Good morning, and welcome to the Sabre Third Quarter 2023 Earnings Conference Call. My name is Felicia 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 Director of Investor Relations, Brian Roberts. Brian, please go ahead.

Thank you, and good morning, everyone. Welcome to Sabre's Third Quarter 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 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 the impact and extent of the ongoing recovery from the effects of COVID-19, industry trends, benefits from our technology transformation, commercial and strategic arrangements, strategic priorities, our financial outlook and targets, expected revenue, adjusted EBITDA, free cash flow, costs and expenses, cost savings and reductions, 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 third quarter 2023 Form 10-Q. Throughout today's call, we will also be presenting certain non-GAAP financial measures References during today's call to adjusted operating income, adjusted net income, 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 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.

Thank you, Brian. Good morning, everyone, and thank you for joining us today. We had a successful third quarter and have a number of recent accomplishments to articulate on today's call, including financial results that exceeded expectations, new developments in our strategic partnership with Google, important commercial wins and development successes, as well as the continued execution of our technology transformation. In the third quarter, we exceeded our financial expectations and this performance gives us confidence that our strategy is to drive sustainable growth with a more efficient operation are delivering results. The positive momentum that we saw earlier in the year has continued. Our 4 strategic priorities, which I will review shortly, are unchanged and form the foundation of resource allocation and strategic decision-making. Before jumping into the details of today's call, allow me to commend all of Sabre's employees for their hard work and dedication to meeting the needs of our customers. The strong results we are sharing this morning would not be possible without the commitment of all of our team members around the world. Now I will walk through the agenda for today's call. On Slide 4, you can see an overview of the topics Mike and I will cover. First, I will review our business highlights from the third quarter, and then I will describe trends that give us confidence in the fundamentals of our business and Sabre's ability to deliver on our priorities. Next, I willl provide details on our customer successes and innovation achievements during the third quarter and then update the progress on our technology transformation. Finally, Mike will take you through the financial results for the third quarter and provide an update to our 2023 outlook. Turning to Slide 5. As we have mentioned in recent quarters, these are the 4…

Thanks, Kurt, and good morning, everyone. Please turn to Slide 11. As Kurt mentioned, we have a number of accomplishments to share with you that highlight the hard work of our Sabre team members. The third quarter was a strong quarter for Sabre and an important inflection point in several of our key financials and strategic metrics. We exceeded guidance in the quarter on solid revenue growth and cost actions that led to significant margin expansion and strong free cash flow generation. Our technology transformation and previously announced cost reductions helped drive operating costs down on a year-over-year basis. The powerful combination of steady revenue growth and falling costs led to a nearly 100% flow-through of incremental revenue dollars to adjusted EBITDA. As you can see on this slide, Sabre generated strong year-over-year improvement in cash from operations and free cash flow. Hospitality Solutions continues to drive better financial results faster than we had anticipated earlier this year and is now on track to produce an approximate $40 million improvement in adjusted EBITDA this year versus last year. Additionally, our recent debt exchange offer to extend our 2025 debt maturities out to 2027, better aligns future prospective free cash flow with our debt maturity schedule. Overall, the third quarter represents an inflection point. We are delivering on the actions we set out to achieve and are generating strong financial results that represent a meaningful trajectory shift from the last few years and highlight the potential of Sabre's path forward. Please turn to Slide 12. As you can see from the table, we exceeded our expectations for third quarter revenue, adjusted EBITDA and free cash flow, and we are encouraged by the momentum we are seeing in our financial results. Strong revenue generation, coupled with the actions we have taken to…

[Operator Instructions]. Your first question comes from the line of Jed Kelly of Openheimer.

Just two, if I may. Nice job. Your tech costs were down about 10% you highlighted. I mean is that the right way to think about the velocity of those costs going down going forward? And then just following back, Mike, on your previous comments, you mentioned airline industry growth kind of slowed [indiscernible] $12 million adjusted EBITDA on an annual basis. Is there any change to your '25 outlook? And are you expecting similar incremental EBITDA growth in '24?

