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Global business travel group, inc. (nyse:gbtg) q3 2023 earnings call transcript.

Global Business Travel Group, Inc. (NYSE: GBTG ) Q3 2023 Earnings Call Transcript November 7, 2023

Global Business Travel Group, Inc. beats earnings expectations. Reported EPS is $-0.02, expectations were $-0.3.

Operator: Good morning. And welcome to the American Express Global Business Travel Third Quarter 2023 Earnings Conference Call. As a reminder, please note today's call is being recorded. I will now turn the call over to the Vice President of Investor Relations, Barry Sievert. Please go ahead.

Barry Sievert: Hello. And good morning everyone. Thank you for joining us for our third quarter earnings conference call. This morning we issued an earnings press release, which is available on SEC.gov and on our website at investors.mxglobalbusinesstravel.com. A slide presentation, which accompanies today's prepared remarks is also available on the Amex GBT Investor Relations webpage. We would like to advise you that our comments contain forward-looking statements, that represent our beliefs, our expectations about future events, including industry and macroeconomic trends, cost savings and acquisition synergies 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 and other risks and uncertainties is contained in our earnings release issued this morning and in our other SEC filings. Throughout today's call, we will also be presenting certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, free cash flow and net debt. All references during today's call to such non-GAAP financial measures have been adjusted to exclude certain items. Definitions of these terms and the most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the supplemental materials of this presentation and in the earnings release. Participating with me today are Paul Abbott, our Chief Executive Officer; and Karen Williams, our Chief Financial Officer.

Also joining for the Q&A session today, is Eric Bock, our Chief Legal Officer and Head of Global M&A. With that I will now turn the call over to Paul. Paul?

Paul Abbott: Thank you, Barry. And welcome and thank you all for joining our third quarter earnings call. In the third quarter, we once again delivered outstanding financial results, driven by our focus on margin expansion, cost savings, Egencia synergies and continued share gains. Our results are ahead of guidance with revenue and adjusted EBITDA growth of 17% and 135% respectively. Importantly, we generated very strong free cash flow in the quarter that was ahead of expectations. I'm pleased to report, we are now free cash flow positive on a year-to-date basis. This is an important milestone for the company and an inflection point that demonstrates our continued momentum. Based on this, we have the confidence to reiterate our full-year 2023 revenue and adjusted EBITDA guidance, and we are increasing our expectations for free cash flow for the full-year.

Strong demand for our leading software and services in the quarter resulted in continued share gains. We reported new wins value of $3.3 billion over the last 12 months. We also have continued momentum in our product and our technology leadership, with 77% of transactions now coming through digital channels, further contributing to our cost savings. SME customers represent the largest growth opportunity, with the fastest growth and the highest margins in the industry. And our results continue to be very encouraging. We reported double-digit SME transaction growth and strong SME new win value of $2.2 billion over the last 12-months, including a significant contribution from previously unmanaged customers. Finally, our focus on delivering significant margin expansion is clearly evidenced in our third quarter results.

Adjusted operating expenses increased to 7%, compared to 17% revenue growth. And our adjusted EBITDA margin was up 9 percentage points year-over-year and 2 percentage points over the third quarter of 2019. Adjusted operating expenses decreased quarter-over-quarter and we expect this momentum to continue into the fourth quarter. Turning to transaction growth, the industry is transitioning to more normalized growth rates, but our third quarter transaction and TTV growth remains strong. Third quarter transactions increased 7%, driven by demand for business travel and our ongoing share gains. The reported growth rate in the quarter was negatively impacted by approximately one less workday in the third quarter of 2023. So on a workday adjusted basis, transactions actually increased 9% in the quarter versus 2022.

TTV grew 8% or 10% on a workday adjusted basis. Looking at our trends in more detail. We're going to focus here on the workday adjusted growth rates. We continue to see relatively faster growth from SME customers. Our strategy and our focus on SME growth is clearly paying off. And SME transactions were up 10% in the quarter. Global multinational transactions were up 7% in the quarter. Growth in hotel transactions outpaced air by 5 percentage points up 11% and 6% respectively. This is driven by a continuation of the trends that we've seen over the last several quarters, as well as our focus on increasing the volume of hotel bookings as we continue to strengthen our hotel content and our hotel display. International Air transactions continued to outperform, domestic up 7%.

