Sabre Corp Q3 FY2022 Earnings Call

Good morning and welcome to the Sabre Third Quarter 2022 Earnings Conference Call. My name is Amy 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 Vice President of Investor Relations, Kevin Crissey. Please go ahead, sir.

Thanks, Amy, and good morning, everyone. Thank you for joining us for our third quarter 2022 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 webpage. A replay of today’s call will be available on our website later this morning. We would like to advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including the duration and effects of COVID-19, industry and recovery trends, benefits from our technology transformation and commercial and strategic arrangements, our financial outlook and targets, expected revenue, costs and expenses, cost savings, 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 second quarter 2022 Form 10-Q and 2021 Form 10-K. 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 Sean Menke, Chair of the Board and Chief Executive Officer; Kurt Ekert, our President; and Mike Randolfi, our Chief Financial Officer. And with that, I’ll turn the call over to Sean.

Thanks Kevin. Good morning everyone and thank you for joining us today. On slide four, you can see an overview of the topics Kurt, Mike and I will cover on today's call. As usual, I'll start by providing perspective on the trends we are seeing in the travel marketplace, including specific bookings, passengers boarded, and hospitality CRS transaction trends. Kurt will then discuss the significant progress we made in the third quarter towards our technology transformation and provide further perspective for how our technology architecture is changing. He will also update you on a few commercial accomplishments in the quarter. Finally, Mike will take you through the financial results of the quarter and our financial outlook for the remainder of 2022. Before I start, I want to thank my Sabre team members worldwide. Over the past few months, I've been able to travel and meet with many of them. The fantastic work they are doing for our customers is helping drive us to be the premier global technology platform in travel. Turning to Slide 5. I'm pleased to report that our air booking volumes improved considerably throughout the quarter. Volumes, specifically in July, were impacted by both airline and airport operational constraints. As the quarter progressed, we saw solid improvements, which translated into our best quarter of recovery since the onset of the COVID-19 pandemic. These positive trends continued in October. The current strength is attributable to the global recovery, with Asia Pacific being the most pronounced. The total distribution booking recovery in the third quarter was 57% versus the same period in 2019. This equates to a 64% revenue recovery as a result of the higher booking rate achieved in the third quarter of 2022 versus the third quarter of 2019. Higher revenue per booking resulted from a continued improvement in international travel. IT Solutions passengers boarded recovered 96% in the third quarter versus the same period in 2019. Hotel CRS transactions in Q3 were 104% compared to the same period in 2019. Our key metrics remained strong in October, specifically as of the 26th of October, distribution bookings were at 60% versus the same period in 2019. Passengers boarding, excluding Radixx volumes were at 86% and CRS transactions were at 109%. Moving to Slide 6. Last quarter, we noted a $100 million annualized revenue opportunity if our Asia Pacific region were to recover to the average recovery of the other regions. I am very pleased to say, we are starting to see further positive signs in this region, particularly in international markets, which had been the slowest to recover. As we've discussed before, international bookings are generally more profitable than domestic bookings for Sabre. Accordingly, as international flying returns more fully, we expect our profitability to improve. Within APAC, our bookings improvement has been most pronounced in Taiwan and Hong Kong, where travel restrictions have recently been relaxed. Hong Kong bookings started Q3 at just 16% of the same period in 2019. By the end of the quarter, the recovery there was 29%. Taiwan is an even better story, with the quarter starting at 17% recovery and ending at 45%. Turning to Slide 7. Although, we are aware of the concerns regarding global economic growth, we don't see evidence of a slowdown in either leisure or corporate demand. In fact, we have seen fares globally remain very strong and well above the fares prior to the COVID-19 pandemic. We see the effect for domestic and international flights as portrayed here, but also for leisure travel, which tends to book well in advance of departure and for corporate travel. Our own internal review of fares being sold at walk-up, advance purchase between 7 and 21 days and 21 days and beyond are well above 2019 levels. It is also important to note that the average fare disparity between the purchase date is very small. Historically, there has been a more pronounced difference in the average fares based on advance purchase periods. Higher air fares encourage airlines to increase the number of seats they plan to fly. In fact, we are seeing this materialize with the large US network carriers. Current marketing schedules loaded for these carriers in the first quarter of 2023 reflect an increase in total seats to be flown of 1.6% versus 2019. This compares to total seats being down 11% and 9%, respectively, in the third and fourth quarter of 2022 versus the same period in 2019. More importantly, international growth is outpacing domestic growth. In the first quarter of 2023, seats to be flown internationally are currently up 3.4% versus being down approximately 10% and approximately 3.5% in the third and fourth quarters of 2022 versus the same period in 2019. Moving to slide eight, we thought it would be helpful given the news flow regarding the possible economic slowdown to present this slide again this quarter. We believe it provides perspective for how significantly COVID impacted global air travel in 2020 to 2022. In short, even with the recovery to-date, we believe the opportunity presented by a normalization of travel from COVID is significantly larger than the effect of any prior economic recession on global passenger traffic. Historically, the largest calendar drop in global passengers was only about 3%. We estimate global passenger traffic in 2022 will likely be about 1.5 billion passengers below what we would expect in a normalized year unaffected by COVID. Obviously, this is far greater than 3%. Let me now turn the call over to Kurt to walk you through the latest regarding our technology transformation and a few commercial highlights.