Yes. Thanks for the question. On tech costs, obviously, we've made significant progress there. What I would highlight is in the beginning, when we had articulated our resource realignment and cost reduction program back in May. The way we highlighted or talked about the trends and what someone should expect is taking a first quarter expenses for cost of revenue tech expenses and SG&A. If you annualize those and you annualize those, and then you subtracted the $100 million of cost reduction that would occur this year. That $100 million, about 10% of it would apply to cost reduction -- I mean cost of revenue. About 45% would apply to the tech costs and about 45% would apply to SG&A and that's what would drive our -- that would be the resulting trend in terms of costs. So the trends you are seeing are trends we would expect to sustain on expenses.

Jed, you may recall that as we provided the guidance and we looked out at the '25 target back in May, we articulated that $300 million of the build toward 2025 improvement would come from reductions in both our technology costs and other costs. Close to 2/3 of that would be reductions in technology costs, the part of it in the next couple of years.

So then further, what I would also highlight on that May call, we also highlighted and talked about our bill from 2023 to 2025. And in that bill, we talked about going from approximately $300 million of adjusted EBITDA to approximately $900 million of adjusted EBITDA in 2025. And there are really 3 components. The very first component, as Kurt just mentioned, is that $300 million. With the $300 million being comprised of the resource realignment and cost reduction program that we saw this year, which would be about $100 million of it, our technology transformation costs, which we expect to generate at least $150 million of benefit from '23 to 2025 and then also just rigor around the nonlabor non-tech cost for the remainder of the bucket. That bucket and those cost savings are very, very much on track, and you see that here today. The second bucket was our strategic growth initiatives. If you recall, that was $150 million attributable to that bucket. Of that $150 million, at least 1/3 or at least $50 million, you would expect from Hospitality Solutions. You could see the significant trajectory shift we've seen in that business. And then the second part of that or the next $50 million would be increased market share. And you see that this quarter, we gained share both sequentially and on a year-over-year basis. And then the third part of it is things like payments, airline retailing, which are all growing really, really, really well. The third bucket, as you highlight, is volume. And the volume piece, each point is approximately $12 million. Now what I'd highlight is there's 2 different components as we look at volume. In the more recent period, as noted in the third quarter, we have seen some flattening in volume. To date, we've been able to offset that with favorable revenue and cost. Also, as we look forward and we look at what airlines are telegraphing, they're generally telegraphing capacity growth -- call it, in the mid to upper mid-single digits with the skew to international that has historically -- has historically accrued to the GDSs. And so that's what we at this moment. Beyond that, what I would say is we're working through our 2024 planning process and our 2025 planning process right now. We're going to respect that process and come back to you in February with a more fulsome update on the next 2 years.

Yes. Just one follow-up. Just on the Air India contract. Can you speak to the incentives you agreed to? I've heard from prior management -- at your prior management team, they historically didn't want to go into India just because that market was tough from a unit economic perspective.

Yes. Thanks, Jed. India is one of the largest GDSs distribution markets in the world. As we indicated in the prepared remarks, one of our competitors had exclusive content with , which is one of the larger carriers there. So this unlocks one of the largest GDS markets in the world for us, which was not previously largely addressable or available to us. So as we think about the opportunity to gain share and gain share in the emerging parts of the world, we're really encouraged about this. Commercially, and technically, the deal we've done there makes great sense for us and we think for our agency customers as well.

[Operator Instructions]. The next question comes from the line of Josh Baer of Morgan Stanley.

I wanted to ask around NDC. I think there were several press releases in the last couple of months about NDC announcements for you. Just wanted to ask what's driving like the momentum now and from a product standpoint, how you think your NDC offerings compare like from a competitive standpoint? Are there still areas of sort of investment or investment around NDC as far as your solutions looking ahead?

