Earnings Call Transcript - SABR Q4 2023

Operator, Operator

Good morning and welcome to Sabre's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Olivia and I'll be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to the Senior Vice President of Investor Relations and Treasurer, Brian Evans. Please go ahead, sir.

Brian Evans, Senior Vice President of Investor Relations and Treasurer

Thank you and good morning everyone. Welcome to Sabre's fourth quarter and full year 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 webpage. 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 effects of cost efficiencies and growth strategies, distribution volumes, benefits from our technology transformation, commercial and strategic arrangements, our financial guidance and targets, expected revenue, adjusted EBITDA, free cash flow, interest, capital expenditures, 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 Form 10-K for the year ended December 31st, 2023. Throughout today's call, we will also be presenting certain non-GAAP financial measures. References during today's call to 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 on other documents posted on our website at investors.sabre.com. Participating with me are Kurt Ekert, President and CEO; Mike Randolfi, Chief Financial Officer; Scott Wilson, Executive Vice President and President of Hospitality Solutions, will be available for Q&A after the prepared remarks. With that, I'll turn the call over to Kurt.

Kurt Ekert, President and CEO

Thanks, Brian. Good morning everyone and thank you for joining us today. I'm pleased this morning to discuss the many accomplishments of the Sabre team. Earlier today, we reported our fourth quarter and full year 2023 results that included strong revenue growth, significant margin expansion, and substantial increases in both adjusted EBITDA and operating cash flow, which allowed us to achieve our free cash flow objective for the year. In addition to reviewing our financial performance, I will also spend time highlighting the recent achievements in our technology transformation, our many commercial wins, and our product innovations that help position our portfolio for the future of travel, while helping to deliver sustainable growth. Now, let me walk through the agenda for today's call. On Slide 4, you can see an overview of the topics that Mike and I will cover. First, I will review our business highlights and accomplishments from 2023. Next, I'll provide a brief overview of how the industry landscape is evolving. Finally, before handing it over to Mike, I'll close with a review of our growth strategies and how we believe they position Sabre for success. Mike will then take you through the financial results for the fourth quarter and full year 2023 and provide an update to our 2024 guidance and 2025 targets. 2023 was a year of strong execution at Sabre. Our team members around the world delivered the commercial, operational, and product development success that drove the strong financial results depicted on this slide. We generated 15% top-line growth in 2023, improved our efficiency, and effectively contained costs. These achievements combined to drive significant margin expansion and growth in adjusted EBITDA with a $272 million year-on-year improvement. Importantly, our team achieved positive free cash flow, excluding restructuring for full year 2023, which was one of our primary financial priorities. These strong financial results supported our innovation and product development initiatives that are essential to achieving Sabre's long-term strategic priorities. Turning to Slide 6. As a reminder, we have four key strategic priorities that drive our long-term direction and form the foundation of our resource allocation and decision-making. As I refer to each priority, I will briefly touch on some of the 2023 accomplishments listed on this slide. First, generating positive free cash flow and deleveraging the balance sheet remains important financial objectives. As mentioned, the significant improvement in our adjusted EBITDA in 2023, in addition to our working capital initiatives, helped deliver positive free cash flow for the year, after excluding restructuring. On our second priority, achieving sustainable long-term growth, I am pleased to announce that we continue to grow our share of GDS industry bookings which I will touch on in a moment. We are encouraged by the momentum we are seeing with our carrier and corporate customers and believe we will achieve further GDS market share growth ahead. Turning to Hospitality Solutions. Our team delivered strong financial results in 2023 that exceeded our initial forecast for growth and profitability. We expect this momentum to continue in 2024, including from our Hyatt enterprise