So I think we're gonna go ahead and get started. I'm Stephen Ju with the UBS, Internet Equity Research Team. I'm joined on the stage by Paul Abbott, who's the CEO of Amex Global Business Travel, and sitting next to him is Karen Williams, who is the Chief Financial Officer. So welcome, guys, and thanks-
Thank you.
for joining us again here in Arizona.
Yeah, nice to be here.
Yeah. Awesome. Awesome. So guess, kind of starting off, at the very top, I mean, in terms of the bigger thesis points, for GBT, I think, the transition from unmanaged to managed travel services, particularly for the SMBs out there-
Mm
... has always been a key part of the overall thesis for the stock. So what do you think is driving the client wins for you, in this segment?
Yeah, sure. Well, yeah, you're—look, you're right. It's very much important part of our growth story.
Yeah.
SME, as you know, is a $900 billion opportunity for us.
Yeah.
And, $300 billion of that sits in what we call managed SME, so either with us or one of our managed travel competitors. But $600 billion of that is what we call unmanaged, so customers that are using OTAs or going to airlines direct. And look, overall, we feel really good about the progress that we're making. I mean, if you go back to 2019, roughly 25% of our business was SME. It's now over 50%. Over 50% of our revenues-
Yeah
... over 50% of our profits. You look at our net new wins for the last 12 months, 2/3 of our wins are coming from SME. Then actually, 30% of those are coming from that unmanaged kind of segment.
Yeah.
So really good momentum in SME, good momentum in managed and unmanaged. In terms of what's driving the wins, you know, I think the number one factor is that we are both a leader in software and services.
Yeah.
Midsize companies don't want to necessarily complicate the procurement of travel or expense. They want to go to one provider to get the software and services they need to manage travel and expense on a global basis, and we can provide that.
Yeah.
You know, we can provide both the software and the services proven at scale globally. The next thing that's really important is that huge segment, $900 billion, you know, it... There's a lot of different customers with different needs.
Yeah.
What we've done is set up a range of solutions that target different needs.
Yeah.
We have a turnkey spend management platform, as we call it, for much smaller customers, that's pure digital acquisition, and that's Neo1. Then we have in Egencia, we have the leading B2B SaaS platform for managing travel.
Yeah.
That's a fantastic way of getting customers to move from unmanaged to managed in a fantastic solution that has got great, you know, intuitive customer experience.
Yeah.
And then, of course, we have more targeted solutions like VIP, White Glove Service and Ovation-
Yeah
... or the ability for people to design their own travel programs with GBT Select.
Yeah.
So if you really want to scale in that segment, you've got to offer choice because there's a range of different needs out there.
Got it. Now, $900 billion, that's a pretty large TAM, so that's, of course, going to invite lots of competition as well. So, what do you think is setting you apart from whatever the competitors might be doing, so you can go out and win that business?
I mean, it's, it's interesting. It depends who we're competing against.
Yeah.
You know, and as I said, it starts with our market position as a leader in both software and services. When we're competing with some of our sort of traditional established travel management companies, we tend to have a really big advantage from a product and technology perspective.
Yeah.
Many of those competitors, they don't even own their own software platforms.
Right.
It's so important. I mean, 77% of the time, our transactions are coming through digital channels.
Yeah.
So if you don't control the software, you don't develop the software, you don't manage the software, you're not actually, you know, running the customer experience 77% of the time. So we made it a very clear decision back in 2019 that we really want to scale our own software platforms, both Egencia and Neo, and now 60% of the transactions are on our own software.
Yeah.
So that gives us a serious competitive advantage against those established travel management companies. You have some newer entrants that do own and develop their own technology, but they just don't have anywhere near the depth and breadth that we have in services.
Yeah.
Frankly, they're not proven at scale on a global basis. We occupy this really, I think, unique position with leadership in both software and services.
Yeah.
It puts, I think, real distance between us and the competition.
Yeah. In terms of the content as well, do you feel like you have really differentiated content in terms of the availability of, I guess, inventory, et cetera?
Yeah. I mean, if you look at SME customers, 40% of the time-
Yeah
... they're using our negotiated content.
Okay.
Our negotiated rates. Obviously, those are savings that they just wouldn't be able to get if they were going to an OTA or an airline direct.
Yeah.
That's a very important part of the story.
Understood. Understood. Now, switching to the larger corporate travel partners, in terms of the demand environment, I think fourth quarter is typically a little bit of a lull, for you guys, a seasonally slower period. But, you know, what are you seeing in terms of, you know, the overall transactions or trends or like observable, you know, factors for October as well as November?
Yeah, you're right. Q4 is, you know, a lower volume quarter for us with the holiday season.
Yeah.
You know, there have been some industry data points out there that there was, you know, a slowdown in October, and we did see our year-over-year growth rate come down-
Yeah
... in October. But honestly, it's a complicated month to dissect, October, because we did see a pretty significant step-up last year in the recovery rate.