Yes, Josh, thank you very much for the question. So today, NDC represents a very small part of intermediary airline distribution in the range of about 1% from everything that we can see and that we're experiencing. And this is 11 years after -- approximately, I had a launch NDC as a construct. That said, what you've heard and seen from many carriers around the world is a desire to sell their inventory more dynamically in B2B as they do in B2C. And this is a mechanism to help accomplish that. So there is strategic rationale as airlines become better and better at retailing. And we as an intermediary, want to help airlines differentiate and sell their product as they want to sell it. What's very important, one of the things that is changing in the ecosystem is that this is not just about plugging into the node of the airline NDC API, but more so, it's building the functionality that is required for buyers, corporations and agencies, for example, to be able to do things in a manner that works for them and drives efficiency and drives user experience without degrading those 2 things as would happen if you simply plugged in the content into their existing infrastructures. So I can tell you, for example, that by the end of the year, we will have built out 90% of the use cases that are required by [indiscernible] customers, and there are about 600 unique use cases that are new so that we're able to make sure the full time to the ecosystem are able to balance that. We've talked about what we're building is a multisource content platform that enables us to seamlessly consume both EDIFACT and NDC content and then onward distribute that in a normalized fashion to and through any buyers in the world. We believe that what we're producing will be the best platform in the industry for the long term and support the use of both the suppliers but do it in a way, again, that makes sense for the buyer community. So we feel very good about where NDC is going to go in future years.

Yes. And the only thing I would add on that is as we discuss forward-looking commentary incorporated in that forward-looking commentary is an expectation that NDC continues to grow and our forward-looking commentary reflects that.

Perfect. And if I could just ask one on the 2025 sort of the $900 million plus in EBITDA going to $500 million in free cash flow. You could talk through some of the assumptions on working capital in those numbers, just thinking through interest, taxes, but then also just working capital in that bridge to free cash flow.

You're not going to go into too many specifics on that at this time, Josh. What I would say is we are not assuming a significant impact on working capital, either positively or negatively in 2025. But beyond that, we'll provide just a more fulsome update in February on '24 and '25.

[Operator Instructions]. The next question comes from the line of Dan Wasiolek of Morningstar.

So just going back to the $150 million growth in the 2025 guidance, I think you guys have said that at least 1/3 is coming from hospitality. Any color you can provide on how much high it kind of gets you to that 1/3? And then what would you anticipate would be the implementation time frame for Hyatt? I know you guys said on this quarter that it will begin in the first half of next year.

Yes. Thank you. Good question. So when we look at the strategic growth initiatives, just to color them once again. And we looked at $150 million of EBITDA accretion between now and 2025. What we articulated was we expect to see 1/3 of that from Hospitality Solutions, 1/3 from GS share growth and 1/3 from an amalgam of airline retailing payments, hotel attachment. Specific to Hospitality Solutions at Hyatt, we're not going to break out the details of the agreement with Hyatt but it is indicative of the traction that we're getting with SynXis, which traditionally has been the leading mid-market hotel provider. But this basically demonstrates our ability to compete and win in the enterprise CRS space. And so what I want to do is turn it over to Scott Wilson, to lead HS, if he could give more detail about the implementation and the value that we're bringing there.

Thanks, Kurt. Thank -- yes. So you actually cure a couple of things that are really important here. But let's start with by piece. The implementation, as we mentioned, is going to be starting in the first half of the year and we believe that we'll be vastly continued with it by the end of next year. So most of that revenue gain that we expect through that contract is going to be fully realized by the end of next year, which we think is just a great accomplishment by the team and our partner in Hyatt. The second Kurt talked about the SynXis platform. Overall continues to be very strong within the market. We actually have renewal rates this year at the highest they've been since the pandemic, in fact some of the highest ever and we continue to win new business in areas outside of the enterprise space as well. And the third key piece is the introduction of retail studio this year, which really unlocks a new TAM for us which is around retailing in the hotel space, something that's a little bit more mature in the airline space, but has a lot of growth and upside that we're seeing good traction on in the hotel space as well. You take those 3 things combined, and we feel very good about that $50 million that will contribute by the end of time.

Okay. Great. Very helpful. And then if I can just squeeze in one more quick one. Any color that you can give on just how your booking trends have been trending over your key regions?

Sure. I'll just talk about it in terms of what we're seeing in terms of recovery relative to 2019. I mean, as you know, I mean, for the most part, North America is fully recovered. What you've seen is Asia is probably still recovered versus 2019 in the mid-60s. Europe is like in the 70s. I would say the one trend that we've seen that's a little more notable. We've actually seen Latin America back up a little bit over the last few months, and that's trended back a little bit, but that's generally what we've seen.

