2026 Morgan Stanley Technology, Media & Telecom Conference

All right. Before we begin, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morgansanley.com forward slash research disclosures. And if you have any questions, please reach out to your Morgan Stanley sales representatives. My name is Josh Baer, software analyst at Morgan Stanley. Thrilled to have the Sabre leadership team here with us today, Kurt Eckert, CEO, and Mike Randolph, CFO. Thank you so much for joining us. Great to see you. Maybe let's kick it off with the exciting news around shareholder rights. Before we get into AI and the business, can you give some background on the recent shareholder rights plan with regard to Constellation? What does it entail? What is it in response to?

Yeah, so you saw the press release we issued on Sunday evening, and there were other disclosures we issued as well. That was in response to a significant accumulation of shares by Constellation, a Sabre shareholder. And we took this action to protect the company as well as the shareholder. So beyond that, we're not going to comment publicly today. But we believe this. We have spoken to a number of investors and analysts, and generally we've received a favorable response, and folks understand why we've done this.

Okay. We saw the market response as well. So, Kurt, from your perspective, to kick it off, what were some of the most important Sabre accomplishments over the last year, and what are your priorities as we head into 2026?

Yeah, we articulate our strategy with two key elements. One is delevering. Last year, we paid down a billion dollars of debt, dramatically improved our leverage ratio, and so we're dramatically improving the balance sheet quality of the business. And then two is its growth through innovation. So last year, some of the key accomplishments were the introduction of MCP Server and Agentec As you saw earlier this year, we've announced a number of key partnerships with Agentec. Great innovation with respect to the Sabre Mosaic airline IT platform. And we're seeing great traction, especially on the offer side of the portfolio there. And then within distribution, significant conversion of one new business, the expansion of our air distribution marketplace and then very strong growth with both with hotel distribution as well as our payments portfolio so a really good year both from a balance sheet and an innovation

perspective excellent and you you've put out um 2026 and 2027 kind of growth commentary looking for mid single digit volume and revenue growth in each of those years so i'm wondering with the transactional business model, some volatility that we have seen historically in this end market, what gives you the line of sight to put out that growth target for 27?

Sure. So a few things. First, as we looked at 2026, let me just start by saying our underlying baseline assumption, which we think is hopefully conservative, is flat industry. It's not our assessment of the industry. That's a planning assumption. So when we talk mid-single digits, That's based on our internal growth strategies, and it's comprised of a few things. One is we've talked about our push into the LCC part of our multi-source platform and really extending the tail of those carriers. We see that we launched a lot of our new tools that we expected to launch in the summer of last year. That was launched this year. That's going to be very additive to our growth. As we've articulated, we expect to continue to take share. As we've done in the last year, we continue to expect to take that this year, and we expect it to continue to grow NDC. Now, with that, what I would say is, leading into this year, up to our call, if I look at the 10, 12 weeks leading up to our call, what I would say is, we saw consistent with our guide for the quarter and the year, what I would describe as the most consistent bookings both geographically and across customer mix leading up to the call. So when we look at it, we think the guidance of mid-single digits for this year, we feel really good about that. And as we look at it in 2027 and we see the continued growth in our growth strategies, we feel really good about that as well.

And then the second piece is obviously with the inflation offset program, our gross profit improvements should fall to the bottom line and accrete both at the EBITDA and the free cash flow level. So we feel like we're doing the right thing from a growth and a balance sheet standpoint. But as Mike said, the market backdrop that we're experiencing, Middle East war notwithstanding, is frankly the best that we've seen in a number of years.

And we'll dig into a lot of those growth areas. But first, I want to start with what's maybe most topical, front of mind, key debate, agentic AI. Is it an opportunity or a threat? I mean, you've positioned it as a huge opportunity. So I want to unpack that. And, you know, directly, does agentic travel shopping increase or decrease Sabre's relevance? And how does your data and your content breadth, you know, does it help support and enhance the moat?