implementation and a number of additional business wins. On our third strategic priority, which is to drive innovation and enhance our value proposition, we've reached an important next step in our strategic partnership with Google. As I mentioned last quarter, Sabre engineering teams are now developing products and solutions that harness Google's cutting-edge AI capabilities, which translated into several successful product launches earlier in 2023. For example, Upgrade IQ, which optimizes airlines' premium cabin inventory. We believe this important partnership is essential to providing our customers with intelligent retailing solutions and modern distribution technology. As another area of excellence in execution by our team, our technology transformation to the cloud continues on schedule and we expect to achieve our stated goals by the end of 2024. In addition to the cost and operating efficiency gains we are already seeing, our migration to the cloud provides a more powerful launch pad on which to create, develop, and distribute future product innovation needs. Before I move on, I want to take a moment to say thank you to our team members around the world for delivering these results, for consistently providing superior service to our customers, and for providing the exciting new technology that makes me so proud to be a member of the Sabre team. It is this collective commitment to continuous innovation and service to our customers that personifies our culture. Travel Solutions delivered impressive financial results in 2023 across many key metrics. Strong GDS bookings growth and continued improvement in the average fee from a richer booking mix helped drive a year-on-year double-digit increase in Travel Solutions revenue and gross income. Sabre achieved steady GDS industry share growth through 2023 and as well as 16% overall volume growth in GDS bookings and 27% growth in distribution lodging, ground, and sea bookings highlighting our growth opportunity in hotel distribution. In IT Solutions, our passengers boarded increased by 8% versus 2022. Turning to Slide 8. As we highlighted throughout the past year, Sabre is growing its share of GDS industry bookings. As you can see, our share in Q4 2023, again expanded on a year-on-year basis for the fourth consecutive quarter. In addition, we achieved GDS industry share of 33.8% for the full year 2023, a 1.2 percentage point improvement versus 2022. In the fourth quarter, our share of the GDS industry bookings was up year-on-year, but declined slightly sequentially from the third quarter. This is due largely to the temporary slowdown in corporate travel and the natural seasonal decline in corporate bookings during the quarter, as corporate travel comprises a larger proportion of our client footprint and bookings relative to the GDS industry. Importantly, as Mike explained, we have seen a rebound in corporate bookings and resulted strong GDS market share performance trends as we start 2024. We are pleased with these results and believe our compelling distribution offering as well as signed, but not yet implemented business and our robust pipeline of distribution deals position us well for continued GDS industry market share expansion. Our technology transformation remains on course to achieve our cost savings targets and technology goals by year-end 2024. As you can see, the efficiency with which Sabre conducts its business today is substantially improved. In the fourth quarter, our unit cost of compute declined by nearly 20% from the year-ago period and was down approximately 50% versus 2019. In addition, our focus on investing in offer and order capabilities is a pivotal aspect of our future product portfolio. We are actively developing our offer and order platform within the Google Cloud environment and we recently completed a successful pilot program with a major airline partner. This successful program validated our ability to efficiently integrate shopping and ordering functionalities within the platform. Overall, we believe our technology transformation and commitment to innovation will continue to help us deliver modern technology solutions and execute on our strategic priorities. In addition to the significant customer announcements we highlighted earlier in 2023, I am pleased to review a number of recent business wins, but highlight Sabre is consistently being selected as a partner of choice by leading global travel suppliers seeking modern distribution and retailing technology. In summary, our team achieved a number of commercial wins during the fourth quarter, and we are confident that our modern technology solutions and pipeline of business will help us execute on our strategic priorities. Now, on to Slide 12. I will take a few moments now to look forward and discuss