Thank you, Sean, and hello, everybody. I join Sean, first of all, in thanking my Sabre teammates around the world. They are pressing hard to serve or best serve our customers, achieve our goals and position Sabre for continued success. Now, please turn to slide number nine, we made solid progress in the third quarter toward our 2022 technology milestones, and our tech transformation remains on track to achieve stated goals by the end of 2024. As a reminder, our two key technology milestones for 2022 are: number one, to exit our Sabre-managed data centers and migrate to Google Cloud; and two, to offload passenger name record, a customer reservations database from the mainframe to Google Cloud and to begin client migrations. In the third quarter, we migrated Hospitality Solutions' Enterprise Central Reservation System to Google Cloud. In October, we migrated the property management system, which means we have fully transitioned all of our SynXis to Google Cloud. This important accomplishment is expected to make our hospitality business more agile, improve velocity and unlock the benefits of greater scalability provided by Google Cloud. Additionally, we expect that the cost bubble associated with these actions will abate by year-end, setting up for better financial performance for Hospitality Solutions in 2023. During the third quarter, we also migrated all air shopping from AWS to Google Cloud. This was the final step on a long journey with initial migration starting in 2017 when we moved the first workloads into our data centers. We now have the processing capacity we expect to need and can focus additional energy on product enhancements that we expect will generate additional value for Sabre and our customers. And finally, as you can see in the picture, we decommissioned and emptied our data center in Plano, Texas. We have also decommissioned more than 70% of the servers in our three other data centers in Louisville, Austin, and Carrollton. As we have outlined before, this technology transformation is a key driver of the expected savings and margin improvement outlook that we have provided for 2025. Let me now provide a bit more context. Turning to slide number 10, our unit cost of compute has been falling as we migrate our systems to our lowest cost infrastructure, Google Cloud. In fact, our monthly server cost on Google Cloud is less than half the cost of our data centers, both Sabre-managed and DXC-managed. It is also about 15% cheaper than our current monthly server costs on AWS. And this savings is before we have the opportunity to optimize our systems on Google Cloud, which we believe can create further cost savings. Now turning to Slide 11. This slide depicts how Sabre's computing volume has changed over the past 2.5 years and how we expect it to change by the end of 2024. The takeaway from this slide is how significantly less complex we expect our technology architecture will be. By the end of 2024, as per our original plan, we expect Google Cloud to be part of the key systems we operate and to represent approximately 98% of our computing volume. Before I turn the call over to Mike, I want to comment on recent commercial activity. In October, we announced distribution agreement renewals with two of the largest airlines in the world, American and United. These agreements continue our long-standing relationships with these flagship carriers, and we plan to collaborate to utilize Sabre technology and solutions to help advance their retailing objectives, while also meeting travel buyers' need for efficient workflows, choice, and transparency. We also strengthened our relationship with BCD Travel, one of the largest corporate travel management companies in the world. As part of this new agreement, BCD will increase its commitment to Sabre and will invest in joint technology development over the coming years. We look forward to continuing our relationship with BCD. And we expect booking conversions to accelerate in Q4 and through the first half of 2023 in connection with BCD and our previously announced expansions with American Express Global Business Travel and Hopper. We believe these expanded relationships will benefit content suppliers and travelers alike. Mike, over to you.