Yes
... with the pent-up demand that came back in October. So we know we're growing off, you know, a higher base. We also did see an impact, certainly in those first two or three weeks of October from-
Yeah
-the conflict in Israel, we saw that impact in international travel. There were also some other, you know, isolated issues. There was the auto workers strike and-
Okay
and the strike in the film industry, and, you know, we have customers in both those industries.
Right.
It's kind of a complicated month to dissect. We did see it actually pick back up again-
Yeah
-in, in the early part of November, which is encouraging. You know, I think when we announced Q3 earnings, we said that, our revenues, we guided to the higher end of the revenue range we put out there.
Yeah.
Which is 23% year-over-year growth. We still feel very good about delivering on that number.
Okay.
You know, so on the Adjusted EBITDA, we guided to closer to the midpoint, which is $375 million. And again, we feel very good about delivering, you know, on that number. So, you know, well, I think we just need a few more weeks to play out to see what the outlook looks like for 2024.
Yeah. Well, I almost don't wanna ask you about 2024, because, I mean, there's not enough data points out there. But I guess you must have had some amount of conversations with your larger clients-
Mm-hmm
... maybe some of the smaller clients as well, and in terms of, you know, what their spending intentions are for next year.
We have.
Uh, yeah.
Yeah, we have.
So, like, what, what do those conversations yield for you?
Yeah, every quarter we go out-
Yeah
... to our top 100 customers, and we ask them about their spend predictions for next year.
Yeah.
Coincidentally, there were two other surveys done at a similar time. There was actually one from GBTA and actually one from Morgan Stanley, and all three surveys are in almost exactly the same range.
Yeah.
Ours was 88% of customers said their budget for next year for travel would be the same or higher.
Yeah.
So actually, the customer data is quite robust for next year in all three of those surveys. You know, I think, and that's encouraging, given that, you know, the macro political and economic situation is still, you know, a fair amount of uncertainty out there.
Yeah.
Yeah, the customer data actually remains pretty robust.
Right. I mean, just to throw a bit of a curveball in there, you know, I think, in terms of exogenous factors that you can't control, right? But I guess in the news, there are some alarming data points about potential volcanic activity in Iceland, and I think the last time a major eruption happened, there were some air travel impact. So, is that like a larger corridor for your clients? And, you know, I don't know if you saw a lot of impact back then in terms of any sort of, like exogenous, like force majeure type activity, but just wondering, like, if that's a potential thing that we should be worrying about.
You know, last time there was a volcanic eruption in Iceland, I was actually stuck here in Phoenix for a week.
Ah, okay.
There are worse places to be stuck.
There's worse places to be, yeah.
It's actually pretty nice.
Yeah.
But, now, look, travel is clearly a complex global industry, and it has a degree of volatility. But, you know, that, actually, when that incident did happen, it really only impacted volumes for 7-10 days-
Yeah
... as we remember. So, you know, that's not something that I'd be concerned about, you know, as I look out to 2024. The way we look at 2024, you know, is to focus on the things we can control.
Yeah.
For us, net new wins is the most important factor.
Yeah.
We're confident next year we'll get 4 or 5 points of growth just from the wins that we've already got in the bag this year.
Yeah.
And then on top of that, I think what you'll see is the market grow, you know, at or above GDP. If you go back over decades-
Yeah
... you know, business travel pretty much grows, you know, slightly above GDP.
Yeah.
Where GDP will land next year, I'll leave that up to you and the experts-
Yeah, well, you know.
- at UBS.
Yeah.
But that's how we-
Yeah
... think about the growth algorithm for 2024.
Understood. Understood. So, reduction of accounts receivable days and the favorable working capital changes have been a big part of how you got to being free cash flow positive, you know, during the third quarter. You know, so I was wondering if the lower DSOs are sustainable and, you know, is any of this driven by mix, you know, larger versus smaller clients in terms of their payment terms?
Yeah, sure. The first thing I would say is it's absolutely sustainable, and really what this comes down to is the Egencia working capital initiative.
Yeah.
We talked about those on the last couple of earnings calls. Essentially, as you think about Egencia coming into GBT and as we're integrating them in, into the business, there is opportunity there from a payment term perspective. One of the bigger areas that we've focused on is form of payment.
Yeah.
And so, true, you know, GBT, many of the payments or the majority of payments have been on card, which you would expect, obviously, coming from a payments company. But with Egencia, what we saw as we started to integrate, was that much more of the payments were on invoice.
Yeah.
So that has really created an opportunity for us. You saw in Q2 that there was $20 million that came from these initiatives, with a further $50 million in Q3.
Yeah.
We've guided to a further $50 million-$70 million in the fourth quarter. I would expect, as we go into 2024, that you could probably assume 40%-50% of that benefit will carry over as we continue to integrate and take those opportunities.