the latest trends in global air travel, how the travel marketplace is evolving and how we believe we are positioned for success in this environment. This chart depicts the long run upward forecasted trend in air travel demand and the expected resilience of global air passenger growth. As you can see in the chart, industry forecasts suggest healthy growth in passenger traffic will continue and approach nearly 7% per year over the next five years. Looking forward, we see a number of reasons to be optimistic that broader industry volume growth will continue, such as moderating airfares, solid capacity growth, driven by robust international demand, and less acute industry supply constraints. Sabre in the GDS industry experienced significant growth in recent years as global travel recovered. However, overall, air travel rebounded at a faster pace over this period. We believe the GDS industry has recovered at a slower rate for several reasons. First, the GDS industry has historically been comprised of about 50% corporate and 50% leisure, generally over-indexing to longer haul international segments, which is more complex in nature. As discussed in the marketplace, global corporate travel has recovered to about 75% on a unit basis of its pre-COVID levels. Note that with air and hotel yields much higher in 2023 than pre-COVID, the dollar recovery often cited by suppliers is higher than this unit percentage. And as I mentioned earlier, a greater proportion of our business is corporate or TMC business as compared to our competitors. While there may be a structural element to this in the corporate travel today is smaller than it was historically, we believe this is an opportunity for Sabre as we are well-positioned to grow volumes and share as corporate travel grows prospectively. In addition, there have been a number of recent positive comments from large airlines and industry experts around corporate and international travel demand growth in 2024, which should be supportive of the industry volume scenarios that Mike will discuss shortly. Turning to Slide 13. Looking at the future of travel and the evolving marketplace, our growth strategies are designed to deliver modern distribution and retailing technology. Our multisource content platform strategy is designed to efficiently increase agency and buyer access to relevant air content from a wide array of airline products, including Edifact, NDC, and low-cost carrier content through all channels and points of sale and with leading shopping, retailing, and automation capabilities. Agencies and other buyers consistently tell us that we have one of the leading NDC solutions in the world to support their businesses. Next, our distribution expansion strategy consists of targeted resource and product investments to help drive growth in specific geographies and marketplace segments, including countries and segments in which we are under-indexed today. We expect to realize continued strong share growth in the months and years ahead, as existing and new agencies and other buyers see us as their preferred technology partner. In payments, we are excited about the long-term opportunity and believe our Conferma platform has become a leader in virtual card team. Market penetration of virtual cards for commercial payments remains in the early stages, but adoption is accelerating. Overall, our Payment Solutions experienced over 25% growth in spend volume in 2023 compared to 2022 as businesses increasingly seek more efficient payment methods. With $14 billion spend volume already flowing through the Payment Gateway, we see Conferma as an important contributor to the future of our business. Sabre's core capabilities in LIT address the changing needs of global carriers that are demanding greater personalization and flexible technologies. We plan to grow our LIT business with intelligent retailing solutions built on a modular platform with offer order technology at the core. These products and solutions are already gaining traction with customers. In addition to the strong revenue pipeline of new customer wins in our CRS and our retail studio suites of solutions, this offering brings the power of personalization to our hotelier customers to significantly expand their revenue opportunities beyond the standard booking process, improving the overall guest experience. In summary, we are committed to focused investments in these strategies to deliver winning modern retailing and distribution technologies and deliver sustainable growth. I, again, commend our team members globally for their hard work, and I'm confident that we have the right strategies in place to continue delivering on our priorities. I will now hand the call over to Mike to walk you through our financial performance and forward outlook.