Thanks, Kurt, and good morning, everyone. Turning to Slide 12. Both revenue and adjusted EBITDA results improved year-over-year in the third quarter of 2022 as the travel recovery reaccelerated in mid-August from the July slowdown. Total revenue was $663 million, a significant improvement versus revenue of $441 million in Q3 last year, primarily due to the continued recovery in global air, hotel, and other travel bookings. Distribution revenue totaled $431 million compared to Q3 2021’s $245 million. Our distribution bookings totaled 80 million in the quarter. Compared to 2019, net air bookings recovered to 50%, 58%, and 59% in July, August, and September, and to 56% in the quarter as a whole. Our average booking fee was $5.38 in the third quarter, which compares to $5.35 last quarter, $5.28 in Q1 2022, and $4.96 in the fourth quarter of 2021. The sequential improvement is consistent with the recovery extending into more profitable regions and types of travel. Additionally, the average booking fee achieved in Q3 was 13% higher than in the same period in 2019. IT Solutions revenue totaled $173 million in the quarter. This is an improvement versus revenue of $145 million last year despite a challenging year-over-year comparison caused by the sale of our AirCentre portfolio in the first quarter of 2022. Passengers boarded totaled 180 million, representing a 96% recovery versus the third quarter of 2019. Hospitality Solutions revenue totaled $67 million, an improvement versus revenue of $55 million in Q3 2021. Central reservation system transactions totaled $32 million in the quarter and were 104% of 2019 levels. Adjusted EBITDA of $34 million was significantly better year-over-year as the recovery from the COVID-19 pandemic continued. The strong year-over-year improvement in revenue in the quarter was partially offset by increased travel solutions incentives expense and Hospitality Solutions transaction fees from higher volumes. As expected, our technology costs increased due to higher hosting costs associated with the volume recovery and higher labor and professional service expenses associated with our technology transformation. Adjusted operating profit, adjusted net income, and adjusted EPS all improved versus the prior year. Free cash flow was negative $123 million in the third quarter. To provide some context, it is important to note that there were some disbursements in the third quarter that typically have fallen in the second quarter. These disbursements include payroll timing and agency incentives totaling about $40 million. In addition, we had about $10 million in cash restructuring costs in the third quarter. Adjusting for these items, we would have reported meaningful sequential improvement in free cash flow from the second quarter to the third quarter. Sabre's fourth quarter has historically been a seasonally strong period for free cash flow. Accordingly, free cash flow will turn positive in the fourth quarter of 2022, driven in part by the continued travel recovery and typical seasonal cash flow favorability. We ended the third quarter with a cash balance of $804 million. Moving to slide 13, you can see a profile of our debt maturities on this slide. Our nearest maturity is $536 million of our Term Loan B in February 2024. We refinanced about 70% of this term loan in two transactions earlier this year, which was supported by strong demand by both previous and new lenders. At LIBOR plus 200, the Term Loan B is our lowest cost debt and meaningfully below what is available in markets today, which is the primary reason we have refinanced it over time. Our next nearest debt maturities after our Term Loan B are in April 2025. We are currently evaluating market opportunities to efficiently refinance our obligations, including our Term Loan B maturing in February 2024. Our annual interest expense based on our current debt profile prior to any additional refinancing and current interest rates is about $319 million. Our net fixed-to-floating debt is about 60% to 40%, every 25 basis points of interest rate changes annual interest expense by about $4 million. Given the recent moves in the US dollar, you may be wondering about our foreign exchange exposure. We have historically had about 10% of revenue and 20% of expenses denominated in our foreign currency. With our weighting toward a net expense exposure, we have experienced a modest benefit from the stronger dollar. However, the impact was immaterial to our third quarter results. Turning to slide 14. Moving to guidance, we expect fourth quarter 2022 revenue to be slightly higher than the third quarter as the benefit of the recovery is partially offset by seasonally lower bookings. We also expect adjusted EBITDA in the fourth quarter of 2022 to be approximately $30 million, assuming a distribution booking percentage recovery in the low 60s compared to the same period in 2019. For the full year, we expect adjusted EBITDA of approximately $90 million assuming distribution bookings of approximately 55% versus 2019. This outlook is better than the midpoint of our prior EBITDA guidance for a recovery range of between 50% and 60%. Importantly, free cash flow will be positive in the fourth quarter and is expected to be positive annually thereafter. In conclusion, travel demand has remained strong and the travel recovery is extending around the world. We are on track to achieve our technology transformation goals, and we expect higher profitability going forward.

