Sabre Corp. Q4 FY2025 earnings call

• 2025 was a challenging year with exogenous events, but Sabre met or exceeded financial guidance in Q4 and ended the year with positive momentum. - Key growth catalysts include continued distribution share gains, expansion of multi - source content platform, solid growth in hotel distribution and payments business, and improving performance in airline technology. - Announced executive leadership changes. - AI has been a core part of Sabre's technology stack, with first - mover position in introducing Agentic APIs and MCP server for travel. - Recent strategic partnerships demonstrate Sabre's leadership in AI infrastructure, such as with PayPal, MindTrip, Bistrep, and Virgin Australia. - Cloud - native technology foundation is driving growth across the portfolio.

Total distribution bookings grew 1% year on year. Full-year air distribution bookings were positive. Passengers boarded grew 2% year on year. Hotel distribution bookings increased 5% year on year to 42,000,000, with gross hotel booking value transacted through the platform exceeding $20,000,000,000 annually. Normalized adjusted EBITDA grew 10%, with normalized adjusted EBITDA margin improving over 160 basis points to 19%. Sabre Payments was one of the fastest growing businesses in 2025, with gross spend on the platform increasing more than 35% year on year. NDC represented approximately 4% of total air distribution bookings at year - end.

For 2026, expects mid - single - digit volume growth driven by share gains, NDC bookings, and LCC solution. Anticipates mid - single - digit revenue growth. IT Solutions revenue expected to grow in mid - single digits, range of $140 to $150,000,000 per quarter in back half of 2026. Pro forma gross margin expected to be in range of 56% to 57%. Pro forma adjusted technology and SG&A lines targeted to be relatively flat. Expect pro forma adjusted EBITDA in 2026 to be approximately $585,000,000. 2026 free cash flow expected to be negative $70,000,000, excluding restructuring charge would be near breakeven. Expect positive growth trends to extend into 2027 with mid - single - digit revenue growth and positive free cash flow. First quarter 2026 expected to have solid growth with volume and revenue growth in mid - single digits, pro forma adjusted EBITDA expected to be approximately $130,000,000.

Forward - looking statements involve risks and uncertainties that may cause actual results to differ materially from statements made. Risks and uncertainties are detailed in earnings release and SEC filings, including Form 10 - Ks for 2025. Impact of exogenous events on operational results, and potential risks related to AI disintermediation risk if not managed properly, and risks associated with debt management and capital structure changes.

Q: Good morning. Nice quarter. Probably a question here for Gary. You have obviously been hard at work with your AI tool development. I can see how that strengthens your network ecosystem. I am just wondering what still needs to be done in your view on the AI front. What should we be looking for? And then in the prepared comments, you mentioned upside opportunities from AI. I am just wondering if you maybe could provide some more color on what those might be.

A: Yeah. Hey. Good morning. Thank you very much, and So I think on the AI front relative to the travel use cases, for me, really, what is going to be the next stage here is to generally show the end - to - end experience of conversational commerce in travel. And so that is what we are doing with the partnership that you have seen with MindTrip and with PayPal, where through the MindTrip app itself, you can have a great experience in terms of building an itinerary that is personalized, that is highly relevant to your needs as you try and plan your next trip. We then come in in terms of making sure that we provide you the greatest offers in terms of how to get there, where to stay, and then, obviously, with PayPal, they then are able to help in terms of the payment, whether it is a single payment or payment over time through installments to make sure that you can actually afford that particular trip. So that has been one of the things for me that has been missing when it came to AI and a travel experience, that no one has really done that end to end yet—from the discovery, the planning, the booking, the payments, and the servicing. So that is what I am super excited to see as we go into the 2026. Go ahead, Kurt.

Q: Thanks for the question. I think you did a great job addressing the topic of agentic and AI bots. I was hoping you could do the same with just direct connects generally. One of the challenges of airlines or, and OTAs, other travel buyers, just building direct connects is the huge cost burden in establishing and also maintaining and supporting those connections. From an R&D and a developer and infrastructure perspective, does the introduction of GenAI change that economic equation at all, just thinking about lower cost of coding increasing productivity of a developer?