So let me just speak about it from an ecosystem standpoint. If you think about it's all about where the funnel of eyeballs and traffic will derive. And so if you think about our business today with managed corporate travel, where procurement or HR are directing employees where to go to shop for and book their travel, I don't see that changing with AI. You still have the safety and security of the traveler, corporate negotiated rates, company policy. There is going to be an inherent mandate for the TMC or the booking layer to have a consumer grade conversational commerce capability. And that may drive a technology arms race or consolidation there. but we think we're very well positioned in that part of the market that's about 45 of our air distribution portfolio on the leisure side very different story um obviously where you have the airliner hotel.coms and you have the loyal traveler or the credit card customer of those platforms they're going to continue to be very sticky likewise i think you're going to see online travel agents for build very good conversational commerce layers and you're going to see traditional travel agents, let's say brick and mortar, who have niche offerings like cruise or tour, they're going to continue to do what they do. I think there's three areas where you're going to see behavior change. One is for the non-loyal customer of the supplier.com, the company, the customer that goes there once a year. If they're offered a better user experience by some other intermediary or player, it's likely that that transaction is going to happen not in the airline hotel.com but let's say in this new agenda commerce intermediary place number two is meta search meta search basically has had such success because they price arbitrage on behalf of the consumer but the user experience is not good post decision because you get launched into a different ecosystem for the fulfillment and the servicing of your travel and so a good end-to-end agentic experience may supersede that and then the third is for the otas who derive significant traffic from meta search they may see that traffic at risk and so the key is think about for all the existing players it's how do you build a consumer-grade conversational commerce layer because customers will go where there's a better ux or they have better confidence and so i think some of the new platforms the new emerging platforms are going to succeed there and they're going to take share away from the other channels if you're one of these new players For example, we just announced a partnership with PayPal and MindTrip, MindTrip being the LLM, PayPal bringing its payment network or its consumer base to the flow. We're the back end. We're the search, booking, servicing, fulfillment layer behind there. Why didn't MindTrip just say we're going to go direct connect with everybody? Because doing a direct connect is fairly simplistic technology. All you're doing is you're writing to a supplier's API. But now all the data that sits there and all the complexity of handling that traffic and doing that at scale, it scales exponentially or logarithmically from a complexity standpoint. And so unless you want to build a GDS or you want to build, like, the next version of the OTA, it doesn't make sense when you can plug into us and you can on day one, for example, MindTrip will go live in Q2 with a full end-to-end offering with servicing, et cetera. And that's going to be pretty compelling. what we hear from the large agentic players is they want to do likewise they don't want a meta search model they want to own the customer from front to back and we can provide that to all of them now what's the is there will they try to disintermediate us because of margin well we charge airlines and hoteliers on average about one and a half percent of the value of what's booked with them that's not a large profit pool opportunity for them and we provide a lot of infrastructure and capability and it's quite capital intensive to do that now on the on the other hand if you're looking at the hotel world where you might be paying a 15 cost of sale to an intermediary that might be something that's attractive for an llm to try to disintermediate because that's a significant profit pool um so we think one with the economic opportunity for somebody to disintermediate us is not that attractive number two is what we do is very complex and we have massive data and that data is very important because in a world where you're searching and you have to provide millisecond response time to provide a good user experience you want to avoid all those hits to the supplier because otherwise it's very difficult from a physics and a cost standpoint we can do intelligent caching on behalf in front of that search for speed and for efficiency and the relevance of search is very important you're not going to as a consumer in an lm you're not going to scroll through pages of response times you're going to look you're going to say okay there's three choices what do i want to book and it's going to be a very rapid easy experience the The relevance of that response has to be right the first time. So we think we're actually really well positioned. And, again, we think that much of what we do, there's a pretty strong defensive moat. There's a little bit of risk, but the offensive opportunity here for us to become the rails for the agentic industry, we think we are in the leading position, and it's going to be a huge accelerant to Sabre.

I think that's really clear. What are you seeing then from the incumbents from a competitive perspective just around what they're doing around also trying to position as the back end or the rails?