Finally, here on a regional basis, growth in the Americas and EMEA, were up 8%, 9% respectively. Asia-Pacific continued to outperform, but starting to show year-over-year signs of normalization with growth of 12%. So, turning to the commercial highlights for the quarter, we continue to gain share, with a reported 3.3 billion of total new wins. And importantly we maintained our strong customer retention rate of 95%. Our biggest opportunity remains in the SME segment, and this represents a total opportunity of approximately 950 billion of travel spend. Within the SME segment we are already the number one player in managed travel, but 70% of this SME opportunity is not currently in a managed travel program and with our leading software and services that are proven at scale globally.

We are very well positioned to capture the significant opportunity. And our results continue to prove this out. SME new wins value over the last 12-months, totaled 2.2 billion, of this approximately 30% has come from previously unmanaged customers. Customers who are looking for the service, and the savings and the control that our solutions provide. In addition to the strong SME new wins, we continue to gain share across sectors in global and multinational. I'm very pleased to report our recent global multinational new wins include Blackstone, the world's largest alternative asset manager, Fortescue, one of the world's leading mining companies, Warner Brothers Discovery, of course one of the leading media and entertainment companies in the world.

And finally, one of the world's largest global financial services firms. Our growth algorithm is driven by organic growth and net new wins and share gains. Although we can't control the macro environment, we can control the share gains, and net new wins, and we are very confident in the strength of our future sales pipeline and expect our strong new sales momentum to continue. As we head into 2024 even if macro events do result in a lower growth environment, we expect new wins alone to provide a baseline of 4 to 5 percentage points of volume growth in 2024. And finally, here we were recently awarded EcoVadis Platinum, for the second year in a row. This places us in the top 1% of independently assessed companies across the world and demonstrates our commitment to the highest standards of sustainability.

Moving onto our product and technology highlights. We have the leading software platforms across all segments of business travel, in Egencia and Neo. These solutions are proven at scale on a global basis and they bring together the best people and the best technology in the industry. Owning our own software platforms enable us to improve the end to end customer experience, to increase automation and to reduce our operating costs. 77% of our transactions now come through digital channels, but over the last four years, we've seen an increase of approximately 12 percentage points in our share of digital transactions. Transactions on Neo, and Egencia increased 13% in the third quarter, which is well above our overall transaction growth of 7%, highlighting more and more share moving to our own software platforms.

As a direct result of customer demand that we're seeing for our proprietary software solutions. Over 60% of our digital transactions now come through our own proprietary platforms, Egencia and Neo. We are constantly working on new and innovative ways to meet and exceed customer needs. Recently, we expanded our live chat services to Microsoft Teams, and we now have six different chat channels, so that customers can efficiently manage their travel in the enterprise solutions that they use every day. This increases customer satisfaction, it promotes more bookings through our marketplace. Year-to-date our Amex GBT mobile app user growth has nearly doubled, mobile interactions grew by more than 140% and chat volumes are up almost 50%. And this is important because it also unlocks a significant opportunity for us through AI powered solutions, for both improving the productivity of our people and improving the customer experience.

40% of our costs, are people serving customers in the voice channel. Using AI and automation to drive efficiency is something we've been doing consistently for several years, including our acquisition of 30SecondsToFly, a company that specializes in travel artificial intelligence. But looking ahead, we have an even bigger opportunity. With generative AI and large language models, we have the opportunity to drive further efficiency at an accelerated pace. Finally, we continue to ensure that our customers have access to the most comprehensive and the most competitive content in our marketplace including NDC content. In the third quarter, we continued our expansion of NDC and are now working with 10 airlines on NDC initiatives. So to sum up our third quarter performance.

We again delivered outstanding financial results, with strong revenue growth and positive year-to-date free cash flow. We remain highly focused on driving margin expansion, through cost savings and delivering on the Egencia synergies. This combined with our strong new wins and a growing momentum we have in the SME segment, gives us the confidence to reiterate our full-year 2023 revenue and adjusted EBITDA guidance and increase our expectation for full-year 2023 free cash flow. So that completes my review of the Q3 highlights. I would like to hand it over to Karen, to discuss the financial results in more detail, before moving on to our balance of year outlook.