[Operator Instructions]. The next question comes from the line of Victor Cheng of Bank of America.

A couple, if I may. Just going back to -- on the point on revenue per booking, can you give us some color? Obviously, 9% improvement year-on-year is very solid. I'm sure there's some pricing element in the mix improving. And often you talk about it depending on region mix, home and the way mix and business leisure mix. But maybe one question I want to ask is, does it matter what tier of airlines are the bookings associated with? The question I asked about this is over the last couple of months, we have seen American Airlines moving a bit more into NDC, United moving to NBC as well. And it seems that the volumes are coming down for the carriers, which presumably has a lower revenue per booking that as a tailwind on revenue per book. Is that the right assumption to think? Or -- or am I off?

Victor, thank you. Let me start and then turn it over to Mike. So first of all, NDC today represents only about 1% of the GDS marketplace. So the impact on the average fee per booking is relatively small.

Yes. No, thanks. That's a very important part. So -- the primary driver is really that we've seen within the mix regionally, we've seen our mix be pretty favorable. And really, within the carrier mix, it's been favorable. We have due to carriers where the average booking fee is higher. But to Kurt's point, the impact from NBC has been de minimis on our average booking fee. [indiscernible] is really that NDC at this stage is a very, very, very small part of the industry. And from everything we see, represents 1 maybe 1% to 2% of intermediary distribution globally.

Yes. Got you. It's -- I was just looking at some data from talking about U.S. Kings, I think they talk about 10-plus percent of NDC bookings as a percentage of indirect U.S. bookings. And if GDS as a whole is still roughly said -- does that mean that as some of the bookings get shifted to NDC that GES is not capturing that opportunity?

Victor, thank you for the question. I think there's 2 things that get inflated in the industry. One is called Direct Connect, the other is NDC. Direct Connect is where typically larger OTAs have direct connected with airlines, and this started back 10 to 15 years ago. And they basically have done that without the use of GDSs. So that's nothing new in the industry. And we think that, that has for a while, represented about 10% of global airline intermediary distribution. That will be with United, for example. And within that, I don't know the construct of what is traditional versus NDC in terms of look us through those pipes. What I can tell you, though, is if you look outside of that 10% is we're not seeing any change in the structure of the marketplace. Corporate, as you know, has recovered to about 75% on a unit basis of what it was in 2019, albeit much higher on a dollar basis. We believe that substantially all of that business continues to flow through our sector and in all the other forms of leisure distribution we don't think there's been a change either. So I think that what you have is that within the direct net channel, again, which has been there for quite a long period of time preceding COVID, that there may be certain activity there that carriers are calling new technology. But within the true intermediary marketplace, we don't see any change.

Yes. One other thing I would highlight, Victor, is as you think about NDC and you think about and economics, generally, what we're seeing is that the economics of NDC agreements look pretty similar to what you see today around most of the globe with the exception of Europe where Europe, as you know, has some of the highest booking fees around the globe. But for Sabre, that only represents 15% of our bookings and so the transition, we wouldn't expect to have nearly a significant impact, maybe a little bit more in that region.

Got it. Very clear. And maybe if I can squeeze in one last one. I note that passengers [indiscernible] the Airline IT side also appears to be a tad lower quarter-on-quarter [indiscernible] 2019. if you can provide a bit of color as to kind of what's trending in there?

Yes. On Airline IT, I mean, the primary impact on a year-over-year basis is going to be the demigrations, the vast majority of which is attributable to Russia. That impact is about $33 million. If you adjust for that, you'd obviously have growth in Airline IT driven by higher passenger boarded.

[Operator Instructions]. The next question comes from the line of [indiscernible].

Just one for me. I wanted to deep dive into the air bookings again. It appears that the [indiscernible] recovery has always headlined this quarter. Could you comment on this from lines on whether potentially new [indiscernible] level has been reached? How do you see that going into Q4 also considering that you just commented on the recovery still going everywhere else?