Do you mean our competitors when you say that? I think that we and Amadeus have a distinct advantage over the other super aggregators in this marketplace in terms of the quality of our content, our data, and our technology solutions. with what we've done with our agentic api specifically the reason you've seen large announcements from us and not amadeus we believe is that we have a distinct advantage and we're told by large technology platforms that that is the case so no question they'll lean into this space very aggressively but we believe we have the lead position right now we're going to try

to lean into that very hard great and what's the update on the google partnership is are you still co-developing solutions is it yeah yeah so google's been terrific we are now 99 plus percent of our

compute is in the google cloud environment so from a resiliency a scale a security standpoint and an efficiency standpoint it's the best place in the world to be and they've been a fabulous partner there for saber separately there's a development partnership and so we do co-develop and in fact if you look at the saber mosaic airline solutions for example that's all built on Google's Vertex and Gemini AI capabilities. So that remains very strong. One of the key questions is when you look at Google Flight Search, which is a meta search offering, versus Gemini, if they want to replicate and do what other agentic players are saying they want to do, which is they want to host an end-to-end experience, what Google does not do is fulfillment and servicing. And so there's a key question about what that model will be going forward. But I would just say that we've got a great strategic partnership with Google. They've been a fabulous partner, and we would love to grow that partnership over time.

uh we'll see what happens excellent let's shift gears and talk about air bookings and market share your air bookings has accelerated um going from negative three percent growth i believe in q1 to positive four percent by the end of the year december was even higher at positive seven percent so can you unpack some of the drivers of that improvement throughout the year um and also touch on what prevented you from reaching the original double-digit growth yeah

Yeah, so last year was very turbulent and challenging, as anyone who follows us knows. We realized 30 million air segments last year that came from converted business or one new business. The challenge for us, we had a very bullish outlook at the start of last year because we knew that was coming online. Where we were wrong is that the underlying market was quite negative and challenging. So from the start of the year, basically, you start off with Doge and tariffs, basically hitting last February and March pretty aggressively. You go through the year, a lot of recession risk. Later in the year, the government shutdown. And those things dramatically hit us. The other thing is corporate travel, which is about only between 20% and 30% of the GDS industry, but it's 45% for Sabre. Corporate travel on a unit basis was down 6% to 7% last year, 6 to 700 basis points. So while the GDS market was a bit negative last year, the impact to Sabre was much more severe. What you saw as the year, as we went into December, was that on a geographic and a line of business standpoint, that normalizing, getting to 7% growth, as we articulated, as Mike said on the call, we saw that pattern persist through the first six weeks of the quarter. And I think what you're seeing is a much more stable backdrop. As Mike said, when you look at it geographically and you look at it by the type of customer, whether it's TMC or brick-and-mortar OTA, basically consistent performance through all the different channels that we serve. And again, we believe the backdrop is very favorable. So as Mike said, you're going to see three key drivers of air distribution growth this One is acceleration of NDC and the re-intermediation of NDC volumes that were previously direct connected by OTAs. number two is the realization of market share gains that we continue to take number three is we have 50 plus new low-cost carriers in the system today versus a year ago we launched our new lcc platform that we've talked about previously we think that will add a couple of points of growth as well so we think it sets up very well and that assumes a flattest gds market if in fact you go back to normalcy and you have and the market is two three four percent positive that would be additive or accretive to the expectations we've set. Perfect. And to clarify, when you talk

about 45% corporate travel, is government and military in that bucket? No, government, military

is separate from that. The U.S. military and government, if you go back to 2024, was about 4% of our air distribution bookings. Overall, last year, that was down about 25% through most the year it was down for example in november down 90 percent um so you know we've assumed that will

be more stable going forward okay great uh ndc was four percent i believe of total air distribution bookings exiting the year um you've got over 40 live uh integrations with ndc what's the assumption for ndc looking ahead and uh is that coming from like a small subset of carriers um different

regions what's driving that adoption and growth so we've got 42 uh carriers now where we have live implemented uh ndc connections i think that's the leading intermediary position of any aggregator in the world number two is we've built significant capabilities for buyers or agencies to normalize workflows between edifact or ndc otherwise it's very inefficient and it's a it's degrading from from a user experience standpoint. So the solution now is sort of primed for market. The one important piece is those 42 carriers. While that's less than 10% of the carriers to whom we're connected, it accounts for nearly 80% of the total volumes we do. So it's most of the big guys now we have NDC in place. And you typically have both NDC and EdEffect for the same carrier. I think you're going to see NDC continue to grow at a pretty rapid rate. Certain carriers do it. It's very important to them. certain it's less less strategically important but it will let's say it grew it between 50 and 100 percent last year in terms of its adoption you'll see it continue to grow with that sort of rate going forward so it will still be the minority portion of our bookings for the foreseeable future but it's very important to the buyer or the agency they should be relatively indifferent as to how we source that content it doesn't matter it should not matter to them whether it was an edifact API or an NDC API we normalize all that on their behalf. The economics are relatively consistent. And so for them, it's about how do they run an efficient business. And we worry about that on the back end. But I think it's going to become an increasingly important part. The other thing which I mentioned earlier is in COVID, and especially Sabre was late to the game on NDC, as we've talked about previously, we've now caught up and surpassed most folks. But certain OTAs are connected to large airlines. You saw Amadeus have some level of re-intermediation of those segments over the last two years you're going to see us begin to do the same with otas as well as otas realize that managing direct connects is quite complex and cost inefficient and not necessarily what drives traffic and margin for them and they realize that we can do it better so you're going to see that as part of the uh the