Michael Randolfi, Chief Financial Officer

Thanks, Kurt, and good morning everyone. Please turn to Slide 14. I'm pleased to share our 2023 accomplishments that highlight the dedication and hard work of our Sabre team members. As Kurt mentioned previously, we achieved our free cash flow objective for the year on solid revenue growth, effective cost management that led to significant margin expansion, and working capital initiatives that delivered meaningful cash flow benefits. With the actions we have taken, we have developed significant operating leverage in our business that is allowing strong flow-through of top-line revenue to the bottom line. To illustrate this increase in operating leverage, note that in the fourth quarter and in the second half of 2023, we saw adjusted EBITDA grow at a meaningfully greater rate than revenue. For the year, Sabre generated a substantial improvement in both cash from operations and free cash flow. Our distribution business generated a 27% year-over-year increase in revenue on 18% more bookings and solid improvement in our average booking fee. Hospitality Solutions achieved better financial results, faster than we had anticipated on strong growth in CRS transactions and higher average revenue per transaction, driven by strong growth in ancillary sales. This led to an approximate $40 million improvement in adjusted EBITDA in 2023 versus 2022. In addition, we are pleased to have refinanced the vast majority of our 2025 maturity. During the fourth quarter, we experienced softness of GDS bookings late in the year below our expectations. We believe this is largely attributable to the slowdown in corporate travel in Q4, as Kurt mentioned earlier. Despite this, I'm pleased to share that we are seeing significant improvement in GDS volumes and GDS market share performance year-to-date. Now moving to the table. As I highlighted earlier, we reported substantial year-over-year increases in each of our key financial metrics in both the fourth quarter and for the full year 2023, with significant improvements in both revenue generation and adjusted EBITDA. We also achieved positive free cash flow for the year after excluding restructuring, which was again one of our primary financial objectives for 2023. Furthermore, the fourth quarter's $77 million in free cash flow generation was the highest in four years. Total Q4 revenue was $687 million, an increase of $56 million or 9% versus last year. Distribution revenue totaled $476 million, a $59 million or 14% increase compared to $417 million in Q4 2022. Our distribution bookings totaled $78 million in the quarter, a 3% increase compared to $76 million in Q4 2022. Our average booking fee was $6.09 in the fourth quarter, up 11% from Q4 2022 as we continue to realize favorable mix into higher-rate regions and types of travel. IT Solutions revenue totaled $146 million in the quarter. This was an $11 million decline versus revenue of $157 million in the prior year, driven by de-migrations and a large portion of which is the result of changes in Russian Law in October 2022. Hospitality Solutions' Q4 2023 revenue totaled $75 million, a $10 million or 16% improvement versus revenue of $65 million in Q4 2022. The 16 points of revenue growth were driven by 5 points of central reservation system transactions growth and 11 points of higher rate per transaction. Hospitality Solutions generated $5 million of adjusted EBITDA in the fourth quarter and $13 million in 2023, representing an approximate $40 million improvement in 2023 versus 2022. And as a reminder, we believe that our recently announced CRS agreement with Hyatt will contribute to the momentum we are already seeing in Hospitality Solutions. Sabre's adjusted EBITDA of $96 million in Q4 2023 versus $1 million in Q4 2022 represented a $94 million improvement year-over-year. Before I move on, I want to highlight the significant impact that our cost reduction program continues to have on our financial performance. While our total revenue was up $56 million year-over-year in the fourth quarter, our adjusted EBITDA increased by $94 million over the same period. Free cash flow was $77 million in the fourth quarter, including the impact of restructuring as improving margins and our working capital initiatives delivered strong results. We ended the fourth quarter with a cash balance of $669 million. Regarding guidance, we expect first quarter 2024 revenue of approximately $750 million and adjusted EBITDA of approximately $115 million. As a reminder, we typically experience higher working capital and cash outflows in the first quarter due to the seasonality of our business. Therefore, it is typically our weakest quarter of the year from a free cash flow perspective. The seasonality is driven primarily by timing of when we receive airline partner receipts in the fourth quarter versus when we make agency payments in the first quarter. Additionally, during the first quarter, we pay our annual incentive compensation payments and we will also begin to lap the benefits of some of our working capital initiatives in 2023 that are not expected to provide additional benefits to 2024 cash flow. For the full year 2024, we expect revenue of approximately $3 billion and adjusted EBITDA of greater than $500 million or an approximate 50% increase compared to 2023 with additional upside to this outcome based on potential GDS market growth. In 2024, we also expect cash interest of about $350 million, which includes the impact of payment in kind on a portion of our debt and capital expenditures of $100 million. In 2024, we once again expect to generate positive free cash flow. Notably, we have increased our CapEx assumption moving forward to support