A: This is Kurt. Let me have Gary jump in first on the, what I will call, the physics of Direct Connect and how that will emerge in an agentic world, and then I will comment on the industry structure a bit. Yes. Thank you. Thank you, Josh. So, really, this comes down to what makes us a great partner for an AI company or anything to work with rather than an attempt to really replicate what we do. We have a highly scalable marketplace, obviously, with that vast selection of travel content that we have both the contractual rights to aggregate, normalize, and display at a speed that an AI agent could not do in a real - time fashion, which is due to our volumes, which means that we can predictably cache content in such a way that individual suppliers cannot, and hence, we can cope with that look - to - book ratio that is a severe tax on suppliers’ infrastructure costs. So this is something, again, that, whether it is in a general web search or any type of shopping scenario that could be AI or not, is something that we excel at in terms of responding in subsecond times compared to what is today taking, you know, eight to nine seconds connecting directly to a supplier and shopping on their APIs independently. Yeah. Thank you, Gary. And so about Direct Connect generally. For folks who enable a Direct Connect—and Sabre is an amalgam of 500 airline direct connects and thousands of hotel direct connects, for example—when you have look - to - book coming inbound and you have massive complexity, that creates challenges both for the supplier who is dealing with this inbound traffic, number two is for the person doing the Direct Connect. Very difficult to manage that environment. We have spoken previously about the opportunity for a reintermediation of some of the direct traffic. I think you will see that in some of our results going forward. With agentic AI, that problem is going to be exacerbated for both the suppliers with inbound traffic and response times, and two, for folks who may have those direct connects in place like OTAs. So I actually think the utility that we provide tomorrow in an agentic world is going to be even more important than it was yesterday.

Q: Thanks for taking my questions, and good slides on the agentic AI initiatives. Maybe on the volume growth for this year, can you walk us through maybe the cadence of it? Obviously, you are guiding mid - single - digit on a full year. So what is sustaining growth in H2? Is that related to the multi - source low - cost carrier initiative? How is that working? And then secondly, on NDC, you talked about that going up 4%. Can you talk a bit about where you are seeing that growth coming from? Are TMCs finally getting on board? And maybe by region as well?

A: I think earlier this year, you still annualized in some of the share gains that you have. Multipart question, of course, as usual. Number one is with respect to distribution volume growth for this calendar year. As we indicated, we expect to see mid - single - digit distribution volume growth for 2026 and, again, for 2027. As we indicated, in December, we saw 7% air distribution volume growth. We have seen a similar trend year to date so far. That is broad - based across all regions. It includes corporate travel, which we had indicated was actually negative last year. So much healthier market environment today. When we look at this in a componentized fashion, first of all, we expect that—our assumption is—the GDS market is largely flat from 2025 to 2026. So the growth that we are indicating is largely organic performance by Sabre. Number one, we expect to continue to take share. That will be the realization of share takeaways that we implemented last year. We have other things that are being implemented, and we expect to continue to win at pace. Two is NDC, which reached 4% adoption at the end of last year. We expect that to continue to scale, and I will speak about that further in a second. And then three is, we spoke last year about integration of additional low - cost carrier inventory and the launch of our multisource platform in new low - cost carrier. That is all fully in production today. It is one of the key reasons we are winning, and we expect to pick up incremental bookings from those carriers as well. With NDC more specifically, we are seeing it pretty broad based in terms of adoption by OTA and TMC. And I would say it varies by region, but it is very specific to carrier. So, for example, you might have a large carrier in South America, which has brought in NDC adoption, and if that is a top tier - three carrier, that will drive adoption for the region in total. But I would say, generally, you are at a point now where, as we indicated, we have 42 carriers live within our NDC solution. We have done a significant amount of work on functionality to basically normalize workflow differences between Edifact and NDC for the travel agent, and that is mitigating any productivity or user experience impacts that they may have had previously. So, again, we expect that to scale at pace as we go forward.