Our first question comes from Matthew Broome with Mizuho Group. Your line is open.

Thanks very much. So it definitely gets to see your average booking fees continue to improve. Do you have any updated thoughts in terms of where you believe the average booking fees will level out at? And then what was the mix between corporate and leisure and international and domestic quarter?

Matthew, hi, this is Kurt. Thank you for the question. I'll start and then hand it over to Sean. So on net effective fee, we previously indicated a range of $5.30 to $5.55 per booking. We are currently closer to the lower end of this range. So we do believe that there remains some opportunity for revenue per booking to increase as our business mix continues to improve.

Yes, Matt. A couple of things are happening. When we look at short haul and long haul, it's clear that, if you recall at the start of the pandemic, leisure travel was the first to recover in the short haul segment. Over time, we've observed the gap narrowing, meaning that short-haul corporate travel has also bounced back. Right now, our focus is on international travel, which is why we monitor capacity levels closely. There's a combination of leisure and corporate travel involved, and I would still say leisure is the primary factor driving that growth. However, as airlines continue to increase capacity, the three largest carriers in the US are confident about the recovery of corporate travel, as they rely on the early stages to support new developments. This is the current landscape we’re observing.

Okay. Thanks. And then maybe just on the Global Business Travel Group, that partnership, have you seen some volume from that partnership ramp up during the quarter or perhaps in October?

Matthew, thank you. We're seeing initial conversions from the GBT partnership, we will see those conversions accelerate in Q4 and basically through next year. Likewise, we're going to see BCD and Hopper volume beginning to accelerate during this period. Collectively, this is a tailwind for 2023.

Thank you. Please standby for our next question. And our next question comes from the line of Mark Moerdler with Bernstein. Your line is open.

Thank you very much. And it's nice to see the improvement kicking through. I've got two questions, if you don't mind. The first is about free cash flow. You're expecting it to turn positive next quarter. It was meaningfully negative. You gave us some of the puts and takes. But how do we think what's going to be the big driver of that improvement into next quarter? And why does that continue to sustain? And then next, some follow-ups.

Sure. Thank you, Mark, for that question. And let me just provide a little bit of historical context on our free cash flow trends. If you go back to the pre-pandemic period, the fourth quarter historically has been a very strong free cash flow period for Sabre. And it essentially has to do with the timing of payments between when we receive payments from various partners versus when we make other disbursements to other partners. And so just the way those payments flow, the fourth quarter tends to be very favorable. That is seasonality that we expect to continue, and we'll see in the fourth quarter. And let me just elaborate a little bit more on those trends because I think it may be helpful to you: if you look at our prepared statements, looking at Q2 to Q3 to Q4. If you look at Q2 and you said we had negative $89 million of free cash flow, and you take into account that there was about $40 million of payment timing that essentially happened in the third quarter that would more typically occur in the second quarter. But what that would imply is that the adjusted trends are more like negative $130 million of free cash flow in Q2, more like negative $70 million in Q3, and then with the seasonal benefit positive in Q4. And so with that, I would say we will be positive free cash flow in the fourth quarter, and we expect to be positive in 2023 and annually thereafter.

Should we assume that the trajectory of free cash flow moving forward is primarily influenced by a combination of revenue and mix growth along with the benefits from the cloud transition savings?