the growth strategies that Kurt outlined earlier. Now, on to our 2025 targets. As a quick reminder, our previous targets for adjusted EBITDA and free cash flow included an assumption for GDS industry market growth of 1 to 2 points sequentially per quarter. And as we mentioned in our Q3 earnings call in November, we have seen GDS industry market growth come in below these levels. Given flatter trends in GDS industry volumes, we are now targeting 2025 adjusted EBITDA to be greater than $700 million and free cash flow of greater than $200 million with upside to these figures based on potential GDS industry market growth. Now, I will walk you through how we expect our 2023 adjusted EBITDA to build toward our 2025 target of greater than $700 million and the illustrative impact of GDS industry volume growth to our adjusted EBITDA baseline assumption. Due to the early achievement of cost savings, we expect the combined savings from our technology transformation and expense reduction efforts announced last year to drive approximately $250 million in adjusted EBITDA growth by 2025. As you can see on the page, we expect two-thirds of the improvement in adjusted EBITDA from 2023 to 2025 to be driven by lower costs. We expect the growth strategies that Kurt highlighted earlier on today's call will generate approximately $115 million toward our 2025 adjusted EBITDA target. We expect Hospitality Solutions to provide nearly half of the $115 million, an improvement given the strong momentum we have seen in 2023 and the robust pipeline of additional business, including our recent Hyatt agreement. We believe our other growth strategies led by distribution expansion initiatives will provide the remainder of the $115 million improvement by 2025. This adjusted EBITDA benefit from our growth strategies is lower than our prior $150 million target, primarily from earlier achievement in 2023, specifically from Hospitality Solutions and lower GDS market growth during 2023 and assumed prospectively. Moving to GDS industry volumes. The greater than $700 million baseline target assumes only flat to nominal GDS industry growth, which we believe is the low end of potential market growth outcomes. As you can see from the chart, we have illustrated a range of potential outcomes for the GDS industry market up to 4 points of annual growth above our baseline assumption. Note that 4 points of potential annual market growth improvement is not meant as a ceiling. If we see, as illustrated, 4 points of annual GDS market growth over 2024 and 2025, then we would expect to achieve approximately $800 million of adjusted EBITDA in 2025. To provide more color on the potential benefit from stronger GDS market growth, we estimate that each point of additional growth is worth approximately $13 million of adjusted EBITDA per year. Note that GDS market share growth is separate from these volume figures and included in our aforementioned growth strategy projections. As Kurt and I stated earlier, we believe there's reason for optimism that industry volume growth will exceed our baseline assumption. Looking forward, IATA has projected high single-digit capacity growth over the next several years. Many of the largest global airlines have articulated continued capacity increases skewed toward long-haul international travel and business travel surveys have indicated strong growth in corporate travel spend. This chart provides the path for how we plan to achieve our 2024 adjusted EBITDA guidance for greater than $500 million. We expect the vast majority of our adjusted EBITDA gains in 2024 to come from greater cost efficiency. Both our technology transformation and cost reduction program announced last May remain on track to deliver the expense savings that we have previously communicated. It is important to note that our baseline guidance of greater than $500 million in 2024 and baseline target of greater than $700 million in 2025 does not include meaningful benefits from GDS market growth, even though we are optimistic based on positive external commentary and data points that we are referencing. We believe our growth strategies, primarily driven by further gains in Hospitality Solutions, will provide approximately $30 million toward our 2024 adjusted EBITDA target. Please note that the expected gross benefit from our growth strategies is substantially above this level and that the $30 million represents the net amount. The investments we are making this year will drive future growth. With positive GDS industry market growth, we would expect to realize upside to these baseline targets. And as illustrated, we expect that 4 points of annual GDS market growth would drive targeted adjusted EBITDA outcomes of $550 million in 2024 and $800 million in 2025. In closing, we are targeting to more than double adjusted EBITDA between now and 2025 with upside potential based on GDS industry growth. While this would be a strong outcome, we understand that this new target is below what we articulated last year. This is due to external GDS market conditions that evolved during 2023 and the likelihood of slower prospective GDS market growth lower than the 6 points of annual GDS market growth that we assumed when we provided earlier guidance. We delivered strong 2023 results from our team's excellent execution and we remain keenly focused on continuing to run the business to deliver on our strategic priorities, which are to generate free cash flow and delever the balance sheet, deliver sustainable growth, drive innovation, and to reduce our cost structure. We believe the outlook we have outlined today will enable us to accomplish those objectives. And with that, operator, please open the line for questions.