Q: Just on the free cash flow guidance, can you give us an update on how your discussion is going with your debt holders and, you know, free cash flow being flat? Would love to hear an update there. And then I would love to hear your—I guess, because I am last, I will ask a couple. You said corporate travel is holding up pretty well. That is good to hear. Is that kind of a comp issue, or what is going on there, and where are you seeing the strength? Is it coming more from the traditional travel agencies, or is it coming from some of these new self - service players that we hear about? And then I guess just my final one. I appreciate all the commentary around AI. I know you have been in the travel industry for a while. When you hear all these direct connections, and you can see the market is pretty excited about it if you just look at the relative outperformance between Marriott and, like, a Booking or any third - party travel agent. I am just wondering, as we kind of see this evolve, how does this differ than search, where I assume these direct connections were available for a while, but the suppliers never took advantage of search. And I guess what makes this different? Because我 have to assume Google is not going to give away their search advertising business, and OpenAI is going to need a pretty big auction advertising business to pay for all their compute requirements. So just wondering how you see this evolving. And then nice announcement with MindTrip and PayPal. I know the MindTrip people, pretty interesting platform they are building. Can you just expound on that?

A: Yeah. I mean, well, Jed, as you know, we just completed a significant refinancing of $1,800,000,000. That refinancing went very, very well. We did that at an interest cost of 11 and 1/8%. And the free cash flow profile today is the same as when we conducted that refinancing. So, overall, we are focused on generating positive free cash flow. We expect to generate positive free cash flow in 2027, and we have a strong cash balance. Yeah. And, Jed, just keep in mind, as Mike indicated during the prepared remarks, free cash flow projection for this year includes the $60,000,000 of impact restructuring. Yeah. About a $130,000,000 year - on - year difference from the PIK moving to cash. So there is no more PIK debt that we hold today. I would say corporate travel and TMC traffic, which was trailing the market last year, we are seeing positive signs in the first part of this year. That is fairly broad, both with traditional or existing players as well as some of the new entrants. So we have good exposure to both parties. Yeah. So what is interesting—what is very different about, let me compare this to metasearch—is Google Flight Search or KAYAK, for example, where you get to compare as a consumer many different price points and then you get launched into a different ecosystem to consummate your booking, into the supplier direct or into the OTA, for example. What we have heard from effectively every agentic player and large tech platform that we have spoken to in recent months is they want to have an integrated end - to - end experience to include changes, servicing, etcetera, which does not sound like a metasearch experience whatsoever. It sounds more like an agency experience. And so, as Gary indicated, we think we are very well positioned to enable that. When you think about this on a channel basis—and I talked earlier about supplier direct, let us say non - loyal customers, and metasearch—we have a de minimis or almost no share impact from either of those two channels today. So as an intermediary, to the extent that those channels are impacted, that will have no adverse effect on Sabre. If OTAs are adversely impacted, that is between 20–25% of our intermediary trading volumes. But we think the OTAs, especially folks like Priceline or Expedia, are very well positioned to compete there. So we look at this and say, agentic and us backing the agentic is an offensive new opportunity. To the extent there is downside risk, the downside risk to us given our ecosystem is relatively small. Yeah. So as I mentioned earlier, in terms of the way we are working together here is that MindTrip is that front - end experience, where they are using agentic capabilities in order to really allow discovery and trip planning. So let us say你 want to go to Japan, you have two teenagers, one is into manga. You can tell it that, and it will start to suggest an outline of places to go, things to go and see. And then, combined with that, it will start calling us for hotel information as it is planning the itinerary to map out what a good hotel would be near a particular attraction that might interest you. And, eventually, it will start to all those as it builds the full itinerary. And then from that point onwards, as you decide, okay, this is the trip I actually want to go for, that is where PayPal comes into the mix. So PayPal, as I said earlier, they have the instant payment option, of course, but then also they provide installment payments. As you know, travel these days, particularly international travel, can get quite expensive. So the ability to pay in installments is also, I think, a very critical part of this particular experience. And then after that, we provide the booking and the servicing capabilities. So if, during the trip, you run into issues, you need to reschedule things, rebook, etcetera, you can come back to the MindTrip app and simply tell it that you would like to change your flight. So it is really an end - to - end experience for consumers as they look to discover, plan, book, and then be serviced throughout the travel experience. Great.