Karen Williams: Thank you, Paul. And hello everyone. So before I get into the details, let me give you the highlights. As you will recall, my three key priorities when it comes to managing our financial performance are: First, achieving outstanding financial results by growing revenue, growing adjusted EBITDA and increasing free cash flow. Second, driving continued margin improvement. And third, creating capacity to invest and drive long-term sustained growth. As you've heard from Paul, we delivered strong results in the third quarter, continuing to drive momentum and strong performance year-to-date. In the quarter, we grew revenue by 17% year-over-year. We increased our adjusted EBITDA margins 9 percentage points above prior year, reported positive free cash flow, totaling $107 million in the quarter and importantly are now free cash flow positive for the year.

We are putting incremental investments in the quarter. And so, year-to-date, we have triggered just under $30 million of OpEx and CapEx investment on an annualized basis, focused on pricing our sales and marketing engine, investing in our own software platforms and AI. Looking at the third quarter results in more detail. Revenue of $571 million, increased 17%. This was ahead of our guidance. We have solid transaction growth of 9% on a workday adjusted basis and we saw continued outperformance on our yields. As a reminder, our revenue model is driven by volumes, sales, and recurring revenue. And so, as I have said, our outperformance was primarily driven by our yield, which is measured as revenue over TTV, have reached 8% in Q3. The strong revenue yield in the quarter was driven by our continued focus on revenue optimization and by the recovery momentum we have seen in 2023 particularly as a result of the stronger year-over-year international mix.

Additionally, as we look at the demand coming from meetings and events, we continue to see strong performance with double-digit growth. Now before we talk about adjusted EBITDA, let's discuss expenses, which is a key area of focus for us. Our adjusted operating expenses increased 7% in the quarter, while revenues grew 17%, while as transaction growth drove increased cost of revenue and investments in the business results in higher sales and marketing spend, our drive to improve margins realized the Egencia synergies of which we are on track to exceed our $60 million of expectations this year and our cost saving initiatives resulted in a net $9 million reduction quarter-over-quarter. And so this performance translates into delivering $95 million of adjusted EBITDA and significant margin expansion in the third quarter.

Adjusted EBITDA margin reached 17%, up 9 percentage points year-over-year. And notably, the strong margin performance was also 2 percentage points ahead of third quarter 2019 pro forma adjusted EBITDA margin. As I've said in my opening comments, we achieved free cash flow generation of $107 million in the third quarter. This was driven primarily by net working capital actions. We have provided more details on free cash flow in the appendix of our earnings presentation, which I'm not going to walk through on this call, but encourage you to review to provide more context. On our last two calls, I’ve discussed the Egencia working capital initiatives. Once again on the things within our control, we are delivering. On this critical initiative we are realizing the benefits earlier than expected.

Approximately $60 million of the positive free cash flow generation came from these initiatives and I expect to see a similar level of benefit in Q4. Additionally, it is important to remember the seasonality of our business, where cash usage decreases in H2, versus H1. And this is certainly reflected in our third quarter performance. And so importantly, we are now free cash flow positive on a year-to-date basis. This is another pivotal moment for the company. Our leverage ratio, or net debt divided by last 12 months adjusted EBITDA, is now 2.7 times as of September 30th. Our net debt is now $927 million. This in a very significant step down for us as a company and a critical proof point in terms of the momentum and focus on the balance sheet.

We are now in our target range of 2 times to 3 times net leverage. This reduction in our leverage ratio will drive 75 basis points of interest rate reduction on our outstanding term loan, beginning later in the fourth quarter. And just as an additional point to note, we expect a further step down in our net leverage during Q1 2024, which will drive a further 75 basis points of interest rate reduction. And so let's discuss guidance. Turning to the fourth quarter in more detail, we are maintaining Q4 guidance, with revenue expectations of $535 million to $550 million. As a reminder, revenue growth in Q4 is lower due to the outperformance of supplier yield in the fourth quarter of 2022. We saw a different phasing through last year with the majority of performance payments paid in the fourth quarter, resulting in revenue yield of 8.9% in Q4, versus 7.4% in the prior two quarters of 2022.