I think you've got the main points. As we enter 2023, we have a range of positive factors. While we do face some challenges, the positives outweigh the negatives. The key aspects you mentioned are significant. We still have much progress to make in our travel recovery, and we've experienced notable successes with GBT, Hopper, and BTD. As indicated on slide 10, we are beginning to benefit from reduced computing costs, which will support our growth in 2023. Furthermore, as our business expands, we anticipate advantages in SG&A expenses. Therefore, as our revenue increases, we expect strong conversion from revenue to EBITDA to free cash flow. The primary challenge we face is the rise in interest rates. However, overall, we believe the benefits will greatly outnumber the challenges.

That's very helpful. Following up on that. Yes, I like slide 10. It's very impressive to see how much of an average cost of compute has been going down as you're switching. Should we expect the cost per compute on Google Cloud to decrease meaningfully, or is the upside from, A, moving all existing workloads to Google Cloud, and B, some optimization. And then within the optimization, is that more like a single double-digit tailwind or could it be better than that?

Yes, Mark, let me jump in on this one. So, first, it's sort of the shift over to just to Google Cloud, and that is essentially the contract that we have in place, and that's a very long-term contract that we'll be able to have those savings for a long period of time. So that's the bulk of the savings that you're going to get. What we're finding right now, and this is where the teams are spending a lot of time with the Google engineers on what are the optimization things that can take place. And what's nice about this is we're actually having sort of tri-party conversations with even some of our customers as it relates to their compute requirements and how do we begin to drive efficiencies, not only with what we're doing but also with what some of our customers are doing. And this gets into some of those relationships that we're talking about with the agency. So we haven't been able to quantify that completely yet, Mark, because we're sort of still working through it. But as we gain more clarity, we will definitely be disclosing that.

Beautiful. I really appreciate and looking forward to seeing all the numbers start to move in the positive next quarter and congrats. A lot of hard work.

Thank you. One moment for our next question. And your next question comes from the line of James Goodall with Redburn. Your line is open.

Yes, hi, everyone. Thanks for taking my questions. So my first one is just having to think about sort of the debt refinancing, given the difference in rates and the size, what are your thoughts on refinancing the more expensive and larger 2025 debt before the remaining 2024 Term Loan B, which is comparatively cheaper, and I guess, lower absolute value?

Yes. I mean, first, what I would say is, we're obviously thinking about one, our 2024 maturities and has followed on by that, our 2025 maturities. And first, what I would say is before I joined Sabre, one of the things that I was very impressed with is how the company has managed its balance sheet, how it's managed financings, and how it's managed liquidity in what was really an incredibly challenging time. And I would just say kudos to Sean and the treasury team really did an amazing job there. What I would tell you is we're going to be opportunistic and try to approach it in a way that's most efficient for shareholders. If you look at a proxy in terms of how the markets have changed, probably the best proxy is our August refinancing, which was at plus 500. And so it gives you some idea of at least where the markets were in August when we completed that refinancing relative to our current term loans and our current debt structure.

Great. Thank you. And then just my second one on the free cash flow guide for next year of being positive. Are you able to give a bit of color on phasing, I guess, in other words, are you looking for that to be positive in both H1 and H2, or would you expect H1 to be negative and H2 to be positive given sort of the working capital that you see in H1 versus H2?

Yes, James, we'll provide more color and context on the February earnings call regarding how we see the year playing out.

Thank you. One moment for our next question. And your next question comes from Jed Kelly with Oppenheimer. Your line is open.

Thanks for taking my question. I have two inquiries. First, regarding the outlook for next year, previously it seemed your adjusted debt expense might decline by mid-single digits starting next year. Is that still accurate? Secondly, could you discuss how the stronger dollar is affecting long-haul travel? Is there any offset or headwind due to the increased ticketing costs?

I'll take the first part, and Sean will take the second part. On technology expense in aggregate, we do expect technology expense in aggregate to be lower in 2023 than 2022. It's made up of two components essentially. We have our tech investments, essentially our bubble cost. Those are still significant in 2023. It's still one of the significant years and then starts to taper down a bit in 2024. The reason that we have a net decline in tech expense is really because of a lower cost to compute, and we're really starting to see the benefit of that. So, the net of those, we would expect to be a slight decrease in tech expense in 2023. But we'll provide more color on 2023 overall on the next earnings call.