Operator, Operator

Certainly. And our first question comes from Josh Baer at Morgan Stanley. Your line is open.

Josh Baer, Analyst

Great. Thank you for the question. Thinking about what 2025 EBITDA margin could look like if you make some assumptions on the EBITDA contribution from growth strategies and gross data, you might get to like $3.5 billion, $3.6 billion in revenue in 2025, with $700 million EBITDA. So, talking about 20% or slightly below margin, high teens, and that's lower than the EBITDA margin from 2019, but 2025 has the cost savings from a successful tech transformation in all the rounds of layoffs and focus on efficiency. So, with just the cost of compute down and kind of success on the tech transformation, I guess the question is just why could margin be lower in 2025 versus 2019?

Michael Randolfi, Chief Financial Officer

Thanks for the question, Josh. This is Mike. First, we haven't given more recent updates on margin guidance. But if you go back to what we had previously stated in prior earnings calls, we had talked about the adjusted EBITDA margin being essentially in the range by 2025 of 2019. We still would think that is the case. We think we'll still be roughly in that range for 2025 compared to 2019. And you really see a lot of the growth initiatives that we're generating have really strong flow-through to the bottom line. So, if you look at what we're doing, both in terms of cost. There's really strong flow-through in the bottom line. You could tell by the math we presented. We had a 12% margin on adjusted EBITDA in 2023. We see that expanding to 17% based on the guide that we gave today. And we would also expect continued margin expansion from 2024 to 2025 because the initiatives that we're pursuing actually have really strong flow-through to the bottom line. So, we still think we'll be roughly in the range in 2025 of where we were in 2019.

Josh Baer, Analyst

Got it. Thanks, Mike. And then maybe just one more on sort of the CapEx free cash flow side. Talk a little bit more about where the $100 million in CapEx dollars are going to be going towards over the next few years? Just a little bit surprised with that level of CapEx and that I think it's higher than what we've seen in the last three or four years. But then again, like you're going to be out of your data centers and not spending on server and network equipment, so more context on that CapEx spend and how that contributes to the free cash flow targets? Thank you.

Michael Randolfi, Chief Financial Officer

Thank you for the question. Our capital expenditure is mainly focused on R&D, particularly capitalized labor for software development. We are strategically planning beyond 2024 and 2025, and we believe certain investments are crucial for driving our strategic growth initiatives. Our investments are centered around the six growth strategies that Kurt discussed earlier, including enhancing our multisource content platform, expanding distribution, improving our hotel B2B distribution, and increasing our digital payments capabilities. We're also seeing significant progress in our airline retailing products and are investing further in Hospitality Solutions. Our commitment to these six growth strategies is intended to support long-term growth beyond the current timeframe.

Josh Baer, Analyst

Got it. Thank you.

Operator, Operator

Thank you. And our next question coming from the line of Jed Kelly with Oppenheimer. Your line is open.

Jed Kelly, Analyst

Hey great. I joined the call a little late. Just a couple of questions for me. If we just look at like the overall trajectory of GDS growth kind of where it was versus 2019, can you kind of dig into that more? Is that more of capacity? Or are we starting to see an impact from NDC? And then can you mention how you plan to manage some of your upcoming converters that are due? Thanks.

Kurt Ekert, President and CEO

Thank you for your questions, Jed. I'll address the first part, and then Mike can discuss the converters. The overall GDS industry has rebounded to around 70% of its pre-2019 levels. It's important to note that our current figures exclude Expedia since they moved away from our platform during COVID. As I mentioned earlier, there hasn't been a complete recovery in industry capacity growth or a return to the GDS industry. Briefly, corporate travel has only returned to about 75% of its pre-COVID levels. The GDS industry typically has an equal mix of corporate and leisure travel, but for Sabre, corporate and travel management companies represent a greater share of our bookings compared to our competitors. Furthermore, domestic leisure and short-haul travel usually favor direct airline bookings, while more complex travel, like long-haul international trips, tends to go through intermediaries in the GDS channel. This trend still holds. The capacity that has been reinstated during the recovery has been focused more on short-haul and domestic routes rather than long-haul international routes, which is different from historical patterns. We do not view this as a long-lasting trend. Therefore, regarding both corporate travel and the capacity shift from short-haul to long-haul, we are quite optimistic about the industry's direction. I also noted earlier that GDSs, including Sabre, remain the primary booking channel for online travel agencies. This channel is critical for our business, and we believe we offer the most efficient platform for them. However, during COVID, we saw a rise in transactions through direct connections with airlines, especially among larger OTAs and full-service carriers globally. While this has occurred, many OTAs are facing difficulties with the cost and complexity of managing these direct connections and are seeking solutions for automation, shopping, and caching from us, which could lead to opportunities for us to regain volume. In summary, we are aware of the current market landscape and are optimistic that both the GDS industry and Sabre are well-positioned for future growth.