Yes, , thank you. When you look at the GDS marketplace, which is what we're talking about here, Traditionally, that marketplace has been comprised of about 50% corporate or CMC bookings of about 50% leisure. As we've indicated, corporate has recovered to about 75% on a unit basis of 2019 levels. Now Air and Hotel yields are much higher. So the dollar recovery is actually much higher or much closer to historical norms. One of the things that [indiscernible] is a governor, we believe on corporate travel is corporate and procurement budgeting where they particularly are saying, you can only grow the corporation by so much year-on-year. The good news is, as you think about corporate travel historically, it was closer to $1.5 trillion sector before COVID and over the 20-year history, including the impact of 9/11 and the financial , had a 4% to 5% annual CAGR. So certainly, we expect that part of the business to grow as it has grown traditionally. Has there been some impairment relative to the size of that sector? We don't know at this point, but that is possible. And then when you look at leisure recovery. Leisure is the other sort of half of the GDS sector. It leaves much more toward complex, long-haul international travel, where more simple point-to-point domestic travel is headed to accrue to direct airline distribution, historically, we think that's the case. And so what's happened is capacity has not been put back substantially on long-haul national as it has been put back on short haul. We think that has disproportionately negatively impacted the GDS business. So you are right that the recovery has been slower than we had anticipated in the past 2 quarters. We're not going to comment prospectively other than -- let me just say again what Mike said, which is we -- in the build toward the $900 million EBITDA target for 2025, we had indicated back in May, the debt came with the assumption of a 1% to 2% or 1.5% quarterly sequential growth in market size. We're assessing what we believe is going to be the trend over the next couple of years, and we'll come back in February with updated guidance.

Yes. And the only other thing I would add with regards to 2023 and our fourth quarter assumptions incorporated in that is we assumed what we've seen as current trends, which are closer to flat in the third quarter. And I would say, if you back into our Q4 expectations. You could see it's amongst the best adjusted EBITDA performance in years. We would expect it to be the best free cash flow generative quarter in years. And so we're really pleased with our performance, and we are really seeing on those actions, which we can control, we're delivering.

The final question comes from the line of James Goodall from Redburn Atlantic.

Just one -- just a follow-up in terms of sort of current bookings. And we've heard many U.S. and European airlines talking positively about a pickup in managed business travel spend into the winter period. So I'm just wondering if that's sort of flat sequential booking that you saw Q2 to Q3 have scope to increase going into Q4?

Yes. Thanks for the question, Josh. One -- there are reasons to be optimistic. We've framed our guide really based on the trends we've seen coming out of 2023. So what I would say is, I mean, out of Q3. So in Q3, I mean, we obviously saw flatter booking trends than I would like but those are the assumptions that we took into our Q4 assumption.

I should say we feel -- given our footprint with TMCs that handle much of the net travel business, we feel very well positioned as that part of the market recovers to benefit from that.

And then I guess maybe just a very long-term question on the Airline IT side. I mean I've got the impression that many more airlines, including your largest PSS customer already themselves towards the transition away from legacy PSS architecture and towards sort of offload order-based systems. So I was just wondering if you could talk to how well you think you're set up for that transition? What you've developed to date would be great.

James, thank you. As we've indicated, everybody is pursuing this term agenda of IATA's one order, which is the new offer order technology. We have invested aggressively in both offer and order capabilities. The tip of the spear where we're going to market and leading right now is on the retail intelligence suite of solutions. We're beginning to get great market traction with customers signing up and buying this because it doesn't require wholesale operating changes on their side to implement capabilities. One of the challenges with offer and order is that a lot of the airline systems, processes and organizations are built around the traditional PNR PSS structure. And so most carriers see this as a long-term multiyear journey, 7, 10, maybe more years. So we're in conversation with a number of both Sabre and non-Sabre PSS customers about working with them on this journey and providing our technology. So we think there's an opportunity for us to disrupt the marketplace and we're leaning in very aggressively to what we believe is a great opportunity.

Thank you. I would now like to turn it back over to Kurt Ekert for closing remarks.

Thank you, and thank you again for joining us today. We appreciate your interest in Sabre, and look forward to speaking with you again soon. And that concludes today's call.

Thank you for your participation in today's conference. This does conclude this program. You may now disconnect.