And Jed this is Sean. I'll pick up on the second question. So, if you look at it relative to the strong dollar, I think the one thing that we definitely have been seeing is that those individuals within the United States traveling overseas, that has been actually called out by the major carriers here in the United States relative to what they think is driving some of that strong demand. If you think maybe more long-term because I think it gets into, is there an impact long-term? I think the important thing that we keep is really trying to drive everybody back to is sort of where we are in the recovery cycle. That's why we call out from a normalized perspective, we're sort of down 1.5 billion passengers. And even with some of the headwinds that we're seeing being on the inflation side or concerns about a recession, the things I keep coming back to and pointing out are what we're seeing as it relates to the global regions and the recoveries that we're seeing in the global regions. And I am ecstatic about what we're seeing in APAC right now. Leisure continues to be strong. What I would tell you is on the business side, and this is just looking at the TMC. So, this is more specific to the United States, but we've seen actually a progression of that's taking place coming out of the third quarter into the month of October that there's been a step up. So, as that continues to recover, we will be the beneficiary of that. The other thing that continues to be out there is just higher average fares, right? We are just not seeing average fares come down. They came down for a period of time, call it, in the July, August timeframe when we saw some issues associated with the operation, but we've seen those sort of improve as well. And essentially compression that's taking place there, and we're seeing that capacity being thrown into the marketplace. So, again, all the signs that we're seeing outside of what's happening with the valuation of the US dollar. We think that's a tailwind for specifically the US airlines, but we're just looking more on the global macro perspective. And again, we're seeing just green signs relative to what 2023 looks like.

Got it. As the airlines return to normal, can you discuss the progress of your conversations regarding your solutions segment with the airlines? Are they beginning to reopen contract negotiations for IT solutions? Thank you.

Thank you, Jed. First of all, we believe we are very well-positioned for medium to long-term growth in the Airline IT segment. We are observing a significant trend among carriers, particularly network carriers, towards improving their merchandising and retailing efforts. You may have heard of the one order vision promoted by IATA on behalf of global airlines. We are currently engaging with several airlines to help them address this opportunity. We are excited about the potential to collaborate with our customers and prospects to enhance the marketplace.

Thank you.

Thank you. And our next question comes from Josh Baer with Morgan Stanley. Your line is open.

Great. Thank you for the question. I had a couple on guidance and the longer term targets. I guess, first, in Q4 with slightly higher revenue than Q3, can you talk for a minute about the Q4 EBITDA guidance? Just wondering why it would move lower versus the results from this quarter given the higher top line and just all the momentum on international opening up higher margin and the progress on the tech transformation cost of compute savings?

Yes. On the movement from Q3 to Q4, what I would say is Q3 had some favorable cost trends from an SG&A standpoint. And then as we move into Q4, we do have some specific investments within SG&A that are benefiting 2023. And so you just have slightly higher costs moving from Q3 to Q4, and that's the primary difference on adjusted EBITDA. And sorry, what was the second question?

Yes. And then on the 2025 targets, I just wanted to check like the ranges and scenarios still stand?

Yes, they do.

Okay. And then I would just like putting some numbers around like just the 80% scenario, really you could pick any of them. But bridging from the 55% recovery for this year and the $90 million in EBITDA and then getting to $900 million in EBITDA, in the 80% recovery scenario. Even if you back out like $150 million in tech savings, I think I'm getting to a low 50% incremental EBITDA margin on the increased revenue from 22 to 25. Is that the right type of incremental margin, or am I missing something?

We believe that our outlook on the travel recovery is very positive. We are successfully competing in the marketplace, as evidenced by our recent wins. The tech transformation has also played a significant role, contributing to approximately $100 million to $150 million in savings, which corresponds to an 80% recovery. As our revenue increases, we anticipate strong scalability in terms of SG&A. Consequently, we expect our overall EBITDA margins to rise when compared to 2019. In that year, our adjusted EBITDA margin was about 22%. Our targets suggest that margins could reach between 23% and 28%, depending on the level of recovery, making margin improvement a reasonable expectation at those recovery targets.