Michael Randolfi, Chief Financial Officer

Yes, regarding your question about our converters, I want to remind you that we concluded 2023 with $669 million in cash on our balance sheet. We expect to generate positive free cash flow this year, with significant growth anticipated starting in 2025. Our cash position is expected to strengthen over time. Additionally, over the past year, we have proactively managed our debt maturities in alignment with the company’s cash flow generation. You can expect us to continue this proactive approach to manage our debt maturities efficiently. However, I won't discuss specifics about any particular instruments or strategies we might use.

Jed Kelly, Analyst

Got it. And just one follow-up. I mean, I think typically, before COVID, 1Q used to be the high watermark for EBITDA. Looking at your guide, I don't know if that's going to be the case this year. So, can you just give us a sense on like just the quarterly trajectory, how we should be thinking about the cadence? Thanks.

Michael Randolfi, Chief Financial Officer

Thank you for the question. You're correct that the first quarter typically has the highest volume. There are a few factors contributing to our performance as we move through the year. Our growth strategies, including Hospitality Solution, GDS expansion, and the growth in our payments business, as well as increased hotel attachments on air, are gaining momentum. This helps mitigate some of the seasonal fluctuations. Moreover, looking ahead to 2024, we anticipate that around one-third of the expected $115 million in cost savings will come from tech transformation. We expect to see benefits of about $45 million from this in our profit and loss statements as the year progresses, with a higher impact in the fourth quarter compared to the first. Thus, while the first quarter usually exhibits strong seasonality, the advantages from our strategic growth initiatives and tech transformation should lead to increased EBITDA later in the year.

Jed Kelly, Analyst

Thank you.

Operator, Operator

Our next question is coming from the line Dan Wasiolek with Morningstar. Your line is open.

Dan Wasiolek, Analyst

Hey, thanks for taking my question. So just looking at the 2025 targets, just want to make sure on the cost efficiencies, $250 million, that's not a change from prior guidance. I believe tech transformation, $150 million and then the cost savings annualized $200 million that's $350 million. So, just kind of wondering if there's been any change with that? And then when you talk about GDS flat phenomenal, I wondering if you can provide any further quantification on what nominal might mean for overall GDS funds that you're incorporating in that $700 million?

Michael Randolfi, Chief Financial Officer

I will begin by addressing the last question. The flat to nominal range is very close to flat when considering that baseline assumption. Regarding the cost efficiency area, last May we mentioned we anticipated around $300 million in cost efficiency benefits. Roughly $100 million of that was due to actions taken in 2023 that would provide an annualized benefit in 2024, while over $150 million stemmed from tech transformation. The remaining benefits came from various non-labor cost savings. I can confidently say we are well on track to achieve these goals, and in fact, we realized a significant portion of these benefits sooner than expected, allowing us to offset some of the lower volumes we experienced during the year. To recap, back in May during our earnings call, we noted that the industry recovery for air distribution bookings was around 61%. We projected a sequential increase of 1 to 2 percentage points in air distribution booking volume, which would have positioned us to end the year around the mid-60s relative to 2019. However, we finished the year at 58%, but that discrepancy was compensated for by our accelerated cost savings.

Dan Wasiolek, Analyst

Okay, that's perfect. I have one more question. The revenue per air booking is increasing as you mentioned. It seems like there’s reason to be optimistic that the benefits you experienced in 2023 may continue into 2024. Is it reasonable to think that this pricing may persist in 2024?

Michael Randolfi, Chief Financial Officer

Thank you for the question. Regarding the average booking fee, I see Q4 as a peak period. We had an exceptionally favorable mix of bookings in terms of both carriers and regions. In December, we noticed a significant decline not only in corporate travel but also in group bookings, which generally come with a lower average booking fee. The absence of these bookings led to an increase in booking fees. However, as we entered January and February of this year, we observed a notable rise in our air distribution bookings, driven by strong corporate bookings and a recovery in group bookings. With the improvement in group bookings at the start of the year, we anticipate that the average booking fee will decrease somewhat from the $6.09 we recorded in the fourth quarter.

Dan Wasiolek, Analyst

Okay, perfect. Thanks guys.

Operator, Operator

Thank you. And our next question coming from the line of Alex Irving with Bernstein. Your line is open.