growth as well great you mentioned ndc economics are relatively similar were you talking about you know want travel buyers suppliers is that for you as well how does that impact your economics

yeah i mean the way i would think about ndc is through most of the globe um what i'd say is the incentive might be the the booking fee might be slightly lower the incentive slightly lower maybe the margin um through most of the globe is you know flat to slightly lower the exception is going to be in the amaya region where average booking fees tend to be higher but for us that represents only 16% of our bookings. And so overall, as we look at it, we don't see significant impact on economics from NDC and actually view NDC more as an opportunity. And that's included in our guide that we provided, is the expectation that NDC from where we are, from the 4% we ended last year, will be growing more significantly now going forward than it has in the past.

And so connecting that, Mike, to revenue per booking, your average booking fee was over $6 for the year and finished the year at $6.31. How much of that increase is driven by mix versus other revenue streams when you do the calculation, think about payments? And is that level of booking fee sustainable or because of NDC, we should expect it to move lower?

Yeah. So our guidance for this year for 2026 was for booking for air distribution bookings growth in the mid single digits and revenue in the mid single digits. So that kind of implies that booking fee is expected to be roughly flat year over year. So we do expect it to be roughly flat. So there's a combination of puts and takes. One is we have seen favorable mixed trends, which do seem to be holding. NDC is slightly lower there. But then after that, certain of the products we sell, particularly hotel B2B through our GDS, that comes at a higher average booking fee and a higher average margin, and then also payments. So all of that adds to our booking fee coupled with a favorable mix. And so that's more than offsetting the impact on booking fee and NDC.

Yeah, and two things, just to cite, within distribution, we disclosed in the last call that our land ground and Sierra are non-air distribution bookings. We did more than $20 billion of turnover and about $350 million of revenue last year. And then payments, we haven't broken out the revenue there, but we do $20-plus billion of turnover now on our payment solutions, and we'll likely begin to break that out from a revenue standpoint at some point this year. So those are becoming more meaningful contributors to our business.

Let's shift gears a little bit, talk about some IT solutions, maybe how you think about IT solutions versus distribution. I mean, distribution now is like 80% of revenue and has been growing consistently. IT solutions, 20%, and has been declining the last few years. And so what's the strategic importance of each of these businesses?

Both are very important to us, and we think both have good long-term prospects. So in distribution, think about it this way, which is it's a fairly mature market for air distribution. It's, one, how do you take as much share as you can? How do you grow the addressable market, which we're doing through NDC and LCC? And then how do you attach other high-value items such as hotel and payments? And so that's really what underlies the strategy there. On airline IT, that's a very sticky business when you're in with the customer. Now, Sabre, until a couple of years ago, was selling pretty old technology in its Sabersonic solution. That's a monolithic PSS. And as a consequence of that, we were competing against Amadeus Altea, which was a legacy solution, but less legacy than Sabersonic. And so there was a consistent pattern pre-COVID in the early stages of COVID where we were losing head-to-head. We haven't lost a customer in two and a half years. um we're now winning now what you saw in the pnl was still the effect of certain folks that have demigrated um we've built a new platform called saber mosaic which is a modular ai infused um sort of best-in-class platform for offer and order we're getting tremendous feedback we're selling the offer component of that very aggressively in the market not a lot of folks are going down the order route yet that's more like an erp so you know you're displacing that but we expect over time that that's going to sell very well one of the key differences here is there's not going to be a lot of pss migrations happening in the market we're migrating hawaiian back to sabers pss starting in q2 but i think that's going to be an anomaly folks now if they transition are going to transition onto the newer offer and order platforms we have more modules in production than any other technology provider in the world including amadeus the other benefit is it's very difficult to get somebody to say i'm going to replace my entire monolithic erp system but when you say you can just implement the modules you want and our system is an opi system it's very easy for them to pick and choose that now one of the key challenges we have is that our largest competitor in this space has a monopolistic position and they behave in certain ways that we believe are anti-competitive and so we've got to crack the code on that which we're we're aiming to do. We think when we do that, we're going to unlock a significant amount of airline demand for the Sabre Mosaic solutions. We've indicated that that business will grow at a mid-single-digit revenue growth this year. We think over time that can become a high-growth part of the business subject to unlocking that piece. And then the last thing I'll say is for both pieces, Agentec AI is a significant opportunity. In the airline IT world, you've us go to market with for example virgin australia embed capabilities within chat gpt that's saber technology that is available to every carrier in the world now in the distribution business i think what we've announced for example with paypal and mind trip is a proxy for what you're going to see us do in the market with lots of other agentic technology platforms we think that