Okay. Thank you. Appreciate it.

One moment, please. Our next question comes from Victor Cheng with Bank of America. Your line is open.

Thanks for taking my questions. A couple, if I may. So first of all, can you provide a bit more color on bookings recovery by region, given I'm just looking at the trend one percentage point improvement in the last two months. And presumably, the bulk of that is kind of APAC. So is it fair to assume that EMEA or US recovery has somewhat flattened?

Yes. Let me help you sort of with what we have been seeing. So what I would tell you is the once the September and October, and October was probably the best month of recovery that we have seen, and this is on a global basis and what's taking place. Let's start with APAC. If you remember, APAC at the beginning of the year was down in, call it, the 80% range. What we've seen with APAC to-date, and it's really looking at the September, October timeframe, they're recovering or they're down less than 30% now. So, you're thinking about a 60% recovery. What we're seeing in the EMEA marketplace has been one that it's probably at the top end of recovery, but we have seen it flatten out a little bit. Part of that is, if you dig into the capacity that is being grown by some of the major carriers within Europe. That has slowed. So, we're watching what's happening there in the first quarter as well. Latin America after being hit with some significant cases of COVID has continued to improve greatly in what's happening. And then the US, as we look at it, this is where we're looking at essentially the capacity improvements and what's taking place. We're seeing incremental improvements in the bookings, but it's not the big steps that we were seeing before. So, I think part of what you're finding is there needs to be more capacity in the marketplace because the demand is sitting there, and that's what airlines are trying to do on a global basis. So, it's sort of that demand they're waiting for the supply. We know when the supply is there, the demand is following. So, that's sort of the breakdown of what we're seeing right now, Victor.

Thanks that’s useful. I got a couple of follow-ups on the volume recovery. And just thinking about using cash flow positive for the full year next year, what were you thinking in terms of the minimum volume recovery for you to be cash flow positive?

Yes, I would say, as you noted, we expect to be free cash flow positive next year and annually thereafter. We'll provide a lot more color and context on trends and assumptions in the next earnings call, but it's not something we would be doing on this call.

Got it. Regarding the BCD partnership you announced yesterday, will it make a significant contribution to bookings for next year? If I remember correctly, I thought they were already using Sabre as their primary TDS.

Victor, thanks. This is Kurt. So we're very excited about the BCD partnership. It's a long-term partnership. We did have an existing relationship with BCD. There is meaningful growth with BCD with this partnership. One, there's a commercial partnership; two, not dissimilar to the GBT relationship we have. This relationship will involve investment by BCD and technology development being done by Sabre that we'll be sharing with the broader marketplace. So, this is, as I mentioned on the call, a good tailwind for us for next year.

Got it. And then just maybe one final point. A final question is on hospitality, whether you have explored any potential sale on hospitality IT given hotels are increasingly looking for a unified platform across CRS and PMS. And since you have plans to develop or if not, then do you have plans to invest more in hospitality and any capabilities that you're looking to expand?

Yes. On the hospitality side, the opportunity in that space is very strong. We've clearly observed both from the airline sector and the hospitality side the importance of retailing capabilities. The retailing studio we have is receiving great feedback from our customers. The tech transformation we've undergone has been significant, which has contributed to some cost pressure this year. However, that pressure is starting to ease now, creating a positive outlook for 2023. Additionally, our acquisition of Nuvola, while small, is crucial for enhancing our retailing capabilities, particularly in fulfillment. We are focused on ensuring we meet the needs of hoteliers and help them generate more revenue through retailing. Our goal is to grow our hospitality IT in the same way we are advancing our Airline IT.

Got it. That's clear. Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Menke for closing remarks.

Thank you, Amy. I want to express my gratitude to my team members around the world for their hard work and dedication during this recovery phase. Throughout this call, I've highlighted many positive indicators regarding our progress. We have made significant advancements in our technology transformation, and as we enter 2023, we are in the final stages of this journey. This year is pivotal, contributing to our overall expenses and ongoing developments. I believe this sets us up for a promising future, which wouldn't be possible without the dedication of our team, and I think that's very important.

This concludes today’s conference call. Thank you for participating. You may now disconnect.