Gotcha. Now, you know, as an eternal optimist, I always want to think about through putting more, gross profit dollars on effectively, you know, flat or similar OpEx dollars and, you know, driving leverage. So a lot of the costs for you are humans and dealing, you know, from a customer service perspective, et cetera. So I think you've done some cost reduction initiatives throughout the course of this year. You know, how do you think you're positioned in terms of, you know, being able to support the incremental, transactional dollar? How much more do you think you can support with your current OpEx levels?
So, productivity is a big focus, as you say, for us. And certainly, you know, as you say, 50% of our cost base is cost of sales.
Yeah.
And so as you think about that, as we drive more volume, we drive more revenue, but there will need to be more cost to support that.
Sure.
Where we really focus is back to this mindset around the productivity and efficiency.
Yeah.
We are very focused in terms of the Adjusted EBITDA margin. In Q3, you saw us report a 9-point improvement year-over-year.
Yeah.
You know, another data point as you think about our full-year guidance, we're expecting, as Paul said, 23% revenue growth, but single-digit OpEx growth. There is a real focus around that, and as we've talked previously about, you know, getting to a margin of 20% Adjusted EBITDA.
Yeah.
We would expect a 1-point improvement every year-
Yeah
... really taking us to mid-20s Adjusted EBITDA over time. And that is really balanced with also us investing in terms of the long-term growth. And so there are huge opportunities for us from an investment perspective, as we think about our software platforms, Neo and Egencia-
Yeah
... and as we think about SME and the opportunity and the sales and marketing engine there.
Yeah.
And so we're balancing that, but because of that, that productivity mindset, and focus, we expect to see that improvement.
Gotcha. Speaking of productivity, it's like it's impossible to avoid headlines around AI these days, right? So, can you talk about what kind of efforts that you have within GBT and, you know, particularly in regards to, you know, the costs, cost of sales that you brought up earlier, you know, especially being, you know, customer service and needing to keep, you know, just deal with your customers on the voice channel. So is there an opportunity there to, like, realize some efficiencies there?
Yeah.
Yeah.
I mean, we've been using machine learning and AI for several years in both the Neo and Egencia teams-
Yeah
... the engineering teams. That's how we've got to 92% of our volume, you know, that, that's on Egencia goes through the digital platform. So, you know, working with machine learning and, and, and data and AI is something that the teams, you know, have, have, have been doing, you know, very well. We also acquired a small AI company about 18-24 months ago, specializes in travel AI.
Yeah.
The point that we're at now is very, very interesting because we have the capability, but now with generative AI and large language models, the speed and scale of change, you know, is radically changing.
Yeah.
The use cases that we can execute, you know, are just becoming, you know, far more powerful. And so we think that actually it's companies like us that are uniquely positioned to really benefit here-
Yeah
... because we've got the software and engineering capabilities in-house to develop and execute AI, but we've also got a large services business, as you said.
Yeah.
40% of our cost is people in the servicing channel.
Yeah.
It can radically improve the productivity in that channel. So we've actually expanded the AI team now and put it into three verticals. So we have an AI team with three teams. One focuses on servicing and automating different parts of the service experience, whether that's automating chat, whether it's automating email, whether it's improving functionality at the point of sale.
Yeah
... for the travel counselors. The second vertical is finance. There's some really interesting use cases in terms of improving the, productivity, particularly within FP&A.
Yeah.
And then the third is actually product and tech-
Yeah
... because, you know, AI can actually write, you know, simple and even sometimes not so simple code for you. So those are the three areas that we're set up really to transform, you know, with AI, and it's very much part of our cost transformation plan for 2024 and 2025-
Yeah
... is to use that to drive the kind of efficiencies that Karen was talking about.
Yeah. You were free cash flow positive in the third quarter, and I know we're not guiding to 2024 quite yet, but you've dropped some breadcrumbs along the way in terms of what we should expect into next year. Like I said, eternal optimist, I wanna believe in free cash flow positive next year, for the entirety of the year also. And, you know, your cash balance continues to build, right? So from a pure sort of capital allocation perspective, is it safe to assume that your priority will remain the repayment of debt, or should we be thinking about the opportunities to add more assets to the portfolio and keep Eric really busy?
Short term, our focus is Egencia.
Yeah.
So, in 2024, we will complete the integration of Egencia into the business. And then, you know, investing for the longer-term growth, as I talked about earlier, in terms of our own software platforms, but also in the sales and marketing engine. And then M&A.
Yeah.
As and when the opportunities arise that are appropriate. But then to your point around debt, absolutely. And, you know, we again, you know, are looking at the level of debt you-- and focused in terms of our leverage.
Yeah.
You've seen, you know, back in end of 2022, we're above 8x Net Leverage Ratio, and, and in Q3, below 3, and we expect to continue to see that step down. So that is a, that is an important focus for us.