will be a significant growth opportunity for the company so does does saber mosaic make you more competitive for new potential new customers or or is there also a motion to go back into your base and transition your existing customers onto the new platform it is very interesting um

about two and a half years ago we made the decision um that we were going to focus our development of sabre mosaic first and foremost on improving the relationships with our existing customers and taking them on that journey so most of the sales and engagement activity has been around our existing customer base we've had pretty good success there um now we're seeing a lot of inbound interest from non-saber it customers and the aim is to begin to grow that but we needed a referenceable customer base in order to take this beyond the confines of saber and that was

really the approach and is there a financial uh impact when your existing customers you move over from your legacy over to Sabre Mosaic? What's the economic impact?

Yeah, the old model is largely a PB model. You're paying per booking or per passenger. It's a weird construct for a technology relationship. You know, you're typically paying license fees or something different. We'd like to move that to more of a value-added or value-sharing agreement. Some airlines are going to be wedded to the PB model. Some are going to be more open in terms of what that looks like. But on the offer side especially, the solutions that we are building and that we have in market which are again all infused with google's vertex and gemini ai capabilities allow significant revenue uplift for the carriers we'd like to be able to share in that so we think there is the opportunity over time to improve the the revenue per transaction or the revenue quality that we have with with customers the other thing is you know how do we sell the broadest spectrum of things that they're looking for versus an all-in approach is you sell componentized technology. So we do think on both a unit basis and a volume basis, there's a revenue uplift opportunity. Yeah. And as we

talked about on our earnings call, as you look this year, we expect revenue per quarter for RIT to be between the range of $140 to $150 million. And as you get to the back part of the year, for a couple of reasons, we expect to see that exhibiting nice trends of growth. One is in the second quarter, we do expect the transition of a lot of the Hawaiian PBs back under the Alaska platform. But also the sell-through of the Sabre Mosaic AI offer products, which is incremental to our existing product offerings, will be additive to our revenue base, particularly as we get through the back part of this year. And we've actually talked about for Air IT this year, which I think is the first year since Kurt and I have been, no matter if we know what it is, we expect revenue growth in the mid-single digits for RIT this year, which is a definitive turnaround from where we've been.

I want to spend a minute talking about gross margins and some of the various pressures on gross margin, which I think is guided to 56%, 57% for this year. Any way to break out, how much is NDC? How much is FX? And then coming back to Agentic, how much is this higher look to book?

So a couple things. The higher look to book, first of all, any of that is going to show up in your hosting line, and that's going to show up in the technology line. As I look at what's impacted margin, there's really a few things that have impacted margin. One is we have won significant enterprise business on the agency side. That's come with significant volumes, but some of it does come with a slightly lower margin. Second, the currency impact has had a very negative impact with the dollar depreciation from an FX standpoint. And then the NDC component's actually been relatively small to date because it hasn't grown that significantly. It only ended this year at 4%. But we do expect it to grow more significantly. We don't break out the piece parts of it, but those are the contributors.

I think Mike has said that we expect to be able to hold that level of gross margin going forward for the foreseeable future.

Yeah. Yeah. Let's talk about the inflation offset program that you mentioned earlier in your opening remarks. You've got this program basically to keep technology and SG&A flat over the next two to three years. And so what are this like, how do you accomplish that? What are the sources of savings?

