when you look at the mix of corporate plus leisure is mixed. It's not that positive. As we go forward, our expectation is typically, what you see in this industry is GDP growth and airline volumes tend to approximate one another. If that is the assumption next year, you're at low single-digit passenger growth in the United States and globally. The question will be what the mix is, and we're going to learn our way into that. But again, our expectation for our volume assumptions next year in distribution are that the intermediary industry is relatively flat and that we're growing share against that metric.

Our next question coming from the line of James Goodall with Ruschild. Rothschild & Co Redburn.

So firstly, just coming back to Slide 9 and focusing on the Q3 air booking growth of 2%. I think your original guide was 2% to 6%, which was based on a negative 9-point impact from mix in industry and plus 13 from growth strategies. Just given that the industry improved to down 1% from down 4% through Q3, what caused Q3 to be at the bottom of the range despite the fact that industry got better through the quarter? Was it that plus 13% of new wins coming on more slowly? And then -- in terms of my second question, just coming to the low-cost carrier launch for next year. Can you give us a flavor of how many incremental bookings you're expecting that to drive on an annual basis? And how many LTCs you currently have signed up or in the pipes to be signed up?

Yes. Thank you, James. When you look at Q3 volumes, what we saw was that both July and August were relatively flat in terms of our intermediary bookings. September was actually up 7%. The very good news there is that when you look at the quarter, there was positive 10 points of volume performance tied to the implementation of new business that was converted this calendar year. And in fact, that number was 12% in September, so that continues to ramp and accelerate. We indicated that was 3 million bookings during the month. Why was that below the prior estimate? Despite the GDS, the improvement in the GDS number, it comes down to the mix of our business. Number one is we are adversely impacted as compared to the industry by our exposure to both the U.S. military and government. We have nearly a full share there. And two is a vast majority of corporate and TMC business globally goes through Sabre. And that was still down several percent year-on-year in the quarter and then the impact of regional mix as well. With the launch of the low-cost carrier platform, there's two important components here. One is similar to if you're familiar with Travelfusion, which is a non-GDS aggregated solution in the market, and there are a number of these kind of solutions. What we are launching is a new platform that integrates 50-plus new low-cost carriers. That is with a bit of a different technical and commercial model. We will be in full production launch in the first quarter of next year. Separately, we've also signed up a significant number of new low-cost carriers that we did not have in our system previously that are participating in more traditional means, either [ EDIFACT ] or Direct Connect versus this new low-cost carrier solution. Long term, we expect this could contribute multiple tens of millions of transactions to our business. It will be a subset of that for next year as we ramp this up. We're not going to go into detail on the specific number.

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

Thank you so much, everyone, for the continued interest. We look forward to sharing additional progress next quarter and in the years ahead. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.