Sabre Corp. Q3 FY2025 earnings call

Key Points

• Operational and financial results were positive with total distribution bookings up 3% Y/Y and air distribution up over 2%.
• Strengthened balance sheet by growing adjusted EBITDA, generating free cash flow, extending debt maturities, and reducing debt. Anticipate reducing net leverage by ~50% by year-end 2025 vs 2023.
• Leveraged AI to transform travel, announcing industry firsts like agentic APIs for travel and Continuous Revenue Optimizer. Payments business saw strong customer demand with 41 live NDC integrations.
• Hotel distribution bookings grew 6% with attachment rate to air bookings up over 100 basis points. IT Solutions had passengers boarded up 3% and revenue growth 3%.

Total distribution bookings grew 3% year-on-year. Air distribution bookings increased more than 2%, with September finishing strong at 7% year-on-year. Air bookings from growth strategies contributed 10 percentage points to total air bookings growth in Q3. Hotel distribution bookings growth was 6% in the quarter, and the attachment rate to air bookings increased over 100 basis points year-on-year. Within IT Solutions, passengers boarded grew 3% year-on-year, and third quarter revenue growth was 3%. Absolute terms: Total distribution bookings had a 3% Y/Y growth, air distribution over 2% Y/Y, hotel distribution 6% Y/Y growth, IT Solutions revenue up 3%. Revenue contribution: Air distribution bookings growth was driven by various factors including growth strategies, offset by GDS industry decline and mix headwinds; hotel distribution contributed 6% to overall growth; IT Solutions contributed 3% to revenue growth.

Guidance

• Fourth quarter air distribution bookings growth expected between 6% and 8% due to government shutdown impact. Full year 2025 pro forma adjusted EBITDA expected to be approximately $530 million, representing 9% Y/Y growth. Full year 2025 pro forma free cash flow expected to be approximately $70 million. The government shutdown had a $10 million to $12 million impact on EBITDA. Free cash flow variance was due to lower receipts (about 1/3) and higher disbursements (about 2/3).

Risks

• Government shutdown impact on air bookings, specifically affecting U.S. government and military travel which is a component of the business. FX impacts on gross margin as Sabre generates revenue in dollars but pays some agency incentives in local currencies. Potential operating issues in airports affecting travel which could impact future bookings.

Q: Josh Baer from Morgan Stanley asked about updating FY '25 guidance, focusing on EBITDA and free cash flow, and why there was a bigger move in free cash flow versus EBITDA.

A: Michael Randolfi responded that the $20 million decrease in EBITDA midpoint was due to government shutdown impact, FX margin issues, and lower high-margin product sales. Free cash flow variance was due to lower receipts (about 1/3) from flat July and August air bookings and higher disbursements (about 2/3) with certain payments made earlier than expected.

Q: Carla from Bank of America asked about mix of air bookings tied to U.S. government and NDC mix.

A: Kurt Ekert replied that U.S. military and government represented about 4% of air trading volume last year, which is de minimis now. NDC remains a low single-digit number (2%-3%) of air distribution volumes but growing rapidly with 41 live NDC connections.

Q: Jack Halpert from Cantor Fitzgerald asked about government shutdown recovery and payments business strategy.

A: Kurt Ekert said government shutdown recovery is uncertain but anticipated to phase in, and the payments business is scaling at 40% top line rate with significant value and scale opportunity though margin details not yet broken out.

Q: Alexander Irving from Bernstein asked about monetization of Agentic API and assumptions for 2026 booking growth.

A: Kurt Ekert said Agentic API is early with potential as an intermediary distribution player, and 2026 air bookings growth assumption is mid-single digits assuming flattish intermediary industry and share growth.

Q: Dan Wasiolek from Morningstar asked about booking fee strength and industry demand.

A: Michael Randolfi said booking fee strength was due to nontransactional revenue, and Kurt Ekert discussed mixed industry demand with leisure positive but corporate still negative Y/Y, and expectation of GDP growth approximating airline volumes.

Q: James Goodall from Rothschild & Co Redburn asked about Q3 air booking growth and low-cost carrier launch.

A: Kurt Ekert explained Q3 air booking growth was affected by mix headwinds and slow rollout of new business wins. Low-cost carrier launch in Q1 2026 expected to contribute multiple tens of millions of transactions long term, with ramp-up in 2026.