As already discussed, we are very focused on margin expansion and cost reduction. We expect operating expenses to continue to trend down sequentially in the fourth quarter. This is driven by the changes we announced in January relating to our reorganization. Egencia synergies increased digital adoption and our overall focus on productivity. This results in fourth quarter expectations for $75 million to $85 million of adjusted EBITDA, with an adjusted EBITDA margin of 14% to 15%, representing year-over-year adjusted EBITDA margin expansion of 6 to 7 percentage points. Turning to the full-year, given our outperformance particularly on revenue yield in the third quarter, we expect to be at the higher end of our revenue guidance range. This would represent 23% of revenue growth year-over-year.

But given the investments I previously mentioned, we expect to be closer to the midpoint of our adjusted EBITDA guidance range. This represents an adjusted EBITDA margin of 16% to 17% with productivity gain and high operating leverage, delivering 10 to 11 points of year-over-year margin expansion. Looking beyond the end of this year, we are currently working through our 2024 planning process, We obviously recognize that the economic and political environment has become more uncertain and it is difficult to predict the impact this may have on business travel demand in 2024. And while we aren't ready to establish 2024 guidance at this point, I want to provide some insight into how we are thinking about next year. Our top line growth is driven by organic growth and net new wins.

As we shared before, business travel demand has grown at or above GDP for decades. So it is logical to assume organic growth will track at or above GDP next year. And there are couple of data points externally, that I want to draw your attention too. Our clients and GBTA polling are supportive of continued growth in business travel. This is seen in our most recent customer survey, which shows that 88% of our top 100 customers expect their travel spend to be flat or up in 2024 versus 2023. And GBTA in his most recent poll results shows that 72% of buyers expect travel budgets to increase or hold steady in 2024. But let's turn to what is in our control and quite frankly we are delivering outstanding results. On top of organic growth, you've heard us talk about our share gains and we expect our net new wins to contribute 4 to 5 percentage points of volume growth in 2024.

This is a strong baseline going into next year. Finally, we expect our continued focus on productivity and cost savings to drive further margin expansion in 2024. We will continue to benefit from our Egencia synergies and cost saving initiatives and expect continued momentum in margin expansion. So in summary, we delivered strong third quarter revenue growth, significant adjusted EBITDA margin expansion, positive year-to-date free cash flow, reduced our net leverage ratio and creating capacity to invest for the longer-term growth. We are delivering strong results, we feel confident in our full-year 2023 guidance and we are well positioned heading into 2024 and beyond. So we can move into Q&A. Paul, and I joined by Eric Bock, who is our Chief Legal Officer, Global Head of M&A and Compliance & Corporate Secretary.

Operator, please go ahead and open the line.

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American Express Global Business Travel to Report Third Quarter 2022 Financial Results on November 10, 2022

NEW YORK --(BUSINESS WIRE)-- Global Business Travel Group, Inc. (NYSE: GBTG), operating American Express Global Business Travel (“Amex GBT”), the world’s leading B2B travel platform, today announced that it will report third quarter 2022 financial results on November 10, 2022 , before the market opens followed by a live audio webcast at 9:00 a.m. ET . Paul Abbott , Chief Executive Officer, and Martine Gerow , Chief Financial Officer, will discuss Amex GBT’s financial performance and business outlook.

The webcast is expected to last approximately one hour and will be accessible by visiting the Investor Relations section of Amex GBT’s website at www.investors.amexglobalbusinesstravel.com . A replay of the webcast will be available on the website for at least 90 days following the event.

About American Express Global Business Travel

American Express Global Business Travel is the world’s leading B2B travel platform, providing software and services to manage travel, expenses, and meetings & events for companies of all sizes. We have built the most valuable marketplace in B2B travel to deliver unrivalled choice, value and experiences. With travel professionals in more than 140 countries, our customers and travelers enjoy the powerful backing of American Express Global Business Travel .

Visit amexglobalbusinesstravel.com for more information about Amex GBT. Follow @amexgbt on Twitter , LinkedIn and Instagram .

View source version on businesswire.com : https://www.businesswire.com/news/home/20221027006139/en/

Media: Martin Ferguson Vice President, Global Communications and Public Affairs, American Express Global Business Travel [email protected]

Investors : Barry Sievert Vice President Investor Relations, American Express Global Business Travel [email protected]

Source: Global Business Travel Group, Inc.

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