Sure. So a couple of things. Yeah, as you mentioned, our goal is to keep it roughly flat, you know, with the obviously exception of volume related hosting costs. And so the way we think about it, first and foremost, important to support our growth strategies and our push into our AI, our agentic AI related products and offerings. um and so uh uh with that um as i think about them i'm thinking about what's the best way to

answer this uh well there's the the simple answer is we've said this publicly we're doing three primary things one is we're going to um take advantage of best-in-class geographies from a cost standpoint two is we're leaning into development partnerships we have three is we're dramatically leveraging AI capabilities to improve productivity and throughput of our employee base. One anecdote I will offer in doing this is there are certain places where we're reducing headcount is we've actually increased our engineering resources overall in the last year and we're adding four to five hundred engineers this year. You'll have more engineers a year from now than you do today for the enterprise because we hold R&D relatively sacrosanct in terms of the impact of the business over time. Innovation is fundamental to our ability to grow but we're reshaping this company for not the company we're proud of that we were but the company we want to be going forward in making sure that we have a cost profile that enables us to invest at pace and so the consequences we're going to get more throughput going forward from an engineering and tech standpoint tomorrow than we did yesterday and then we basically as we've said while we're holding cost constant you'll see sgna basically go down a bit this year but be flattish over the couple of years technology will rise slightly but that's all on account of our expectation of volume increases otherwise technology can be relatively constant and that allows our gross profit growth to flow right down which we think is very important given our balance sheet

excellent let's let's talk about free cash flow which you've you've guided to negative 70 million but that includes 60 million of restructuring costs and so sort of putting the pieces together your top line is is growing should you know expect it to grow mid single digits for multiple years your costs we just talked about are going to be um you know relatively flat um maybe some some growth around hosting but you put those pieces together and so we should expect free cash flow to inflect in 2027 like what's the message um particularly to investors that you know, are looking at across your capital structure.

Yeah, so that's exactly right. Our expectations, based on our internal growth strategy, is that bookings, similar to this year, is likely to grow mid-single digits in 2027. With that, we'd see revenue generally growing in concert with that. As we've articulated, we're targeting to keep our technology, except for hosting costs and SG&A, roughly flat. So we expect really good flow through from gross profit to adjusted EBITDA. And then we don't have the repeat of the restructuring cost this year. And so with a growing EBITDA, we would expect to generate more free cash flow, and we would expect it to be positive next year. And then obviously for us, that's very critical, because the most important use of free cash flow for us is to ultimately delever our balance sheet. So we think this creates a really strong path to free cash flow generation in the future and further delevering on our balance sheet.

You've accomplished a lot from a liability management perspective. Your maturities are pushed out. What's left to do, or is there anything left to do on your near-term to-do list?

Yeah, so thank you for the question. I think we're actually fairly well positioned right now. So if we look at how we ended the year, we had $910 million of cash in a balance sheet. Of that $910 million, $98 million is basically to pay off some debt in the first quarter. as a result of the last financing. So we really have $812 million of usable cash on our balance sheet. At the same time, as you just articulated, we have a clear path to positive free cash flow generation. Our next large maturity is until June of 2029. So we think that the best focus right now for us as a company is really focus internally on our growth strategies, support our growth initiatives, focus on execution. We think we're in a really good place right now at the moment and aren't compelled to do anything from a capital structure standpoint. That's great. Any

questions from the audience? Do we have a mic? Thank you. Yeah, a couple of questions. First

one is just around the dynamics on a potential bid for the company. Number one, are you guys going to uh sort of run a process now that you have uh this interest from constellation look for other other bidders uh number two do you think antitrust prevents travel forward or amadeus from from getting involved here and then number three with respect to the capital structure

yeah i would um as i said at the outset i'm not going to comment on rumors or speculation um uh we're very focused on running the business i think we were articulate in the press release that we remain open to appointing consolation to a seat on the board subject to reaching agreement with them. And I would just say, generally, we invite intelligent capital that makes sense for the company and for its shareholders. But that's something that we'll consider only if we receive

it. We're not running an active process today. We're just about out of time. So I want to thank you, Kurt. Thank you, Mike, for the conversation. Really appreciate it.