Yeah. I mean, you've been fairly acquisitive. I guess, without... Obviously, you can't name specific names, but what is the typical profile of a company that you will be looking for? Is it technology? Is it a particular vertical? Because some of the acquisitions you've done in the past have been targeting certain verticals as well. So, you know, if you had infinite capital, like, what would you be looking for in terms of potential businesses to bolt on to your current portfolio?
Yeah, well, the way we look at M&A is that-
Yeah
M&A is not a strategy in its own right. M&A is a way of accelerating the strategy that we've put in place.
Yeah.
We've actually just developed a new five-year strategy for the business.
Yeah.
You know, we took a step back and said, you know, "What is it we really want to achieve between now and 2028?" We are a B2B software and services company, and we want to be a top quartile performing B2B software and services company. And so if you look at all of our peers, other B2B software and services companies, in order to be in that top quartile, we need to be delivering in excess of 15% TSR. And so we have a base plan on average and over time-
Yeah
... to deliver in excess of 15% TSR. That's our base organic plan without M&A.
Yeah.
So the most important thing for us is focus on executing that plan, deliver top quartile returns, and then we have M&A as an overlay to that.
Yeah
to accelerate that plan. So, as you said, we've done 9 transactions since the creation of the joint venture in 2014. We've got a proven track record of executing on M&A. We, I think, shared $106 million of synergies on Egencia. $60 million of that was this year. We've already said we're gonna exceed the $60 million number that we communicated for this year. So feel very good about the execution of the synergies on Egencia. Feel very good about the integration of Egencia. So I think we have a proven track record. We know we can deliver synergies, and I think if you look, as Karen mentioned, into 2024, by the end of Q1, we'll have really completed the vast majority of that integration.
As you get into the second half of 2024, we definitely would have the capacity, you know-
Yeah
... to look at further M&A, and we have the proven track record of delivering on the synergies. So it's definitely an important part of the plan. You know, I think the profile of the targets is changing a little bit because we feel really good about the product and technology set that we now have in place. You know, with Neo1, with Neo, with Egencia and GBT Select, we've got a really, really strong product offer in the marketplace. And so I think there may well be some, you know, small tuck-in capability acquisitions-
Yeah
... but it really is now more about building scale on the platform that we have and with the solutions that we have. And so I think looking at businesses that can increase scale and generate significant synergies and help us accelerate that TSR plan is really what we'd be looking for.
Gotcha. Now, bringing it back to questions around Egencia, and I guess the overall sort of makeup of where the travel transactions are coming from. Of course, internationally, of course, when you land a multinational corporation, like UBS or any of the other larger clients, there is gonna be regional volume there. But I'm just wondering, for Egencia, which has always, you know, back when it was part of Expedia, it's been more, might have been more U.S.-centric, but I'm just wondering if there's low-hanging international opportunities that you are observing in terms of driving adoption, particularly for Egencia or any other products that you have?
Yeah, look, absolutely. I mean, Egencia operates in nearly 30 countries. You know, more broadly, we can supplement that and service customers, you know, in 80-90 countries.
Yeah.
One of the things that the client management teams do is that they obviously look at the customers, they look at the markets that they're in, they look at the markets where we have the business-
Yeah
... and the markets where we don't, and we have a pretty systematic approach to consolidating that volume onto the platform.
Yeah.
Most of the customers want that as well. They want to be able to have global control and global visibility over their travel spend.
Right.
you know, it's a win for us, and it's a win for the clients.
Gotcha. Now, let's fast-forward, you know, a year from now, and we're sitting here once again at the technology conference, and it's 2024. What do you think we'll be talking about, you know, in terms of what you've accomplished over the trailing twelve months, and what do you think we'll be talking about in terms of what, what you're optimistic about for 2025?
Yeah, look, I think for us, it's about executing on the plan that we've put in place, and that means delivering continued share gains. It means continuing to drive strong growth in the SME segment-
Yeah
... in both, you know, managed and unmanaged. It means continuing to drive more and more of our volume onto our software platforms that, you know, creates a better experience for clients but also helps improve margins. You know, it, it's very important for us to continue to deliver on the free cash flow and the margin expansion objectives that, that Karen mentioned. I think what you'll also see next year is a significant improvement to our Underlying EBITDA, not just the Adjusted EBITDA-
Yeah
... because you're gonna see a big reduction in the level of adjustments-
Yeah
... and a reduction in interest expense, a reduction in restructuring and integration costs. So I think when we come back here in a year's time, we'll not just be talking about strong, adjusted EBITDA growth. We'll be talking about even stronger EBITDA growth and even stronger free cash flow.
Sounds great to me. All right.
That's the plan.
That's the plan. Awesome. Well, thanks, Paul, thanks, Karen, for joining us, and we'll wrap it there.