Alex Irving, Analyst

Hi, good morning. Two for me, please, if I may. First of all, just thinking about your GDS unit booking fee. That was up 9% year-on-year in the third quarter and 11% in the fourth quarter. What's driving that acceleration? Please help us to disaggregate into its constituent parts? My second question, more on the cost side of things. Do you have any leeway on travel agent incentives as a lever to reduce costs and improve your EBITDA? Is that something you could cut? Or is it something that you would cut? Thanks.

Kurt Ekert, President and CEO

Thank you, Alex. Regarding the average booking fee, it reflects the overall revenue components in relation to the units of air booking. Several factors are at play here. First, there is a variation in the types of air bookings we're seeing globally. Additionally, our land, ground, and sea bookings have seen substantial growth over the year, contributing to this. Secondly, payment methods will influence the average revenue per booking. As for our incentive structure, we operate in a competitive industry, and incentives are a typical way to compete within a B2B framework. We appreciate the business from our buyers or agency customers. I won’t comment on future strategies except to note that it involves a competitive landscape that encompasses content, technology, products, and services.

Operator, Operator

Thank you. And our next question is coming from the line of Victor Cheng with Bank of America. Your line is open.

Victor Cheng, Analyst

Hi. Thank you for taking my question. I would like to delve deeper into corporate travel. I think we can categorize it into managed and unmanaged corporate travel. Managed corporate travel, which has a stronger reliance on GDS, appears to be recovering at a slower pace. Do you believe this trend is structural, or do you expect it to reverse over time with more managed corporate travel returning? Additionally, can you share any insights on the high contribution you've mentioned? You indicated it would begin to implement in early 2024, so should we anticipate some revenue contribution this year? Lastly, you addressed this earlier on the call, but regarding the 2025 outlook for GDS growth, could you discuss the tailwinds and headwinds? Considering that the past couple of years have favored domestic and leisure travel, which has slowed GDS growth compared to air travel, should we expect international and particularly corporate travel to recover more in the next year or two, leading GDS to recover in line with or at least not lag behind the broader air recovery? Thank you.

Kurt Ekert, President and CEO

Victor, thank you for the three questions. This is Kurt. Let me take them in order. First of all, on corporate travel, you're right. What we look at when we talk about corporate travel is largely managed corporate travel, which is what largely transacts through TMCs. And if you look structurally, that's a business that on a unit basis is about three quarters of the size it was globally versus pre-COVID. If you read all of the analyst reports and you listen to market conjecture, signs are that corporate travel will grow prospectively very well. I believe on a 20-year CAGR, you're proceeding COVID, corporate travel or managed corporate travel had grown basically at 4% to 5% per year to a $1.3 trillion industry. So, again, you'd say structurally today, it's a smaller industry. And the question going forward is will it grow at that historical rate or may grow faster because there's still some recovery left in there. There's a wide range of potential scenarios, and I think that's uncertain, but we're confident that that growth is going to come. And again, we think we're very well-positioned because we are proportionately more highly indexed against TMC and corporate travel than our competitive peers. With Hyatt specifically, as we indicated, we'll be beginning the implementation of Hyatt in the first half of this calendar year. And we'll see that ramp up, we think, starting in Q2 pretty well going forward. The last question is about headwinds and tailwinds on our 2025 outlook with respect to GDS market growth. As I indicated in my prepared remarks and the question earlier, with respect to both corporate travel recovery prospectively or growth. And two, international long-haul capacity coming back more robustly in the years ahead, we feel very optimistic and confident that we're going to see both of those trends continue. OTAs have obviously performed relatively well during COVID, and I mentioned some level of Direct Connect activity there. But based on the conversations we're having with this clientele, we think there's recapture and growth opportunity there as well. So, I'd say that a lot of the headwinds that the GDS market has faced, we have faced here through the COVID recovery period. Our hope and our optimism is that we're going to see more tailwinds prospectively than what we've realized in recent years.

Operator, Operator

And I see no further questions in the queue at this time. I will now turn the call back over to Mr. Ekert for any closing remarks.

Kurt Ekert, President and CEO

Thank you everyone again for joining us this morning. We do appreciate your interest in Sabre and look forward to speaking with all of you again very soon.

Operator, Operator

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.